U.S. retailers say an old trade law puts them at a disadvantage

US retailers have faced an existential crisis since e-commerce disrupted the industry’s traditional business models. But their latest threat, a group of retailers and policymakers say, stems from a nearly century-old trade rule that has given their e-commerce rivals — many of them founded in China — an unfair advantage.

The rule, known as de minimis, allows companies to ship packages worth less than $800 to the United States without paying duties and fees imposed by Customs and Border Protection. Nearly three million de minimis shipments enter the United States every day, and about half of those shipments are textile and apparel products.

Critics of the rule say it will disadvantage U.S. companies. They said that Chinese-founded companies like Shein and Temu, both budget-friendly retailers, would ship their merchandise directly from their overseas warehouses to shoppers’ homes, and that few of those packages were worth at least $800. But products that are made abroad and then shipped in bulk to U.S. retailers — where they are stored in warehouses before being shipped to customers — are less likely to fall below the $800 threshold. (In 2022, Shein opened a distribution center in Indiana to store inventory from abroad before shipping it to customers.)

Critics also argue that shipments subject to the de minimis rule provide an uncontrolled channel through which goods that could have been made by forced labor enter the United States.

In June, the House Select Committee on the Chinese Communist Party published a report showing that Temu and Shein alone were likely responsible for more than 30 percent of all packages imported into the United States under the de minimis provision.

US retailers want the rule changed. If not, they argue, companies could move their warehouses, and the jobs that come with them, outside the United States.

A Shein spokeswoman said the retailer “continues to make import compliance a priority” and that “the de minimis provision is not critical to the success of our business.” In July, Shein’s vice chairman said the company was “eager” to work with lawmakers to help with de minimis reforms. A spokeswoman for Temu echoed Shein, saying that Temu’s “growth is not dependent on de minimis policies” and that it “supported all policy adjustments by lawmakers that were aligned with consumer interests.”

Jim Marcum, the CEO of bridal retailer David’s Bridal, said the de minimis rule “played a significant role” in the financial strain that led the company to file for bankruptcy in April, marking the second time this has happened in five years. . David’s Bridal said it paid about $20 million in fees to U.S. Customs in 2022. Competitors from China that ship dresses directly to shoppers paid nothing, Marcum said. Over the course of six years, he added, David’s Bridal paid about $100 million in royalties that could have been invested in modernizing his business.

“You can see the enormity of that – the disadvantage we faced,” Mr Marcum said.

Ron Sorini, a lobbyist and trade expert who is working with a group of 20 U.S. retailers to change the de minimis entry law, said this created an incentive for companies to move their distribution abroad.

The group, the Ship Safe Coalition, has proposed an amendment that would expand the application of de minimis to U.S. distribution centers in foreign trade zones. In these zones, companies do not immediately have to pay import duties for imported products. Instead, they pay the fees when they ship those products to customers. That delay helps them manage cash flows, but unlike products shipped from a warehouse abroad, products shipped from warehouses in foreign trade zones are not exempt from fees if they have a value of less than $800.

“What we want is equality,” Mr Sorini said. “As long as the status quo continues, we will have a major problem for American retailers and American jobs.”

Not all U.S. retailers agree with the Ship Safe Coalition’s proposal. Kim Glas, chairman of the lobby group National Council of Textile Organizations, said it would be more effective to limit the use of de minimis than to extend its application to retailers in foreign trade zones. She supports a bill introduced in June that would exclude “non-market economies” such as China and Russia from using the exception, although she would like to see the legislation go further.

“We believe that the government should use its executive power to ensure that all e-commerce shipments do not receive de minimis treatment,” Ms. Glas said.

American Apparel & Footwear Association, a trade group representing more than 300 U.S. companies, is gathering input from its members for a policy recommendation it plans to release in the coming weeks.

“While it may be complicated – and too complicated – for some people in Congress to figure out, it’s not that complicated for people in business to figure out,” said Peter Bragdon, general counsel at Columbia Sportswear, a member of the Ship Safe Coalition. “People abuse it and it has an effect on people, on companies.”