De Minimis Reform Gains Momentum as Forced Labor Concerns Mount

Date: Monday, June 19, 2023
Source: Sourcing Journal

A bicameral, bipartisan group of U.S. lawmakers is making another go at closing a loophole that it says gives e-commerce retailers an unfair trade advantage.

On Thursday, Senators Sherrod Brown (D-Ohio) and Marco Rubio (R-Fl.) and Representatives Earl Blumenauer (D-Ore.) and Neal Dunn (R.-Fl.) reintroduced the Import Security and Fairness Act, which seeks to prevent imports valued under $800 from non-market economies, such as China and Russia, from utilizing the de minimis provision to skirt duties, taxes or fees to the U.S. government. The legislation would also require Customs and Border Protection to gather more information on such shipments, including their country of origin and the identities of their importers.

“This loophole is essentially a backdoor way for competitors like China to ship goods into the U.S. without paying the tariffs and other taxes and fees they owe,” Brown said. “Ohio workers should not be forced to compete with foreign competitors that cheat. Our bill would stop Chinese companies from abusing our trade laws to undermine Ohio businesses and their workers.”

Critics of the de minimis threshold also say that it allows e-tail juggernauts like Shein and Temu, which dispatch their packages directly from China, from evading scrutiny from customs officials under the Uyghur Forced Labor Prevention Act (UFLPA). The law, which has been in effect for nearly a year, imposes a rebuttable presumption that any product with a nexus to the Chinese province of Xinjiang is the result of forced labor and therefore inadmissible to the United States.

A Bloomberg investigation last year uncovered traces of Xinjiang cotton in some Shein items purchased on separate occasions. This week, a Tel-Aviv-based supply-chain intelligence firm said it found at least 10 items made or sold by Xinjiang businesses that are available in the United States through Temu.

“The de minimis loophole is a threat to American competitiveness, consumer safety, and basic human rights,” said Blumenauer, whose original version of the bill failed to pass Congress last year. “It is used by primarily Chinese companies to ship over two million packages a day into the United States. It puts American businesses at a competitive disadvantage while flooding American consumers with undoubtedly harmful products. There is virtually no way to tell whether packages that come in under the de minimis limit contain products made with forced labor, intellectual property theft, or are otherwise dangerous. It is time to close this loophole once and for all.”

Kimberly Glas, president and CEO of the National Council of Textile Organizations, which represents the interests of U.S. textile manufacturers, said that the “gaping loophole” allows more than 2 million shipments a day to enter the U.S. market duty-free and largely uninspected, undermining the competitiveness of domestic manufacturers and workers.

“It also endangers American consumers by allowing tainted products like those made with forced labor and counterfeits to land on our doorsteps,” she said. “We look forward to continuing to work with Senator Brown and Senator Rubio on their legislation to address this serious problem.”

Rubio has been a vocal opponent of Shein. Last week, he wrote to his colleagues on Capital Hill to ask them to join him in holding the Singapore-headquartered company “accountable” for its “trade tricks” and “crimes.” Shein is able to offer such a cornucopia of products at “rock-bottom” prices not because of any particular competitive advantage, but because it “steals intellectual property, infringes copyrights, exploits U.S. trade law and uses fabric linked to Uyghur slave labor,” he said.

“Yet, Shein products have so far avoided punishment and scrutiny,” Rubio said. “In part, that is because Shein ships small packages direct-to-consumer using a trade loophole known as de minimis entry. Shein abuses this entry category to avoid customs duties and inspections on its unethically produced products. Shein’s exploitation of de minimis entry prevents scrutiny under UFLPA, cheats taxpayers of customs revenue, and undercuts American competitors that play by the rules.”

Shein has maintained that it has no manufacturers in the Xinjiang region and that it’s committed to respecting human rights and complying with local laws in the markets in which it operates, including the United States. Temu did not respond to a request for comment.

More than half (59 percent) of American voters support reforming the de minis law to include shipments valued under $800, according to recent polling conducted by Morning Consult for the Alliance for American Manufacturing, a nonprofit founded by American manufacturers and the United Steelworkers in 2007. A majority of those same voters—87 percent—want the government to clamp down on unfair trade practices.

“The existing $800 threshold undermines trade enforcement actions designed to level the playing field for American workers,” said Scott Paul, the organization’s president. “Furthermore, customers are put at risk, as Shein and other brands like Temu take advantage of this trade loophole to ship counterfeits, dangerous products, and goods produced with forced labor through U.S. customs undetected.”

“Voters want de minimis reform,” he added. “It’s time for Congress to act.”

The new bill comes on the heels of Senators Bill Cassidy (R-La.) and Tammy Baldwin (D-Wis.) De Minimis Reciprocity Act of 2023, which they introduced Wednesday to “stop Communist China and other countries from abusing U.S. trade laws that allow small dollar imports into the U.S. duty free.”

Cassidy and Baldwin’s proposal would bar Chinese exports from using the de minimis channel, as well as reduce the threshold for other imports to an amount that matches the threshold other trade partners use, ensuring “reciprocity and increasing transparency at our borders.” If signed into law, the bill would also require the use of revenue proceeds to establish a fund for reshoring manufacturing away from China.

“A trade loophole is allowing Chinese companies to import goods in the U.S. with no oversight—letting them bring in cheap, counterfeit goods that undercut American manufacturers and traffic drugs into our communities,” Baldwin said. “Our bipartisan bill will close this loophole to create a level playing field for our Made in America manufactures, curb the illicit drugs like fentanyl from coming into the country, and help ensure Americans are not supporting goods made with forced labor.”


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