White House de minimis loophole rules target Shein, Temu

The Biden administration on Friday announced new measures to curb “excess and abuse” of a long-standing trade law that allows low-value goods to enter the United States without paying import duties and fees.

The measures also include proposed new rules that would exclude international shipments of products subject to U.S. and Chinese tariffs from being eligible for special tariff exemptions.

The trade provision, known as the “de minimis loophole,” allows packages worth less than $800 to enter the US with less scrutiny. Over the past decade, the number of de minimis packages has soared from roughly 140 million to more than 1 billion, according to White House estimates.

“The proliferation of very small shipments is making it increasingly difficult to target and stop illegal or dangerous cargo coming into the United States,” Daleep Singh, deputy national security adviser for international economic affairs, told reporters on a Thursday conference call previewing the measures.

Officials say the surge in small shipments is mainly due to several large Chinese online retailers, including Shein and Temu, which are using the exemptions to ship millions of dollars’ worth of clothing and cheap home goods directly from Chinese factories to American customers.

The value of each individual package is typically well under $800 and therefore qualifies for the minimal exemption.

But new eligibility restrictions on products subject to Section 301, 201 and 232 tariffs, like the ones proposed on Friday, could upend this business model.

“With roughly 70 percent of textile and apparel imports from China subject to Section 301 tariffs, this action will significantly reduce the number of shipments imported through de minimis exemptions,” Singh said.

In addition to the proposed tariff rules, the White House also announced plans for new rules that would “require certain additional data about demi-minimum shipments, including the 10-digit tariff classification number and the person applying for the demi-minimum exemption,” according to the fact sheet.

The Biden administration also called on Congress to pass legislation to overhaul the original demi-ministry rules.

The bare-bones exemption, a little-known loophole in tariff law passed by Congress in 1930, has again become a target of the White House in recent years after lawmakers expressed concern that the rule allows foreign retailers to avoid customs duties and package inspections at the border.

Last year, the House of Representatives Select Committee on the Chinese Communist Party The report was released The firm investigated Shein and Temu and concluded that the two companies “may be handling more than 30 percent of packages shipped to the United States daily under demi-minimum clauses and may account for nearly half of all demi-minimum shipments from China to the United States.”

Traditional retailers typically import goods by the container and send them to U.S. warehouses for distribution, but Shein and Temu typically ship goods directly to U.S. consumers through a network of Chinese suppliers.

The Chinese retail giant likely avoided tens of millions of dollars in import taxes by exploiting a “de minimis loophole” designed to circumvent tariffs.

In 2022 alone, gap According to the House of Representatives Select Committee on the Communist Party of China, the company paid $700 million in import tariffs, H&M paid $205 million and David’s Bridal paid $19.5 million.

But Shane and Tem failed to pay any import taxes, the commission said.

A Shane spokesman on Friday disputed the commission’s assertions, saying the company “paid millions of dollars in import duties in both 2022 and 2023.”

Lawmakers argue that by avoiding the steep import tariffs that the U.S. imposes on most Chinese textile, clothing and footwear, SHEIN and TEMU can offer products at extremely low prices, allowing them to compete with competitors who have to pay the import costs.

They also argue that the exemption allows Shane and Tem to import products made with slave labor undetected because the packaging is not subjected to the same level of scrutiny and inspection.

Shane argues that its low prices are possible through its low-inventory supply chain and overall business model, and that its pricing is unrelated to the demi-ministry exemption.

“SHEIN considers compliance with import regulations to be a top priority, including reporting requirements for minor imports under U.S. law,” a company spokesperson told CNBC on Friday.

Last summer, Shane Chairman Donald Tan said: They called for minimal reforms. He said the rules “need to be overhauled to provide a level playing field for all retailers,” though he did not say what those reforms would be.

A Shein spokesperson said Friday that the company respected Tan’s comments.

“We look forward to working with all stakeholders towards reform,” the spokesman said.

The company acknowledged that cotton from banned areas had been found in its supply chain and said it was working to resolve the issue.

Asked for comment, a Tem spokesman said the company’s growth “is not dependent on the demi-ministry policy. We are reviewing the proposed new rules and remain committed to delivering value to consumers.”

In a statement, Tem said it was “committed to maintaining ethical labor practices” and “prohibits all forms of forced, child and punitive labor and expects to comply with all local labor laws.”