A third of e-commerce imports could be impacted if the Biden administration, as expected, this week further moves to plug a vulnerability in the nation’s trade system by excluding merchandise covered by tariffs on China from a program that offers duty-free access for low-value shipments.
U.S. border authorities on Monday said they will require certain shippers to electronically submit additional data on low-value consignments prior to arrival so they can more effectively target high-risk shipments for inspection, including those that contain synthetic opioids like fentanyl. The requirement applies to goods subject to the regulatory jurisdiction of other agencies, like the U.S. Consumer Product Safety Commission. Otherwise, it is optional for shippers who want to receive faster clearance.
The proposed rulemaking is part of a broader crackdown on business-to-consumer e-commerce shipments, primarily from China, valued below $800 that are exempt from duty and tax payment. Parcels shipped under the de minimis rule have much less rigorous information requirements than goods declared on formal customs entries. Customs officials say criminal elements take advantage of the system to smuggle dangerous and counterfeit goods into the United States.
The draft regulation formalizes an existing test program that gives importers expedited clearance in exchange for voluntarily submitting more data about individual parcels. Most e-commerce shippers already use the so-called Type 86 filing process, so the proposal is likely to have limited impact, according to an initial analysis of the notice from U.S. Customs and Border Protection.
The agency said it will publish a second proposed rulemaking in the coming days, which is expected to limit Chinese e-commerce platforms from participating in the de minimis program. In September, the White House said it would tighten eligibility and increase information requirements for low-value imports that qualify for duty-free status in an effort to prevent businesses from evading duty payments, circumventing safety standards and smuggling illicit products.
According to CBP, 61% of all de minimis entries come from China alone.
The Office of Management and Budget on Tuesday appeared to have concluded the review of a proposed rulemaking that would deny de minimis privileges to any products subject to trade remedy regulations, according to the agency’s website. The rulemaking is expected to apply to several categories of tariffs, but essentially targets Chinese goods under Section 301 tariffs imposed by President Trump in 2018 on a wide range of products.
The Section 301 tariffs, which can be as high as 25% of the product’s value, currently apply to about 40% of U.S. imports, including 70% of textiles and apparel, from China.
About 70% of the de minimis traffic from China falls under the Section 301 product list, which would make more than third of shipments ineligible for the duty exemption under the proposal, experts say.
The fact that OMB has concluded the review so quickly suggests the administration is trying to ram it through before the Biden administration is out of power on Jan. 20, a trade policy expert said on condition of anonymity to be able to discuss sensitive issues.
Marianne Rowden, CEO of the E-Merchants Trade Council, said she anticipated a second de minimus rule will clamp down on eligibility.
Denying de minimis benefits from goods subject to the Section 301 tariffs would immediately eliminate de minimis treatment for more than half of all low-value entries from China, according to the House Ways & Means Committee, which is considering legislation to reform the de minimis process.
In an interview, Lenny Feldman, managing partner at trade law firm Sandler, Travis & Rosenberg and a former senior attorney at U.S. customs, agreed that a large number of e-commerce shipments could fall out of de minimis and have to go through the formal or informal entry channels, which mandates that entries be made by a bonded importer who is responsible for paying the duties.
The stakes could be even higher under the incoming Trump administration if it decides to expand the Section 301 tariffs to other countries, as the president-elect has threatened. Restricting eligibility for Vietnam, Malaysia and other countries in Asia could knock out an additional 10% to 15% of low-value shipments from the de minimis program, Feldman estimated.
Trade enforcement challenges for e-commerce
E-commerce shipments from China to the U.S. increased after Congress in 2016 raised the duty-free threshold to $800 but exploded during the COVID crisis when people flocked to online shopping platforms. CBP has been overwhelmed by the volumes of de minimis shipments, which have skyrocketed from 134 million per year in 2015 to more than 1 billion pieces in 2024. The vast majority of shipments arrive by air through express consignment or postal networks.
To increase visibility and expedite a border clearance process that relies on a carrier’s limited manifest data, CBP in 2019 initiated a test of a voluntary Entry Type 86 procedure for self-filers and brokers to electronically transmit shipment data through its trade processing platform. Type 86 is the required method for goods that fall under the import jurisdiction of other agencies, such as the Food and Drug Administration, and requires a 10-digit tariff classification code and other data elements. Many companies without specialized products opt for the electronic Type 86 entry because it provides almost immediate clearance compared to clearing shipments off the carrier manifest – a very manual paper process that can take days for U.S. Customs to complete.
CBP last year upgraded the Type 86 process to require that most transactions be filed prior to the arrival of the imported parcel.
The agency said in Monday’s notice that the provision of information on the contents of shipments would allow officers to more accurately identify suspicious packages and determine eligibility for the administrative exemption prior to arrival.
The enhanced entry process proposed by CBP for low-value shipments won’t be much of a burden for most shippers because it essentially builds on the Type 86 process they already follow, with many separately providing an additional layer of data through a voluntary pilot program, according to trade enforcement analysts.
Customs brokers, express delivery companies and online marketplaces in the data trial provide a link to the online product URL, an X-ray of the product or the product code, as well as the seller, the purchaser, the marketplace and the retail product description. The voluntary program helped CBP understand what data elements companies could effectively provide, setting the stage for the new rulemaking. Participating companies had an inside track for understanding what new regulations would look like and are in the best position to adapt to the new rules, said Feldman.
“For those parties who are already involved in the Entry Type 86 test and providing the Harmonized Tariff Schedule number, and on top of it doing the pilot, I think it’s going to be business as usual,” he said. The new rules could be more challenging for other companies, but CBP is also offering a basic entry process that requires a reduced amount of advance data. The downside, Feldman explained, is that U.S. customs will have to provide a manual, instead of automated, approval for shipment entry.
The fact that CBP is still not requiring parties to procure a customs bond to make a de minimis entry puts a lot of risk on the brokers and express carriers that are handing the customs declarations, or on the consignee for basic entries, Feldman told FreightWaves. “[Intermediaries] are really going to be in the hot seat to make sure the entry is done right because a lot of these parties hiring them are overseas” and outside CBP’s enforcement reach.
The new regulatory regime is forcing online marketplaces like Shein and Temu to revert to more traditional logistics arrangements, such as shipping goods in bulk by air and ocean and fulfilling orders from U.S. or Mexican warehouses. The Mexican government, however, last month changed trade rules on apparel, effectively ending the “border-skipping” strategy that some e-commerce sellers use to avoid tariffs by importing through Mexico so Chinese-manufactured goods can be treated the same as Mexican-manufactured goods.
The National Foreign Trade Council, which advocates for open trade policies, argues that trying to collect revenue on products subject to Section 301 and other trade remedies will require a huge infusion of resources and end up costing more than is taken in, especially considering that the average de minimis shipment is only $54 in value and CBP is already severely understaffed.
The notice of proposed rulemaking will undergo a 60-day comment period.
Click here for more FreightWaves/American Shipper articles by Eric Kulisch.
Write to Eric Kulisch at ekulisch@freightwaves.com.
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