Four ways removing de minimis could hinder US apparel sector
5-9-2024
FOUR WAYS REMOVING DE MINIMIS COULD HINDER US APPAREL SECTOR
The US'
National Foreign Trade Council (NFTC) believes a more tailored and
comprehensive customs modernisation legislation as opposed to limiting de
minimis entirely will prevent unintended consequences for the US apparel sector
and beyond.
The US Congress is
considering changes to the “de minimis” rule, which exempts low-value shipments
from tariffs and duties. However, the NFTC believes proposals to limit de
minimis could have significant unintended consequences for the apparel
industry.
Cost of de
minimis changes for US federal government
NFTC says the proposed alterations to de
minimis rules would impose major financial burdens on the US government. While
the legislation aims to collect additional tariff revenue from low-value goods
that are subject to trade remedies like Section 301 and anti-dumping duties,
the cost to implement and enforce these measures may far exceed the revenue
gained.
It suggests the US Customs and Border Protection (CBP) would need to expand its operations significantly to inspect low-value shipments — over a billion each year—creating a need for tens of thousands of additional employees, including agents, inspectors, and legal staff.
NFTC warns every minute CBP spends focusing on classifying low-value shipments to collect minimal duty is a minute they are not inspecting packages that may pose a high risk. Focusing on tariff collection will also create a backlog in package processing, aggravating the country’s highest volume of air and seaports and diverting border resources.
It asserts that US congress would need appropriate substantial funding to cover these staffing increases since the collected tariff revenue is directed to the Treasury, not CBP. This significant outlay of federal resources could undermine the intended financial benefits, turning the enforcement of de minimis restrictions into a costly endeavour.
Cost of de minimis changes to wider supply chain
The introduction of more stringent de minimis regulations could also exacerbate existing supply chain issues, according to NFTC. It notes businesses could be unprepared to navigate the complex customs procedures that would accompany the changes.
Plus, it suggests companies that mistakenly
import goods under de minimis rules that are later deemed ineligible by CBP
will face costly and time-consuming requirements to reclassify their shipments
as formal entries. This process could involve hiring customs brokers, paying
additional duties, and potentially causing delays at congested ports. For
businesses unable to comply, unclaimed shipments could pile up, forcing CBP to
dispose of the goods. This additional logistical burden would likely slow down the
flow of goods across US borders and disrupt the timely delivery of products to
consumers, especially during peak demand seasons.
Risk of
trade shifting to less transparent postal environment
NFTC highlights another unintended
consequence of the proposed changes could be the potential shift of shipments
to less secure postal channels. Currently, de minimis shipments often enter
through more transparent shipping services that allow for greater oversight.
However, stricter de minimis rules could
incentivise bad actors to exploit the postal system, which is historically more
difficult for CBP to monitor.
International mail facilities, already under
strain, could become overwhelmed with a surge in low-value packages, making it
harder for authorities to screen for dangerous goods like fentanyl and
counterfeit products.
NFTC notes CBP and the US Postal Service
must manually process ineligible shipments in the postal environment, so all
packages will need to be converted to dutiable mail, and will potentially
require consumers to visit the port of entry for duties and package pickup.
Cost of de
minimis changes for poorest US consumers
The NFTC cites the most concerning impact of
changing de minimis rules as the potential for increased costs to US consumers,
particularly those in lower-income areas.
It highlights a recent study by Yale and
UCLA economists that suggested degrading de minimis would reduce aggregate
welfare by up to $14bn, resulting in a regressive tax, disproportionately
affecting households in poorer zip codes.
In a time of rising inflation, it asserts
these additional costs could significantly strain household budgets, further
widening economic disparities across the US.
NFTC’s quest for a balanced approach
Rather than eliminating de minimis, the NTFC
is arguing for “more tailored and comprehensive” customs modernisation and
enforcement reforms. This includes investing in new technologies such as AI and
non-intrusive imaging to better handle compliance without straining resources.
Expanding the 321-pilot programme, which
tests new enforcement methods, could also help improve CBP’s effectiveness
without overburdening the apparel industry or its consumers.
The NFTC adds: “A more prudent and
sustainable process for US congress to consider would be improving CBP’s
enforcement efforts across all entry types and better targeting bad actors from
non-market economies.”
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