How Does Section 321 De Minimis Apply to You?
February 5, 2020
This content was updated for accuracy and relevancy on March 26, 2021.
If you travel regularly, or if you work in e-commerce or an export/import business, you have most likely encountered the phrases “Duty-Free” and “Section 321 De Minimis.” Often the terms are used offhand and interchangeably without having a clear idea of what they mean or why they were first established.
Many people are also unaware of the way these phrases impact travelers. Section 321 de minimis is a regulation that allows goods from specific countries, such as Mexico, to enter the U.S. duty-free if they are valued at $800 USD or less. This international trade regulation benefits global e-commerce without jeopardizing customs and border protection. Manufacturing in Mexico soared after NAFTA regulations and is expected to continue to rise with this additional regulation.
In 2016, the first in a series of much-needed updates were made to Section 321’s De Minimis rules building on the benefits of NAFTA for Mexico. Now, with the passing of the U.S., Mexico, Canada Agreement (USMCA), financial and economic analysts predict this will be beneficial for governments, consumers, and businesses alike. Below, we’ll discuss everything you need to know about 321 entry and how it impacts travelers and U.S. Customs Border Control. Entry Type 86 also examines low-value shipments crossing the border. Section 321 De Minimis has a direct effect on border protection, importation, customs and border regulation, and trade.
What Is Section 321 De Minimis Restrictions?
De Minimis is Latin for “about minimal things.” Over the millennia, it has been applied to a variety of industries. However, during the last century, it was primarily tied to the worlds of finance and imports & exports.
For today’s purpose, we’ll be focusing on the latter aspect.
Before we can dive into the changes that have been made to De Minimis Restrictions and how they impact you, it’s first important to highlight how U.S. customs delineates different types of shipments. Today, they are separated into three categories, known as:
- Duty-Free – These are considered low-value informal entries that don’t require import duty or taxes so long as they don’t surpass the De Minimis Threshold (DMT). Duty-free items can enter the country without taxes; therefore, these items are easier for importers and exporters to obtain and sell. They also make it easy for travelers to bring merchandise back from international trips.
- Informal Entries – Low-value goods and commodities that are shipped or carried into the country and commonly used for personal and commercial uses. No surety bond is required to import these low-value shipments, and once they’ve passed customs clearance, they’re sent on their way.
- Formal Entries – High-value goods that are used for commercial selling purposes. They require a surety bond exceeding the formal entry value threshold. In addition, the importer must file customs forms and provide HTSUS classification. Also, a CBP Form 7501 must be submitted for the goods to be released.
The Tariff Act of 1930 was one of the very first U.S. bills that raised the price of duty-free imports. At the time, it sought to increase the dollar limit on duty-free goods in two keys ways:
- Gifts – Gifts that were mailed to the U.S. had their limit raised from $10 to $25.
- Personal articles – The duty on items that travelers brought into the country with them increased from $1 to $5.
Per section 321, “the purpose of the amendment is to avoid administrative expense and inconvenience disproportionate to the amount of revenue realized.” At its essence, duty-free/De Minimis established the concept that it cost more time, labor, and administrative effort to regulate such small imports. Their economic value and potential tax revenue were too trivial to merit serious investigations by customs. As such, goods crossing the U.S. border that were valued beneath the De Minimis Threshold (DMT) were met with zero duties and little scrutiny.
The Change in De Minimis Restrictions
Over the decades, as cross-border travel and economic activity increased, so too did the De Minimis Value (DMV). By the time we entered the new millennium and the Information Age, that DMV figure had risen to $200. At the time, thanks to digitalization, the American economy was shifting into full gear as it transitioned from a manufacturer-based economy to a technological service-based one. Requirements for customs brokerage regulations began to shift. Interest in the global e-commerce world and the rapidly changing e-commerce supply chain all pointed towards an online global economy. Per the Atlantic:
The traditional understanding of goods as distinct from services dates back to the Industrial Revolution when the advent of manufacturing created advanced economies and raised the standard of living for millions of people. But that dynamic flipped with the arrival of the Information Age. Last year, the services sector—a broad category of the economy that now includes financial services, media, transportation, and technology—accounted for 67 percent of GDP in the United States.
The rise of Amazon further cemented this change, resulting in a significant uptick in transnational e-commerce activity and parcel deliveries. Naturally, this meant that the job of CBP officials became increasingly more difficult. The steady flow of De Minimis level packages—which analysts expected to continue to increase annually—was overwhelming and overly time-consuming. There were neither enough agents to handle the steady influx, nor were such low-cost items worth the time investment.
Simply put, the De Minimis Value had to be increased to compete with the e-commerce supply chain.
In 2015, the Obama administration viewed a Duty-Free increase as a meaningful way. They could accomplish three key objectives:
- Streamline the customs process, encourage international trade facilitation, and make it easier for low-value shipments to enter the country—whether transported physically or shipped.
- Generate increased economic output by redeploying revenue collection to more efficient revenue sources.
- Increase the incentives for global e-commerce in and out of the country.
So, they took their cue from the 1930 Tariff Act by raising:
The value of a shipment of merchandise imported by one person on one day that generally may be imported free of duties and taxes from $200 to $800. Shipments valued at $800 or less for the de minimis exemption will be eligible under the same processes and with the same restrictions that currently apply to de minimis shipments of $200 or less.
On a worldwide scale, this increased DMT value pushed the United States to the top of the charts. Naturally, this also increased the threshold for other import categories with informal entries increasing to $801 – $2500 and formal entries increasing to over $2500.
USMCA and Section 321
Of the changes from NAFTA vs. USMCA, raising the DMT was one of the goals. But it wasn’t enough for just the U.S. to raise their DMT. They wanted their neighbors to follow suit. So, as a part of the recent USMCA deal, both Canada and Mexico were pushed to follow suit. According to the Mercatus Center:
Mexico agreed to a DMT of US$50 for tax-free treatment, and US$117 for tariff-free and streamlined customs treatment (an increase from its current DMT of US$50). Canada agreed to increase its DMT from C$20 to C$150 for duty-free, streamlined customs treatment, and C$40 for tax-free treatment. These limits apply to packages going through regular mail.
So, what does the U.S. have to gain from this increase of the DMV? It’s an important question. From an economics standpoint, it appears that there are several potential benefits to both the American, Mexican, and Canadian governments, including:
- Reduced trade costs – Although it’s too early to tell, in theory, a higher DMT will result in decreased costs of trading low-value parcels. It incentivizes more people to exchange “low value” items, worrying less about the country of origin as long as it is a member of the trade.
- Increased trade partners – Raising the DMT fourfold opens up an entirely new market of goods that can be sold or carried across borders. Even a dollar change in DMT can result in tens of millions of exporting by smaller enterprises.
- Optimizing government resources – By freeing up resources that were once spent on low-value parcels, you can now increase your tax collection efforts and duties on high-value parcels, offsetting the “lost revenue.”
- Consumers and businesses benefit – If low-value goods were taxed, businesses would simply raise prices to offset those costs. Now, businesses can set their goods at a lower price, which consumers are more willing to pay. This results in several avenues of cost savings for both parties, including:
- No duties
- No taxes
- No brokerage fees
- Less time spent on custom’s checks and import assessments
This also increases shipment speeds, considering how packages crossing the border that are beneath the DMT are expedited. In addition, it would make purchasing or returning goods from Mexico or Canada less expensive. Businesses are also able to price their goods more cheaply, which tends to increase the number of consumers willing to buy. It also decreases the costs for businesses to send low-value parcels north or south of the border.
General Restrictions to Section 321
Although section 321 can be beneficial to both travelers and businesses alike, there are still other shipment-type restrictions besides the cost of the goods. These include:
- There might be still a duty for countervailing, and all good may be subject to anti-dumping duty as well.
- Goods must still pass through inspection prior to the shipment. This is one of the mandatory requirements. Some of the regulatory bodies include but are not limited to the FDA and even the NHTSA in order to ensure that the goods are following all compliance standards. However, some products may be exempt from the rigorous inspection process, depending on the type of product. As a business, it’s important to understand the various products that are exempt vs. non-exempt.
What Do the Section 321 De Minimis Changes Mean for You?
If you’re simply a traveler, the increase in DMT makes it easier for you to transport goods and merchandise into and out of the country. You can travel with more highly-priced goods without having to pay duties on them. Naturally, this encourages tourists to buy more items, particularly those consumer goods that fall within the $200 to $800 range. While this is beneficial for your everyday traveler, frankly, the DMT increase was meant to assist businesses, particularly small ones who will deal with customs and CBP more regularly. As a business, you may be able to take advantage of Section 321.
Say, for example, you lived on the southern border and ran a business where you’d bring in hand-woven traditional Mexican blankets and serapes. Each day, you’d travel into Mexico, pick up your shipment of forty blankets—that you’d paid $200 at $5 per blanket—and transport it across the border. Once back in the states, you’d sell out of blankets at $40 per blanket, which resulted in $1,600 revenue, and $1,400 profit (not counting other costs such as transport and time). Even though you sold out every day and the demand was there, you were limited to your forty blankets. You would be unable to increase your cargo load or add additional truck shipments.
With the increase to De Minimis Customs Value, however, you can now pick up 160 blankets per day for $800. If you were to sell out daily, you’d have increased your revenue to 6,400 and your profits to $5,600. This represents a quadrupling in net profits, which is good for the business, but it’s also fantastic for the U.S. government since it now reaps far more taxes than it otherwise would.
Although comprehensive studies haven’t yet been done, the changes in De Minimis Restrictions appear to be beneficial to both traveler, consumer, and business alike. This is true for both Americans, Mexicans, and Canadians. That said, as of now, this is merely economic speculation and forecasting.
Partnering with a professional consultant that is at the forefront of change and identifying trends can ensure that you never overlook any revisions made to restrictions. Contact us today or call us at (888) 511-2563 to learn more about how we can help your operations succeed.