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This year, an important trade and customs law known as de minimis, or as most small businesses know it, “Section 321” has become the topic of an intense trade policy debate. For nearly 100 years, the de minimis threshold has allowed goods valued less than $800 to enter the United States free of customs duty—taxes paid on imports that are frequently passed along to consumers.
Despite decades of broad bipartisan support, Representatives Earl Blumenauer (D-OR) and Neal Dunn (R-FL) have joined with Senators Sherrod Brown (D-OH) and Marco Rubio (R-FL) to introduce the Import Fairness and Security Act which currently threatens to eliminate the economic value of de minimis without the intended effect of addressing perceived enforcement gaps.
At first glance, de minimis may seem like a policy detail that can be easily changed to reflect the current political landscape. But if you dig a little deeper, you’ll find that de minimis is a critical tax break for American businesses and supply chain facilitators that many never knew they benefitted from.
Who uses de minimis?
American businesses and consumers use de minimis every day. More than 2 million low-value shipments arrive in the U.S. daily, covering a wide range of items including cell phone chargers, first aid supplies, masks, coffee mugs, computer processors, earphones, paper towels, toilet paper, and more.
Small businesses such as Greentop Gifts, a Black woman-owned business based in Atlanta, use the tax exemption to save on goods that they paint, personalize, and ship across the country. AnaOno, a woman-owned, Philadelphia-based business benefits from de minimis and can affordably ship and sell mastectomy clothing. These businesses, and many more like them, serve consumers across the country who benefit from affordable goods delivered to them in a timely manner.
What’s at stake for businesses and consumers?
If Congress rolls back the Section 321 import tax break, the burden would be placed directly on businesses and passed along to the consumer—compounding the effects of current inflation.
Back-of-the-envelope projections show that consumers will likely tag on an extra $50 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 businesses will most likely need to hire outside contractors to process the mountains of paperwork that new import requirements would create.
Not only would eliminating de minimis cause prices to soar, but those items will also undoubtedly take longer to arrive on consumers' doorsteps, impacting the competitiveness of American small businesses by increasing their “time to market” production. New administrative hurdles could add days to most estimated arrival dates and further congest our supply chain. U.S. Customs and Border Protection (CBP) estimates that the agency would need to hire and train at least 20,000 personnel to enforce the unnecessary security measures.
So while degrading de minimis will certainly have economic implications, it will not address concerns with enforcement capabilities that exist across all entry points for shipments to the U.S.
Is additional screening for Section 321 de minimis shipments needed?
Photo by Aside from instituting taxes and longer waiting times for shipments, additional new security measures on de minimis shipments would be completely unnecessary. Unfortunately, several organizations have inaccurately framed de minimis as a loophole that allows foreign countries to ship their goods into the United States without proper data collection and screening measures—but that’s simply not true.
In fact, CBP has confirmed that it processes lower-value shipments in the same way it would higher-value shipments that enter through different modes. De minimis shipments are subject to screening by more than 50 federal agencies enforcing over 500 U.S. laws.
CBP and other federal agencies receive sufficient data, including the sender and the recipient, a detailed description of goods, value, transportation information, and much more. Thanks to partnerships between the government and responsible trade partners, information available to the government continues to grow, and by CBP’s estimation, has improved the ability to identify risky shipments.
How Congress can improve de minimis
So what is the solution? How can Congress improve de minimis without hurting American businesses and hiking prices for consumers?
1. Consider how the government can more effectively share and use information already being provided on shipments of all values to address gaps in enforcing current requirements.
2. Conduct ongoing compliance measurements across all types of shipments, allowing both the federal government and industry to focus their efforts on creative solutions to clearly scoped challenges.
3. Adopt modern technology, such as artificial intelligence and machine learning, as a more sophisticated way of identifying illicit activity. Industry leaders already leverage this technology which provides scalable solutions to address the increased volume of goods entering America’s borders.
Members of Congress should evaluate the economic value of de minimis to small businesses and consumers, as they did in 2016 when the tax exemption was increased from $200 to $800 on a bipartisan basis. Risks are present in every environment where cargo arrives at our borders, and federal enforcement agencies are continually improving enforcement capabilities. Eliminating this important tax exemption at a time of economic uncertainty and congestion at our ports is not sound policymaking.
As the debate in Congress and the media rolls on, lawmakers need to understand that they do not need to choose between maintaining de minimis and ensuring compliance in shipments that power our economy—they can and should do both.
FAQS about de minimis
What is a Section 321 de minimis shipment?
De minimis treatment of low-value shipments, valued under $800, refers to an exemption from requirements to pay duty under Sec. 321 of the Tariff Act of 1930 (19 USC 1321(c)). This is a long-standing fixture of U.S. customs law enacted by Congress.
Is the de minimis exception for shipping going away?
De minimis is not likely to go away. There has been media reporting that criticizes de minimis, and there are two bills in Congress seeking to restrict how de minimis authority can be used, but there are no formal proposals to revoke de minimis treatment of low-value shipments.
About the Author
Post by:John Pickel
John Pickel is senior director of international supply chain policy at the National Foreign Trade Council, a business association dedicated solely to advancing the interests of U.S. companies in international commerce.
Company: National Foreign Trade Council
Website:
www.nftc.org
