Outcome of “De Minimis” Will Have Major Effects on eCommerce Importations and the U.S. FTZ Program

The U.S. House of Representatives recently passed legislation within the America COMPETES Act of 2022 (H.R. 4521) that proposes to restrict the use of de minimis for goods from China7, but is silent on treatment for U.S. FTZs. Specifically, the bill would modify current statute to prohibit de minimis treatment for imports from countries that are identified as both non-market economies and violators of international intellectual property standards, in accordance with the United States Trade Representative’s priority watch list. Moreover, the proposed reforms would endow the U.S. Customs and Border Protection (CBP) with the statutory authority to collect further information on goods imported into the U.S. that receive de minimis treatment upon entry, and further, prohibit goods from importers that are currently suspended or debarred from receiving de minimis treatment⁸.

The proposed reforms to the de minimis provision in the House version of competitiveness legislation are principally motivated amidst concerns that non-market economies, namely China, are taking advantage of current de minimis thresholds at the expense of American businesses who are at a competitive disadvantage⁹. Irrespective of the outcome of the ongoing conference process between the Senate and House versions of competitiveness legislation, U.S. retailers should prepare to respond to the evolving legislative and regulatory environment surrounding the de minimis provision, and position themselves accordingly to mitigate risk and protect enterprise value on behalf of their valued customers and shareholders.

Current de minimis policies facilitate a direct-to-consumer business model that leverages the market and regulatory efficiency of a made-to-order fulfillment strategy¹⁰. Proposed reforms to the de minimis provision, either in the form of a reduction in the current de minimis threshold or other more substantive modifications, may require some U.S. retailers to reevaluate their day-to-day operations and broader strategic ambitions. It will prove critical for U.S. retailers to carefully monitor actions taken by the Biden Administration and Congress with regard to U.S. international trade and tariff policy, such that they are better positioned to mitigate risks to their operations in real-time. Additionally, U.S. retailers must proactively engage with their respective suppliers, and work to develop a contingency plan that accounts for future potential changes to the de minimis provision. This will ensure that both parties are adequately prepared to reconfigure their supply chains and modify key business processes to remain compliant with new regulatory requirements governing de minimis treatment in the U.S. as they are promulgated.

If this bill in its current form becomes law, effectively the only types of transactions that would not have access to the de minimis provision are importations from China and withdrawals from U.S. FTZs. For some retailers operating in U.S. FTZs, from a customs and duty perspective this potential result incentivizes them to offshore their distribution operations, often to Canada or Mexico.

The lack of FTZ access to the de minimis provision is not a new problem; however, the dramatic rise in eCommerce fulfillment combined with the opportunity for Congress to correct the statutory limitation has prioritized this issue for U.S. retailers and U.S. economic development champions..