Administration Initiating de Minimis Rulemaking to Carve Out Section 301 Goods

In an announcement Sept. 13, the White House called a rulemaking to require information submissions and replace the Type 86 and Section 321 pilots, a rulemaking to remove goods subject to Section 301 and other special tariffs from de minimis, and a long-pending Consumer Product Safety Commission rule "new actions to enforce our laws and protect American consumers, workers, and businesses by addressing the significant increased abuse of the de minimis exemption."

While activists have been arguing that the damage from de minimis is so extreme that the executive branch should shut it down and not wait for Congress, both the White House and House Ways and Means Committee Chairman Rep. Jason Smith, R-Mo., acknowledged that the executive action would take longer to change entry processes in the small package space than if Congress acted.

The White House said that the administration would be issuing a proposed rule prior to leaving office to end de minimis eligibility for Section 301 goods. In the announcement, it added: "but legislative action by Congress to make this statutory change would help to achieve this important reform more quickly."

Smith said in a statement that the rulemaking "would directly mirror Ways and Means Committee-passed legislation designed to prevent China from evading those tariffs.

“Given that the Biden Administration has finally embraced Republicans’ common sense reforms to prevent China’s abuse of the de minimis threshold, I am hopeful that House Democrats will work with us to codify this policy into law and make other common-sense reforms to enforce our trade laws and secure our supply chains. Reform of our de minimis law is an urgent priority, and legislation can end China’s abuse much more rapidly than any lengthy rulemaking process by the Executive Branch could."

The previous rulemaking process to carve out Section 301 goods in 2020 drew concerns from then-Executive Assistant Commissioner for International Trade Brenda Smith, who said in November 2020 that the lack of digitized trade processes at the U.S. Postal Service would make it difficult to separate 301 goods from other low-value imports (see 2011100034).

The National Foreign Trade Council, which is lobbying against restricting de minimis but welcomes new information submission requirements, argues that carving out 301 goods would shift shipments "into the postal environment that is less transparent, has historically been used to traffic fentanyl, is harder for CBP to monitor, and requires more manual resources for effective enforcement."

However, the DHS secretary now says that shrinking the volume of de minimis entries will "improve our ability to protect communities from fentanyl and its precursor chemicals."

A press release from DHS released in concert with the White House announcement said that, through the end of July, 89% of cargo seizures were de minimis shipments; 97% of narcotics seizures were in that channel.

Acting CBP Commissioner Troy Miller said modernizing trade laws is needed to be able to most effectively crack down on those abusing the de minimis environment, but these rules would be a "critical first step."

The press release laid out what Congress should pass to help enhance CBP's enforcement:

• Add a $2 user fee for de minimis packages, to help fund more staff and equipment
• Increase penalties to "incentivize the private sector to self-police their supply chains for narcotics risk"
• Require the 10-digit HTS Code (which is also expected to be addressed in rulemaking)
• Exclude "import sensitive products" from de minimis entry.

The import sensitive products, as defined in law, cover most textiles and apparel, footwear, work gloves and some electronic articles, glass and steel items. Those items would not be allowed to enter duty-free in small packages no matter their country of origin, unless a free-trade agreement covered the goods.

Chinese e-commerce app Temu and Singaporean fast-fashion giant Shein are frequently named as the biggest exploiters of de minimis, as U.S. consumers place orders with them and receive goods directly from China a few weeks later.

Shein didn't respond to a request for comment from International Trade Today. Temu, which only began selling to U.S. consumers two years ago, said: "Temu's growth doesn't depend on the de minimis policy. It's built on our strong supply chain and efficient business model. We're open to changes in policy that help consumers, and as long as they're fair, we don't think they'll affect the competitive landscape. These kinds of changes can also help ease concerns and show the value that everyone brings to the table."

The House Select Committee on China Chairman John Moolenaar, R-Mich., praised the administration's actions but said that Congress must tackle de minimis reform soon. He referred to a June 2023 interim report from the committee that said Temu and Shein are likely sending "nearly half of all de minimis shipments to the U.S. from China," and said their sales are likely 30% of all de minimis shipments.

Senate Finance Committee Chairman Ron Wyden, D-Ore., whose bill includes the "import sensitive" language DHS says it wants, said Congress should act on something like his bipartisan bill.

American Apparel and Footwear Association CEO Steve Lamar responded by saying AAFA members will advocate "for updated trade and customs policies that ensure fair and effective enforcement, while facilitating trade with trusted partners so that only safe, authentic, responsibly made items are sold in the United States."

The National Council of Textile Organizations has been leading the charge to exclude apparel from de minimis. CBP has not said what proportion of de minimis shipments is clothing, but the White House statement said that 70% of Chinese clothing is covered by Section 301 tariffs. It also said 40% of all imports are subject to Section 301 duties.

NCTO CEO Kim Glas said in a statement that the administration needs to "expedite rulemaking to the fullest extent possible." She also noted that the administration said legislation is needed to fully address de minimis, and asked for Congress to act this year -- and said her group agrees.

"We greatly appreciate the administration calling for the global exclusion of trade sensitive items -- including textiles and apparel -- from de minimis treatment given the sensitivity of the sector and rampant cheating. If enacted and effectively enforced, this will help significantly bring down the volume of these goods to better detect fentanyl and other illicit and dangerous products and help U.S. Customs and Border Protection (CBP) do its important work in the field with our law enforcement officers. Time is of the essence because there is so much at stake."

The only one of the three rulemaking processes that has already seen a notice published for comment is the one that would require a certificate of compliance in a central registry for consumer goods that are subject to Consumer Product Safety Commission rules (see 2402090043). That final rule, which is expected to take effect 120 days after it's published, should be published later this fall, according to an administration call with reporters explaining the actions.

Some commenters on the proposed rule said including de minimis shipments in this compliance regime is unworkable, because individual consumers would have no way to file the document. But the rule said that "a consumer purchasing or receiving products for personal use or enjoyment" would not be expected to file the certificate.

Rep. Earl Blumenauer, D-Ore., who has been leading negotiations with Smith on a de minimis restriction bill, issued a joint statement with Rep. Rosa DeLauro, D-Conn., that said "this is only the first step and does not negate the need for Congress to act on a comprehensive solution."

Rep. Richard Neal, D-Mass., the top Democrat on Ways and Means, slammed Republicans in a statement, calling their Section 301-goods carve-out bill not as hefty as Blumenauer's bill, which proposed removing all Chinese goods from de minimis. "Until my Republican colleagues can put solutions over political talking points and fearmongering, and get tough on the fentanyl and guns that we know are coming into the country from China, the American people will be worse off."