Sparked by the growth in E-Commerce, De Minimis Rules are Under Review
In the US, most goods valued under $800 are considered a de minimis and can be imported duty-free under informal entry procedures. The de minimis level, long held at $200, was increased to $800 as part of the Trade Enforcement Act of 2015 (TFTEA). Filers can enter these goods under a Section 321, Enhanced 321 (pilot program) or a Type 86 entry without producing an entry summary. As a broker, we generally use a Type 86 entry which allows us to enter low-value shipments for release while also having the ability to transmit the information required by the FDA, EPA, or other governmental agencies (OGA). Goods not eligible for the de minimis include products that require payment of an excise tax or goods under an active ADD/CVD case but goods under a Section 301 or 232 tariff are eligible. The use of these types of entries, once relatively uncommon outside of courier services, has exploded primarily due to the growth in e-commerce. Customs reported a robust 21% increase in de minimis filings from FY 20 to FY 21.
As with all good things, the US is finding that some parties are abusing the system resulting in revenue losses over and above what would have been expected. Under the rules, only one of these filings is allowed per day per importer, but Customs has found that this level is being routinely violated. There are also reported circumstances where a larger shipment of goods from a third-party country enters into a fulfillment center in a neighboring country like Mexico or Canada and then is split into small shipments. These shipments are then sent to the US to be entered duty-free under the de minimis. With additional tariffs of up to 25% under Section 301 and 232 actions, the revenue repercussions are substantial.
It is not lost on Congress and retail industry groups that there is a large disparity between the allowed de minimis level granted by the US and that which is available from our trading partners. The de minimis level in Canada is $20; in EU countries, the average is around $190; and in China, it is about $8. Chinese retailers SHEIN and Temu, sellers of low-cost clothing, have been using the more generous de minimis to expand their footprint in the direct-to-consumer market in the US. Their growth has caught the attention of some members of Congress who are concerned about the impact this has on US retailers. Other large Chinese sellers are also taking advantage of the opportunities available in the US market, which led CBP’s Deputy Executive Assistant Commissioner to dub de minimis as “China’s free trade agreement.” When calculating trade deficits, the US does not report the value of goods that enter under a de minimis, which creates an underreporting of the true trade deficits with certain countries.
In addition to the revenue loss, there is concern that a high percentage of these goods may not be compliant with Customs regulations on counterfeit goods, contraband, and forced labor safeguards, all hot-button issues in trade. Most imported goods are not inspected upon entry, and the large and growing number of low-value entries provides a fertile ground for nefarious actors. The expanding trade in low-value products comes at a time when established US importers are under growing and strictly enforced regulatory requirements. A prime target of the Uyghur Forced Labor Prevention Act (UFLPA) is cotton grown or processed in the Xinjiang Uyghur Autonomous Region (XUAR).
In Congress, the House Select Committee on the Chinese Communist Party (CCP) has expressed concern that Chinese retailers such as SHEIN may be entering goods under the de minimis which are produced wholly or in part from entities in the XUAR. Most cotton grown in China is produced or processed in the XUAR, and the importation of these products is prohibited due to the forced labor concerns. Last year Rep Earl Blumenauer (D-OR) introduced legislation to prohibit goods from non-market economies which are also on the USTR’s Priority Watch List (think China) from entering under a de minimis.
In June , Senators Tammy Baldwin (D-WI) and Bill Cassidy (R-LA) introduced the De Minimis Reciprocity Act of 2023 which aims to close loopholes in de minimis that other countries are using to their advantage. On a positive side this legislation would require more information on low value shipments entering the US and use revenue proceeds to establish a fund for reshoring industry from China. Less positive is a provision to reduce our threshold to match the threshold provided to US exports for specific counties, a move that would make these entries more complicated and less certain for the importer. A provision which we find to be blatantly unfair and unwarranted is allowing only express carriers to facilitate de minimis entries into the US. The filing of these shipments should not be limited to only express companies, these should be open to all licensed brokers. Hopefully, legislation can be drafted that fairly addresses the issue without further complicating the importing process. Remember that the vast majority of importers are US-based companies that provide local jobs.
A reasonable de minimis is healthy for business and can be a benefit to US consumers; it also reduces the number of entries that must be filed and reviewed for shipments of nominal value. However, when there is a wide disparity in minimis levels, the result can be harmful to US companies. What domestic companies really are seeking is a level playing field.
Sam McClure, LCB
Director of Compliance & Customs Services
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Meet one of CVI’s Customs Brokerage & Compliance experts, Sam McClure:
Sam serves as Director, Compliance and Customs Services for CVI. He serves as CVI’s corporate compliance officer and is responsible for overseeing all aspects of our Customs related services, including growth.
Sam started his career in 1977 with Waters Shipping Company in Charlotte, NC. He began as a document runner, soon becoming a leader in operations and customer service for the branch. Sam, along with Linda Masten, founded Central Carolina Shipping Inc. in 1983 as an independent Customs Brokerage firm where he served as Vice President for 26 years. Sam and Linda grew Central Carolina into a successful and highly respected member of the Carolinas trade community. When Charlotte opened their local chapter of the IFFCBA Sam was part of the organizing group and he headed the Customs committee for several years. Sam obtained his Customs Brokers License in 1984 and remained with Central Carolina until the company was acquired by CVI in 2009.
At CVI, Sam has held several positions in both the operations and sales departments. As an expert in U.S. Customs regulations, Sam is often called upon on to provide guidance to importers on Customs compliance issues. He makes regular presentations on matters related to importation and broader regulatory compliance.
– Sam McClure, LCB, Director of Compliance & Customs Services, CVI
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