The Subcommittee on Trade of the House Ways and Means Committee met Thursday to begin the “first review of customs operations and regulation in 30 years,” though mostly to address the ongoing debate surrounding de minimis, the “Amazon Loophole” where low value imports receive duty free treatment.
The hearing on "Modernizing Customs Policies to Protect American Workers and Secure Supply Chains,"provided a platform for lawmakers to discuss concerns related to the tariff exemption, the Generalized System of Preferences (GSP) program, and to emphasize the importance of adequate funding for effective customs administration.
“This is not the time to obliterate the CBP Budget,” Ranking Member Earl Blumenauer (D-Ore) reminded his colleagues, noting their calls for broad spending freezes and cuts.
De Minimis Exemption:
Section 321 shipments enter under de minimis procedures which allow small packages valued at $800 or less to enter the United States tax and duty-free. CBP estimates that 85% of all shipments entering the United States meet this exemption, the highest in the world. China, the largest beneficiary of the waiver, enforces a de minimus of 50 yuan ($7.90).
While importers can only take advantage of the Section 321 benefit on one single transaction per day, shipments direct to consumers permit entire retail ecosystems to flourish duty-free.
With Fulfilled by Amazon sales exceeding $100 billion last year, the total while not measured can be presumed material. These “agency” transactions are not “imports by Amazon,” and the program encourages participating merchants to ship in smaller lots, to conserve warehouse space and avoid customs clearance delays. The Coalition for a Prosperous America has estimated duty-free imports under section 321 well over $100 billion per year.
The Commercials Customs Operations Advisory Committee reported that CBP successfully cleared over 685 million de minimis shipments during this period. These shipments included approximately 161 million filings through the Section 321 Data Pilot and 333 million voluntary filings under Entry Type 86.
Blumenauer's Bill to Eliminate China Eligibility:
Rep. Blumenauer announced before the hearing that he intends to reintroduce legislation to address what he referred to as the "Amazon Loophole" created by the current $800 de minimis threshold.
Blumenauer emphasized that Customs and Border Protection is currently "overwhelmed" by the volume of products falling under the de minimis threshold entering the U.S. market. His proposed bill aims to deny duty-free market access to products from non-market economies on the U.S. Trade Representative's (USTR) watchlist, specifically targeting China and Russia.
The Import Security and Fairness Act:
The Import Security and Fairness Act encompasses several provisions designed to address concerns related to the treatment of goods under the de minimis exemption and ensure fairness, compliance, and national security. The key components of the act include:
Free Trade Zone Operators Seek Parity:
Operators of Free Trade Zones (FTZs) have raised concerns about the disparity they face compared to shippers under de minimis thresholds. While the use of de minimis has seen significant growth, FTZ operators have found themselves at a disadvantage, losing business to bonded warehouse operators in Canada and Mexico who can originate de minimis shipments into the United States.
The issue arises when merchandise from China is sent to Canadian or Mexican warehouses, where it is stored in bond, allowing it to bypass formal entry into these countries. Subsequently, when an e-commerce order is placed, the merchandise can be swiftly shipped to U.S. consumers, exploiting the de minimis provision. This loophole has put FTZ operators at a significant disadvantage and prompted them to demand equal treatment.
Public Access to Import Data Bills of Lading:
During the hearing, witnesses called for improved public access to bills of lading and shipping manifests, highlighting the challenges of striking a balance between transparency and confidentiality in trade regulations.
“We’re flying blind on Air Cargo data,” said Michael Kanko, CEO of trade data provider ImportGenius. “All we can see now is ocean.”
Third-party providers such as ImportGenius, Panjiva, and Jungle Scout currently offer access to import data, including bill of lading information, for a fee. However, concerns have been raised about the potential exposure of sensitive supplier information and the disruption of fair competition. Critics argue that such access could enable eCommerce owners to gain insights into their competitors' supply chains, jeopardizing the protection of product lines.
Calls for GSP Reauthorization:
The hearing also featured repeated calls for the reauthorization of the GSP program, which expired on December 31, 2020, resulting in eligible goods being subject to U.S. tariffs since January 1, 2021. The GSP program provides duty-free treatment for imports from over 100 developing nations. Reauthorization requires action from Congress, but lawmakers have struggled to reach a consensus on potential reforms. There are varying opinions on modifying eligibility requirements, adding or removing beneficiary countries, and adjusting the list of covered products.
The GSP program was initially established by Congress in the 1970s to stimulate economic development in impoverished nations through trade. However, the program has experienced lapses in the past, occurring in 10 out of the 14 times it was extended. Congress typically retroactively extends the program from the original expiration date, resulting in importers being refunded (without interest) for the duties paid during the lapse.
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