The Swiss government is telling its domestic companies that they have not, in fact, found a clever way to skirt President Donald Trump\u2019s tariffs by routing goods through the tiny neighborhood country of Liechtenstein.<\/p>\n
Switzerland and Liechtenstein share a 102-year-old customs treaty<\/a> allowing the 25km-long principality to share the Swiss economic area. But that agreement, which makes it nearly impossible to measure trade between the two closely linked countries, does not mean they are tariffed similarly. While U.S. tariffs on Swiss exports swelled to 39% in Trump\u2019s latest round of tariffs<\/a>, levies on goods from Liechtenstein are only 15%. The Swiss State Secretariat for Economic Affairs (SECO) has said Swiss firms cannot pass off goods as Liechtensteiner by routing them through the principality because they would still be recognized as Swiss in origin.<\/p>\n \u201cSuch circumvention via Liechtenstein is fundamentally impossible. The United States applies its non-preferential rules of origin when levying additional tariffs,\u201d a SECO spokesperson told Fortune in a translated email statement. \u201cFor a product to be considered \u2018Liechtenstein origin,\u2019 it must either be entirely manufactured in Liechtenstein or [have] undergone sufficient processing.\u201d<\/p>\n Liechtenstein head of government Brigitte Haas said last week there\u2019s concern, though improbable, of Swiss companies looking to Liechtenstein for ways to dodge import taxes, but the risks are high.<\/p>\n \u201cThere\u2019s a fear that there might be some circumvention, but those are subject to a 40% tariff,\u201d Haas said in an interview<\/a> with Swiss outlet SRF. \u201cI hardly think anyone would want to go through that.\u201d\u00a0\u00a0\u00a0\u00a0<\/p>\n Trump\u2019s transshipment crackdown<\/p>\n Last month, the White House imposed a 40% penalty tax<\/a> on \u201ctransshipments,\u201d or the movement of goods to an intermediate destination, meant to disincentivize this particular behavior.<\/p>\n The Trump administration is aware that countries with lower reciprocal tariff rates than its neighbors are incentivized to reroute their products, according to Robert Lawrence, Albert L. Williams Professor of International Trade and Investment at the Harvard Kennedy School. For years, China has used Mexico and Vietnam, among other countries, as transshipment bases prior to exporting goods to the U.S., according to a Brookings Institute report<\/a> from June. These transshipments are having meaningful impacts: As China\u2019s trade surplus with the U.S. decreases, it has been completely offset by the increase in its trade surplus with other trading partners, the report found.<\/p>\n While the transshipment penalty was meant to address China, Lawrence told Fortune, it would apply to any country engaging in the behavior\u2014despite some experts arguing the order lacks key details<\/a> that would help enforce it.<\/p>\n \u201cIt was really important with the response to China,\u201d Lawrence said. \u201cBut there\u2019s always this incentive to arbitrage between countries who are close to one another but have differentiated tariff treatment.\u201d<\/p>\n High stakes in Switzerland<\/p>\n