Type 86 Test Revealing Compliance Weaknesses in Small Packages

Sal Ingrassia, whose time as port director at the JFK Airport had him overseeing about one-third of the de minimis entries to the U.S., told an audience at CBP's Trade Facilitation and Cargo Security Summit April 17 that while the agency is glad brokers are providing Harmonized Tariff Schedule codes in the Type 86 test, "we still have a lot of concerns," because they're finding the data is often not correct.

Ingrassia said ports identified de minimis shipments to examine, and reported to the de minimis working group what they learned. "One quarter of what we looked at had some type of violation," he said. "It was alarming to see we had so many violations." He said a large number of the violations were either an HTS misclassification "or unmanifested merchandise in the shipment, meaning that we had an e-commerce package or shipment with three items in it. Only one item was declared. That's a real problem for us when we're talking about entry Type 86."

Also, for another 25% of the packages, CBP asked the company to hold the package so CBP could inspect it, and when CBP got there, the package had already been released. Ingrassia said that may not have always been deliberate, since Type 86 shipments are released immediately unless CBP puts a hold on any, and some of the releases may have happened before the company knew there was a request to present the package. But a non-presentation rate of 25% is problematic for the agency.

Ingrassia asked rhetorically: "How can we run a system like entry Type 86 without having correct information?"

Ingrassia suggested that brokers or e-commerce companies run internal checks on the data they're submitting. "See what you find ... and then share that with us, and tell us what you're doing to ensure compliance." He said that perhaps CBP and the trade will discover some best practices.

Brandon Lord, executive director of CBP's Trade Policy and Programs Directorate, told the group that when CBP changes regulations around de minimis, it will "mandate way less" than the combined data elements used in the Type 86 test and the Section 321 data pilot. The government will only ask for "the data elements where we've seen the most value," he said.

He said CBP is "very early in the rulemaking process," adding: "We're well aware it's gonna be a big change for the industry. And even when we get to a final rule, we anticipate a very measured, smart kind of rollout of that."

In the question-and-answer session for the panel, there were several questions about de minimis shipments that don't come directly from the country of origin -- such as Canadian warehouses sending de minimis packages, or the possibility of foreign-trade zones offering a similar service. Applause in the audience suggested the FTZ idea is a popular one.

"We kind of keep getting asked about this regularly," Lord said in response to the question about Canadian warehouses. "It's a legitimate use of de minimis, assuming those packages aren't violating the per-person per-day rule and the $800 rule," so CBP has no plans to try and curb the practice.

When asked if FTZs could be given the authority to serve as warehouses for imported goods that would later be sold to consumers under the de minimis threshold, Lord said that's not up to CBP, since the Commerce Department also has a role in FTZs. He said he encourages those who want this to happen to talk to Congress and the Commerce Department. There is no plan for CBP to make "any kind of change" along these lines, Lord said.

Because of the massive volume of de minimis packages -- nearly 2 million a day entering the country -- CBP is seeking technology that could help determine what needs to be inspected because there is a nexus to a partner government agency or a heightened possibility of contraband. "We call it shrinking the haystack," Lord said.

One of the challenges, Lord said, is that it's so easy to sell directly to U.S. consumers from overseas and mail the merchandise to them. "And there's zero incentive as that foreign shipper, or foreign seller, to learn the requirements to enter the United States." He asked the audience: "When you take a package on behalf of somebody from overseas, do they understand the requirements that need to be met in order to enter the United States? And if they don't, what kind of steps do you need to take to educate them?"

Carlos Martel, director of field operations at the Los Angeles Field Office, which handles about a third of the national volume of de minimis packages, said that his team is "running a proof of concept" for an algorithm that analyzes advanced data provided for the shipments and flags goods that it suspects have a health and safety risk, are infringing on intellectual property or are of interest to PGAs. "We think it's promising," he said, and it could be integrated into a trusted trader program.

Martel said it's crucial that this sort of culling happen before goods are released. He said his team ran an operation that flagged "quite a few shipments" as non-compliant. All the packages together were worth about $4,700, but since the packages had already been released, and had to be seized afterward, it took about 7,000 man-hours between import specialists, paralegals, property custodians and so on -- and those man-hours are the equivalent of $278,000 in salaries.

As the panel discussed the challenges of de minimis, this was the closest moment to acknowledging why the de minimis threshold exists -- because it costs more money to evaluate small shipments than the goods are worth.

Ingrassia said CBP is evaluating whether an X-ray machine could incorporate an algorithm that would compare the images produced through X-rays with the picture on the e-commerce listing provided by the shipper. The agency is asking itself "what technology can we bring into this facility ... to allow us to review almost 100% of the shipments that come in, but at a speed that makes sense?"