Low Import Duty Trigger Puts U.S. at a Disadvantage
I recently ordered a suit from Marks & Spencer in London. The item was delivered promptly, as advertised, and, at just over $200, provided good value for what I paid. But what I did not expect was the duty and customs bill that followed just a week later for $35. While modest in absolute terms, this customs bill added more than 15% to the cost of what I purchased.
So how could this happen? Here’s how; for 20 years, the U.S. has maintained a de minimis level of just $200 on imported goods, which means any item over that amount is subject to import duties. Although the tariff rate is well below 1%, once you add a customs broker fee, anything just over $200 could be subject to substantial and unanticipated costs. What’s especially dumbfounding is the disparate minimum thresholds between goods imported and those brought in person. If I had gone to the UK, say, on vacation and brought my new suit home on a plane, the de minimis threshold would have been $800, and therefore no additional costs to pay.
Many people have never heard of de minimis, but here is a small yet clear example of how it could impact any consumer or business. Simply put, to remain competitive we need to free the movement of goods by raising the minimum value that enters duty free. The trade facilitation agreement just agreed to at the World Trade Organization (WTO) recognizes the need to do this both in the U.S. and around the world. The Business Coalition for Transatlantic Trade (BCTT), a group advocating for a commercially meaningful and ambitious Transatlantic Trade and Investment Partnership (TTIP) agreement and for which the Chamber serves as secretariat, has been pushing to raise the de minimis rate to $800. And legislation in both the House and Senate would do just that for the U.S.
Raising de minimis levels would reduce transaction costs for small and medium-sized U.S. businesses, making them more competitive and better positioned to access more potential customers outside their home markets. It would also reflect the realities of rapidly expanding online commerce. But it’s a two-way street. Several U.S. small businesses, whether they sell direct or through a larger clearing house, still refuse to ship internationally. This is because if an item above the U.S. threshold were to be returned, tariff rates and fees are applied by U.S. Customs if the item exceeds $200. This is a double whammy of disincentive for both domestic and international small businesses. Therefore, it’s in our best interest to raise de minimis levels both at home and abroad and ensure a level playing field for those who sell lower value goods. And this is to say nothing of the fact that the administrative costs of collecting such low tariff amounts almost always far exceeds the revenue collected thus negating any benefit.
So if you’re still skeptical of free trade or if you still aren’t sure what the de minimis is, here are some questions to bear in mind. Wouldn’t small enterprises benefit from more access to international customers? And wouldn’t couriers benefit from greater duty free access since that would increase shipping business? Such growth would lead to more hiring. And more jobs would be the best Christmas present indeed!