The future of low-value imports and the transparency of trade data on air and land shipments were among the most prominent topics raised during a recent House Ways and Means Trade Subcommittee hearing on customs modernization.

General reform

Pointing out that “it has been 30 years since our last comprehensive overhaul” of U.S. customs laws, subcommittee chair Adrian Smith, R-Neb., indicated in his opening statement that reforms should both facilitate legitimate trade, including by minimizing “unnecessary red tape” for imports and exports and addressing supply chain bottlenecks, and provide for “fair and effective enforcement,” including of the prohibition on imports made with forced labor. However, Brenda Smith, a former executive assistant commissioner for trade with U.S. Customs and Border Protection, noted that over the past 40 years most customs law reforms have come “in response to significant border security challenges,” which “has often left trade modernization efforts at the 75% completion stage.”

Ms. Smith noted the impacts of these incomplete efforts (e.g., continued use of paper documents, poor regulatory coordination between CBP and other agencies, few physical facilities allowing “frictionless, low-risk trade”) and ways to remedy them (e.g., “green lanes” for trusted traders and single windows for trade data), adding that these concerns and suggestions “are not new.” But she also pointed out one factor that has hindered previous efforts: CBP’s lack of “sufficient trade personnel to enforce trade rules” and “bandwidth to create and implement new approaches for facilitation and enforcement.” For example, she said, there has been no material increase in the number of CBP’s non-uniformed trade personnel in 20 years, and the agency has been unable to “successfully transition to a modern Global Trade Specialist position” that is well-trained in both modern business practices and traditional competencies such as classification, valuation, and customs enforcement.

Subcommittee Ranking Member Earl Blumenauer, D-Ore., argued that correcting these deficiencies would be more difficult under Republican proposals that would “slash the budgets of the federal government agencies that administer and enforce trade laws that protect American workers and industries by as much as 22 percent.”

Low-value imports

Other witnesses at the hearing focused their testimonies on specific issues, and the Section 321 de minimis provision was a prime target. This provision allows CBP to admit qualifying goods duty- and tax-free (and with fewer information requirements) provided they are imported by one person on one day and the aggregate fair retail value in the country of shipment is $800 or less.

An increase in this threshold from $200 several years ago has been widely cited as a primary culprit for an explosion in e-commerce imports, particularly from China, which Blumenauer said are able “to evade oversight and duties at the border and to undercut U.S. companies that play by the rules.” Martina Vandenberg, president of the Human Trafficking Legal Center, added that because de minimis shipments are not subject to CBP inspection this provision “has allowed Chinese companies to bring goods made with forced labor to the U.S. market.”

Michael Stumo, CEO of the Coalition for a Prosperous America, which he called “a bipartisan coalition of manufacturers, farmers, ranchers, and labor organizations that make and grow things in the United States,” argued that these problems would not be remedied by either of the two related pilot programs CBP is conducting because the information they are gathering about low-value shipments is “essentially worthless.” He explained that under the entry type 86 pilot foreign vendors can misclassify goods with no accountability, while the Section 321 data pilot “does not even ask for HTS numbers.”

Fred Ferguson, vice president of public affairs and communications for a company making outdoor recreation products, offered a different view and called on lawmakers to extend eligibility for de minimis shipments to U.S. foreign-trade zones. Ferguson said that by excluding FTZs current law “is actively incentivizing American companies to move e-commerce fulfillment operations” to foreign countries like Mexico and Canada, which Stumo said can receive goods from China, store them in-bond (thus avoiding formal entry), and ship them rapidly to U.S. consumers. Ferguson added that CBP has no oversight of such foreign warehouses and that extending de minimis eligibility to U.S. FTZs would thus “support CBP efforts to enforce trade laws, protect [intellectual property] and promote safety.” It could also reverse a decline in excise tax payments that fund important programs.

Trade data transparency

Most witnesses also emphasized the importance of supply chain transparency and said Congress should act to improve it by requiring public disclosure of manifest information for cargo arriving by planes, trains, and trucks. Michael Kanko, CEO of trade data firm ImportGenius, pointed out that air and truck cargo currently represents 46.5 percent of U.S. import value and that “by failing to publish air and land data, we are missing half the picture, including [for] many high-value products,” which presents an enforcement concern. Stumo said that concern is heightened because “even ocean vessel manifests are increasingly hidden, as businesses request – and seemingly automatically receive – confidentiality treatment from CBP.” Vandenberg added that “more, not less, customs data transparency” is also important to efforts to eradicate forced labor in global supply chains.

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