Gallagher Slams de minimus

“According to CBP, more than 485 million de minimis shipments have already entered the United States in FY24, on top of the 1.05 billion shipments that entered tax-free under de minimis rules in 2023, itself a shocking 53% increase from 2022," reads a report from Chairman Mike Gallagher (R-WI) of the House Select Committee on the Chinese Communist Party 

"No less than 94% of all import transactions now enter the U.S. through De Minimis rules, accounting for 90% of all illegal narcotics, agricultural goods, and counterfeit seizures by customs," said the lawmaker.

As with many of his initiatives, Mr. Gallaghers discourse on de minimus is diverting, and generated press, but the announcement failed to address a legislative solution.

Background:

The de minimis exemption provides admission of products free of duty if the fair retail value of the product does not exceed $800. The overwhelming volume of small packages and lack of actionable data limit CBP’s ability to identify and interdict high-risk shipments that may contain narcotics, merchandise that poses a risk to public safety, counterfeits, or other contraband.

Amazon and foreign companies like Shein and Temu have built their business models around the de minimis exemption, paying no import duties and limited scrutiny on products potentially made with forced labor. 

Prior to 2016, the de minimis threshold for a product was $200. In 2016, Congress passed legislation that raised the de minimis threshold to $800.

Since then, de minimis imports have sharply increased and e-commerce businesses have built entire sales models to take advantage of the de minimis exemption to avoid taxes and scrutiny while undercutting American companies that play by the rules.

Amazon Major Player

While the retiring congressman decries the role of Shein and Temu, the gorilla in de minimus is Seattle-based Amazon.  More than 60 percent of the companies online sales are "Fulfilled by Amazon (FBA)" where the firm provides a veneer of branding to third party sellers while accepting no responsibility for tariffs or consumer protection.

Legislative Fix?

Two bipartisan bills recently introduced aim to tackle this problem: the Import Security and Fairness Act (HR 4148) and the De Minimis Reciprocity Act of 2023 (S.1969).

The Import Security and Fairness Act   was introduced last June by Senators Sherrod Brown (D-Ohio) and Marco Rubio (R-Fla.) and Representatives Earl Blumenauer (D-Ore.) and Neal Dunn (R-Fla).  

The IFSA excludes packages originating from “nonmarket economies” that are also on the U.S. Trade Representative’s priority watch list for intellectual property protection violations from receiving de minimis treatment. China and Russia currently are on both lists and thus would be disqualified from sending de minimis shipments.

This bill was introduced on January 18, 2022, in a previous session of Congress, but it did not receive a vote.   House Ways and Means Chairman Jason Smith (R-Mo.) has failed to advance the legislation this session.  

The DeMinimis Reciprocity Act would bar Chinese exports from entry via the expedited “de minimis” channel and reduce the threshold for duty-free imports into the U.S. to an amount that matches the threshold our trade partners use.    

Amazon spent $20 million lobbying congress in 2023, according to Open Secrets.

In the Spring of 2023, Chairman Gallagher and Ranking Member Raja Krishnamoorthi (D-IL) launched an investigation into foreign fast-fashion companies Shein and Temu. Gallagher and Krishnamoorthi released interim findings, where they found that the two companies paid $0 in import duties to the United States, while American companies comparatively spent millions.

The lawmakers also discovered that Temu did not possess due diligence mechanisms to verify its products were not tainted by forced labor in China.