This Is How Section 321 De Minimis Could Affect Your Business
Doing business is fraught with regulations. You can’t possibly know them all. Even business attorneys have trouble keeping up. The issues become multiplied when dealing with international business. Everything gets a lot more complicated when things start moving across national borders. Distance is not the biggest complicating factor. Your country might have horrible trade relations with your nearest neighbor, but excellent relations with a nation on the other side of the globe. Even if you prefer to keep it local, that is not always possible in this small and highly connected world.
Making matters worse is politics. The political climate is always shifting. That can make for seismic shifts in regulatory red tape. One day, you are able to freely import and export your goods and raw materials to far-flung regions of the world at affordable prices. The next day, tariffs have soared, making trade impossible. In the most extreme circumstances, trade can be cut off with the stroke of a pen. You have to keep up with al the regulations of all the countries with which you trade, all the time. This is an untenable situation that keeps lawyers very happy.
If you plan to do business in Mexico, you are going to have to be familiar with the Duty Free regulation, otherwise known as section 321 De Minimis. You might have been frightened off from sourcing your raw material from Mexico based on old information about tariffs and other fees. There was certainly a time when doing business with our neighbors to the South was a more expensive proposition.
Many decades ago, travelers had to pay a duty on items valued at $1. That was eventually raised to $5. It stayed that way for a very long time. Around the turn of the century, much had changed. The duty free limit was raised to $200. Citing the De Minimis code, NAPS offered the following explanation for the changes:
“Per section 321, “the purpose of the amendment is to avoid administrative expense and inconvenience disproportionate to the amount of revenue realized.” At its essence, duty-free/De Minimis established the concept that it cost more time, labor, and administrative effort to regulate such small imports.”
When it costs more money to impose duties than the revenue obtained from duties, something has to give.
Response to Ecommerce
A few years ago, the duty free limit was raised from $200 to $800. In large part, this was due to the ecommerce revolution. The US economy had shifted from being a manufacturing superpower to an ecommerce superpower. The rise of businesses like Amazon redefined how 10s of millions of people shopped. Suddenly, the average citizen was purchasing goods directly from other countries. It was all the same to them since the transition was just the click of a mouse. The volume of packages was overwhelming. This is largely what prompted the increase to $800 that exists today.
More Opportunities for Everyone
The upshot is that you now have more opportunities to expand to new markets and you can source raw materials and completed goods in Mexico. If you were considering going with China, you now have a new reason to use an emerging manufacturing giant that is closer to home.
Your ecommerce opportunities have also increased. Before, you could only bring in $200 worth of supplies a day from Mexico. The cost of logistics would seriously cut into profits. Now, you can bring in $800 worth of goods every day. Not only is that a major increase you can see in revenue, it is a major reduction in logistical expenses.
In practice, that means you will be able to lower the price for your end users without reducing your profitability. You can do both. You can lower your prices while increasing profitability at the same time. With the new administration, there should be a decrease in political uncertainty with regard to trade relations with Mexico. If you are currently doing business in Mexico, section 321 means you can do more business and be more profitable. If you are thinking about using China as your manufacturing base, section 321 gives you another reason to reconsider.