De Minimis Increase Causing Industry Shifts as Section 321 Clearances Grow

Set in motion by the enactment of the Trade Facilitation and Trade Enforcement Act of 2015 on Feb. 24 (see 1603010043), the increase in the de minimis limit, previously $200, took effect March 10. Importers have been considering whether they should modify their clearance processes. Unable to access the Automated Manifest System, customs brokers – with the notable exception of express couriers – cannot electronically designate Section 321 clearances via manifest. That leaves a paper process as the only option for brokers, said one import compliance manager. That process take 24-48 hours at the manager’s local port, she said

While the importer previously worked with brokers to clear all its shipments, including low value, expected growth in the volume of such shipments has caused it to reevaluate, said the compliance manager. One option is to continue working through its broker under a “no section” policy where the broker files informal entries for the importer’s low value shipments. Though the importer would have to pay duties, it still might save money given the higher brokerage fees associated with the paper 321 process. The importer’s other option is to go through an express courier, said the compliance manager.

Complicating matters are partner government agency (PGA) requirements, particularly now that they are currently in flux due to the ACE transition. “The question that everybody’s asking is, what are these myriad PGA requirements, how are they looking at low value shipments?” said Travis Hull, director-regulatory affairs at Livingston International. “What is required to gain release from those agencies when an entry isn’t being filed?” Now more, higher value shipments will fall under the low value threshold, potentially raising agencies’ level of concern that their filing requirements are met, Hull said. At the same time, agencies are modifying their filing requirements to implement the International Trade Data System and ACE, said Hull.

Hull, among others, is calling for CBP to compile and clarify PGA requirements for low value entries in a single, easily understood document. “It would be nice if something were published by Customs that spoke across all the agency requirements, that really clarified for the importing community what they have to do agency by agency, with respect to these low value under $800 shipments,” he said. For Livingston, a customs broker that files nationally, it’s critical that a uniform set of PGA requirements for Section 321 clearances be in place across all ports, said Hull. “If it’s not clearly articulated what the requirements are, agency by agency, you have the possibility that geographically what works one place might not work in the other, and that's not going to be good for anybody,” he said.

Longer term, the de minimis increase poses business challenges for customs brokers as importers look to save on duties by clearing more of their goods under Section 321, said some brokers. Already, some e-commerce shipments to U.S. are being diverted to Canada, where they are entered duty free under NAFTA duty deferral provisions, then broken up into shipments that fall under the de minimis limit and are thus exempt from duties and fees, said Gary Ryan, vice president of the Customs Brokers & International Forwarders Association of Washington State. With the limit now increased to $800 “and more importers learning about the program, more U.S. freight will be diverted to Canada,” Ryan said.

According to Ryan, the U.S. won’t allow shipments to be entered into foreign-trade zones or warehouses to be broken up into Section 321 shipments and entered into the U.S. duty and tax free. “The U.S. government is, in effect, directing business to Canada and lowering U.S. Treasury revenue, taking away U.S. warehousing, trucking, longshore, customs brokerage and other jobs,” he said. At a recent Washington state broker association meeting, one broker said it has lost two large accounts because of diversion to Canadian ports. “The feeling is that a lot more importers, those with higher duty rates, will take advantage of this,” said Ryan.

As technology advances, allowing for more e-commerce shipments to start at origin and be shipped directly to the consumer, the volume of Section 321 shipments will only grow further, said Mark Hirzel of A.N. Deringer. “The implications are huge,” he said. E-commerce orders already have all the information required to complete a Section 321 clearance. In effect, anything coming in could potentially avoid duties, provided the value is less than $800 and it’s inexpensive to ship it individually.

Brokers without the ability to file Section 321 clearances may want to partner with carriers, providing the required data elements to the carrier so the carrier can, in turn, transmit the data to CBP as part of its manifest, said Hirzel. One concern would be whether CBP would consider the broker’s actions in such a partnership as “customs business,” given that the transmittal of the manifest itself is not. Some brokers are looking for the ability to file Section 321 clearances just like couriers and carriers, said Hirzel. There needs to be a “level playing field,” he said. The Pacific Coast Council was scheduled to meet with CBP leadership on May 16 to discuss Section 321 issues. CBP did not immediately comment.