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Rethinking Trade - Season 1 Episode 8: Crisis at the World Trade Organization

Rethinking Trade - Season 1 Episode 7: The Loophole That Lets Amazon Deliver Uninspected Imports to Your Door

Nearly 2 million imported products we buy online every day enter the United States and are delivered to consumers’ doors without any inspections. That’s thanks to a trade law loophole that also lets these imports dodge the fees that brick-and-mortar stores pay for the same products. 

Amazon and other E-commerce giants pushed for this change to what is called de minimis import policy, and it has facilitated a new flood of fake and unsafe imports that threaten consumers while undermining local businesses.

Transcribed by Lauren Martin

Ryan:

Welcome back to Rethinking Trade where we don’t just talk about trade policy, we fight to change it. I’m Ryan, and I’m joined once again by our in-house trade expert, Lori Wallach. With all of us sheltering at home, more and more people are reliant on e-commerce for their shopping needs. So today, we’re going to talk about a little-known piece of the e-commerce world, which is because of a sneaky change to trade to trade laws, a lot of products we’re bringing into our homes are not even inspected. Lori, maybe you can describe this situation and explain kind of why it matters to folks like us?

 

Lori:

So normally when we think of the products that we buy, we assume that they’ve been inspected by the Consumer Product Safety Commission or the Food and Drug Administration or the USDA depending on what they are. And typically, that applies to imports, not at the level you’d want, it’s too low of an inspection rate, but the way that this is done is things that are most worrisome get targeted by risk for deeper inspection for imports. Except, thanks to a sneaky change to trade law, anything that comes in — most of e-commerce shipments, I might add at under $800 of value totally skirts normal customs procedures and all inspections from any U.S. safety agency. That is called “de minimis” importing. De minimis refers to the amount below which an import isn’t subject to customs laws. And for years, it was $200. So anyone who’s travelled into the U.S. before 2015 will remember that customs form, that paper form they made you fill out on the plane before you got back into the U.S., and it said “are you bringing back more than $200 worth of stuff?” That was the de minimis, and as long as the stuff you were bringing was less than $200, you just wrote “no” and that was the end of it. If you were over $200, you had to list what it was and you might have to pay a border tax on it, a tariff, and it might be subject to getting you pulled aside for inspection. In 2015, there was a push to change that from $200 to $800. What that means now is that an enormous amount of stuff including a bunch of things that are potentially very hazardous, like car airbags and fancy safety devices for kids from car seats for kids to fancy jogging strollers, to the really high-end helmets for motorcycles and biking, to a lot of different athletic equipment like hoverboards all of those things now come in under the de minimis which means none of it’s inspected. And it meant an explosion of imports. It’s called Section 321 under the statute that sets up de minimis. But today, about 1.8 million shipments, individual packages, are released every day, being imported without being inspected thanks to raising the de minimis from $200 to $800. And all the new things that can come in. Today about 1.8 million shipments a day are being released as de minimis with no inspection for safety, actually really no recording of what they are. That includes a million-plus air shipments, so air express, small packages, from e-commerce purchases just coming from China every day. None of this stuff is inspected.

 

Ryan:

When you say not inspected, you mean literally not inspected at all, not inspected for safety, not inspected for anything?

 

Lori:

I mean, you can bring this stuff in, listing only the most basic information. You don’t know where it originated from, you don’t know technically what it is. You can describe it in vague language. There’s none of the import codes, so you can’t have an idea if you’re an inspector that it’s in that category of dangerous things. It isn’t inspected for safety, it isn’t inspected for even what it is, and it gets around normal border tariff taxes, it’s just a huge loophole.

 

Ryan:

And I’m assuming it wasn’t parents that were lobbying for bike helmets that weren’t inspected, and it wasn’t drivers who wanted seatbelts that weren’t inspected. Who was pushing for this change to be made in the de minimis rules?

 

Lori:

So in 2015, folks will remember there was a knock-down, drag-out fight over trade authority, over Fast Track trade authority for the Trans Pacific Partnership. And there were other bits and pieces of the legislation that was written to extend Fast Track. But the fight and the focus was on Fast Track. One of those pieces was a change from $200 to $800 of this de minimis standard, and it was quietly but ferociously pushed by two sets of interests: the express delivery industry so the UPSs, the Fedexs, the DHLs — and by the e-commerce industry so the Amazons, the Walmarts, etc.. Both of those sectors said “hm, we actually if we got this higher, could be bringing in lots of stuff from China and other countries, much cheaper and much more quickly without the bother of inspections.” That is otherwise the rule of thumb for every brick-and-mortar store, and that was the rule for every package over $200 in value.

 

Ryan:

And the way they do this is, just on the business end when I order something from Amazon, I’m considered the importer, and so legally it’s me that’s importing this product directly and Amazon’s acting like they’re not involved. 

 

Lori:

Part of the problem is the change in the statute from $200 to $800. And that happened before the Trump administration. Part of the problem though is the ruling that was issued during the Trump administration which allows the importation of entire shipping crates full of individually addressed packages creating a myth that when Amazon in a fulfillment center in China makes 10,000 individual packages and puts them in a multi-ton shipping crate, each individual consumer is the person who is importing. So each individual package has to be under $800 to sneak in under this loophole. The whole shipping crate isn’t considered. Yes, every time one of us makes an order, we’re the “importer of record,” not the big e-commerce platform that on any given day is importing hundreds of dollars of goods. 

 

Ryan:

So companies like Amazon are obviously making a lot of extra money because of this. Who’s being harmed by this? How is this affecting other businesses, brick-and mortar-shops?

 

Lori:

This scam of importing through this de minimis, hundreds of millions of dollars of potentially unsafe, potentially fake when I say fake, I don’t mean knock-off Gucci bags, I mean it says it’s an airbag, but it’s not really one, and you rely on it and die. It says it’s the fancy $800 stroller that’s impact resistant but it isn’t and your kid gets hurt. Those goods coming in not only expose us all to safety risks, but also, brick-and-mortar stores who are selling the same stuff are put at an enormous disadvantage relative to the Amazons, the Ebays, etc. Because, if say, your favorite local bike store decides they’re going to sell a very high-end bike, a $700 bike, and they want four of them in stock, and they buy the four of them, and they’re subject to tariffs, it’s $2,800. The ability for you as a consumer to buy the $700 bike online, and bring it in under the fake Amazon platform, under the fake notion that you are the importer versus Amazon, means you never have to pay that border tax. So, Amazon ends up undercutting the brick-and-mortar guys, who actually, you probably went to the brick-and-mortar place to check out the bike but then, the reason why it’s so much cheaper on Amazon than in the brick-and-mortar places is this de minimis cheat. And what is that money? Those are tax dollars that aren’t going into U.S. infrastructure, social security, other programs that we like and care about. Instead it goes into Amazon’s profit margin. 

 

Ryan:

And some of these companies like Amazon, they’ve actually built infrastructure around this loophole. There was this great piece in ProPublica talking about these warehouses along the Canadian and I think also the Mexican border for packages going into the U.S., but they were all subject to the loophole, right?

 

Lori:

So the big online monopolists have figured out numerous ways to exploit this loophole they created in the 2015 bill. First, they put fulfillment centers in China and it’s not just them the original ruling on this stunt came from Zara, the women’s clothing store. Any online package fulfilled directly in China from the Zara fulfillment center same thing for Amazon you can put 10,000 of those individual packages into a shipping crate and each individual purchaser of an item is considered the importer, not Amazon who arranged the shipping crate. So that’s scam number one. Scam number two and that required getting a special exception from the Trump administration from the customs department. Scam number two: They have created warehouses, as you said, along the border with the U.S. and Mexico and the U.S. and Canada. So the way that one works is they bring the goods into Mexico or Canada, and they keep them what’s called “in bond.” That means it’s landing there, but it’s on it’s way to someplace else. So it’s not going to be entered into customs in Mexico or Canada. Because the actual ultimate consumer is in the U.S. So they bring in big shipments of whatever is the good, and then it’s packaged into individual consumer packages, which are put on trucks, driven across the border to a U.S. post office in a U.S./Mexico or U.S./Canada border town, and because of NAFTA there is no tariff when a good crosses from Mexico to the U.S. or Canada to the U.S. Therefore it goes into the U.S. system under the de minimis so no inspection and duty-free and it enters basically from big warehouses full of large amounts of these goods that basically the package gets picked and packed there and then shipped on a truck across the border and put in U.S. mail. The third sort of related scam is using the de minimis, basically online platforms using third party sales, so not even like an Amazon fulfillment warehouse, basically is setting up an avenue for a tsunami of goods from totally unregulated, mysterious, and often unknown fulfillers. The third-party stuff is kind of the scariest of all, where basically because of the exponential growth of e-commerce as a means by which Americans buy products, consumers are being widely exposed to serious health and safety risks by fake products produced anywhere in the world, which get millions of potential customers for sales and delivery. That’s not just made easy and quick by listing as a third-party seller on a well branded e-commerce platform, but has an air of legitimacy and a false sense of security so that a good that would normally be pulled from some unreputable third-party seller whizzes right through with no inspection, and frankly the consumer doesn’t even know. Those are three really scary ways that the big online giants are using this loophole.

 

Ryan:

So how do you tackle a problem like this? What are potential solutions to this and how can they be implemented?

 

Lori:

The simplest fix is just to take the de minimis level back from $800 down to $200. That was a sneak attack amendment. People weren’t paying attention. No one even thought through necessarily what it would mean. Now that we see the outcomes, it should be brought back. But that would require Congress to pass it, House and Senate, and the prospect of that happening anytime soon is not great. And not only because of the big express shipment lobbying operations and Amazon and Ebay and Walmart and all the companies that would object, all the retailers, Zara and everyone else who enjoys using this loophole, but also cause right now even as people are more and more reliant on e-commerce because of the COVID crisis, Congress’ bandwidth to do stuff that isn’t immediate urgent COVID disaster is more limited. So, in the interim, the Trump administration can fix this by executive order. They have it within their hands, the Buy America, Hire America alleged administration, to fix this major trade scam. And the way to do it is basically Section 321, the way it’s written, gives enormous discretion to the Treasury Secretary to decide how the program will be administered. So you can’t unilaterally change that $800 is the amount, but you can basically determine what should or shouldn’t be subject to the waiver. So for instance, it seems pretty obvious that every good that is on the Consumer Product Safety Commission’s High Risk List because they do a risk assessment, they know of products like the hoverboards that were blowing up, burning, and burning down people’s houses. That’s on the list. Car seats, because there have been so many dangerous fakes brought in, that’s on the list. Certain other sports equipment, like helmets, where there’s so many dangerous bicycle fake helmets, etc., that’s on the list. Lots of toys with magnets in them, which little kids will swallow then have their guts ripped up internally there are right this day things that have allegedly been taken off these websites, these e-commerce platforms, you can find all these things if you look on these websites because these third-party marketers keep popping back up. All of those products should just not be subject to de minimis. Zero of those products should be getting in through this loophole. And it’s easy because the Consumer Product Safety Commission has a specific list. And so all those goods should not be subject. Similarly, if you’re thinking about fairness just as far as brick-and-mortar stores, and you’re thinking about the income lost for the government, it makes a hell of a lot of sense to say something like, “no product subject to more than a pick your amount-ten, percent border tax should be subject to de minimis.” That way you’re not making a huge thumb on the scale against brick-and-mortar companies, and you’re making sure you’re not gutting out revenue. And you could say, you know, the standard of Section 321 is for the convenience and the efficiency. Alright, you could say it’s inconvenient or not very efficient to bother collecting tariffs if it’s less than a 10% tariff on an $800 value good. But when it’s actually $100 of revenue versus $80 or more, hm, that makes more sense. So you could limit the amount of the tariff category and you’d knock a bunch of stuff out. Those are some things you could do right away as well as reversing the customs order that allows the scam of having whole shipping crates of individual packages somehow pretend not to be the e-commerce platform’s import, but pretend to be the customer’s import. Those three changes right away would fix about 90% of the problem. So given those three things would fix 90% of the problem, and the executive branch, the Trump administration, can do it solo, and they claim to be standing up for American companies and American consumers and trade, guess the big question is, what the hell are they waiting for?

Ryan:

That’s all for today, thank you all for listening. Rethinking Trade is produced by Public Citizen’s Global Trade Watch. I would encourage you to visit rethinktrade.org as well as tradewatch.org to educate yourself and to find out how you can get involved in the work we’re doing to fight for fairer and more equitable trade policies.

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