Industry trade groups are addressing concerns raised in a congressional letter to the Department of Homeland Security, which fingered companies like Shein and Temu for exploiting the de minimis “loophole” that allows smaller shipments from China to enter the country unchecked.
Under Section 321 of the Tariff Act of 1930, overseas makers can send shipments valued under $800 to a shopper’s doorstep without having to report data on country-of-origin or manufacturer. Carrying everything from tube tops to wedding dresses, Shein sells garments for as low as $1.68 on its popular app and e-commerce site. Valued by those in the know at between $65 billion to $85 billion, the controversial company has been fingered by labor groups for dodging Chinese and international labor laws in the service of creating its impossibly cheap product.
A direct-to-consumer business model has allowed overseas companies like Shein and its fast-growing competitor Temu to make headway in the U.S. market. As lawmakers contemplate how to staunch the flow of shipments they believe could be compromised by forced labor, they are calling for more information about how CBP addresses de minimis under the UFLPA, which imposes a rebuttable presumption that all goods made wholly or partly in Xinjiang are tainted.
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The National Council of Textile Organizations (NCTO) jumped to support the bipartisan, bicameral push for greater oversight. The trade group “has long echoed mounting congressional concerns” over the de minimis waiver, “which is being exploited by certain Chinese e-commerce companies and mass marketers, and is undermining U.S. efforts to hold China accountable” through the enforcement of the UFLPA, president and CEO Kim Glas told Sourcing Journal.
The letter “underscores the rising alarm on Capitol Hill” about the issue, and should increase scrutiny on the DTC models being aggressively employed by Chinese companies. Glas said NCTO applauds the members of Congress who signed the letter, and supports their call for more thorough reporting from CBP on UFLPA enforcement. She would also like to see the agency update its strategy to promote greater efficacy. “Nearly a billion of these shipments are circumventing inspection and tariffs, facilitating Xinjiang forced labor apparel into our closets and putting U.S. textile producers and Western Hemisphere allies at a competitive disadvantage,” she said.
Meanwhile, Footwear Distributors and Retailers of America (FDRA) president and CEO Matt Priest cautioned against penalizing U.S. footwear companies producing goods overseas for their use of de minimis, which has proven an essential tool as they grapple with the weight of inflation, high duty rates, and the Section 301 tariffs on China-made goods.
“We don’t want bad actors abusing the program, under the UFLPA or not, but de minimis is really important to many legitimate American footwear companies who use the program to deliver goods,” he said. Companies “have an economic incentive to avoid those duty rates, whether they are legitimate actors or illegitimate actors,” by taking advantage of the tools in trade law at their disposal.
Priest said many U.S. footwear companies have already fostered strong relationships with CBP, including working with the agency’s Center of Excellence and Expertise for Apparel, Footwear and Textiles through its San Francisco field office. The federal government could also look into developing transparency programs wherein U.S. brands submit their supply chains for review, giving CBP the ability to vet suppliers who are making frequent de minimis shipments.
Priest pointed to the Customs-Trade Partnership Against Terrorism (CTPAT), a voluntary supply chain security program developed after Sept. 11, 2001 that was open to members of the trade community who demonstrated a commitment to promoting national security. The program “created strong partnerships and strengthened the relationship between importers and Customs in the wake of the terrorist attack and the need for enhanced security on what has been imported,” the FDRA lead said.
CBP is currently in the testing phase of a pilot program around section 321 shipments designed to help the government agency better identify and target high-risk shipments for inspection, but also expediting the process for legitimate “low-value” e-commerce shipments.
“I think that there’s a model that could allow for those who are part of a program, who have gone through rigorous examination with Customs, to be able to have fast lane into the country with their products,” he added.
Priest hopes Congress will explore ways to strengthen the implementation of UFLPA while recognizing that de minimis has become a “critically important” tool for importers, who have ramped up usage under the burden of the Trump-era tariffs. “If you eliminate all duties on these products, and then you do more of a focused approach to target shipments from certain areas and from certain importers, then you won’t need a ‘loophole’ anymore, because there’s no incentive to use it.”