The Biden administration is targeting loopholes in trade rules that benefit Chinese e-commerce companies.

2024-09-24 22:26:38

Trade Loophole: "De Minimis" Exemption

On September 13, the Biden administration announced measures to address trade loopholes that benefit Chinese e-commerce companies like Shein and Temu. These companies take advantage of the "de minimis" provision in U.S. trade law, which allows goods shipped to the U.S. with a market retail value of less than $800 to be exempt from import tariffs and fees. Additionally, these goods face less scrutiny compared to typical commercial shipments.

Allegations of Abuse of the "De Minimis" Provision

The "de minimis" provision was originally intended to exempt trivial or insignificant items from unnecessary fees and regulations, aiming to exclude low-value gifts and souvenirs from excessive charges and oversight. However, lawmakers claim that Chinese e-commerce companies like Shein and Temu are exploiting this provision to ship large volumes of commercial goods duty-free and with minimal scrutiny. On September 13, the Biden administration stated it would initiate "a regulatory process to curb the overuse and abuse of the de minimis provision."

Overuse of the "De Minimis" Provision

Over the past decade, the number of packages qualifying for the de minimis exemption has surged, rising from 140 million to over 1 billion in 2023. According to the Biden administration's statement, the majority of these de minimis packages come from Chinese e-commerce companies. A 2023 House committee report revealed that Shein and Temu alone account for nearly one-third of de minimis shipments. Lawmakers argue that these large-scale commercial shipments do not align with the original intent of the de minimis provision, which was designed for souvenirs and low-value gifts.

Abuse of the "De Minimis" Provision

A growing number of bipartisan lawmakers are calling for reforms to the program to address concerns about its abuse. First, they argue that U.S. companies cannot compete fairly with foreign companies that avoid paying tariffs. Second, they worry that unscrupulous companies may exploit the lower scrutiny of de minimis shipments to smuggle contraband or products made with forced labor. In response, Temu stated that allegations of forced labor are unfounded and that its business growth does not rely on the de minimis provision. Shein has previously stated that it has a zero-tolerance policy toward forced labor and that the de minimis provision is not critical to its success.

Proposed Changes to the "De Minimis" Provision

The Biden administration has proposed eligibility restrictions that could require tariffs on some products previously exempt under the de minimis provision. The White House also announced a new rule requiring "specific additional data for de minimis shipments, including a 10-digit tariff classification number and personal information of the individual claiming the de minimis exemption." Business groups representing e-commerce companies and shipping companies argue that restrictions on these packages would increase costs for U.S. consumers and government expenditures.