Panelists Agree FTZs Should Operate de Minimis Warehouses, Disagree on Blumenauer Bill

A panel of industry, trade group representatives and a customs broker disagreed on the proper approach to changing domestic de minimis policy, or even if it should be changed, but agreed that it's perverse that warehouses in Canada and Mexico are serving as way stations for small packages destined for U.S. consumers.

The Washington International Trade Association on June 3 hosted a panel that discussed how the flow of small packages affects the government's ability to enforce its laws now and whether legislation under consideration in a China bill would improve matters. That legislation, introduced by House Ways and Means Committee Trade Subcommittee Chairman Earl Blumenauer, D-Ore., proposes barring Chinese packages from qualifying for entry under the de minimis statute.

Ben Wastler, senior director for international supply chain policy at the National Foreign Trade Council, said his group is lobbying forcefully against the provision's inclusion in the final compromise bill.

He said the top reason to oppose the change is inflation. It "would undoubtedly raise prices and limit consumer choice," he said. "This is the wrong policy at the wrong time." Second, he said, it will worsen problems with shortages and delays in the supply chain, as well as adding to climbing logistics costs. It "would likely create massive confusion and a chaotic situation at our ports," he said, and make shipping "even more expensive, more complex and more time-consuming."

He argued that manifest information on de minimis shipments allows CBP to evaluate the goods' eligibility for entry, and that while the volume of packages has grown, the total value of de minimis shipments is shrinking, and that the value of imports from China that entered under the $800 threshold fell 78% from 2020 to 2021.

Brenda Smith, global director of government outreach for logistics firm Expeditors, and former executive assistant commissioner of the Office of Trade at CBP, disagreed that CBP is currently equipped to evaluate de minimis packages, but said the data pilots underway are aimed at helping CBP both support businesses that engage in e-commerce and help imports remain safe and secure.

"Neither the government nor consumers have enough visibility into third-party shipments to make good decisions about risk," she said, whether that risk is buying a counterfeit, or a good that is not as high quality as they had expected. Smith said there are many new players in supply chains beyond manufacturers and importers of record, and that the government, including partner government agencies, needs to know who they are, what they do, and figure out what information they should provide.

She said any policy changes need to apply to the post, not just express carriers, and, she said, we "need a legal environment that is future-proofed."

She said she agrees with co-panelists Wastler, and with Marianne Rowden, CEO of the e-Merchants Trade Council, that there is a need for simplified processes. But, she said, CBP is recognizing that the past customs legal framework that put responsibility at the feet of U.S. importers doesn't work when an online shopper is really the importers and other players are just in logistics. She said there's a problem when there's a lack of clarity about who has the responsibility to follow the rules.

"At CBP we would have long discussions about who’s responsible? Is it the broker? Probably not. Should it be the platform? Or should it be the foreign seller?"

Victoria Lane, vice president of corporate compliance at Coppersmith Global Logistics, and a customs broker, said customs brokers are concerned that CBP is seeking information from consignees, and are concerned about what role consignees think they should have in customs compliance.

Lane said she's not against imports of goods under de minimis, and that she thinks the information under the Type 86, or informal entry, test has been very appropriate. But she said that when CBP is judging the risk of a de minimis package based on a manifest description of "bag," they are flying blind. "How does Customs know? Is that a handbag? Is that a plastic bag? Is that a colostomy bag? Is that an airbag for a vehicle?"

She also said that "in recent discussions with Customs, it’s very clear that they are looking to receive data from other parties and we feel they need to be very specific when they determine who those parties are."

Wastler argued that the Section 321 pilot has been providing data such as a picture or a link to a sales listing that is even more descriptive than a tariff code number, and that CBP has said it's been very helpful in stopping illicit shipments.

Beth Henke, chief compliance officer at American Eagle Outfitters, came the closest to endorsing Blumenauer's approach. She said that her company's imports of apparel are at a cost disadvantage to direct shipments to consumers from Asia because of the high tariffs apparel faces, but that's not the only reason the company feels the current system is unfair.

She said competitors who export directly to consumers have a 40% cost advantage, but as importantly, their apparel has no need to be compliant with the ban on the import of Xinjiang cotton, which CBP says is made with forced labor. She said those exports are "exempted from scrutiny that we think is really important." She acknowledged, "I realize it’s not an easy solution."

Rowden argued that the enforcement "regime centered around a [domestic] importer of record, that's collapsing. We need a new concept of what is an account-based mechanism, risk management spectrum that is calibrated to the different type of entities that are now part of the trade community."

Smith reminded listeners that no matter how de minimis or a 21st Century Customs Framework is designed, Congress has to provide enough resources to CBP's trade directorate to effectively enforce the law.

When asked if foreign-trade zones should be allowed to send out small packages to U.S. buyers of goods that were imported to those zones under privileged foreign status, Smith said there would need to be a change in law to allow that, but said that warehouses are being built in Canada or Mexico to achieve the same result, and so there's an argument to be made it would be better to have those jobs in the U.S.

But, she said, if the law is changed, "the folks that enforce the FTZ regulations are at CBP. You’ve got to make sure they have the resources to do it right."

Rowden said allowing the logistics for small packages to leave the U.S. defeats the purpose of FTZs. "Trade and transportation are like water. They’re going to find the most efficient route," she said.

Lane said FTZs should be allowed to function the same way warehouses in Canada do. Wastler said NFTC is not opposed to the change. Only Henke was cautious, but she did not say no. It would be "a great discussion to have," she said.