The Coalition for a Prosperous America was given a major spotlight on Thursday in a House Ways and Means Trade Subcommittee hearing about ways to modernize Customs in the era of global e-commerce and concerns about the risks of Asia-centered supply chains.
The full Committee’s Chairman, Rep. Jason Smith (R-MO), asked CPA CEO Michael Stumo about the de minimis exception to customs treatment of imports, which was dramatically expanded by the Customs and Border Protection Agency (CBP).
President Biden’s veto of a bipartisan @WaysandMeansGOP bill to hold Chinese companies accountable for dodging American tariffs sends the wrong message to China:
“We will allow trade cheating…We want cheap stuff at any cost. We don’t really care about forced labor.” pic.twitter.com/xqPyXETDlW
— Rep. Jason Smith (@RepJasonSmith) May 25, 2023
“De minimis, also known as the “Amazon loophole”, is a serious flaw in customs law that allows over two million packages per day to enter the U.S. without meaningful inspection, tariffs, country of origin information, or HTS codes.” Stumo said.
CPA advocates for eliminating de minimis or at the very least keeping China origin goods out of the program.
“The CCP is always looking to circumvent and undermine US trade policies,” said Rep. Smith. “How does China use the de minimis provision to avoid tariffs, especially those in Section 301?”
Stumo noted that some 62% of the de minimis eligible shipments are from China. “Shein and Temu exist solely because of de minimis,” he said of the fast fashion juggernauts that will soon eat into Amazon’s market share as the China-direct-to-America consumer model has made them both one of the most downloaded smartphone applications in the country. “CBP has allowed China to avoid the Section 301 tariffs and anti-dumping duties because of how hard it is to police de minimis.”
Stumo was one of four witnesses at Thursday’s hearing, titled Modernizing Customs Policies to Protect American Workers and Secure Supply Chains.
Chairman Smith asked about solar and the recent veto of the Congressional Review Act, which would override the White House’s two-year gift to four Chinese solar companies in Southeast Asia that have been found to be illegally circumventing tariffs imposed on them. “What signal does that send to the Chinese?”
Stumo didn’t mince words about what Biden’s rule means. “We will allow trade cheating… It tells them we want cheap stuff at any cost. We don’t really care about forced labor.”
The hearing focused mainly on forced labor products still entering the U.S.; the lack of data on packages being flown into the country that are eligible for de minimis duty-free entry; and de minimis more broadly.
One witness, Fred Ferguson, Vice President of Public Affairs for Vista Outdoor, told the Committee that some of his more whimsical bicycle and skateboard helmets for kids (think dragon tails and mouse ears on helmets) were quickly copied by the Chinese and are sold into the market via de minimis. Ferguson, however, was not against de minimis despite that, and said that he thought it would work if de minimis was only allowed to be shipped into the country through Foreign Trade Zone jurisdictions.
“Companies would inspect everything and CBP agents are all there,” he said. But moving to FTZ, of course, would not stop China from copying his product and shipping it into the country even through an FTZ. “It would require our lawyers suing in courts here, and then taking it up in courts abroad,” he said. “We have seen de minimis used to skirt taxes on fishing and archery equipment that we make, and this disadvantages companies like ours that play by the rules,” Ferguson said.
CPA opposes Ferguson’s proposal because it would expand the de minimis exception, and the harm it causes, even more.
Stumo mentioned the impact of de minimis on Liberty Tabletop, a flatware manufacturer in upstate New York, and Kent International, a bike company in South Carolina. “De minimis has led to ungovernable lawlessness. Congress should end the de minimis exemption, or at the very least get China out of it,” Stumo said.
Here are some of the exchanges between Committee members and witnesses. Actual quotes are in quotation marks. The rest is a summary.
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Rep. Earl Blumenauer (D-OR): “There is a difference between the authority of Customs and the ability. No one doubts they have the authority, but with two million packages coming in a day, they clearly don’t have the ability.” He asked Stumo about CBP’s task and whether they were equipped to handle the onslaught of de minimis packages each day.
Stumo: “There is no relevant data on what’s in the packages. We don’t have the HTS code. All we know is the post office in China sent us a package and if there is some info on the package, all we are doing is relying on what people told the post office in their home country.”
Rep. Blumenauer: Asked Martina Vandenberg, president of the Human Trafficking Legal Center, what closing the de minimis loophole would do to aid Customs in its task to stop the flow of products banned by the Uyghur Forced Labor Prevention law.
Vandenberg: “It would be much easier to stop goods made with forced labor without de minimis.”
Rep. Carol Miller (R-WV) asked about China shipments and de minimis. What do we know about it?
Brenda Smith, Global Director of Government Outreach at Expeditors International: “We need the right data from the right parties. One of the reasons CBP and the other regulatory agencies are somewhat blindfolded is because they don’t have the right data from parties in the supply chain. CBP doesn’t have the resources to enforce the huge tide of packages incoming under de minimis.”
Michael Kanko, CEO, ImportGenius: “We are flying blind on air cargo data, which makes up nearly half the value of the products being imported to the US and, moreover, makes up a huge percentage of products associated with the Uyghur Forced Labor law. All we can see now is what is coming in by ocean in terms of transparency. We need visibility on air data, if you want to see what’s coming into the country and make calls based on the facts….We have a big blind spot with China via air. No idea what is coming in.”
Rep. Jimmy Panetta (D-CA) talked about this lack of trade data mentioned above. He also talked about forced labor and fishing, with forced labor especially for migrant workers. “What actions can CBP take to increase costs for companies that import fish from forced labor vessels?”
Vandenberg: “Two things can happen. First you need more Withhold Release Orders on fishing issues. There are WROs still pending. We have called for additional findings from CBP and have asked them to fine companies importing forced labor goods and to date there has been only one fine and it was quite low.”
“Forced labor is far too prevalent. It undercuts American workers and American companies. I represent a company – Hemlock Semiconductor Corporation – shuttered a facility they were building in the US before it was even ready to operate because they couldn’t compete with China on manufacturing polysilicon for the semiconductor and solar industries. We worked on the CBP to issue the WRO on poly. It took a year. Once that was issued, we saw a demand for local poly, including at Hemlock; hundreds of jobs were restored.” – Rep. Dan Kildee (D-MI), May 25, 2023, House Subcommittee on Trade hearing.
Rep. Dan Kildee (D-MI): “What can CBP do better, besides just asking for more resources?”
Vandenberg: “We are all concerned that the Entity List for the Uyghur Forced Labor law is too short. More companies need to be added to that list.”
Stumo: “Forced labor in China is state-sponsored by Beijing and it is genocide according to two administrations. All the programs in Xinjiang are organized from Beijing. It’s very hard to enforce and China moves very rapidly and at a high volume to escape the law.”
Rep. Greg Murphy (R-NC) talked about supply chain risk in medicine. “We are getting generics that have not been inspected by our own FDA. And yesterday we voted to override Biden’s veto to waive solar tariffs. Sadly, we were not successful. I think we are just giving everything plus the kitchen sink to China.”
Stumo: “We are not serious about our trade laws. As you know, Ronald Reagan once determined we needed to cut off trade and capital markets access from the Soviet Union…but look at China by comparison today. We send them a trillion dollars in (portfolio) capital. No one funds China like we do. The Europeans don’t. The Japanese don’t. The Germans don’t. It’s us. We are building up China because we can’t figure out that we should build stuff here and get our people to produce more of the profits in this country.”
Rep. Jodey Arrington (R-TX): “I appreciate concerns we all share about forced labor…(but) China also steals our IP. China is our biggest threat and they are the worst human rights violators and yet we work so hard to have a reciprocal trade partnership. We hold a different standard for China than we do any other country. We can be indignant about these things when the country has a small market. But when it is a big market, we ignore it. And I know I’m speaking against my own constituents’ interests. I have a huge cotton business in Texas and their No. 1 market is China. But this relationship is not working.”
Stumo: “I feel like we are stuck in Groundhog Day. We tried going the World Trade Organization route, letting China in and thought they’d be an open capitalistic democracy someday. Didn’t happen. Our relationship is non-reciprocal. The thing we like most is that they produce cheap stuff for us rather than us producing stuff. Then we talk about allies taking China’s place, but they are fair-weather friends with their own interests. Meanwhile, China dominates its home market for goods and then exports. We don’t even dominate our own market. We can’t buy Chinese land. We can’t put our NGOs in their universities. But they can. They don’t allow our goods into their market duty-free like we do. And yes, they steal our IP and later ship it back to us and it probably comes in through de minimis. There is no other country that absorbs the kind of excess production China has to offer the world. Nobody but us.”
Rep. Arrington: “That is the best, most comprehensive explanation I’ve heard since I’ve been on this Committee. And also, we borrow money from China and we also pay them back in enormous amounts of interest and that interest is going up.”
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Earlier this month, CPA’s Economics Team released a new analysis that estimates de minimis imports from China hit $188 billion last year. The uncounted imports increase the actual 2022 U.S. goods trade deficit by 16% from $1.19 trillion to $1.38 trillion, representing some 8.3 million lost U.S. jobs.
CPA urged CBP in November to issue a public correction of de minimis shipments after it released false government statistics.
CPA strongly supported legislation introduced by Blumenauer in the last Congress, called the Import Security and Fairness Act, which would address the de minimis loophole. This bill was included in the trade title of the House China bill that passed last February.
Read Stumo’s oral testimony here.