Evidence continues to pour in that U.S. Customs and Border Protection (CBP) can’t do its job against the daily tidal wave of small packages sent from abroad. CBP has warned for years that “the increase in small packages is permitting bad actors to operate with relative impunity.” However advocates for the lawlessness, namely express shippers like UPS, FedEx, and DHL, promised legislators that improvements in “advance electronic data” for these small packages would make things better. Well, the results are in. As predicted, the data is junk and worthless.
Before we get to the latest failures of ‘advance electronic data’, let’s revisit why having millions of small package shipments arriving daily at our ports was always untenable anarchy.
Our laws on customs, product & food safety, and everything else never contemplated a huge volume of small package imports. Small package imports were never a material avenue of commerce. Importing wholesale is an ancient profession. Producers sell to merchants. Merchants buy and import in bulk, then sell their goods to distributors or do it themselves. Distributors sell to retailers. This describes the vast majority of commerce, even today. Sure, mail-order catalogs have been around since the 19th century, and consumers appreciate ‘factory-direct’ savings, but never before in history have those attempts to cut out the middlemen crossed international borders. Of course, as an individual, you could arrange to purchase many things abroad and import them yourself, but having to take on all the compliance costs (that were normally borne by the importer) ensured that individual imports never amounted to any significant volume at our ports. If you could buy something domestically, you’d do that. If you identified a significant price arbitrage opportunity with an import, you became a merchant! Consumer imports from abroad were limited to low volume specialty items not found domestically.
Even inter-state e-commerce broke the system. This point isn’t tied to customs law, but the episode is analogous to our current situation and instructive from an advocacy point of view. The advent of even domestic e-commerce was so radical it required a reinterpretation of the U.S. Constitution to address it. For most of Amazon’s history, e-commerce platforms were not obliged to collect sales tax in a state unless they had a physical presence there. Some states tried to, but Amazon fought them off, arguing that it would be “excessively burdensome”. (Remember this.) Meanwhile, as the Wall Street Journal reported, Amazon believed its ability to not charge state sales tax was critical to its success. This was extraordinarily unfair for brick and mortar retailers, and it wasn’t until South Dakota v. Wayfair (2018) that the U.S. Supreme Court decided they’d been wrong all along about the Constitution’s commerce clause. The issue was subsequently mostly fixed. The parallels with our situation are striking.
How international consumer orders used to work: With a few exceptions (like booze), American consumers have always been able to order items directly from foreign vendors through a process called “Informal Entry” (not to be confused with ‘de minimis’). With Informal Entry, so long as the merchandise was worth less than $1,250 (now $2,500), the vendor would ship the item to the United States, and the postal service (or express shipper) would hand it over to CBP. A CBP officer would examine it (important!), catalog the appropriate tariff item number (important!), rate of duty owed, if any (important!), affix a customs form to the shipment, and hand it back to the shipper for local delivery. In customs lingo, the package was “entered”. In tax lingo, we can say it was “assessed”. The shipper would then add its own customs processing fee (for USPS, $5). You’d pay when your package was delivered, or you picked it up at the post office. U.S. Customs even had handy F.A.Q. pamphlets that you could pick up at the post office:
As stated above, the volume of small shipments was low. If something was worth more than the Informal Entry threshold, you’d need a customs broker, but that wasn’t a big deal either. (Express shippers have offered this service in-house for decades). The important thing is that small packages were entered and assessed like all other imports.
The ‘de minimis’ loophole connected every fly-by-night vendor in the world with every U.S. consumer, without proper entry or assessment. To read more about what ‘de minimis’ is, see here for a high-level overview, or here (PDF) for a detailed legal history. The key thing to know is that when the de minimis loophole was created back in 1995, the entry and assessment requirements were thrown out. By simply indicating on a package that the value is worth less than $800 in their country, de minimis enabled any vendor, anywhere on Earth, to ship that package directly to U.S. consumers. The U.S. consumer would probably not even be aware the package was shipped from outside the USA. The biggest part of the loophole was when Customs waived the requirement to ‘enter’ the merchandise by filling out an Entry Summary (the most critical customs document), and waived any duty that would be owed. CBP calls this “manifest release” or “manifest clearance”. The manifest tells CBP nothing about the buyer and seller to the transaction, nor does it include any of the useful data that would be listed on an Entry Summary. The shipment goes uncatalogued. It doesn’t even show up in our macro trade data published by the U.S. Census.
De minimis enabled an explosion in small package shipments. The one limiting rule of de minimis is the “one shipment per person, per day” aspect, meaning traditional importers-wholesalers can’t fill a pallet with a product shipped to a warehouse and claim de minimis for each individual product.
For this reason, even though express shippers succeeded in creating the de minimis loophole in 1995, its use didn’t take off until the 2010s, when a trifecta of events supercharged its popularity. First there was the expansion of the limit from $200 to $800 in 2015. This happened alongside the development of sophisticated logistics software that could individually itemize thousands of shipments on a single Master Airway Bill. This was followed by the imposition of additional tariffs on Chinese merchandise in 2018. The China tariffs never get assessed if the shipper claims the package is under $800, so Chinese vendors in particular had a financial incentive to not use orderly, traditional shipping channels.
The numbers tell the story: In 2010, there were 722,000 de minimis shipments, less than 2,000 per day. A manageable, but still high, number for CBP to inspect (especially as under de minimis, there was no requirement to enter the goods or do an assessment). A decade later, that number had increased more than ten times, to 771.5 million, over 2,000,000 per day.
When did we first realize we had a problem? This problem first manifested itself to Congress by way of the fentanyl crisis. By the mid-part of the last decade, the shipping of synthetic opioids through the mail and express couriers had been identified as a major concern.
In January 2018, the U.S. Senate Permanent Subcommittee on Investigations (PSI) held hearings. The PSI Staff Report found that by 2015, “[t]he rapid growth of inbound international mail packages presents challenges for CBP’s effective screening and inspection.” In 2018, the PSIA PSI Staff Report described CBP’s alarming approach to screening mail package shipments:
CBP inspected international mail from specific countries determined by the agency to be a “country of interest” or “country of concern.” CBP officers then manually inspected all of the mail the Postal Service received from those targeted countries. CBP officers told the Subcommittee that the targeted countries periodically changed based on CBP officers’ experience, knowledge, and threat assessment. At times, however, CBP did not list China on its country of interest list solely because the incoming volume was too great.
Small package shipments is a numbers game. It’s critical that the volume be kept low to ensure integrity at our ports. The PSI Staff Report noted attempts at cooperation between CBP and USPS suffered from “conflicting missions” (pg. 4) and that “the relationship between CBP and the Postal Service was strained.” (pg. 5). This was inevitable, as Congress allowed the two to have incompatible missions: move the mail, but screen everything.
Express shippers were not the focus of concern, because back then, they were providing electronic data to CBP that theoretically was useful in targeting packages, while USPS was generally not, aside from a pilot program.
What was the result of the Senate hearings into opioids being shipped via the mail? The legislative result was the “STOP Act”, which set targets requiring foreign postal authorities to provide “Advance Electronic Information” (“AED”). The idea was that with this advance electronic data, CBP could better “target” which of the two million+ daily shipments it should set aside for an x-ray or a canine search.
Mandating Postal AED as the legislative response was a sure-fire loser, as evidenced from the PSI Staff Report’s own damning findings. Finding of Fact No. 16 from the PSI Staff Report is worth reading and digesting:
(16) The AED the Postal Service receives from foreign postal operators is of low quality. The data reviewed by the Subcommittee did not contain standard fields or address constructions. Sender name and address were rarely provided. At times, the data was a long line of illogical letters and characters.
Finding of Fact No. 11 also foreshadowed the failure:
(11) CBP Has Not Studied the Effectiveness of Using AED to Target Packages. Although CBP promotes the utility of AED for targeting purposes and insists on receiving every targeted package, CBP has yet to analyze the effectiveness of using AED to target and interdict drugs or other prohibited items.
How do we know the STOP Act failed? Well, one change is China Post does now provide electronic data (i.e., long lines of illogical letters and characters) on virtually all mail shipments to the United States, up from about half in 2018. Has CBP been able to do anything useful with all this junk AED? No. In September, the U.S. Department of Homeland Security (DHS) Office of Inspector General (OIG) released a report bluntly titled “CBP Did Not Effectively Conduct International Mail Screening or Implement the STOP Act“.
GovExec reported on DHS’ findings: “The AED frequently contains inaccuracies, the auditors found, and CBP and USPS take few steps to validate it. Two of the nine international facilities placed holds on zero pieces of mail between 2019 and 2021.”
These findings weren’t a surprise to those tracking the explosion of small shipments under de minimis. In April 2023, at CBP’s Trade Facilitation and Cargo Security Summit, CBP’s Executive Director for trade Brandon Lord noted about de minimis that “it’s so easy to sell directly to U.S. consumers from overseas and mail the merchandise to them. And there’s zero incentive as that foreign shipper, or foreign seller, to learn the requirements to enter the United States.”
What about with express shippers? First, the good: The Trade Act of 2002 required that express shippers provide AED, specifically sender name and address, recipient name and address, and a plain-language description of the merchandise. This is bill of lading data, i.e. very limited. Nonetheless, providing it was more feasible for express shippers than postal operators, because express shippers typically control packages from acceptance to delivery. And the PSI Staff Report credited express shippers with being much better than USPS at presenting a package to CBP that CBP wanted to inspect.
Now, the bad: the PSI Report investigators found (Finding of Fact No. 2) that online fentanyl sellers also shipped through DHL, FedEx, and UPS. Finding of Fact No. 18 was also concerning:
(18) ECOs [Express Shippers] Do Not Share Information on Problem Shippers. While FedEx and UPS maintain lists of individuals and entities that are not allowed to ship packages through their networks, they do not share these lists with CBP, the Postal Service, or other ECOs. DHL does not maintain such a list.
When you look at CBP regulatory dockets, the intransience of DHL, FedEx, and UPS becomes wildly apparent. In 2019, CBP wanted to address the fact that while the vast majority of customs brokers were good at getting to know their clients, the law had virtually no requirements on that front. CBP proposed 12 data elements that brokers should record to know their client, and the express shippers were wildly hostile. DHL wrote of CBP’s proposed rule that it should “eliminate requirements to provide government issued identification forms”. FedEx wrote that they found it “unclear why information such as a client’s date of birth, business website and credit report are necessary.” UPS was even wilder, telling CBP that “individuals should not have to provide their email address if they do not want to. The storing of email addresses are a cyber security concern for us as well.”
Got that? UPS thinks storing email addresses is too much of a security concern!
Ironically, in that same docket, the trade association of the big 3 shippers (Express Association of America) admitted the truth as to why relying on targeting shipments based on AED will never work. Michael Mullen, Executive Director of the Express Association of America, wrote:
“A sophisticated shipper of illicit goods will find ways to provide the required information and thereby hide its true identity by appearing to meet the program’s requirements. An unsophisticated shipper of illicit goods will change its identity (name and address) every time it is caught and continue in business under a new identity.” (Comment ID USCBP-2019-0024-0049)
This is exactly right, and why allowing overseas vendors to ship mass volumes of small package shipments that aren’t manually entered and assessed is an invitation to lawless anarchy.
The ‘De Minimis’ Digital Data Pilots Have Failed, too. In 2019, two “pilots” were launched by CBP to provide advanced electronic data. One was called the “Section 321 Data Pilot”, which let Amazon, eBay, and Zulily provide product page internet URLs in lieu of a proper Entry Summary (and with no liability on the platforms’ part). The other pilot was called “Type 86 Entry”, which let brokers and other businesses voluntarily file the data elements normally included on the Entry Summary. Sal Ingrassia, former port director at JFK Airport (which had him overseeing about one-third of the de minimis entries to the U.S.), told an audience at CBP’s Trade Facilitation and Cargo Security Summit this year that “It was alarming to see we had so many violations” in the data pilot.
Customs Brokers Trafficking Fentanyl Through De Minimis Data Pilots: In September, International Trade Today reported that CBP broker management officials had “recently visited nearly a dozen different brokers who had filed more than one Type 86 entry for a package that CBP discovered contained fentanyl.” This is outrageous. Type 86 is an entirely voluntarily data pilot, presumably for the most trusted of businesses. Do you think you would still be walking free if you had been caught multiple times with fentanyl in your vehicle while crossing the border?
So AED is useless? No, but it’s not enough to stay ahead of criminals in the small package shipments environment, where the shipper making all the declarations is totally outside our jurisdiction.
AED is great for traditional bulk imports. Thanks to AED, by the time an ocean vessel filled with containers arrives in port, CBP has had possibly weeks to review the data and look for suspicious shipments. And because it’s a traditional (formal or informal) entry, the Importer-of-Record is U.S. based (or at least has a U.S. customs broker) meaning they can be questioned further and held accountable.
So are things getting better? No, they’re getting worse. Drugs are still pouring in:
In June 2023, CBP stated that:
- The overwhelming volume of small packages and lack of actionable data limit CBP’s ability to identify and interdict high-risk shipments that may contain narcotics, merchandise that poses a risk to public safety, counterfeits, or other contraband.
- In FY 2022, CBP cleared over 685 million de minimis shipments with insufficient data to properly determine risk.
- While CBP receives some advance electronic data for Section 321 shipments from carriers, the transmitted data often does not adequately identify the entity causing the shipment to cross the border, the final recipient, or the contents of the package.
In each of its annual Travel and Trade Reports, from 2018 to most recently in 2022, CBP has repeated the same following warning verbatim: de minimis has “created a paradigm shift in the traditional roles and responsibilities associated with importing into the U.S.” where “the challenge is a new class of importers—everyday consumers who are unfamiliar with trade laws and requirements. The consumer now initiates most imports, presenting CBP with additional challenges.” As to providing correct information, CBP can only hope. At the April 2023 CBP Summit, Brandon Lord asked de minimis shippers: “When you take a package on behalf of somebody from overseas, do they understand the requirements that need to be met in order to enter the United States? And if they don’t, what kind of steps do you need to take to educate them?”. This was right after Director Lord remarked that they have “zero incentive” to learn the requirements! This is the enfeebled reality of CBP.
So what needs to happen? A full repeal of de minimis, to start. Go back to the pre-1995 situation. E-commerce will be fine (the vast majority of e-commerce does not use de minimis). CBP needs to be able to inspect every small package that arrives from abroad, and do a proper Entry and Assessment for that package.
Will repealing de minimis make things more expensive? No. You’re familiar with the standard shipping container, the ones you see on trucks on the street and in pictures of ports. This was a post-WWII innovation. Having a standard container size which can be lifted directly from ship to truck with no unloading was a cost saving revolution. Leaving de minimis will return us to these efficiencies, and be much more environmentally friendly to boot.