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

• 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
• ISSN: 0378-5920; 1467-9701
• DOI: 10.1111/twec.12577

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.