Ruling on de Minimis Shipments to Warehouses May Not Have Wide Impact on Trade, Some Experts Say

The broader impact of CBP's ruling on unsold low-value goods imported under Section 321 exemptions may be somewhat limited, industry experts said in recent interviews. The ruling (see 2007310036) laid out how the agency determines what entities can be considered a “person” for unsold Section 321 shipments.

Section 321 imports are limited to an aggregate total of $800 per person per day. CBP said in the ruling that a foreign owner or purchaser can be considered a “person” as long as identifying information for that entity is provided to CBP, otherwise the U.S. fulfillment facility or warehouse will likely be the “person.”

It's not clear how many companies were exporting inventory in amounts over $800 to U.S. warehouses but not paying duties on the goods because they expected each item, worth less than that de minimis threshold, to go to an individual buyer. That process allowed for buyers to get their orders far faster than if they had to wait for the mail from China or elsewhere in Asia. And, depending on the item, the price online could be lower -- especially for an item with relatively high duties, such as apparel, or a Chinese bicycle subject to Section 301. Tom Gould, vice president-global customs at Flexport, said that such practices do not comply with the statute that established the $800 de minimis.

While the July 28 ruling involved Amazon, it is not the only company that was pushing the boundaries of de minimis, Gould said. He said he was once advising a company that was importing electronics from Asia. The products were sold online and imported only after the sale. The equipment was not shipped to the buyers but rather to a brick-and-mortar store where the customer would pick it up. “Customs saw a whole bunch of little shipments going to the same store name; and they said no, no, no, this doesn't look right,” Gould said. The company started paying the tariffs rather than changing its logistics systems.

National Customs Brokers & Forwarders Association of America Chairman Amy Magnus said many shipments of goods are sent to U.S. warehouses from foreign producers where the duty is paid, because the convenience of the online buyer is more important than saving the duty by shipping from Asia after the purchase is booked. In her view, the ruling opens up an opportunity for more goods to avoid customs duties and trade remedies even though they have no buyer yet. “How do we deal with scenarios where the goods themselves have not been sold, and it is the foreign seller or the foreign shipper who actually owns that cargo? The foreign party, the foreign financial interest party can be that one person per day,” she said, as long as the foreign company gives its name and address.

“Not many people understand this,” she said. “And smart people are going to argue over this a lot.”

Gould said the associated recordkeeping that would bring is not significant to companies like Amazon, and would not be a barrier to taking advantage of the ruling. Gould said he didn't expect this opening for foreign sellers to avail themselves of the de minimis provision to change practices much, because, he said, most companies that are shipping to the U.S. are sending low-value goods on the ocean. While you can reserve part of a container, it wouldn't be such a small part that what you're sending is worth less than $800. Moreover, even if you're sending small amounts of T-shirts through the mail, it's likely you're selling to several platforms, and collectively, those sales would be over $800.

He said even when companies' goods aren't sold when they leave China but have found buyers by the time they arrive in port, this ruling does not allow the labeling for individual buyers to be done after arrival in the U.S. Gould believes the ruling will accelerate the trend of e-commerce operations contracting with Canadian and Mexican warehouses. One could send a container full of bicycles to Vancouver or Tijuana, and each bicycle could enter the U.S. with the U.S. buyer identified, thereby legally avoiding Section 301 duties.

For companies that have already started doing this, a very high percentage of their sales are handled this way, he said. But, he added, “There's a lot of companies that are concerned that this loophole's going to go away, and they're not investing.” Plus, it adds complexity, as you are maintaining inventory in several places. He said a lot of companies are waiting for the results of the Section 321 pilot at CBP to decide what to do.

When companies are using a Canadian warehouse, they're generally not mailing or sending by UPS the now-sold good to the U.S. buyer. Instead, an entire trailer full of packages crosses the border to go to either an express carrier office in the U.S., to avoid the international fees, or to various U.S. warehouses. He said tens of thousands of packages are coming in this way daily.

The Coalition for a Prosperous America was pleased by the new limits the ruling puts on shipping to warehouses, but “Amazon can minimize the ruling’s effectiveness,” CPA trade counsel Charles Benoit said. “One way is by expanding its use of fulfillment centers just across the border in Canada or Mexico,” he said. “Merchandise from overseas can be held in-bond in these warehouses, and then delivered rapidly to U.S. customers duty-free through Section 321 shipments.” More work is needed “to limit the ability of 'non-resident importers' to make Section 321 shipments,” he said. Amazon didn't comment.

The ruling involved CBP port officials who were suspicious that companies were sending by airmail to various warehouses multiple packages listed at $799 and $780. Magnus said, “Customs does say they cannot structure their transactions in such a way that they’re breaking up shipments” so that they avoid paying duties. “What would Customs do if every day I brought in $799? Every single day I'm fulfilling $750, today it’s going to my warehouse? And tomorrow I do the same thing. You’ve got to wonder what Customs will do.”

Gould agreed there's a risk this would bring heightened scrutiny. Shippers who want to operate this way would have to coordinate with warehouses, in the event a warehouse wasn't going to accept goods because of a temporary shutdown, he said. Then entries sent on multiple days would be bunched up on the day the place reopened. “There’s some weird little things like that you’d have to think about,” he said.

Gould said he also thinks some goods will just take longer to get to U.S. buyers, as the Asian seller will wait until it's sold to ship it.

In announcing the ruling, CBP emphasized that since foreign sellers would have to identify themselves to take advantage of the de minimis limit, getting their names would give CBP more ability to catch counterfeits. “The exponential growth of e-commerce has provided illicit sellers with an extraordinary opportunity to evade duties and sell unsafe and unregulated products to U.S. consumers, particularly through fulfillment centers,” CBP Acting Commissioner Mark Morgan said in a news release. “As the nation’s largest law enforcement agency, CBP will not sit idly by and allow these bad actors to evade duties, report false values, and harm American businesses and consumers.”

But a group lobbying for the use of bonded warehouses and foreign-trade zones to facilitate imports of unsold goods to be sold later to U.S. buyers says that CBP gains no more oversight by this ruling. Megan Costello, a Sorini Samet lobbyist, emailed that the ruling “reiterates the perverse dichotomy of U.S. law that provides companies/sellers/distribution operations that warehouse their products in Canada, Mexico, China, or wherever OUTSIDE of US borders a distinct economic advantage over companies who wish to distribute e-commerce from within the United States because the former can use de minimis entry, the latter cannot.” Costello represents the Ship Safe Coalition, which was previously called the 321 Coalition (see 2005180009).

“De minimis entry is being blamed for the rise of counterfeit shipments, as well as a way to elude Section 301 trade actions AND bypass additional inspections from partner governmental agencies for products that must meet various federal safety standards (i.e. bicycle helmets or children’s products),” she wrote. If the government would allow FTZs or trusted trader importers to use bonded warehouses, it would “mitigate the health and safety challenge our country faces with direct-to-consumer shipments as well as preserve and promote American e-commerce jobs,” they argue.