De minimis is an import loophole that is used by non-market economies and counterfeiters to ship hundreds of millions of packages valued under $800 into the United States without inspection, information disclosure, or duty payment. That loophole was a key topic in Thursday’s Senate Finance Committee hearing on trade. The consensus from Senators, and the five witnesses, represented primarily by FedEx Vice President for Regulatory Affairs and Compliance, Cindy Allen, was that more de minimis was good, not less.
Sen. John Thune (R-SD) helped lead the charge to raise the duty-free de minimis threshold from $200 per package to $800 in 2016. “Existing de minimis rules help e-commerce platforms and many sectors of the U.S. economy. Could you elaborate on why it is critical to American consumers, and small businesses? And what would it mean if that threshold is reduced or eliminated?” he asked Allen.
She said the de minimis trade statute was “extremely important” when talking about trade facilitation. In other words, de minimis made trade easier, and cheaper. “Think about all the bottlenecks that occurred from ocean freight shipping because of the pandemic and how important e-commerce became. It streamlines purchases for smaller businesses,” Allen said, adding that proposals to change the limit were “concerning” to FedEx. De minimis is “critical” to the success of small to midsize businesses, she added.
John Pickel, Senior Director of International Supply Chain Policy at the National Foreign Trade Council said, “eroding de minimis would be a regressive tax” on consumers and businesses.
The mood in the room was that de minimis shouldn’t be touched.
Other mainline trade topics related to Customs and Border Protection (CBP) included whether the U.S. was doing anything on stopping shipments from China that could be in breach of the Uyghur Forced Labor Prevention Act. The short answer to that question was: no.
“Customs is not reporting adequately on these shipments,” Scott Nova, Executive Director for the Worker Rights Consortium told the Finance Committee. “The stats are so broad they are meaningless. We don’t know which products are detained and later allowed entry. Solar is a priority, but CBP publishes no data on this, much less discloses which set of importers are bringing in goods.”
The Uyghur Forced Labor Prevention law, signed last year, mandates that the government maintain a list of suppliers from China that warrant closer inspection. There are roughly 20 companies on the list, which has not been expanded since June. Independent researchers have identified hundreds of candidates but none of them made the cut, Nova told the Committee. “If we want corporations to do due diligence on their China supply chains, we need to enforce the law.”
Senator Ron Wyden (D-OR) asked if companies can really know who is making what in the supply chains they rely on to make their products.
“Yes,” Nova responded. “It’s not an unfathomable mystery. It’s not that the information is unknowable. It’s that they have not prioritized where their aluminum is coming from, or where their raw materials are coming from.”
Some Committee members lamented China as a trade cheat, saying that the solution was more free trade with allies. Mexico was front and center here.
***Read CPA senior economist Andrew Heritage’s latest on China’s ‘friend-shoring’ to Mexico.***
“Nucor steel has been ripped off for years because of illegal steel and dumping. Another company in my district, Charlotte Pipe, a family-owned business – you can go to China and find they, too, have their very own Charlotte Pipe. It looks like Charlotte Pipe and they sell it to the U.S. as Charlotte Pipe,” said Thom Tillis (R-NC). “We need to let China know they are exploiting our system. Can we get all of the supply chain back, absolutely not. But we’re going to move supply chains out of China to countries we can rely on. There is a huge bipartisan base of people here to vote on it…and it will benefit free markets,” he said, pivoting to Mexico.
Tillis said the U.S. should have so-called green lanes on the Mexican border – commercial truck routes that allow for faster Customs clearance that some have referred to as a “waive through” clearance.
Border state Senator John Cornyn (R-TX) supported that, too.
“I remember when China became fashionable because of low-cost manufacturing. Now we are seeing a reversal of that, because of a concern over supply chains. We are looking for ‘friend-shoring’ and Mexico would seem like a logical place for those manufacturers to land,” Cornyn said. “There are also other benefits to the U.S. through increased trading opportunities with Mexico.”
Brenda Smith, Global Director for Government Outreach at Expeditors International of Washington, Inc., and an ex-CBP staffer, agreed with Cornyn on friend-shoring trade to Mexico. She brought up infrastructure spending on green lanes to facilitate borderless trade with Mexico.