While expectations remain low that federal lawmakers will be able to agree on controversial trade legislation, particularly in a presidential election year, chances are better that Congress will agree on a narrower proposal to address a topic of growing interest and concern—de minimis reform.
Background
Congress amended Section 321 of the Tariff Act of 1930 (19 U.S.C. § 1321) with the enactment of the Trade Facilitation and Trade Enforcement Act of 2015 (P.L. 114-125) to increase the de minimis threshold for imports into the United States from $200 to $800, far exceeding similar thresholds in other countries globally. As a result, an importer of goods entering the United States is currently not required to pay duties if the shipment has a fair market retail value at or below $800, and is “imported by one person in one day.” Moreover, pursuant to the implementing regulations for Section 321 (19 C.F.R. § 10.151), imports that qualify for Section 321 treatment are entered under informal entry procedures, which do not require a U.S. Customs and Border Protection (“CBP”) Form 7501 Entry Summary or other types of documentation required for formal entries. Rather, de minimis shipments are typically entered using only manifest data, and there is no importer of record as with typical informal and formal entries.
Growing Concerns
According to a November 2023 report by the U.S. International Trade Commission (“ITC”), Section 321 imports account for a substantial share of all U.S. e-commerce imports by quantity, increasing by 88 percent from 2018 to 2021, and constituting 83 percent of total U.S. e-commerce imports in fiscal year 2022. By value, from 2018 to 2020, de minimis imports more than doubled from $29 billion to $67 billion. The report also notes that from 2018 to 2021 nearly two-thirds of the 2.3 billion shipments imported under Section 321 were sourced from China.
Given the surge of de minimis imports in recent years, and, in particular, the sharp increase attributable to e-commerce shipments from China, the de minimis threshold and mechanisms have come under heightened scrutiny. The ITC report, for example, claims that de minimis imports are subject to minimal documentation and inspection, allowing Chinese e-commerce companies to utilize the de minimis provision to their advantage, using tactics such as breaking down larger shipments into smaller ones and avoiding CBP enforcement. Hand-in-hand with these allegations, concerns have been raised about the use of de minimis customs procedures to bypass import restrictions and bans on non-compliant goods, including contraband, goods violating product safety measures, goods manufactured in whole or in part in the Xinjiang Uyghur Autonomous Region, and those violating intellectual property rights.
In a January 19, 2024 letter to U.S. Department of Homeland Security (“DHS”) Secretary Alejandro Mayorkas, Chairman Mike Gallagher (R-WI) and Ranking Member Raja Krishnamoorthi (D-IL) of the House Select Committee on China alleged that Chinese companies “rely on the de minimis provision to avoid bearing responsibility for compliance with the [Uyghur Forced Labor Prevention Act (“UFLPA”)] and other prohibitions on forced labor while relying on tens of thousands of PRC suppliers to ship goods direct to U.S. consumers.” Consequently, they requested that DHS assess the potential effect on UFLPA enforcement of altering de minimis eligibility for textile and apparel and other high-risk items, including determining whether exceptions to de minimis treatment are warranted for certain high-risk items to prevent unlawful importations.
Legislative Proposals
There are currently three pending legislative measures in the 118th Congress that would limit the scope of the de minimis exemption and enhance information requirements:
This bill was introduced on June 15, 2023, by Sens. Sherrod Brown (D-OH) and Marco Rubio (R-FL) in the Senate, and by Reps. Earl Blumenauer (D-OR) and Neal Dunn (R-FL) in the House. It would carve out from the de minimis exemption goods that originate in countries that are nonmarket economies and that are listed on the Office of the United States Trade Representative’s Priority Watch List (only China and Russia currently meet both criteria). In addition, the bill would require CBP to collect a range of additional information on shipments that are subject to the de minimis exemption, including the classification of goods, country of origin of the article, and country from which the article is shipped.
- De Minimis Reciprocity Act of 2023 (S. 1969)
This bill was introduced on June 14, 2023, by Sens. Bill Cassidy (R-LA) and Tammy Baldwin (D-WI). It would maintain the $800 cap but apply lower thresholds with countries on the basis of reciprocity. The bill would preclude use of the de minimis exemption for imports of goods from countries designated by the Secretary of the Treasury, based on (i) violations of the UFLPA; (ii) transshipment of goods from countries on the list; (iii) exportation of counterfeit goods; and (iv) lack of commitment to human trafficking, drug trafficking and terrorism enforcement. Similar to the Import Security and Fairness Act noted above, the De Minimis Reciprocity Act would also enhance information requirements for informal entries.
- Customs Modernization Act of 2023 (S. 3431)
This bill was introduced on December 7, 2023, by Sens. Bill Cassidy (R-LA) and Sheldon Whitehouse (D-RI). This is a more comprehensive piece of legislation that proposes several amendments to the Tariff Act of 1930 to improve data collection by and strengthen enforcement activities of CBP. Included in the bill is a section that aims to prevent more unsafe and illegal imports by allowing CBP to collect more information on Section 321 shipments. Such documentation or information may relate to an offer for sale or purchase or subsequent sale, transportation, importation, or warehousing of the article. The bill also calls for implementing regulations, the violation of which would result in civil penalties.
Outlook
Recent congressional rhetoric demonstrates considerable bipartisan momentum and appetite to increase administrative burdens and restrictions on de minimis imports. Moreover, since CBP’s 2023 Trade Facilitation and Cargo Security Summit, which featured discussions on the potential for illicit goods to enter the United States and data demonstrating the sharp increase in de minimis shipments, many lawmakers have grown to perceive the de minimis mechanism as a loophole that must be closed, and many industry stakeholders agree.
On December 12, 2023, the House Select Committee released a bipartisan report detailing 150 policy recommendations, including the passage of legislation amending the Tariff Act of 1930 to reduce the de minimis threshold for imports from “foreign adversaries,” including China. This is similar to the legislation noted above sponsored by Rep. Blumenauer. The report further stated that Congress should direct CBP to strengthen its enforcement against transshipments from China into the U.S. market using the de minimis rule.
Chairman of the House Select Committee, Rep. Mike Gallagher, has indicated that he is aiming for “a big China bill” in 2024, one that will wrap in all the recommendations and “actually get a vote on the House floor.” While recognizing that any such legislation would fall within the jurisdiction of the House Ways and Means Committee, Rep. Gallagher stated that “we’re working closely with them.”
House Ways and Means Trade Subcommittee Ranking Member Earl Blumenauer is also “cautiously optimistic” about the prospect of legislation to reform de minimis benefits after the House Select Committee included a call to overhaul the system among its legislative recommendations. The Committee has given the issue “momentum,” Blumenauer said after a December 13, 2023 roundtable on the de minimis program convened by the Ranking Member. Rep. Blumenauer, who will retire at the end of this session after 28 years in office, has indicated he is hopeful that de minimis reform will be a “signature achievement.”
While it is difficult to predict when and whether de minimis reform will occur, it is clear that this has been and remains an issue that has captured the attention of Congress. If you have questions on the pending legislative proposals or the potential impact of de minimis reform on your business, please contact a member of our U.S. Customs team.
