How a Footnote in the USMCA Undermines Economic Liberty
House Democrats are holding up ratification of the U.S.-Mexico-Canada Agreement (USMCA) until U.S. Trade Representative Robert Lighthizer agrees to make some changes. While a number of the big concerns about the new NAFTA, such as enforcement, biologic drugs, and the implementation of Mexico’s labor laws have received a lot of attention, there is another issue that has flown under the radar, perhaps in part because it’s buried in a footnote.
Chapter 7 of the USMCA, “Customs Administration and Trade Facilitation,” includes a section on “Express Shipments.” These are goods of low or negligible value that are shipped by courier or express mail services in large volume. Think about that pair of shoes you just ordered from France. That’s an express shipment.
Because there are so many of these packages coming through customs facilities, and it’s such a burden to process them, most countries have what is called a de minimis threshold, that is a set value below which imported goods are both sales tax and duty free. The United States has the highest de minimis threshold in the world, allowing individuals and businesses to make purchases from abroad up to $800 with no duty or tax collected by customs.
As Gary Hufbauer, Euijin Jung, and Lucy Lu explain, high de minimis thresholds are not only good for consumers, who do not have to deal with the complexity and time delays in processing customs duties and sales tax on the things they buy, but also for small businesses, because of the importance of intermediate inputs, as well as cross-border sales for their profits.
As part of the USMCA, Canada and Mexico both raised their de minimis thresholds, which not only helps small businesses in the United States but also consumers in both countries as well. Canada raised its de minimis threshold to $150 CAD from its original $20 CAD limit, and sales tax cannot be collected until the value of the product reaches at least $40 CAD. Mexico increased its de minimis from $50 USD to $100 USD, with tax free de minimis on $50 USD.
While the U.S. did not alter its de minimis threshold in USMCA, there is a curious footnote in Chapter 7 that should be cause for concern. It reads:
Notwithstanding the amounts set out under this subparagraph, 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 law is lower than that of the Party.
Now we are all well aware of this administration’s distorted concept of reciprocity, and they seem to be applying it here as well. What this footnote suggests is that the U.S. could potentially lower its de minimis threshold to match what Canada or Mexico have agreed to. To put this in perspective, in 2016, the United States increased its de minimis level to $800 from $200. This footnote would allow the de minimis to drop even below the 2016 limit. This is not only an attack on economic liberty for American citizens, but it would be an enormous step backward on a policy where the United States has been a leader for liberalization.
Back in June, Robert Lighthizer was directly asked about this footnote by multiple members of the House Ways and Means Committee during a hearing on the 2019 trade policy agenda. While a number of excellent questions were raised, I highlight two below. First, Rep. David Schweikert (R-AZ), noting bipartisan support for the current de minimis threshold, stated:
In 2016, Congress raised the U.S. de minimis threshold to $800 in the bipartisan Trade Facilitation and Trade Enforcement Act. This change enjoys wide bipartisan support in Congress and throughout the e-commerce landscape. The current threshold benefits millions of American small businesses, across all sectors, including manufacturers, who rely on low-value inputs for the production of U.S. exports. As a result, American small businesses now enjoy more rapid border clearance, reduced complexities and red tape, and lower logistics costs, while American consumers benefit through faster, less expensive access to a wider range of goods.
Given the benefits of the current de minimis threshold to American small businesses and the U.S. economy as a whole, and that Congress legislated on the U.S. de minimis level only a few years ago, I remain extremely concerned over the Draft Statement of Administrative Action (SAA) on the U.S.- Mexico-Canada Agreement (USMCA) transmitted to Congress on May 30. This draft SAA includes language suggesting that you may seek changes to the U.S. de minimisthreshold through the USMCA implementing bill. As you know, last December, Rep. Kind and I led a bipartisan letter urging you not to seek to lower the U.S. de minimis threshold. My position has not changed.
I strongly oppose including any language in the USMCA implementing bill that would lower the U.S. de minimis level or that would delegate this authority to the Executive Branch. As you work with Congress to finalize the USMCA implementing legislation, will you commit to not seeking authority to lower the U.S. de minimis threshold?
Rep. Daniel Kildee (D-MI) also emphasized how this change would undermine Congress’s authority to regulate commerce:
In 2016, Congress raised the U.S. de minimis threshold to $800 in the bipartisan Trade Facilitation and Trade Enforcement Act. The current threshold benefits millions of American small businesses, across all sectors, including manufacturers, who rely on low-value inputs for the production of U.S. exports. As a result, American small businesses now enjoy more rapid border clearance, reduced complexities and red tape, and lower logistics costs, while American consumers benefit through faster, less expensive access to a wider range of goods.
Given the benefits of the current de minimis threshold to American small businesses and the U.S. economy as a whole, I was curious to see the Draft Statement of Administrative Action on the U.S. Mexico Canada (USMCA) includes language that you may seek authority for the Executive Branch to set U.S. de minimis thresholds. Congress must maintain its Constitutional authority to set tariffs – including de minimis thresholds.
As you work with Congress to finalize the USMCA implementing legislation, can you commit not to seek the derogation or authority to derogate from the current U.S. de minimis threshold?
Amb. Lighthizer’s comments to all questions on the de minimis threshold remained the same:
As noted in the Administration’s submission to Congress on changes to existing law and the draft Statement of Administrative Action, we identified this as an issue for consultation with the Committee on Ways and Means of the House and the Committee on Finance of the Senate. These consultations are underway. I look forward to continuing those conversations with you and other Members on this important issue.
Congress should continue to press the administration for the removal of this footnote from the USMCA. It may seem like a small part of the broader USMCA debate, but Congress should not be fooled. This is representative of the broader attempts by the executive branch under this administration to expand its power into areas where the Constitution gives Congress express authority. Congress should not give up its authority to regulate foreign commerce, and should actively push to rein in the abuses of the executive in trade policy. By pushing for this on de minimis, we can get one step closer to ensuring that the Trump administration’s trade policy remains as its own small footnote in the history of U.S. trade policy.
Inu Manak is a visiting scholar at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.
Soybean Prices are a Proxy for How the Trade War is Going