De minimis trade loophole

On September 13th, the Biden administration revealed that it would target a trade loophole that benefits Chinese E-Commerce Companies such as Shein and Temu. Under an existing de minimis provision in U.S. trade law, shipments sent to the US with a fair retail value under $800 are exempt from import duties and processing fees. Additionally, they face a lower degree of scrutiny than is typically given to shipments of commercial goods.

 

Alleged exploitation of the de minimis provision

The rationale behind a de minimis provision is to exempt matters that are too trivial or minor to merit consideration. Here, the goal is to exempt low-value gifts and souvenirs from excessive fees and regulation. However, lawmakers allege that Chinese E-Commerce Companies such as Shein and Temu are exploiting this provision to send bulk shipments of commercial goods duty-free and with lower scrutiny. On September 13th, the Biden administration stated that it would start “a regulatory process to curtail de minimis overuse and abuse”.

 

Overuse of de minimis shipments

The volume of packages falling under the de minimis provision has exploded over the past decade, growing from 140 million packages to over one billion in 2023. A Biden administration statement said that most of these de minimis parcels come from Chinese e-commerce companies, and a 2023 House committee report stated that Shein and Temu alone account for nearly a third of de minimis shipments. Lawmakers have argued that these high-volume commercial shipments do not reflect the use of a de minimis provision to exempt souvenirs and low-value gifts from excessive regulation.

 

Abuse of the de minimis exception

A growing group of bipartisan lawmakers are calling for action to reform the program over concerns of its abuse. First, these lawmakers argue that it is unfair for US companies to compete with foreign companies that don’t have to pay taxes. Second, they argue that unscrupulous companies could take advantage of lower scrutiny for de minimis goods to smuggle in contraband or products manufactured with forced labor. In response, Temu stated that the forced labor allegations are completely ungrounded, and that it does not depend on the de minimis provision for growth. Shein previously replied that it has zero tolerance for forced labor and that the de minimis provision was not critical for its success.

 

Proposed changes to the de minims provision

The Biden administration has proposed eligibility restrictions that would render some previously de minimis products to be subject to tariffs. The White House also announced plans for a new rule to “require specific, additional data for de minimis shipments – including the 10-digit tariff classification number and the person claiming the de minimis exemption,”. In response, business groups representing e-commerce companies and shippers have argued that restrictions on such parcels will cost U.S. consumers through higher prices and the government through more expenditure.