Changes may be coming to the “de minimis” exception under Section 321 of the Tariff Act of 1930, as amended, which allows goods valued less than $800 to enter the United States free of duty and taxes, and generally free from formal review, when shipped to individual consumers.
Senators Sherrod Brown (D-OH) and Marco Rubio (R-FL) and Representatives Neal Dunn (R-FL) and Earl Blumenauer (D-OR) introduced the Import Security and Fairness Act (“the Act”) on June 15, 2023, the most recent of several legislative efforts proposing changes to the “de minimis” threshold. The Act would make goods sourced from perceived adversarial nations ineligible for de minimis treatment under Section 321 of the Tariff Act of 1930, as amended. Specifically, the Act targets countries that are both (i) a nonmarket economy (as defined by the Tariff Act) and (ii) listed on the United States Trade Representative’s (USTR) Priority Watch List. Notably, as of June 2023, only China and Russia meet both criteria. Accordingly, in practice, the Act would require a formal importation process for all small Chinese and Russian goods, likely exacting a heavy toll on top of the existing Uyghur Forced Labor Prevention Act (UFLPA) and U.S. sanctions regimes.
However, the Act would affect all “de minimis” shippers, despite its emphasis on China and Russia. Under section three of the Act, Customs and Border Protection (CBP) would be required to collect information on every de minimis shipment entering the United States, regardless of their country of origin, under new regulations to be promulgated by the Treasury Department. Collected information would include a shipment’s description of goods, transactional value, and the identity of the shipper and importer, among other requirements. The Act would also impose civil penalties ranging from $5,000 to $10,000 for violations of reporting requirements.
Some importers and small and medium-sized enterprises have expressed concern about these proposed changes. At a February 2023 Senate Finance Committee hearing on trade modernization, private sector witnesses defended the existing de minimis exception, and argued that changes to de minimis rules would unduly burden their businesses.
However, UFLPA and recent congressional rhetoric on China demonstrate considerable momentum and appetite to increase administrative burdens on Chinese imports that may outweigh these concerns. Moreover, since CBP’s April 2023 Trade Facilitation and Cargo Security Summit, which featured several discussions on the potential for illicit goods to enter the United States and data on the uptick in de minimis shipments from China, many lawmakers have grown to perceive de minimis shipping as a necessary and uniquely Chinese loophole to close.
For reference, Congress increased the current de minimis threshold from $200 to $800 under the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). Following the change, the volume of de minimis shipments increased from approximately 410 million shipments in fiscal year (FY) 2018 to approximately 771 million shipments in FY 2021. De minimis imports from China accounted for the majority of this growth, including more than 446 million shipments in FY 2021 alone.
The Act’s introduction also precedes long-awaited legislative proposals on customs modernization and US-China trade. Anticipated legislation includes the 21st Century Customs Framework and the anticipated China Competition Bill 2.0, led by Senate Majority Leader Chuck Schumer (D-NY) and Senate Democrats. While the China Competition Bill 2.0 is expected to focus on stemming the flow of US advanced technology and investments to China, the legislation is also likely to contain significant provisions on economic and national security competition.
Implications for businesses go beyond a potential increase in duties on imports from de minimis shipments. As noted above, data collection from importers writ large will likely increase, increasing overall record keeping and compliance costs. Further, utilization of limited U.S. Customs Service resources to collect data on small imports could lead to greater systemic inefficiencies overall. Finally, Congressional interest to stem imports from China and Russia is likely to continue, raising the possibility of additional burdens or restrictions placed on imports from these nations in the future.