De Minimis in Crosshairs at IP Hearing; Trusted Trader Approach Promoted

The subcommittee that covers intellectual property issues under the House Judiciary Committee questioned how Congress should address the escalating volume of de minimis packages -- and the opportunities those shipments provide for sending counterfeits and goods made with forced labor, but the CBP witness responsible for de minimis and IP declined to back any of the ideas that were bandied about.

Committee Chairman Rep. Darrell Issa, R-Calif., called de minimis "a back door, an abusive system," and said that China has figured that out, and is gaming the system. He suggested that packages claim to be worth $800, but are really worth more.

Brandon Lord, executive director of CBP's Trade Policy and Programs Directorate, told Issa during a May 7 subcommittee hearing that the vast majority of packages are worth well under $100. In his written testimony, he said the average value is $54 -- virtually unchanged from 2017, when Congress first hiked the threshold from $200 to $800.

Issa responded that it's clear that reducing the threshold to $400 or $200 won't address the problem of counterfeits in the de minimis environment. He asked Lord if it would be useful to CBP for Congress to pass a bill that would divide exporters using de minimis into two categories -- known, trusted shippers and others.

Lord replied, "Given the very real economic benefits of the de minimis exception, I'm not sure as a law enforcement agency, we're best placed" to recommend a dollar amount.

He told Issa that the idea of segmenting the volume with a known shipper approach is an idea CBP is considering, but the agency is concerned because of the low barrier to entry to place listings on e-commerce platforms, and because of the low penalties for de minimis violations, a company that fell out of the compliant category could easily reform under a new name. Homeland Security Secretary Alejandro Mayorkas said in March at a CBP conference for the trade that the agency would like to segment risk by trusted traders (see 2403270068).

Issa mentioned the Type 86 and Section 321 pilot, and Lord said that CBP wants to work with Congress to pass the 21st Century Customs Framework to enhance information sharing, so it can, for instance, share information about counterfeit violations with private stakeholders beyond specific shipment events. The bill also would allow for more efficient seizures in de minimis, and stricter penalties for non-compliance, he said.

In Lord's written testimony, he added one other detail on parts of the framework CBP values -- reinstating subpoena authority to investigate suspicious exports. In that testimony, he also referred to the agency's work to update regulations "to require additional information regarding shipments claiming eligibility for administrative exemption and to clarify existing processes. CBP is working to publish the Notice of Proposed Rulemaking as quickly as possible."

Acting CBP Commissioner Troy Miller said in late March that the proposal has not moved to interagency review yet; Lord declined to answer a question from International Trade Today after the hearing, about when the proposal might exit the department and begin that stage of review.

In his opening statement, Lord said that the risk in the de minimis environment is similar to that in containerized shipments, and said that nearly 90% of IP violations were in the mail or express carrier lanes. However, only 60% of the value of seized IP goods were in de minimis shipments, according to CBP's IP dashboard.

Rep. Russell Fry, R-S.C., told Lord that for generations, the textile industry has been a pillar of South Carolina's economy, and he's hearing from many constituents who say that de minimis is "crippling our own economy," especially the textile industry.

"How do we close these loopholes? What policy recommendations would be helpful to you," he asked.

Lord said CBP is ramping up its inspections of textile products sent via de minimis, and is deploying testing at three ports to make sure that garments with cotton comply with the Uyghur Forced Labor Prevention Act.

"There’s a perception we’re not testing in the de minimis environment -- that’s not true," he said.

Fry asked Lord if Congress were to label China as a country of concern, would that help?

"It’s difficult for me to answer without understanding what that label would [mean] for additional legal authority or assumption of guilt," Lord replied. He said CBP is already focused on the China threat, but is "more than happy to explore those ideas. We're committed to finding workable solutions in de minimis."

Fry said he's concerned about how much revenue in tariffs the U.S. is missing out on because of de minimis, and said the IP problems are "very self-evident." He asserted there is no compliance with UFLPA in de minimis.

"We basically have created a free trade agreement with China with this de minimis," Fry said.

Lord said he would like to send staff to Fry's office to talk about the 21st Century Customs Framework. "We are concerned. We do need help," he said.

In his written testimony, Lord described de minimis more harshly than he did at the hearing. In that testimony, he wrote: "The de minimis exemption was created to avoid expense and inconvenience to the Government disproportionate to the amount of revenue that would otherwise be collected; however, the opposite is proving true, and the agency is investing more time and energy into this environment, due to heightened risks that result from dramatic increases in volume, the speed with which shipments move, and high rates of non-compliance found in this environment."

He also said that as the volume has grown dramatically -- and moved to land borders that did not typically process these kinds of shipments -- CBP's staffing, facilities and tools to address de minimis "have not grown at the same pace."

No one on the committee mentioned the one de minimis bill that was recommended out of the House Ways and Means Committee last month, which would restrict products covered by Section 301 tariffs from entering duty-free in small packages.

CBP had worked on a rule that would have made the same change in 2020, (see 2009040026), but abandoned the effort with the change in administration.

Rep. Adrian Smith, House Ways and Means Trade Subcommittee chairman, said in a hallway interview May 7 that he thinks that de minimis bill could get a vote on the House floor. "There's a lot of interest," he said.

Issa said in an interview after his subcommittee's hearing that he's less inclined to support a bill to restrict China's eligibility -- whether through country of origin, or through Section 301 tariff designations -- though he thinks the threat of such a bill could help the administration in its diplomatic efforts with China.

He said he's inclined to support a trusted trader approach, which, in his view, would allow the majority of legitimate goods to flow freely, "and then expose the others." He added: "As you heard today in testimony, regrettably, unless we moved it to $50, or no commercial value, in other words, samples only," you're not going to really address "a great many" of the counterfeits shipped in de minimis.

He said there are legitimate industries in U.S.-China trade "who we don't want to hurt." Issa noted that when he ran a business (he had a very successful car alarm business), he primarily manufactured in Taiwan, and he took advantage of informal entries when he exported to other countries.