Section 321 shipments can qualify for the desired but rarely obtained tax- and- duty-free import status eligible for re-sale. That’s right. You can import merchandise for domestic distribution and not have to pay a penny of import tax. Keep reading to see why this is possible and how you might benefit.
U.S. Customs and Border Protection (CBP) has a provision known as Section 321 that allows goods to avoid formal entry filing and duty tax. The goods must be valued at no more than $800 and are limited to one person on one day. Section 321 filing is available for domestic and foreign merchants importing to the United States.
This provision can be especially profitable to eCommerce retailers focused on high volume, low-value shipments from overseas.
If you are looking to enter the import/export business, taxes and duty fees are part of the process. Large-scale import operations cannot escape these duties.
An eCommerce retailer importing high volume but low-value shipments can save a significant amount of money when consolidating shipments from overseas to buyers in the U.S. Recent rulings by the CBP have actually expanded filing eligibility. The “one person” qualification now includes foreign sellers, fulfillment centers, and domestic warehouses.
The CBP’s ruling on Section 321, which is the common term for 19 U.S.C. 1321, was influenced by growing eCommerce markets driving up the number of low-value shipments. Initially, a provision of the Tariff Law of 1930, Section 321 was meant to protect people who wished to import small amounts of low-value items. The eCommerce market has been able to benefit from those protections thanks to advancements in technology and the availability of different shipping methods.
Section 321 shipments benefit Customs services as a whole because the tariff value of such imports tends to be less than the hassle of processing them.
In other words, the government was spending more to process the tariffs of such products than what they were worth. Imagine the tariffs on a low-value shipment being $20. The CBP still has to process it the same as a larger tariff. However, if the average cost of processing a tariff is $30, then on each $20 tariff the government would lose $10 of revenue.
|Tariff on Low-Value Shipment (<$800)||Cost for CBP to Process||CBP Deficit|
It's a simple example, but the government realized that such deficits did add up after a time. It was the smart money move to let these items enter tax-free. With an initial value limit of $200, finding eligible merchandise was difficult. Shipping would cost more than the value.
When the value limit for Section 321 went up to $800 in 2016, eCommerce stores could expand further while still saving money on import duties. However, it also tempted some to use it as a way to sneak in counterfeit goods. The reality is that low-value imports are not as closely scrutinized as larger, high-end, commercial shipments. Sneaking in merchandise that could be high-value, such as counterfeits, was easier in small shipments.
By expanding the eligibility criteria for Section 321 shipments, the CBP hopes to better enforce inspections and track where goods are shipped from.
In terms of eCommerce, it provides a legitimate market for low-value imports that a savvy entrepreneur can take advantage of. Those who are just getting started can even catch a break on import duties until their business picks up.
You can use Section 321 shipments to:
To best understand how this may benefit a small business owner, it's best to know the nuances of the law.
The official language of the law states:
“The Section 321 de minimis administrative exemption admits free from duty and tax, shipments of merchandise [...] imported by one person on one day having an aggregate fair retail value in the country of shipment of not more than $800. (Federal Register, National Archives and Records Administration)
Let’s analyze how the value is calculated for de minimis and what the actual import limitations are.
In the trade industry and otherwise, the term de minimus refers to something of so little value or importance that it isn’t worth paying attention to. This is also why 321 shipments are referred to as low-value shipments.
The duty-free exemption provided by Section 321 provisions will also be referred to as a de minimis value exemption. In 2016 the Trade Facilitation and Trade Enforcement Act (TFTEA) was passed and raised the de minimis value of shipments coming into the United States from $200 to $800.
This was before any changes were made to the definition of “one person” to expand eligibility. More valuable merchandise could be imported, but the people and businesses that could take advantage of it were still limited.
The law states that the value of the shipment cannot exceed $800 USD based on the fair retail value in the nation of shipment.
Nation of shipment refers to the country the merchandise is exported from, but it might not be the nation of origin. For example, you might be importing water bottles that were produced in Cambodia, but were sent to China for sale and distribution. Your purchase in China is then shipped out of Shanghai. De minimis is based on the retail value in China measured in U.S. dollars (USD).
The retail value is determined by customs valuation. This is the value that cannot exceed $800 if the shipment is to qualify for 321 provisions. There are six methods of valuation permitted by the World Trade Organization (WTO).
The goal of each method is to provide an accurate and fair value that can be checked against. Transaction value is the simplest and by far the most common method of valuation used. This is the purchase price paid to the shipper by someone placing the order in the United States. Only the transaction amount, not any taxes paid in that nation, is considered when assigning value for shipping purposes.
Value items used to an extent in the other methods include:
If you are having difficulty in determining the value of items or shipments, it may be best to work with a customs broker who can facilitate the process. Just because a 321 is a shipment type not requiring duty tax, doesn’t mean there aren’t other import factors to consider. Penalties for misfiling any part of the paperwork can be just as severe and impact your bottom line.
Once your shipment qualifies as de minimis, it may automatically be declared under Section 321 during import.
In terms of imports, it would still require inspection (per law) but there is less paperwork involved. Because there are no duties or taxes owed at arrival, the clearance process might be much faster.
Depending on whether the merchandise arrives in the U.S. by air or ocean, two to three days can be shaved off the processing time based on the average for each. For merchandise arriving from Mexico or Canada via truck, even same-day clearance is possible.
Realize it isn’t a guarantee of rapid clearance. Like any other merchandise coming into the U.S., a shipment may get subjected to spot inspections by the CBP or any Partner Government Agencies (PGAs) connected to the good.
Our article on Understanding Customs Examinations can help you understand these inspections better. If you are trying to import specialty items or aren’t sure what qualifies as a specialty, we have experienced customs consultants who can provide you with specific information for your needs.
Meeting the de minimis threshold is only part of the requirement for granting tax-free status. There are multiple Section 321 details to be considered.
Most of the above exceptions won’t impact anyone wanting to use Section 321 fulfillment for eCommerce.
However, because 321 provisions have also been extended to foreign sellers, it's possible one might want to travel to the U.S. with samples. It’s good to know the limits if that is the case.
In regards to official documents, formal entry filing isn’t necessary, but you still have to provide qualifying information to import goods filed under 321 status. A Bill of Lading or shipping manifest may have all the needed information.
This information is provided to the CBP as part of a process called “release from manifest” that needs to be completed before goods are released.
Required information includes:
If the merchandise being shipped is regulated by a PGA, such as the FDA (Food and Drug Administration) or the USDA (U.S. Department of Agriculture), it should also be declared here. Many of these agencies do not have de minimis exemptions that apply to reporting. The import is duty-free, but you may owe a fee to the PGA.
There is a limit to how frequently a shipper or importer can file for Section 321 exemptions. The 321 shipment provision for imports can only be declared for one shipment per day. If you have three separate shipments coming in on the same day, only one can be declared as a Section 321 shipment. This remains true even when the value of each falls under $800.
A domestic shipper is able to consolidate multiple orders so long as they don’t exceed $800 in value. However, if a single order or contract is completed for a greater amount, the items can’t be divided and shipped separately in an attempt to meet the threshold limit.
As an example, let’s say you operate an eCommerce store that sells pet products. You may have found a great supplier for steel bowls that you can customize. You decide to place one order of bowls totaling $2,000 which is over the $800 limit for 321 exemptions.
Any attempts at importing such an order in partial shipments to meet the de minimis threshold would likely result in penalty fees far exceeding any tariffs you thought you were avoiding. Your attempt at saving money by cheating on tariffs is also going to ruin your reputation with Customs in the future and your shipments may be pulled more frequently for inspection.
The CBP reserves the right, at the discretion of the Customs agent conducting the investigation, to deny Section 321 status to the current and all future shipments you may be associated with. That is not a list you want your business to be on.
The original language of Section 321 stated that this provision could be claimed for imported articles by “one person on one day”.
As discussed, the one-day mandate has not changed. Though unlikely, someone could technically claim Section 321 shipments 365 days a year so long as it was a single order and shipment each time.
What has changed is the legal definition of “one person”. In August of 2020, the CBP added to the list of what qualifies as “one person”. Now included are:
Domestic warehouses and fulfillment centers can now use their company name when filing for Section 321 exemptions in Automated Commercial Environment (ACE) eManifest submissions as an Entry Type 86.
Foreign sellers may be able to get the greatest benefit from the new definition. The “one person on one day” limit has something of a loophole built in that greatly benefits B2B sales.
Consider this scenario. You, as a foreign seller, operate a warehouse in Vietnam that makes party supplies and have eCommerce businesses in the U.S. that are placing orders within the $800 limit. You can consolidate the orders and send them out on one ship while still meeting Section 321 requirements. Because the orders are already sold to different entities, each one can claim 321 exemption status.
If you have 500 orders, they can be packed in the same container, which saves on shipping costs. Everyone wins.
The catch here is that you need to be able to consolidate enough orders to make up for the added expenses a carrier is likely to charge. When each order is filed as Section 321, the carrier has to manifest separate Bills of Lading for each and manually present them to Customs after arriving in port.
If you don’t have enough orders, you may be better off paying the tariffs and keeping the orders on one Bill of Lading to avoid the extra charges from the carrier.
Getting a designated customs broker who can direct how to best start using Section 321 shipments, might be a great investment to grow your import business if you’re starting from scratch.
In 2019, a pilot program was put in place by the CBP to test ways of tracking shipments that qualified for 321 status. The CBP created Entry Type 86, a new category that allowed customs brokers and self-filers to submit claims.
To be clear, Section 321 and Entry Type 86 filing are both going to be duty-free declarations imported without a formal entry summary.
Importers are not required to file under entry Type 86; there are no formal regulations surrounding it. It’s basically a test code that the CBP can use to track what kinds of goods are entering under 321 provisions. Anyone not wishing to participate can still claim Section 321 for shipments by filing a ‘release from manifest’ process as described earlier.
There are other benefits for shippers and importers that choose 86 entry filing, especially for imports coming into the U.S. from Canada or Mexico.
The CBP continues to encourage shippers filing Section 321 declarations to do so as an Entry Type 86 for the safety and well-being of consumers as well.
Section 321 imports are granted informal entry to the U.S. as part of the duty and tax-free status that comes with the provision. Since these imports are often not a priority for inspectors, certain bad habits, like leaving partner agencies off the declarations, have developed.
For instance, you may be importing specialty candy from Mexico for sale in the U.S. and as a food, it should be declared with the FDA. Should you end up getting a bad batch of candy that makes people sick, there is no way to track where it came from or who delivered it.
The CBP and the FDA want to prevent this from happening, or at the very least monitor and traceback dangerous or faulty imports. Bad suppliers get reported so importers know to avoid them.
Some potentially dangerous or harmful imports that have been seized by the CBP since enforcement was stepped up include counterfeit surgical masks and unapproved Covid 19 tests.
Not all types of merchandise qualify for Entry Type 86 filing. To make sure that you won’t be penalized upon arrival, speak with a licensed customs consultant before importing any kind of goods.
Filing for Entry Type 86 or ‘release from manifest’ does not automatically make your shipment tax-free. The item must still be cleared by Customs after arriving in the U.S. Provided all paperwork checks out, items that obtain final approval as Section 321 shipments are duty- and tax-free.
Because the value of the shipment is under $2,500, there is no customs bond required for entry either. If a shipment that has filed for Section 321 provisions fails to pass, tariffs will be imposed and a customs bond may be required depending on the amount.
Any delays in Customs could potentially cost you thousands in fees. Like any import, all required paperwork and possible import permits must still be filed with both the CBP and any PGAs that might also oversee your import of choice.
To take advantage of 321 provisions, there are certain guidelines to follow.
If your business model is designed around Section 321 shipments, it is important to have a licensed customs consultant review how to remain in compliance long term.
For more tips on getting your eCommerce business and running check out our tips for new importers.
In 2018, four additional rounds of increased tariffs were imposed on a majority of the goods currently imported from China. These tariffs were put in place under Section 301 of the Trade Act while there is an ongoing investigation by the U.S. Trade Representative (USTR) into Chinese imports.
As of the writing of this article, these increased tariffs are still in place but the current exemptions still allow for Chinese imports to qualify as Section 321 shipments.
Further information on Section 301 can be found in our comprehensive guide on U.S. trading partners and especially China.
That being said, a bill, H.R. 6412, was recently introduced to the House of Representatives in January of 2022 that could change 321 exemptions from increased tariff rates.
Referred to as the Import Security and Fairness Act, if passed it could make all goods under section 301 ineligible for section 321 provisions, among other things. Imports from China or any other nation whose products are under increased tariffs or enforcements can be denied de minimis treatment.
If you plan on using products imported from China, especially if the nation of origin is different, speak with a customs consultant familiar with section 301 and 321 regulations and limits. Current tariff rates are up 25% in some cases, so it isn’t something you should take lightly.
Delays are one of the greatest issues affecting business supply chains. While they aren’t anything new, the scope and reach of delays are impacting trade on an international level.
eCommerce merchants trying to avoid delays are turning to Section 321 shipments for a variety of reasons.
The ability to avoid delays translates into several benefits for yourself as an importer, and for your customers. Some of these benefits allow you to pass along cost savings or even free shipping options.
If your customers are happy, they will keep buying and your business can stay in business.
Bringing merchandise into the U.S. as Section 321 shipments has money-saving potential for your small business. Whether you are just getting your eCommerce store up and running or are looking for ways to improve current fulfillment costs, 321 provisions are worth looking into.
Work with the experienced customs consultants at USA Customs Clearance and gain a resource capable of helping you every step of the way. Our Customs Brokerage services have experience with all kinds of imports and have knowledge of how to stay in compliance with unique regulations.
Our consultants will speak with you directly in a 1-on-1 session to answer any questions and guide you on the appropriate paperwork to file for rapid and hassle-free entry through Customs. In just 30 minutes, you could take the most important step to get your profits on track.
Call us directly at (855) 912-0406 or get immediate access to our consulting services online.