There’s been plenty written about the ecommerce boom of the COVID-19 era fueled by stuck-at-home U.S. consumers eager to spend all that stimulus cash — as well as the traffic jams at ports overwhelmed by the flood of products headed to America’s shores from overseas. But a perhaps lesser-known wrinkle within the ecommerce dynamic is an import rule — the De Minimis Exception — that has been a boon for overseas companies appealing to the American shopper’s appetite for a great bargain.
While this has been good for business for those in other countries, it’s made it difficult for U.S. companies to compete with the bottom-basement price points — and made it easier for nefarious actors to take advantage of the loophole in other ways.
However, momentum in Congress and a recent announcement from the Biden Administration aims to even the playing field by making some major de minimis changes.
What is de minimis?
According to Thomson Reuters Practical Law, de minimis is a “legal term meaning too small to be meaningful or taken into consideration; immaterial.”
As the International Trade Administration (ITA) notes, “De Minimis Value, as the threshold is known, varies from country to country. Items imported into the United States are subject to duty when the value is over USD 800.”
U.S. Customs and Border Patrol (CBP) says that although the de minimis threshold was previously $200, it was raised to the current $800 threshold with the enactment of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) in 2016 — and that the de minimis rule is housed within Section 321:
“As a result of TFTEA provisions, CBP raised the De Minimis value, i.e., value of a shipment of merchandise imported by one person in one day that generally may be imported free of duties and taxes, from $200 to $800 per shipment. … Section 321, 19 USC 1321 is the statute that describes de minimis. De minimis provides admission of articles free of duty and of any tax imposed on or by reason of importation, but the aggregate fair retail value in the country of shipment of articles imported by one person on one day and exempted from the payment of duty shall not exceed $800.”
The Alliance for American Manufacturing (AAM) says that although the de minimis threshold is “designed to simplify the imports process by allowing packages worth $800 or less to enter the country duty-free” — think tourists and vacation souvenirs — some importers have exploited the regulation in recent years, as noted in a WSJ article the organization cites.
Reining in de minimis
But the Biden-Harris Administration aims to curtail the exploitation of de minimis, recently announcing new actions related to the regulation.
“Today, the Biden-Harris Administration is taking new actions to enforce our laws and protect American consumers, workers, and businesses by addressing the significant increased abuse of the de minimis exemption, in particular China-founded e-commerce platforms, and strengthening efforts to target and block shipments that violate U.S. laws,” the September 13 White House Fact Sheet says. “Over the last ten years, the number of shipments entering the United States claiming the de minimis exemption has increased significantly, from approximately 140 million a year to over one billion a year. This exponential increase in de minimis shipments makes it more challenging to enforce U.S. trade laws, health and safety requirements, intellectual property rights, consumer protection rules, and to block illicit synthetic drugs such as fentanyl and synthetic drug raw materials and machinery from entering the country.”
The Administration notes that most of the shipments entering this country claiming the de minimis exemption originate from “several China-founded e-commerce platforms, putting American consumers at risk, undercutting American workers and businesses, and resulting in the importation of huge volumes of low-value products such as textiles and apparel into the U.S. market duty-free.”
In addition to not being subject to duties and taxes, the Fact Sheet says de minimis shipments “enter the United States with less information than other imports,” enabling the potential for nefarious activities.
“The growing volume of de minimis shipments makes it increasingly difficult to target and block illegal or unsafe shipments,” the Administration says. “Foreign corporate giants who exploit the de minimis exemption do so for a variety of reasons. Some companies exploit the de minimis to conceal shipments of illegal and dangerous products and avoid compliance with U.S. health and safety and consumer protection laws. Other foreign entities use it to circumvent U.S. trade enforcement actions intended to level the playing field for American workers, retailers, and manufacturers.”
Next de minimis steps
The Administrations says it plans to use its executive authority to “stop the abuse of the de minimis exemption,” and also calls on Congress to “pass legislation this year to reform the de minimis exemption comprehensively to further protect American consumers, workers, and businesses.” Actions the Administration says it will take to reduce de minimis import volumes include the following.
New rulemaking to reduce de minimis volume and strengthen trade enforcement
“The Administration intends to issue a Notice of Proposed Rulemaking that would exclude from the de minimis exemption all shipments containing products covered by tariffs imposed under Sections 201 or 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962,” according to the Fact Sheet — which also notes that Section 301 tariffs “currently cover approximately 40% of U.S. imports, including 70% of textile and apparel imports from China,” and that “some e-commerce platforms and other foreign sellers” are getting around these tariffs by claiming the de minimis exemption.
“If finalized, these goods would no longer be eligible for the de minimis exemption,” the Administration says.
New rulemaking to improve accountability and enforcement in de minimis shipments
“The Administration intends to issue a Notice of Proposed Rulemaking regarding the entry of low-value shipments that will propose to strengthen information collection requirements to promote greater visibility into de minimis shipments,” according to the Fact Sheet.
The Administration says this proposed regulatory action will:
- Require “specific, additional data for de minimis shipments – including the 10-digit tariff classification number and the person claiming the de minimis exemption – which will improve targeting of de minimis shipments and facilitate expedited clearance of lawful de minimis shipments”
- Clarify “who is eligible for the administrative exemption” and require filers to “identify the person on whose behalf the exemption is being claimed”
- Help CBP “protect consumers from goods that do not meet regulatory health and safety standards and protect U.S. businesses from unfair competition against imported goods that would otherwise be charged duties or restricted from entry”
Final Rule to prevent de minimis shipments from circumventing safety standards
“Consumer Product Safety Commission (CPSC) staff intend to propose a final rule requiring importers of consumer products to file Certificates of Compliance (CoC) electronically with CBP and CPSC at the time of entry, including for de minimis shipments,” according to the Fact Sheet.
The Administration says this would “strengthen CBP’s and CPSC’s ability to target and block unsafe products from entering the U.S. market and would help prevent foreign companies from using the de minimis exemption to circumvent consumer protection testing and certification requirements.”
The Fact Sheet also describes “comprehensive legislative reforms” that are needed, with additional details provided.
“With today’s announcement, the Administration is using executive authority to stop the abuse of the de minimis exemption,” the Fact Sheet says. “The Administration also calls on Congress to pass legislation this year to reform the de minimis exemption comprehensively to further protect American consumers, workers, and businesses.”
Congressional actions
Congress has been busy of its own accord, with actions that include the following.
Import Security and Fairness Act
June 15, 2023: U.S. Senators Sherrod Brown (D-OH) and Marco Rubio (R-FL) and U.S. Representatives Earl Blumenauer (D-OR-3) and Neal Dunn (R-FL-2) introduced the Import Security and Fairness Act. The bipartisan, bicameral legislation would “ensure low-value shipments from non-market economies, such as China, are no longer exempt from paying any duties, taxes, or fees to the U.S. Government.”
A bipartisan letter
February 26, 2024: Senators Rick Scott and Sherrod Brown penned a bipartisan letter “urging the Biden administration to take executive action to close a key loophole that foreign competitors like China exploit to avoid paying duties and fees to unfairly compete with American businesses, known as the ‘de minimis” rule.’”
FIGHTING for America Act
August 8, 2024: “Wyden, Lummis, Brown, Collins and Casey Release Bipartisan Legislation to Halt the Flood of Illicit Packages into the United States.” U.S. Senator Ron Wyden, D-Ore., Sen. Cynthia Lummis, R-Wyo., Sen. Sherrod Brown, D-Ohio, Sen. Susan Collins, R-Maine, and Sen. Bob Casey, D-Pa., released bipartisan legislation to help CBP “stop the flow of illicit goods, including fentanyl, counterfeits, and products made with forced labor, into the country by tightening import requirements for low-value packages.”
According to the announcement, the “Fighting Illicit Goods, Helping Trustworthy Importers, and Netting Gains (FIGHTING) for America Act” would “tighten the rules for de minimis entry and help CBP more effectively stop unlawful imports. The legislation would ensure that Chinese corporate giants cannot use the de minimis process to avoid paying tariffs on textiles, shoes and apparel or evade trade penalties imposed because of Chinese trade cheating.”
The statement also noted that reducing the “overall volume of low-value packages entering under de minimis would lower carbon emissions, promote enforcement of U.S. trade laws, and level the playing field for U.S. manufacturers and workers.”
And that it would additionally improve oversight of the de minimis entry process by:
- Requiring CBP to collect “more information about commercial packages”
- Facilitating the “targeting and seizure of illicit goods”
- Increasing “penalties for bad actors”
