De Minimis a Top Issue During USMCA Hearing
The footnote in the U.S.-Mexico-Canada Agreement that says that the U.S. could change its de minimis level to match Canada's and Mexico's levels was roundly rejected by the Senate Finance Committee on July 30, when the topic was one of the most-discussed aspects of the deal. Paula Barnett, owner of Paula Elaine Barnett jewelry, was the first witness who testified, and she told the committee that she does not want U.S. de minimis levels lowered, because she doesn't have to pay tariffs when goods are returned from outside the country, and because she purchases opals from Mexico, and those purchases are under the $800 threshold.
Barnett, who lives and works in Oregon, said that the increase in de minimis levels in Canada through the renegotiated NAFTA would help her business. "I have had many packages get stuck in Customs, and to the dismay of my customers, they must travel in person to pay the required fees before collecting their item. In some cases, the cost can nearly double the price of the item. A few customers have even refused packages due to extra taxes and duties. In those cases, I find myself having to refund the item, including the shipping cost," she said, so as to not receive a negative review.
In fact, the sales taxes in Canada are no higher than 15 percent. If Barnett filled out paperwork to show the jewelry was made in the U.S., it would be duty free, but otherwise tariffs could be as high as 8.5 percent, depending on the material. At Barnett's Etsy shop, 26 of 76 items for sale now would be below the raised de minimis level under USMCA, though nearly all would still be subject to provincial sales taxes in Canada, which will be collected on sales over $40 Canadian. No duties would be due for packages under $150 Canadian. An Etsy representative could not immediately say if Etsy would collect sales taxes for Canadian buyers.
Oregon's Ron Wyden, the top Democrat on the committee, said the committee would not allow the U.S. de minimis level to fluctuate. Sen. Ben Cardin, D-Md., said the current $800 level is "critically important for American small business," and said the way the footnote is worded could damage those businesses, if that level is reduced down to Mexico and Canada's level.
Sen. Maggie Hassan, D-N.H., said she's concerned, like Chairman Chuck Grassley, R-Iowa, and Wyden, about the administration's idea of lowering U.S. de minimis standards in the region. Sen. John Thune, R-S.D., agreed, and said that the higher de minimis threshold passed in 2015 is "important for our ability to trade effectively with other countries." He noted the strong bipartisan support for maintaining the $800 level.
The footnote was also raised again and again in written questions to U.S. Trade Representative Robert Lighthizer from his June hearing; he sent written responses to the committee that have now been posted. Sens. Wyden, Hassan, Thune, Rob Portman, R-Ohio, and Tim Scott, R-S.C., all questioned Lighthizer about the issue, with many asking him to promise that he will not seek to lower the U.S. threshold. Thune wrote, "I believe Congress has already spoken conclusively on this matter ... since November 2018, you have explicitly heard from more than ten Republican and Democrat members of this Committee, including the Chairman and Ranking Member, all of whom have asked you not to derogate from the current threshold."
To every question, Lighthizer's answer was the same: "As noted in the Administration’s submission to Congress on changes to existing law required to bring the United States into compliance with the obligations of the USMCA, we identified this as an issue for consultation with the Committee on Ways and Means of the House and the Committee on Finance of the Senate. These consultations are underway, and I look forward to working with you and other Members on this important issue."