In a growing e-commerce world, import goods under $800 are now duty free, but brokers want equal scrutiny for goods of all values.
In the grand context of global trade, $800 might not seem like much. But that number has become a new threshold in a world being quickly transformed by the rise of e-commerce.
In February, President Barack Obama signed into law the Trade Facilitation and Trade Enforcement Act, and contained in that broader bill was a provision to increase the de minimis level from $200 to $800.
Shipments with values under the de minimis level receive simplified and expedited clearance at the border, are free of duties and taxes, and require no paperwork beyond an airway bill or ocean bill of lading. The level was raised after more than 20 years at $200 based on years of lobbying from small businesses, who claimed it did not reflect the current evolution of the global e-commerce market and was not commensurate with similar duty-free status for low-value goods in other countries.
The impact of the increased de minimis levels should not be underestimated. It opens up export avenues for foreign companies to reach consumers that were otherwise closed at the lower, $200 level.
According to an April commentary written by Hong Kong-based Michelle Leung, senior vice president at Fung Omni Services (the omni-channel services subsidiary of the sourcing house Li & Fung), small and mid-sized businesses “faced disheartening costs in the form of duty and burdensome paperwork. As a result, many exporters have avoided selling higher value items, instead opting to push items below the $200 cap. The new de minimis rate immediately removes these barriers to trade.”
The Express Association of America, which represents large global couriers, noted the higher de minimis level also reduces logistics costs for small and medium-size companies that import low-value components for their assembly operations, as well as for individual consumers who import single items that will not require a more formal entry process.
In addition, the EAA said the rule change will help increase exports because small firms are often reluctant to export due to the potential costs of the border clearance process if goods are returned.
But there are other aspects of the de minimis issue to consider, U.S.-based customs brokers say. Raising the de minimis threshold in effect expands the volume of goods that are outside the intimate view of U.S. Customs authorities, increasing security vulnerabilities and revenue collection. Customs, it should be noted, can still classify shipments under $800 as not exempt from duties if they deem importers are trying to circumvent U.S. regulations.
Customs brokers associations argue that exploding e-commerce, coupled with the higher de minimis threshold, creates a situation where more potentially unknown entities will be exporting to the United States at a time when fewer low-value goods will be subject to customs documentation.
The threshold itself is also of some concern, brokers argue. To some extent, the issue of importers trying to skirt duty payment and paperwork would exist at any threshold, but at the higher level, exponentially more entities and goods are in play.
If this seems to paint a picture where brokers are against an increased de minimis, that’s not necessarily the case. More accurately, they want goods that qualify for de minimis to be scrutinized as much as higher value goods.
The National Customs Brokers and Forwarders Association of America, in a Sept. 30 letter to U.S Customs and Border Protection (CBP) and the U.S. Department of Treasury, urged the government to “develop regulations that mandate that all goods entered into the United States are considered ‘customs business,’ thus requiring either the direct involvement of the actual importer or a licensed customs broker who is bound under TFTEA to validate an importer’s identity.”
In its letter, the NCBFAA called on CBP to promulgate rules that require importers of low-value goods to bear the same data requirements as shippers of goods over the de minimis level.
“For supply chain security, which includes physical safety issues, the protection of intellectual property rights, and the control of goods subject to trade protection measures such as anti-dumping or countervailing duty orders, CBP must establish an entry solution within ACE (CBP’s Automated Commercial Environment single window) to allow for enforcement of the trade laws and risk based targeting of inbound shipments,” the letter said. “Duty free does not mean data free.”
In part, the calls from the customs broker community reflect the reality of fewer business opportunities to work with emerging small and medium-sized businesses. Put another way, a $500 good shipped at the old de minimis level would have likely required an importer to work with a courier or standalone customs broker to determine duty owed and to ensure proper customs entry documentation was filed. Now, a broker no longer needs to be involved for an importer to clear that same good under the higher threshold.
Those entry fees can be significant for small exporters of low-value items—anywhere from $80 to $150 for the entry filing, according to trade compliance consultant and American Shipper columnist Beth Pride, president of BPE Global. According to several brokers that spoke with American Shipper, that fee generally ranges from $100 to $125 per entry filing. And that’s not counting another $25 or so for CBP’s Importer Security Filing.
The law, both before and after the value threshold change, does address the issue of an importer splitting shipments that are in reality a part of the same shipment.
“Consolidated shipments addressed to one ultimate consignee are treated as one importation,” CBP said in a guidance document released after the trade facilitation bill was passed, and “exemption is not allowed if CBP believes that the shipment is one of several lots covered by a single order or contract, and that it was sent separately for the express purpose of securing free entry or for the purpose of avoiding compliance with any pertinent law or regulation.”
That specific situation likely applies more to business-to-business shipments of low-value goods than instances of small foreign enterprises selling goods directly to U.S. consumers.
“Having the new duty-free threshold at $800, along with a simplified return process, will now make cross-border e-commerce cheaper, faster and more predictable,” Ralph Carter managing director, legal, trade and international affairs at FedEx Express, wrote in a commentary earlier this year.
Carter said the B2B aspect of the raised de minimis threshold is potentially significant as well, since it fosters simplified imports of parts and components that go into finished good exports.
“Finished goods are seldom completely made in one country—they have parts and value added from many different global markets,” he wrote. “Research has shown when a country improves its processing of imports, the biggest improvement is often in its own exports.”
But most believe the biggest impact of the raised de minimis level will be on e-commerce-related shipments.
“The increased de minimis is a watershed opportunity for B2C companies,” said Pride. “The new cut off point of $800 will benefit all but sellers of expensive goods, such as haute couture fashion. Businesses won’t see a great benefit because they import too much every day (since the de minimis exemption is limited to a single import of less than $800 per day).”
Some goods, like alcohol and certain perfumes, don’t qualify under the exemption, while only “non-commercial” shipments of goods that are subject to absolute or tariff rate quotas are exempt.
“That quota goods exception is not bad news for e-commerce sellers, at least in the B2C space, because purchases by customers for their own use are not ‘commercial’ but personal,” said Pride.
“The big impact here, in my opinion, relates to those e-commerce vendors accessing U.S. consumers,” said Angela Czajkowski, director of supply chain at the Baltimore-based customs broker and 3PL Shapiro. “With the improved service offerings of international couriers as well, we could see the combined result being a much higher volume of these small, direct-to-consumer shipments.”
There are also reports of companies staging inventory in foreign trade zones in Canada and then fulfilling smaller orders direct from there via courier. Whether or not that practice is common, the industry sees it as a possible loophole.
“With customs implementing tools like ACE in an effort to increase and improve visibility of imports, the de minimis limit change could certainly create blind spots,” said Czajkowski.
Leung, meanwhile, said she expects de minimis levels to rise worldwide as governments come to grips with the more e-commerce-based nature of their economies.
“Now that the globe’s largest consumer market has taken a step towards truly free trade, the spinoff effect could spark a wave of similar moves in other markets,” she wrote. “It’s rare for isolated actions of this sort by one key trading nation, so the expectations are for others to follow suit, with key markets in Europe and Asia hopefully looking to review their thresholds in a bid to further promote international trade and cross-border commerce.”
Eric Kulisch contributed to this report.