Forced Labor and the De Minimis Loophole: Two Sides of the Same Coin

(Op-Ed by NCTO President and CEO Kim Glas featured in Sourcing Journal and found on its site here.)

In a classic example of the government’s left hand not working in concert with the right, two contrary policies are facilitating the importation of millions of products into the U.S. market each day to unknowing consumers likely purchasing items made with forced labor and counterfeit products.

And it continues to put American manufacturers, workers, and consumers at risk without a legislative fix.

The policies at the heart of the issue are the recently implemented Uyghur Forced Labor Prevention Act (UFLPA) and a little-known legal trade mechanism dubbed “Section 321 de minimis,” in U.S. trade law that is in turn being exploited by Chinese e-commerce companies, online marketplaces and other mass marketers.

The de minimis mechanism allows a package of goods valued at $800 or less per person to come into the country duty-free every day. With the explosion of e-commerce shipments in recent years, it is now being aggressively used by Chinese e-commerce companies and other mass marketers that are shipping in millions of products directly to consumers that otherwise would be subject to tariffs, penalty tariffs, taxes, and customs inspection.

According to a recent Wall Street Journal article, there is a “big problem” with U.S. efforts to stop imports of Chinese products made with forced labor due to the de minimis loophole that allows millions of shipments duty-free that require little paperwork and are largely uninspected.

While Congress never intended for banned products made with forced labor in Xinjiang, China, to enter the U.S. market through the de minimis provision, every day, more than 2 million uninspected shipments enter the U.S. market exploiting this loophole.

In fact, the flood of de minimis shipments into the U.S. has turned into a virtual tsunami, soaring more than 350 percent over the past 6 years and overwhelming our ports and the government’s ability to adequately enforce bans on counterfeits, fentanyl and other illicit drugs, and goods made with forced labor.  De minimis shipments have undoubtedly spiked in recent years beyond the 2 million shipments U.S. Customs and Border Protection (CBP) estimated were arriving per day in fiscal year 2021.  This compares to fiscal 2016—the year Congress increased the de minimis threshold from $200 to $800—when CBP data estimated 150 million shipments entered the U.S. annually.

So, an efficiency tool for the Customs service, originally intended to take the burden off the agency on low-value items such as souvenirs brought back by tourists, has now been reportedly exploited by e-commerce companies and mass marketers for business efficiencies to skirt tariffs and the UFLPA—a glaring contradiction that undermines the efficacy of laws and Customs regulations and a huge win for China.

In effect, U.S. textile producers and other manufacturers are not only competing with forced labor production, but an import duty scheme that rewards such behavior in the form of a tariff subsidy. All of this is occurring in clear violation of the UFLPA. The exploitation of de minimis translates into a “de maximis” impact on domestic textile companies and those in our Free Trade Agreement partner countries.

While Congress raised the duty-free limit for de minimis shipments from $200 to $800 seven years ago, the Chinese government keeps its own de minimis threshold to a meager $8.

Fortunately, congressional leaders on both sides of the aisle have recently sounded the alarm about the de minimis mechanism, how it is reportedly exploited by Chinese e-commerce companies such as Shein and other mass marketers, and the backdoor access it provides to products made with forced labor in Xinjiang.

In the latest congressional action, Reps. Earl Blumenauer (D-OR) and Neal Dunn (R-FL), and Sens. Sherrod Brown (D-OH) and Marco Rubio (R-FL), introduced bipartisan legislation on Thursday in their respective chambers that would effectively prohibit non-market economies, including China and Russia, from exploiting the Section 321 de minimis mechanism. “The de minimis loophole is a threat to American competitiveness, consumer safety, and basic human rights,” said Rep. Blumenauer, who is ranking member on the House Ways & Means Trade Subcommittee. “It is used by primarily Chinese companies to ship over two million packages a day into the United States. It puts American businesses at a competitive disadvantage while flooding American consumers with undoubtedly harmful products.”

Separately, a group of more than two dozen bipartisan House members sent a letter to the acting commissioner of U.S. Customs and Border Protection, expressing concern that Shein and other companies with direct-to-consumer business models may be “actively skirting import restrictions and evading CBP enforcement, selling goods in the U.S. in violation of the UFLPA” by using the de minimis mechanism. The lawmakers pointed to a Bloomberg News investigative report,  in which lab testing conducted by the news outlet reportedly turned up cotton from Xinjiang in Shein’s apparel products.

House Ways & Means Chairman Jason Smith (R-MO) recently agreed this is a major problem. “It appears that loophole is almost an $800 free trade agreement for China for any products underneath that,” Smith said at a recent hearing.

And 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.

The stakes are high. It is time for Congress to take a stand and fully close the de minimis loophole. Failure to do so not only undermines the intention of the UFLPA, but also indirectly bolsters forced labor abroad.

Due to exploitative business practices, de minimis and forced labor have become two sides of the same coin. This coin should be taken out of circulation.

Kim Glas is the president and CEO of the National Council of Textile Organizations and is the former Deputy Assistant Secretary for Textiles and Apparel at the U.S. Department of Commerce.