US to Introduce Shipment Taxes on Items Worth Less than $800 🇺🇸

Author

Tara Dave
September 23, 2024

Hey there! 👋

Recently, the Biden Administration proposed new shipment taxes on items worth less than $800. This decision was made because foreign companies like Shein, Temu, and AliExpress have avoided paying import taxes because of the de minimis exception, which meant that goods less than $800 can enter the US without facing tariffs and other fees.

Let’s dive into what happened, and how law firms could be involved.

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How have these companies taken advantage of the de minimis exception?

Avoiding paying import taxes helps them save money. While this has led to competitive pricing, it allegedly harms American businesses, as foreign companies offer products at a much cheaper price compared to US-based retailers, which gives them too much market share and causes market distortion.

By avoiding import taxes and tariffs, it allows the US market to be flooded by cheap foreign goods. These goods are normally shipped directly to consumers, and authorities have blamed the de minimis exception for putting a strain on US border and customs authorities, as the number of packages entering the US through this exception has increased from 140 million in 2013 to more than 1 billion last year. This makes it much more difficult for authorities to identify and block illegal shipments.

Why has this been proposed? 🤷‍♀️

These foreign companies have been relying on competitive pricing, which strongly appeals to consumers. Using such a price strategy impacts American businesses as they would also have to reduce their prices to compete. This can increase pressure on US businesses and lead to business closures, which can cause unemployment and potentially impact the economy. Moreover, while American businesses pay higher operational taxes and cannot take advantage of the de minimis exception, foreign companies enjoy lower costs and prices. By avoiding import taxes, foreign companies have much lower prices, which is an unfair advantage and reflects anti-competitive behaviour.

Other companies, such as Amazon, ship their products in bulk to warehouses and must pay import taxes, therefore, the same product on Amazon would cost more than Shein or Temu. This makes consumers build stronger preferences towards foreign companies and drives US retailers out of business, which leads to unemployment.

Another key issue with so many goods entering the country without paying import taxes is health and safety concerns. This mass production relies on cheap labour and low-quality production, which is often a result of forced labour. This causes direct issues for US consumers who may be impacted by using low-standard goods.

How is the US market going to change with this new proposal? 🚢

Foreign companies will have to pay import taxes, which may lead to them losing the large amount of market share they have gained in America. US-based retailers will not be pushed out of the market as much because once Biden's proposal commences, these foreign businesses will eventually increase their prices. This will reduce the aggressive competitive pricing strategy and create more fair competition.

The Biden Administration wants to make changes to how de minimis shipments enter the country; these changes have been published in a “fact sheet”. Section 321 of the Tariff Act of 1930 allows goods worth $800 or less to enter the USA without thorough importing documentation. The Biden Administration is keen to change this, importers will have to file certificates of compliance with US Customs and Border Protections. Therefore, products that do not meet US health and safety standards will be disposed of and there will be a reduction in illegal goods entering the country via de minimis rule. Since there will be more detailed inspections it will lead to a significant reduction in counterfeit goods.

How would law firms be involved? ⚖️

Contract renegotiation: Businesses will need to renegotiate contracts with suppliers to cover additional costs due to import taxes. Prices may be adjusted and changes to delivery times, need to be explicitly stated in the contract.

Litigation and Disputes: Businesses may argue that the new tax rules will impact trade agreements. For example, the companies that rely on exporting low-value goods to the US will see changes in their economic stability. Many free trade agreements want to reduce tariffs and trade barriers, the US proposal can be seen as going against this.

Corporate restructuring: Being forced to pay import tax could force companies to restructure how they operate to remain competitive. Law firms would be involved in how these businesses may choose to restructure by forming new entities or by removing certain departments.

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I hope you enjoyed this article. See you next week! 👋