Demystifying the Recent Executive Action on Section 321: What It Means for Importers and the Trade Industry (Fall Update 2024: Part 2)
If you missed our Spring Update on Section 321, you can read it here.
The U.S. government has recently taken executive action regarding Section 321 shipments, setting in motion a new regulatory process aimed at curbing potential abuse of de minimis shipments—those valued at $800 or less, exempt from duties and taxes. This move is a response to growing concerns about the sheer volume of these shipments, which now exceed 4 million shipments per day, and the regulatory loopholes they might create, particularly for goods affected by trade tariffs like Section 301.
But what exactly does this action mean for businesses, and how does an executive action differ from a Congressional act? Let’s dive in.
Executive Action vs. Congressional Act
The recent move on Section 321 is an executive action, meaning it comes from the president or federal agencies without requiring immediate approval by Congress. Executive actions are generally used when swift action is needed, or when there’s difficulty getting legislation through the complexities of the congressional process.
In contrast, a Congressional act is legislation passed by both houses of Congress and signed into law by the president. The legislative route is typically slower and more subject to political wrangling. Executive actions, while faster, are often narrower in scope and can face legal challenges.
So, why go this route now? With the exponential rise in de minimis shipments, particularly from e-commerce, regulatory oversight has struggled to keep pace. There’s also the added issue of goods subject to Section 301 tariffs, which were designed to protect U.S. industries from unfair trade practices. This executive action seeks to close potential loopholes while still leaving room for public input before becoming binding law.
Breaking Down the Executive Action: 3 Key Components
This action contains three main parts, each addressing the growing concerns around Section 321 shipments:
Reducing the Volume of Daily Shipments: The ultimate goal of the action is to reduce the daily volume of 4 million Section 321 shipments. Many of these are low-value e-commerce packages that flow through U.S. borders without being subject to detailed scrutiny or tariff obligations. The large volume has made it difficult for U.S. Customs and Border Protection (CBP) to keep up with enforcement, creating vulnerabilities in the system.
Requiring More Detailed Information: Another key provision is the requirement for more granular information on imports, including details like the Harmonized Tariff Schedule (HTS) codes down to the 10th digit. The HTS is used to classify goods and determine applicable duties, but the current system allows for vague descriptions, such as simply labeling goods as "women’s apparel." Moving forward, invoices will need to be far more specific, allowing for more accurate and automated screening.
Better Control Over Consumer Safety Goods: The third component focuses on goods that fall under the jurisdiction of the Consumer Product Safety Commission (CPSC). With these new controls, CBP will more rigorously enforce safety standards and requirements, ensuring that goods, particularly those from China affected by Section 301 tariffs, are more tightly regulated.
Current Status: Still in the Early Stages
As of September 2024, nothing is set in stone. The executive action is in its early stages and must pass through three steps before becoming law:
Publication: This has already been done. The notice has been published to inform the public about the proposed changes.
Public Comment: This stage, where businesses and individuals can submit feedback, has not yet opened. Anyone can comment on the proposed action, but it’s recommended to consult with industry groups or trade consultants, such as the American Apparel and Footwear Association (AAFA), or Zefyr Solutions, to ensure comments are structured effectively.
Finalization: After reviewing public comments, the action may be finalized. It’s uncertain how quickly this will happen, but the government aims to have a decision before the end of the year—though that timeline might be optimistic.
Will It Go Through?
The action seems real and likely to progress, given the scale of the issue and the clear oversight in recent years. With growing pressure on U.S. authorities to close regulatory gaps and strengthen border controls, this initiative has momentum. However, public feedback and administrative hurdles could slow the process.
Administrative Burden on Customs Border and Protection (CBP)
A major question is how CBP will handle the added administrative burden. Currently, CBP struggles to manage the sheer volume of Section 321 shipments with limited data, but these changes aim to help by improving the accuracy of information through automated systems.
For instance, by requiring more detailed descriptions on invoices—such as specifying the 10-digit HTS code for imported goods—CBP can perform more accurate automated screenings. Instead of vague descriptors like “men’s apparel,” importers will need to be precise, ensuring customs systems can flag potential violations more effectively. For example, “men’s apparel” would need to be described as “men’s 100% cotton pants.”
Who Will Be Affected?
It’s important to note that these changes will only impact goods affected by Section 301 tariffs, specifically those imported from China on lists 1, 2, 3, and 4A. Certain goods, such as some apparel and footwear on List 4B, are not affected by this action, and goods from other countries are exempt as well. There are however other acts out there, such as the Fighting for America Act, which is aiming at a much broader landscape for enforcement.
Can You Comment?
Yes, anyone can submit comments on the government portal once the public comment period opens (and we will keep you posted when that happens). However, as mentioned, to make a significant impact, it’s advisable to seek guidance from industry consultants or associations like AAFA, as they have the expertise to craft compelling arguments that resonate with regulators.
Timing and Final Thoughts
While the comment period isn’t open yet, the goal is to reach a decision by year-end. But realistically, this could take longer given the complexities involved and the public input process. For now, businesses affected by Section 301 tariffs, should start preparing for more stringent import regulations. Every importer should ensure that they have all products classified to the 10th digit level and shore up invoice descriptions. Furthermore, detailed examples of acceptable invoice formats should be included in your vendor manuals that you share with your production partners.
If you need support, our team can help with comments, HTS classification, vendor manual creation, revisions and more. This is an ever-evolving process with layers of complexity that we are all learning in the moment. We’re here to help. Email us at dk@zefyrsolutions.com or contact us here.