How a Trade Loophole May Be Letting in Chinese Imports Made With Forced Labor

Date: Wednesday, May 31, 2023
Source: Wall Street Journal

There’s a big problem with the U.S. effort to stop imports from China of products made with forced labor. Or rather, there are 446 million little problems.

That’s the number of packages that entered the country from China in fiscal year 2021 that were valued at less than $800 a shipment and therefore, under a category known as “de minimis,” pay no tariffs and require little paperwork.

Most imports enter in giant container ships, then go through formal entry where content and country of origin are recorded, a 10-digit Customs classification code is assigned, and tariffs are determined. Either a U.S.-based importer of record or a customs broker is responsible for the shipment, and liable if rules are broken.

But for de minimis—from Latin, and meaning too minimal to be trifled with—there’s none of this.

“If there’s no customs broker involved, then the foreign vendor just makes these assertions,” noting the package’s value and describing the item in a few words for the shipping manifest, said Charles Benoit, the trade counsel for the Coalition for a Prosperous America, a trade group that represents U.S. manufacturers and has advocated for tariffs and trade penalties against China.

This has emerged as a significant hole in efforts to stop the import of goods made with forced labor in western China’s Xinjiang province, the home of the minority Uyghur people. It has led to support in the House of Representatives to address what many members consider a loophole.

Human-rights groups say the Uyghur and other peoples have been detained and forced to work there by authorities. In 2021, with broad bipartisan support, Congress passed the Uyghur Forced Labor Prevention Act, under which goods from Xinjiang are presumed to be made with forced labor and blocked from entering the U.S. (China has criticized the law and denies that human-rights violations and forced labor occur in Xinjiang.)

While Xinjiang is a major supplier of polysilicon, the basic building block of solar panels, it is the region’s role as a cotton supplier that is at issue with de minimis.

Two Chinese clothing companies, Shein and Temu, sell primarily online. Their trendy, low-cost apparel is often shipped directly from China to a U.S. customer under the de minimis category. Online marketplaces such as and eBay also allow thousands of third-party sellers, often little-known Chinese companies, to sell directly to U.S. consumers.

Even these figures are an undercount because they are based on imports whose shippers voluntarily submitted additional data. Jeff Ferry, an economist at the Coalition for a Prosperous America, looked at the earnings statements of major U.S. online marketplaces such as Amazon and eBay to gauge the presence of Chinese shippers using de minimis on their platforms.

Ferry estimates the de minimis goods coming in from China could be valued at $188 billion for 2022. The actual figure might be higher, he said. Amazon, for example, doesn’t report total third-party revenue from its platform, only commissions and fees earned from third-party sellers.

A spokeswoman for Amazon said the company complies with all laws and regulations and that it expects the sellers of all products in Amazon stores to comply with the company’s supply-chain standards that prohibit forced labor. A spokeswoman for Shein said the company has a compliance program aligned with U.S. trade laws and noted the company has grown to have over 1,000 U.S.-based employees. Ebay and Temu didn’t respond to requests for comment.

Supporters of de minimis say the legislation has greatly facilitated the growth of e-commerce and reduced the administrative burdens on low-value imports. But tariff dodging was already a worry for some in Congress, and their concern has grown over the inability to apply provisions of the Forced Labor Prevention Act on so many packages.

Rep. Earl Blumenauer (D., Ore.) told reporters on Wednesday that Customs and Border Protection, which clears imports into the U.S., is “overwhelmed: They have no idea what’s coming in and have no way of keeping up.”

He added that there is “no doubt” that a number of these imports are made with forced labor. Last year, Bloomberg sent Shein garments to a laboratory, which tested the origin of the cotton in the products and concluded some were made with Xinjiang cotton.

Blumenauer said he is planning to introduce legislation that would strip nonmarket economies on the watch list of the U.S. Trade Representative—currently, that’s Russia and China—of the ability to export to the U.S. under de minimis.

For 2022, 685 million de minimis packages were shipped to the U.S. The share from China hasn’t been released, but from 2018 to 2021, between 60% and 80% of de minimis shipments arrived from China or Hong Kong.

CBP does sometimes inspect de minimis packages. In 2021 it seized 115,000, or about one in 7,000. About half were for intellectual-property violations such as counterfeiting, or for narcotics. Still, because hundreds of millions of imported packages are omitted from U.S. trade statistics, we simply don’t know the value of apparel entering the country in the de minimis category.

De minimis is written into law—Section 321 of the Tariff Act of 1930—so Congress would have to act to restrict, change or enforce the rules. This would inevitably affect millions of shipments that have absolutely nothing to do with Xinjiang cotton. But there is bipartisan sentiment that the law isn’t working as intended.

Rep. Mike Gallagher, a Wisconsin Republican who chairs the House Select Committee on China, said this month in a video, “the de minimis exception wasn’t supposed to be a loophole for foreign businesses looking to skirt human-rights legislation and taxes.”

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