De minimis exemption changes are coming: Is your business ready

Duty-free, low-value shipments are inundating United States Customs and Border Protection (CBP), and "bad actors" are exploiting the expedited import process to smuggle illegal and harmful goods into the country. Changing the de minimis exemption could help stem the flow of illegal low-value imports.

What is the de minimis exemption for customs duties?

The de minimis exemption allows many goods valued at or under $800 (per person, per day) to enter the United States exempt from duty and import taxes. Close to 100 countries/territories have de minimis thresholds, but the U.S. threshold is by far the most generous. Congress raised the de minimis threshold from $200 to $800 (per person per day) in March 2016.

De minimis imports qualify for Entry Type 86, an expedited customs entry type overseen by CBP. Less information is collected on these imports, and the documents required for Entry Type 86 must be filed electronically through CBP's Automated Commercial Environment (ACE) portal. Before February 15, 2024, importers had up to 15 days after arrival of the cargo to provide the necessary information. Today, documents are due before or upon reaching customs.

"CBP monitors/reviews shipments the same regardless of value." However, customs officials are struggling to keep up with the tsunami of low-value imports arriving in the U.S. each day.

How many de minimis imports enter the U.S.?

CBP processed more than 1 billion de minimis shipments in 2023 and is on track to do the same in 2024. At New York's John F. Kennedy International Airport alone, the entry point for 25% of all de minimis shipments, CBP often receives and processes between 750,000 and 1 million de minimis shipments each day. Nationwide, CBP daily processes close to 4 million de minimis shipments.

To put these figures into perspective, CBP processed 134 million de minimis transactions in 2015, when the de minimis threshold was a quarter of what it is today.

At certain points of entry, the volume of low-value shipments is overwhelming customs officials. "We have limited resources," explains Andrew Renna, Assistant Port Director for Cargo Operations at JFK Airport. "There is no physical way if I doubled or even tripled my staffing that I could look at a significant percentage of [750,000 to 1 million de minimis shipments]."

Yet CBP does scrutinize many low-value imports, and in doing so has discovered plenty of illegal goods: fentanyl and drug-making paraphernalia; smuggled beef, pork, and poultry declared as footwear and jackets; textiles produced by forced labor; and weapons hidden inside chocolate, to name just a few.

And therein lies the problem changing the de minimis exemption could help solve: De minimis is "a very exploitable mode of entry into the U.S.," says Renna.

What are the U.S. de minimis exemption changes?

On September 13, 2024, The White House announced a plan "to stop the abuse of the de minimis exemption."

According to the announcement, the Administration will:

• Issue a proposed rule imposing tariffs on goods that injure or threaten domestic industry or national security
• Issue a proposed rule requiring additional data for de minimis shipments
• Issue a final rule requiring importers to file electronic certificates of compliance with CBP and the Consumer Product Safety Commission (CPSC) at the point of entry

The Administration is also calling on Congress to "reform the de minimis exemption comprehensively." It's particularly interested in stopping harmful drugs from illegally entering the U.S. and preventing imports of apparel and textile products made by forced labor (e.g., the Uyghurs in China).

New tariffs on goods that threaten domestic industry or national security

The Administration plans to exclude from the de minimis exemption all shipments containing products covered by tariffs imposed under Section 201 or Section 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962. These sections govern products that injure or threaten domestic businesses or national security.

The proposed rules would also "ensure that de minimis exemption eligibility for products covered by trade enforcement actions is consistent across U.S. trade laws." The White House would like Congress to step in to accelerate this reform.

Greater enforcement for de minimis shipments

Strengthening "information collection requirements to promote greater visibility into de minimis shipments" is another of the Administration's goals. Specifically, to:

• Require specific, additional data for de minimis shipments, including the 10-digit tariff classification number and the person claiming the de minimis exemption
• Clarify who is eligible for the administrative exemption and require filers to identify the person on whose behalf the exemption is being claimed

"The 10-digit HS codes are already required for Entry Type 86," explains Shane Bogdan, Director of Cross-Border Sales at Avalara, "but not everyone is providing them, nor are they being classified accurately. In some instances, organizations may be just affixing random 4-digits (e.g., 0000) to the end of a 6-digit HS code to make it the required 10-digit code." Moreover, establishing more stringent collection requirements should give CBP better visibility into de minimis shipments.

The White House is encouraging Congress to pass the Detect and Defeat Counter Fentanyl Proposal as well. This would authorize CBP to demand additional documentation and information about de minimis packages to help it identify patterns and analyze risk. It would also add a user fee to de minimis packages, to help pay for necessary equipment and staff. And it would set stronger penalties for using the de minimis exemption to smuggle illegal drugs into the country.

Improve consumer protection

Finally, CPSC intends to propose a final rule to prevent de minimis shipments from circumnavigating safety standards.

To that end, importers of consumer products would be required to file Certificates of Compliance (CoC) electronically with CBP and CPSC at the time of entry - including for de minimis shipments, which currently don't require a CoC.

According to the White House, this would help CBP and CPSC identify unsafe products and prevent them from entering the U.S. market. The initial proposed rule was submitted in December 2023.

How changes to de minimis could impact ecommerce businesses

Delays and added costs are the two biggest potential fallouts of changing the de minimis import process.

Subjecting Entry Type 86 de minimis shipments to additional scrutiny could slow the process of clearing low-value, cross-border ecommerce packages. Ecommerce businesses shipping goods into the U.S. from other countries will therefore need to alert consumers of potential delays and plan accordingly.

In fact, some low-value imports may already be experiencing delays. On May 31, 2024, CBP announced that it had suspended multiple customs brokers from working with Entry Type 86 imports after discovering they'd cleared packages that "posed an unacceptable risk." According to Supply Chain Brain, customs brokers are now taking more care to ensure imports are legal because their reputations and licenses are on the line.

More time doesn't necessarily mean more money, but The White House has also proposed adding a fee to process de minimis shipments. Yet if a user fee is established, companies will need to decide whether to pass that fee on to customers or eat it.

When will the de minimis changes take effect?

The fact sheet published by The White House on September 13 did not lay out a timeline. Proposed rules would require public comment before being finalized.

Yet with CBP already cracking down on de minimis imports, ecommerce businesses should do all they can to streamline cross-border sales. Assigning the correct 10-digit tariff code to all low-value imports can help, as can confirming all imports comply with current trade restrictions.

"Accurate and complete HTS codes ensure streamlined processing through customs, increase trade visibility and efficiency, and help maintain the integrity of the supply chain," says Bogdan. Given the heightened focus on compliance, international sellers that proactively adopt cross-border compliance solutions should be in the best position to avoid being held up at customs.

Avalara has a portfolio of services to help businesses comply with de minimis exemption requirements and trade restrictions. These include our HS classification services: Automated Tariff Code Classification, Self-Serve Tariff Code Classification, and Managed Tariff Code Classification.

Schedule a call today for more details.