A bill introduced Tuesday could spell the downfall of tariff-dodging de minimis shipments and spark chaos for many e-commerce-focused fashion brands.
U.S. Rep. Earl Blumenauer (D-Ore.), chairman of the House Ways and Means Trade Subcommittee, unveiled new legislation Tuesday that he and others said would strengthen U.S. international trade import laws to stop non-market economies and goods from what they see as exploitation of the de minimis threshold that allows imports valued under $800 to come into the U.S. free of duties, taxes or fees.
“The number of packages we receive in the United States has skyrocketed to more than 2 million daily packages–a number that will only climb in the coming years,” Blumenauer said. “As long as foreign companies that sell their goods in America are splitting up their shipments to evade tariffs and oversight, American businesses will continue to be put at a competitive disadvantage cost-wise. This loophole also makes it easier for people to import illegal goods and harmful products because there is virtually no way to tell whether these packages contain products made through forced labor, intellectual property theft or are otherwise dangerous.”
To address concerns related to U.S. competitiveness, the Import Security and Fairness Act legislation would prohibit goods from non-market economies, such as China, from benefiting from de minimis treatment. The U.S. government has found that such countries provide unfair benefits to their companies. This change ensures that shipments from these countries don’t benefit further under U.S. law.
Ron Sorini, a trade expert and principal at Washington, D.C.-based Sorini, Samet & Associates, described the proposed bill as the most “comprehensive” de minimis legislation he’s seen to date. “This would shut down Shein and platforms like that,” he said of TikTok’s most talked-about brand, which has exploited the loophole to beat H&M at its own game and been caught selling toxic-chemical clothing.
The bill also prohibits goods subject to enforcement actions from using de minimis provisions. Federal enforcement statutes, such as Section 301 and 232, provide the United States with leverage to address unfair trade practices that harm workers and firms. Exempting de minimis shipments from paying enforcement-related duties has significantly undercut this leverage, even though de minimis shipments subject to other enforcement actions, like antidumping and countervailing duty orders, are still required to pay the duties, according to the bill.
In addition, the legislation would close the de minimis loophole for offshore distribution or processing facilities and require Customs & Border Protection (CBP) to collect more information on all de minimis shipments and prohibit use by bad actors. To address concerns regarding compliance with U.S. laws, this provision makes common-sense changes that will require CBP to collect more information on de minimis shipments and prohibit importers that have been suspended or debarred from being able to take advantage of de minimis.
Companies storing goods in close-to-market Canadian and Mexican warehouses that are then shipped directly to online shoppers have a lot to lose, Sorini said. The legislation would “equalize” the playing field for businesses putting product in U.S. warehouses that are prohibited from taking advantage of de minimis, “even if they’re foreign trade zones,” he added.
The National Council of Textile Organizations (NCTO) voiced its support for the proposed bill on Tuesday.
“We are very supportive of Chairman Blumenauer’s bill, which would effectively prohibit China and all nonmarket economies from exploiting the Section 321 de minimis mechanism in U.S. trade law, a damaging loophole that has severely undermined U.S. companies and workers and our Western Hemisphere trade partners, while also endangering American consumers,” said Kim Glas, NCTO president and CEO. “We applaud the chairman’s leadership on this critical issue and look forward to working with the House Ways and Means Trade Subcommittee to move this legislation forward.”
AFL-CIO President Liz Shuler said the country’s largest labor union “strongly supports Chairman Blumenauer’s Import Security and Fairness Act that would close the gaping loophole now harming American companies.”
“The wild imbalance between the U.S. de minimis threshold of $800 and the Chinese threshold of $7 must be fixed in order to level the playing field,” Shuler said. “We urge swift passage of this important legislation to stop this exploitation.”
Alliance for American Manufacturing president Scott Paul said the organization also supports the legislation’s goal of reforming the de minimis threshold, which he said “is routinely exploited to evade U.S. enforcement actions against China and other trade cheats.”
“The bill takes aim at the worst offenders, while also addressing loopholes used by bad actors to avoid paying taxes, duties and fees,” Paul said. “We strongly encourage Congress to adopt these reforms while also ensuring that additional steps are taken to monitor transshipments and increases in de minimis volume from other countries.”
Presenting a different point of view, Julia K. Hughes, president of the United States Fashion Industry Association, said most agree that CBP and other government agencies should have the necessary information to protect American consumers and legitimate companies from imported counterfeits and dangerous products.
“However, there is rhetoric from some organizations suggesting that the de minimis process is a loophole or that it harms American companies and that is simply not accurate,” Hughes said. “Congress approved the increase in the de minimis level to reflect the realities of e-commerce and during the pandemic e-commerce has become an even more essential element to reach consumers. We look forward to working with Congress on this important legislation to ensure that there is appropriate enforcement while avoiding disruptions to e-commerce.”
Additional reporting by Jessica Binns.