With an estimated over two million shipments per day, the legal treatment of de minimis imports, also known as Section 321 shipments, is the subject of ongoing discussions in both Washington and the general parcel shipping industry. Is the current $800 threshold too high? Is Section 321 being abused? If so, how should regulation of the shipments be changed? This article is a short primer on the basic rules and policy issues surrounding Section 321 shipments.
In the law, de minimis means that a matter is so minor as to not require legal consideration. The US de minimis import rules are a statutory and regulatory exemption authorized by 19 USC §1321 (thus “Section 321”) that administratively exempts low value goods from the payment of taxes and duties and the formal importation entry process. The rationale for the exemption is that the cost of administering the laws to small imports exceeds the benefits of taxing the goods and requiring formal entry.
In effect since 1938, the de minimis rules have gained significant attention after Congress enacted the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). TFTEA authorized increasing the dollar threshold of de minimis shipments from $200 to $800 in daily imports. Combined with the development of e-commerce direct to consumer shipments, CBP reports that the number of de minimis imports has risen 410% between 2015 and 2022.
Under the exemption, goods valued at below $800 can enter the United States “free of duty and of any tax imposed on or by reason of importation, but the aggregate fair retail value in the country of shipment of articles imported by one person on one day and exempted from the payment of duty shall not exceed an amount specified” by regulation.
As low value informal entries, Section 321 shipments may be entered by the owner, purchaser, or consignee of the shipment, or an appropriately designated customs broker, by presenting to CBP the bill of lading or a manifest listing the origin country of shipment, plus information regarding the country of origin of the merchandise; the shipper name, address and country; the ultimate consignee name and address; and the specific description, quantity, shipping weight, and value of the merchandise.
Not all packages valued below $800 are entitled to de minimis treatment. Section 321 applies only if the aggregate value of shipments on a given day, from or to one party, can be valued at $800, based on the value at the country of shipment, not the ultimate US value. CBP has held that consolidated shipments of low value goods will not qualify for the exemption if they are not consigned to or have identifiable separate individual ultimate US consignees at the time of importation. Under CBP regulations, consolidated shipments addressed to one consignee shall be treated for purposes of the de minimis exemption as being one importation. CBP can also deny the exemption if it has reason to believe that a shipment is one of several lots covered by a single order or contract but shipped separately in order to obtain the benefits of the exemption.
Certain merchandise is not entitled to the Section 321 exemption. This includes alcoholic and tobacco products and merchandise subject to any tax imposed under the Internal Revenue Code collected by other agencies on imported goods. Goods subject to quota restrictions or AD/CVD do not qualify for Section 321. However, CBP has confirmed that Section 301 duties will not apply to eligible goods properly entered under Section 321.
De minimis shipments are also not exempt from other laws or regulations administered by Customs, or other laws administered on behalf of Partner Government Agencies (PGAs), such as the Department of Agriculture, the FDA, and the CPSC, which may have their own rules and regulations that apply to low-value shipments.
Importers are also required to exercise reasonable care in declaring that the de minimis exemption applies, since fines and penalties can be imposed for violations of the Section 321 rules as well as any other applicable regulation.
In 2019, CBP initiated two different programs, the Section 321 Data Pilot and the voluntary Entry Type 86, to develop new procedures to efficiently examine and clear the increased volume in de minimis shipments while obtaining sufficient information to determine regulatory compliance with U.S. laws. The Entry Type 86 program is open to customs brokers and self-filers. CBP has reported that over 333 million Entry Type 86 transmissions were received in FY 2022, accounting for approximately 43% of all imports that year. CBP is also contemplating the proposal of new regulations regarding the entry procedures and information required for Section 321 imports.
Critics of Section 321, including those in Congress, cite the rapid growth of de minimis shipments as evidence that the exemption is being used as a loophole by foreign companies, especially those engaged in direct-to-consumer e-commerce, to avoid the payment of duties and evade US laws in order to unfairly compete with US companies importing similar goods. The exemption has also been criticized for providing a loophole to avoid the payment of Section 301 duties that would otherwise apply to imported goods produced in China.
A House Congressional Committee issued an interim report this summer accusing two major Chinese companies of using Section 321 to avoid scrutiny under US laws, including US prohibitions against the use of forced labor. The US Postmaster General has also been asked by members of Congress to provide information on US mail records and data pertaining to shipments from China, due to concerns that CBP de minimis data is not comprehensive of mailings handled by the USPS.
One suggested change to the current de minimis policy is to simply return the $800 threshold, currently the highest in the world, to $200. Other proposed changes before Congress include a tightening of the use of the exemption, for example, by prohibiting its use for products manufactured or shipped from countries such as China or Russia; establishing reciprocal de minimis US import thresholds to match the value threshold that other countries apply to US exporters; requiring the submission of more detailed documentation or information regarding Section 321 imports; and limiting the eligibility of de minimis shipments to articles transported to the United States by contract carrier to ensure more detailed information is reported to CBP.
However, all of these are currently just proposals. For now, the only certainty about Section 321 imports and whether the rules will change is that the controversy surrounding them is not de minimis.
Andrew M. Danas is Partner, Grove, Jaskiewicz and Cobert, LLP. For more information, visit www.gjcobert.com or email email@example.com. The information contained in this article is intended to be general background information. It does not constitute and should not be relied upon as legal advice. Readers should contact a qualified attorney should they have a specific legal question.
This article originally appeared in the 2023 Global/Cross-Border edition of PARCEL.