MARKET ALERT: SEPTEMBER 18TH, 2024
Market Alert: Potential Changes to the U.S. De Minimis Rule – What Businesses Should Know
We can thank Temu and Shein for this. Just Kidding. Sort of.
The influx of cheap goods from overseas is hardly a new trend. It’s one of the many reasons why global trade exists. But with e-commerce booming and Section 301 tariffs on Chinese goods, some clever players found ways to dodge duties. By shipping directly to consumers or setting up nearby distribution hubs, importers have avoided paying over 25% tariffs on low-value items like apparel and housewares.
That’s where the de minimis rule comes in. Since the 1930s, this rule has allowed low-value goods (under $800 in the US, Under CAD 15 in Canada, and Under EUR 150 in the EU refer to this link for other De Minimus rules) to enter the U.S. duty-free. It was a trade-off – the cost of taxing small shipments wasn’t worth the effort. But now, thanks to the surge in e-commerce – US imports jumped from 140 million packages a year to more than a billion in just 12 months – this rule is under review—and some big changes might be coming.
What is the De Minimis Rule Today?
As of now, shipments valued at $800 or less avoid duties and taxes when entering the U.S. (Fun fact: it was raised from $200 in 2016). While it’s great for consumers, it’s been a loophole for foreign e-commerce giants, especially from China. This has led to safety risks, IP violations, and unfair competition for U.S. businesses.
What’s Likely to Change?
The Biden-Harris Administration has proposed reform to tighten things up:
- Loss of Duty-Free Benefits: Shipments containing products subject to tariffs under “Sections 201, 301, or 232” of the Trade Act may no longer qualify for the de minimis exemption. This particularly targets goods from China, such as textiles and apparel, which account for a large share of low-cost imports. If your products are subject to these tariffs say good-bye to this duty-free perk.
- Increased Trade Compliance Requirements: New proposals may require more detailed information for de minimis shipments, such as “10-digit tariff classification numbers” and the identity of the party claiming the exemption. This would allow for better enforcement of U.S. trade laws and health and safety standards. This could increase your administrative burden, making compliance more complex and potentially slowing down your operations.
- Enhanced Safety Compliance: The “Consumer Product Safety Commission (CPSC)” is working on a rule that would require electronic Certificates of Compliance (CoCs) to be filed at the time of entry, even for de minimis shipments, to ensure products meet U.S. safety standards.
- Potential Delays: With U.S. Customs and Border Protection (CBP) aiming to block unsafe or non-compliant products, there may be increased inspections and delays in clearing goods at the border.
When Could These Changes to the De Minimis Rule Take Effect?
While the administration is moving forward with regulatory actions, “congressional approval is needed” for comprehensive reforms. A proposed timeline suggests the “end of 2024” as a likely target for new legislation. However, some changes, such as the rulemaking around tariffs and documentation, could be in place “within the next 6 to 12 months”, as these do not require legislative action.
What steps can your business take?
Given the potential changes, businesses, particularly those in e-commerce and international trade, should take proactive steps to prepare.
- Product Line Review: If your business imports products, especially from China, check whether your goods might be affected by changes to the de minimis exemption.
- Be Transparent with Product Valuation: Make sure you’re accurately reporting the value of imports to avoid compliance issues if documentation requirements become stricter.
- Cost and Pricing Pressures: If the reforms lead to higher duties and compliance costs, it could impact your pricing, potentially squeezing margins or requiring you to pass some costs onto consumers.
- Flexible Supply Chains Win: This is key during periods of volatility and protectionism in trade markets. Look to sources from countries other than China and create capacity in your supply chain to fulfill orders within the geography of the US. Stay informed as regulatory changes could happen quickly and understanding how new rules affect your business will be critical to avoiding disruption.
- Join the Conversation: Collaborating with industry bodies or legal advisors can help you stay ahead of the curve and potentially influence the direction of proposed changes.
ONLY THE PARANOID SURVIVE
As the U.S. government cracks down on de minimis abuses, businesses that rely on the de minimis rule should start preparing now, anticipating changes that may add complexity and cost to importing low-value goods. By staying informed and proactive, companies can adapt and continue to thrive in this evolving environment.
Need Help Navigating the Current Freight Market?
Have you met Captain?
Our End-to-End Visibility Platform
Visibility done right so that you can manage compliance, budget and expectations. Empowering you to confidently control your supply chain and deliver happiness to your customers.
We are ready to help
Logistics Solutions at your fingertips
We have team members ready to answer your questions.
Give us a call 516.593.5871 or chat on our website 💬
