"Clothing" the De Minimis Loophole: The Story of an Exception Swallowing Rule

Introduction

Gulbahar Haitiwaji, an engineer and member of the Chinese Uyghur minority group, received a call from her employer asking her to visit a police station in Kunlun to complete paperwork for her retirement pension. Upon her arrival, she quickly discovered the employer’s purported request was a trap. Chinese authorities showed Haitiwaji a photograph of her daughter participating in a Uyghur demonstration in France and accused Haitiwaji’s daughter of being a “terrorist.” Haitiwaji was detained, a bag was placed over her head, and her ankles were chained. For five months, Chinese police officers repeatedly interrogated her, subjecting her to a variety of punishments. In one instance, she was chained to her bed for twenty days.

After her initial detention, Chinese authorities transferred Haitiwaji to a “school” on the outskirts of Karamay. The facility was surrounded by barbed wire and lacked any semblance of civilized life—there were no mattresses, toilet paper, sheets, sinks, or showers. Haitiwaji’s captors provided “students” a bucket to use as a toilet and constantly surveilled them as cameras lined the walls. Haitiwaji wondered if her husband and daughters knew where she was or whether she was even alive. Haitiwaji and her fellow detainees were subjected to eleven hours per day of Chinese language instruction, forced to shave their heads, interrogated, physically abused, and even forcibly sterilized. “I owe it to those who languish there still to speak to you now,” Haitiwaji explained to the House Select Committee on the Chinese Communist Party.

Since 2014, China has arbitrarily detained more than one million Uyghurs and other Muslim minorities in the Xinjiang region. Despite first denying the existence of such camps, Chinese government officials have now acknowledged their existence but insist they are “vocational education and training centers” used to educate members of the minority group in Mandarin and Chinese laws, as well as to “nip terrorist activities in the bud.” A report from the United Nations High Commissioner on Human Rights found descriptions of detentions in so-called “Vocational Education and Training Centers” frequently “marked by patterns of torture or other forms of cruel, inhuman[,] or degrading treatment or punishment.”

These “re-education” efforts frequently include forced labor. The U.S. Department of Labor (DOL) estimates that “100,000 Uyghurs and other ethnic minority ex-detainees in China may be working in conditions of forced labor following detention in re-education camps.” “[U]nder the guise of ‘poverty alleviation,’” Uyghurs are forced to work for little or no pay, are not allowed to leave, and are required to “learn Mandarin and undergo ideological indoctrination.” A report from the Australian Strategic Policy Institute states that between 2017 and 2019, 80,000 detained Uyghurs were sent to factories and the goods they made exported around the world.

Forced labor conditions are not confined to the Xinjiang region. The Chinese government’s official data on labor transfers show that an estimated 28,000 and 32,000 people were transferred to other parts of China in 2018 and 2019 respectively, exceeding the goals of Xinjiang authorities. This exercise is lucrative for the organizers who are compensated roughly $43 for each worker they transfer outside of Xinjiang. Advertisements for Uyghur workers have appeared online with one claiming the ability to supply 1,000 Uyghur workers aged sixteen to eighteen, reading, “[t]he advantages of Xinjiang workers are: semi-military style management, can withstand hardship, no loss of personnel . . . Minimum order of 100 workers!”

The use of Uyghur labor has been linked to several known global brands including Apple, BMW, Nike, and Volkswagen. The DOL’s Bureau of International Labor Affairs’ (ILAB’s) 2022 List of Goods Produced by Child Labor or Forced Labor lists “artificial flowers, Christmas decorations, coal, fish, footwear, garments, gloves, hair products, polysilicon, nails, thread/yarn, and tomato products” as goods from countries that ILAB “has reason to believe are produced by child labor or forced labor.”

The U.S. government has responded by enacting the Uyghur Forced Labor Prevention Act (UFLPA). The legislation strengthens existing prohibitions on importing goods made in whole, or in part, with forced labor under § 307 of the Tariff Act of 1930 (Tariff Act). The UFLPA has substantially affected the behavior of U.S. firms, which are increasingly shifting their supply chains away from Xinjiang and China more generally. However, goods made with Uyghur forced labor are still making their way into the U.S. market. The continued importation of goods produced by people subjected to inhumane conditions is, in large part, aided by inadequate U.S. Customs and Border Protection (CBP) enforcement of trade laws for those imports as a result of another section of the Tariff Act—Section 321.

This Comment explores Section 321 of the Tariff Act—often referred to as the “de minimis threshold”—which exempts products from paying tariff duties and from being subject to formal entry procedures necessary to prevent the importation of illegal or dangerous products. Currently, the manner in which CBP enforces the law inadvertently exacerbates forced labor abuses in foreign countries; it also allows for the importation of counterfeit products that could pose public safety risks, impairs the United States’ efforts to re-shore or near-shore manufacturing, and is exploited as a convenient channel to import narcotics like fentanyl and other dangerous substances.

However, the de minimis threshold does provide American industry, CBP, and consumers several important benefits. For example, the law is crucial for small businesses and other U.S.-based companies that require product returns from abroad to be economically competitive. A consortium of business groups—spearheaded by express shippers like United Parcel Service (UPS), FedEx, and Amazon—intensively lobby against any modifications. The consortium contends the de minimis threshold is a “vital . . . tax exemption” that “reduces inflationary pressure and supply chain delays” and “allows CBP to concentrate limited resources where they make the most impact.” Businesses also contend that eliminating the exemption altogether would be prohibitively expensive, raising costs to businesses and consumers alike.

The law must strike a balance to ensure the efficient facilitation of trade while preventing dangerous and unethically produced products that promote forced labor, distort trade, and harm American consumers from entering the United States in violation of existing laws.

Part I explains the de minimis process and how CBP’s enforcement efforts fall short, allowing goods made in whole or in part with forced labor to enter the country. Part II offers a brief history of Section 321, starting with the legislation’s enactment. Currently, Section 321 exempts goods valued under $800 from standard tariff duties and allows CBP to apply less formal entry procedures to such goods. Part II explores the original congressional intent behind the exemption and how those initial objectives have been co-opted by special interests in the express shipment industry to greatly expand the threshold, thereby harming both U.S. consumer and national interests. Part III details the arguments on both sides of the de minimis debate, separating fact from fiction and summarizing the legislative solutions introduced in both chambers of Congress. Finally, Part IV recommends the Secretary of the Treasury issue a Notice of Proposed Rulemaking (NPRM), which would ensure effective enforcement of our trade laws under Section 321 by segmenting out the apparel sector, prohibiting the use of the exception absent the use of a contract carrier, and imposing additional and substantial penalties for repeat violators.

I. The De Minimis Process

A. Current Process

De minimis is Latin for “so small or unimportant as to warrant little or no attention,” yet the threshold is the subject of heated debate. In Congress, members of all political affiliations have pointed out potential problems with the heightened de minimis threshold. Congressman Jason Smith (R-MO), Chairman of the U.S. House Ways and Means Committee, critiqued the de minimis threshold’s current construction, calling it a “free trade agreement for China.” Similarly, Congressman Earl Blumenauer (D-OR) agreed, “this loophole is swallowing the exception in ways that are detrimental to American business and the safety of American consumers,” because CBP exercises a lesser degree of scrutiny for de minimis shipments compared to formal imports. The private sector has also expressed concern—Kimberly Glas, CEO of the National Council of Textile Organizations (NCTO), called de minimis “a classic example of the government’s left hand not working in concert with the right.”

Over two million small parcels enter the United States every day. With roughly 90% of all shipments imported into the United States falling below the $800 threshold, de minimis shipments accounted for roughly 85% of total import transactions in 2022. De minimis shipments have increased by a staggering 410% in just seven years. In fiscal year (FY) 2020, over $67 billion in packages were admitted under Section 321, exempting those imported products from applicable import duties and formal CBP scrutiny. Since 2020, as the pandemic-induced surge in e-commerce abated, the value of de minimis imports decreased to a little over $46 billion in imports in FY 2022. China is the foremost user of the provision, accounting for over $9 billion in imports in FY 2022.

Many products are imported under the de minimis threshold using the “release from manifest” process. Typically the express shipper or carrier provides the bill of lading (or a manifest listing each bill of lading), which is the sole documentation required. Thus, CBP determines whether the goods can be released based solely on very limited and inadequate information. Importantly, “the transmitted data often does not adequately identify the entity causing the shipment to cross the border [such as the seller or manufacturer], the final recipient, or the contents of the package.”

CBP has the authority to seize any shipment that violates customs regulations or other related laws by issuing a Withhold Release Order. In the forced labor context, when investigating a specific entity, CBP must show a reasonable likelihood of forced labor, which can require tracing goods from a specific production facility all the way to a U.S. port of entry. Under the “release from manifest” process, this information is simply unavailable, making consistent, effective enforcement almost impossible.

In addition, the release from the manifest process does not provide CBP with the specific Harmonized Tariff Schedule of the United States (HTSUS) classification that CBP has tied to Partner Government Agency (PGA) requirements—these are import laws enforced by other government agencies, such as the Food and Drug Administration (FDA), Centers for Disease Control and Prevention, Consumer Product Safety Commission (CPSC), and Drug Enforcement Administration. Without the HTSUS code, it is extremely difficult for CBP to ensure every imported small package that enters the country complies with federal health, public safety, and intellectual property laws.

Those products subject to PGA requirements are ineligible to be cleared under the “release from manifest” process. In the past, imports entered the United States under the appropriate informal or formal entry process, and importers were required to file a Type 11 or Type 01 entry. These imports require additional data, which is transmitted to the partner government agencies to ensure compliance with health and safety laws. In 2019, however, CBP created the Entry Type 86 Test to “provide a less complex entry and release process for Section 321 low-valued shipments” and “expedite the clearance of compliant Section 321 low-valued shipments.” Roughly 43% of de minimis imports use the Entry Type 86 Test, a wholly voluntary method for importation. The test requires information like the ten-digit HTSUS code, the bill of lading or the air waybill number, entry number, planned port of entry, shipper name, address, country, consignee name and address, country of origin, quantity, fair retail value in the country of shipment, and Importer of Record number of the owner, purchaser, or broker when designated by the consignee. More data may be required depending on whether the shipment is subject to PGA data reporting requirements. The problem? CBP has reported “a lot of misclassification, . . . seeing values at zero or a dollar” and mis-manifesting. “We encountered silencers and [Intellectual Property Rights (IPR) violations], pharmaceuticals, [and] a lot of agriculture violations,” CBP’s Program Manager for the Cargo Conveyance and Security Division in the Office of Field Operations, James Moore, said. “[I]t is very concerning for us, and we really want to make sure that we are highlighting that there are some expectations with Entry Type 86,” Moore said.

In an attempt to address some of those informational gaps, CBP established the Section 321 Data Pilot. The voluntary program—consisting of participants like Amazon, eBay, and Zulily; carriers like FedEx, UPS, and DHL; and logistics providers like BoxC Logistics, XB Fulfillment, and PreClear—collects extensive information including, seller identification, shipment initiator information, shipper information, an enhanced product description, the link to product listing, product picture, merchandise or product quality and weight, the listed price on marketplace, HTSUS number, security scan images, consignee information, final deliver to information, and buyer information. In FY 2022, there were 161 million Section 321 Data Pilot transmissions.

The more information CBP has the better; additional data provides a better understanding of the risk profile an individual import poses and allows the agency to prioritize areas for enforcement.

B. The Apparel Sector’s Use of De Minimis

The apparel sector is uniquely subject to labor abuses. Some say “[v]irtually the entire apparel and footwear industry is tainted by forced Uyghur and Turkic Muslim [labor]” due in part to the region’s stranglehold on global cotton output, which accounts for more than 20% of the global market share. China is “the world’s central hub for making clothing.” From picking the cotton—a notoriously labor-intensive process—to producing the yarn and manufacturing the finished apparel, Uyghur labor is closely intertwined with all steps of production.

A report from the Select Committee on the Chinese Communist Party found that two Chinese companies with business models reliant on the de minimis threshold—Shein and Temu—account for approximately 600,000 packages shipped to the United States every day utilizing the de minimis threshold. Annually, that number equates to 210 million packages sent to the United States without paying duties or being appropriately scrutinized for forced labor abuses, IPR violations, public safety risks, or for the importation of other contraband. In FY 2023, more than 1 billion packages worth more than $50 billion were shipped to the United States utilizing the de minimis threshold. Therefore, Shein and Temu—two companies—account for over 30% of all de minimis shipments into the United States.

The apparel industry is also normally subject to “the stiffest tariffs.” In 2018, “[t]he average tariffs on the dutiable portions were 18.7% for knitted or crocheted clothing, and 15.8% for non-knitted or crocheted items—the two highest average rates out of [ninety-eight] broad import categories.” In addition, the recent explosion in de minimis volume is attributable, at least in part, to the development of business strategies built around the threshold. Such systems allow companies like Shein to undercut U.S.-based brick-and-mortar retail locations and reduce CBP scrutiny. The apparel industry is the best example of a sector that represents high costs in terms of lost duties, heightened risk for improper imports, and a profound drain on CBP resources. These disproportionate disadvantages stand in direct contrast to the threshold’s stated purpose because the agency must sift through a deluge of small packages, impairing CBP’s ability to prioritize high risk imports and, therefore, do its job.

II. History of Section 321 of the Tariff Act of 1930

A. The Passage of De Minimis

One of CBP’s stated mission priorities is to “[e]nable fair, competitive and compliant trade and enforce U.S. laws to ensure safety, prosperity[,] and economic security for the American people.” CBP frequently balances the speedy and efficient facilitation of trade with effective screening. Embodying this idea, coupled with the understanding that CBP resources are better allocated to high-risk areas rather than assessing every low-value product imported into the country, Congress enacted Section 321.

In 1938, with the passage of the Customs Administrative Act, Congress established the de minimis threshold as we know it. The law created three separate categories of imports with specific dollar thresholds that would be exempted from duties and formal customs procedures. There was a $5 threshold for “bona fide gifts” mailed from abroad, a $5 exemption for “articles accompanying” travelers for “household use,” and—most crucially for this Comment—a $1 threshold for “any other case.”

The Customs Administrative Act “authorize[d] existing practices under which collectors of customs disregard differences of less than $1 between the total duties or taxes deposited or tentatively assessed and the amount of duties actually accruing.” It also gave the “collectors” a great deal of authority “to admit articles free when the expense and inconvenience of collecting duty would be disproportionate to the amount of such duty.”

B. Congressional Hesitation to Increase the Threshold

In 1952, there were growing calls to increase the threshold. When Congress debated the Customs Simplification Act, one proposal suggested increasing the threshold for all three categories to $10. One comment from the National Retail Dry Goods Association, now known as the National Retail Federation, highlights the double standard the increased threshold would create that currently threatens the continued survival of certain domestic industries:

A European operator could place an advertisement in a newspaper or magazine in the United States and offer to sell gloves, handbags, slippers, blouses, skirts, sweaters, perfumes, costume jewelry, cosmetics, and a host of other items. These items could be priced upward of $10. Realize that the advertiser does not maintain any quarters in this country. He does not pay any real-estate, income, or other taxes. He does not pay any duties. He does not maintain a selling force. His only expense would be the advertisement.

The National Retail Federation was not alone in its staunch opposition. Stakeholders expressed their pointed concerns with how the increased threshold would benefit those countries with lower paid labor, leading to the outflow of jobs and domestic manufacturing capabilities. Mr. John G. Lerch—an attorney who appeared on behalf of several industries and as counsel to the Rubber Manufacturers Association, Inc.—stated, “if this provision is enacted into law with the reduced labor cost of foreign countries, it can be anticipated that great inroads will be made [by foreign competitors] in certain [U.S.] industries.” Mr. Lerch stated, “I am told that a skilled laborer [in Great Britain] gets about—the ratio is about [one] to [four]; in other words, [four] hours for [one] here.” The labor rates in Japan? “[Y]ou might say 1 to 25.”

Stakeholders were also worried about the effect it would have on domestic industry. Senator Edward Martin (R-PA) pointed out the impact the change would have on small businesses in “some little towns.” Mr. Lerch said, “in Pennsylvania we have 17,000 small industries, and that is really the backbone of our economy.”

Crucially, concerns mounted relating to the effect mail-order businesses could have on domestic industry. The President and Counsel for the American Watch Association submitted written testimony, arguing that “what we have stated concerning the direct purchase of watches by consumers from foreign suppliers applies with equal force to thousands of other items which could be imported [under the exception].” They continued, “[t]he business of all of the regular domestic manufacturers and producers, importers, wholesalers, and retail dealers [handling] such items, and hundreds of others, unquestionably would be adversely affected . . . .” This worry was also reflected by the House Ways and Means Committee, which stated in a report on the proposed increased threshold: “It is the desire of the committee that the Secretary of the Treasury shall exercise his authority . . . [to ensure] the section will not be subjected to abuses by mail-order businesses . . . .” While the bill did prohibit the use of de minimis for cash on delivery (COD) transactions, Harry Radcliffe, the Executive Vice President of the National Council of American Importers, said that did not go far enough as “there might be mail-order business, not necessarily on the basis of [COD]” and argued that the “section needs clarification because we do not believe that a loophole like that should go without being plugged up.” Unfortunately, the loophole was left unplugged, and Mr. Radcliffe’s worry was never addressed, leading to the current situation where foreign direct-to-consumer businesses maintain an advantage over those companies with American footprints.

Ultimately, in the 1953 amendment, Congress sided with domestic industry, increasing the thresholds for bona fide gifts and “articles accompanying, and for the personal or household use” of individuals arriving in the United States to $10, while leaving the threshold for the “any other case” category at $1.

C. The Eventual Heightening of the Threshold

The $1 de minimis threshold was left in place until 1978 when it was increased to $5 to “take account of inflation and increased costs in collection.” The House report stated, “[s]ince the express purpose of [S]ection 321 is to reduce administrative costs which are disproportionate to the revenue produced and to improve administrative efficiency, dollar limitations should be raised to accomplish this purpose in today’s economy.”

The threshold was increased again in 1994 with the passage of the Customs Modernization Act—expanding the de minimis level for “any other case” to $200. The increase was again necessitated by “inflation” as “the current amounts are not sufficiently high to permit the Secretary to meet the statutory goal of limiting expense to the Government disproportionate to the revenue that is collected.”

Potentially more important, the law’s implementing regulations allowed express shippers acting as consignees “to make entry of low-value exempt merchandise.” These regulations did away with the longstanding requirement that importers engage a customs broker. The implementing regulations—which the National Customs Brokers and Forwarders Association of America (NCBFAA) argued were arbitrary and capricious, allegedly conflicting with the statute—were upheld, in large part, due to the Treasury Secretary’s broad authority to issue rules under the statute. In addition, the NCBFAA argued that CBP “abrogated its responsibility to enforce laws relevant to the entry of merchandise into this country” when it promulgated regulations pursuant to the de minimis threshold. While the NCBFAA was ultimately unsuccessful, its worries foreshadowed the problems to come, claiming “this lax entry procedure will create difficulties for Customs relative to the enforcement of visa requirements for apparel, intellectual property rights for patents and copyrights, and antidumping and counter-vailing duty orders . . . . [It] will hinder the [FDA’s] enforcement capabilities as well.”

D. Increase to $800

The aforementioned warnings were ignored, and Congress increased the threshold to $800 in 2016 with the passage of the Trade Facilitation and Trade Enforcement Act (TFTEA). The $800 threshold is by far the highest of any U.S. trading partner: China (~$6.50); Mexico (~$50); and United Kingdom (~$168). The increase was largely pushed forward with extensive support from the express shipping community. In a Senate Finance Hearing, Mary Ann Comstock, Brokerage Compliance Manager for UPS, called de minimis “the most important [issue for] UPS.” Senator John Thune (R-SD) argued, “[w]hat this simply means is that if someone starts a small business selling goods on the Internet and he or she needs to import a component part in order to make a product, we are going to significantly reduce the paperwork and cost involved in doing so.” He said, “[t]his is the reason that online marketplaces such as Etsy and eBay, as well as express shippers like UPS and FedEx, are so supportive of this legislation.” Senator Thune seems to signal the end of traditional retailers, arguing, “[t]hese companies understand what millions of American entrepreneurs understand: The Internet truly is the shipping lane of the 21st century.”

UPS pushed for wrenching the de minimis loophole open even further, advocating for it to be indexed to inflation—something that Senators Ron Wyden (D-OR) and Thune supported. UPS argued that “the increase offers significant benefits to CBP.”

Yet, in the House report, David Aguilar, the Deputy Commissioner of CBP at the time, rebutted that proposition, stating, “[f]rom an operational standpoint, [] raising the de minimis to $1,000 or whatever it would be, does not really impact us operationally. [The] same amount of work basically will go into collecting either the $200 or the $1000. So, from an operational standpoint, it would stay neutral.”

The House report highlights additional benefits. It states, “[t]his legislation will not have a negative impact on security, as manifest information is required for all shipments, regardless of value. Manifest information for each shipment is analyzed for security threats and subject to CBP risk assessment and targeting prior to arrival in the United States.” The report continued, “because this change applies only to smaller and low-value shipments, there is no risk of a spike in commercial violations as a result of the change.”

The de minimis threshold, once only applicable to low-value goods, now inconceivably applies to a vast number of imports after being wrenched open by private interests. Thankfully, the TFTEA provides authority for the Treasury Secretary to issue rules closing the loophole and returning the functionality of the de minimis threshold to its original purpose.

E. Treasury Secretary’s Authority to Issue Rules

Given the lack of information that CBP can use to understand risk and prioritize areas for enforcement, it is incumbent upon the Treasury Secretary to leverage her broad discretion under the law to issue new rules, fill gaps in the statute, obtain more information from importers, and crack down on goods that pose problems related to human rights, intellectual property, and consumer health and safety.

The TFTEA, passed in 2016, amended the de minimis threshold and raised it to $800. The last line of the codified legislation provides that “[t]he Secretary of the Treasury is authorized by regulations to prescribe exceptions to any exemption . . . whenever he finds that such action is consistent with the purpose . . . or is necessary for any reason to protect the revenue or to prevent unlawful importations.” This language gives the Secretary broad authority to issue rules making changes to the legislation to deal with the unlawful imports that have been reported.

The explicit language of the statute follows similar language from Senate and House reports previously updating the threshold. In 1951, when Congress debated whether it should increase the de minimis threshold, it expressed its desire to give the Secretary the power to “reduce the allowable amounts and to prescribe exceptions when necessary to protect the revenue” to avoid spreading CBP’s human resources too thin. The Committee on Ways and Means went on to deputize the Secretary of the Treasury with authority to ensure Section 321 would “not be subjected to abuses by mail-order businesses engaging in the direct shipment of dutiable articles to purchasers in the United States.”

In addition, congressional misunderstandings have become evident over time. First, in 2016, Congress mistakenly believed that the increased threshold “would . . . free [CBP] up to focus on high-risk shipments if these amounts were made to be consistent.” The House Ways and Means Committee incorrectly assumed manifest information would be adequate. Second, the representatives believed shipments using the de minimis threshold would be truly de minimis. “Simplifying and streamlining the entry process for these low-value shipments will help to stimulate the economy, facilitate legitimate trade, and free CBP resources to focus enforcement efforts on high-risk trade.” The years following the increase have borne a different reality.

CBP has begun formulating an NPRM that will “integrate results from the 321 Data Pilot and the Type 86 Test into a new Section 321 entry process.” “The NPRM will implement new data requirements for de minimis shipments choosing to use the enhanced entry process, clarify eligibility requirements, and address trade liability.” Unfortunately, these proposed regulations will focus solely on what a future, expedited Type 86 Test would look like.

The Department of Homeland Security (DHS) has also taken several steps to address problems borne from de minimis. First, CBP announced it will issue advisories of noncompliance to those “entry filers” providing limited identifiers. The advisory aims to address “vague” cargo descriptions that simply state “gift” or “parts.” Second, DHS outlined a plan aimed at “combat[ing] illicit trade and level[ing] the playing field for the American textile industry.” The enforcement plan includes “[c]racking down on small package shipments . . . by improving screening of packages claiming the Section 321 de minimis exemption for textile, UFLPA, and other violations.” According to DHS, the implementation of the plan has already begun; the Department launched fifteen Trade Special Operations “that focus on physical inspection of small shipments and cargo.” While the plan—“a strong step forward”—received commendation from NCTO’s President and CEO, Kimberly Glas, concerns related to enforcement remain, which necessitate regulatory action. To effectively enforce the nation’s trade laws, more information must be shared with CBP beyond a rudimentary obligation to provide more than a “vague” description of cargo. In addition, CBP must be deputized with the ability to impose material consequences to disincentive repeat offenders. CBP’s willingness to issue new regulations and its candid admission that the de minimis threshold is not working as intended present a unique opportunity to solve numerous challenges.

III. Benefits and Disadvantages of Section 321

A. Benefits

The de minimis threshold creates a variety of important benefits for American consumers, domestic manufacturers, and foreign suppliers. First, access to imports increases Americans’ purchasing power. Simply, the de minimis threshold eliminates import taxes for various consumer products, resulting in lower costs for American consumers. A 1993 study conducted by the U.S. International Trade Commission (ITC) estimated that American consumers lost $11.6 billion—the equivalent of $23.1 billion in 2021—due to “significant” U.S. import barriers increasing product prices. Twenty-one years later, in 2014, ITC found that reducing tariff barriers with measures like Section 321 and bilateral trade agreements saved American consumers $13.5 billion—$15.45 billion in 2021 dollars.

Reductions in trade barriers primarily benefit the poor and middle class as they spend a larger share of their respective incomes on tradeable goods. Since 1960, families making below the median income have had steady growth in consumption. In fact, according to a study conducted by Bruce Sacerdote, “[t]he number of cars per household with below median income has doubled since 1980[,] and the number of bedrooms per household has grown 10[%] despite decreases in household size.” In addition, a strong U.S. economy depends on international trade—“[e]very $1 billion in exports of U.S. goods and services supports more than 5,000 U.S. jobs.”

Trade, bolstered by the reduction of trade barriers and the historic prioritization of reciprocity, continues to support roughly forty million American jobs. “In 2012, exports of U.S. goods and services supported an estimated 9.8 million American jobs, including 25[%] of all manufacturing jobs.” Roughly 60% of all goods imported into the United States are intermediate goods or raw materials used to produce finished products. These goods are necessary for domestic manufacturers and support American industry.

B. Disadvantages

The de minimis threshold is not without its well-documented issues. Elected officials of all political stripes, as well as domestic industry, have highlighted problems with the current threshold and are pushing for de minimis reform.

CBP claims de minimis shipments are screened like any other goods entering the United States. Brandon Lord, CBP’s Executive Director of Trade Policy and Programs, stated, “[t]here [is] a misconception that we don’t target or screen de minimis—it’s not true.” However, the risk-based approach CBP implements is stymied by the lack of adequate information, which impairs the agency’s ability to prioritize high risk shipments due to the sheer volume of small packages the de minimis threshold ushers into the United States. Simply, the importation of goods using the de minimis threshold does not generate the necessary information to ensure imports comply with the more than 500 laws passed to protect the health and safety of the American consumer, the economic competitiveness of domestic industry, and the promotion of human rights abroad.

Effective CBP enforcement prohibiting the importation of goods produced with forced labor, restricting the entry of goods violating intellectual property protections, and enforcing requirements meant to keep illicit substances out of American communities rely heavily on information submitted on CBP’s Form 7501 (or entry summary). The entry summary requires importers provide only minimal information including country of origin, entry date, name of the ultimate consignee, and a broad description of the merchandise. De minimis shipments require only a shipping manifest—a document that is unhelpful when CBP must understand if the toy inside contains lead paint.

Agencies tasked with overseeing certain imports have been forced to abdicate their responsibilities. In 2017, FDA “identified five categories of regulated products which could be released by CBP without notification to FDA for the purposes of determining entry admissibility, if they were valued at or below the then de minimis level of $200” because FDA could not effectively enforce the law given the inadequate information produced by exporters. Similarly, CPSC admitted its risk-based approach was impaired by the lack of crucial information.

De minimis also incentivizes the offshoring of industrial capabilities and American jobs, running directly counter to the current administration’s promotion of “worker-centered” trade. Companies are opting to build and expand e-commerce distribution operations, many times directly across the U.S. border in Canada or Mexico. Relying on cheap—and sometimes forced—labor, foreign companies like Shein and Temu have displaced traditional, brick-and-mortar American apparel companies due to the foreign companies’ ability to offer low prices. The de minimis threshold helps these Chinese companies sell directly to the U.S. consumer, sometimes in breach of U.S. trade law. The Chinese e-commerce giants Shein and Temu have been found to have imported products made in whole or in part with forced labor, have violated intellectual property protections, and have sold products that pose various health and safety measures to American consumers. According to an interim report from the Select Committee on the Chinese Communist Party, Shein and Temu account for “more than 30% of all packages shipped to the United States daily under the [de minimis] provision.” A Bloomberg News investigation found that garments Shein shipped to the United States were made with cotton from China’s Xinjiang region. In addition, “Temu [admitted it] does not have any system to ensure compliance with the [UFLPA].” These companies consistently flout U.S. trade laws and global norms while displacing hard working American producers. CBP’s own John Leonard joked at a conference that China has a free trade agreement with the United States—“it’s called [de minimis].”

In addition, the sheer volume of imports impairs CBP’s efforts to interdict noncompliant imports. With CBP resources stretched thin, its enforcement strategy relies on a risk-based approach where the agency—leveraging analytical tools—can identify and screen the riskiest of imports. While business groups and express shippers argue the threshold allows CBP to save time screening the low-value, low-risk imports, and better utilize their resources at high-risk crossings like the border, this assertion is simply wishful thinking. CBP itself identified the increased volume of imports utilizing the de minimis threshold as problematic given staffing and resources have largely stayed at the same level.

C. Congressional Options

1. Import Security and Fairness Act

Congressmen Earl Blumenauer (D-OR) and Neal Dunn (R-FL) as well as Senators Marco Rubio (R-FL) and Sherrod Brown (D-OH) introduced the Import Security and Fairness Act (ISFA) in an attempt to address the issues arising from an increasingly used, and recently expanded, de minimis threshold. The legislation would make two major changes. First, it would prohibit goods from countries that are both (1) non-market economies and (2) listed on the USTR Priority Watch List (a list of countries known to be repeat violators of intellectual property protections) from entering the United States under the de minimis threshold. Second, the ISFA would require CBP to collect additional information on all de minimis shipments entering the United States and would prohibit “[b]ad [a]ctors” from using the exception. The required information is largely left up to the discretion of the Treasury Department, but the bill does mention “information regarding the offer for sale or purchase, or the subsequent sale, purchase, transportation, importation or warehousing” of such articles, or “information relating to the offering of the article for sale or purchase in the United States through a commercial or marketing platform, including an electronic commercial or marketing platform.” In addition, the legislation imposes civil penalties for violators—a $5,000 for first time offenders and $10,000 fine for second time offenders.

2. De Minimis Reciprocity Act

The De Minimis Reciprocity Act (DRA), introduced by Senators Bill Cassidy (R-LA) and Tammy Baldwin (D-WI), approaches the de minimis threshold a little differently. First and foremost, the DRA would bar Chinese products from using the de minimis threshold. The legislation tasks the Secretary of Treasury with annually formulating a list of non-eligible countries. The Act would also match the U.S. de minimis threshold with that of individual trading partners. For example, because Canada’s threshold is CAD $150 (roughly $110 in U.S. currency), goods imported from Canada to the United States would have to fall below CAD $150 in value to benefit from the U.S. de minimis provision. In addition, the DRA requires imports benefiting from de minimis privileges to be imported to the United States by a contract carrier who will in turn provide the United States with data related to the imported items. The information would include the heading or subheading of the HTSUS, country of origin, country of manufacture, shipper of record, importer of record, a description of the article, and the “fair market value” of the items. This type of information would improve CBP’s ability to assess the relative risk of imports, identify noncompliant imports, and ultimately ensure those imports do not infect the domestic market.

Legislative fixes have proven evasive due to an effective lobbying campaign spearheaded by express shippers, the complex nature of the de minimis issue, and the current political environment and resulting legislative paralysis. For instance, neither the ISFA nor the DRA have yet been enacted into law. Further, both Congressional options present problems. While the ISFA would substantially increase the burden of CBP to ensure the newly required information was accurate, the DRA’s de minimis reciprocity idea is a clear violation of the United States’ obligations of nondiscrimination as a World Trade Organization member.

IV. Recommendations

A. Treasury Should Segment Out Textile and Apparel

The Treasury Secretary should leverage their clear, preexisting authority under the TFTEA to issue an NPRM that solely regulates imports of textiles and apparel utilizing the de minimis threshold. An NPRM would announce the Treasury Department’s plan to reform the de minimis importation process starting with the textile and apparel sectors and would be particularly advantageous for the Treasury Department because it would allow industry to help define critical terms, thereby helping the Department formulate the proposed rule. Focusing on the textile and apparel industries would prioritize two sectors associated with heightened violations, provide important information for the agency to use when implementing a broader Section 321 reform effort, and ensure the known advantages of de minimis treatment for imports are not eliminated wholesale across industries.

The final rule resulting from the NPRM would ensure imports are adhering to U.S. law, produce instant domestic economic benefits, and serve geostrategic efforts in the Western Hemisphere.

First, as Shein and Temu’s direct-to-consumer approach evades duties, domestic retailers like Gap, H&M, and David’s Bridal continue to pay steep taxes at the border. For example, the three aforementioned companies paid $700 million, $205 million, and $19.5 million, respectively, in import duties in 2022. This comes as the square meter equivalent of textile and apparel imports increased by 55% between 2010 and 2022. These payments put American domestic retailers at a severe disadvantage to foreign, online-only retailers and incentivize them to offshore jobs and capabilities.

Second, the de minimis threshold’s current structure benefits Chinese producers to the detriment of domestic manufacturers. Over the past twenty-five years, apparel manufacturing saw the steepest drop in employment of any manufacturing industry—85%. Similarly, employment in textile mills decreased by 76%. The apparel industry is particularly sensitive to pricing dynamics, making small differences in costs to retailers consequential. William Lucas, General Manager of Eagle Sportswear, an apparel producer located in Middlesex, North Carolina, said: “It’s just hard to compete with [foreign companies utilizing the de minimis exception].”

Third, the Biden Administration has prioritized the Central American region for U.S. investments, in part, to “boost[] economic opportunity” and “address the root causes of migration.” The region, a leading exporter of apparel to the United States, is also foundational to the administration’s goals of de-risking global supply chains. Central American countries like Honduras and Guatemala are also “inextricably linked [to the United States] through a textile and apparel co-production chain under the US-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) [generating] $12.6 [billion] in annual two-way trade in the sector and support[ing] 1 [million] workers in the [United States] and the region.”

Fourth, by prioritizing finished apparel products, the price of most manufacturing inputs likely will not be significantly affected. U.S. firms intensively use intermediate input goods in their manufacturing processes. According to Fernando Leibovici, a Federal Reserve economist, on average, intermediate inputs account for 64% of the total value of production on average, and 22% of total intermediate inputs expenditure comes from abroad. To the extent domestic manufacturers source intermediate inputs using the de minimis threshold, limiting the reform to finished apparel products would leave them largely unaffected.

The current structure of the de minimis threshold perpetuates foreign forced labor abuses and impairs the United States’ efforts to “de-risk” global supply chains and support domestic industry. Segmenting out the textile and apparel industries from other sectors would allow the Treasury Department to “catch” the worst offenders and glean insights as to the effectiveness of the changes that could inform future actions.

B. Only Allow “Contract Carriers” to Utilize the Threshold

The foremost problem facing CBP is the lack of accurate, complete data from which the agency can prioritize screening based on risk. In a January 2024 hearing, Eric Choy, Executive Director of the Trade Remedy Law Enforcement Directorate in CBP’s Office of Trade, admitted that many of the “challenges within the de minimis environment . . . [go] back to the lack of information that we gather as compared to traditional shipments that come in through our ports of entry.” Mr. Choy explained that CBP is looking “into the [de minimis] environment to see what additional information elements . . . would be helpful . . . to understand who . . . the parties [are] within the shipment, what’s inside the box, and who the customers are.” He went on to say “that kind of expanded information and data for each of the shipments that comes in would give us greater flexibility . . . and greater access for our targeting systems to identify risk factors and be able to stop specific shipments coming in at our ports of entry.”

Fortunately, one major channel of import already possesses that data: contract carriers. As Senators Baldwin and Cassidy proposed in the DRA, the Treasury Secretary should require all imports of apparel seeking to utilize the de minimis threshold to be imported by a contract carrier. Further, the NPRM should indicate that the final rule would mandate the contract carrier collect and provide CBP with specific information for every package entering the United States, including: the ten-digit HTSUS number, country of origin, country of manufacture if it is different from the country of origin, shipper or record, importer of record, importer of record, description of the article, website URL to the product description, and the fair market value in the United States.

However, the Treasury Department should not adopt the definition of “contract carrier” that is provided in the DRA: “a private entity . . . organized under the laws of the United States or any jurisdiction within the United States; and . . . ships small packages into the United States by air or land.” Defining “contract carrier” this broadly would allow anyone—including foreign firms that establish a U.S. subsidiary—to exploit a well-intentioned, but ineffective, piece of legislation. Instead, this Comment argues that “contract carrier” should be defined as “an entity with a beneficial owner who is a U.S. person and which is organized under the laws of the United States; and ships small packages into the United States by air or land.”

First, as part of an NPRM focused on the textile and apparel sectors, this definition would prevent those imports using the U.S. Postal Service (USPS) from benefitting from the de minimis threshold. This is an important development as USPS is not a law enforcement agency and does not have the know-how or capacity to effectively enforce our nation’s technical trade laws. Further, it seems that USPS does not track de minimis shipments because a request from the China Select Committee asking for records and data related to de minimis shipments has been left unfilled.

Second, this change would shift the enforcement burden away from CBP. While the Section 321 pilot and Entry Type 86 entries have allowed CBP to better focus enforcement efforts, this increase of information, paired with new technologies already being deployed across the agency, will allow the agency to keep the de minimis threshold in place while further narrowing their enforcement focus.

Lastly, the contract carriers are in the best position to provide the required data. This approach has been instituted in the European Union (EU) with great success. The Import Control System 2 (ICS2)—the EU’s large-scale “advance cargo information and risk management platform,” which aims “to protect against security and safety threats” from the global e-commerce business model—requires air carriers, freight forwarders, express couriers, and postal operators to present EU customs officials with a broad range of data prior to the goods arriving at the EU border. The ICS2 program, “prepared in close collaboration between the European Commission, Member States’ customs authorities, and business[,] . . . provides improved data quality, improved customs risk management and a better risk-based approach to customs risk mitigation measures and external border controls.” ICS2 has forced contract carriers to mandate customers using its shipping services to disclose the required information prior to their products being shipped. The change has successfully shifted the burden from European customs agents onto the express shippers that will continue to benefit from the de minimis threshold. With the explosion of de minimis imports, CBP resources are already strained. This change should help alleviate that strain and allow CBP to fully realize its risk-assessment strategy.

C. Disincentivize Violations with Substantial Penalties

To ensure compliance with the new regulations, the Treasury Department should impose substantial penalties for repeat violators who exploit the de minimis threshold to violate U.S. law. The principles underlying the Type 86 Test and Pilot Program promote the idea that more data allows CBP to narrow its focus and prioritize certain imports; however, the data is often incorrect. At CBP’s Trade Facilitation and Cargo Security Summit in April 2023, Sal Ingrassia, the Director of Field Operations in CBP’s Miami-Tampa Field Office said, “we still have a lot of concerns” due to the data often being inaccurate. Twenty-five percent of de minimis shipments had some type of violation; “[i]t was alarming to see we had so many violations.” Violations ranged from HTSUS misclassifications to unmanifested merchandise. CPB’s Brandon Lord contended the reason for so many violations is due to there being “zero incentive as that foreign shipper, or foreign seller, to learn the requirements to enter the United States.”

Currently, pursuant to the Customs Modernization Act, the importer is responsible for using “reasonable care” to enter, classify, and value the goods and provide any other information necessary to enable CBP to “properly assess duties,” “collect accurate statistics,” and “determine whether any other applicable” legal requirements are met. In a Frequently Asked Questions webpage from September 2023, in response to “[h]ow will CBP validate the ‘one shipment, per person, per day, not to exceed $800’ requirement,” CBP answered, “[our] expectation for all filers and self-filers participating in the test to exercise reasonable care, and fulfill their responsibility of complying with the statutory limitation for [de minimis] pursuant to 19 [U.S.C. §] 1321.” Foreign sellers are currently judgment-proof as there is no accountability for providing inaccurate data.

The Treasury Department should introduce legal accountability for foreign companies who want to benefit from the duty-free treatment the de minimis threshold affords. Similar to Representative Blumenauer’s proposal in the ISFA, Treasury should penalize “[a]ny person who violates the regulations,” making them liable for a civil penalty of $5,000 for the first violation and $10,000 for the second violation. If a person or entity violates the regulations a third time, the Treasury Department should place that person on a newly created list of “Debarred and Suspended” parties—a list to be developed and administered by the Treasury Secretary. Utilizing the de minimis threshold is a privilege as it grants duty-free treatment to imports and provides a more streamlined importation procedure. Inclusion on the list will deny that entity’s use of the de minimis threshold, providing an important “stick” to deter wrongful behavior. Instead, to import goods into the United States, a party on the “Debarred and Suspended” list will have to go through formal entry proceedings ensuring their goods are in full compliance with U.S. law.

Conclusion

The explosion of e-commerce and the raising of the de minimis threshold has made CBP’s job of enforcing forced labor, intellectual property, and public safety laws almost impossible. Fortunately, the Department of Treasury has been afforded broad authority to promulgate regulations to “protect the revenue or to prevent unlawful importations.” The Treasury Secretary should immediately promulgate new regulations, narrowly focused on the textile and apparel sectors, to limit de minimis shipments to “contract carriers,” mandate such carriers disclose additional information prior to a shipments arrival at the U.S. border, and impose substantial penalties on repeat offenders. Such a change would not only better enforce the laws on the books but would positively affect U.S. policy priorities related to human rights, narcotic interdiction, domestic manufacturing, and de-risking global supply chains. Every day, those like Gulbahar Haitiwaji take extraordinary risks to speak out about forced labor abuses; the least the United States can do is effectively enforce the laws already on the books.