American 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, is coming 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 into the United States without paying duties and fees that Customs and Border Protection enforces. Nearly three million de minimis shipments enter the United States each day, and about half of those shipments are textile and apparel products.
Critics of the rule said it disadvantages American companies. They said Chinese-founded companies like Shein and Temu, both budget-friendly retailers, would ship merchandise directly from their overseas warehouses to shoppers’ homes, and few of those packages were worth at least $800. But products made overseas and then shipped to U.S. retailers in bulk — where they are stored in warehouses before being shipped to customers — are less likely to fall under the $800 threshold. (In 2022, Shein opened a distribution center in Indiana that would store inventory from overseas before being shipped to customers.)
Critics also argue that shipments that fall under the de minimis rule provide an unchecked channel that allows goods that could have been made by forced labor to enter the United States.
In June, the House Select Committee on the Chinese Communist Party published a report that found Temu and Shein alone were likely responsible for more than 30 percent of all packages imported to the United States under the de minimis provision.
U.S. retailers want the rule changed. If it isn’t, they argue, companies may move their warehouses, and the jobs that come with them, outside the United States.
A Shein spokeswoman said that 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 executive vice chairman said the company was “eager” to work with lawmakers to help reform de minimis. A Temu spokeswoman echoed Shein, saying that Temu’s “growth isn’t dependent on the de minimis policy” and that it was “supportive of any policy adjustments made by legislators that align with consumer interests.”
Jim Marcum, the chief executive of the wedding retailer David’s Bridal, said that the de minimis rule “played a significant role” in the financial strain that led the company to file for bankruptcy in April, which was its second time doing so in five years. In 2022, David’s Bridal said it paid about $20 million in fees to U.S. Customs. Competitors based in China that ship dresses directly to shoppers paid nothing, Mr. Marcum said. In the course of six years, he added, David’s Bridal paid about $100 million in duties that could have been invested in modernizing its business.
“You can see the enormity of that — the disadvantage that we’ve had to face,” 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 it created an incentive for companies to move their distribution offshore.
The group, the Ship Safe Coalition, has proposed a change that would expand the application of de minimis to U.S. distribution centers located in foreign trade zones. In these zones, companies are not required to immediately pay duty fees 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 out of a warehouse abroad, products shipped out of warehouses in foreign trade zones aren’t exempt from fees when they’re valued less than $800.
“What we want is parity,” Mr. Sorini said. “As long as the status quo is maintained, we’re going to have a big problem for U.S. retailers and U.S. jobs.”
Not all U.S. retailers agree with the Ship Safe Coalition’s proposal. Kim Glas, the president of the National Council of Textile Organizations, a lobbying group, said it would be more effective to limit the use of de minimis than to expand its application to retailers in foreign trade zones. She supports a bill that was introduced in June that would exclude “nonmarket economies,” such as China and Russia, from using the exception, though she would like to see legislation go even further.
“We believe that the administration needs to use its executive authority to divorce all e-commerce shipments from receiving de minimis treatment,” Ms. Glas said.
American Apparel & Footwear Association, a trade organization that represents more than 300 U.S. companies, is collecting input from its members for a policy recommendation it plans to publish in the next couple of weeks.
“While it may be complicated — and too complicated — for some people in Congress to figure out, it is not too complicated for people in business to figure out,” said Peter Bragdon, the general counsel at Columbia Sportswear, a member of the Ship Safe Coalition. “People are taking advantage of it, and it’s having an effect on people, on businesses.”