Frequently asked questions

1) Does U.S. FTZ de minims Parity increase the volume of de minimis shipments?

No.  Over the long term, the volume will not be affected, but instead the change will impact where shipments originate. 

2) Why can’t CBP make the requested change?

CBP does not make policy, it implements policy.  

19 U.S. Code § 1321(a)(2)(C) permits duty and tax free admission by reason of importation of shipments whose aggregate fair retail value in the country of the shipment of articles imported does not exceed $800, and was imported by one person, on one day.

CBP considers a good “imported” when it is physically brought into the United States, as opposed to when it is “entered for consumption.” Specific to FTZs, a good is imported when it crosses the border, but is not entered for consumption until it is withdrawn from the zone.

Customs rulings HQ H275567 (May 8, 2018) and HQ H282601 (September 18, 2018). confer CBP’s inability to allow de minimis entry eligibility for goods withdrawn from a U.S. FTZ.

3) What is the lost revenue to the U.S. Treasury? / How would CBO score this provision?

The Congressional Budget Office (“CBO”) should score part 1 of the solution - providing eligibility to FTZs - as revenue neutral.  Implementing this fix will not impact the volume of de minimis shipments; the difference will be where shipments originate.  

Limiting de minimis eligibility to trusted actors only - part 2 of the solution – will decrease the overall number of de minimis shipments and consequently increase revenue collection.  CBP must first develop the trusted actor program and what entities will be included before CBO can assess the volume of trade no longer eligible for de minimis entry.

We also support making de minimis shipments subject to Section 301 tariffs, which would also lead to an increase of revenue collection.

4) Did the Trade Facilitation and Trade Enforcement Act of 2015’s increase of the de minimis threshold from $200 to $800 cause this problem?

The current challenges are a consequence of the increase of the e-commerce traffic rather than of the de minimis threshold increase.  Total ecommerce sales have more than doubled since 2015, from $341.8 billion and 7.3% of all retail sales to $7.1 trillion and 14.6% of all retail sales in 2022.    

5) What is the future of FTZs if de minimis eligibility is not provided?

E-commerce distribution operations will be entirely located off-shore and FTZs will not be considered an option.  By contrast the change would reverse the status-quo and would incentivize companies to use FTZs if Section 321 entry is allowed.  Not only would it influence future expansion decisions about placement of distribution operations, it would lead to consideration for converting other existing U.S. warehouses into FTZs rather than moving them offshore.  A corollary to this is that retailers that are selling both national and private label brands which might have different sourcing can consolidate their distribution operations in a U.S. FTZ, thereby saving money and encouraging U.S. economic activity. 

6) Does permitting e-commerce fulfillment from FTZs weaken the underlying purpose of FTZs?

The purpose of the U.S. FTZ program is to encourage businesses to create and maintain manufacturing and distribution operations in the United States and thereby creating American jobs.  As such, permitting e-commerce fulfilment from FTZs is fully consistent with this purpose, while prohibiting FTZs from using Section 321 has the opposite effect – it is and will continue to force U.S. companies to move distribution operations that fulfill e-commerce orders to warehouses located outside of the United States, resulting in U.S. job loss.

A July 2017 Government Accountability Office (“GAO”) study states:  

“The FTZ program was created under the Foreign-Trade Zones Act of 1934, during the Great Depression, to expedite and encourage foreign commerce.  Furthermore, according to CBP officials, the FTZ program aims to encourage companies to maintain and expand their operations in the United States. To encourage such expansion, FTZs provide benefits to companies that import foreign goods for distribution or for incorporation into manufactured products.” 

The proposed amendments are clearly within the scope of Congressional intent.  Further, we agree with the CBP understanding of the purpose of the FTZ program and believe the proposed amendments will do precisely that, i.e., will encourage companies to develop or initiate FTZ operations in the United States rather than moving these extensive and critical distribution activities offshore.

It should also be noted that CBP has a better ability to identify and correct compliance issues when products are both entered and withdrawn from FTZs than when imported from a foreign country.  CBP has authority over the whole process and, therefore, FTZ operators present a lower compliance risk due to their strict reporting requirements.  In contrast, CBP’s access to shipment information is very limited for Section 321 entries originating abroad.   This is a particularly important consideration for this issue, because CBP and Partner Government Agencies (“PGAs”) visibility for shipments coming from abroad under Section 321 is more limited since no entries are filed.

7) What is the implication of the proposed amendment for the current prohibition of retail trade within FTZs?

When FTZs were established in 1934 during the Great Depression when Congress created the foreign-trade zone program they prohibited retail trade from inside the zone.  Congress envisioned FTZs as an economic development tool to mitigate the disastrous effects of the infamous Smoot-Hawley tariffs by promoting international trade and U.S. employment.  Congress included the retail-prohibition language in the FTZ Act to prevent brick and mortar duty-free stores from doing business in U.S. FTZs.  The economy has considerably evolved since 1934, particularly with the advent of B2B and B2C e-commerce.  In fact, e-commerce purchases are shipped from U.S. FTZs today, although such entries are not able claim de minimis tariff-free entry.  Sellers at all levels of trade are currently facing pressure to move their distribution centers across the border in order to take advantage of the increased de minimis allowance for e-commerce sales.  Nothing in the proposed Section 321 amendments would permit opening brick and mortar operations inside the U.S. FTZs.  It only serves to level the playing field for American distribution centers compared to foreign ones.  In fact, existing U.S. FTZs are facing pressure to shut down because the companies currently operating them are being forced by competitive pressure to move their distribution operations outside of the U.S. 

There are a few publicly available CBP rulings[1] stating that fulfilling e-commerce orders from U.S. FTZs does not infringe on the prohibition of retail trade under Section 15 of the Foreign-Trade Zones Act (19 U.S.C. §81o(d)).  Further, several U.S. companies are already fulfilling e-commerce sales from U.S. FTZs, utilizing the current daily 214/weekly entry summary provisions.  Unlike e-commerce sales fulfilled through foreign-based warehouses, these U.S. companies are paying full duty despite meeting all other requirements of the 321 de minimis exemption.

Finally, Section 5 of the proposed legislative text adds explicit language to prevent possible misinterpretation and continue to prevent brick and mortar retail sales trade in FTZs.

[1] Examples include HQ 114229 (February 2, 1998), HQ H124476 (May 24, 2011). 

8) Will the change incentivize e-commerce over brick-and-mortar stores?

No; the proposed amendments will not provide any incentive for e-commerce over retail store sales.  In fact in may incentivize companies to store more product inventory state side.  E-commerce growth obviously has resulted in some decline of traditional brick-and-mortar stores; this longer-term trend is driven by the increased convenience of on-line shopping, not duty savings.  It is unclear whether the increased de minimis levels under Section 321 will accelerate this process or not.  Certainly, there is a potential for increased cost savings from Section 321 and it is this potential savings that is prompting the move by some brands and distributors to establish offshore operations. 

Thus, if there are any incentives for consumers to shift to e-commerce because of the increase in the de minimis level, that has already taken place.  The proposed amendments do not alter those incentives either up or down; rather, the proposed amendments only change the incentives for sellers to keep the potential location of the e-commerce fulfilment centers in the United States rather than moving them over the border, and for U.S. based brands to be more cost competitive against non-U.S. based brands.

9) How do we ensure this fix does not open the floodgates for low-value warehouses in the U.S.?

It is not a question of low or high-value warehouses, but a question of the preservation of jobs and economic growth in the United States.  For companies considering where to locate or relocate their distribution centers, the quality and value of the labor factor is a constant.  This e-commerce distribution is already taking place, largely within the United States.  The ability to perform the operation within an FTZ does not alter the value or cost of the labor.  On the other hand, if the operations are shifted over the border in order to take advantage of a Section 321 de minimis increase, then the U.S. jobs at all levels of the trade will be lost resulting in a net loss of U.S. economic activity and employment.

Expanding warehouse operations in the United States rather than Canada or other foreign countries should be encouraged as consistent with the goals of the FTZ program.  If those warehouses are not allowed to operate in the United States in one of the fastest-growing areas of commerce, that business will take place abroad.  Warehousing and other logistics operations that would benefit from our proposed Section 321 change pay comparatively high wages to the blue-collar workforce.

The vast growth of e-commerce shipments has resulted in CBP developing a strategic plan to facilitate their ability to adapt to the changing ways business is being conducted.  In working to adapt to this changing environment, they released an e-commerce strategy in March 2018, citing the need to “protect the health and safety of American citizens from non-compliant goods.”

FTZ operators are inherently more compliant than non-FTZ and foreign warehouses due to their FTZ Board, Customs approval, and strict reporting requirements.  CBP has enhanced ability to identify compliance issues for bad actors or shipments withdrawn from FTZs compared to shipments coming from foreign warehouses. CBP inspects FTZs regularly for compliance with federal laws, regulations and CBP policies.  In addition, many requirements of other PGAs apply to merchandise held in U.S. FTZs.