On Wednesday, September 11, 126 Democratic members of the US House of Representatives wrote to President Biden urging him to issue an executive order to close the tariff “loophole” on tax-free small packages. They believe that these packages are being abused by Chinese e-commerce companies and fentanyl traffickers.
In the letter, the lawmakers requested Biden to end the “De minimis” provision, which allows goods imported from abroad valued at less than $800 to enter the US duty-free. This provision aims to streamline customs procedures and save government resources.
Previously, many Americans traveling abroad would use the De minimis provision in their personal capacity to bring foreign goods and souvenirs back to the US. However, Washington officials and experts have recently warned that this provision is being abused.
The lawmakers stated in the letter that currently more than 4 million tax-free package parcels arrive in the US every day.
“Due to this loophole, over 4 million packages enter the US unchecked every day, evading taxes and tariffs,” the lawmakers wrote. “These imported goods threaten US manufacturers, harm union workers and local retailers, and pose significant risks to American consumers.”
The letter pointed out that the loophole has led to counterfeit products flooding the market, sometimes even dangerous imported goods, including “fentanyl and precursor chemicals from China.”
The urgency of closing the tax-free package loophole cannot be overstated, the lawmakers wrote. They highlighted instances of Americans dying from mislabeled fentanyl pills ordered online, which bypassed inspections due to the existence of tax-free provisions and were delivered to their doorsteps.
The letter stated, “Tax-free packaged goods, especially those from China, also circumvent most existing trade enforcement mechanisms, including the ‘Uyghur Forced Labor Prevention Act’ and the 301 tariff for prosecuting trade fraud.”
The National Council of Textile Organizations (NCTO), representing US manufacturers, mentioned that fast-fashion e-commerce companies like Shein have exploited the tax-free package provision to avoid many punitive tariffs on Chinese textile imports, leading to the closure of about 18 US factories last year, resulting in hundreds of Americans losing their jobs.
Since 1930, the exemption of tariffs on small parcels has been part of US trade law. In 2015, the tax-free threshold was raised from $200 to $800.
However, since 2014, the estimated total value of tax-free small parcels has more than doubled, reaching $23.4 billion last year, making it the 12th largest import category in the US.
Chinese e-commerce platforms like Shein and Temu under Pinduoduo have extensively utilized this provision to ship to US consumers. However, these goods may contain dangerous items that have not undergone proper review. Earlier this month, two commissioners of the US Consumer Product Safety Commission (CPSC) also called for a thorough investigation into these two Chinese companies as they were selling “lethal baby products” on their platforms.
Bill Johnson, Executive Director of the National Association of Police Organizations (NAPO), stated in a release, “If China’s drug traffickers can easily evade our trade laws by pressing a few keys online, sending hundreds of thousands of bags of fentanyl directly to our country, then US law enforcement is fighting a losing battle.”
Johnson added, “The loophole in the minimum tax exemption has seriously exacerbated our country’s opioid crisis. Closing this loophole will help prevent fentanyl and other drugs from flowing across borders, safeguarding the lives of our children, family, and friends.”
The lawmakers wrote in the letter, “Exempting all online shopping small parcels from tariffs, trade fraud fines, taxes, and inspections is not an appropriate practice, as just in 2023, the number of these packages exceeded 10 billion.”
They called for the removal of the tax-exempt status for commercial goods, which would significantly reduce the volume of tax-free packages and allow customs and other regulatory agencies to inspect goods that require scrutiny and seize any non-compliant imports.
The US is not the only country facing a crisis of increasing tax-free packages; countries worldwide are dealing with the impact of the surge in Chinese online parcel deliveries.
The EU has planned to completely abolish low-price tax-free provisions by 2025 and modify import regulations to classify e-commerce platforms as “importer of record,” making them responsible for providing accurate import and value information and paying tariffs and taxes. South Africa has also decided to terminate low-price tax-free provisions.
The lawmakers pledged to continue pushing for legislation to address the crisis brought about by the low-price tax-free provision and urged President Biden to provide more timely remedies to this increasingly serious issue using executive authority until the legislation is passed.