International parcel shippers need to pay close attention to upcoming changes to the US laws and regulations governing international de minimis shipments. Exact details on the how, what, and when these changes will occur depends on the adoption of final new regulations by Customs and Border Protection (CBP); other US government agencies; possible White House Executive Orders; and Congress. However, rule changes are coming that will modify and change the information and documentary requirements for such shipments and limit and otherwise affect the eligibility of de minimis treatment for certain types of products and products from certain countries, especially China.
As discussed in a prior PARCEL article explaining the Section 321 de minimis exemption, the exponential growth of de minimis imports commenced after Congress authorized raising the maximum daily import duty exemption from $200 per consignee to $800 per consignee (see PARCELindustry.com/Section321). Combined with shipped direct to consumer distribution models, e-commerce marketers have utilized this higher threshold to make large scale de minimis imports into the US. Since the threshold was changed, the number of de minimis shipments have risen from approximately 140 million to over one billion de minimis shipments per year.
Critics of the de minimis exemption often claim that the program is being abused and was never really intended for commercial business purposes. Some critics claim that it deprives the US of significant duty revenue and allows foreign companies to engage in unfair competition against US companies. By directly shipping to the ultimate consumer, these companies are allegedly able to use minimum customs entry procedures and avoid the payment of US duties, while companies that continue to import by ocean container to traditional US distribution fulfillment centers remain subject to normal Customs entry procedures and the payment of applicable duties.
Other critics of the program state that the significant increase in the volume of de minimis shipments, which allow informal Customs entries with less information, has created difficulties for CBP in screening cargo to ensure the accuracy of the information that is being provided to it and to target and intercept illegal contraband, drugs, and goods not entitled to a de minimis treatment or imported in violation of other US laws.
Multiple bipartisan bills have been introduced in Congress seeking to address these issues, with multiple proposed alternative solutions. Agreeing on a common approach or compromise legislation has proven difficult. The White House thus announced in September that it would take executive action to address issues with de minimis, once it became clear that Congress would not be quickly enacting any legislative reforms to the Section 321 laws.
Under the Biden Administration’s announced changes, new regulations will be adopted to limit the use of de minimis and allow the US Government to obtain more information and exercise greater control over the entry of shipments claiming a de minimis status.
As announced by the White House, under the proposed regulations:
Many goods will no longer be entitled to the de minimis exemption. Shipments containing products covered by tariffs imposed under Sections 201 or 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962, would be excluded from de minimis treatment. The Biden Administration states that approximately 40% of US imports, including 70% of textile and apparel imports from China, are covered by Section 301 tariffs. These imports would no longer be entitled to de minimis treatment if the proposed regulations are adopted.
Stricter information and eligibility standards will be required for shipments claiming the de minimis exemption. If adopted, new regulations will clarify who is eligible for the administrative exemption and will require the filing of additional detailed information and data for de minimis shipments, including the identity of the person claiming the de minimis status and the 10-digit HTSUS tariff classification.
New product certification requirements. Importers of consumer products will have to file Certificates of Compliance (CoC) electronically with CBP and the Consumer Product Safety Commission (CPSC) at the time of entry for all goods. This proposed new rule will apply to all importers, not just de minimis shipments.
One of the clear goals of the White House’s proposals is to enhance the targeting of de minimis shipments that may violate applicable US laws. In announcing these proposed regulatory changes, the Biden Administration stated that the proposed changes would assist CBP and other government agencies in ensuring compliance with US laws and regulations by allowing greater visibility into de minimis shipments.
Another goal of the announced proposals is to focus on protecting US manufacturers, especially American textile and apparel manufacturers, that may be facing unfair competition from China-founded e-commerce companies. In announcing the proposed de minimis rule changes, the Biden Administration also stated that it would intensify targeting of small package shipments, joint trade special operations, increased customs audits and foreign verifications, and the expansion of the Uyghur Fored Entry Labor Protection Act (UFLPA) Entity List, as part of its prioritization of enforcement efforts against illicit textile and apparel imports.
As with any governmental action, the details of the final regulations will dictate the future of the de minimis exemption. Most of the White House’s announced actions still need to go through the administrative rulemaking process. This process allows parcel shippers to closely examine – and comment upon – the exact legal changes that CBP and other government agencies are proposing. It is not until these rules are finalized and implemented that the Administration’s proposed changes to the de minimis process will take effect.
However, parcel shippers who heavily rely on a de minimis international distribution process should not wait until final rules have been implemented before planning for possible changes to their business models. This is, in part, because in announcing its executive actions the White House also called upon Congress to enact into law changes to the de minimis program, including an exclusion from de minimis eligibility of import-sensitive products, such as textile and apparel products; an exclusion for products covered by Sections 301, Section 201, or Section 232 trade remedy actions; and requiring more detailed regulatory information and data requirements for shippers on de minimis shipments. Whether Congress will take up the Biden Administration’s invitation remains to be seen, but any legislative changes to the de minimis rules could take effect quickly.
The policy debates surrounding the growth in the use of the de minimis exemption often focus on geopolitical and free trade competition issues. At its core, however, it is a debate about compliance with US laws, including US customs, trade, national security, and safety laws. The fact that a de minimis shipment is subject to an informal entry and exempt from duty does not mean that other applicable US laws do not apply. Parcel shippers monitoring and planning for future changes in the de minimis laws need to focus on their obligation to ensure that all of their US import shipments are in legal compliance with US laws - with verifiable information to support that compliance – even if the shipment remains eligible for de minimis treatment under any new rules that may be adopted.
Andrew M. Danas is Partner, Grove, Jaskiewicz and Cobert, LLP. For more information, visit www.gjcobert.com or email adanas@danaslaw.com. The information contained in this article is intended to be general background information. It does not constitute and should not be relied upon as legal advice. Readers should contact a qualified attorney should they have a specific legal question.
This article originally appeared in the 2024 Global/Cross-Border Issue of PARCEL.
