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Amazon's ability to sidestep tariffs limited by new Customs Ruling

August 07, 2020

By Charles Benoit, CPA Trade Counsel

A new ruling by U.S. Customs and Border Protection (CBP) will limit the ability of Amazon and other e-commerce platforms to avoid tariffs when importing shipments from China and other countries.

A provision in trade law called Section 321 allows “express entry” – avoiding standard import procedures and tariffs for packages valued below $800 imported per person or company on a single day.  Section 321 shipments are also called “de miminis”, a latin legal expression for “too trivial or minor to merit consideration”, which was more true before the threshold was raised exponentially to $800. Foreign shippers and e-commerce platforms are increasingly abusing the system that was not made for them. Their goal is to avoid the tariffs that others pay.

Most customs rulings receive scant attention, but CBP was rightly proud to announce a recent ruling in an August 3rd press release titled “CBP Enhances Accountability in E-Commerce through Ruling on Duty Exemptions for Low Value Shipments”.

The raising of the de minimis level to $800, as part of the Trade Facilitation and Trade Enforcement Act of 2015, has led to a catastrophic breach in our customs integrity. Not only are goods that should be subject to tariffs coming in duty-free, we have little information about what precisely is coming through our ports. Whereas twenty years ago, a container may have listed one or two shipments on its master bill of lading, today that same container is likely to list hundreds of shipments. This exponential growth is impossible for CBP to adequately police.

The Customs Ruling (HQ H290219)

Summary:  Customhouse brokers file paperwork for 321 de minimis import entries for their clients. The broker in this case, GTS, consolidated many packages under a Master Air Waybill on behalf of many foreign shippers. GTS sought 321 treatment for each package. Those packages were not yet sold at the time of U.S. import and were to be stored in an Amazon fulfillment warehouse for eventual sale via Amazon’s website. GTS listed the foreign shippers as the importers (thus, “nonresident importers”). Customs and Border Protection (CBP) denied entry under section 321. GTS challenged the denial.

CBP ruled that a foreign shipper cannot be listed as the “ultimate consignee”. Instead, if a U.S. based warehouse receives hundreds of shipments with only a foreign business listed as the importer, then CBP will treat the warehouse owner (e.g., Amazon) as the “ultimate consignee” and thus the entity for the “one person, one day” $800 threshold.

The Facts

Amazon operates fulfillment centers for its sellers. A fulfillment center is so-called because the owner/operator of the center generally does not hold title to the goods in the center.

Global Trade Solutions (“GTS”) is a customs broker. GTS would file Section 321 (de minimis) entries on behalf of the foreign entities shipping merchandise to Amazon fulfillment centers. GTS would use “Master Air Waybills” (“MAWBs”) that would in turn list many shipments traveling on the same airplane but from different foreign shippers.

The merchandise would be stored at Amazon's warehouse, but no one in the U.S. had yet purchased these items.

In August 2017, CBP officials at O'Hare denied release of an air cargo shipment of merchandise. While there were multiple customs issues with the shipments, the significant one for this ruling is that GTS had listed the “Ultimate Consignee” (“U-C”) as the foreign shipper.

Beyond naming the foreign shipper as ultimate consignee, the ruling notes that:

  • The bills of lading used by GTS would indicate the foreign shipper in the "Shipped To:" field. (An example of lawyers twisting English beyond its plain meaning). Separately, the bills of lading would list "In care of" various Amazon fulfillment centers.
  • The MAWB would sometimes list foreign shippers (labeled “consignee”) more than once, and sometimes the value of these multiple shipments was in excess of $800 (flagrant abuse of the law).

After the CBP Officials at O'Hare refused the shipments, GTS asked for a ruling, which CBP has now delivered.

The Ruling's Issue (Question Presented)

"Whether importations made by a nonresident importer, in one day, and sent to a U.S. fulfillment facility, may qualify for informal duty-free entry, under 19 U.S.C. § 1321(a)(2)(c).”

The Law

19 U.S.C. § 1321(a)(2)(C), or "Section 321", provides for the duty-free entry of articles valued at $800 or less that are imported by one person/entity on one day.

Imports can have title remain with a foreign “consignee” when they arrive in port, but they still have to have a U.S.-based ultimate consignee. CBP uses the following 3 steps to determine the “ultimate consignee” (“U-C”) if none is listed:

  • Step 1: the U-C is the U.S. customer to whom the shipper sold the merchandise, assuming the merchandise has been purchased.
  • Step 2: if the merchandise has not been sold yet, then the U-C is the consignee of the shipment.
  • Step 3: if the shipment was consigned to a foreign party (as was the case with the GTS shipments which still listed a foreign seller), then CBP will deem the U-C as the proprietor of the U.S. premises to which the merchandise was delivered (in this case, Amazon). As CBP put it in the press release: “The new administrative ruling recognizes fulfillment centers and domestic warehouses as the “one person” for any goods that have not been sold to a specific consumer at the time of importation into the United States, making them potentially eligible for Section 321 provisions.”

The ruling gave this explicit instruction to GTS:

“Therefore, GTS must identify the proprietor of the warehouse operated by the online fulfillment service provider as the ultimate consignee - not the foreign shipper, as has been GTS’s practice - and the warehouse address as the ultimate consignee’s address.”

The ruling warned that if GTS doesn’t provide info for an ultimate U.S. customer, then CBP will treat Amazon is the “ultimate consignee” (effectively for de minimis purposes, the importer):

“In situations where additional owner or purchaser information is not provided to CBP, Amazon, as the consignee and ultimate consignee, would be the entity used to determine the one person on one day Section 321 de minimis value qualifier.”

That last bit is the big positive development. Foreign businesses’ ability to ship tariff free and make use of U.S. based Amazon warehouses has been limited, because they can no longer simply list themselves as the importer.

Takeaways:

  • This ruling is a setback for U.S. e-commerce platforms' ability to abuse the de minimis rule. Although, Amazon can minimize the ruling’s effectiveness. One way is by expanding its use of fulfillment centers just across the border in Canada or Mexico. Merchandise from overseas can be held in-bond in these warehouses, and then delivered rapidly to U.S. customers duty-free through Section 321 shipments.
  • Given what we’ve seen from GTS, we should brace ourselves for further abuse of Section 321. For example, it appears as though Amazon could undermine this ruling by setting up nests of LLCs as “container station owners” within its fulfillment warehouse.

It must be repeated that this development does not affect trans-border e-commerce where a good is shipped directly from abroad to a U.S. customer. This ruling can actually be seen as a positive development for Ali Express in relation to its competition with Amazon.

Going forward, more work needs to be done to limit the ability of “non-resident importers” to make Section 321 shipments.

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  • Mark Sanguinetti
    A vaguely written law. Perhaps written vaguely to help large corporations that have lawyers who study the laws, while helping them have high paying jobs. I would rather make laws more clearly written so that people can understand them and follow them instead of having possible deception. The largest deception for import tariff taxes is likely saying that the people that buy the goods are the ones paying the import taxes. NO, the people that buy the goods are NOT the ones that pay the import taxes at least non initially. The corporations that import the goods are the ones that pay the import taxes, if their are any. They may simply be able to raise their prices and pass on higher costs to the consumers if they are NOT getting competition from made in USA goods for the same products also.