International Cross-Border E-Commerce Challenged by New US Legislation
International cross-border e-commerce may be under threat as de minimis shipments are challenged by new US legislation.
US Rep. Earl Blumenauer (D-Ore.), chairman of the House Ways and Means Trade Subcommittee, announced new legislation on Jan 18 that could impact such e-commerce providers as JD.com, Taobao, and Suning. Blumenauer’s press release noted that the legislation was introduced “to strengthen US international trade import laws to stop non-market economies and goods from exploiting the de minimis threshold that allows imports valued under $800 to come into the United States without paying duties, taxes, or fees.”
Named the Import Security and Fairness Act, the legislation calls for the following actions:
· Prohibit goods from non-market economies countries and on the US trade representative’s (USTR) watch list from using de minimis.
· Prohibit goods subject to enforcement actions from using de minimis.
· Close de minimis loophole for offshore distribution or processing facilities.
· Require CBP to collect more information on all de minimis shipments and prohibits use by bad actors.
De minimis and e-commerce growth
The US raised the de minimis threshold from $200 to $800 in 2016. A de minimis shipment also called a Section 321 shipment, allows goods valued at $800 or less to enter duty-free into the US.
Customs Brokerage firm, Livingston International, noted in a 2017 white paper that according to the Trade Facilitation and Trade Enforcement Act (TFTEA), the intent behind the change was to reduce costs to the private sector and facilitate trade. However, the statutory provision that Congress amended through TFTEA states that the Secretary of the Treasury is authorized to raise the de minimis threshold to $800 in certain circumstances “to avoid expense and inconvenience to the Government disproportionate to the amount of revenue that would otherwise be collected.”
According to Livingston, however, proponents of increasing the de minimis threshold were primarily large online retailers and express delivery service providers.
The International Post Corporation (IPC), a consortium of national postal service operators, conducted a survey of 33,594 frequent online shoppers in 40 countries and found that 32% of cross-border shoppers purchased more from online retailers in other countries in 2020 and that 51% expect to do so more often in the future.
Indeed, the total number of US customs filings categorized as Section 321 bills of lading was 636 million for the fiscal year 2020 (Oct 1, 2019 – Sept 30, 2020) and 771.5 million for the fiscal year 2021 (Oct 1, 2020 – Sept 30, 2021), a 21.3% increase. The growth trend seems to be climbing for the fiscal year 2022 (Oct 1, 2021 – Sept 30, 2022), with already 132.5 million Section bills of lading as of Nov 30, 2021.
Bullseye on China
China is the largest e-commerce export country and appears to be the target of this latest piece of legislation.
The IPC survey notes that Chinese ecommerce sites attract the most foreign shoppers, representing 34% market share in 2020.
Counterfeits are a big concern and one of the main reasons for these legislative revisions. According to the US Customs Border and Patrol (CBP), 44% of all intellectual property right (IPR) seizures were from China during the fiscal year 2020.
But another interesting part of the legislation concerns the potential elimination of the use of de-minimis to offshore distribution or processing facilities. International e-commerce providers typically use these facilities to speed up deliveries.
For example, Chinese e-commerce provider Alibaba’s logistics subsidiary, Cainiao, is building a global network to deliver packages within 72 hours anywhere in the world. As part of the strategy, it is expanding its overseas warehouse network, from 30 warehouses spanning one million square meters to over two million square meters.
According to Cainiao, Chinese SMEs can pre-stock their goods in these overseas warehouses, allowing 90% of cross-border orders to be fulfilled within 72 hours in 100 cities.
Chinese businesses operate more than 1,900 international warehouses that help them improve logistics efficiency and reduce operational costs, according to China’s Ministry of Commerce.
Potential outcome
Imagine for a minute if this legislation passes, barring China, among other countries, from taking advantage of the US de minimis customs rule. What could happen could be similar to what happened in the 1990s and early 2000s, when China would circumvent US-placed quotas on various goods by shipping items from neighboring countries instead.
If anything, fast deliveries to customers and costs to e-commerce providers will be in doubt with this latest legislation.
While there are a number of loopholes in the de minimis rules, this legislation is not the answer. Instead, it could potentially create additional loopholes and additional costs for the CBP.
- Cathy
P.S. I’m venturing out to a few conferences this quarter so if you are too, let me know!
January 24-26 - SMC3 Jumpstart - I’ll be speaking Tuesday during the Reshaping Final Mile and Reverse Logistics session.
February 7-8 - Reverse Logistics Association Conference
February 20-22 - World Mail and Express Americas Conference - I’ll be chairing the session, Navigating Global Taxation and Customs Policies.
That’s about it for now. Thanks for reading. While I aim for a weekly story, sometimes life gets in the way, so think about subscribing (free) so that you don’t miss anything.
For daily thoughts and shares, be sure to follow me on Twitter and LinkedIn.
I wear a number of hats these days. Besides running a logistics market research firm, catch my weekly articles on air cargo, freight forwarding, and the express markets, as well as a monthly podcast on Air Cargo World, I’m also trying to figure out how to measure returns for the Reverse Logistics Association, I assist companies with content and other needs and I’m trying to figure out how to update my website (which is down at the moment).