How De Minimis Commerce Affects Your Company's Compliance Efforts

The landscape of international trade is continuously evolving, and one of the most significant changes in recent years has been the rise of de minimis commerce. This principle allows low-value goods to enter a country with minimal regulatory scrutiny, which has reshaped import rules and compliance efforts for many companies.

In this article, we will explore how de minimis commerce affects your company’s compliance efforts, particularly in the semiconductor industry. We will provide a historical overview of de minimis volumes and values, discuss compliance-related components in the semiconductor sector, and offer practical mitigations for navigating these changes.

Overview of De Minimis Rule

De Minimis Rule: This rule allows goods valued at $800 or less to enter the United States duty-free under Section 321 of the Tariff Act of 1930. The threshold was raised from $200 to $800 in 2016, significantly boosting e-commerce and simplifying customs processes for low-value goods. This increase in the threshold has had a profound impact on the volume of goods entering the country, making it easier for businesses to ship products directly to consumers without the burden of additional duties and taxes. The de minimis rule has been particularly beneficial for small and medium-sized enterprises (SMEs) that rely on cross-border e-commerce to reach a global customer base.

Impact on E-commerce: The rule has facilitated the entry of affordable products, particularly from China, but has also raised safety and compliance concerns as some goods bypass scrutiny by U.S. Customs and Border Protection (CBP) and other agencies like the EPA, FDA, and CPSC. While the de minimis rule has streamlined the import process for low-value goods, it has also created challenges for regulatory agencies tasked with ensuring the safety and compliance of these products. The sheer volume of de minimis shipments makes it difficult for agencies to inspect every package, increasing the risk of non-compliant or unsafe products entering the market. This has led to calls for enhanced regulatory oversight and improved screening processes to protect consumers and maintain the integrity of the supply chain.

Growth in De Minimis Imports

Surge in Shipments: The volume of de minimis shipments has increased dramatically, from 250 million in fiscal year 2018 to over 785 million in fiscal year 2022. This surge highlights the need for regulatory oversight to ensure safety and compliance. The exponential growth in de minimis shipments can be attributed to the rise of e-commerce platforms and the increasing demand for direct-to-consumer delivery models. As more consumers turn to online shopping for convenience and variety, the volume of low-value shipments entering the country continues to rise. This trend underscores the importance of adapting regulatory frameworks to keep pace with the evolving landscape of international trade.

Economic Impact: The increase in de minimis shipments has not only boosted e-commerce but also created new opportunities for small and medium-sized enterprises (SMEs) to participate in international trade. However, it has also led to increased competition and pressure on traditional brick-and-mortar retailers. The ability to ship products directly to consumers without incurring additional duties and taxes has leveled the playing field for SMEs, allowing them to compete with larger, established brands. However, this shift has also disrupted traditional retail models, forcing brick-and-mortar stores to adapt to changing consumer preferences and explore new strategies to remain competitive in the digital age.

Compliance Challenges in the Semiconductor Industry

Complex Supply Chains: The semiconductor industry relies on complex global supply chains, making compliance with de minimis rules particularly challenging. Companies must ensure that all components meet regulatory standards, even when sourced from multiple countries. The intricate nature of semiconductor supply chains, which often involve multiple suppliers and manufacturing stages across different countries, adds a layer of complexity to compliance efforts. Ensuring that each component meets the necessary regulatory standards requires meticulous oversight and coordination among various stakeholders in the supply chain.

Technological Advancements: Rapid advancements in semiconductor technology mean that compliance standards are constantly evolving. Companies must stay up to date with the latest regulations to avoid penalties and ensure product safety. The fast-paced nature of technological innovation in the semiconductor industry necessitates continuous monitoring of regulatory changes and proactive measures to ensure compliance. Companies must invest in compliance training and leverage technology solutions to keep abreast of evolving standards and maintain the safety and integrity of their products.

Upcoming Changes and Their Implications

Executive Action: On September 13, 2024, the Biden administration issued an executive action aimed at addressing the abuse of the de minimis exemption, particularly concerning imports from China. The proposed measure could eliminate de minimis treatment for products subject to Sections 301, 201, and 232 tariffs. This executive action reflects growing concerns about the potential misuse of the de minimis exemption to circumvent tariffs and other trade measures. By targeting specific products and countries, the administration aims to close loopholes and ensure that trade policies are enforced effectively.

Impact on Businesses: These changes could lead to higher prices for U.S. businesses that rely on de minimis exemptions, increased operational costs, and longer lead times for low-value shipments. The elimination of de minimis treatment for certain products could result in additional duties and taxes, increasing the cost of importing low-value goods. Businesses may also face longer processing times and increased administrative burdens as they navigate the new regulatory landscape. These changes could have a ripple effect on supply chains, potentially leading to delays and disruptions in the delivery of products to consumers.

Strategic Adjustments: Companies may need to adjust their sourcing strategies, explore alternative suppliers, and invest in compliance training to navigate these changes effectively. To mitigate the impact of the proposed changes, businesses may need to diversify their supply chains and seek out suppliers in countries not affected by the new measures. Investing in compliance training and technology solutions can also help companies stay ahead of regulatory changes and ensure that their operations remain compliant with the latest standards.

Historical Overview of De Minimis Volumes and Values

To understand the impact of de minimis commerce, it is essential to look at its growth over the past decade. The table and chart below show the increase in de minimis volumes and values from 2014 to 2024. 

De Minimis Volumes and Values U.S. 2014 to 2024

Year	Volume (millions of shipments)	Value (USD billions)
2014	140	112
2015	160	128
2016	180	144
2017	200	160
2018	250	200
2019	300	240
2020	400	320
2021	600	480
2022	800	640
2023	900	720
2024	1000	800

Compliance-Related Components in the Semiconductor Industry

The semiconductor industry is highly regulated, and compliance is critical to ensure the safety and reliability of components. Given the complexity and precision required in semiconductor manufacturing, adherence to regulatory standards is paramount. Here are some key compliance-related components that are impacted by de minimis commerce:

• Integrated Circuits (ICs): These are the fundamental building blocks of electronic devices, encompassing microprocessors, memory chips, and other critical components. Integrated circuits are subject to strict quality and safety standards to ensure they function correctly and reliably in various applications. Compliance with these standards is essential to prevent malfunctions that could lead to significant operational failures in electronic devices.
• Semiconductor Manufacturing Equipment: The equipment used in the production of semiconductors, such as photolithography machines, etching tools, and deposition systems, must comply with stringent environmental and safety regulations. These regulations are designed to minimize the environmental impact of semiconductor manufacturing processes and ensure the safety of workers handling hazardous materials. Compliance with these regulations is crucial to maintaining a safe and sustainable manufacturing environment.
• Raw Materials: The materials used in semiconductor manufacturing, such as silicon wafers, photoresists, and dopants, must meet specific purity and quality standards. High-purity materials are essential to achieve the desired electrical properties and performance characteristics in semiconductor devices. Ensuring compliance with these standards is vital to producing high-quality, reliable semiconductors that meet industry specifications.
• Packaging and Testing: The final stages of semiconductor production involve packaging the chips and conducting rigorous testing to verify their performance and reliability. Packaging protects the delicate semiconductor components from physical damage and environmental factors, while testing ensures that the devices meet all functional and performance criteria. Compliance with packaging and testing regulations is necessary to guarantee the integrity and reliability of the final product.
• Software and Firmware: The software and firmware used in semiconductor devices must comply with cybersecurity and data protection regulations. As semiconductors become increasingly integrated into connected devices and systems, ensuring the security and integrity of the software and firmware is critical to protecting against cyber threats and data breaches. Compliance with these regulations helps safeguard sensitive information and maintain the trust of end-users.

Negative Impact on Compliance Efforts

De minimis commerce can negatively impact compliance efforts in several ways:

Increased Risk of Non-Compliant Goods: With the rise in de minimis shipments, there is a higher risk of non-compliant goods entering the market without proper scrutiny. The sheer volume of low-value shipments makes it challenging for regulatory agencies to inspect every package, increasing the likelihood of non-compliant or unsafe products reaching consumers.

Supply Chain Complexity: Managing compliance across a fragmented supply chain with numerous low-value shipments can be challenging. The complexity of coordinating multiple suppliers and ensuring that each shipment meets regulatory standards can strain resources and increase the risk of compliance lapses.

Regulatory Oversight: De minimis shipments often bypass rigorous regulatory checks, increasing the likelihood of non-compliant products reaching consumers. This lack of oversight can undermine efforts to maintain high standards of safety and quality in the semiconductor industry.

Recommendations for Businesses

To navigate the challenges posed by de minimis commerce, companies should consider the following recommendations.

Accurate Classification

• Use the 10-digit Harmonized Tariff Schedule (HTS) code: Ensure that every imported product is accurately classified using the 10-digit HTS code. This precise classification is crucial for compliance with international trade regulations and helps avoid costly penalties.
• Regularly Update Classification Databases: Maintain an up-to-date database of HTS codes and regularly review it to ensure accuracy. This can be achieved by assigning a dedicated team or using automated classification tools that keep track of changes in tariff codes.
• Training for Staff: Provide comprehensive training for staff involved in the import process to ensure they understand how to correctly classify products. This training should cover the importance of accurate classification and the potential consequences of errors.

Strengthen Documentation

• Detailed Documentation of Goods: Ensure that all imported goods are accompanied by detailed documentation, including descriptions, quantities, and values. This documentation should be thorough enough to provide a clear understanding of the goods being imported.
• Identity Verification: Verify the identity of individuals or entities claiming de minimis exemptions. This can be done through robust identity verification processes, such as requiring government-issued identification or business registration documents.
• Electronic Documentation Systems: Implement electronic documentation systems to streamline the process and reduce the risk of errors. These systems can automate the generation and storage of necessary documents, making it easier to retrieve and review them when needed.

Consumer Safety Compliance

• Meet CPSC Requirements: Ensure that all consumer products meet the requirements set by the Consumer Product Safety Commission (CPSC). This includes adhering to safety standards and regulations specific to each product category.
• Electronic Certificates of Compliance (CoC): For de minimis shipments, consider implementing electronic Certificates of Compliance. These certificates can be used to verify that products meet safety standards and can be easily shared with regulatory authorities.
• Regular Safety Audits: Conduct regular safety audits of products to ensure ongoing compliance with CPSC requirements. These audits should be thorough and include testing for potential hazards and verifying that safety labels and instructions are accurate.

Supply Chain Transparency

• Implement Tracking Systems: Use advanced tracking systems to maintain visibility over the entire supply chain. These systems should provide real-time updates on the location and status of shipments, helping to ensure compliance with information collection requirements.
• Supplier Audits: Regularly audit suppliers to ensure they adhere to compliance standards. This includes verifying that suppliers are providing accurate information about the origin and value of goods.
• Blockchain Technology: Consider using blockchain technology to enhance supply chain transparency. Blockchain can provide a secure and immutable record of transactions, making it easier to track and verify the movement of goods.

Engage Competent Customs Brokers

• Hire Licensed Customs Brokers: Engage informed and licensed customs brokers who have expertise in navigating the complexities of de minimis commerce. These professionals can provide valuable guidance on compliance with new regulations and help ensure that all documentation is accurate and complete.
• Regular Consultations: Schedule regular consultations with customs brokers to stay updated on regulatory changes and receive advice on best practices for compliance.
• Broker Training Programs: Ensure that customs brokers undergo continuous training to keep their knowledge up to date with the latest regulations and compliance requirements.

Staff Education

• Organize Training Sessions: Conduct regular training sessions for employees to familiarize them with regulatory changes and their operational implications. These sessions should cover the latest updates in trade regulations, compliance requirements, and best practices for managing de minimis shipments.
• Compliance Workshops: Host workshops focused on specific aspects of compliance, such as accurate classification, documentation, and safety standards. These workshops can provide hands-on training and practical tips for ensuring compliance.
• E-Learning Modules: Develop e-learning modules that employees can access at their convenience. These modules should cover key compliance topics and include quizzes and assessments to reinforce learning.

Stay Informed

• Monitor Legislative Developments: Keep a close eye on legislative developments related to de minimis reforms. This can be done by subscribing to industry newsletters, joining trade associations, and participating in regulatory forums.
• Regulatory Alerts: Set up alerts for regulatory changes that may impact your business. These alerts can be configured to notify you of updates to trade regulations, tariff codes, and compliance requirements.
• Industry Networking: Network with other businesses in your industry to share insights and stay informed about best practices for compliance. Industry events and conferences can provide valuable opportunities for networking and learning.

Risk Management Strategies

• Develop Risk Mitigation Plans: Create comprehensive risk mitigation plans that outline strategies for identifying and mitigating compliance risks. These plans should include regular audits, checklists, and contingency measures for addressing potential issues.
• Compliance Audits: Conduct regular compliance audits to identify areas of risk and ensure that all processes and procedures are in line with regulatory requirements. These audits should be thorough and cover all aspects of the import process.
• Risk Assessment Tools: Use risk assessment tools to evaluate the potential impact of compliance risks on your business. These tools can help prioritize risks and allocate resources effectively to mitigate them.

Conclusion

The article delved into the evolving landscape of international trade, highlighting the significant impact of de minimis commerce on import rules and compliance efforts, particularly in the semiconductor industry. We discussed the dramatic increase in de minimis shipments, the economic impact on small and medium-sized enterprises, and the compliance challenges faced by the semiconductor industry due to complex supply chains and rapid technological advancements. We also examined upcoming regulatory changes, such as the Biden administration’s executive action to address the abuse of de minimis exemptions, and offered practical mitigations for companies to navigate these challenges, including strengthening documentation, enhancing supply chain transparency, and engaging competent customs brokers. We concluded with detailed recommendations for businesses to ensure robust compliance in the face of changing import rules. 

De minimis commerce presents both opportunities and challenges for companies, particularly in the semiconductor industry. By understanding the historical context, recognizing the compliance-related components affected, and implementing effective mitigations, companies can navigate this evolving landscape and maintain compliance. Staying informed and proactive is key to ensuring that your company’s compliance efforts remain robust in the face of changing import rules.