Tariff Talk

De minimis: too trivial or minor to merit consideration, especially in law (Oxford); lacking in significance or importance (Webster’s). It refers to something so small that accounting for it becomes unreasonable or impractical. Yet, for a term defined by its insignificance, de minimis is making big headlines as immediate actions are being implemented to curb its abuse.

Globally, the average de minimis threshold for import purposes equates to around USD $125. In the U.S., this threshold skyrocketed from $200 to $800 in 2016 under the Obama-era Trade Facilitation and Trade Enforcement Act of 2015. At the time, e-commerce giants like TEMU and SHEIN didn’t exist. Amazon dominated online shopping, while social media was only beginning to influence consumer trends. The de minimis rule was primarily a business convenience, allowing companies to import small parts and items without the administrative and financial burdens of full customs processing.

During President Trump’s negotiations of the USMCA agreement, he urged Mexico and Canada to increase their de minimis thresholds. Canada raised its import tax-free minimum from CAD $20 to CAD $40 and allowed duty-free treatment for shipments up to CAD $150. Mexico maintained a tax-free threshold of USD $50 and allowed duty-free treatment up to the equivalent of USD $177. These efforts were heralded as a win for consumers, facilitating low-value, cross-border shipments with the U.S.’ closest neighbors.

As e-commerce surged, it quickly became evident that individual shipments via FedEx or UPS faced far less scrutiny than ocean containers destined for major retailers. That scrutiny includes not only duties and taxes but also oversight from government agencies like the Consumer Product Safety Commission (CPSC). The CPSC, for instance, is unlikely to inspect a USPS package delivered to a private residence to check a toy for PFAS (prohibited forever chemicals). Similarly, U.S. Customs cannot examine every small package for violations such as the use of forced labor in the production of cotton apparel.

U.S. Secretary of Commerce Gina M. Raimondo has validated the concerns raised by import brokers as early as 2015. In September, the Commerce Department released data showing that over the past decade, shipments qualifying for de minimis exemptions surged from an estimated 140 million annually to over one billion, with nearly 4 million shipments entering daily in 2023. U.S. Customs reports that 88% of these shipments are processed through mail services such as USPS, FedEx, UPS, and DHL. Alarmingly, goods such as health and beauty products, narcotics, and munitions have exploited the de minimis threshold.

Operation Blind Spot shed light on these issues. During the operation, 91 shipments of contact lenses were inspected, and 100% failed to meet FDA requirements. Shipments of narcotics, originating from non-FDA-approved manufacturers, were sent to consumers instead of licensed doctors or pharmacies. Contaminated needles accompanying medications and improperly documented weapons were also seized—all shipped at suspiciously low costs to exploit de minimis exemptions.

The rise of de minimis shipments has hindered enforcement agencies’ ability to adequately inspect and protect consumers. Instead of focusing on containers of goods, U.S. Customs now deals with aircraft full of low-value packages. Their priority remains on air and ocean freight destined for U.S. manufacturers, distributors, and retailers. Meanwhile, memes abound of disappointing purchases, like couches too small for a dollhouse or clothing that fails to meet expectations—cheap enough to discard without hesitation.

In response, U.S. Customs and Border Protection (CBP) has begun issuing warning messages to customs brokers when a single importer exceeds the $800 daily limit. Additional measures under consideration include disallowing commodities subject to Section 301 or 232 duties from de minimis treatment, requiring a 10-digit HTS code on all shipments, and mandating that importers (consumers) file a Certificate of Compliance (CoC) electronically with CBP and the CPSC at the time of entry.

Undoubtedly, U.S. rules on de minimis will continue to evolve. E-commerce importers are currently ill-equipped to meet these new requirements, and the infrastructure for import clearance will need significant adjustments to accommodate 10-digit HTS codes for de minimis (Section 321) entries. As the nation awaits further reforms, the onboarding of a new administration on January 20 could influence how these changes are implemented.