Lack of Manifest Public Data, GSP, de Minimis Dominate Hearing on Customs Modernization

Very little of a hearing on customs modernization focused on the issues CBP and the trade have focused on as they work on a modernization proposal. The agency and traders are talking about new kinds of advance data, expedited release for trusted traders, better harmonization of data requests from partner government agencies and CBP, and data sharing from CBP with rights holders on intellectual property violations, among other changes.

Former CBP executive Brenda Smith tried to call attention to these sorts of issues in her testimony. But other witnesses -- who received more questions from members of the trade subcommittee, and from Ways and Means Committee Chairman Jason Smith, R-Mo. -- focused on changing the de minimis law, allowing foreign trade zones to send de minimis packages to U.S. consumers, expanding manifest disclosures, and the need to renew the Generalized System of Preferences benefits program.

The top Democrat on the trade subcommittee, Rep. Earl Blumenauer, D-Ore., is re-introducing legislation that would bar Chinese exporters from de minimis eligibility. Coalition for a Prosperous America CEO Michael Stumo testified that more than 62% of packages that come in under de minimis are shipped from China and Hong Kong, but that doesn't include Chinese products that are sent to Mexican and Canadian warehouses and then enter the U.S. from those countries.

Blumenauer said in his opening statement, "I appreciated the Chairman’s comments at the field hearing in Staten Island, noting that de minimis is like a free trade agreement for China. We must be bold in closing this loophole that puts American jobs in danger and creates an opening for trade in illicit products."

Chairman Smith, when he had a chance to ask questions of witnesses, asked Vista Outdoor's Fred Ferguson what he thinks should be done to change de minimis policy to avoid abuses by China.

Ferguson said that warehouses in U.S. foreign-trade zones should be allowed to break up bulk shipments of imports and distribute them directly to consumers under the de minimis statute, because FTZs, with their focus on compliance, can extend CBP's enforcement capabilities. He also said exporters of his companies' products who avoid tariffs through de minimis save up to 60% of the item's cost compared to what his company can do when it sells the same goods inside the U.S.

Trade Subcommittee Chairman Adrian Smith, R-Neb., said during the hearing he wanted to make sure that if Congress changes de minimis, it doesn't worsen inflation. But he added, "Knowing that de minimis is a privilege, and not a right," perhaps companies with a record of sending counterfeits or goods made with forced labor through the small package environment could be barred in the future. But he said he wants to make sure that policy is enforceable.

After the hearing May 25, he said: "This issue [of de minimis] needs to be vetted. This discussion is timely, it's appropriate. Clearly there's a problem, let's work together on solutions."

While two Democrats and three Republicans were highly critical of de minimis, Rep. Carol Miller, R-W.Va., told Brenda Smith she's concerned about raising taxes on consumers if de minimis is altered. Smith responded that e-commerce has been a tremendous economic benefit to small businesses, and said the debate "really exposes a very complex dynamic."

Ferguson argued for the need to renew GSP and reform its competitive needs limitations in his testimony, writing on CNLs:

"Inflation has driven up the cost of production and triggered certain CNL thresholds for many products. The dollar threshold, that rises by only $5 million per year, has failed to keep up with rocketing inflation, while the percentage threshold, set at 50% of total U.S. imports, penalizes countries that have unique or domestic growth products not available in sufficient volume elsewhere. Artificially low CNL thresholds cut countries off just as they are starting to build domestic industries capable of competing with China."

Many members asked him to expound on the utility of GSP during their questions. Jason Smith asked Ferguson what Vista Outdoor has done to diversify its supply chains.

"GSP has been an incredible tool for us to diversify away from China, to give us more exposures to different countries," Ferguson said, but with the expiration, sourcing decisions that are made for three-to-five-year periods are in question. He said those responsible for making sourcing decisions are asking themselves: "These promises made, are they going to be kept?" He added that if Congress acts to reform the CNL caps, that would give them certainty that countries that have developed manufacturing capability in goods covered by GSP would be able to stay in the program longer.

Rep. Blake Moore, R-Utah, asked Ferguson how Congress can incentivize derisking and some decoupling from China, which he said every trade expert and member of Congress knows is needed.

"Since travel goods was added to GSP in 2017, there’s been 5 billion dollars migrated out of China," Ferguson said, showing GSP's leverage to get importers to diversify where they import from.

Moore said that was a point he wanted to make, that there are companies willing to derisk, but Congress has to be consistent with its incentives. "I'm hopeful we are able to get it done this year -- frustrated we didn’t last year."

Jason Smith asked the panel of witnesses what steps Congress should take to improve efforts to stop goods made with Uyghur forced labor from entering the country, since we know they still do.

ImportGenius CEO Michael Kanko replied that "it all starts with transparency and we’re flying blind with air cargo data." He noted in his opening statement that nongovernmental organizations and investigative journalists have used ImportGenius to search U.S. maritime cargo manifests, as well as other countries' manifests, to demonstrate the flows of products made with forced labor and to track sanctions violations. He argues that the U.S. should require the publication of air cargo data and truck manifests.

Blumenauer noted in his opening statement that he opposes a CBP proposal in its 21st Century Customs Framework "to shield [ocean] vessel manifest data from public disclosure." He said that would weaken trade enforcement.

Coalition for a Prosperous America's Stumo also supported the need for manifest disclosure in his written statement. He wrote, "Regrettably, only ocean vessel manifests are currently subject to disclosure by CBP, but land and air entries remain entirely confidential. And even ocean vessel manifests are increasingly hidden, as businesses request -- and seemingly automatically receive -- confidentiality treatment from CBP."

When Stumo made his opening remarks, he called de minimis a "flaw in customs law that needs to be fixed," and said that lowering the threshold to $200 won't accomplish anything.

In his written statement, he addressed the issue at length, debating whether it's appropriate to call it a loophole, and directly responding to comments a CBP official made in an International Trade Today article (see 2304240038) about whether it's right to say there is no screening and that it's a loophole in customs laws.

He also disputed the idea that better advance data can solve the risks of violative packages entering under de minimis. "Almost half of all de minimis shipments provide some limited data through two CBP pilot programs. However, CBP staff have now revealed that this data is essentially worthless," he said, citing another International Trade Today story (see 2304170052).

"FTZ operators are rightly upset about losing business to this loophole. But extending them the ability to originate de minimis shipments is classic ‘race to the bottom’ trade policy," Stumo wrote.

In an interview outside the hearing, Ferguson said advocates for FTZs' eligibility to ship under de minimis are "getting great traction. Very few people oppose us. The question is, where do you fit in to the larger trade ecosystem. There's a lot of moving parts right now -- GSP, 301s, the competitive needs limits, but we think the U.S. FTZs should be on the table, and so far, people have been receptive."

Rep. Lloyd Smucker, R-Pa., told Ferguson during the hearing his argument in this area was compelling.

Ferguson said as the outdoor industry and other GSP beneficiaries lobby Congress, the competitive needs limitation issue is not one most congressional offices are aware of. He expressed hope that Moore, the lawmaker from Utah, might advocate for CNL reform as GSP legislation is written. The original bipartisan sponsors of CNL reform are no longer in Congress.

Countries that build up an industry to export backpacks with hydration bladders for buyers like Camelbak, a Vista Outdoor brand, develop manufacturing "sophistication that we can rely on for quality, safety. Things that had been stood up in China over decades, it's not easy to stand that up overnight, but countries are making those investments, and we want them to get a return" for more than a few years, he said.

Vista Outdoor also used to take advantage of GSP tariff breaks on inputs to make waders used by people going fishing. He declined to say what the end of GSP has cost his company, but said the fact that the outdoor division has substantially lower profits than the company's ammunition division is due in part to the end of the tariff breaks.

Adrian Smith said after the hearing that it's possible that CNL could be changed as the committee tackles GSP. "I hear members with very diverse perspectives," he said. " I think we can get to a point that we get good policy that is strategic, that can move us forward, as the point has been made many times, of derisking."

Ferguson said he believes GSP will be renewed, "but like all things on Capitol Hill, the question is when. And we're in the middle of a debt crisis right now, and those [repeated crises] always seem to push back things that are seemingly bipartisan. Hopefully they get this issue behind them and we get back to legislating."