Understanding Section 321 Customs Entry
What is Section 321?
Section 321 is a statute under the Trade Enforcement and Trade Facilitation Act, sometimes called de minimis entry, that allows cargo valued at $800 or less to be imported into the United States duty-free.
In 2016, the de minimis entry was raised from $200 to $800, and the amount is usually pegged on the fair retail value of the product in the country from which it is being shipped.
It is important to note that a single shipper is allowed only one US-bound import daily. As such, Section 321 imports are not based on the total value of consignments but rather on how many shipments are imported from one shipper to another receiver on any given day.
It should also be noted that while a wide range of products can be imported under de minimis, restricted goods, goods regulated by government agencies, products subject to anti-dumping or countervailing duties, or products that require inspection are limited.
The Primary Purpose and Goals of Section 321
The amendment to Section 321 was mainly an exercise to avoid inconvenience and administrative expenses disproportionate to the amount of revenue the government was collecting on imports.
The data established that regulating very tiny imports costs a lot more administrative effort, labor, and time. The potential tax revenue and economic value being realized by customs were too low to warrant any serious investigation.
As such, customs reasoned that goods entering the United States beneath a certain economic value threshold should be met with less scrutiny and zero duty.
On the other hand, the Customs and Border Control Agency (CBP) created the Section 321 program to make it possible to protect against and monitor illegitimate trade while providing duty-free shipments to qualified shipments, which will boost international business.
Section 321 rules require the shipper to transmit data well before the arrival of the consignment to the United States, making it possible for the CBP to expedite the clearance of the low-risk shipments and target high-risk shipments that need to be inspected.
The rules of the Section 321 regulations thus provide the CBP and Partner Government Agencies (PGAs) with greater visibility to ensure regulatory requirements have been complied with regarding de minimis consignments.
Conversely, Section 321 allows businesses a speedy and cost-effective way of importing qualified goods into the United States duty-free while complying with CBP regulations and laws.
Aside from the savings to be avoided in the payment of duties and taxes, some other benefits to B2B businesses include:
- The Faster clearance process makes getting shipments to customers quicker.
- Greater savings are resulting in more competitive pricing for consumers.
- A better understanding of regulations
- The elimination of delays at the border
- Reduction in paperwork in customs processes
- Reduction in costs when entering new markets.
The Birth and Evolution of Section 321
The Historical Context: Why was Section 321 Introduced?
Putting Section 321 into its historical context means returning to The Tariff Act of 1930. This was the first bill in the history of the United States that raised the price of duty-free imports. The bill also sought to increase the dollar amount of duty-free goods in two critical categories of substances:
- Personal articles – The duty on items brought into the United States was increased from $1 to $5.
- Gifts – Gifts mailed to the United States had their price limits raised from $10 to $25.
This was an excellent development, but economic activity and cross-border trade significantly increased over the years, dragging the de minimis value with it.
By the turn of the new millennium, the de minimis value had hit $200. Thanks to digitization and globalization, the American economy would turn into a technological economy from a manufacturer-dominated one.
This would result in shifting requirements for customs brokerage regulations, and the rapidly evolving e-commerce supply chains indicated that the move toward a global economy would only accelerate.
The rise of Amazon and online e-commerce resulted in a significant uptick in parcel deliveries and e-commerce activity, making customs officials’ work even more complicated and time-consuming.
With too few agents to handle a constantly growing influx and the revenue too low to warrant any time or human resources investment, the Obama administration in 2015 recognized that there was a need to increase the de minimis value.
For the Obama administration, the changes were a meaningful way to achieve three critical objectives:
- Increase the incentives for global e-commerce in the United States
- Generate more economic productivity by redeploying revenue collection resources toward more efficient revenue sources.
- Make the customs process more efficient to facilitate international trade and make it easier for low-value consignments to be imported into the United States, where it is shipped or physically transported.
Fundamental Changes and Developments in Section 321 Over the Years
Section 321 is a child of the Tariff Act of 1930; it would never have existed without the latter. After the Act was in operation for decades, the United States customs and tax authorities had to make amendments due to changing circumstances.
Under the Tariff Act of 1930, almost every product imported into the United States was subjected to customs and duty. This resulted in unnecessary inconvenience to customs officials for too little revenue.
In 1938, Congress developed the De Minimis rule, which refers to something too minor or trivial to merit consideration. The De Minimis value was $5 for gifts and $1 for any other situation.
The De Minimis value increased over the years, and under the Customs Modernization Act, it peaked at $200 in 1994.
In 2015, the Obama Administration saw it wise to increase the De Minimis threshold to foster international trade and boost economic activity in the US. 2018, the CBP 2018 published the E-commerce Strategic Plan on regulating imports and the e-commerce supply chain.
In 2019, the CBP launched its one-year pilot program for de minimis shipments arriving by rail, truck, and air. At the end of the pilot program, the recommendation was to increase the value of consignments that may be imported tax-free and duty-free from $200 to $800.
The Influence of Section 321 on Customs Operations
Impact on Customs Procedures and Efficiency
The raising of the De Minimis value was a product of the modernized NAFTA agreement commonly known as USMCA. As part of the deal, Mexico and Canada had to follow suit to raise the De Minimis values.
Raising the De Minimis values by Canada and Mexico provides several benefits to the United States by enhancing efficiency and making customs procedures more effective. Some of these include:
- Improved Compliance – Raising the de minimis means that the customs authorities can concentrate on high-value shippers and enhance compliance. The reason for this is that they do not have to waste resources on low-value shipments
- Significant Time and Cost Savings – Raising the minimum import value results in greater customs efficiency as agencies can reroute those resources toward high-value parcels and consignments, leading to better outcomes for everyone.
- Lower De Minimis thresholds -mean less congestion at ports of entry as low-value packages are processed fast, leaving customs and tax officials to refocus on core operations and strategic initiatives, thus enhancing efficiency.
Case Studies: How Section 321 Has Shaped Customs Operations
As e-commerce continues to grow and online shopping becomes more convenient, accessible, and faster, savvy retailers are looking for ways to reduce costs without sacrificing customer experience.
One very effective strategy producing some strong results is taking advantage of the Section 321 exemption in the Mexico-US Canada free trade agreement. This agreement allows shippers to send duty-free small consumer orders from Mexico and Canada to the US.
Section 321 Loophole
A merchant sends products manufactured in international markets to Canada or Mexico. The products are stored in Canada or Mexico and shipped across the American border to US consumers.
The Section 321 Loophole is effective for D2C fulfillment companies and enterprises. These companies have been setting up distribution centers in Canada and Mexico to ship their products to American consumers directly.
Using existing trade agreements between the US, Mexico, and Canada, businesses can reduce import costs by nearly a fifth. By taking advantage of refunded or waived duties by shipping directly to consumers rather than importing directly to the US, they can save up to 20%.
Taking Advantage of Low Labor Costs
Companies importing finished products from international markets into the US with a retail value of $800 or less can use Section 321 rules to reduce costs.
Many companies are now importing to Mexico from countries such as China, where they take advantage of lower shipping, packaging, and processing costs, which can be lower by up to 75%.
If they were to ship directly to the United States, they would have to pay high warehousing and labor costs. For instance, they will pay between $16 to $22 in labor compared to $4 to $5 in Mexico.
Taking advantage of Section 321, the business can send the consignments directly to consumers through Fed-Ex, USPS, and UPS.
By sending the package directly to the consumer, the enterprise will take advantage of the existing trade laws to send the final package to the consumer duty-free.
Section 321 Entry Requirements in the Context of Global Trade
The Role of Section 321 in Facilitating International Trade
The Amendment of Section 321 has to be the most significant change in the recent quest to facilitate international trade. There are several ways that the implementation of Section 321 customs rules facilitates international trade, some of which are:
- Reduced Costs in Trade – Businesses and consumers tend to trade more due to removing duties, taxes, brokerage fees, and less time spent on import assessment and customs checks. Saving on these businesses will be more likely to reduce prices, resulting in more demand, thus driving more international trade.
- Greater Speed in Shipping – The shipping process is expedited because there is far less documentation for de minimis packages. When the shipping process becomes faster, businesses can price them lower, which means greater demand.
- Section 321 amendments have made it cheaper to import from international markets more easily. Companies can now set up distribution centers in Mexico and Canada and bring their items to the US without paying hefty import duties if they import directly to the United States.
- More Trade Partners – Raising the de minimis thresholds usually opens a range of goods that can be traded across borders. Even a dollar change in the de minimis value could make it possible for smaller enterprises to export millions of goods to the United States.
How Section 321 Has Adapted to Changes in Global Trade Patterns
Even though it has only been a couple of years since Section 321 CBP rules were implemented, there has been a clamor to make changes due to global trade dynamics.
New legislation is proposed with more than 2 million imports into the United States. Proponents argue that.
- There is not enough oversight, controls, or trade reciprocity for the millions of parcels that enter the US daily.
- Loopholes make it easier for people to import harmful products and illegal goods as it is almost impossible to track and verify the contents of packages and whether they are a product of intellectual property theft, forced labor, or very dangerous.
- There is a massive imbalance between the $800 de minimis value for importing into the United States compared to Canada’s $20, China’s $7, the United Kingdom’s $135, and Europe’s $150.
- The fact that most countries such as Australia, the European Union, and the United Kingdom collect 20% taxes on all imports regardless of value disadvantages the United States.
In this regard, there have been some proposed changes that include:
- Prohibition of entry of goods from non-market economies and those on the critical watch lists.
- Coordination practices at ports of entry to ensure more consistency in import processes.
- Prohibition of goods categories that could have otherwise been subject to oversight, enforcement, and countervailing duty.
- Introduce the requirement for the collection of data such as HS Codes
- Amendment of the law to ban offshore distribution facilities.
Section 321 and Modern Technologies
The Integration of Section 321 with Customs Clearance Software
While Customs clearance software has been adopted worldwide, with ASYCUDA becoming one of the most popular, the United States has led the way in adoption for the most part.
Since implementing Section 321, the United States has implemented measures to integrate the new regulations with customs clearance software. The most crucial integration measures include the Section 321 Data Pilot and the Entry Type 86.
Other developments include the ACE Air eManifest, and the CBP Approved ACE Truck eManifest Service, all of which require customs brokers and filers to have customs clearance software that can transmit data and information about imported cargo to the CBP before it arrives at the port of entry.
The Section 321 Data Pilot
The pilot was launched in 2019 and was intended to make it possible for freight forwarders, customs brokers, online marketplaces, and carriers to submit cargo and conveyance information and data to the CBO before the arrival of the consignment in the US.
Volunteers in the program may participate by sending their consignment data through customs clearance software that provides point-to-point connections with the CBP.
Type 86 Informal Entry using the ABI System
Starting in 2019, carriers and filers can use the ABI system if their consignment has a value of less than $800. Entry Type 86 is open to customs brokers and self-filing importers with the prerequisite customs clearance software to submit conveyance and cargo data to the CBP.
How Technology Has Enhanced the Implementation of Section 321
Technology has played a massive role in the implementation of Section 321. In recent years, several technologies, such as advanced cargo information systems, direct trader input, electronic data interchange, and the internet, have made the implementation of Section 321 possible.
Electronic Data Interchange (EDI)
The EDI provided a structured approach that enabled the secure data exchange and transfer between the tax administration and the client/broker systems. EDI systems also come with rules setting out the characteristics of data to be sent and received by other methods in an easy-to–process and understand format.
Direct Trader Input
Single-window technologies have made it possible to develop systems where clients and brokers can submit their customs data and information directly to the customs authorities. The development of such systems makes it possible for shippers and brokers importing low-value shipments to validate and print declarations almost instantaneously interactively.
Advance Cargo Information Systems
With custom software development becoming more ubiquitous, it is now possible for clients and brokers to make operational arrangements to process their Section 321 transactions in advance. Advanced cargo systems usually come with automated reporting and declaration systems, making importing, declaring, and validating low-value shipments much easier.
The internet is an inexpensive and easy-to-use technology that has made it possible for clients and customs authorities to connect efficiently and securely from just about anywhere there is an internet connection. Due to this, clients can easily transmit data and information about their low-value Section 321 shipments, which customs can easily verify without clients needing to visit the offices of CBP.
Reflections and Conclusions
The Continuing Relevance of Section 321 in Modern Customs
Section 321 is one of the most significant amendments to modern customs laws in the United States and will likely remain critical.
De Minimis requirements will continue to be critical, particularly for businesses that import from international markets.
They will also be necessary for small businesses looking to maximize profits and scale their operations as they can find cost-effective shipping solutions and processes that could be game changers.
Enterprises taking advantage of Section 321 will continue to save money on shipping costs, duties, fees, and taxes, which would save money that could then be rerouted into other strategic business activities.
Businesses taking advantage of Section 321 regulations will be able to provide quick shipping while saving money, which will be a competitive advantage. In that regard, many such businesses will contract reputable customs clearance software companies such as Customs City to ensure their importing is more efficient.
Looking Ahead: The Future of Section 321 in a Changing Trade Landscape
Section 321 will likely experience a lot of modification in a changing trade landscape. There have recently been concerns, particularly from the legislative arm of the government, about how many packages are being imported into the United States without sufficient monitoring.
In this regard, several legislative changes have been made to Section 321 to control aspects such as the risk of drugs, counterfeits, and intellectual property illegally entering the United States.
Nonetheless, Section 321 De Minimis provisions are going nowhere. For any enterprise needing competitive advantage as an importer of goods to the United States, it still provides a substantial untapped opportunity.