White House de minimis loophole rules target Shein, Temu

The Biden administration announced new measures on Friday to curb what it calls “overuse and abuse” of a longstanding trade law that allows low-value shipments to enter the United States without paying import duties and processing fees.

The steps include a new rule proposal that would bar overseas shipments of products subject to US-China tariffs from being eligible for the special customs exemption.

Known as the de minimis loophole, the trade provision allows packages worth less than $800 to enter the United States with relatively little screening. Over the past decade, the number of de minimis shipments has soared, from about 140 million to more than a billion, according to a White House estimate.

“The drastic increase in de minimis shipments has made it increasingly difficult to target and block illegal or unsafe shipments coming into the U.S.,” Daleep Singh, deputy national security adviser for international finance, told reporters in a call Thursday on preview actions.

Officials say the boom in de minimis shipments is largely driven by a few online retail giants with ties to China, such as Shein and Temu, which use the exemption to ship millions of dollars worth of clothing and cheap household goods from factories in China directly to American customers.

Each individual package is typically worth much less than $800 and therefore qualifies for the de minimis exemption.

But new eligibility restrictions for products subject to tariffs under Section 301, Section 201 and Section 232 — like those proposed Friday — could upend that business model.

“Given that approximately 70% of Chinese textile and apparel imports are subject to Section 301 duties, this step will drastically reduce the number of shipments entering through the de minimis exemption,” Singh said.

In addition to the proposed tariff rules, the White House also announced plans for a new rule that would “require specific, additional data for de minimis shipments – including the 10-digit tariff classification number and the person claiming the de minimis exemption,” a fact sheet .

The Biden administration also called on Congress to pass legislation to revise the original de minimis rules.

An obscure loophole in the tariff law passed by Congress in 1930 – the de minimis exemption has again come under fire from the White House in recent years after lawmakers raised concerns that the rule allows foreign retailers to avoid tariffs and package inspections them at the border.

Last year, the House Select Committee on the Chinese Communist Party published report in Shein and Temu and found that the two companies are “likely responsible for more than 30 percent of all packages shipped to the United States daily under the de minimis provision and probably nearly half of all de minimis shipments to the US from China “.

Traditional retailers typically import containers of merchandise and ship them to US-based warehouses for distribution. But Shein and Temu typically ship their products directly to American consumers through their Chinese supplier networks.

By using the de minimis loophole to avoid tariffs, Chinese retail giants have likely avoided tens of millions of dollars in import duties.

Only in 2022, Gap paid $700 million in import duties, H&M paid $205 million and David’s Bridal $19.5 million, according to the House Select Committee on the Chinese Communist Party.

However, Shein and Temu paid no import duties at all, the commission said.

A Shein spokesman on Friday disputed the commission’s claim and said it paid “millions of dollars in import duties in both 2022 and 2023.”

Lawmakers argue that by avoiding the high import tariffs the United States imposes on most Chinese textiles, clothing and footwear, Shein and Temu are able to offer ultra-low prices and compete with their import-paying competitors.

They also argued that the exemption allows Shein and Temu to import slave-made products without detection because the packaging is not subject to the same level of scrutiny and testing.

Shein argued that its supply chain and overall business model allow it to offer such low prices and that its pricing structure is not relevant to the de minimis exception.

“SHEIN makes import compliance a top priority, including reporting requirements under US law regarding de minimis listings,” a company spokesperson told CNBC on Friday.

Last summer, Shein’s executive chairman, Donald Tang, called for de minimis reforms and said the rule “needs a complete overhaul to create a level playing field for all retailers.” He did not outline what those reforms would look like.

On Friday, a Shein spokesperson said the company stood by Tang’s comments.

“We look forward to working with all stakeholders on reform,” the spokesman said.

The company has acknowledged that cotton from banned areas was found in its supply chain and said it is working to fix the problem.

When reached for comment, a Temu spokesperson said the company’s growth “does not depend on the de minimis policy. We are reviewing the new rule proposals and remain committed to delivering value to consumers.”

In a statement, Temu said it is “dedicated to supporting ethical labor practices” and “prohibits the use of any form of forced, child or criminal labor and requires compliance with all local labor laws.”