Proposed de minimis revision in US to curb Chinese textile imports?

Rationale for de minimis

Countries set the de minimis value to streamline customs procedures and mitigate the administrative burden and costs associated with assessing and collecting duties on low-value products. However, an overly generous de minimis threshold can potentially disadvantage domestic industries by facilitating excessive imports, granting exporting countries an unfair advantage. Concerned about such implications, US authorities are contemplating legislative measures to address the loopholes associated with de minimis provisions.

Figure 1: De minimis values for different nations (In $)

Source: Sandler Travis and Rosenberg

As depicted in Figure 1, the US sets the highest bar for de minimis. In 2021, this rate was revised from $200 to $800, aiming to stimulate more trade and increased consumption. Consequently, it boasts one of the most generous limits in this category. China’s de minimis limit is the lowest at less than $7. However, the US is poised to become the first country to enact legislation to counteract the effects of the de minimis on domestic businesses. These businesses face the risk of losing competitiveness, particularly in sectors such as apparel, to imports from countries like China, which frequently exploit this provision to penetrate the market.

China’s rising influence is US’ apparel industry & e-commerce

Out of the total de minimis imports, the imports from China are maximum. According to the estimates, the imports from China under the De minimis have been up to approximately 59 per cent and are estimated to increase further. The fears are that products made using forced labour—which is banned under the Uyghur Forced Labour Prevention Act—might be crossing the US border using the same provisions. The measure, which was introduced to lower the importing and compliance cost for the small businesses in the US, is now proving costly to the domestic industries, with the textile industries being among the worst hit. Due to this, the National Council of Textile Organisation (NCTO) has supported the administration to formulate a law to counter the effect of de minimis on the domestic industry of the country. The apparel industry of the country is valued at $312 billion, which also represents a huge opportunity for domestic players. However, due to provisions like these, the domestic companies face competition from those companies who import Chinese apparel and goods under the de minimis value provision.

Figure 2: US' imports under de minimis (in $ mn)

Source: US Customs and Border Protection (US CBP)

According to Prosperous America, numerous retail companies rely on this provision to import apparel and other goods from China, exacerbating the competitive disadvantage faced by domestic companies. The NCTO, representing the textile industry in America, opposes the current de minimis value provision due to the reduction in competitiveness of domestic textile and apparel firms in the country. This occurs at a time when imports are increasing at a faster pace in the US under the de minimis provision.

As depicted in Figure 2, imports under the de minimis provision have been increasing since 2015. In 2021, it was reported that almost $446 million worth of imports were from China. Official figures indicate that around 60 per cent of total imports under the de minimis provision originate from China. According to F2F analysis, this figure continues to fluctuate within the range of 50 to 70 per cent of total imports. Figure 3 illustrates the escalating trend of Chinese imports under the de minimis provision, posing a threat to the US textile industry and the jobs it supports. Loss of competitiveness and a decline in job creation capacity are among the reasons the organisation opposes these provisions.

Figure 3: Chinese imports under de minimis (in $mn):

Source: US Customs and Border Protection (US CBP)

Impact of de minimis on the US textile industry

The US textile industry employs a significant labour force, with around 538,000 people employed in the textile and allied industries as of 2022. This industry has a substantial economic impact and generates a significant multiplier effect, where one textile job leads to the creation of an additional three jobs in the country. Despite exporting a considerable amount of fibre, yarn, and sewn products, the industry faces significant challenges in the domestic market due to increasing imports from the de minimis provision. As goods are imported without any duties, the competitiveness of domestic companies is compromised.

According to Prosperous America, American retail websites import a significant amount of Chinese apparel and goods under this provision. Estimates indicate that out of the total company de minimis imports, Chinese shipments accounted for approximately 35 to 50 per cent. Apart from the American retail giants, many Chinese e-commerce apparel websites import apparel and other goods under the same provision at a duty-free rate, naturally lowering costs and threatening the existence of other firms in the industry. According to the organisation, de minimis imports from China have resulted in approximately 1.1 million job losses overall in the US.

Road ahead:

As an increasing number of Chinese or other textile products enter the US market, there will be a significant impact on demand for local textile and apparel companies that do not receive the same benefits. Major US-based apparel companies pay millions of dollars for importing textile products, while some textile products enter the country free of cost, particularly from China, which is concerning given the risk of banned textile and apparel products entering the nation under the de minimis provision, despite regulations such as the UFLPA. Therefore, considering these factors, it may be time for the country to enact policies to counter the current De Minimis Act.

ALCHEMPro News Desk (KL)