Date: Monday, July 3, 2023
Source: Sourcing Journal
Representative Earl Blumenauer believes that prospects are “extraordinarily positive” that Congress will be able to make progress on addressing the de minimis “loophole” that allows overseas e-tailers like Shein and Temu from side-stepping tariffs and avoiding customs scrutiny sometime this year.
Speaking to Scott Paul, president of the Alliance for American Manufacturing, on the trade group’s podcast, “The Manufacturing Report” on Thursday, the Oregon Democrat described the enthusiasm that both sides of the aisle have mustered for the issue, which has become yet another flashpoint in the ongoing trade brawl between China and the United States.
Blumenauer told Paul that de minimis was originally conceived so someone who traveled overseas wouldn’t be tripped up filing customs reports for a souvenir that they purchased, say a bottle of perfume or a handbag.
The term derives from the legal concept “de minimis non curat lex,” Latin for “the law does not care about trifling things.”
“De minimis was just that—it was a minimal amount and wasn’t worth the time and energy for the person,” the House Committee on Ways and Means chairman said. “And it was more trouble and it was worse for the federal government and Customs and Border [Protection]. But that changed, and it changed dramatically.”
In 2016, Congress raised the threshold from $200 to $800, just as Shein started winning hearts and wallets in the United States. What resulted, Blumenauer said, was an “explosion” in direct sales to U.S. consumers under the de minimis provision. Today, some 2 million packages a day flow through the country’s borders under the exemption.
“They are shipped directly for under $800,” he said. “They’re exempt from taxes, tariffs, following rules and regulations, product safety, forced labor—they’re all exempt.”
A recent congressional report estimates that Shein and Temu, the most-downloaded shopping apps in the nation, account for 30 percent of de minimis shipments into the United States, amounting to some 600,000 per day or 210 million a year. Lawmakers say that because both companies have been linked to potential forced labor in China’s Xinjiang Uyghur Autonomous Region, the concern is that they might be using the loophole to avoid serious scrutiny under the Uyghur Forced Labor Prevention Act, or UFLPA. They also worry that the exemption is disadvantaging American businesses and American-made products.
“Some of these companies that are willing to be creative in the invoicing…they work to get it under $800,” Blumenauer said. “Then you see what’s happened: ready-made-to-order cheap apparel that has just developed into a major industry. We’re approaching three-quarters of a billion products a year and it has overwhelmed Customs and Border [Protection]. Even if they wanted to do something they couldn’t.”
The congressman is one of the architects of the Import Security and Fairness Act, versions of which were introduced in the House and Senate earlier this month. The legislation seeks to prevent imports valued under $800 from non-market economies and those on the U.S. trade representative’s priority watch list, such as China, from using the de minimis provision to avoid paying taxes or fees, as well as require customs to gather more information on such shipments.
“If we stop having a gusher of product from China, there’s less of a pressure on the Customs and Border [Protection],” Blumenauer said. “It would cut out [a] significant amount of this product so that they can catch up with where they need to be. There are examples where, in some cases, there are packages that weigh 500 pounds that declare a value of $1. I mean, it’s just ludicrous. There’s no excuse for it.”
Blumenauer didn’t quite agree with Paul’s suggestion that Chinese shopping apps like Shein and Temu burst onto the scene just as the UFLPA went into force in June 2022. The former was launched in Nanjing as a purveyor of wedding dresses, eyeglasses and teapots, dubbed SheInside, in 2008, though it would be another eight years before it started manufacturing Shein-branded clothing. The latter, a subsidiary of Shanghai-founded PDD Holdings, which also owns the popular Chinese online marketplace Pinduoduo, debuted in the United States in September 2022.
“Notwithstanding the Uyghur forced labor provisions, I think they would continue to exploit this loophole,” Blumenauer said. “But the combination of the two, I think makes it extraordinarily troubling. There’s no question that they are using this loophole to escape being accountable for forced labor in China.”
Shein maintains that it doesn’t have suppliers in Xinjiang and that it has “zero tolerance” for forced labor. It says that it has implemented a “robust system to support UFLPA compliance,” including a code of conduct, independent audits, tracing technologies and third-party testing. Temu, which the congressional report criticized for doing “next to nothing” to keep its supply chains free of forced labor, is looking to hire compliance officers.
For Blumenauer, however, “fixing” the “gaping loophole” that is de minimis remains necessary.
“It is an opportunity for us to protect our values, to have equal enforcement of the law, to be able to make sure that we’re protecting the American consumer,” he told Paul. “This is an opportunity for us to…make Customs and Border [Protection] more effective and less overwhelmed and provide some equity in the marketplace.”