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Customs Trade Proposal Targets China Import Loopholes

September 17, 2020

By Kenneth Rapoza, CPA Industry Analyst

The Customs and Border Protection Agency has been alerted and is taking action against loopholes in the China Section 301 tariffs found in low value e-commerce.

Customs and Border Protection is looking to close a loophole allowing goods priced at under $800 to escape the China trade war tariffs. Hopefully the days of the de minimis protection on those goods are numbered. What we know now is that tariffed goods are being shipped here and sold on line, duty free.

Last month, the Customs and Border Protection agency issued an administrative ruling that was needed after outrageous abuse of the “one person on one day” limitation by e-commerce retailers. The administrative ruling will inhibit foreign merchants from stockpiling U.S. fulfillment warehouses at places like Amazon before they even have a U.S. customer.

Then on September 3, the CBP proposed to stop de minimis exemptions for Section 301 tariffs – those are the thousands of goods coming in from China, over $230 billion worth, that have been hit with tariffs upwards of 25% that goes to the Treasury. This is what the CBP is looking at now -- those tariffed goods slipping through the cracks.

It was kind of crazy that Section 301 tariffs didn’t apply to de minimis shipments in the first place, as standard anti-dumping and countervailing duties do disqualify goods from entering de minimis.

While the text of CBP’s proposed rule is not yet available pending a review by the Office of Management and Budget, trade press reports are encouraging.

“This is a big deal because de minimis has become de maximus,” says Zach Mottl, the fourth generation owner of Atlas Tools in Lyons, Illinois. Mottl has been beating the drum on this issue for over a year now. 

Each year, the United States imports more than $2 trillion worth of goods. And whether it’s cars, flat-screen TVs, or medical devices, these products all face import duties when entering the country. Thanks to the de minimis exemption, though, there’s been a flood of smaller goods entering the country duty-free each day. Overseas manufacturers can increasingly access America’s consumer market without paying any duties, as if they were the shop next door.

“From my perspective, as a manufacturer, Amazon pays zero state and federal income taxes, and benefits from de minimus. We make parts and pieces for all sorts of things, so let’s say I need a tool part. I can probably get it on Amazon and it will probably come from another country with no duties,” he says. “Who is really winning here?”

Section 321 of the 1974 Trade Act permits CBP to admit qualifying goods into the country duty- and tax-free provided they are imported by one person on one day and have a total fair market value of $800 or less. This de minimis exemption also applies to items listed in Section 301 tariffs, which means China exporters can find a way around those higher tariffs just by listing its goods on e-commerce platforms.

Foreign sellers, not just China, have been attempting to evade import duties by bundling large quantities of unsold goods into bulk shipments and sending them to warehouses for storage. In such cases, those bulk shipments were presented to CBP as individual small packages below the $800 de minimis threshold

“The exponential growth of e-commerce has provided illicit sellers with an extraordinary opportunity to evade duties and sell unsafe and unregulated products to U.S. consumers, particularly through fulfillment centers,” says CBP Acting Commissioner Mark A. Morgan. “CBP will not sit idly by and allow these bad actors to evade duties…and harm American businesses and consumers.”

On September 2, CBP submitted a proposed de minimis rule change to the Office of Management and Budget. Once OMB clears it, CBP will issue it as a “Notice of Proposed Rulemaking” available for public comment. It is unclear if it would cover all the goods subject to Section 301 tariffs or whether it will be country specific, or those facing potential Section 301 tariffs, including countries like France.

“This change would be a big deal because there is so much trade coming into the US under de minimis protections,” says Michael Stumo, CEO of CPA. “This could be a huge win.”  

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