De Minimis Imports: An Update on Trade Policy

In this video from The Franklin Partnership, contributing author Omar Nashashibi discusses the need to renew the Generalized System of Preferences (GSP) and address de minimis imports.

GSP and de minimis imports

Back in April, the U.S. House of Representatives Ways and Means Committee along party lines passed a bill retroactively renewing GSP and reforming the law governing duty-free de minimis imports.

Most trade policymakers and consultants in Washington, D.C. are preparing for possible legislation after the November election in a likely lame duck session of Congress. While it’s possible lawmakers will try to move trade legislation this summer, it’s highly unlikely. Members of Congress are working now towards a broader trade package that may come together later this year.

Reliant upon a trade package coming together are:

• Those who exchange goods with developing nations,
• Those impacted by lower value imports from China,
• Those who import small quantities of chemicals, and
• Those who import other inputs not manufactured in the U.S.

In the April markup where the U.S. House trade policy committee cleared six bills, two have significant impact on trade policy and supply chains:

• The Generalized System of Preferences (GSP) Reform Act, H.R. 7986 renews the GSP program through December 2030 and retroactive to January 1, 2021. GSP eliminates duties on thousands of imports from 119 designated developing countries and territories. Established by the Trade Act of 1974, congressional inaction led to GSP expiring at the end of 2020, resulting in duties being imposed on those imports from developing nations.
• In addition to restarting the program retroactive to January 1, 2021 and authorizing GSP through 2030, the committee-passed legislation bars China from the program and removes countries from the list with close military ties to China. The language also increases the rule of origin for the GSP program from 35 percent to 50 percent, with additional incentives for U.S. content.

China’s ability to import into the U.S. duty-free

The Ways and Means Committee also addressed a more controversial topic — ending China’s ability to import into the U.S. duty-free under the de minimis exemption. In 2016, after passing a law the year before, U.S. Customs and Border Protection increased the de minimis value from $200 to $800 for those products entering the U.S. free of duties and taxes. The increased threshold allowed thousands more products to enter the U.S., and many importers began employing a strategy of breaking up shipments into smaller quantities to reduce the value below the de minimis threshold.

The committee approved legislation — H.R. 7979, the End China’s De Minimis Abuse Act — prohibits entry into the U.S. under de minimis for any imported products appearing on the Section 301 tariff list covering imports from China, or the Section 232 and 201 tariff actions covering solar panels, steel, aluminum, and other imports from around the world. In a summary of the legislation the committee cited CBP numbers showing Chinese imports generate 60 percent of all de minimis entries. The bill also increases civil penalties for violations and improves tracking of these entries.

How the parties voted

While both parties support the need to renew GSP and address de minimis imports, no Democrats voted for the bills in committee. In addition to procedural objections, Democrats in both the House and Senate would like to more legislation restarting Trade Adjustment Assistance (TAA) for Workers to any broader trade measures.

Sources in Washington say should a trade package come together later this year, Democrats would likely continue insisting on pairing TAA with GSP and de minimis. House Republicans believe TAA is a separate topic, traditionally paired with Trade Promotion Authority. Regardless, one side or the other must move on their position if any trade legislation of consequence will advance.

Miscellaneous Tariff Bill

Also likely facing the same fate is the Miscellaneous Tariff Bill (MTB), which is a targeted measure allowing individual companies to request temporary exemptions from paying tariffs on imports not manufactured in the U.S. The bill only applies to specific goods requested by private companies but can also impact intracompany transfer of inputs.

Next steps in federal trade legislation

Trade legislation emerging from a House committee is encouraging, however, the single-party vote is telling about the prospects, especially in this divided Congress. Many of us still believe we could see a trade package move in the lame duck session after the election and depending on which party controls each chamber. This test run through the Ways and Means Committee also revealed there is more work to go moving GSP, MTB, and de minimis, especially if TAA is involved.

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