Logistics Reform for Low-Value Shipments

Sharp reductions in tariffs and quotas have propelled dramatic growth in global trade over the past several decades. Often overlooked, however, are the costs associated with trade logistics. In many countries logistics costs are greater deterrents to trade than remaining tariffs. Studies show that trade facilitation—i.e., the reduction of logistics costs—could increase annual global manufactured exports by as much as $400 billion. Hufbauer and Wong focus on two barriers that specifically hamper low-value shipments: (1) an unduly restrictive de minimis exemption from customs duty for low-value imports and (2) an unduly low "informal entry" threshold, the dividing line that determines whether the shipment requires just a little paperwork or a lot of paperwork to clear the entry process. The authors' estimates for the United States reveal that the payoff associated with raising thresholds and reducing "exceptions" could be significant. An increase in the de minimis threshold to $800 would generate net gains of around $17 million annually, taking into account the cost savings at each stage of the delivery chain and the revenue not collected by the customs authority. The saving of paperwork costs alone on de minimis entries might be $33 million a year. Raising the informal entry threshold to $2,500, and slashing the number of "exceptions," could generate net gains of $81 million per year. For emerging-market economies, potential gains from higher de minimis and informal entry thresholds are very likely more substantial relative to the size of their economies. Improving logistics and raising thresholds for low-value shipments are powerful and relatively inexpensive means of enhancing the trading system.