Month: January 2024

FASH455 Discussion: De Minimis Rule and the US Textile and Apparel Industry

Reading material

How the “de minimis” rule (also referred to as Section 321 imports)* might change will be a critical issue to watch in 2024. Under US customs law, specifically the Trade Facilitation and Trade Enforcement Act of 2015, import duties are generally waived for goods valued at $800 or less per person per day, marking an increase from the previous de minimis threshold of $200.

Generally, the reasons for raising the de minimis threshold include: 1) facilitating the clearance of low-value packages and supporting the e-commerce industry (e.g., small-value shipments from online shopping and e-commerce). 2) allowing customs agencies to focus their limited resources on higher-value and higher-risk shipments; 3) lowering compliance and importing costs for importers, especially small businesses.

However, some stakeholders are increasingly concerned about the “de minimis” as a loophole in practice. For example, US textile industry representatives argued that the rule “providing a backdoor to Chinese goods produced with forced labor. The loophole has not only fueled the rise of imports from foreign e-commerce companies and mass distributors, but it has also put our domestic manufacturers and workers at a competitive disadvantage.”

According to CBP’s statistics, the volume and value of U.S. de minimis imports have been surging in recent years, particularly with the booming of e-commerce.

While reforming the “de minimis” rule is likely, its outlook remains uncertain.

  • The “de minimis” rule can only be changed through actions by US Congress. Several bills (e.g., Import Security and Fairness Act and De Minimis Reciprocity Act of 2023) have been introduced recently, calling for lowering the de minimis thresholds or closing the “loophole” to keep shipping from specific countries like China from taking advantage of the benefits. However, the election-year politics, a divided Congress, and their already packed agenda will make the legislative process challenging. That being said, tactically, Congress might include reform of the “de minimis” rule as part of a broader trade package in the future.
  • Not everyone agrees on how to reform the “de minimis.” For example, while some legislation favors lowering the threshold, others prioritize excluding non-market economies like China to benefit from the rule. Furthermore, US e-commerce businesses and influential logistics companies that benefit from the de minimis rule may oppose attempts to revoke the benefits they currently enjoy.
  • As “de minimis” shipments were exempted from CBP review, it also means that policymakers could lack sufficient data to support potential rule changes and evaluate the impacts. For example, while there is suspicion that companies like Shein and Temu exploited the de minimis rule or even that imports containing forced labor did so, it is challenging to present accurate and reliable data to understand their impacts. Thus, data collection “homework”, such as CBP’s section 321 data pilot program, will be necessary for meaningful discussions on reforming the de minimus rule.
  • *Section 321 refers to a part of U.S. law (19 U.S.C. § 1321) that allows duty-free entry of goods valued at $800 or less per shipment, per day, from foreign suppliers to U.S. customers. This is often called the de minimis exemption. Entry Type 86 is one method for filing Section 321 de minimis entries electronically through U.S. Customs and Border Protection (CBP). Entry Type 86 was initially launched as a pilot test by U.S. Customs and Border Protection (CBP) in September 2019.

Discussion questions:

#1: Please assess the arguments presented in the NY Times article regarding the de minimis rule’s impact on US textile and apparel manufacturers. What evidence or examples support their claims?

#2: Consider the defenders of the de minimis rule who argue that it does not harm the competitiveness of the US textile and apparel industry. What counterarguments and supporting evidence could they present?

#3: What additional information can help us better understand the trade impact of de minimis rules?

#4: Do you support eliminating or lowering the de minimis threshold? Why or why not?

[Instructions: For students in FASH455, please address at least two of the questions above. Additionally, feel free to share any other thoughts on the debates and resources you found relevant and informative.]

Red Sea Attacks and the Global Textile and Apparel Trade (updated January 2024)

Impacts of the Red Sea Attacks on the Supply Chain

Impacts of the Red Sea attacks on the global textile and apparel trade: A summary from the media

US retailers/importers: 1) “40 percent of shipments from Asia go to the U.S. through the Panama Canal” and “with access to the Suez Canal also now limited, vessels carrying goods to the East Coast of America will now take longer to deliver their shipments.” 2) “Companies that depend on inventory supplies from Asia will be impacted…These include things like sneakers, apparel and consumer electronics from countries such as China. Companies may be forced to pay more to get their inventory delivered, the costs of which could be passed on to consumers pushing up prices.”

EU retailers/importers: 1) “the rates for shipping goods from Asia to northern Europe have “more than doubled” since the start of December 2023.” 2) some EU fashion companies say “the crisis has delayed stock deliveries “by three to four weeks” and increased delivery costs by 20%” 3) some fashion retailers are “keen to avoid flying stock from Asia to Europe due to the significant amounts of carbon emissions caused by air freight.” 4) many EU fashion brands and manufacturers “expressed concern that they will have to shoulder the financial burden of the delays.”

China producers/exporters: 1) “Customers involved in China-European trade now face additional costs and a delay of seven to 10 days in such cases” 2) “Some Chinese exporters are shifting to China-Europe Railway Express services to ensure timely delivery of their goods and avoid staggering operational costs if they navigate around the Cape of Good Hope. However, “Some rail freight platform companies have proposed price increases for their railway services to Europe.”

India producers/exporters: 1) “Exports to the US west coast are intact, shipments to Europe, North Africa, and the Middle East have been affected. India exports goods worth $110 billion to the three regions.” 2) “The cost of freight and insurance has risen due to ships being compelled to avoid the region and take a longer route around the Cape of Good Hope. 3) Shipments are being held back by exporters, because they are feeling a pinch of additional freight cost. “Containers could face delays of 12-14 days in their turnaround time, although there is no shortage of containers.”

Bangladesh producers/exporters: 1) “over 70 percent of Bangladesh’s export-laden containers, which are destined for the EU, US East Coast and Canada, cross the Red Sea.” “Meanwhile,  “8 to 10 percent of the country’s imports come through the route.” 2)Bangladeshi exporters and importers are having to pay higher freight charges to the US and Europe.” According to the Bangladesh Textile Mills Association (BTMA), the freight charge has already increased by $700 to $800 per container in case of import-laden vessels. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) expects Bangladesh’s domestic garment suppliers “will have to ultimately bear the freight cost.”

Pakistan producers and exporters: Textile and apparel shipments are facing stress. On the one hand, Pakistani textile and apparel producers are “highly reliant on timely raw materials and machinery imports. Any disturbances in shipping schedules could lead to production slowdowns and increased costs for manufacturers.” Meanwhile, “There have been “delays in fulfilling orders due to higher lead times and freight charges.” “Exporters have been incurring losses as they were honoring orders when they had assumed freight charges of $750.” However, as of mid-January, “shipping companies have jacked up freight charges to around $1,800, a massive 140% hike.”

(Note: This blog post will be updated as new information becomes available. Industry professionals are welcome to leave comments and share insights.)