Date: Friday, March 11, 2022
Source: Sourcing Journal
Since 2015, the United States has allowed overseas shipments valued under $800 to come into the country free of tariffs, duties or taxes.
This ruling sounded like a convenient way to save customs officials a lot of time processing paperwork and doing inspections. But raising the so-called de minimis regulation, which went from $200 to $800, has spawned a flood of goods flowing into the U.S. from primarily China.
Critics point to Chinese e-commerce companies, like Shein, making their living selling goods to U.S. customers at rock-bottom costs—all made possible by avoiding taxes and tariffs. It also helps Amazon and other online companies get around tariffs since so much of what they sell comes directly from China.
To address this problem, U.S. Rep. Earl Blumenauer (D -Ore.) is on an aggressive campaign to patch up the de minimis ruling. In January, he introduced the Import Security and Fairness Act, which would bar non-market economies, primarily China, from exploiting this import loophole.
It also would close the de minimis loophole for offshore distributors and warehouses, requiring U.S. Customs & Border Protection to collect more information on all de minimis shipments.
Blumenauer’s legislative proposals are now part of the House of Representative’s America COMPETES Act, which is expected to be passed in upcoming months.
Blumenauer, the chairman of the House Ways and Means Trade Subcommittee, reiterated the need for this legislation during a March 9 webinar organized by Rethink Trade in Washington, D.C.
He urged the U.S. Senate to include a similar provision in its U.S. Innovation and Competition Act, which is also currently under consideration. Both legislative bodies would have to agree to change the de minimis regulation for it to take effect.
“This goes back a century when de minimis was a dollar or two because it wasn’t worth the time or energy for customs to catch a tourist with a bottle of cheap perfume or a knock-off wallet. But it has risen steadily,” the congressman said. “The $200 threshold going up to $800 unleashed all sorts of unintended consequences. I don’t think people had a clue of what was in store. When Congress took that action in 2015, it was just administrative efficiency. But what it did was create a loophole you can drive an air cargo plane through.”
That fact was reiterated by Kim Glas, the chief executive and president of the National Council of Textile Organizations, which represents the U.S. textile industry. Many U.S. textile manufacturers have been hurt by the cheap clothing and textile imports coming in under the $800 de minimis rule.
“By pressing a computer button, millions of e-commerce purchases have made their way to our doorsteps from numerous countries around the world not paying duties,” Glas said. “We don’t know where these products are coming from, if they were made with forced labor or a result of intellectual property theft.”
The United States has the second-highest de minimis threshold in the world. At the top is Uzbekistan, whose de minimis rule allows imports of duty-free goods valued under $1,000. The European Union limits its de minimis imports to under 150 euros ($165), but China is stingy with its de minimis law, which allows only goods valued under $7 to qualify.
U.S. customs has lost a lot of revenue because of the $800 rule. “We know from customs that the amount of these shipments are increasing exponentially,” said Lori Wallach, the Rethink Trade director who moderated the webinar. “There were 636 million packages that came into the United States in fiscal year 2020 and 800 million [packages] in fiscal year 2021.”
Of major concern is that many of these products are being made in China by forced labor in Xinjiang, where a mountain of evidence indicates the Chinese government is forcing Uyghurs and other Muslim minorities to work under slave-like conditions.
Skirting U.S. customs inspections makes it easier for foreign companies to steal U.S. intellectual property, make inferior products that do not adhere to stricter U.S. regulations and offer no recourse if a product quickly falls apart.
“There are no legal consequences for shipping anything de minimis into the USA,” said Bob Margevicius, executive vice president of Specialized Bicycle Components, a company in Morgan Hill, Calif. that designs, manufactures and markets bicycles, bicycle components and related products.
Margevicius said he sat inside the office of a general manager in China running a counterfeit bicycle operation producing unsafe carbon bicycle frames, fork components, fake helmets that crumbled on impact and wheels and tires that were not in compliance with safety standards. “They were not only making bicycles but sunglasses, toys, household goods, sporting goods and any other product they could ship de minimis,” Margevicius said.
He believes the $800 limit should be lowered to $200, which currently is not part of Blumenauer’s proposal, and that the country of origin be clearly marked on all packages and invoices.
However, opponents to the de minimis legislation point out that the ruling would increase prices for consumers and domestic manufacturers. They also believe it would violate the U.S. commitment to the World Trade Organization, particularly its “Most Favored Nation” clause, which restricts member countries from discriminating against member countries, like China, in applying tariffs—except under certain defined circumstances.
But Blumenauer believes this conversation needs to expand to the U.S. Senate. “There has been some reluctance [by the Senate] to take this up,” he said, “but I think we can get this moving.”