Congressional and federal regulatory scrutiny of Chinese imports entering the U.S. through a trade loophole in U.S. trade law has intensified over the past few weeks, as calls to address and potentially change a little-known legal trade mechanism known as “Section 321 de minimis” continue to gain momentum.
Key Republican and Democratic lawmakers on Capitol Hill, including the House Ways & Means Chairman, the Chairman of the Select Committee on the Chinese Communist Party (CCP) and senators have weighed in on this mechanism.
The de minimis provision of U.S. trade law allows a package of goods valued at $800 or less per person to come into the country duty free everyday through e-commerce. And it is now being aggressively used, letting millions of products into the U.S. market duty free that otherwise would be subject to tariffs, penalty tariffs, taxes and customs inspection.
In 2016, the U.S. government raised the de minimis threshold to $800 while the Chinese government kept its own threshold at meager $8. Since then, e-commerce shipments from China have exploded, reportedly driven in large part by Chinese e-commerce companies and other mass marketers, which have enjoyed meteoric growth.
In fact, U.S. Customs and Border Protection (CBP) estimates that we are on pace to hit over 1 billion in de minimis shipments this year alone, which equates to approximately 2.7 million shipments a day. This is estimated to be the highest spike in de minimis imports—up from 2 million shipments per day in fiscal year 2021. To provide further context to the alarming nature of this exponential growth in de minimis shipments, CBP data estimates that these shipments totaled only 150 million in fiscal 2016—the year Congress increased the de minimis threshold from $200 to $800.
Congressional leaders have recently sounded the alarm about the de minimis mechanism.
Most recently, Sen. Marco Rubio penned an op-ed published in Newsweek on the de minimis loophole that is reportedly allowing goods made with forced labor to enter into the United States unchecked and undermining the Uyghur Forced Labor Prevention Act (UFLPA). Sen. Rubio says it is time to “reevaluate our nation’s de minimis standards.”
Rep. Earl Blumenauer (D-OR), ranking member on the Ways & Means trade subcommittee, who is the lead sponsor of legislation aimed at prohibiting goods from non-market economies that are also on a government trade watchlist–China—from benefiting from de minimis treatment, said at a House Ways & Means hearing on May 9 that he planned to reintroduce his legislation in this session of Congress, and he appeared to gain some support from Chairman Smith.
He said companies use “creative invoicing” on imported products or shipments valued at over the $800 de minimis threshold to take advantage of the duty-free benefits and evade inspection, noting the loophole is “swallowing the exception in ways that are really detrimental to American business and the safety of American consumers.”
And in what could prove to be a defining moment, House Ways & Means Chairman Jason Smith (R-MO) agreed this is a major problem.
Their full exchange can be viewed here:
The House Select Committee on the Chinese Communist Party (CCP) recently opened a probe into companies and brands at the center of allegations over tainted apparel tied to forced labor in Xinjiang and the reported abuse of the de minimis loophole.
Rep. Mike Gallagher (R-WI), chairman of the committee was recently on major news networks to voice concern about the aggressive use of the de minimis loophole and compliance with UFLPA. See the video clip here:
Congressman Gallagher also addressed the de minimis issue specifically in a video he released on Twitter. See the clip here:
“The de minimis exception wasn’t supposed to be a loophole for foreign businesses looking to skirt human rights legislation and taxes,” Rep. Gallagher said. “It was meant to minimize the burden on customs agents actually.”
In addition, Democratic leaders from the China Select Committee have made recent comments. See a clip here:
The National Council of Textile Organizations (NCTO) has been highly engaged on these issues for the past four years, raising concerns about the flagrant use of de minimis to facilitate nearly 3 million packages a day to the U.S., allowing tainted and counterfeit apparel and other consumer products to bleed into the U.S. market.
NCTO has testified at congressional hearings and engaged in numerous meetings with lawmakers and U.S. trade officials. She has also raised alarm over the issues in countless interviews and several op-eds.
See Glas’ three op-eds on de minimis here:
- Newsweek Loopholes Continue to Undermine American Manufacturers and Give China an Advantage | Opinion
- The Hill It’s time to close a gaping import loophole to improve US competitiveness against China
- Sourcing Journal Congress Should Act to Rebuild Supply Chains at Home: There’s Bipartisan Room to Run
As Glas notes in her op-eds, “At $800, the United States has one of the highest in the world. While we hold our door wide open, the Chinese government keeps its door virtually shut [to U.S. exports]. An $800 versus $8 limit is hardly a reciprocal arrangement. Instead, we’re unilaterally giving China a massive tax and trade concession. The very least we should do is match China’s threshold.”
Meanwhile, Congress passed, and the President signed into law, the ULFPA in December 2021, there has been global condemnation about the abuse of Uyghur minorities in Xinjiang, China and numerous exposés from prominent news outlets about the use of forced labor to make widely known global apparel brands and labels.
A Bloomberg report seemingly crystallized the connections through laboratory tests conducted by the news outlet that reportedly found garments shipped to the U.S. by Shein were made with cotton from China’s Xinjiang region.
This is clearly a case of two government policies—UFLPA and an outdated de minimis mechanism– working at cross-purposes. We are seeing the unintended consequence of one policy canceling out the other.
The de minimis mechanism is literally undermining efforts to hold China accountable, hurting American manufacturing competitiveness, and stifling the government’s ability to enforce the UFLPA.
Intensifying pressure on the two Chinese e-commerce giants to change their practices is a step in the right direction but to truly address the root cause of the problem, Congress should and can act to close the de minimis loophole.
Last year, the House of Representatives passed legislation with bipartisan support that is designed to close the de minimis loophole, but the legislation to date has stalled in Congress.
Closure of this loophole will prevent companies from overtly circumventing other measures to curb China’s illegal trade practices, including the 301 tariffs and the Uyghur Forced Labor Prevention Act. And help level the playing field for American textile and apparel manufacturers.