The de minimis threshold in international trade: The costs of being too low

• Date: 01 January 2018
• Author: Simon Schropp,Olim Latipov,Christine McDaniel
• Published date: 01 January 2018
• DOI: http://doi.org/10.1111/twec.12577

ORIGINAL ARTICLE

The de minimis threshold in international trade:

The costs of being too low

Olim Latipov

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Christine McDaniel

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Simon Schropp

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Sidley Austin, LLP, Geneva, Switzerland

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Sidley Austin, LLP, Washington, DC, USA

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INTRODUCTION

Trade facilitation generally relates to the “procedures and controls governing the movement of

goods across national borders”(Grainger, 2011, p. 42). Improving these procedures and controls

could reduce associated cost burdens and increase efficiency while safeguarding legitimate regula-

tory objectives. There appears to be widespread acceptance of this notion. The WTO Trade Facili-

tation Agreement contains provisions for “expediting the movement, release and clearance of

goods, including goods in transit.”

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WTO members concluded negotiations on the agreement’s text

in December 2013, and the agreement entered into force on 22 February 2017 when two-thirds of

members completed their domestic ratification process.

Imports of small-value items are traditionally exempt from customs duties and taxes. This

should be welcome in principle, since duties and customs procedures can distort market activity

and cross-border trade, and impede the efficient allocation of resources internationally. From the

importing government’s view, such tax and duty exemptions are a sensible choice because costs

relating to customs assessment and clearance procedures can easily outweigh the tax and duty rev-

enue generated by these small-item imports.

As such, governments set a valuation threshold for imports, below which no duty or tax is

charged and the clearance procedures are minimal. This ceiling is referred to as the de minimis

threshold, or DMT. The benefits of setting thresholds at a reasonably high level for entry of low-

value imports relate to freer trade and fewer costly customs procedures for smaller shipments. An

international agreement or voluntary unilateral commitment to sufficiently high DMTs woul d seem

like the natural outcome.

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As often, however, things are not as straightforward in practice. Countries have not established

binding international DMTs. In the “International Convention on the Simplification and Harmo-

nization of Customs Procedures (as amended),”better known as the Revised Kyoto Convention,

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The WTO Trade Facilitation Agreement, Article 8.2.(d) states “Members shall provide, to the extent possible, for a de min-

imis shipment value or dutiable amount for which customs duties and taxes will not be collected”but does not specify what

that threshold should be or give guidance on how to calculate an acceptable level.

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The ICC Customs Guideline (2012) defines “de minimis”as a valuation ceiling for goods, including documents and trade

samples, below which no duty or tax is charged and clearance procedures, including data requirements, are minimal.

DOI: 10.1111/twec.12577

World Econ. 2018;41:337–356. wileyonlinelibrary.com/journal/twec ©2017 John Wiley & Sons Ltd

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signatories affirmed their commitment to transparent, predictable and simple customs procedures

and minimum necessary customs controls. The convention however does not set any binding DMT

for the Convention’s signatories. Subsequently, the threshold is left to the discretion of each signa-

tory.

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Some countries let years or decades pass without reassessing the threshold. Meanwhile,

changes in the marketplace, technology and inflation evolve such that a country’s DMT becomes

outdated and all-too low, burdening international trade flows and costing government agencies,

consumers and businesses.

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There is considerable heterogeneity in DMTs applied around the globe. Figure 1 shows the

wide range of DMTs across members of the Trans-Pacific Partnership (TPP) region, as well as the

US and China. For instance, the average DMT across these countries is US$224, but ranges

between US$8 (China) to US$800 (US).

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Products that are eligible for exemption can also vary

across countries. These relatively large differences across countries can distort the balance of the

economic benefits and costs that de minimis regimes generate (Holloway & Rae, 2012).

There is no harmonisation or widespread agreement on an efficient de minimis threshold. Even

the TPP, which by some accounts is a state-of-the-art trade agreement, neither harmonises DMTs

across signatories nor includes any language that would require signatories to change their DMTs.

A country’s DMT level is set domestically and can reflect domestic interests and historical fac-

tors. Within a country, there are often competing interests over the ideal DMT level:

•Small businesses tend to favour higher DMTs, which facilitate lower duties and fees, less paper-

work, less delay and easier product returns. For instance, when small businesses engage in

cross-border trade for supplies, intermediate inputs or direct business-to-consumer commerce,

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China

Canada

Chile

Vietnam

Mexico

Japan

Malaysia

South Korea

Peru

New Zealand

Brunei

Singapore

Australia

US

15 30 40 50 90 128 150 200

272 295 296

756 800

FIGURE 1 De minimis values across countries

Source: Global Express Association (2016b). All figures in US$. The simple average is $224, and the median is

$139. [Colour figure can be viewed at wileyonlinelibrary.com]

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The Revised Kyoto Convention leaves it to every Member’s customs administrations to specify its own DMT. Under Chap-

ter 4, Duties and Taxes, Transitional Standard 4.13, “a minimum value or minimum amount of duties and taxes below

which no duties and taxes will be collected”(World Customs Organization, 2006, p. 1).

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See Neufeld (2014) for a thorough survey of the trade facilitation landscape at the regional level, with a helpful historical

review up to modern-day forces shaping these efforts.

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In February 2016, the US Congress passed legislation accepting an increase in DMT from US$200 to US$800.

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