Today, the Biden-Harris Administration published an announcement of regulatory changes it intends to pursue vis-a-vis the de minimis loophole.
While the Biden-Harris Fact Sheet did not offer a timeline, the United States Department of Homeland Security (DHS) indicated in a separate press release that “new rulemakings” would begin “in the coming weeks and months.”
The Fact Sheet led with this promise: “The Administration intends to issue a Notice of Proposed Rulemaking that would exclude from the de minimis exemption all 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.”
Section 201 refers to the ‘Safeguards’ trade remedy, currently only in force for limited varieties of solar panels and washing machines. Section 232, a national security authority for Presidents to restrict imports, is certainly only being used on certain intermediate metal and aluminum products.
Excluding goods subject to Section 301 from de minimis eligibility is the noteworthy development. Staff for the U.S. House Ways & Means committee estimate that sixty percent of de minimis imports from China are subject to Section 301. In theory, then, prohibiting de minimis eligibility for these goods would see a sixty percent drop in the volume of de minimis shipments from China.
However, many questions and considerations remain:
Has CBP Changed its Position that Prohibiting 301 Goods is Workable?
Excluding merchandise subject to Section 301 actions from de minimis eligibility was a rule first proposed by the Trump Administration back in August 2020. During the OMB process in the Autumn of 2020, it was supported by the Coalition for a Prosperous America (CPA), but opposed by the Express Association of America.
Throughout the consideration of the rule, however, headquarters staff at U.S. Customs and Border Protection (CBP) were pessimistic about the viability. CBP’s concerns stemmed from the fact that whether or not a good is subject to Section 301 depends on accurate classification of the good at the eight-digit level of the Harmonized Tariff System (HTS). Doing this classification properly requires the expertise of a licensed customs broker or trade attorney. In the de minimis environment, there is no requirement to use a customs broker, and thus the HTS codes – when provided – are nonetheless routinely mistaken.
Ironically, the Biden-Harris Administration canceled that rule as part of their ‘regulatory freeze’ in January 2021, so it never went into effect.
Requiring Tariff Numbers From Overseas Vendors Has Proven Problematic
The Biden-Harris Fact Sheet proposes to require that overseas vendors submit an HTS number for their shipment. However, this is already done via the voluntary ‘Type 86’ de minimis electronic entry, which in CBP’s FY2023 covered 73% of all de minimis shipments. Evidence from Type 86 entry has shown, regrettably, that even in this voluntary ‘enhanced data’ pilot, misclassifications and violations are widespread, because there is no recourse against foreign vendors when incorrect HTS numbers are supplied.
Why is the Biden-Harris Proposal Weaker Than What a Majority of Congressional Democrats Asked For?
Earlier this week, 126 Congressional Democrats wrote to the Biden-Harris Administration on the dangers of the de minimis loophole, and pleaded for the President to use the full scope of his authority to close the loophole once and for all. Recognizing that there may not be sufficient support in Congress for a full repeal, the majority of Congressional Democrats, joined by many Republicans, have introduced legislation to completely exclude all merchandise from China from entering via the de minimis loophole.
Similarly, U.S. Senators Bill Cassidy (R-LA) and Tammy Baldwin (D-WI) of the U.S. Senate Finance Committee had introduced legislation to exclude merchandise from China entirely from de minimis. U.S. Senators Rick Scott (R-FL) and Sherrod Brown (D-OH) have also joined forces to urge the closing of de minimis.
Representatives Earl Blumenauer (D-OR) and Rosa DeLauro (D-CT), who led the House Democrat efforts on de minimis, issued a statement in response to the Biden-Harris announcement, saying that “While we welcome today’s announcement from President Biden on the dangers of the de minimis loophole, this is only the first step and does not negate the need for Congress to act”.
Is it Too Late in the Biden Administration to Finalize Any Rulemaking?
While the DHS press release promised a “new rulemaking” on the Section 301 exclusion “in the coming weeks and months”, actual relief could still be years away. Presidents can expedite regulations, but by signaling a “new rulemaking”, the White House is signaling that the process could well take the typical two-three years that is common for regulations beginning from scratch.
CBP, in particular, has a poor track record of seeing trade-enforcement regulations through to their end. For example, the biggest piece of customs legislation this century was 2015’s Trade Facilitation and Trade Enforcement Act (TFTEA). Section 116 of the TFTEA directed CBP to develop a new regulation formalizing what basic data elements customs brokers should obtain from their clients. In August, 2019, CBP finally introduced that Proposed Rule, but the Biden-Harris Administration has kept it in perpetual regulatory limbo throughout its four year term.
Does the Proposal do anything for Fentanyl and other Illicit Narcotics?
Based on available data and evidence, the volume of de minimis shipments will still be extraordinary and far beyond anything CBP can police. In CBP’s FY2023, CBP reported that there were over 1,066,000,000 de minimis shipments. Ways & Means staff estimate that “over 60% of de minimis packages come from China”, which would equate to 639,600,000 shipments. Ways & Means further state of that amount, 60% are subject to Section 301. This equates to 383,760,000 packages that would be excluded from de minimis.
Subtracting the excluded 383.7M packages from the 1,066M total de minimis packages still leaves an astonishing 682,240,000 small packages shipped from unaccountable foreign vendors.
682.2M packages happens to be almost the same as the total volume of de minimis packages in CBP’s FY2022, at 685.1M.
This equals over two million small packages per day. There is no way for CBP to police this amount of packages. Narcotics and fentanyl shipments via small package from China has been a crisis that has been widely acknowledged since at least 2018, leading to Congressional passage of the “STOP Act”, which premised enforcement on ‘more information’. The promise of better enforcement on ‘more information’ on small packages has always failed.
What is the Best Action that can be Taken?
The best solution is for the President to use his ample executive authority under 19 U.S.C. § 1498 and 19 U.S.C. § 1321 to close the de minimis loophole. This would revert small packages to the existing ‘Informal Entry’ customs framework under 19 U.S.C. § 1498 and restore law and order.
If Congress acts through legislation to partially close de minimis, it must take care to preserve executive discretion for a full repeal and avoid giving overseas vendors any statutory privileges to restrict Executive discretion.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
Considerations for Biden-Harris Administration De Minimis Announcement
Today, the Biden-Harris Administration published an announcement of regulatory changes it intends to pursue vis-a-vis the de minimis loophole.
While the Biden-Harris Fact Sheet did not offer a timeline, the United States Department of Homeland Security (DHS) indicated in a separate press release that “new rulemakings” would begin “in the coming weeks and months.”
The Fact Sheet led with this promise: “The Administration intends to issue a Notice of Proposed Rulemaking that would exclude from the de minimis exemption all 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.”
Section 201 refers to the ‘Safeguards’ trade remedy, currently only in force for limited varieties of solar panels and washing machines. Section 232, a national security authority for Presidents to restrict imports, is certainly only being used on certain intermediate metal and aluminum products.
Excluding goods subject to Section 301 from de minimis eligibility is the noteworthy development. Staff for the U.S. House Ways & Means committee estimate that sixty percent of de minimis imports from China are subject to Section 301. In theory, then, prohibiting de minimis eligibility for these goods would see a sixty percent drop in the volume of de minimis shipments from China.
However, many questions and considerations remain:
Has CBP Changed its Position that Prohibiting 301 Goods is Workable?
Excluding merchandise subject to Section 301 actions from de minimis eligibility was a rule first proposed by the Trump Administration back in August 2020. During the OMB process in the Autumn of 2020, it was supported by the Coalition for a Prosperous America (CPA), but opposed by the Express Association of America.
Throughout the consideration of the rule, however, headquarters staff at U.S. Customs and Border Protection (CBP) were pessimistic about the viability. CBP’s concerns stemmed from the fact that whether or not a good is subject to Section 301 depends on accurate classification of the good at the eight-digit level of the Harmonized Tariff System (HTS). Doing this classification properly requires the expertise of a licensed customs broker or trade attorney. In the de minimis environment, there is no requirement to use a customs broker, and thus the HTS codes – when provided – are nonetheless routinely mistaken.
Ironically, the Biden-Harris Administration canceled that rule as part of their ‘regulatory freeze’ in January 2021, so it never went into effect.
Requiring Tariff Numbers From Overseas Vendors Has Proven Problematic
The Biden-Harris Fact Sheet proposes to require that overseas vendors submit an HTS number for their shipment. However, this is already done via the voluntary ‘Type 86’ de minimis electronic entry, which in CBP’s FY2023 covered 73% of all de minimis shipments. Evidence from Type 86 entry has shown, regrettably, that even in this voluntary ‘enhanced data’ pilot, misclassifications and violations are widespread, because there is no recourse against foreign vendors when incorrect HTS numbers are supplied.
Why is the Biden-Harris Proposal Weaker Than What a Majority of Congressional Democrats Asked For?
Earlier this week, 126 Congressional Democrats wrote to the Biden-Harris Administration on the dangers of the de minimis loophole, and pleaded for the President to use the full scope of his authority to close the loophole once and for all. Recognizing that there may not be sufficient support in Congress for a full repeal, the majority of Congressional Democrats, joined by many Republicans, have introduced legislation to completely exclude all merchandise from China from entering via the de minimis loophole.
Similarly, U.S. Senators Bill Cassidy (R-LA) and Tammy Baldwin (D-WI) of the U.S. Senate Finance Committee had introduced legislation to exclude merchandise from China entirely from de minimis. U.S. Senators Rick Scott (R-FL) and Sherrod Brown (D-OH) have also joined forces to urge the closing of de minimis.
Representatives Earl Blumenauer (D-OR) and Rosa DeLauro (D-CT), who led the House Democrat efforts on de minimis, issued a statement in response to the Biden-Harris announcement, saying that “While we welcome today’s announcement from President Biden on the dangers of the de minimis loophole, this is only the first step and does not negate the need for Congress to act”.
Is it Too Late in the Biden Administration to Finalize Any Rulemaking?
While the DHS press release promised a “new rulemaking” on the Section 301 exclusion “in the coming weeks and months”, actual relief could still be years away. Presidents can expedite regulations, but by signaling a “new rulemaking”, the White House is signaling that the process could well take the typical two-three years that is common for regulations beginning from scratch.
CBP, in particular, has a poor track record of seeing trade-enforcement regulations through to their end. For example, the biggest piece of customs legislation this century was 2015’s Trade Facilitation and Trade Enforcement Act (TFTEA). Section 116 of the TFTEA directed CBP to develop a new regulation formalizing what basic data elements customs brokers should obtain from their clients. In August, 2019, CBP finally introduced that Proposed Rule, but the Biden-Harris Administration has kept it in perpetual regulatory limbo throughout its four year term.
Does the Proposal do anything for Fentanyl and other Illicit Narcotics?
Based on available data and evidence, the volume of de minimis shipments will still be extraordinary and far beyond anything CBP can police. In CBP’s FY2023, CBP reported that there were over 1,066,000,000 de minimis shipments. Ways & Means staff estimate that “over 60% of de minimis packages come from China”, which would equate to 639,600,000 shipments. Ways & Means further state of that amount, 60% are subject to Section 301. This equates to 383,760,000 packages that would be excluded from de minimis.
Subtracting the excluded 383.7M packages from the 1,066M total de minimis packages still leaves an astonishing 682,240,000 small packages shipped from unaccountable foreign vendors.
682.2M packages happens to be almost the same as the total volume of de minimis packages in CBP’s FY2022, at 685.1M.
This equals over two million small packages per day. There is no way for CBP to police this amount of packages. Narcotics and fentanyl shipments via small package from China has been a crisis that has been widely acknowledged since at least 2018, leading to Congressional passage of the “STOP Act”, which premised enforcement on ‘more information’. The promise of better enforcement on ‘more information’ on small packages has always failed.
What is the Best Action that can be Taken?
The best solution is for the President to use his ample executive authority under 19 U.S.C. § 1498 and 19 U.S.C. § 1321 to close the de minimis loophole. This would revert small packages to the existing ‘Informal Entry’ customs framework under 19 U.S.C. § 1498 and restore law and order.
If Congress acts through legislation to partially close de minimis, it must take care to preserve executive discretion for a full repeal and avoid giving overseas vendors any statutory privileges to restrict Executive discretion.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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