Hold the Optimism! Slashing the US De Minimis Threshold Is a Step Backward
The newly negotiated US-Mexico-Canada Agreement (USMCA), generally a step backward on trade relations in North America, appeared to have one bright spot, identified in an earlier blogpost. In that posting, we commended the accord for raising the de minimis thresholds in Mexico and Canada, which determine what low-value parcels can be shipped across international borders tax-free, duty-free, and with simple customs forms. We hailed the de minimis agreement as a welcome contribution to internet shopping in North America. Now our optimism seems premature.
US Trade Representative Robert Lighthizer is preparing implementing legislation that would slash the US statutory de minimis threshold of $800 to the Mexican and Canadian thresholds agreed in the USMCA, which now raised to US$117 are still lower than the US statutory threshold.
Lighthizer’s justification for this retaliatory move is “reciprocity,” a favorite term of the Trump administration. But Trump officials never mention “reciprocity” when US barriers are higher than foreign barriers. Examples include the 25 percent US tariff on imported pickup trucks—way above rates in other advanced countries—and sky-high tariffs on imported cheese and peanuts.
Thanks to lobbying by the US business community, the $800 US statutory de minimis threshold is among the highest in the world. The United States committed to a minimum threshold of $100 in the USMCA. If he succeeds in lowering the statutory threshold to near this level through implementing legislation, Lighthizer will deal a blow to internet shopping, damaging small and medium enterprises (SMEs) and costing American consumers.
The higher thresholds that Canada and Mexico have agreed to in USMCA Chapter 7, Customs Administration and Trade Facilitation, will boost online shopping, benefitting US sellers, Canadian and Mexican buyers, and express shipping companies, who will now be able to ship parcels worth up to US$117 tariff-free and with simple customs forms. This modest positive benefit of higher thresholds in Canada and Mexico, however, would be more than offset if the United States lowers its own threshold to $117.
The legal basis for Lighthizer’s retrograde proposal is found in footnote 3 of Chapter 7:
“Notwithstanding the amounts set out under this sub-paragraph, a Party may impose a reciprocal amount that is lower for shipments from another Party if the amount provided for under that other Party’s domestic law is lower than that of the Party.”
The footnote means that the United States could lower the $800 statutory de minimis threshold to the Mexican and Canadian thresholds (US$117), consistent with the USMCA.
What would be the impact if the United States slashed its de minimis level to $117? Foreign sellers or US buyers will have to fill out lengthy customs forms and, in some cases, pay tariffs and sales taxes for individual purchases over $117. Express shipping companies and the US Postal Service will incur higher handling costs and longer delivery times. These barriers will clearly discourage cross-border online shopping: Consumers will pay more, deliveries will be slower, and business costs will rise as a consequence.
Canadian and Mexican thresholds are still too low. But it took two decades of lobbying before the United States raised its de minimis threshold to $800 in March 2016. In this light, the US$117 threshold agreed in the USMCA should be seen a starting point for Canada and Mexico as they transition to higher de minimis levels. Moreover, as British economist Joan Robinson wrote in her Essays in the Theory of Employment (1947), it makes no sense “to drop rocks into our harbors because other nations have rocky coasts.” Similarly, it makes no sense to harm American consumers with a lower de minimis threshold just because Mexico and Canada harm theirs.