Amazon Loophole Is Driving the Fentanyl Crisis

 One of the more frustrating things about public policy in the United States is how the dominance of corporate interests makes simple reforms that could save thousands of lives impossible. To wit: Here is the story of how Amazon and other retailers are facilitating the epidemic of deaths from fentanyl.

We know that fentanyl deaths rose 279 percent from 2016 to 2022. Two-thirds of the 110,000-plus overdose deaths in America last year were due to fentanyl. It is the leading killer of Americans aged 18 to 49, and it has devastated communities across the country.

Drug enforcement efforts in the U.S. have historically targeted supply through a so-called “war on drugs.” But reducing the amount of fentanyl on the street need not involve military-style operations in Central and South America. China is the source of most of the chemical compounds that cartels use to make fentanyl in illicit drug labs. Without these raw materials, much of the fentanyl trade would be stopped.

Now, of course this would not halt opioid addiction or use by itself; traditional smuggled heroin would likely fill in the gap. But fentanyl is orders of magnitude more dangerous than heroin thanks to its extreme potency, which is a principal cause of the overdose epidemic. The tiniest of measurement errors can lead to an overdose, and black-market drug dealers are not exactly known for their responsible metrology.

Customs enforcement officials have begun to charge Chinese firms that produce and ship these precursor chemicals (and produced fentanyl as well), and President Biden, in a summit earlier this month, pressured Chinese President Xi Jinping on the matter. The U.S. and China agreed in principle to a deal where China would limit the flow of fentanyl in exchange for the U.S. rolling back restrictions on China’s forensic police institute.

But while Chinese cooperation is welcome, the bigger problem is that the vast majority of fentanyl chemicals sent from China are not inspected at all. That’s because of something called the “de minimis” rule.

Section 321 of the Tariff Act of 1930 allows for goods under a certain value to be shipped into the U.S. without tariffs, fees, or inspections. Anyone who has flown on international travel is familiar with this from their declaration card when they return to the U.S.; if you got some trinkets from abroad that are of a nominal value, you don’t have to submit them to customs officials.

In 2016, that nominal, or de minimis, value, went up from $200 to $800. There are only two countries in the world that have a higher de minimis value than the U.S.; China’s de minimis value is less than $10.

It was not the original intention of de minimis rules to build a parallel, off-the-books customs system, used often for illegal goods shipping.

Why did this change happen? Because e-commerce firms, primarily Amazon, wanted to be able to bring in goods from China to their warehouses or even directly to their customers without any taxes or tariffs. In fact, it’s often been characterized as the “Amazon loophole.”

Chinese shippers have been known to package shipments in separate boxes to keep under the $800 threshold, or send goods to distribution centers just outside the United States, where packages are broken up to get under the de minimis threshold and sent into the country.

These small shipments have exploded in frequency. In fiscal year 2018, 410.5 million de minimis packages were sent. By fiscal year 2022, that number was up to 685.1 million. Some experts put that number much higher. One analysis estimates that the official figure for the trade deficit with China last year was short by $188 billion after accounting for de minimis shipments.

While there’s practically no information available about these shipments (many have no data at all except for a mailing label), there is mounting evidence that one of the most common de minimis items is fentanyl, as Michael Stumo of the Coalition for a Prosperous America has written. This stands to reason, as fentanyl’s potency means it is highly valuable by weight. “The overwhelming volume of small packages and lack of actionable data,” the U.S. Office of Customs and Border Protection wrote earlier this year, “impacts CBP’s ability to identify and interdict high-risk shipments that may contain narcotics, merchandise that poses a risk to public safety, counterfeits, or other contraband.” It’s highly likely that precursor chemicals are moving from China to Mexico under de minimis rules as well.

It was not the original intention of de minimis rules to build a parallel, off-the-books customs system, used often for illegal goods shipping. But that’s what the Amazon loophole has facilitated. Congress is aware of the problem. A bill from Sens. Tammy Baldwin (D-WI) and Bill Cassidy (R-LA) would reduce de minimis thresholds to the level of trading partners (meaning that the de minimis threshold on Chinese goods would fall to under $10). A separate bipartisan, bicameral bill would simply ban de minimis shipments from “non-market” economies, as well as countries on a priority watch list for using de minimis, which would target China.

The House Select Committee on China has investigated rampant use of the Amazon loophole from fast-fashion companies using forced labor. One textile industry official described de minimis as akin to “handing a free trade agreement to China and the rest of the world.” The chairman of the China committee, Rep. Mike Gallagher (R-WI), has expressed optimism that legislation reforming de minimis would pass this year (though passing anything in Congress is incredibly optimistic).

Of course, this is terrible news for the companies exploiting the loophole for tax benefits, like Amazon and other online retailers. So they are firing up their lobbying engines. The U.S. Chamber of Commerce and the National Foreign Trade Council (a trade group of importers) deny that counterfeit goods or fentanyl enter the U.S. through de minimis shipments at all, while arguing that CBP gets plenty of information about what’s in the packages. Lobbyists and their allies are also complaining about higher CBP costs for inspections of small packages, while not mentioning that it would be the importer who would have to pay those charges.

Keep in mind that when indictments were handed down on the companies sending precursor chemicals for fentanyl to drug cartels, they were reportedly packaged to appear as dog food, nuts, or motor oil. The “benefits of free trade” are hard to discern in a recently expanded loophole intended mostly to save Amazon money that is now facilitating the fentanyl crisis.

There’s another beneficiary of the de minimis loophole: digital advertising companies, which benefit from ads from Chinese fast-fashion firms like Shein and Temu that make liberal use of the loophole. Financial Times reporter Rana Foroohar reported recently that one-third of the revenue growth from Meta this year is due to these two fast-fashion firms.

The Biden administration could actually use executive authority to remove certain de minimis exceptions. But in a meeting last week about combating the entry of fentanyl, administration officials actually claimed that reauthorizing the warrantless spying provisions of the Foreign Intelligence Surveillance Act was critical to stopping the supply. There isn’t much evidence that surveillance dragnets would deal with the fentanyl trade, and Congress is highly unlikely to rubber-stamp government spying once again.

Drug addiction is largely a medical issue, and expanding treatment is likely to pay higher dividends than a loser’s game of trying to stem the flow of supply. But the fact that fentanyl is coming in through ordinary shipping services without inspection seems to be the low-hanging fruit here. The process of customs inspection has been almost totally circumvented, to the benefit of two groups: e-commerce companies raking in cheap goods from China, and drug traffickers. The latter may be a universally hated scourge, but the former is quite powerful. And so abuse of the loophole continues.

The question for lawmakers and the White House then becomes: How many Americans are they willing to sacrifice so Amazon doesn’t have to pay a little bit in import fees?

https://prospect.org/economy/2023-11-27-amazon-loophole-fentanyl-crisis/