Biden Tackles Trade Loophole Used By Cheap Chinese E-tailers

The Biden administration announced on Friday it was cracking down on a tax loophole that has enabled Chinese web souks like Shein and Temu to thrive.

The de minimis exemption is a US trade provision that allows low-value goods — those valued at $800 or less — to be imported without incurring duties or taxes. That threshold was once set at $200 but was raised [PDF] to its current value in February 2016 to simplify customs processing.

The Reg has noted in the past that this allows many fast fashion and cheap goods outlets, many of which are credibly accused of using or turning a blind eye to exploitative labor, to operate essentially duty free, giving them an unfair advantage.

"Over the last ten years, the number of shipments entering the United States claiming the de minimis exemption has increased significantly, from approximately 140 million a year to over one billion a year,” specified a statement from the White House.

The statement noted that most businesses claiming the loophole originate from only a handful of China-founded e-commerce platforms. But according to the White House, shipping $5 tank tops isn't the only use for the exemption, and the sheer strain of a more than seven times increase in exemption claims has made it hard to keep out other illicit material.

For example, the US feds recently shut down 350 Chinese websites that were illegally importing devices that were falsely labelled as necklaces, toys, or other innocuous items, which would silence and convert semiautomatic pistols into fully automatic guns.

"This exponential increase in de minimis shipments makes it more challenging to enforce US trade laws, health and safety requirements, intellectual property rights, consumer protection rules, and to block illicit synthetic drugs such as fentanyl and synthetic drug raw materials and machinery from entering the country," stated the Biden administration.

• SHEIN has the look of America's next tech-meets-geopolitics fit-up
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• Shein, Temu escalate epic e-commerce squabble
• Walmart clears out its shares of Chinese e-tailer JD.com

The proposed new rules remove the exemption from some Chinese goods that currently face tariffs from the US and set clearer guidelines on who may use exemptions.

Under proposed rules, importers of de minimis shipments would need to electronically submit compliance paperwork for consumer goods, a move which is expected to improve US customs oversight. Additional data, such as a 10-digit tariff classification number and the identity of the person claiming the de minimis exemption will need to be declared.

That person is usually the purchaser, as companies like Shein and Temu designate customers as importers of the products sold on their apps or sites to get the exemption.

Despite this, Temu claims its growth isn't reliant on the de minimis policy. "Since Temu's launch in September 2022, our mission has been to offer consumers a wider selection of quality products at affordable prices. We achieve this through an efficient business model that cuts out unnecessary middlemen, allowing us to pass savings directly to our customers," a spokesperson told The Register.

"Temu'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."

These changes aren't just bad news for the e-commerce platforms they affect, they also are bad news for Beijing. In June, China's Ministry of Commerce called for massive expansion of the nation's cross-border e-commerce industry, an industry it labelled an important contributor to China's economy.

Beijing's e-commerce expansion policies even called for assistance in the establishment of offshore warehouses and attending offshore trade shows. ®