Closing the De Minimis Loophole
ISSUE:
Originally conceived for travelers returning from abroad with souvenirs, today the de minimis exemption has become “China’s free trade agreement” and a unilateral global giveaway for all products imported into the United States valued at $800 or less, leading to widescale abuse. Chinese exporters in particular exploit de minimis to avoid paying U.S. taxes and Sec. 301 penalty tariffs, and to funnel all manner of illegal and illicit goods to Americans’ doorsteps with virtually zero scrutiny, including fentanyl and its precursors, banned apparel and other goods made with forced labor, counterfeit and unsafe products, among other – ensuring that de minimis trade poses a high risk for trade violations.
The volume of packages claiming de minimis has exploded from 150 million in FY 2016 to 1.4 billion individual packages in FY 2024, equating to 4 million per day. This trade has now become “de maximus,” with 30 percent of all de minimis shipments reportedly originating with just two Chinese e-commerce juggernauts, Shein and Temu, who have made exploiting de minimis a central part of their business strategy. As a result, U.S. Customs and Border Protection (CBP) is overwhelmed and cannot effectively enforce trade in the de minimis environment, American manufacturers are facing an economic depression as cheap, duty-free de minimis Chinese goods flood the country, and our communities are reeling from the scourge of fentanyl poisonings.
POSITION:
NCTO strongly supports robust, comprehensive solutions to address the harms being perpetrated on U.S. manufacturing, American consumers, and our communities by China and other bad actors in the de minimis environment. We stand as willing and ready partners of Congress and the administration to help develop and advance comprehensive solutions to secure the trade entering our borders through long overdue reforms to the de minimis loophole. NCTO supports forward leaning legislation to end de minimis abuse, including:
The Closing the De Minimis Loophole Act (H.R.1840) – introduced in the House by Ways and Means Trade Subcommittee Ranking Member Linda Sanchez (D-CA-38)
The FIGHTING For America Act (S.1185) – introduced in the Senate by Senate Finance Committee Ranking Member Ron Wyden (D-OR)
Customs Enforcement
ISSUE:
Due to the volume of duties collected on textiles and apparel—traditionally around 40% of annual duties collected by Customs and Border Protection (CBP)—there is a hefty incentive for bad actors domestically and around the world to cheat the system and circumvent our trade laws. The situation has reached a tipping point where U.S. textile production has slowed significantly as demand in our free trade agreement (FTA) regions has virtually disappeared. As a result, a large portion of U.S. textile production and employment, as well as the broader Western Hemisphere textile and apparel co-production chain, is at stake if Congress and the administration do not address customs enforcement with urgency.
The United States has an elaborate system of FTAs that tie lucrative duty-free benefits in the textile sector to a yarn-forward rule of origin, mandating for most textile/apparel items that production steps from the yarn stage forward must be conducted in the FTA region. The FTA system is defrauded when importers claim FTA tariff-free treatment even though the finished item is comprised of yarn or fabric sourced from China or another non-FTA country. This is often accomplished by falsifying documents showing that textile inputs were sourced from a legitimate textile manufacturer in the United States or the FTA region.
Experience shows that the best deterrents to trade fraud remain the very real possibility of significant economic penalties and jail time. To put teeth to enforcement, NCTO strongly supports the bipartisan Protecting American Industry and Labor from International Trade Crimes Act (H.R.1869) which creates a dedicated unit within the Department of Justice (DOJ) to investigate and prosecute international trade crimes, which costs the United States an estimated $163-$327 billion a year. Due to the sheer amount of fraud prevalent in international trade, enforcement in this sector will pay for itself many times over and create a culture of compliance in the trade.
POSITION:
We commend Congress for championing the creation of new dedicated enforcement resources at DOJ that support American manufacturers and workers targeted by predatory trade violations from bad actors in China and elsewhere. It is imperative that Congress strengthen customs enforcement by ensuring international trade crimes are fully investigated and that perpetrators are brought to justice.
Textiles & U.S.-China Competitiveness
ISSUE:
For decades, China has victimized U.S. manufacturers and workers with an aggressive set of predatory trade practices. China’s illegal actions have contributed to the direct loss of over one million U.S. jobs in the domestic textile sector alone, and virtually every U.S. manufacturing sector has been similarly devastated by China’s state-sponsored practices of intellectual property theft, rampant abuse of state-owned enterprises and industrial subsidies, and horrifying labor abuses in its Xinjiang region. Congress must undertake a comprehensive approach to level the playing field and boost American manufacturers’ and workers’ ability to compete in the face of China’s detrimental industrial and trade abuses.
Section 301 & IEEPA Penalty Tariffs U.S. textile manufacturers have been enormously impacted by China’s rampant intellectual property theft and myriad other predatory trade and labor practices. Long overdue and important China enforcement actions have included the imposition of Section 301 penalty tariffs on textiles and apparel originating in China and more recent additional emergency tariffs on Chinese products. NCTO supports further increases to penalty tariffs on finished textile and apparel products from China as well as other Asian countries that largely source Chinese components, while allowing for exclusions on manufacturing inputs and machinery not available elsewhere.
Miscellaneous Tariff Bill (MTB) The MTB temporarily reduces or eliminates import duties on specified raw materials and intermediate products used in manufacturing that are not produced domestically. The MTB ensures that U.S. manufacturers are not unnecessarily disadvantaged compared to foreign competitors when sourcing vital manufacturing components. Unfortunately, the current lapse in the MTB parallels a period of persistent high inflation that has further undercut U.S. manufacturing competitiveness in markets both at home and abroad. NCTO strongly supports passing a new MTB as soon as possible with retroactive effect to provide needed relief to domestic manufacturers who have been unnecessarily burdened by an extended lapse of the MTB since 2020.
Generalized System of Preferences (GSP) GSP is a trade preference program that promotes economic development for the world’s poorest countries through duty-free access to the U.S. market on a range of designated products. Due to severe import-sensitivity and China’s dominance in global apparel supply chains, textiles and apparel have been statutorily excluded from GSP since its inception. Any effort to expand product categories under GSP would devastate U.S. manufacturing investment and undermine our free trade agreements.
POSITION:
NCTO strongly supports robust, comprehensive solutions to address the harms being perpetrated on U.S. manufacturing, American consumers, and our communities by China and other bad actors. We stand as willing and ready partners of Congress and the administration to help develop and advance comprehensive solutions to secure the trade entering our borders.
Tax Reform
ISSUE:
As Congress gets work underway to enact significant tax reform through the budget reconciliation process in 2025, NCTO supports efforts to modernize the tax code and make U.S. businesses and exports more competitive internationally and to incentivize American manufacturing. NCTO joins with other domestic manufacturers in advocating for several key tax reform elements needed to boost domestic manufacturing. These elements include stipulations to ensure full expensing capabilities for equipment and machinery, investments and expenses related to research and development, and the establishment of an EBITDA standard for interest deductions.
POSITION:
NCTO supports key policies to support American manufacturing, including efforts to reduce the corporate tax rate and permit the immediate deduction of capital investments. We look forward to fully engaging with Congress as the budget reconciliation process develops to further and promote pro-manufacturing policies to boost U.S. textile investment, production, and employment.
Farm Bill
ISSUE:
With farm bill programs currently operating under a funding extension, Congress must pass legislation to fully renew its provisions for an additional period. NCTO has advocated for several key provisions to be included in this extension.
The Economic Adjustment Assistance for Textile Manufacturers (EAATM) provides $0.03 per pound to manufacturers who process upland cotton, supporting the only domestic consumers of the U.S. cotton crop. The program originally authorized support for the U.S. textile industry at a rate of $0.04 per pound on every pound of upland cotton consumed. However, provisions in that bill reduced the rate by 25% to $0.03 per pound effective on August 1, 2012. With the recent COVID-19 pandemic highlighting the instability of some global suppliers, it is critical that the new legislation further support the U.S. textile industry to meet the need to reshore or nearshore manufacturing of critical goods and materials, and we strongly support increasing the rate to $0.05 per pound.
The Agriculture Wool Apparel Manufacturers Trust Fund and the Pima Agriculture Cotton Trust Fund help reduce the disadvantages that domestic manufacturers face from unfair trade policies. These programs help promote the American Pima cotton and wool textile and apparel production chains and allows these American producers, from farm to finished product, to compete against foreign suppliers on a more level playing field. They also maintain essential domestic capabilities in a highly globalized supply chain, which has significant implications for national security and health care preparedness.
Any lapse in these critical programs will almost certainly cause the United States to lose, rather than retain and expand, key components of the domestic supply chain for defense procurement and PPE, and the domestic customer base for cotton and wool fibers, yarns, and fabrics, and domestic producers of raw Pima cotton and wool will also suffer. NCTO supports restructuring and consolidating funds for these successful programs so that they become part of the funding baseline in the new farm bill.
POSITION:
The farm bill contains a number of valuable programs that encourage investments in U.S. growers and ranchers that produce textile fibers and U.S. manufacturers that process cotton and wool products. These programs help the entire U.S. farm-to-finished-textile-and-apparel production chain to be more globally competitive, while supporting our national security and public health industrial base. NCTO strongly supports restoring the EAATM to $0.05 per pound and safeguarding the Wool and Pima Cotton Trust Funds in the new farm bill.
