The Biden administration announced latest steps on Friday to curb the “overuse and abuse” of a long-standing trade law that permits low-value shipments to be imported into the United States without paying import duties and handling fees.
The measures include a brand new rule proposal that may exclude foreign shipments of products subject to US-Chinese tariffs from the special tariff exemption.
This trade rule, generally known as the “de minimis loophole,” allows packages valued at lower than $800 to enter the United States relatively unchecked. Over the past decade, the variety of “de minimis” shipments has exploded, from around 140 million to over a billion, the White House estimates.
“The dramatic increase in de minimis shipments has made it increasingly difficult to detect and block illegal or unsafe shipments to the United States,” Daleep Singh, deputy national security adviser for international economics, told reporters on a conference call Thursday previewing the measures.
Officials say the explosion in de minimis shipments is essentially because of a number of China-linked online retail giants resembling Shein and Temu, that are exploiting the exemption to ship hundreds of thousands of dollars price of clothing and cheap home goods from factories in China on to American customers.
Each individual package is usually price significantly lower than $800 and due to this fact qualifies for the de minimis exemption.
But latest restrictions on products subject to tariffs under Sections 301, 201 and 232 – like those proposed on Friday – could turn that business model on its head.
“Since about 70 percent of Chinese textile and apparel imports are subject to Section 301 tariffs, this move will dramatically reduce the number of shipments that will qualify for the de minimis exemption,” Singh said.
In addition to the proposed tariff rules, the White House also announced plans for a brand new rule that may “require specific, additional data for de minimis shipments – including the 10-digit tariff number and the person claiming the de minimis exemption,” in response to a fact sheet.
The Biden administration also called on Congress to pass laws to revise the unique de minimis rules.
An obscure customs loophole passed by Congress in 1930 – the so-called “de minimis” exemption – has again come under White House scrutiny in recent times after lawmakers expressed concern that the rule would allow foreign retailers to evade tariffs and border inspections of their packages.
Last 12 months, the House Select Committee on the Communist Party of China published a report on Shein and Temu and concluded that the 2 corporations “likely account for more than 30 percent of all packages shipped to the United States daily under the de minimis rule and probably nearly half of all de minimis shipments from China to the United States.”
Traditional retailers typically import containers of products and send them to U.S. warehouses for distribution. Shein and Temu, however, typically ship their products on to American consumers through their networks of Chinese suppliers.
By exploiting the de minimis loophole to avoid tariffs, Chinese retail giants have likely evaded tens of hundreds of thousands of dollars in import duties.
In 2022 alone gap paid $700 million in import duties, H&M paid $205 million and David's Bridal paid $19.5 million, in response to the House Special Committee on the Communist Party of China.
However, Shein and Temu didn’t pay any import duties in any respect, the committee said.
A Shein spokesman on Friday denied the committee's claim, saying the corporate paid “millions of dollars in import duties in both 2022 and 2023.”
The lawmakers claim that by avoiding the high import tariffs the U.S. imposes on most Chinese textiles, clothing and shoes, Shein and Temu are in a position to offer extremely low prices and outdo their import-paying competitors.
They also argued that the exemption would allow Shein and Temu to import products made using slave labor undetected since the packaging wouldn’t be checked and tested to the identical extent.
Shein argues that its inventory-reduced supply chain and overall business model allow it to supply such low prices and that its pricing structure has nothing to do with the de minimis exemption.
“SHEIN places the utmost importance on compliance with import regulations, including reporting requirements under U.S. law regarding de minimis imports,” an organization spokesperson told CNBC on Friday.
Last summer, Shein’s CEO Donald Tang said: called for reforms in de minimis and said the regulation have to be “completely revised to create a level playing field for all retailers.” However, he didn’t explain what these reforms would appear to be.
On Friday, the Shein spokesman said the corporate stands by Tang's comments.
“We look forward to working with everyone involved on the reform,” the spokesman said.
The company has acknowledged that cotton from banned regions was present in its supply chain and said it’s working to correct the issue.
When asked, a Temu spokesperson said the corporate's growth was “not dependent on the de minimis rule. We are reviewing the new rule proposals and remain committed to providing added value to consumers.”
Temu said in a press release that the corporate is “committed to ethical labor practices,” “prohibits any form of forced, child or penal labor, and requires compliance with all local labor laws.”
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