From Wikipedia: De minimis is a Latin expression meaning “pertaining to minimal things”, normally in the terms de minimis non curat praetor. (“The praetor does not concern himself with trifles”) or de minimis non curat lex (“The law does not concern itself with trifles”) De Minimis, in this case is the definition of a goods exchange of little or inconsequential value. At the time in history when this was originally being chiseled into stone, imagine a government totally distracted by implementing strategies to come out of the Great Depression, with a litany of things to be concerned with much less the tariff rate on small individual packages coming into the states. This provision, found in Section 321 of the Tariff Act of 1930, has unintended consequences, like so many other tariff policies from decades ago that are still in place today. This one definitely needs dusting off and a re-do.
De minimis is a term that refers to a threshold below which certain goods are exempt from import duties or taxes. However, in the landscape of international trade, it has become a contentious issue for the United States. Those “bad actors”, and even some, not so bad, but willing to take advantage of a loophole have found a way around the tariffs. This so-called loophole of allowing goods with a fair retail value of $800 or less to enter the U.S. without paying an import tariff has become a monster that Customs needs to find a way to deal with conclusively. We are getting farther and farther away from the intended current $800 per person per day.
It’s hard to get a handle on the exact number, but in fiscal year 2023, over 485 million de minimis shipments entered the U.S representing billions of un-taxed goods flooding into the market. Obviously, this is having a tremendous negative impact on the domestic market. It’s not just various countries taking advantage of the loophole by misrepresenting the fair value of their merchandise, but the really bad actors who are shipping drugs like fentanyl adding to a much bigger picture inclusive of a health crisis. De Minimis accounts for roughly 90% of all illegal narcotics, agricultural goods, and counterfeit seizures by Customs.
There has been some recent government action via a bipartisan coalition formed to address the issue. Legislation needs to protect national security, and public safety at a minimum. One would think that as aggressive as we have been regarding anti-dumping and countervailing duty, this De Minimis issue would have been squashed decades ago just based on someone paying attention to small businesses shouting from the rooftops how unfair it has been. Heck, De Minimis in Mexico is $50, Canada it is $150, and China’s de minimis limit is 50 yuan, or US $7.90. Guess who the biggest culprit is when it comes to De Minimis abuse in the states…that’s right, China.
When and why did the U.S. get to $800? In 2016, Congress passed an amendment to the Tariff Act via the Trade Facilitation and Trade Enforcement Act (TFTEA). Among other changes, the TFTEA increased the de minimis threshold from $200 to $800, intending to reduce the burden on CBP for smaller imports. These changes were implemented with the goal that CBP would save more money and resources than would be gained through the tariffs on these goods. However, Congress did not foresee the coming dominance of ecommerce.
E-commerce plays a substantial role in the use of the de minimis exception because these transactions create a preference for direct to the consumers doorstep. The sheer volume of sales generated from Amazon alone from China contribute to a large segment of inbound De Minimis monthly. Over 40% of Amazon sellers are based in China, and one can be assured that direct from manufacturer to consumer, 99.99% are De minimis shipments.
Let’s do some simple math just for fun based on the China stats. Currently Amazon is pulling in approximately $150 billion in sales quarterly. That means 40% of $150 billion, or $60 billion entered and paid no tariff, quarterly. Annually, that $240 billion!! No tariff assigned, zilch, goose egg, nada, nothing. How is that fair to local Amazon U.S. based sellers? It isn’t. This is just one example of a major ecommerce player benefiting from De Minimis, as there are several to add to this equation. China based Shein and Temu are shipping thousands of cheap products from China to the US daily without paying import duties. How is it that Shein, commanding 50% of fashion sales in the U.S. paid $0 tariffs in 2022 when it’s competitor, The Gap, played by the rules and paid $700 million. This example in itself is a good reason to blow things up. Not protecting our own.
However, like so many trade policy issues, there is another side to the story. According to John Pickel, Senior Director of International Supply Chain Policy at the National Foreign Trade Council , “If Congress does manage to roll back the Section 321 import tax break, the burden would be placed directly on businesses and passed along to the consumer. An extra $50 surcharge would be added to individual goods currently using de minimis. On average, De Minimis shipments run about $55. Those items would incur a merchandise processing fee of about $30 and a brokerage fee of about $20, increasing the new total for a product that is currently $50 to $105. What’s more, small-to-medium size businesses will most likely need to hire outside contractors to process the mountains of paperwork that new import requirements would create.”
The solution is not to eliminate De Minimis, but to bring it back down to a reasonable threshold. In the meantime, the single shipment is the key element in the loophole that some are even taking advantage of within FTZ and warehouses in the U.S. Bringing bulk product in under the guise of the program, and then selling directly to consumers via ecommerce, skipping the tariffs. Unfortunately, they are also able to skip Forced Labor issues that could be part of a supply chain, and that’s something CBP is taking a hard look at stopping.
The government action previously mentioned in this article: Congressman Earl Blumenauer, chair of the trade subcommittee of the House Ways and Means Committee, Neal Dunn (R-Fla.) and Senators Sherrod Brown (D-Ohio) and Marco Rubio (R-Fla.) introduced the Import Security and Fairness Act, aimed at stopping the abuse of the de minimis loophole. This bill would ban shipments from countries that are on both our “Priority Watch List” (meaning they do not seriously enforce IP laws) and our non-market economies list from receiving ‘de minimis’ treatment at our ports. As in most cases, the law is aimed at China, which is overwhelmingly the largest source of imports and counterfeits entering the U.S. under De Minimis.
