Leading customs authorities make the case against de minimis commerce
By Charles Benoit, CPA Trade Counsel
“De minimis” treatment for imports, which is available if the shipper declares the value under $800, cannot be effectively policed, and undermines fundamental fairness.
That was the message from top authorities in the customs field at a Washington International Trade Association panel discussion on Friday.
Most Americans are familiar with one version of our de minimis law, which says that $200 worth of goods you bring back from vacation can enter free of tax and tariff. This is not controversial.
But beginning in the 1990s, a new version was created by regulation, enabling express shippers like FedEx and UPS, to import goods up to $200 as well, without taking any meaningful responsibility for the shipment (they didn’t become the legal ‘importer’ despite doing the importing). The growth in ecommerce, coupled with this implementation of de minimis, lets express shippers completely displace traditional importer-wholesalers who imported in bulk and distributed to domestic retailers.
Because this was being done via Section 321 of the Tariff Act of 1930 (our de minimis law) though, these ‘de minimis’ shipments being carried by express shippers could come in free of tax or tariff, and even worse, without having to provide normal shipping manifest data which is vital to customs doing its job. CPA has prepared a layman’s guide to the history and abuse of our de minims law: PDF link.
The shifting politics on de minimis
We now have almost 2.7 million shipments per day entering via de minimis. Customs has no idea what’s inside these packages. And while the statutory and regulatory damage has been piling up for almost thirty years, the politics have only caught up in the last year.
Rep. Earl Blumenauer (D-OR), Chairman of the powerful Ways & Means Committee, is a hero for putting the spotlight on de minimis reform, which had previously been a niche beltway issue. Chariman Blumenauer put forward his Import Fairness and Security Act, which has since been passed by the House as part of America COMPETES. The legislation would deny eligibility for de minimis treatment for merchandise originating from worst-offender countries. CPA polled voters, finding 81% support for Blumenauer’s legislation. Credit also to the Wall Street Journal, which greatly raised de minimis’ profile with a front page story, “The $67 Billion Tariff Dodge That’s Undermining U.S. Trade Policy”.
WITA panelists deal another blow to express shippers
The Wall Street Journal is no friend of tariffs, so following an expose from that paper in particular, express shippers likely knew they were on borrowed time in their de minimis free-for-all.
On Friday, panelists hosted by the Washington International Trade Association (WITA) offered their own perspectives on the problem with our implementation of de minims. Three panelists carried considerable authority and provided their own perspective as to the problems with our de minimis implementation. Below are the important points they had to made.
Former top trade cop at U.S. Customs:
A big ‘get’ for the panel was Brenda Smith, who spent seven years running CBP’s trade office before leaving to join a global logistics company last year. Ms. Smith was refreshingly candid. Recall from above that de minimis shipments contain very little information. One of the key data elements lacking is a Harmonized Tariff System (HTS) number. The Harmonized Tariff System is used by the entire world, and it assigns unique codes for every conceivable product that can show up in a port of entry. HTS numbers are required for normal commercial importations.
Ms. Smith was blunt, explaining that “cargo descriptions are lousy”, and that CBP’s targeting systems are built for HTS numbers. She was clear: “CBP still needs that HTS number”. She went further too, saying “Neither the government nor consumers right now has visibility into third party shipments to make good decisions about risks. We don’t know who is exporting those goods or where they are coming from in many cases.”
Ms. Smith said raising the de minimis level to $800 in 2016 has meant “less visibility, more shipments, and a lot less data on what those shipments are, and so we cannot assess risk.”
Customs Brokers’ Perspective
Another panelist was Victoria Lane, who was recently elected as a Vice President of the National Customs Brokers and Forwarders Association of America (NCBFAA). For context, the NCFAA fought a valiant fight in court against the express shippers and our current implementation of de minimis back in 1994, warning of the calamity we are now experiencing. Regrettably their litigation was unsuccessful.
Speaking of de minimis shipments, Ms. Lane was similarly blunt: “there’s no tariff number, just a manifest description, and name of the shipper and consignee. If the consignee is the carrier, they’re able to bring in the package.” Ms. Lane brought up the example of a ‘bag’ as the kind of woefully inadequate manifest description they see. Is that ‘bag’ a handbag? A backpack? Or even a car air-bag? The only way to know is to open up the package, and there’s no way CBP can open up over 2 million packages a day. Ms. Lane was critical of the assurance express shippers’ advocates often provide, which is that CBP has some mystery artificial intelligence software than can figure it out; she said “if [CBP has] AI tech, I haven’t seen that, and I don’t know how they can know it’s safe if they don’t have seller and buyer information”. Ms. Lane also noted that more and more vehicle parts are being imported using de minimis, and we have no way of ensuring safety.
Responsible Retailers’ Perspective
While Ms. Smith and Ms. Lane provided detailed, on-the-ground explanations of how de minimis is a dangerous backdoor around our ports, another panelist, Beth Henke, Chief Compliance Officer at American Eagle Outfitters (AEO), provided the big picture unfairness of it all.
Ms. Henke began by pointing out the obvious, which is that American Eagle Outfitters is a global business and would not normally be advocating for anything that leads to more tariffs being collected. But she emphasized that “this is an issue of fundamental fairness and a level playing field.” She stressed AEO’s work on ensuring a supply chain free of forced labor, which AEO does not believe can be said about apparel brands that rely on de minimis. This is an important point, and one she underscored by saying that even if AEO faced no tariffs from traditional importation, they’d still be opposed to our implementation of de minimis due to the impossibilities of ensuring supply chain responsibility. Ms. Lane stressed the lengths to which AEO went to ensure its global supply chain conformed to the company’s values.
CPA knows that some other leading apparel brands, which still largely do business the right way and import via traditional channels, are fence sitting on the de minimis issue. They are waiting to see what Congress will do. If Congress doesn’t act, it’ll be an “if you can’t beat ‘em, join ‘em” plan in the race to the bottom. Look to see these brands shift away from brick & mortar (which is incompatible with de minimis) towards e-commerce.
Ben Wastler, Senior Director for International Supply Chain Policy at the National Foreign Trade Council, was there advocating the express shippers’ views. First, he made the spurious warnings about further inflation. CPA has taken apart the allegation that our tariffs have played any role in inflation, but in any event, it seems clear this argument carries no water with Americans. His next argument was that rolling back de minimis eligibility would lead to more chaos at the ports, but common sense suggests the opposite is true. What’s easier for CBP to manage: a container full of a consolidated good, representing 1 shipment, with detailed manifest information, or a container filled with 1,000 separate packages, each with their own recipient and a vague description? As the President would say: “C’mon, man.”
Next Mr. Wastler felt compelled to add the “It’s not a loophole” refrain. As a fellow attorney, I know what he means, but it doesn’t matter. Logistics firms actively market de minimis as a “loophole” for importers to exploit, so again, Mr. Wastler has already lost the script here.
More discouragingly, he made the assertion that “descriptions can be more descriptive than an HTS number”. While true in theory, the actual practice is the opposite, as is known by all the field and was conveyed by both Ms. Lane and Ms. Smith. Finally, Mr. Wastler made assertions about the value of de minimis shipments. This was interesting, as CBP does not publish data on the value of de minimis shipments (only the volume), and has told CPA and others that it does not have this data. A question submitted to Mr. Wastler about the source of his data was submitted but not answered.