The de minimis threshold in international trade: The costs of being too low

With tariffs largely negotiated away, trade facilitation issues such as custom delays and border costs are one of the next key barriers for trade policymakers to address. One important trade facilitation issue is the de minimis threshold (DMT)—a valuation ceiling for imports below which no duty or t...

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Bibliographic Details
Published in:World economy 2018-01, Vol.41 (1), p.337-356
Main Authors: Latipov, Olim, McDaniel, Christine, Schropp, Simon
Format: Article
Language:English
Subjects:
Companies
Constraints
Consumers
de minimis threshold
Developed countries
Economic analysis
Economic models
Imports
Industrialized nations
International trade
Policy making
Small business
Tariffs
Tax revenues
Taxation
Thresholds
trade facilitation
Trade flows
Trade policy
Valuation
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Summary:With tariffs largely negotiated away, trade facilitation issues such as custom delays and border costs are one of the next key barriers for trade policymakers to address. One important trade facilitation issue is the de minimis threshold (DMT)—a valuation ceiling for imports below which no duty or tax is charged and the clearance procedures are minimal. Customs assessments are costly and low thresholds can hinder trade flows. We offer a detailed analytical approach to assess the direct economic effects of raising the DMT. We focus on Canada, which has one of the lowest DMTs among developed countries. We utilise a unique data set and find that raising Canada's DMT would have positive effects for consumers and businesses, particularly small businesses because the cost saving for smaller entities is disproportionately large. For the government, foregone duty and tax revenues are outweighed by the cost saving, resulting in a fiscally neutral or even positive effect for government revenues.
ISSN:0378-5920
1467-9701
DOI:10.1111/twec.12577