Coffee wasn’t the only thing that was brewing one morning on Guam. U.S. Customs agents spotted something strange at a warehouse – larger than usual shipments of low-grade coffee from Colombia going in one end of the building. And coffee in new bags marked “Grown on Guam” coming out the other end. Guam, a U.S. territory, had its own separate customs regime back then, so the Colombian coffee entered Guam free of duty. But, as a U.S. territory, Guam could ship its own products duty-free to the U.S. mainland. Thus a scam was born, shipping foreign coffee to Guam, relabeling it as a Guam product and sending it duty-free into the United States. The only problem was, at the time at least, that somebody at U.S. Customs knew that Guam didn’t grow coffee in commercial quantities.
South Korea is gearing up for the same sort of thing. With the South Korea-European Union free trade agreement coming into effect next month and the South Korea-US FTA potentially on the horizon (if the troglodytes at either end of Pennsylvania Avenue don’t kill it again), the Korean Customs Service (KCS) is wisely anticipating trouble. Not from coffee necessarily, but from most any product that would derive an advantage from appearing to be a Korean product heading for the EU or the United States when the tariffs come down. KCS will focus on companies with a history of transshipping products, rather than on trying to catch every possible individual shipment. Transshippers are well known through customs and shipping documentation and there are many legitimate reasons for transshipping products, such as consolidating shipments to a single consignee. The documentation provides a baseline for what is normal in their business activities, making it easier to spot shipments that don’t fit the norm. KCS will monitor transshipments in Korea at each step of the process: entry, unloading, transportation, shipping, and departure.
While I strongly favor any agreement that brings down trade restrictions, one has to recognize the downside of trade agreements whenever they create a situation in which trade conditions for all sources are not scrupulously the same. Free trade agreements, by definition, create less-than-favorable competition for any party that is not in the agreement. That, in turn, leaves plenty of room for unintended consequences and provides incentives for some smooth operators to attempt fraud – such as intentionally mislabeling the origin of their products to gain an advantage. The preferred solution is to have trade agreements open to all, creating most-favored-nation conditions (i.e., every country is the most favored nation), but that is not always obtainable – witness the Doha Round. Then you go to bilateral or multilateral agreements while acknowledging that this is a “second-best” solution. At least Korea realizes what is coming and is taking steps to stop the fraud.
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Guam has a fine climate for coffee and it is a fairly common plant on the island. People roast it for home use, but there really isn’t any commercial production that I am aware of. Maybe some local coffee shops have Guam coffee.
Saipan, just to the north of Guam, does export coffee though I don’t think they have sufficient local supply to sell a purely Saipan coffee. Marianas Coffee Company imports beans from the world’s major coffee regions and then roasts them and packages them on Saipan. Since there is processing, this is not transshipment, but a genuine Saipan product. I have had their coffee and recommend you grab a cup if you ever have the chance.
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