The De Minimis Loophole Provides High Volume Immunity to Overseas Smugglers

Modern-day smugglers are using the de minimis loophole to bring in illicit imports of fentanyl, pill presses, and all manner of contraband. While it is certainly a problem for our domestic manufacturers that de minimis allows an end run around the American duty and regulatory regime, it is a problem for our national security that the same loophole incentivizes overseas vendors to avoid the tried and tested system of regular imports, which allows CBP to inspect packages and enforce our laws.

The biggest issues are (1) sheer volume, (2) lack of jurisdiction over the “importer”, and (3) inability to get accurate information on packages from foreign fly-by-night vendors. CBP has no ability, under any circumstances, to police millions of packages per day. Neither do FDA and the Consumer Product Safety Commission who also have the duty to enforce certain laws on imported goods. Contrast this volume with the 107,000 regular entry packages coming in each day.

The regulatory incentives for foreign vendors to ship small packages, rather than in-bulk with a U.S.-based importer, hasn’t always existed. Prior to 1994, foreign vendors were free to ship dutiable merchandise American consumers via the mail or courier, but these packages would be assessed by Customs like any other import, with fees of about $12 (inflation adjusted) being added to the transaction.

This system allowed customs officers to handle the workload, get accurate information, enforce our laws, and maintain jurisdictional accountability over known importers of record. Foreign vendors or shippers like FedEx, UPS and USPS did not have the “right to import”. That’s because they (1) have no knowledge of the packages, (2) no training on customs rules and information required, or (3) were unidentifiable and/or were not subject to U.S. jurisdiction if they break the law.

But in 1994 the Customs Service, as it was then known, issued an Interim Rule allowing foreign vendors to ship commercial shipments under a certain threshold directly to U.S. consumers without an assessment by a customs officer or the use of a customs broker. Filing the most basic document needed to ensure compliance with our laws, called an “Entry Summary”, was also waived. This was a logical extension of skipping the need for an assessment by a customs officer or broker, as an overseas vendor beyond our jurisdiction – or a courier – could not be counted on to accurately complete an Entry Summary.

Foreign vendors, who are often unidentifiable and not subject to U.S. law and have no risk of liability for violations, cannot be counted on to provide accurate data. This has been said explicitly by leading CBP officers today. The current Type 86 program within CBP, which allows vendors to provide more information like an Entry Summary, proves the point because the information collected has been wildly inaccurate.

The 1994 Interim Rule change was so egregious and unanticipated that customs brokers – the import agents who have strict obligations to comply with domestic law – sued over it. Their challenge was rejected due to Chevron deference, however their dire warnings memorialized in the 1995 Final Rule have all been borne out.

The most aggressive support for de minimis comes from the express shipping industry. They were behind the 1994 Interim Rule, and intervened in the customs brokers legal challenge. As the federal court noted in its decision, “resolution of this matter will define their frontier in this industry”. Their benefits, however, come at the expense of all other aspects of society. First, they displace U.S.-based importer-wholesalers, who are accountable for the merchandise they import, and pay U.S. income taxes. They increasingly service oversees e-commerce platforms at the expense of U.S.-based platforms; again, leading to both a tariff and income tax revenue hit. And most disastrously, the resulting transformation of import commerce from bulk-shipments organized neatly on pallets to air cargo filled with thousands of small consumer packages means that oversees smugglers enjoy virtually unfettered access to the U.S. market. There is simply no way to police, scan, and sort millions of daily small packages.