Section 321 Customs: Changes to De Minimis Exemption and Its Impact on Global Trade

Introduction

In a significant move that could reshape the landscape of international trade, particularly for businesses relying on low-value shipments, the Biden Administration has issued an executive action concerning the $800 de minimis threshold for goods entering the United States duty-free. This action, announced on September 13, 2024, has far-reaching implications for many U.S. businesses, especially those importing goods from China. As we approach the busy holiday season, it’s crucial to understand these changes and their potential impact on global supply chains.

Let’s delve into the details of this executive action, its implications, and how businesses can prepare for these changes. We’ll explore the key aspects of the de minimis exemption, the proposed modifications, and the potential consequences for various industries.

Understanding De Minimis and Its Current Status

Before we dive into the changes, it’s essential to understand what de minimis means in the context of international trade:

• De minimis is a provision in the Tariff Act that allows low-value shipments to enter the U.S. without being subject to duties and fees associated with importation.
• Currently, goods with a maximum value of $800 can enter the U.S. duty-free under this provision.
• This exemption has allowed businesses to import stock at lower costs and sidestep extensive paperwork typically associated with overseas shipments.

The Biden Administration’s Executive Action: Key Points

The recent executive action proposes significant changes to the de minimis exemption. Here are the main points to consider:

1. Denial of De Minimis Treatment

The executive action could effectively deny de minimis treatment to products subject to:

• Section 301 duties
• Section 201 duties
• Section 232 duties

This change would primarily affect a wide array of products originating from China, as Section 301 tariffs currently cover roughly 85% of Chinese imports.

2. Standard Reporting and Documentation Requirements

Shipments previously qualifying for de minimis treatment would now be subject to standard reporting, bond, and document requirements, similar to any standard freight entry.

3. Implementation Timeline

The administration intends to issue a Notice of Proposed Rulemaking, which could take 60-120 days to implement. This timeline suggests that changes could potentially be in effect before Black Friday, significantly impacting the holiday shopping season.

Potential Additional Changes

While the executive action outlines broad changes, several additional modifications are under consideration:

1. Increased Entry Data Requirements

Businesses may need to provide more detailed information about shipments, including:

• More specific cargo descriptions
• Identification of more supply chain participants (e.g., manufacturer, seller, consignee)
• Adherence to the “one importer per day” rule

2. Consumer Product Safety Commission (CPSC) Enforcement

Importers, including those using de minimis shipments, would be required to file CPSC testing certificates or General Certificates of Conformity (GCCs) at the time of entry, rather than only upon request.

3. 10-digit HTS Reporting for Manifest Clearances

All de minimis entries would require 10-digit Harmonized Tariff Schedule (HTS) reporting, potentially necessitating the use of licensed customs brokers for businesses currently handling their own manifest clearances.

4. Increased Enforcement of the Uyghur Forced Labor Prevention Act (UFLPA)

Customs and Border Protection (CBP) would increase enforcement of the UFLPA through more audits, operations, and foreign verifications.

What Remains Unchanged

While the proposed changes are significant, some aspects of the current system will remain in place:

• The requirement to identify the person for whom de minimis is being claimed
• Type 86 (T86) entries will continue to require classification at a 10-digit level
• Goods subject to Anti-Dumping/Countervailing duties from any country will still be ineligible for de minimis treatment

Impact on Global Trade and Supply Chains

The proposed changes to the de minimis exemption could have far-reaching consequences for global trade and supply chains:

1. Increased Costs for Businesses

Companies relying heavily on low-value shipments from China may face significantly higher costs due to duties and additional paperwork requirements.

2. Disruption to eCommerce Models

Many eCommerce businesses, particularly those dropshipping from China, may need to reevaluate their business models and pricing strategies.

3. Shift in Sourcing Strategies

Some companies may consider diversifying their sourcing to countries not affected by Section 301 tariffs to maintain cost-effectiveness.

4. Increased Complexity in Supply Chain Management

The new requirements for detailed reporting and documentation may necessitate more sophisticated supply chain management systems and processes.

5. Potential Delays in Shipments

The additional scrutiny and paperwork could lead to longer processing times at customs, potentially causing delays in shipments.

Preparing for the Changes: Steps for Businesses

As these changes loom on the horizon, businesses should take proactive steps to prepare:

1. Review and Update HTS Classifications

Ensure all products are classified with 10-digit HTS codes, as this will be required for all de minimis entries.

2. Evaluate Supply Chain Impact

Assess how the potential loss of de minimis treatment will affect your supply chain and overall costs.

3. Consider Alternative Sourcing

Explore sourcing options from countries not affected by Section 301 tariffs to mitigate potential cost increases.

4. Enhance Documentation Processes

Develop systems to ensure all necessary documentation, including CPSC certificates, can be provided at the time of entry.

5. Stay Informed

Keep abreast of developments in the rulemaking process and any potential legal challenges to the executive action.

How FreightAmigo Can Help Navigate These Changes

At FreightAmigo, we understand the complexities these changes bring to the logistics landscape. As a full-service, one-stop Digital Logistics Platform, we are well-positioned to help our clients navigate these new challenges:

1. Comprehensive Customs Support

Our Digital Platform integrates customs clearance services, helping ensure compliance with new regulations and documentation requirements.

2. Real-Time Tracking and Visibility

With our ability to track shipment status anytime, anywhere, we can help you stay on top of potential delays and adjust your supply chain accordingly.

3. Automated Documentation

Our automated shipment document features can help streamline the process of providing the increased documentation required under the new rules.

4. Expert Support

Our 24/7 logistics expert support can provide guidance on navigating the new regulations and optimizing your shipping strategies.

5. Flexible Shipping Options

With our range of shipping solutions including international courier, airfreight, sea freight, rail freight, and trucking, we can help you explore alternative shipping methods to optimize costs under the new regulations.

Conclusion

The proposed changes to the de minimis exemption represent a significant shift in U.S. trade policy, with far-reaching implications for businesses engaged in global trade. While these changes pose challenges, they also present an opportunity for companies to reassess and optimize their supply chain strategies.

As we navigate this evolving landscape, FreightAmigo remains committed to providing innovative Digital Logistics Solutions that help our clients adapt to regulatory changes and thrive in the global marketplace. By leveraging our comprehensive platform and expertise, businesses can turn these challenges into opportunities for growth and efficiency.

Stay tuned for further updates as we continue to monitor these developments closely. In the meantime, we encourage you to reach out to our team to discuss how we can help your business prepare for and adapt to these impending changes.