A loophole in U.S. trade law is increasingly coming under the microscope, as companies in the retail segment exploit the technicality to sidestep import costs and attention from Customs. On Wednesday, Representatives Rosa DeLauro (CT-03), Earl Blumenauer (OR-03), and Tom Suozzi (NY-03) released a letter signed by 126 House Democrats calling on President Biden to “use executive authority to end the dangerous de minimis [loophole]” and urging the administration to “update the de minimis policy, which undercuts American workers, manufacturers, and retailers and threatens our health and safety.”
> The De Minimis Loophole: Setting the stage in the September 11 letter, Reps. Blumenauer, DeLauro, and Suozzi state that “under regulations issued in 1994, before the rise of mass direct-to-consumer e-commerce, de minimis now enables four million packages daily of imports – mainly from China – ordered online to enter the U.S. without inspection for dangerous materials, and to evade taxes and tariffs, including most trade-cheating penalties and the ban on forced-labor goods.” In addition to being “exploited by drug cartels and criminals to facilitate the importation of deadly substances like fentanyl,” the de minimis loophole has allowed retail giants – namely, Shein and Temu – to build massive businesses (complete with hefty margins) in the U.S.
In fact, the representatives state in a corresponding release that “over 4 million de minimis packages are now entering the U.S. every day with virtually no scrutiny or inspection – half are estimated to be textile and apparel products.”
Shein’s Global Head of Strategy, Peter Pernot-Day, told Reuters this summer that Shein is not dependent on the exemption for its success, and instead, attributed it to the company’s practice of monitoring online trends and ordering small initial batches of apparel from its manufacturers.
TLDR: The “de minimis” trade provision allows shipments valued under $800 to enter the U.S. duty free and without customs inspections as long as they are addressed to individuals.
Some Quick Stats …
– “The total value of estimated imports of low-value shipments under the de minimis threshold has more than doubled since 2014 to $23.4 billion last year, making it the 12th largest U.S. import category globally,” per Reuters (citing data from the International Trade Centre).
– In 2023, for the first time, more than 1 billion de minimis packages came through U.S. customs, up from 134 million packages in 2015; a 646% increase over just eight years.
– Shein and Temu, alone, accounted for more than 30% of all packages shipped to the U.S. daily under the de minimis exemption, according to a June 2023 report by the House Select Committee on China’s Communist Party.
Some Background: Not the first group of lawmakers to take issue with the de minimis loophole, a group of 40 representatives pushed Homeland Security Secretary Alexander Mayorkas to crack down on the loophole in a letter in March 2024. There has also been a flurry of bills introduced to address de minimis imports. Rep. Blumenauer, for example, introduced legislation to exclude China from the loophole. Sens. Bill Cassidy (R-LA) and Michael Bennet (D-CO) introduced the Americans Trade and Investment Act in March, which endeavors to close the de minimis loophole, among other things.
Meanwhile, two bills presented to the Senate in June 2023, the Import Security and Fairness Act and De Minimis Reciprocity Act, would amend the Tariff Act of 1930 to “close a key loophole” that foreign companies exploit to avoid paying duties and fees to unfairly compete in the U.S. marketplace.
> Fixing the Issue: The president has the power to remedy the situation, according to the letter, as “Congress provided the executive branch with broad discretion to designate what products may qualify for de minimis treatment in Section 321 of the Tariff Act of 1930.” In the absence of “a legislative solution at this time,” Reps. Blumenauer, DeLauro, and Suozzi and the ither signatories “urge” President Biden to “use the full range of your authorities to disqualify commercial shipments from de minimis treatment, so that packages entering the U.S. no longer evade inspection, information disclosure requirements, or the requisite tariffs and taxes.”
> A Fractured Landscape: Not entirely without supporters, the de minimis loophole has the backing of the National Foreign Trade Council, a trade group whose members include the likes of Amazon, eBay, FedEx, UPS, and DHL, has argued that a move to close the loophole would “cost consumers billions of dollars, require new appropriations for Customs and Border Protection, and do nothing to enhance enforcement or improve security at our ports.”