E-commerce and De Minimis Entries: Challenges in Monitoring Counterfeits

Peter Friedmann
Of Counsel

Abigail Struxness
Manager, Regulatory and Legislative Affairs
FBB Federal Relations/Lindsay Hart LLP

In the last issue, we noted changes made to the de minimis rule by the Trade Facilitation and Trade Enforcement Act might facilitate the entry of counterfeit products into the United States. Under the new rule, which took effect on August 26, 2016, when Customs and Border Protection issued an interim final rule, the de minimis value of shipments entering the U.S. without declaring at Customs was increased from $200 to $800 (with one person being able to import one shipment per day). Now, several months later, we can analyze some of the changes to the supply chain that this rule has created, its potential impact on counterfeit enforcement, and actions that Congress and related agencies are taking in response.

De minimis was raised, in part, because of rapidly increasing consumer demand for e-commerce. Individual consumers buy products online from an overseas vendor, who ships these individual packages into the U. S. under de minimis and as a “gift” via express courier shipment. Such shipments quickly clear Customs for direct delivery to the customer. Companies such as UPS, FedEx, and DHL all supported the increase in de minimis because such shipments represent a significant business segment for them.

The problem presented by the increase in de minimis value is that individual packages with limited Customs documentation are more difficult to track and less likely to be inspected for counterfeits than containers of goods with manifest documentation. CBP Commissioner Kerlikowske acknowledged this conflict between free flow of commerce and brand protection at a Senate Finance Committee hearing, stating that the “absolute explosion” of e-commerce is “one of the most difficult challenges we face right now.”

Members of Congress are watching the de minimis implementation closely, and so should brand owners. Senator Menendez (D-NJ) expressed concern to CBP Commissioner Kerlikowske at a Senate Finance Committee hearing, on CBP Oversight, holding up express mail packages where constituents received counterfeit bridal and prom dresses from China.  CBP has a duty to prevent fake products from entering our market…I’m pleased that the Customs bill we passed includes…language to raise the enforcement priorities for counterfeit products, especially those marked as ‘gifts’,” he said.  Senate Finance Committee Hearing

Businesses, particularly those that sell direct-to-consumer, navigate the tradeoff between expedited de minimis shipments and counterfeit risk in a variety of manners. To benefit from de minimis, some companies have moved their warehouse facilities to Canada, sending individual shipments into the U.S. via courier companies and saving the company millions of dollars in duty payments, notes Richard Wortman of Grunfeld, Desiderio, Lebowitz, Silverman, Klestadt a leading U.S. customs attorney. Adding to this phenomenon is the shift of discretionary cargo into Canadian ports, which accelerated industry-wide during labor disputes in U.S. West Coast ports in 2014-2015.

There is also increased interest in e-commerce brand protection. Amazon recently launched a new program, brand-gating, for its 3rd-party sellers who sell brand-name goods. The sellers provide Amazon receipts of their branded purchases from manufacturers or written permission to sell the products. They must also pay Amazon up to a $1,500 non-refundable fee to sell leading brands such as Nike, Adidas, and Hasbro. This authorization and fee scheme for individual third-party vendors may be intended, in part, to reduce the risk to consumers of counterfeit shipments entering the U.S. via Amazon under de minimis rules. 

The de minimis increase can expedite delivery of goods to customers, but also threatens to enable counterfeiters as well. Increased awareness of this issue and advocacy for greater CBP enforcement on eCommerce and de minimis entries can help quell any surge in counterfeit shipments.