April 22, 2013

Raising the de minimis threshold: An idea whose time has come?

Push intensifies for law to hike levels on import shipments not requiring major customs compliance.

By Mark B. Solomon

It is one of the incongruities of the international trade system: A U.S. citizen returning from a vacation overseas can exempt the first $800 of imported merchandise from customs duties and fees. However that same citizen, if engaging a carrier to ship a laptop, would be responsible for duties and fees above the first $200 of shipment value, and the carrier would have to comply with lengthy and burdensome filing requirements before the shipment could enter U.S. commerce.

Past legislative efforts to raise the so-called de minimis threshold on low-value import shipments have met with no success. But advocates for the change continue trying. In March, Sens. John Thune (R-S.D.) and Ron Wyden (D-Ore.) introduced legislation that would hike the minimum levels to $800.

The legislation, the "Low Value Shipment Regulatory Modernization Act of 2013," includes a "sense of the Senate" provision calling on the U.S. Trade Representative to push U.S. trading partners towards adopting similar thresholds. (A "sense of" resolution merely expresses the opinion of the majority of congress and is not enforceable as a law.) Today, de minimis thresholds vary from country to country, ranging from Canada at $20 per shipment to Australia at $1,000. Besides the lack of harmony in the thresholds, another obstacle is that many countries rely on import taxes to fund part of their well-established value-added tax regimes, according to Eugene Laney, vice president of international trade affairs with DHL Express, one of the companies pushing hardest for the change. DHL Express serves the United States only through international service.

In the House, similar language has been incorporated in an omnibus bill designed to modernize the operations of the U.S. Bureau of Customs and Border Protection (CBP).

The current de minimis thresholds for merchandise, which date back to 1993, are intended to balance the cost to CBP of assessing and collecting duties with the revenue derived from those collections. However, supporters of the change in the cargo threshold—notably a group known as the Express Association of America which includes the four major air express carriers—have said the administrative savings for CBP and the industry would more than offset the loss of revenue.

In addition, hiking the threshold on low-value shipments could free up agency officials to focus on more serious issues such as counterterrorism, counterfeiting, and product safety, they argue.

According to a 2011 report issued by Washington-based think tank Peterson Institute for International Economics, the Congressional Budget Office (CBO) estimated that raising the entry threshold to $1,000 from $200 would cost CBP about $44 million in foregone revenue in 2016 and $49 million in 2020. However, the report says that the CBO failed to estimate the benefits in expediting customs procedures, reducing paperwork, and improving the agency's overall productivity.

Raising the de minimis threshold would benefit the private express carriers and the U.S. Postal Service (USPS) by reducing their compliance costs, according to the Peterson report. Shipments valued between $200 and $800—when listed as one entry—are classified as "informal entries" instead of de minimis shipments. Compliance for informal entries requires the completion of a CBP form that has 32 pages of instructions and demands numerous details about the merchandise. Increasing the de minimis levels would save the express carriers and USPS about $56 million a year in reduced paperwork and processing burdens, the report said.

All told, the net gain from raising the threshold would be about $17 million, the report estimated. Moreover, a change in the levels "would open the gates to a substantial increase" in the volume of commerce, especially e-commerce, the report's authors, Gary C. Hufbauer and Yee Wong, said. International e-commerce, which is a growing but still-small part of the overall e-commerce pie, could expand even faster if "border frictions were reduced," they wrote.

Today, many companies that may want to expand into overseas markets are deterred by compliance costs that can exceed the value of the shipment itself, DHL Express has long argued.

Based on data in the 2011 report, the number of entries for shipments between $200 and $800 that are processed by the private express firms is roughly 3.8 million per year, with a declared value of about $1.7 billion per year. USPS alone handles about the same number of entries with a roughly equivalent declared value, the report said.

Other groups supporting the proposed change include the U.S. Chamber of Commerce, the American Association of Exporters and Importers, National Association of Manufacturers, and the U.S. Council of International Business.

About the Author

Mark B. Solomon
Senior Editor
Mark Solomon has spent 25 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. Mr. Solomon graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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