Recent Trade & Tariff Perspectives

August 3, 2022  |  Jessica Woltering  Manager U.S. Import Compliance

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A Deeper Look into Ecommerce and De Minimis

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What is ecommerce?

Ecommerce is the buying and selling of goods and services or transmitting of money or data conducted electronically on the Internet. The rapid growth and ease of ecommerce allow consumers to search and purchase millions of products from online vendors they would not have the option to buy from in person. The most common types of ecommerce transactions are business to business (B2B), business to consumer (B2C), and consumer to consumer. However, United States Customs and Border Protection currently does not have a package-size standard or a formal definition of ecommerce.

De Minimis: Latin for “the law cares not for small things”

The de minimis threshold is a value limit put in place by each country and allows most goods to enter the commerce of that country without a formal entry or paying duties, taxes, or fees. The United States de minimis value is set at $800, increased from $200 in 2016.

The United States has one of the highest commercial shipment de minimis values in the world followed by Australia ($700 USD), Bahrain ($750 USD), and New Zealand ($706 USD). In comparison many countries have a de minimis value substantially lower, such as Canada ($15 USD), Indonesia ($3 USD), and Mexico ($50 USD), while many countries do not have a de minimis threshold in place. These de minimis values were taken from global-express.org from an October 2021 date when the list was published.

Changes in the industry to accommodate ecommerce

The rise of ecommerce as a global platform for goods and services, especially in the past three years, has certainly not come without its own challenges. It is more evident that current processes cannot keep up with the demand in all sectors.

U.S. Customs and Border Protection (CBP) and other Partner Government Agencies (PGAs) have made strides toward implementing regulations to monitor the importation of ecommerce goods. CBP published their Ecommerce Strategic Plan in 2018 that highlights the challenges of regulating the ecommerce supply chain in addition to the actions the agency takes to regulate the imports.

Entry processing: One of the changes CBP implemented was the pilot program for ecommerce entries. Ecommerce packages entering the United States can be Customs cleared using the Section 321 Entry Type 86 process. This was a voluntary one-year pilot program initiated in July 2019 for de minimis shipments arriving via air, truck, and rail.

In December 2019 Customs posted a Federal Register notice 2019-26445 announcing that the pilot would be extended another year, through August 2021, and would be opened to ocean shipments through all commercial ports of entry, as well as shipments moving to a Foreign Trade Zone (FTZ). Section 321 is a type of entry with CBP that takes the place of a formal (Type 01) or informal (Type 11) entry.

The regulations allow each person one Section 321 shipment per day with a fair market value of $800 or less. De minimis valued shipments can still be cleared through the regular clearance process using a formal or informal entry process. CBP ruled in July 2020 that fulfillment centers and domestic warehouses are recognized as “one person” for unsold merchandise.

Duties, taxes, and fees are not due on Section 321 entries, which include applicable Section 301 tariffs. Entry Type 86 was created to allow self-filers and customs brokers a way to electronically submit de minimis entries through Automated Commercial Environment (ACE). Previously these entries had to be cleared using a manual process with CBP at the port of entry.

While Section 321 Type 86 entries can make the process easier for all parties involved, there are a few things to keep in mind. CBP does look closer at these shipments, especially for accurate valuation to ensure the goods do not exceed the $800 de minimis value. Certain product types cannot be cleared via the Section 321 process, such as products that require inspections prior to entry and goods subject to anti-dumping and countervailing duties to name a few.

Duty-Free: What’s the catch?

The increase in ecommerce transactions has also led to an increase in counterfeit goods that enter the U.S. economy. Consumers are often led to believe the products they are purchasing are genuine, but it becomes apparent that the products are subpar compared to the real thing.

In a recent article in the CBP Newsroom, Intellectual Property Rights (IPR) violations have stayed fairly level but the Manufacturer’s Suggested Retail Price (MSRP) has increased significantly in recent years. $1.31 billion MSRP in goods were seized for IPR violations in Fiscal Year (FY) 2020 and that amount increased 152% to $3.3 billion in FY 2021.

The chart below shows the statistics of MSRP Value in IPR seizures from 2010 to 2021 according to CBP’s IPR Annual Seizure Statistics.

MSRP Value in IPR seizures from 2010 to 2021 

Cross-border barriers: Conducting business in different markets leads to various hurdles when it comes to regulations on products, labeling, technology transfers, and foreign investments. Countries can set restrictions on who can sell products within their borders and could require special licenses, a local presence, or even a requirement that they make local products available in addition to their own products. Some countries, such as India, ban investments from out of country investors in some ecommerce interactions.

The U.S. Congress passed the Export Control Act of 2018 (ECRA) which includes the Foreign Investment Risk Review Modernization Act (FIRRMA). The ECRA requires a list be created and maintained containing controlled items, foreign entities or people, and end users who are a threat to national security. It also sets the expectation of export licenses to prohibit unauthorized exports, reexports, and in-country transfers. While tangible products could be sent by modes of transportation other than ecommerce, the rise of ecommerce does open the door and make it much easier to send goods or technology to unknown or illicit parties.

Safety concerns: The Food and Drug Administration (FDA) also reiterated that their regulatory requirements remain the same, whether the value is under the $800 de minimis amount or is a higher value shipment. The threat of illegal, illicit, and/or dangerous products continues to be a large concern for the FDA, especially in recent years with the extreme rise in COVID-19 related products. According to details on the CBP.gov Newsroom, 16% of seizures occurred from the express consignment environment, 80% were from incoming mail, and roughly 77% of these seizures originated in China.

COVID-19 Products Total Seized in 2021
FDA Prohibited Test Kits 280
Counterfeit Face Masks 717,741
FDA Prohibited Chloroquine Tablets 526
 

Possibility of increased restrictions: Since ecommerce has grown so suddenly, it outpaced the development and implementation of relevant laws to regulate this type of trade. The sharp increase of de minimis shipments entering the United States even caught the eye of politicians.

Congressman Earl Blumenauer (D-OR), Chairperson of the House Ways and Means Trade Subcommittee is pushing for significant restrictions on Section 321. Chairperson Blumenauer’s website published in January 2022, includes links for the summary and the full text of the legislation. A large part of the Import Security and Fairness Act bill talks about the extreme imbalance between the United States’ de minimis ($800 USD) versus China’s de minimis value of $7.00 USD and the need to level the playing field, so China and other countries stop taking advantage of the United States.

The World Customs Organization (WCO) updated the Framework of Standards on Cross-Border Ecommerce in June 2022, last updated in 2018. With the increasing amounts of ecommerce shipments, it was seen as an important step to update the global standards for cross-border ecommerce, so that there is a reasonable and efficient revenue collection and public protection.

However, this is not a mandatory policy put in place by countries themselves. It is the WCO’s hope that the developed and updated framework will create the expectation that its members implement the same standards, and in turn, member country governments and customs authorities take advantage of the guidance.

The World Trade Organization (WTO) has published 11 documents in the last 22 years related to ecommerce and more than half were created in the past five years. The Standards Toolkit for Cross-border Paperless Trade: Accelerating Trade Digitalization Through the Use of Standards is a set of guidelines to determine potential gaps in the ecommerce sector and help drive similar standards among all members. Connect with one of our trade policy experts to learn more.

Resources


Our information is compiled from a number of sources that to the best of our knowledge are accurate and correct. It is always the intent of our company to present accurate information. C.H. Robinson accepts no liability or responsibility for the information published herein.

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