Tax Insights: Changes to the US de minimis shipment exemption ─ How will it affect Canadian businesses?

Issue 2024-31

In brief

On September 13, 2024, the Biden Administration released a fact sheet that announced its intention to take executive action to respond to the alleged “significant increased abuse” of the de minimis shipment exemption by various entities, including several China-founded e‑commerce platforms. The fact sheet accuses “foreign corporate giants” and other entities of exploiting the de minimis exemption rules by shipping illegal and unsafe products into the United States, adversely affecting American consumers, workers and businesses.

In addition to urging the US Congress to pass legislation to comprehensively reform the de minimis exemption to further protect American consumers, workers and businesses, the administration intends to propose rules that will:

• exclude from the de minimis exemption¹ all shipments containing products covered by tariffs imposed under sections 201 or 301 of the Trade Act of 1974, or section 232 of the Trade Expansion Act of 1962
• strengthen information collection requirements to promote greater visibility into de minimis shipments

Canadian businesses that export to the United States should review and understand these new rules to ensure that they comply with them and avoid disruptions in their trade with the United States.

In detail

Background

The de minimis exemption permits shipments of goods with an aggregate fair market value of USD $800 or less per person per day to enter the United States duty‑free, with minimal information required. Over the past decade, the number of shipments using this exemption has increased from 140 million to over one billion annually. This increase is driven primarily by e‑commerce platforms, especially those based in China, which take advantage of this exemption to ship large volumes of low‑value goods, including textiles and apparel, into the US market. Issues with the current de minimis system include:

• difficulty enforcing US trade laws and health and safety standards
• challenges protecting intellectual property rights and consumer protection rules
• increased risk of illicit drugs entering the United States through these shipments

Implications for Canadian businesses

Implications for Canadian businesses of the proposed new US rules on de minimis shipments include:

• Stricter regulations – The US will issue a Notice of Proposed Rulemaking to exclude products covered by tariffs under sections 201 or 301 of the Trade Act of 1974, or section 232 of the Trade Expansion Act of 1962 from the de minimis exemption. This includes a significant portion of textile and apparel imports from China. Canadian exporters must ensure their products are not mistakenly categorized under these exclusions.
• Higher tariff costs – The above noted products that were previously imported into the United States under the de minimis rule will now be subject to tariffs and incur additional costs. This could affect the pricing and competitiveness of Canadian goods in the US market.
• Enhanced data requirements – New regulations will require additional data for de minimis shipments, including the 10‑digit tariff classification number, detailed product descriptions and the identity of the person claiming the exemption. This is intended to improve targeting and enforcement, ensuring that only compliant goods enter the United States.
• Consumer safety compliance – Importers will need to file Certificates of Compliance electronically for consumer products, including those under the de minimis exemption. This measure is intended to prevent unsafe products from entering the US market.
• Increased compliance costs – The enhanced data and additional filing requirements discussed above will likely increase administrative costs and require more robust documentation processes.
• Potential delays and rejections – Misclassifying products or failing to meet the new data requirements could lead to delays at the border or outright rejection of shipments. This could disrupt supply chains and affect delivery timelines.

The takeaway

The provisions at issue cover large segments of imports into the United States. Section 301 tariffs currently cover approximately 40% of US imports, including 70% of textile and apparel imports from China. To minimize the impact of the de minimis exemption changes, Canadian businesses, especially those involved in cross-border trade with the US, should:

• review product classifications and ensure that products are correctly classified and do not fall under the new exclusions; misclassifying products could lead to delays or rejections at the border
• update shipping documentation and prepare to provide additional data for each shipment, including detailed product descriptions and tariff classifications; this will facilitate smoother customs clearance
• ensure all consumer products comply with US safety standards and receive the necessary compliance certificates; this will help avoid potential penalties and maintain access to the US market

Businesses that might be impacted by the narrowing of the de minimis exemption should closely monitor the US administration’s proposed rules. It is essential to assess how these changes could affect import flows and costs and consider alternative import models if required. Canadian businesses should stay informed and be proactive to effectively navigate the evolving trade landscape with the United States.

^{1. Products covered by antidumping or countervailing duty orders are already excluded from being eligible for the de minimis exemption.}