De Minimis: From Benefit to Loophole

The word loophole often conjures a slightly negative image of closed-door lobbying efforts and provisions slipped into law a few years ago to favor a special interest. This is far from the case when it comes to de minimis, at least until recently.

The de minimis law promotes trade and lowers barriers to global commerce by expediting the import of low-value items, typically from small shippers. It permits the daily admission free of duty and tax for goods with a value of less than $800 per person. While it’s become popular for e-commerce retailers from China to take advantage of this rule, de minimis has a long history. Its roots in the U.S. date back to 1938, well before e-commerce was contemplated, let alone Shein, Temu, and TikTok. Similar laws exist in other countries around the world, including European nations and Canada. The purpose of de minimis is to reduce the burden on importers and customs. While this is good for commerce, it can be misused.

The use of de minimis thresholds is crucial for the direct-to-consumer international e-commerce model, where most transactions involve low-value items. Furthermore, consumer expectations for fast delivery make the standard 30-day customs clearance window unfeasible.

It sounds good in theory, but in practice e-commerce volumes are enormous, with over 3 million packages entering the country daily under de minimis thresholds. This amounts to more than 1 billion packages annually, and at an average value of $800 per package, the total transactions exceed $800 billion each year. This results in a significant amount of unpaid duties and taxes — well beyond what the law intended.

Aside from the lost revenue, the misuse of de minimis at scale also creates a range of economic policy, public safety, and national security concerns. These include:

• Unfair trade practices against domestic retailers that follow standard import procedures and don’t try to skirt the rules.
• Entry of dangerous goods such as flammable pajamas, toys with poisonous chemicals, or batteries that explode.
• Flow of contraband such as narcotics or goods made with forced labor.
• Failure to prevent theft of intellectual property.
• Erosion of government policies crafted to shape commerce with foreign nations.

Through de minimis, all of these national safeguards, standards and protections can be bypassed — as long as goods are shipped in small packages. The explosion in volumes combined with misuse makes this loophole a hot political issue on both sides of the aisle.

Like most issues, there's rarely a simple solution. On the one hand, de minimis is good for the country and small international shippers, so it should be preserved. On the other hand, it’s ripe for abuse by large organizations keen on exploiting the loophole at scale. One strategy to curtail the potential for misuse while protecting the spirit of the law might be to lower the value threshold. It wasn’t always $800. In 2016, the de minimis value threshold quadrupled from $200 to $800, greatly widening the range of shipments that could qualify for an exemption.

Europe’s de minimis threshold is 150 euros (~$160 USD), while Canada’s is only $20 CND (~$15 USD). It’s much harder to abuse a system at scale when the maximum daily package value is $15. Rather than proposing a threshold as low as Canada's, a starting point closer to the 2016 U.S. rate of $200 could be a good approach to protect consumers, retailers, and the country as a whole.

John Lash is group vice president of product strategy at e2open, a connected supply chain platform.