WASHINGTON (BRAIN) — The U.S.-China Economic and Security Review Commission recently recommended in its 2024 Annual Report to Congress eliminating the import threshold exemption that can allow products like e-bikes and lithium-ion batteries to circumvent safety standards that have long concerned the industry.
The abuse of this exemption — otherwise known as the de minimis exemption — allows goods valued at under $800 to enter the U.S. duty free and with less regulatory oversight and without Certificates of Compliance. Also, they can be sold well below market cost because no duties, federal, state, or local taxes are paid. Those products also can enter the U.S. market bypassing Consumer Product Safety Commission regulations because off-shore retailers are out of reach of the U.S. government and legal system.
Industry veteran Patrick Cunnane, who has worked for companies that built bikes domestically and for importers, spoke out about de minimis in 2018 at a hearing in Washington in front of the Section 301 Committee. There, he propsed reducing the threshold to $50. Now he's in favor of it lowered to $10. Eliminating it completely, as the review commission has recommended, is even better, he told BRAIN.
"The shipments that come in that are unregulated shouldn't be unregulated," said Cunnane, CEO of Messingschlager USA. "Because even if it was $10, you can still lie and say it's under $10 and it's not and it goes through without any kind of scrutiny. In my view, all packages should be screened 100% of the time.
"So whether it's zero or $10, the main point for me is all the issues that are in this report centered more around counterfeit, product safety, and the inability of the government to take action against the seller. Those things are all so important that the government is recognizing them and they're addressing the loophole. That's real progress."
CBP in need of 'adequate resources'
In addition, the review commission recommends that the Congress should provide Customs and Border Protection (CBP) "adequate resources, including staff and technology, for implementation, monitoring, and enforcement" to better control shipments from China.
It's also recommended that Congress direct the U.S. Department of Security and CBP, along with the Department of Commerce, to develop assessment tools capable of identifying the true origins of parts, components, and materials contained in products entering the U.S. to prevent tariff evasion and "limit safety and security risks in light of the increasing complexity of global supply chains."
Cunnane said providing the necessary funds to provide those resources to upgrade CBP enforcement could be attained by eliminating de minimis.
"With all of these de minimis shipments, no sales tax is collected," he said. "Totally unfair for any retailer who has to collect it and pay it to the government. Let's say it's $70 billion in de minimis shipments in 2023, which if anything it's undervalued. If the government collected 6% of sales tax on that, which is a rough average, it's $4.2 billion dollars. And if they collected a flat 10% charge on the value of the products, it would be $7 billion dollars. That would pay for a whole lot of equipment to inspect and check all of these products. So dealing with de minimis can also pay for the deficiency we have in checking the packages."
The review commission also recommends amending the Consumer Product Safety Act to grant the Consumer Product Safety Commission mandatory recall authority over products from Chinese sellers who are unresponsive to requests for more information or to initiate a voluntary recall if the CPSC has evidence of a "substantial product hazard." That would be defined as either failing to comply with any CPSC rule, regulation, standard, or ban or posing "a substantial risk of injury to the public." The CPSC would classify Chinese e-commerce platforms as distributors to allow for enforcement of recalls and other safety standards for products sold on those platforms.
PNTR should be repealed
The review commission also said Congress should repeal Permanent Normal Trade Relations (PNTR) for China. The PNTR status allows China to benefit from the same trade terms as U.S. allies despite engaging in intellectual property theft and market manipulation. According to the review commission, eliminating PNTR could renew annual reviews of China's trade practices, giving the U.S. more leverage to address unfair trade behaviors.
"I think we should have a complete discussion on trade with China and what we're trying to accomplish," Cunnane said. "There are certain things that may or may not want to be excluded. I'm in favor of having a trade policy with China that solves some of the real problems that exist with products that are made in China and sold in the United States. And that's not only through de minimis but through other channels as well. I think it's good. Something like this becomes a discussion and then you have other opinions that are also going to be argued why it's important to leave it alone."
The review commission's recommendations should carry weight for Congress to act, Cunnane said.
"It is an important independent body that's saying this is bad, and here's why it's bad. This is very important. They're acknowledging some of the problems that (de minimis) has created and were exacerbated by how many people were buying online and then exacerbated by the 301 tariffs, which caused a lot of companies to have more incentive to find a way around paying those tariffs."
In September, the Biden administration said it would propose new trade rules under executive authority to stop the de minimis threshold abuse that can allow imports like e-bikes and lithium-ion batteries to circumvent safety standards.
The proposal of new rules includes allowing the CPSC to propose requiring importers of consumer products to file Certificates of Compliance electronically with the commission and the CBP at the time of entry, including for de minimis shipments.
Last year, Rep. Earl Blumenauer (D-Ore.) reintroduced the Import Security and Fairness Act (HR 4148), a bipartisan legislation to halt non-market economies from exploiting the de minimis threshold and require border protection to gather more information on those shipments. The bill is currently with the House Committee on Ways and Means.
