• A US tax rule called de minimis has gotten increased attention as Shein and Temu have grown. 
• Detractors say it creates unfair competition and allows companies to bypass trade laws. 
• Shein and Temu representatives said they support de minimis reform — as long as it’s fair. 

As Shein and Temu grow their foothold in the US, analysts and lawmakers are paying close attention to both companies’ use of a special tax rule that some say should be eliminated completely.

The provision, known as “de minimis,” allows importers to avoid paying duty and tax on shipments that are going to individual consumers and are worth less than $800 in total.

Shippers using de minimis also do not have to provide as much information to US Customs and Border Protection as shippers using more traditional methods would. Opponents of the rule argue it creates unfair competition, and the lack of in-depth screening could allow for the import of goods containing banned materials like cotton from Xinjiang, where forced labor is common.

De minimis has been around since 1938 when Congress introduced the rule in order to speed up the processing of items that were so cheap that they would not generate significant tax revenue for the government. The limit for eligible items has been raised many times over the years, most recently going up to $800 from $200 in 2016.

Two bills aimed at reforming de minimis were introduced in Congress last June. One, introduced by Rep. Earl Blumenauer, aims to limit companies in “nonmarket” economies — or countries where prices do not follow market dynamics, such as China and Russia — and countries on priority watch lists from using de minimis shipments. The other bill, from Sen. Bill Cassidy and Sen. Tammy Baldwin, would ban de minimis shipments from China.

But some experts say it’s unlikely the provision will go away anytime soon.

A US trade law and policy expert interviewed by Bank of America analysts put the odds of Blumenauer’s bill passing the Senate at more than 50% but said it had a roughly 30% chance of passing overall “given issues in the House,” according to a research note the bank published on January 5. The same expert said the bill introduced by Cassidy and Baldwin was unlikely to pass in Congress.

“While many retailers are likely in favor of these bills, groups like the US Chamber of Commerce or the Express Shippers Association may not be in favor of them since they generally are looking for fewer tariffs, not more,” UBS analyst Jay Sole wrote in a research note in August. “Also, direct carriers, direct importers, and logistics companies may not be in favor of a change since their businesses may benefit from the $800 rule.”

The provision is more likely to change — a prospect that both Shein and Temu have said they support.

A ‘paradigm shift’

Shein and Temu are not the only companies to use the de minimis provision, but they have gained the attention of advocacy groups and lawmakers in part because of how quickly they have grown in the last year.