Export Q & A: De Minimus and Low Value Shipments

De Minimus and Low Value Shipments

Q: I need some help. I heard you mention in a USMCA webinar that there are some circumstances where you can use “de minimis” as an exception if one or more of the food ingredients do not undergo a tariff shift and it still may qualify. I have been searching for that information and all I see is an explanation of low value shipments. I have a coffee roasted in Puerto Rico but I add in about 5% of some Kenyan “gold” coffee in order to give it a bolder flavor. I have a customer in Mexico who wants to import it but only if it qualifies for USMCA. What do I do?

A: You are not alone. There must be hundreds of comments on this issue, especially those involved in exporting under the North American Free Trade Agreement, “NAFTA” which was replaced by the United States, Mexico and Canada Free Trade Agreement, “USMCA”, last July 1st. NAFTA never used that term for these types of shipments, they were referred to as “LVS” or low valued shipments. De Minimus was only used for the circumstances you mention regarding ingredients not undergoing a tariff shift and still qualifying for preferential tariff treatment.     

De Minimus and Low Value Shipments

De minimis is a Latin expression meaning “pertaining to minimal things”, or “lacking significance or importance: so minor as to merit disregard”. As far as international trade and now USMCA go, it has two meanings and not one. This LVS treatment is also “De minimis” but refers to the value below which goods are not charged duties and taxes.

They generally refer to the express (courier) shipments, at times also referred as de minimis shipments, that benefit from reduced or no duties and taxes. In a nutshell (food pun), when shipping to Mexico from the U.S. if it is $50 or less the shipment is not subject to taxes and $117 and less not subject to customs duties and taxes. When shipping LVS to Canada it is CAD $40 (about $33) and less not subject to customs duties and taxes and if CAD $150 (about $121) and less not subject to customs duties, subject to taxes only.

In addition in regards to the former “LVS” when shipping to Mexico, the current USD $1,000 formal value threshold will remain the same, and shipments (containing goods that are not regulated, controlled or prohibited) valued below the threshold will not require formal entries to be submitted for customs clearance. A statement certifying that the imported goods originate from a USMCA country could be required.

When shipping to Canada the LVS threshold will increase from CAD $2,500 to CAD $3,300 for all imports, regardless of origin. That is about US$2070 to US$2732 as of this publication. Shipments imported with a value below the LVS threshold (containing goods that are not regulated, controlled or prohibited) do not require formal entries to be submitted for customs clearance. A statement certifying that the imported goods originate from a USMCA country could be required.

The statement is preprinted on most USMCA origin certificates, which are unofficial and made available by private organizations for the benefit of the trade. It says “I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.”

USMCA’s De Minimus Provision for Agricultural Products

Now regarding the de minimus question for agricultural products. The USMCA de minimis provision allows a small percentage of non-originating inputs from outside North America that do not meet the applicable tariff shift, to be used in a qualifying USMCA good. The de minimus provision under NAFTA was 7% of the good and under USCMA they increased the de minimis threshold to 10%.  What this means is that through the current provision, a good shall be considered “originating” even when it fails to qualify as such under the relevant Rule of Origin, as long as the value of all non-originating (outside-of-North America) materials used in the production of the good do not exceed 10% of either the Transaction Value (TV) or the total cost of the end product.

So, goods that were not eligible under NAFTA at 7%, might now qualify for USMCA tariff preferences under the 10% allowance. In these situations, producers could evaluate the replacement of certain USMCA-originating materials with non-originating materials as an alternative to reduce costs and still continue qualifying for preferential treatment under the de minimis rule. Goods must still satisfy all regional value content (RVC) requirements and all other applicable regulations, to qualify as originating. But, again since this is the food industry there is a list of products which do not qualify for de minimis which means there is no allowance for imported goods to be used as replacements for North American equivalents.

Excluded Products. The Article 405 de minimis rule does not apply to the following materials:

Certain dairy products and preparations that are used in the production of goods provided for in Chapter 4 of the HTS;

Goods provided for in Chapter 4 of the HTS and some dairy preparations that are used in the production of certain goods containing milk, milk solids or butterfat;

Some fruits and juices used in the production of certain juices and juice concentrates;

Fats, lards, oils and related products provided for in Chapter 15 of the HTS that are used in the production of Chapter 15 goods (except olive, palm, and coconut oils, where the de minimis rule does apply);

Cane and beet sugar used in the production of sugars, syrups and other products provided for in HTS headings 1701-1703;

Sugar, molasses, sugar confectionery and other goods provided for in Chapter 17 of the HTS and cocoa powder provided for in HTS 18.05 that are used in the production of chocolate and other food preparations containing cocoa;

Beer wine and other fermented beverages provided for in HTS headings 22.03-22.08 used in the production of alcoholic beverages and related products provided for in HTS headings 22.07 and 22.08;

De Minimus and Coffee

In addition to the exclusions, de minimis rules do not apply to agricultural goods provided for in Chapters 1 through 27 of the Harmonized System unless the non-originating materials are classified in subheadings different from the subheadings in which the finished goods are classified. A subheading is also referred to as the six digits “HS” code used for product classification universally in trade. They can be in the same chapter as in 09, or even the same heading as in 09.01 but not in the same subheading.

In your case, the ground coffee, sold in retail packages, is produced in the U.S. using HS 0901.21. Most of the beans are grown and roasted in Puerto Rico but to give the coffee a unique flavor the producer adds some roasted “gold” beans from Kenya, which is also HS 0901.21. The value of the beans from Kenya is 5% of the transaction value (TV), adjusted to an FOB basis, of each retail package. The Annex 401 origin criterion for HTS 09.01 is:

“A change to heading 09.01 through 09.10 from any other chapter.”

So, you see even at only 5% the coffee cannot be considered “originating” because the Kenyan beans do not undergo the required tariff change. They come in and go out of the U.S. at HS 0901.21. The de minimis rule does not apply because the Kenyan beans are classified in the same subheading as the final good. In Mexico, the duty on the product would be a whopping 45% on the CIF value and of course the importer would not be interested in paying that. Free Trade Agreements encourage as much local “originating” production as possible and Mexico is protecting its coffee industry by restricting 3rd party content from preferential tariff treatment.

There is some good news though: If green (unroasted) coffee were imported from Kenya and roasted in the U.S. including Puerto Rico, the de minimis rule would apply because green coffee beans are classified in HTS 0901.11, a different subheading. Thus, the ground coffee in retail packages would qualify as originating. This is available because the manufacturing process and labor was done in North America. You would just need to figure out if the costing of the import and processing makes sense to your business.

In addition, the duty in Canada is free even without USMCA qualification so if you could locate some importers to our North to buy it you would not even need to qualify the product for the FTA. They might ask for origin certification anyway but it is easy to do as you learned in the webinar. Canada does not grow coffee so they do not need to protect it. Dairy, however, is another matter entirely.   

Other USMCA Restrictions on Food Products

There are also a few other restrictions in USMCA on food products which do not deal with de minimis. They are purely restrictions on use of food ingredients in the finished product. For example roasted or blanched peanuts or even peanut butter has to come from U.S. peanuts. The rule of origin for HS 2008.11 (processed peanuts) says “A change to subheading 2008.11 from any other heading, except from heading 12.02” – 12.02 is guess what? Raw peanuts, shelled or not.  So, you have to use U.S. peanuts, or at least those from North America to qualify for the duty free entry.

In Food Export’s webinar you referred to called “Dynamics of USMCA Origin Certification” the only food product in chapters 1-23 with an RVC requirement was pointed out. That’s correct, there is only one. It also uses another requirement which is common to the HS 1-23 which is based on weight. The rule is for mixtures of cranberry juice.

The rule of origin says “A change to cranberry juice mixtures of subheading 2009.90 from any other subheading within Chapter 20, except from subheading 2009.11 through 2009.39 or cranberry juice of subheading 2009.80, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than: (a) 60% where the transaction value method is used; or (b) 50% where the net cost method is used; or –“A change to any other good of subheading 2009.90 from any other subheading within Chapter 20, provided that a single juice ingredient, or juice ingredients from a single non-Party, constitute in single strength form no more than 60% by volume of the good.”

In layman’s terms this is saying if you use more than 40% of the invoice or 50% of the cost with imported ingredients the product will not qualify for USMCA. The same rule applies if you have more than 60% of the weight of the juice having come from imported product. The “Most Favored Nations” (MFN) rate of duty will be applied as a member of the World Trade Organization (WTO) which as of right now is 6% in Canada and 20% in Mexico. Neither of those additional costs would likely result in an export sale.