Chamber, Express Shippers Oppose de Minimis Bills
The ability to import low-value packages without paying duties is a benefit to consumers and businesses, the U.S. Chamber of Commerce and other trade groups that use de minimis are arguing, as they lobby against bipartisan efforts to curtail de minimis eligibility.
Rep. Earl Blumenauer, D-Ore., simplified his bill (see 2306150061), added a Republican co-sponsor and found bipartisan sponsors for a Senate companion bill. But the thrust remains the same -- shipments from China would have to pay all duties, no matter how inexpensive the item entering the U.S.
Sen. Bill Cassidy, R-La., along with a fellow Republican and a Democrat in the Senate, have a more complex proposal that would bar China, Vietnam, Cambodia, Malaysia and others, and would lower the dollar threshold to match trading partners' levels (see 2306140061).
John Drake, Chamber vice president for infrastructure and supply chain policy, said the Chamber still dislikes the revised Blumenauer bill.
Roughly $250 billion worth of Chinese imports annually are subject to an additional 25% tariff under Section 301; another $112 billion worth of imports are subject to an additional 7.5% tariff. None of those tariffs is collected when packages enter under de minimis. However, Blumenauer doesn't focus on the forgone revenue as much as the difficulty for CBP examining such a huge volume of packages to determine if counterfeit goods or goods made with forced labor are among them.
"CBP is on the record saying there's a fallacy that de minimis is a big loophole. De minimis shipments, they are screened," Drake said in a telephone interview. "There's simply a lot of misunderstanding about de minimis, how it works."
Mike Mullen, Express Association of America executive director, said, "CBP has a long history of interdicting illicit goods, and we should let them do their job. I spent four years at CBP, and I saw it from the inside, and I reject any argument that's based on CBP incompetence. They are not incompetent, they are very good at what they do."
Drake agreed, saying CBP has "the tools to screen out bad actors" already. "Proponents of this legislation really have not made convincing arguments about the scope of the problem."
Despite de minimis advocates' skepticism, they're not sure their arguments will win the day. A trade group source who did not want to be quoted by name due to the sensitivity of the issue was anxious about whether a proposal eliminating Chinese exporters' eligibility for de minimis could pass. "I think the momentum behind making some sort of change to de minimis is growing rapidly," he said. "For a very long time, a lot of proponents of de minimis felt like de minimis sold itself."
Mullen, who spoke to International Trade Today while at the recent American Association of Exporters and Importers annual conference, said: "Congress recognized that [de minimis] was a significant benefit for the United States. And we shouldn't be taking any steps to reduce it. If there are problems with shipments coming in illicitly, let's address those problems. Let's not allow counterfeits. Let's make sure we're keeping the drugs out of those shipments. There are all kinds of ways to do that without just trying to turn the spigot off for one country or a group of countries.
"And trying just to turn off that spigot is totally impractical for the American economy. And I also believe it's going to get us into trouble with the WTO because I think it's a violation of the WTO's most favored nation principle."
Drake said de minimis has a higher profile in Congress these days than it really warrants, given its share of Chinese imports. There were $536 billion in imports from China last year, and de minimis entries were "a drop in the bucket," he said.
According to CBP data, 58% of the 2.3 billion in de minimis entries came from China in fiscal year 2021; the total value of all de minimis shipments that year was $39.9 billion. CBP did not report value by country, but if Chinese packages account for $23 billion, that's still only 4% of total imports from China.
"There's a lot of eyes in Congress looking" at de minimis, Drake said. "It's increasingly becoming a proxy for a lot of anxieties about our relationship with China."
Mullen said it's just misguided to think that Chinese de minimis packages are all illegitimate. "We all work very hard to provide all the data that's required to show that those shipments are legitimate," he said. He complained that the data elements Blumenauer calls for in his bill are either already included in the manifest, or, in the case of a 10-digit HTS code, are less precise than a link to the online sales listing or a detailed description.
"The [Section] 321 data pilot, in particular, is giving CBP the opportunity to gather data from other parties in the supply chain, not just the carrier submitted manifest, and through that, CBP is attempting to make this effort to get data all the way back to the origin of the goods, sometimes the origin of the raw materials. And CBP does have the capability to do that. And if they get these regulations passed, they'll be able to task these other parties in the supply chain to provide the data that they uniquely owned, and then they can get a great deal of transparency into where these goods come from," Mullen said. "The key thing is that CBP has to develop the ability to consolidate this data that they're getting from various different parties into one risk assessment package."
Both Drake and Mullen questioned the administrability of setting a different de minimis threshold for each country, to match that country's de minimis level (or level at which the value added tax is collected).
Matching the de minimis threshold for each country that exports to the U.S. would be a "huge burden" for CBP, Drake said.
Mullen said, "It would be very complicated to enforce. And we just don't think, fundamentally, that we should be allowing other countries to determine what the de minimis level is in the United States."
If CBP has to process each $40 entry like it does a container full of goods or a semitruck full of goods, that would be costly for the government, they say.
"How many additional customs officers do we need to process these 700 million entries a year? I mean, that's really going to be expensive. And, again, I come back to this point that it's much better to use your real resources to target it against what the problem is," Mullen said. "The problem is in insufficient data on the vast majority of shipments that are compliant. The problem is trying to identify those anomalies in the data that would give you a clue that hey, maybe something's wrong here.
"They can X-ray it, they can open it up and inspect it. And they do that routinely. They do that with thousands of shipments a night in the express industry. And we catch the bad ones."
One of the opponents' arguments against restricting the use of de minimis is that it would be a tax increase on companies and individuals who import goods this way.
But for an individual importation from China, the taxes could be so burdensome that it would not make sense to buy directly from China. For apparel, a frequent example cited by de minimis opponents, the Section 301 tariffs are just 7.5%, though that doesn't include the most-favored-nation duty rate, which averages in the mid to high teens, depending on the garment. So, a $50 shipment of a couple of garments might have $11 in duties, $25 for a merchandise processing fee, and $25 to pay a customs broker. Shoppers won't pay more than twice as much for the items, so the business model would have to change. Either companies like Shein would send goods in bulk to U.S.-based warehouses and then individual orders to U.S. customers from that hub (Shein is already beginning to do this), or, Mullen said, firms would move "production facilities to other countries, moving them to Vietnam or Bangladesh or someplace else, and producing the goods there."
Mullen expressed confidence that these sorts of bills will not become law as Congress works on a customs modernization package. "There's enough reasonable people in Congress that they're going to look at this and say: What kind of action would really be effective in helping CBP deal with the challenges of e-commerce? And there are challenges associated with e-commerce. But the key to solving those challenges, I think, is to work more closely with the private sector parties that are involved in e-commerce shipments, and figure out a way to ensure we're targeting all those shipments in the most effective way."