The explosion of packages under the Section 321 de minimis threshold is the target of the US government as well as traditional American retailers. Most of these packages are generally from China, and specifically from Temu and Shein. Without duty, this "de minimis import process" is viewed by many as a loophole.However the import processes for the vast majority of these products seem to adhere to existing US Laws (I say "seem to" as there is a lack of data to know for sure).
We update this blog regularly to capture the fast proposals and ongoing discussions. We provide historical context, conflicting regulations, arguments made by supporters and opponents, and trade disparities between the US and everyone else.
321 Entries explained. Helpful Video
Aggregating Internet Volumes Aggravating Traditional Retail
Let's face it, the vast majority of consumer goods import from China. From where and how you buy will not change this fact. Whether via lower margin traditional retail behemoths Amazon, Walmart or Costco, via speciality stores, online or in a store.
- 1 billion parcels import will exceeding $50 billion in value in 2024
- De minimis imports are averaging around 8% of US imports of consumer goods and 20 % of e-commerce sales
The incredible growth in volumes have attracted the attention of logistics companies (especially air freight carriers last mile delivery couriers) as well as regulators. Carriers are lobbying to keep as much as the Section 321 as possible. Their argument is that it benefits low income consumers and data via Section 321 entries is mostly reliable.
Is this the end of Temu and Shein?
No. The volumes from China - and specifically from Temu and Shein - are both too large to ignore and too large to outright prohibit. Both companies insist their business model does not rely on continued duty free access via Section 321.
In addition to intense lobbying from carriers and online sellers, politicians also do not wan to alienate an important demographic. Shoppers love Temu and Shein.
We update this post regularly. Subscribe to our blog to track the current legislative proposals and regulatory proposals.
We believe the status quo is not sustainable. We also believe that the carriers, online platforms and logistics processes will be able to adapt to the new regulations. There will be grumbling and complaining but - in the end - growth in the "direct order-cross border e-commerce" will continue.
Global Perspective: Global E-Commerce and De Minimis
Countries around the world are are closing de minimis loopholes- or discussing further restrictions. South Africa and Turkey recently made changes. Regulators in the UK and European Union are discussing eliminating the de minimis (135 UKL and 150 EUR respectively).
How about e-commerce imports TO China, Europe, Canada and Australia?
See Note below on National Bureau of Economic Research paper
Some social media comments since the original publication:
- "You should not use the term 'circumvent' for shippers and importers are following the regulations around section 321 with no intent to circumvent other regulations
- “You might have a dress that used to cost 10 bucks. Now it costs 12 or 13 bucks. So, the prices will go up. It’s not going to stop the model"
- "The processes should be lauded for their facilitating this new category but some additional controls are probably a good thing"
- "The best solution is to bring shippers into compliance by making them the importer of record"
- "Usual wishy washy 'it hurts the consumer' nonsense. What 20% of virtually nothing?. £2 for a car phone holder on Temu"
- "Do you have teenage daughters? Consumers are driving this trend and I don’t expect it will change"
- "...simply removing de minimis could hit American consumers hard, especially those with lower incomes.
- "Why is the Biden administration acting now"
- "Compliance reform was 100% necessary and long overdue"
- "Many economists argue that trade deficits are not necessarily bad for an economy"
Proposed updates to Section 321
Recent History of Section 321
Section 321, From an obscure line in a trade act from 2016 to Issue number 1
I maintain that no one understood the impact of raising the duty free threshold was raised from $200 to $800 back in 2016. The origins of the "de minimis" related to travellers bringing goods back to the USA. It was then associated with postal and then express packages .But the increase of de minimis from $200 to $800 only tells part of the story.
The biggest regulatory change came not from expanding the de minimis to $800. The explosion of volumes is thanks to the expanded access from postal and express imports to everyone - and everywhere - else.
What about Temu and de minimis
Decade leading up to around 2015
- Section 321 was the purview of express operators via Part 128 of the Code of Federal Regulations and postal imports
- Express processes are the domain of FedEx, UPS, DHL. There are also independent facilities at gateway ports (LAX, ORD, JFK, MIA). Independent facilities include IBC, Micom, and NYACC (JFK).
- The regulations for express consignment are strict. They demand licensed express facilities (very difficult to get approval) , integrated control and reimbursement to customs for the cost of express processes (via a per house airway charge of around $1.30).
- De minimis value changed from $200 to $800 (2016)
Customs allowing parcel clearance processes outside of express facilities.
At the key gateway ports with express facilities, customs allowed container freight stations (CFS) access to express clearance processes. A bit slower clearance but without the per shipment surcharge. These gateway CFS's often exist side by side in the same building with express facilities.
Up to around 2018
Before 2018, only express air and land carriers could file shipments electronically through the Automated Manifest System.Type 86 Changed the Game.
CBP expanded access to section 321 via “Type 86” pilot clearance. (Type 86 entries now represent the majority of Section 321 imports).
- Section 321 access to all ports across all modes of shipping
- Access to all customs brokers via the Automated Broker Interface ABI and ACE
- Requires a harmonized code
- "Integrated control" not required (as is for express consignments)
- No per HAWB import fee, Merchandise Processing Fee, or importer of record.
Restrictions via Section 201/232/301 targeting Imports from China
The Trump administration's punitive tariffs (2017) on Chinese-made goods remain and likely will expand. Section 301, Section 201, or Section 232 make up these trade enforcement actions.
- The President directs the U.S. Trade Representative (USTR) to modify the tariff for specific goods
- USTR implements policy action via a "Section 301 investigation" by imposing additional duties
- In this case, a 10 percent additional tariff was placed on specific products from China
- Section 321 entries were not subject to these additional tariffs
The process of applying section 301 tariffs can be complicated even for experienced importers.
- Affected products are determined via their specific harmonized code (HTS) subheading
- Each affected HTS fall into one of four groups or List
- An item that was initially subject to a Section 301 may be removed via a "product exclusion process."
Importing to the USA: A complete Guide
New Section 301 Tariffs came into affect. Section 321 volumes exploded
Two things happened simultaneously: Imposition of Section 301 tariffs and explosion of duty free Section 321.
However, it would an over simplification to say these are directly linked. The number of "section 301 goods" importing via section section 321 is impossible to say (another reason for more controls) but it is likely very small percentage of the total.
While duty free access play a significant role, technological and logistical innovations are key factors as well. Temu and Shein success globally prove their competitive advantage extends beyond the cost of import duty. Chinese e-commerce imports to Europe, for example, have grown despite more restrictive processes.*
*Having said that, the EU is considering eliminating their 150 Euro duty free threshold. Shein - for one - has announced plans to expand their physical presence in Europe.
Shippers of impacted section 301 goods (and other affected commodities) can update their processes to formal entry processes. The approximate + 20% additional tariff will be minimized as it will be on the wholesale value. The import entry can still ship direct to consumers following clearance - which is often prior to arrival.
With a stated average retail transaction value of Temu and SHEIN said to be less than around $70 which includes shipping. Making the value for duty probably less than $50 per transaction. Thus, the additional cost for duty is likely manageable for this subset of goods.
Adding restrictions to Section 321 will t hurt the direct logistics model. But the model will continue to grow because it offers a faster order to delivery cycle (days instead of months), near zero inventory, faster reaction to industry trends, and no costly overstock.
Security Issues Highlighted for Section 321 Entries
According to a DHS report: ..."89 percent of all seizures in the cargo environment this fiscal year originated as de minimis shipments, including 97 percent of narcotics seizures, and 72 percent of health and safety seizures of prohibited items...."
De minimis shipments are exempt from customs tariffs, not subject to a processing fee (except for express consignment, which are subject to $1.27 per-shipment customs fee). In contrast, informal entries of goods up to $2500 are subject to duty and require filing CBP Form 7501. Shipments with a value above $2500 also require form 7501 as well as a surety bond. Non-Section 321 entries are subject to a merchandise processing fee entry preparation fee from a customs broker. Furthermore, formal entries are subject to audit from customs for 5 years following import.
What about importing e-commerce orders TO China?
China requires e-commerce platforms to register and holds them responsible for compliance. This includes ensuring goods are on the "positive list." The list defines which goods can import via e-commerce import processes. There is a limit for each order, and applicable tax must be paid. China's importing e-commerce processes require the recipient's ID number (similar to a social security number or EIN).
De Minimis to China
There is no duty free threshold for e-commerce imports to China. However, e-commerce imports under 5,000 RMB (around $700 USD) benefit from a lower tax of 9.1% for most goods (versus around 23%). Furthermore, individuals can benefit from the preferential tax rate up 26,000 RMB in e-commerce orders per year. Shipments to individuals
The e-commerce opportunity to China is huge. Daily peak volumes can exceed 10 million. Contact our team for details.
Importing e-commerce orders to the European Union
The current duty free threshold to the EU is EUR 150. However, all imports are subject to VAT. The European Commission has plans to abolish the EUR 150 de minimis and update EU VAT rules. Final proposals are forthcoming and date of implementation seems to on or before March 2028.
Belgium customs officials recently were quoted as having "lost patience" with non-compliant e-commerce imports that number over 500 million per year.
This change would apply duty (and VAT -as now is the case) for all imports regardless of value. On the VAT front, IOSS may become mandatory for online platforms and be expanded to all B2C sales.
Does Canada have a Section 321 Equivalent?
Canada parcel imports can clear via the Courier Low Value System (LVS). Goods with a value under $3,300 importing via approved facilities can take advantage of this program. While Temu and Shein have similar success to Canada, imports over $20 CAD (around $15 US) are subject to duty. Anecdotally, there are reports that most e-commerce parcels from China are importing with an under declared value of $20 or less. But there is no official data or public reports on this issue.
Read more about Common Canadian Import Fees.
E-commerce sellers can also register as a "non-resident importer" to Canada. Via this method, goods can clear customs in bulk followed by last mile delivery. Note that the method of valuation for goods importing via non-resident importers are under scrutiny by Canadian customs.
E-commerce importers can take advantage of Canada's Generic Harmonized System. This greatly simplifies classification but offers no reduction in the cost of duty.
Clearance of E-Commerce To Australia
Imports consignments less than $1000 can import duty free but are subject to the Goods and Services Tax (GST). Clearance is via a three types of self-assessed clearance declarations: Cargo Report SAC Declaration, Short-Form SAC Declaration or Long Form SAC Declaration. There is no customs duty payable on a valid SAC.
E-commerce imports are subject to a Department of Agriculture, Fisheries and Forestry (DAFF) charge. In addition, Australia is discussing adding an Import processing charge (IPC) to e-commerce imports.
Shein and Temu Processes
- Places orders to suppliers (mostly from factories in China)
- Uses real-time data to anticipate demand
- Fulfillment is done locally in China
- Shein close to zero inventory and overage costs
- Shipping is via air directly to over 100 countries
Both Shein and Temu publicly state that they do not rely on duty free access. At the same time, there are reports of heavy lobbying on their part in Washington.
Temu plans to bring US-based third-party sellers onto its platform. They are targeting Amazon sellers and goods shipping from US . Sellers benefit from lower fees but must offer it cheaper than on Amazon. Temu has around 1% of the US retail market so plenty of room for growth. Most feel that increased competition in the 3rd party seller space is a good thing.
On the flip side, Amazon is copying Temu’s strategy by developing a direct-to-consumer from China option.
Thinking Beyond Value
According to industry sources, the average value of section 321 imports is less than $100 USD (some estimates show around $50). Small parcels dominate. Typically, the transaction value excludes transport fees which - as a percentage - is much greater for e-commerce imports.
Understanding declared value for US imports (video presentation)
A few points on value to consider:
- Does the average value include transport costs?
- E-commerce imports from China are known to be greatly undervalued
- The benefit of Section 321 has as much to do with simplified processes as it does duty free import
Section 321: Great Free Trade Benefit or a Huge Loophole
A Great Free Trade Benefit
Proponents point to section 321 as a success for free trade. Not just for consumers but also for businesses importing intermediate products. The duty free status only tells part of the story. Success is based on technology, elimination of costly middleman, and simplified importing processes. Even the most ardent supporters of section 321 processes concede that more controls are needed.
Supporters of Section 321 argue that eliminating de minimis is essentially a tax hike that will disproportionately low-income consumers. New restrictions will create backlog, increase inflation for families, and create costly processes.
Read More: Global duty free thresholds.
Traditional formal entry processes are beholden to partner government agency approvals, customs bonds, audits, penalties and fines. While section 321 shipments by the millions are clearing without an importer of record or the opportunity for a post entry audit.
PDF presentation of Partner Government Agencies
Agreement in Principle from Both Political Parties
While there are different partisan positions, both parties support greater import restrictions. Either way, Americans can expect more restrictions on the imports - whether via Section 321 or otherwise.
Proposed Legislative Changes to Section 321
There are several legislative proposals targeting Section 321.
H.R. 7979 – End China’s De Minimis Abuse Act
- Denying de minimis benefits from goods subject to the Section 301 tariffs. The act expressly prohibits the use of the de minimis to avoid antidumping , and countervailing duty
- New Data Collection Regarding De Minimis entries including a 10-digit Harmonized code.
- Penalties for offending de minimis Entries including a civil penalty for any person who violates U.S. de minimis law of $5,000 for the first violation and $10,000 for each subsequent offence.
- Currently the penalty for abusing de minimis is merely forfeiture of the shipment offers no deterrence
FIGHTING for America Act
- Prohibition of certain categories of products including textiles and apparel
- Greater dat requirements
- New seizure procedures and penalties
- A per shipment fee of $2
Various bills aimed at Section 321 but more specifically related to Chinese influence is being considered.
Detect and Defeat Bill
The “Detect and Defeat” bill would provide tools to take action against drug and counterfeit pills. The legislation includes a user fee and stronger penalties. It would also incentivize the private sector to assist with enforcement efforts.
ECCF to CFS: Free and (almost) Express clearance for e-commerce imports
Most express carrier shipments clear via the Automated Manifest System (AMS). HS codes are noy necessary. Express Facilities are difficult to obtain and expensive to operate.
- Goods consigned the express facility are charged $1.27 per shipment (2024) for the privilege of express clearance and either pre-cleared or cleared within hours of fight arrival.
- Goods consigned to the cargo/CFS facility are usually cleared in 24 to 72 hours without a per shipment customs fee.
New Express facilities must be approved by the Port Director, have high volumes, and designated areas for various customs activities. In general, approval is very difficult.
Customs grants no charge express clearance capabilities to Cargo Freight Stations (CFS). CFS facilities often literally share the same warehouse as an ECCF with a physical barrier/ fence separating the two.
National Bureau of Economic Research paper on de minimis imports
The NBER report of de minimis imports (June 2024) is incredibly informative and a source for some information in this blog. However, it seems commissioned by - and meant as a lobbying tool - by "three global carriers" (DHL, FedEx and UPS?).
It generally makes the point that the duty free imports via Section 321 benefits low income consumers. . Using zip code data from "carriers A, B and C" (with cross reference from other sources), they determined
- "..the de minimis share originating from China are relatively more important for low-income households"
- "74% of direct shipments imported by the poorest zip codes are de minimis compared to 52% for the richest zip codes."
- ".... the share of de minimis shipments from China declines with income: 48% for the poorest zip codes compared to 23% for the richest.
The report does not address the broader asymmetric e-commerce trade between the US and every other country. The only mention in Trade Policy (section 2) is that "most countries have a “de minimis” policy to reduce the customs burden for low-value shipments." This is a gross over simplification.
In addition, a better way to assess the accuracy of the descriptions and values would have been to take actual representative samples. (But, hey, I am not a statistician). www.nber.org/system/files/working_papers/w32607/w32607.pdf
Conclusion
Section 321 - and de minimis levels in general - are at the forefront of global trade discussions. And now the subject of major political and policy discussions. As someone who is a licensed US Customer Broker involved in international trade for decades, I find most discussions lacking in proper context. I support lower regulations, lower duty and global trade. And think a broader discussion serves this purpose. Thus the reason for this extensive - and constantly updated - post.
To gain perspective and counsel from industry experts - or for an in person presentation or webinar - contact our team.
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Disclaimer: This post and all Jet Worldwide online content is for general information only .
