De Minimis Thresholds in APEC
Report on behalf of the EAA, CAPEC & CLADEC
MAY 2012
ITS GLOBAL ASIA PACIFIC
International Trade Strategies Pty Ltd, trading as ITS Global Asia Pacific
Level 1, 34 Queen Street
MELBOURNE VIC 3000
AUSTRALIA
Tel: +61 3 9654 8323
Fax: +61 3 9654 4922
http://www.itsglobal.net
CENTRE FOR CUSTOMS & EXCISE STUDIES
Centre for Customs & Excise Studies
University of Canberra
University Drive South
BRUCE ACT 2617
AUSTRALIA
Tel: +61 2 6201 5487
Fax: +61 2 6201 5746
http:/www.customscentre.canberra.edu.au
Commercial-in-Confidence. The views expressed in this publication are those of its authors.
The consultant takes no liability for commercial decisions taken on the basis of information
in this report. The information is accurate to the best of the consultant’s knowledge,
however the consultant advises that no decision with commercial implications which
depends upon government law or regulation or executive discretion should be taken by any
person or entity without that party’s having secured direct advice from the government
agency concerned in writing.
Table of Contents
Executive Summary
5
1. Introduction to the Study
9
2. De Minimis Regimes in APEC
13
3. Determinants of Current De Minimis Requirements
31
4. Economic Benefits & Costs of De Minimis Regimes
43
5. Conclusions & Recommendations
65
References
69
Annex A: Methodology & Approach to the Study
75
Annex B: Results of Economic Evaluation
85
Annex C: Low Value Consignments to APEC-12 Economies
95
Annex D: Nature of Low Value Consignments to Indonesia
99
5
Executive Summary
A de minimis regime provides streamlined border clearance and exemption from
customs duties and other taxes. These features generate economic benefits by
refocusing public revenue collection on more economic sources of revenue,
reducing the costs borne by importers, and accelerating the delivery of imports.
Most APEC economies have de minimis regimes but their thresholds range from
less than USD1 to more than USD1,000. Moreover, the product eligibility varies as
do the taxes from which they are exempted. These design features affect the
balance of economic benefits and costs that a regime produces.
This study assesses the de minimis regimes of Canada, Chile, the People’s Republic
of China, Indonesia, Japan, Malaysia, Mexico, Papua New Guinea, Peru, the
Philippines, Thailand and Viet Nam — the APEC-12 for ease of reference — by
building upon and extending an earlier study.1 We chose these 12 economies as
being broadly representative of the APEC region in terms of merchandise trade,
geography and economic development. In doing so the study has estimated the
net economic benefit of four alternatives — representing minimum de minimis
thresholds of USD50, USD100, USD150, and USD200 respectively. Tables 1 and 2
summarise the key results.
The USD200 threshold generates the largest net economic benefit for the APEC-12
of around USD5.4 billion a year, equivalent to about USD11.9 billion for all 21 APEC
members. In relative terms the latter is 0.086% of APEC-21 GDP.
Resource savings in government administration are the largest of the benefits.
Under all scenarios, these savings accounted for 76% of the benefits, while savings
in business compliance were virtually all of the rest. The latter are particularly
important for small and medium-sized enterprises (SMEs) as they generally face
disproportionate burdens in completing customs formalities.
These savings have, nevertheless, been conservatively estimated based on the level
of fees and charges for the relevant services that apply in Australia where they are
generally considered to be delivered efficiently. While these have been adjusted to
reflect differences in labour costs with Australia, no allowance has been made for
differences in processing efficiency.
Saving time in transit has a clear economic benefit. The longer products take to get
to market, the more likely they will perish, become out-dated, be displaced by
superior alternatives, or lose the interest of potential buyers. Previous research
has shown that a 10% cut in delivery time will, other things being equal, expand
exports of time-sensitive manufactures by over 4%. By definition, however, the
1
In 2011 ITS and the CCES conducted a study of the impact of the de minimis thresholds in Canada,
Indonesia, Japan, Malaysia, the Philippines, and Thailand (ITS & CCES 2011).
6
savings in transit time for low value consignments are generally small compared to
the resource savings that depend upon the number of consignments in the
category.
Table 1: Economic benefits & costs of alternative de minimis thresholds
APEC-12 (a)
Alternative
Threshold
USD
Ratio of
Benefits to
Costs
APEC-21
Net Benefit
USD billion
per year
50
1,954
59.8
Net Benefit
as Share of
APEC-12 GDP
per cent
0.012
100
3,138
41.1
0.020
6,974
150
4,251
42.8
0.027
9,446
200
5,357
45.3
0.034
11,903
Net Benefit
USD billion
per year
4,342
Notes: (a) Canada, Chile, the People’s Republic of China, Indonesia, Japan, Malaysia, Mexico,
Papua New Guinea, Peru, the Philippines, Thailand and Viet Nam
Source: ITS Global Asia Pacific
Table 2: Net economic benefit of alternative de minimis thresholds, by
APEC-12 economy (a), USD million per year
Threshold
USD
CAN
CHL
CHN
IDN
JPN
MYS
50
1,589
24.6
286
0
0
0
100
2,688
33.9
310
4.3
0
0
150
3,579
44.2
351
9.2
118
0
200
4,371
53.4
386
13.3
318
22.5
Threshold
USD
MEX
PNG
PER
PHL
THA
VNM
50
0
0
13.6
14.8
18.6
7.03
100
34.6
0
16.4
17.0
27.0
6.90
150
67.7
0.067
18.3
18.7
35.5
8.63
200
98.4
0.189
20.5
20.6
43.4
9.40
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
Source: ITS Global Asia Pacific
A notable characteristic of the results is the relatively small impact that an increase
in threshold has on government revenue. The loss of tariff revenue is only
between 1.5% and 2.5% of total savings. Although the loss of VAT/GST revenue is
more difficult to estimate, at the very worst it represents no more than 8% of the
total resource savings generated by the USD200 scenario and less under the rest.
7
The revenue loss is much lower than many may have expected. Over time the
revenue base has been eroded by a combination of highly preferential tariff rates
introduced under Free Trade Agreements and the existing de minimis exemptions.
This is true even for those economies that have relatively high applied tariff rates.
The composition of the results is broadly the same under each of the scenarios and
reflects the basic economics of this category of imports — relatively large numbers
but relatively low aggregate value. Hence the volume-based impacts, such as those
on customs administration and business processing costs loom larger than the
value-based ones, such as those involving transit delays and tax collections.
Overall we judge our results to be robust. Indeed the conservative nature of our
approach means that more refined estimates are likely to yield higher net benefits
than we have estimated not lower ones.
Most, if not all, APEC economies would benefit by increasing their existing
thresholds by a substantial amount. APEC could assist this process by agreeing to
recommend a minimum threshold level to its members with the option of a higher
level to better suit individual circumstances. This would leverage the benefits
from unilateral action.
These conclusions have been strongly reinforced by recent research. For example,
the Productivity Commission, the Australian Government’s independent economic
advisory body, is currently reviewing Australia’s de mimimis regime. Although
Australia has the highest de mimimis threshold in APEC and a substantial GST rate
(10%), the Commission has found that any reduction in the threshold would
impose a substantial net cost on the economy.
An increase in de minimis thresholds need not jeopardize border security as
advance cargo reporting is required by most countries, irrespective of the declared
value of the imports. A higher de minimis threshold can free up the resources to
address the more pressing security issues.
The policy implications are straight forward. A commercially attractive de minimis
arrangement makes sound economic sense. While the optimal level of the
threshold remains an open question, the direction of beneficial policy change in
APEC is quite clear. This is strongly underlined by our estimated benefit-costs
ratios, which put the total benefits for the great majority of the APEC-12 economies
at many multiples of the total costs.
8
9
1. Background to the Study
The facilitation of trade is attracting increasing interest in international and
domestic policy circles, including in the Asia Pacific (APEC 2007). Trade
facilitation seeks to reduce the transaction costs faced by exporters and
importers.2 Reducing such costs stimulates international trade, investment and
business innovation, which are the foundations of sustained improvements in
community living standards in real terms.
A key aim of trade facilitation is the simplification of customs procedures and a key
way to simplify customs procedures is to exempt merchandise from indirect
taxation — such as customs duties, VAT, GST, and sales taxes — below a specified
minimum — or de minimis — value. The World Trade Organization (WTO), the
Organization for Economic Cooperation and Development (OECD), the World
Customs Organization (WCO), and the International Chamber of Commerce (ICC)
have all recommended the adoption of such thresholds.
A de minimis threshold reduces the compliance costs imposed on importers and
accelerates delivery of the merchandise. It also allows governments to refocus
their revenue collection efforts on those parts of the indirect tax base that yield
higher net revenue.
Most APEC economies have de minimis regimes but they differ considerably. The
thresholds range from less than USD1 to more than USD1,000, the products that
are eligible for tax exemption vary, as do the nature of the taxes for which the
exemption is granted. The nature of these variations can significantly affect the
balance between the economic benefits and costs that such regimes generate for
the importing economy.
At their meeting in Yokohama in 2010, APEC Leaders committed their
governments to the achievement of a 10% improvement in supply chain
performance by 2015, after taking into account the circumstances of individual
economies (APEC 2010).3
At Big Sky, Montana in the United States on 20 May 2011, the APEC Ministers
Responsible for Trade (MRT) agreed that reducing the time, cost, and uncertainty
of moving goods and services within the APEC region remains a top priority for the
achievement of the Leaders’ 10% goal. Accordingly the Ministers instructed their
officials to continue with the development of the APEC Supply-Chain Connectivity
2
Transaction costs are the resource costs incurred in searching out, negotiating, and completing an economic
exchange. They include the costs that government regulation and taxation imposes on these processes. Transaction
costs need to be distinguished from the costs of producing what is exchanged, which are sometimes referred to as
‘transformation costs’ to underline this distinction.
This followed advice that the previous trade facilitation goal APEC Leaders’ had set had been realized by the
membership (APEC 2011a).
3
10
Framework (SCCF) Action Plan. The Action Plan includes simplification of customs
procedures and implementation of commercially useful de minimis thresholds.
A proposal that was put forward at that time involved setting a baseline de minimis
value for APEC, while allowing individual economies to adopt higher thresholds as
they saw fit.
As APEC members had agreed to undertake further work on this idea, the Peterson
Institute for International Economics in Washington, DC undertook an economic
study of the benefits and challenges of de minimis regimes with support from the
Express Association of America (EAA) (Hufbauer & Wong 2011). As that study
focussed exclusively on the US, the Conference of Asia Pacific Express Carriers
(CAPEC) engaged ITS Global Asia Pacific (ITS) and the Centre for Customs and
Excise Studies (CCES) at the University of Canberra to assess the de minimis
arrangements in a selection of other APEC economies.
For this purpose, Canada, Indonesia, Japan, Malaysia, the Philippines and Thailand
were chosen as being broadly representative of the region as a whole, in terms of
geography and economic development. ITS and CCES examined the reasons these
economies had adopted their current de minimis arrangements, assessed the net
economic benefit of applying higher de minimis thresholds across the APEC region,
and made policy recommendations on the appropriate baseline de minimis
arrangements for APEC (ITS & CCES 2011). Their report was presented to and
discussed by the APEC Committee on Trade and Investment (CTI) at its meeting in
San Francisco on 22 and 23 September 2011.
At Honolulu on 11 November 2011, the APEC Ministers Responsible for Trade
(MRT) agreed to an APEC Pathfinder Initiative to establish a baseline de minimis
value of USD100 by the end of 2012 (APEC 2011b). Ten APEC members have
joined the Pathfinder: Brunei Darussalam; Hong Kong, China; Japan; the Republic
of Korea; Malaysia; New Zealand; the Russian Federation; Singapore; Chinese
Taipei; and the United States.
At that meeting the Trade Ministers also foreshadowed the development of a
capacity building program to enhance the understanding of the economic and
trade facilitation benefits of higher de minimis values, with the goal of assisting
economies in joining the Pathfinder.
With this in mind, in January this year the EAA, CAPEC and the Latin American
Association of Express Delivery Companies (CLADEC) engaged ITS and the CCES to
extend the methodology and approach, which had been used for their 2011 report,
to a further six APEC economies — in this case Chile, the People’s Republic of
China, Mexico, Papua New Guinea, Peru and Viet Nam. The objective was to
produce a comprehensive and integrated study for all 12 economies.
11
This report is the outcome of that process. In accordance with the terms of
reference for the extended study, it mirrors the structure of the 2011 report. That
said, this report incorporates a refinement in the estimation of the distribution of
the number and aggregate value of import consignments over the range of
consignment values and updates a number of the economic assumptions used in
the original analysis (e.g. exchange rates).
12
13
2. De Minimis Regimes in APEC
2.1
Introduction
This Chapter identifies the principal aspects of the de minimis regimes that apply in
the 12 APEC economies at the present time and, where possible, the underlying
policy rationale for the specified threshold and its supporting arrangements.
There is scant public information available in relation to the policy underpinnings
for the setting of particular de minimis thresholds which are often a result of “push
and pull” between different national constituencies. The Productivity Commission
has highlighted this issue in the Australian context by (2011, p.161). As a
consequence the discussion is based on the relevant legislation that establishes de
minimis in each case; studies recently conducted in New Zealand, the United
Kingdom and Australia; and the author’s own conclusions from the economic
analysis.
While acknowledging that the trade and border management environment in New
Zealand, the United Kingdom and Australia differs from that pertaining in many of
the APEC economies selected for this study; it is strongly arguable that the policy
considerations surrounding decisions to adopt a particular de minimis threshold
are homogeneous. Support for this view can be found in the research conducted by
Yang (2008) in relation to the Philippines. This broader analysis on the rationale
for de minimis and the implications for specific thresholds is set out in the
following Chapter of this report.
The research has also examined the incidence of ‘informal shipment’ de minimis as
an intermediate regime between a completely ‘duty-free’ de minimis regime and
the general customs regime where a transaction requires full documentation and
payment of all duties and taxes.
It is not uncommon for governments, to implement, through their customs
legislation, a second de minimis threshold (in addition to the duty-free de minimis
below which no duty is payable) as a mechanism for trade facilitation. This second
de minimis threshold generally forms part of a regulatory approach that allows
importers to utilize a simplified customs declaration or other simplified clearance
process where the value of the imported goods is below a specified de minimis
and/or the goods fall within a specific tariff classification or description; for
example, document shipments.
2.2
Nature of ‘informal shipment’ de minimis
‘Informal shipment’ de minimis regimes are generally designed to implement the
principles outlined in the World Customs Organization’s (WCO’s) Guidelines for
the Immediate Release of Consignments by Customs4 (“the Guidelines”). These
4
http://www.wcoomd.org/home_pfoverviewboxes_tools_and_instruments_pftoolsimmreleaseguide.htm
accessed on 15th March 2012
14
Guidelines divide consignments into four categories for the purposes of providing
immediate or facilitated customs clearance ranging from minimum documentation
requirements (Category 1) through to full documentation requirements
(Category 4). Similarly, the required data elements for each category increase from
Category 1 to Category 4 (see Appendix 1 to the Guidelines) with a corresponding
impact on processing cost. Details of the suggested characterization for each level
of facilitation are as follows:
Category 1 – Correspondence and Documents
This category is intended to cover correspondence and documents having no
commercial value and which are not subjected to duties and taxes.
Category 2 – Low value consignments for which no duties and taxes are
collected
According to the Guidelines this category comprises:
‘…material for mass distribution in commercial quantities, certain types of
literature for the blind, printed papers; low value consignments where
duties and taxes are remitted or waived as the amount of duties and taxes
would be negligible, e.g. unsolicited gifts below a defined value, trade
samples; and low value goods which are not dutiable and taxable in their
own right.’
The Notes to this Guideline set out an example where “the value of a consignment
should be less than SDR505 or the duty and tax less than SDR3 or the consignment
should be both less than SDR50 in value and the duty less than SDR3”.
Category 3 – Low value dutiable consignments
This category comprises:
‘…consignments that are above the value and/or duty/tax limits of category
2 consignments or do not qualify for duty and tax remission or waiver.....For
example the value of the consignment should be SDR50 or above but below
SDR1000. These consignments are above any de minimis threshold
specified for Category 2 but below the value specified in national legislation
for which a full Goods declaration is required.’
Category 4 – High value consignments
This category comprises:
‘…consignments not falling under the other three categories described
above and includes consignments containing goods that are subject to
5
Special Drawing Rights issued by the IMF.
15
restrictions. Normal release and clearance procedures, including payment
of duties and taxes apply.’
Table 2.1 sets out the current ‘duty-free’ and ‘informal shipment’ de minimis
thresholds in each of the selected APEC economies. They are expressed in the
currency nominated by the relevant legal authority —usually but not always their
national currency — together with their United States Dollar (USD) equivalents for
ease of comparison. Details of the legal and policy framework for the each de
minimis regime follow, to the extent to which that information is publicly available.
Table 2.1: Current de minimis thresholds, selected APEC economies
USD
Equivalent (a)
VAT/GST
rate
20
‘Informal
shipment’
De Minimis
CAD 1,600
1,600
5%
USD 30
30
USD 1,000
1,000
19%
China
CNY 50
8
Documents only
Documents only
17%
Indonesia
USD 50
50
USD 2,000
2,000
10%
JPY 10,000
125
JPY 200,000
2,500
5%
MYR 500
165
MYR 2,000
660
4%
Mexico
USD 50
50
USD 1,0006
1,000
16%
PNG
PGK 250
120
PGK 1,000
480
10%
Peru
USD200
200
USD2000
2000
18%
Philippines
PHP15
0.35
PHP2000
47
12%
Thailand
THB1,000
32
THB40,000
1280
7%
Vietnam
VND1million
48
VND5million
250
10%
‘Duty-free’
De Minimis
USD
Equivalent (a)
Canada
CAD 20
Chile
Economy
Japan
Malaysia
Note: (a) conversion is based on the average exchange rate for 3 May 2012
6
Quantum of threshold is for a consignee that is a legal entity. If the consignee is an individual the
threshold rises to USD 5,000
16
2.3
Legal & policy frameworks by economy
2.3.1 Canada
The applicable regulatory framework is the Postal Imports Remission Order7 and
the Courier Imports Remission Order8 that apply to both commercial and noncommercial imports.
Under these Orders, if someone imports an item that is worth CAD 20 or less, the
importer does not have to pay duty or taxes on the item. If the item is worth more
than CAD 20, the applicable duty, the GST (Goods and Services Tax) or HST
(Harmonized Sales Tax), and any PST (Provincial Sales tax) must be paid on the
item’s full value.
Canada levies the GST at a rate of 5% but certain goods and services are exempt or
zero-rated (WTO 2011). The zero-rated products include groceries, residential
rent, medical services, and financial services.
Items that do not qualify for the CAD 20 exemption include:
 tobacco;
 books, periodicals, magazines;
 alcoholic beverages; and
 goods ordered via a Canadian post office box or a Canadian intermediary.9
In addition the Courier Low Value Shipment (LVS) Program streamlines the
processing of low-value shipments through customs while providing the express
courier industry with expedited release. This is done through:
 a single combined cargo report and release document called the
‘cargo/release list’ for goods valued under CAD 1,600;
 the courier is required to provide separate cargo/release lists for cargo
valued at less than CAD 2,020 and for cargo valued between CAD 20 and
CAD 1,600.
Hufbauer and Wong (2011) suggest that Canada mainly has a low de minimis
threshold because the Federal Government imposes a tax on value-added (GST),
which applies to imports as well as domestic sales, and is concerned about the
potential loss of GST revenue. This concern is amplified by the fact that the United
States, Canada’s neighbor and largest trading partner, does not impose a VAT-style
of indirect tax.
7
Financial Administration Act, section 17, Order-in-Council P.C. 1985-2954, October 3, 1985 (Canada
Gazette, Part II, p.4291) as amended by Order-in-Council P.C. 1986-1400, June 12 1986 (Canada).
Gazette), Part II, p.2616) and Order-in-Council P.C. 1992-1432, June 24, 1992 (Canada Gazette, Part II,
p.3098)
8
Financial Administration Act, section 17, Order-in-Council P.C. 2955 as amended by Order-in-Council
P.C. 1986-1401 and Order-in-Council P.C. 1992-1431
9
The exemption is also not available in the case of goods from a supplier who is required to be registered
under Subdivision D of Division V of Part IX of the Excise Tax Act but has not done so.
17
2.3.2 Chile
The foundation of Chile’s customs regime is the Customs Ordinance (Decree with
Force of Law No. 30 of the Ministry of Finance, published on 16 June 2005). 10
Article 103 of the Customs Ordinance states that: ‘Goods imported into the country
must pay import duties unless specifically exempted by law’. Article 68 of the
Customs Ordinance also allows the Director-General of Customs to provide for a
‘simplified system different from that used in commercial operations’.
Imports are subject to customs duty, value added tax (VAT) and other additional
taxes depending on the nature of the goods. The VAT is levied at the rate of 19% on
most goods and services (WTO 2009a). The exceptions to VAT depend on the use
or purpose of the goods — one of the most important is the concession for exports.
Some goods are subject to additional taxes — including luxury articles, beverages,
tobacco, pyrotechnical articles and fuels.
‘Duty-free’ de minimis has been established for shipments with a customs value
less than USD30. In these circumstances the goods can be cleared on the basis of
the manifest only and without any requirement for a customs declaration. The
authorities require limited data elements11 and supporting documentation —
commercial invoice and the air waybill or bill of lading together with any
permits/certifications required by other government agencies depending on the
nature of the goods — but there is 100% non-intrusive screening of this type of
cargo.
Chile has established an ‘informal shipment’ de minimis for shipments with a
customs value between USD30 and USD1,000. Customs clearance occurs on the
basis of a ‘Special Simplified Declaration’ and presentation of the manifest but is
restricted to one Air Waybill for each simplified declaration. In other words, the
simplified procedure does not allow for consolidated clearance. The data elements
and documentation requirements are the same as for ‘duty-free’ de minimis and
screening of this cargo is risk-based.
2.3.3 China
China Customs changed some of their rules concerning de minimis with effect from
1 July 2010. Previously, sample and advertising materials that were valued below
CNY400 (approximately USD67) were exempt from duties and taxes. However,
Customs Order No. 33 removed this duty-free de minimis so that the new threshold
is now based on the duty liability as calculated in accordance with the relevant
commodity’s HS tariff classification and customs value.
10
Other instruments which form part of the regime are the Organic Customs Law (Decree No. 329 of 20
June 1979), the Customs Tariff (Decree No. 1.019 of 31 December 2001 and amendments thereto), the
Tax Code (Decree Law No. 830 of 31 December 1974), the Compendium of Customs Regulations
(Resolution No. 1300 of 2006), Law No. 18.525 on the Import of Goods into Chile and amendments
thereto, Law No. 19.912 of 2003 (WTO 2009a).
11
Neither importer registration details nor HS tariff classification codes are required
18
China’s main indirect tax is its VAT; the revenue from which is shared 75:25
between the Central and local governments (WTO 2010a). The standard rate is
17% with 13% on certain items. Exporters are entitled to rebates but the VAT is
often not fully rebated (WTO 2010a).
In 2009 China transformed its VAT from a production-based to a consumptionbased tax at the national level (WTO 2010a). Before the reform, the VAT paid on
inputs could not be offset against the VAT payable on the final product. This was
partly corrected by not collecting VAT at the border on imported capital goods.
Following the reform, VAT paid on capital is credited against VAT on the final
product and the VAT exemption on imported capital equipment was discontinued.
The Chinese authorities consider the transformation helps reduce the cascading
effects of the VAT (WTO 2010a).
All goods entering China that are valued below CNY400 must provide a 10-digit
Harmonized Schedule number, and the importer must apply for a GAC importer
registration number. Both of these result in a slowing of the clearance process.
Any shipment below CNY50 retains its exemption from duties and taxes.
Another law in this area that is relevant to de minimis is Customs Order No. 43. This
requires, inter alia, that business to consumer transactions including online
purchases cannot be cleared as ‘personal effects’ and must go through the general
Customs clearance process. This latter process can be formal or informal
depending on value so there is still scope for ‘informal shipment’ de minimis.
The data requirements for ‘informal shipment’ de minimis exempt importer
registration and HS tariff classification in respect of document shipments only.
Similarly, power of attorney, invoice, packing list, and contract are exempted from
the documentation requirements only in the case of document shipments so
‘informal shipment’ de minimis is quite circumscribed.
2.3.4 Indonesia
Article 6 of Customs Regulation Number P-05/BC/2006 provides that ‘Courier
express shipments with value not more than USD50 are exempted from import
duty and taxes’.
Value-added tax (VAT) is applied at a rate of 10% to most goods and services. The
exceptions include: certain mining and drilling products; certain minerals; basic
necessities; food and drink served in hotels and restaurants; shares, bonds, and
other commercial paper; healthcare; orphanage, and funerary; postal; banking,
insurance, and financial; religious; educational; non-commercial art; noncommercial broadcasting; public transport; manpower; and hotel services (WTO
2007a).
The luxury goods tax is applied at various rates:
19

10% on bottled water, soft drinks, cosmetics, radios and tapes, luxury
houses, and townhouses;

20% on carpets, sanitary goods, and luxury home appliances such as air
conditioners;

30% on non-government ships, sports equipment, certain television
receivers, and motor vehicles with fewer than ten seats;

40% on alcoholic beverages, imported leather goods, imported precious
metals, private aircraft, and firearms; 60% on two-wheeled motor vehicles;
and

75% on luxury yachts, and trailers and semi-trailers for camping or home
use (WTO 2007a).
Non-document shipments valued below USD 2,000 and weighing less than 100 kg
are able to take advantage of simplified clearance processes unless the items in
question are restricted or controlled in some way.
2.3.5 Japan
Goods with a customs value of JPY 10,000 or less are exempted from customs duty
and consumption tax. This treatment is provided by:




Article 14 of the Customs Tariff Law12
Article 16 of the Cabinet Order for Enforcement of the Customs Tariff Law 13
the General Notification of the Customs Tariff Law14
Article 13 of the Law for the Collection of Excise Taxes on Imports.15
Consistent with the treatment that is accorded by de minimis regimes elsewhere in
APEC, imports into Japan are only exempted from the consumption tax and not
from other domestic taxes — for example, liquor tax, tobacco tax etc. The
consumption tax is a VAT-style tax and is levied at the rate of 5% (WTO 2011).
Furthermore, the de minimis exemption is not applicable to certain designated
articles16 for which tax exemption is considered inappropriate because of their
impact on domestic industry or for other reasons, even if their customs value does
not exceed JPY 10,000.
12
paragraph 3
section 21
14
paragraph 14
15
no. 1 of paragraph 1
13
16
The principal articles that have been designated as those to which duty exemption is not applicable are as follows:
Leather bags, handbags, gloves, etc., knitted apparel, ski boots, leather shoes and footwear with leather soles.
20
The criteria for determining whether the customs value is JPY 10,000 or less are as
follows:

The customs value of imported goods per declaration should not exceed
JPY 10,000. When multiple declarations are made for one invoice in order to
divide the invoice’s articles into several units, the total customs value of all
the articles belonging to the invoice should not exceed JPY 10,000.

For parcel post, the customs value of all articles enclosed in one package
should not exceed JPY 10,000. If a shipment is divided (to avoid weight
limits, etc.) and sent from a given sender to a given receiver at the same
time, the total amount of customs value of all the parcels shipped separately
from the sender to the recipient should not exceed JPY 10,000.
Under the General Notification of the Customs Law goods with a customs value of
JPY 200,000 per article or less, as specified on the import declaration form, are
enter by utilizing a simplified customs clearance procedure. 17 This is subject to the
importer putting the following description on the import declaration: ‘Simplified
customs clearance procedure for low-value goods’. Simplified clearance is not
available for certain specified goods such as goods requiring an import license.
2.3.6 Malaysia
Express consignments with a de minimis value of MYR 500 are exempted from the
payment of customs duties. The direct release of non-dutiable express shipments
below MYR 2,000 without a formal declaration is permitted unless the goods are
controlled or otherwise restricted.
Malaysian Government has stated that the purpose of its de minimis threshold is:
‘…trade and business facilitation, effective delivery of services and reducing
the cost of doing business…to enhance efficiency and effectiveness in the
delivery of goods and services, the Government is also promoting the
growth of integrated logistics services.’ (WTO 2005a, pp. 1-2)
The WTO has reported that the Malaysian authorities are planning to introduce a
broad-based VAT-type of tax of goods and services (GST) to replace the existing
system of sales taxes and taxes on services, which generally involve tax rates of
between 5% and 10% (WTO 2005c & 2009b). It is not clear whether the
Government is going to extend their de minimis arrangements to include GST
exemption once that tax has been introduced.
2.3.7 Mexico
Mexico's customs regime is based on the 1995 Customs Law that entered into effect
on 1 April 1996. The current revision is 2012. There are also Implementing
17
paragraph 67
21
Regulations, as well as the General Foreign Trade Regulations and the annexes
thereto, and the decisions taken annually by the Secretaría de Hacienda y Crédito
Público (SHCP) [the Ministry of Finance and Public Credit].
The customs legal framework also includes other legislative instruments such as
the Tax Code of the Federation and its Implementing Regulations; the Foreign
Trade Law (LCE) and its Implementing Regulations; and the Law on General
Import and Export Taxes (TIGIE), the agreement under which the Ministry of the
Economy (SE) issues general regulations and criteria for foreign trade, and the
customs provisions in the free-trade agreements (FTAs) signed by Mexico.
Imports and domestic products are subject to a VAT, the Impuesto Especial sobre
Producción y Servicios (IEPS) [special tax on production and services], and the
Impuesto sobre Automóviles Nuevos (ISAN) [tax on new automobiles] (WTO
2008).
Mexico levies its VAT at a general rate of 15%. Certain products are exempt:
 products for basic consumption such as foodstuffs and some beverages
(water, milk, juices and syrups);
 pharmaceuticals;
 unprocessed products of plant or animal origin; and
 goods for export, inter alia, are exempt from VAT.
The IEPS applies to both domestic and imported products and rates range from
20% to 110% on: alcoholic beverages; alcohol, denatured alcohol and noncrystallized honey; tobacco products; petroleum spirit and diesel fuel (WTO 2008)
The Customs Law of Mexico (Ley Aduanera) and associated Customs Regulations
provide for the specification of de minimis thresholds. The ‘duty-free’ de minimis
has been set at USD 50 so that in circumstances where the value of the shipment is
equal to or less than USD 50, the shipment can enter Mexico duty- and tax-free.
‘Informal shipment’ de minimis is set at USD 1,000 (USD 5,000 if the consignee is a
private individual). Shipments below this threshold can be cleared in a
consolidated entry and certain documents are exempted from production (the
contract and the packing list). If the goods are valued below USD 300 the
commercial invoice is also exempted from production. There are also reduced data
elements for informal clearances.
2.3.8 Papua New Guinea
Papua New Guinea’s customs regime is based on the Customs Act 1951 and the
Customs Regulations 1951. Section 19 of the Customs Act 1951 states that:
22
‘Entries may be made for all goods subject to the control of the Customs in
accordance with the regulations relating to the requirement to enter
goods.’18
The regime imposes customs duty, excise tax, and GST on imports, the latter two at
uniform rates for domestic and imported sources (WTO 2010b). The rate of GST is
10% and it applies to most goods and services. The exceptions are fine metal
(‘pure’ gold or platinum) beyond the ‘first supply’; raw rice; and certain services,
mainly financial, educational, and health services. Zero-rated products are mainly
exports. Subject to government approval, GST exemption may be granted on
imported production inputs, including equipment, as an investment incentive, on a
case-by-case basis, especially for mining, petroleum, and gas projects.
Section 19A of the Customs Act 1951 also provides that:
‘The owner of goods of a kind referred to in the Regulations that do not
require an entry to be made shall provide information relating to those
goods at such a time and in such a manner and form as the Regulation (sic)
specify.’19
Sub-regulation 21(2) of the Customs Regulations 1951 exempt goods from the entry
requirements if they, inter alia, ‘have a value for duty not exceeding 1,000 Kina’.20
The Regulations also prescribe a less formal reporting process.21 Goods that have a
value for duty less than 250 Kina are deemed to have a ‘free’ rate of duty; that is,
they are subject to a ‘duty-free’ de minimis.22
Generally speaking, reduced data elements and documentation requirements are
imposed on eligible ‘duty-free’ de minimis and ‘informal shipment’ de minimis
consignments. PNG Customs, however, may request additional paperwork for
specific shipment verification.
2.3.9 Peru
Peru’s customs regime is set out in its General Customs Law, Legislative Decree No.
1053. Article 98 of the General Customs Law sets out the rules that apply to ‘special
customs procedures or exceptional procedures’. It establishes ‘informal shipment’
de minimis by providing: ‘Goods without commercial purposes destined to natural
persons and whose FOB value does not exceed two thousand (2,000) U.S. dollars
are subject to the Simplified Import Procedure.’23
18
19
sub-section (1)
subsection (1)
paragraph 21(2)(a)
21
sub-regulation 21(3
22
sub-regulation 21(4)
23
paragraph (m)
20
23
In general, imports by Peru receive national treatment in relation to internal taxes,
which includes its general sales tax (IGV), excise taxes (ISC), and municipal
promotion tax (WTO 2007b). The IGV is levied at 17% on the importation or sale
of most goods and services at each marketing stage. The municipal promotion tax
adds two percentage points to that rate.
The exempt products include:
 certain live animals;
 fish, except those for meal and oil processing;
 whole raw milk;
 garden produce, vegetables and various other food products, fresh or
chilled;
 certain fresh or dried fruit;
 raw or green coffee and tea;
 unhulled rice;
 various seeds for sowing;
 seabird guano;
 urea and potassium sulphate for agricultural use;
 wool and cotton, unprocessed; and
 certain motor vehicles (WTO 2007b).
There is a limited ‘duty-free’ de minimis for goods with an FOB value less than
USD 200 and that are classified to Peruvian HS classification 9809.00.00.20, which
essentially applies to documents only.
There are some limited exemptions in relation to documentary requirements for
‘informal shipment’ de minimis and ‘duty-free’ de minimis. However, the
exemptions are not as extensive as those provided by other economies examined
in this study.
2.3.10 Philippines
Section 709 of the Tariff and Customs Code provides that:
‘…a Collector [of Customs] shall have discretionary authority to remit the
assessment and collection of customs duties, taxes and other charges when
the aggregate amount of such duties, taxes and other charges is less than 15
pesos 24 and he may dispense with the seizure of articles of less than 15
pesos in value except in cases of prohibited importations or the habitual or
intentional violation of the tariff and customs laws.’25
In addition to customs duties and excise taxes, the Philippines impose a 12% VAT
on imported and domestically produced goods and services (WTO 2012). Excise
24
The original legislation specified a threshold of PHP10 but it was amended subsequently.
A Bill to increase the threshold to PHP 2,500 has been introduced into the Philippines Senate but it does not seem
to have been passed at this time.
25
24
taxes are levied on alcohol products, automobiles, jewelry, minerals, perfumes,
cigarettes, and petroleum. The exemptions from the VAT include:
 agricultural and marine food products;
 agricultural inputs; coal and petroleum products;
 books, newspapers and magazines; and
 passenger and/or cargo vessels of more than 5,000 tons (WTO 2012).
VAT is zero-rated on the sale and purchase of bio-organic products and coal, and
petroleum products (WTO 2012).
The following import consignments need only complete the informal entry
process:
 articles of a commercial nature that are intended for sale, barter or hire, the
dutiable value of which does not exceed PHP2000; and
 personal and household effects or articles, not in commercial quantities,
that are imported in a passenger’s baggage, mail, or otherwise for personal
use.
The following have to complete the formal entry process, regardless of value and
whatever purpose and nature of the importation:
 articles of a commercial nature intended for sale, barter, or hire, the
dutiable value of which is more than PHP2000; and
 those articles which the Collector of Custms may require, upon the
recommendation of the Tariff Commission, for the protection of a local
industry.
2.3.11 Thailand
Under the Thai de minimis threshold, postal items or express consignments with an
FOB value that does not exceed THB 1,000 may be imported free of tax and duty.
In addition to customs duties, Thailand levies three types of indirect taxes: excise
tax, interior tax (10% of amount of excise tax), and value-added tax (VAT). All
three are levied on imports at the same rates as on domestic production (WTO
2007c). The VAT is applied at a rate 7% to nearly all goods and services. The
WTO has reported that the Thai authorities have delayed the implementation of
their decision to restore the rate of VAT to 10% (WTO 2007c).
The goods that are exempt from the VAT are:
 books;
 unprocessed agricultural products;
 fertilizers;
 animal feed;
 pesticides; and
 certain other ‘social goods’ (WTO 2007c).
25
To assist the Royal Thai Customs in determining data requirements and the exact
procedure to be applied, imported express consignments that are being presented
for immediate release are divided into the following categories:

Non-Dutiable documents – comprising correspondence and documents
having no commercial value and which are not subjected to duties and taxes
under Part II of the Customs Tariff Decree B.E. 2530. Any items that are
prohibited or restricted are not included;

Non-dutiable consignments – comprising
(a) consignments not subjected to duties and taxes under Part II of the
Customs Tariff Decree B.E.2530 (any items that are prohibited or
restricted are not included);
(b) low-value consignments, imported via an airport, of which the value
does not exceed THB 1,000 and which are exempted from applicable
taxes and duties under Part IV, Heading 12 of the Customs Tariff Decree
B.E.2530 (any items that are prohibited or restricted are not included);
and
(c) trade samples of no commercial value which are exempted from
applicable taxes and duties under Part IV, Heading 14 of the Customs
Tariff Decree B.E.2530 (any items that are prohibited or restricted are
not included);

Dutiable consignments of which the FOB value does not exceed THB 40,000
(any items that are prohibited or restricted are not included); and

Consignments other than those listed under the previous three headings.
To a large extent, the above four categories are a direct reflection of the WCO
Guidelines for the Immediate Release of Consignments referred to previously.
Royal Thai Customs applies simplified import procedures to inbound express
consignments where the FOB value of the shipments is less than THB 40,000.
Shipments above that threshold have to undergo the formal entry process.
2.3.12 Viet Nam
Those aspects of Viet Nam’s customs regime that are relevant to the issue of de
minimis are set out in:
 the Law on Customs No. 29-2001-QH10;
 the Law on Import Duty and Export Duty 2005;
 Decree No. 87/2010/ND-CP of 13 August 2010;
 Circular No. 100/2010/TT-BTC ‘providing for customs procedures for
imports and exports sent via international air express delivery services’;
and
26

Decision No. 78/2010/QD-TTg of November 30, 2010 (Decision No. 78) on
‘the level of value of imports sent via the express delivery service which are
exempt from duty and tax,’
Decision No. 78 sets up a ‘duty-free’ de minimis regime by providing as follows:
‘Article 1. Imports valued at VND 1,000,000 (one million dong) or less which
are sent via the express delivery service are exempt from import duty and
value-added tax. For imports valued at over VND 1,000,000 (one million
dong) which are sent via the express delivery service, import duty and
value-added tax shall be paid according to law.
Article 2. To assign the Ministry of Finance to, based on the practical
situation in each period, decide to adjust the level prescribed in Article 1 of
this Decision by at most 20%, in line with the administrative reform policy
and international practice. Any adjustment of the level specified in Article 1
of this Decision by more than 20% shall be submitted by the Ministry of
Finance to the Prime Minister for decision.
Article 3. This Decision takes effect on February 1, 2011.
Article 4. Ministers, heads of ministerial-level agencies, heads of
government-attached agencies and chairpersons of provincial-level
People’s Committees and concerned organizations and individuals shall
implement this Decision.’
Article 5 of Circular No. 100/2010/TT-BTC provides that:
‘1. Imports and exports shall be channeled for customs inspection purposes
in accordance with the WCO Guidelines on Express Consignments Clearance
(the March 2006 version) and current regulations on the management of
imports and exports and applicable tax policies.
2. On the basis of the channeling of imports and exports prescribed in
Clause 1 of this Article, customs inspection of imports and exports shall be
carried out in a simple and convenient manner, combining the application
of risk management methods with the use of screening machines to
physically inspect goods while ensuring strict state management and
compliance with law.
3. The General Director of Customs shall provide in detail the channeling of
imports and exports and customs inspection.’
Article 5 therefore sets out the foundations for ‘informal shipment’ de minimis.
Further guidance is given in Article 6 that provides:
‘Particularly for gifts and samples sent to Vietnam-based organizations of
which the taxable value is under VND 5 million and the total payable tax
27
amount is less than VND50 it is not required to carry out procedures for tax
exemption consideration. In this case, customs declaration and customs
inspection will be the same as applicable to duty-free goods.’26
For other than ‘duty-free’ de minimis, the data and documentary requirements are
essentially the same as for a full customs declaration.
2.4
Relevance to management of border protection
Hufbauer and Wong have framed the issue of de minimis entry and border
protection in the following terms:
‘…within the Asian part of the APEC region, the de minimis threshold is a
good barometer of the LPI [the Logistics Performance Index published by
the World Bank (2009)]. Countries with higher de minimis exemption levels
tend to have better LPI scores (the correlation coefficient is 0.6). De minimis
reform can be a harbinger of broader improvements in customs facilitation’
(Hufbauer and Wong 2011, p.3).
Since a high correlation co-efficient does not necessarily imply either the degree of
causation or its direction, we have sought to test this statement by comparing the
selected APEC economies against a series of performance benchmarks in the
following publications:
 the World Bank’s Doing Business Report 2012 (World Bank 2010);
 the World Bank’s Logistics Performance Index 2010 (World Bank 2009); and
 the World Economic Forum’s Global Enabling Trade Report 2010
(WEF 2010).
Table 2.2 provides the details of the comparisons. It shows that while there is
some correlation between the de minimis threshold and the performance of
border management there is not necessarily a direct relationship between the two.
Nevertheless, it is an issue that is worth exploring in more detail to determine the
actual influence of a particular de minimis threshold on border performance.
26
clause 1.3.4
28
Table 2.2: Border management performance by select APEC economies
Economy
Doing Business
(a)
Logistics Performance Index (b)
Global Enabling Trade Report
(c )
Overall
Trading
Across
Borders
Overall
Customs
Efficiency
Timeliness
Overall
Border
Administration
Canada
13
42
14
13
5
8
18
Chile
39
62
49
41
44
18
23
China
91
60
27
32
36
48
48
Indonesia
129
39
75
72
69
68
67
Japan
20
16
7
10
13
25
16
Malaysia
18
29
29
36
37
30
44
Mexico
53
59
50
62
54
64
65
PNG
101
99
124
138
87
N/A
N/A
Peru
41
56
67
64
79
63
58
Philippines
136
51
44
54
42
92
74
Thailand
17
17
35
39
48
60
41
Vietnam
98
68
53
53
76
71
88
Notes: (a) Trading Across Borders rankings are based on three sub-indicators: all documents required by
customs and other agencies to export and import; document preparation, customs clearance and technical
control, port and terminal handling, inland transport and handling (time taken to export and import); and cost
in USD per 20-foot container, no bribes or tariffs included (World Bank Group 2010a). (b) Logistics
Performance Index components are: efficiency of the customs clearance process; quality of trade and transportrelated infrastructure; ease of arranging competitively priced shipments; competence and quality of logistics
services; ability to track and trace consignments; frequency with which shipments reach the consignee within
the scheduled or expected time (World Bank Group 2010b). (c) Global Enabling Trade Report, Border
Administration sub-index components are: efficiency of customs administration, efficiency of import-export
procedures, and transparency of border administration (WEF 2010)
29
30
31
3. Determinants of Current De Minimis Regimes
3.1
De minimis as a concept
The concept of de minimis in relation to duties and taxes is not itself controversial.
The concept is an acknowledgement that at some point the costs involved in
assessing and collecting duties and taxes will actually exceed the revenue gained
(OECD 2009; Simpson 2009; NZ Customs Service 2011; Productivity Commission
2011).
In the Global Enabling Trade Report 2009 published by the World Economic Forum
(WEF), Simpson points out that:
‘There is a significant cost to government and business, in terms of
administrative burdens and delays, resulting from subjecting shipments of
minimal value to full customs formalities. All WTO Members should adopt
the practice of having de minimis exemptions from full formalities for small
shipments. It is common in income tax regimes to provide for simplified tax
returns for persons having only small incomes. Much of the logic that lies
behind this policy is applicable to collection of tax information on goods
crossing borders...Related to but separate from the issue of waiving full
customs formalities for small value shipments is the more sensitive issue of
waiving collection of small amounts of duties and taxes. Even in a moment
such as the present, when public revenues are reduced, governments that
do not already have them should establish value limits below which
shipments will not be subject to taxation; collecting taxes on such
shipments is a procedure that is not cost effective.’ (Simpson 2009, p.64)
The World Customs Organization (WCO), the pre-eminent international body on
customs matters, has made express provision for de minimis regimes in its Revised
Kyoto Convention on the Simplification and Harmonization of Customs Procedures
(Revised Kyoto Convention). Among other things, the revised Kyoto Convention
states that:
‘National legislation shall specify a minimum value and/or a minimum
amount of duties and taxes below which no duties and taxes will be
collected.’ (Transitional Standard 4.13)
Moreover, in relation to Transitional Standard 4.13 of the Revised Kyoto
Convention the WCO has subsequently stated that:
‘...the collection and payment of duties and taxes should not be required for
negligible amounts of revenue that incur costly paperwork, both for the
Customs administration and the importer/exporter. Customs
32
administrations must establish and specify in national legislation amounts
below which duties and taxes need not be collected and paid.’27
This tension between tax revenue and costs of its administration is also an issue
that is well established at the national level.
The recently published report on the Economic Structure and Performance of the
Australian Retail Industry by the Productivity Commission (2011) draws on the
Henry Tax Review (Henry 2009) to make this point:
‘On the other hand, the administrative arrangements for taxes recognise
that there are circumstances under which it is inefficient to impose
administration and compliance costs on the government and the
community in an attempt to collect small amounts of revenue. The costs to
government, business and consumers entail efficiency losses and are a
deadweight loss for the community. Therefore, from the viewpoint of
maximizing the welfare of all Australians, the question may be whether
there are likely to be bigger losses in efficiency from trying to provide equal
treatment by collecting taxes on all imports, than from the distortions
created by differential tax rates for foreign and domestic retailers.’
As the Henry Tax Review noted:
‘Related to the issue of complexity are the costs of administering and
complying with the tax and transfer system. These costs represent a net loss
to the economy, because the resources engaged in these activities could
otherwise be put to more highly valued uses. Recent research suggests
there is an optimal level of system complexity and operating costs, one that
balances administration and compliance costs with improved efficiency and
distributional outcomes.’ (Henry 2009, p.21)
NZ Customs describes the issue in this way:
‘A de minimis represents a trade-off between two aspects of taxation
design; that is, integrity, which suggests that the intended rates of taxation
are collected without discrimination – all like transactions treated alike for
taxation assessment etc....and administrative efficiency, which suggests that
accounting for, and collection of, every last dollar of taxation revenue due
cannot be practically or efficiently achieved as a point will be reached
where more is being spent on administrative and collection processes than
will be collected in revenue” (NZ Customs 2011, p.8)
27
WCO Guidelines to the Revised Kyoto Convention
33
3.2
De minimis as trade facilitation
From the perspective of customs clearance the de minimis threshold is used in two
ways:
 firstly, as a ‘value’ threshold below which duties and taxes are not collected
and no customs declaration is required; and
 secondly, as a ‘reporting’ threshold for goods in respect of which a full
customs declaration must be submitted.
In other words many customs administrations adopt two levels of de minimis.
Goods whose value falls between the two thresholds are usually the subject of a
simplified customs declaration. The significance of these thresholds is the
documentation associated with the relevant declaration requirement and the
implications this has for clearance times and compliance effort. As acknowledged
by New Zealand Customs:
‘For consignments required to undergo full customs formalities, the
importer must submit to a customs administration detailed information on
the classification, origin, and valuation of the goods at a consignment level
to satisfy valuation elements for the calculation of duty, and statistical data
for balance of trade purposes....’ (NZ Customs Service 2011, p.8-9)
The OECD has also recognised the potential of de minimis procedures as a trade
facilitation measure. In examining trade facilitation reform for Sub-Saharan Africa
it has noted that:
‘De minimis procedures could allow consignments valued below a de
minimis level (i.e. threshold) to be exempted from formal customs
clearance procedures, such as the submission of an import declaration, and
be subject only to the submission of a consolidated manifest (such as an
airway bill of lading (sic) or a commercial invoice) or simplified
documentation. Furthermore, for some of these consignments, the
collection of duties and taxes and other regulatory impediments may be
waived and immediate release issued, based on information contained in
the consolidated manifest detail records...’(OECD 2009, p.37)
De minimis arrangements are particularly important for small and medium-sized
enterprises (SMEs) as they generally face a disproportionate compliance burden
with respect to the completion of customs formalities. A 2003 OECD paper
reported an EU study of customs procedures as finding that ‘firms with fewer than
250 employees incur trade transaction costs that are 30-45% higher per
consignment than those falling on larger firms’ (Walkenhorst & Yasui 2003, p.12).
This was partly because of an inability of such businesses to take advantage of the
simplified procedures that the authorities generally made available.
34
Indeed, additional formalities often end up being more inefficient ‘…since they
have created an additional cost burden, added to the time it takes to clear goods
and also created further opportunities for solicitation of “facilitation payments”’
(OECD 2009, p.39).
These costs increase the perception of risk and act as a barrier for SMEs
considering entry into new markets. The effect becomes more pronounced in times
of economic downturn when SMEs become particularly vulnerable to added cost
burdens. As Brooks and Stone have stated:
‘Flexibility, as well as timeliness, will become more valuable as greater
trade implies greater potential vulnerability to external shocks such as
financial turmoil…..Factors such as delays in customs clearance, unofficial
payments, and poor governance are particularly damaging because they
impede flexibility’. (Brooks and Stone 2010, p.156)
The quantum of a threshold is in inverse proportion to the compliance burden.
There can be little doubt that the lower the de minimis threshold, the higher the
administrative burden to traders and, in particular, SMEs (Hummels 2001; Hornok
and Koren 2010).
The significance of a lower de minimis threshold in the context of the
administrative and compliance burden is its impact on time and administrative
costs. In particular, a lower threshold means increased documentation due to the
larger volume of consignments requiring a full customs declaration. Increased
documentation means increased time for both business and government to
prepare and process that documentation and an adverse impact on delivery time
(de Souza et al 2007).
Hornok and Koren point out that document preparation is the most timeconsuming of four procedures specified in the Trading across Borders database,
which is maintained by the World Bank for its annual Doing Business Report.
Document preparation represented about 50% of the total time of delivery for the
average country — see Table 3.1 below.
Table 3.1: Time Taken by & Cost of Import Procedures (a)
Procedure
Days per TEU (b)
Cost (USD) per TEU (b)
Mean
13.7
As % of total
51.7
Mean
306.1
As % of total
19.0
Customs clearance &
inspection
Port & terminal handling
3.7
14.0
213.7
13.2
4.5
16.8
317.0
19.6
Inland transport from seaport
to importer’s premises
ALL
4.7
17.5
778.0
48.2
26.6
100
1614.8
100
Document preparation
Notes: (a) The time taken and the fees incurred in importing a shipping container of widely traded nonperishable merchandise (b) twenty-foot equivalent unit, a standardised measure of shipping container volume
Source: Adapted from Hornok and Koren (2010) and World Bank Group (2010a)
35
In Hummels research on time as a trade barrier he concludes that:
‘...each day in travel is worth an average of 0.8% of the value of the good per
day, equivalent to a 16% tariff for the average length ocean
shipment...Estimates indicate that each additional day in ocean transit
reduces the probability that a country will export to the US by 1% (all
goods) to 1.5% (manufactured goods)’ (Hummels 2001, p. 3).
One might expect an even more dramatic effect of time delays on time-sensitive
cargo such as that regularly transported by express companies and in fact that is
the case. Djankov et al find that ‘...a 10% increase in time reduces exports of timesensitive manufacturing goods by more than 4%, all else equal’ (Djankov et al.
2010, p.172).
In fact traders react to any increase in administrative burden by sending fewer
shipments of larger size and use larger-shipment transport modes more often to
spread the freight and administrative costs over a larger number of individual
items.
In extreme cases it may lead to the cessation of trade with that country altogether
(Hornok and Koren 2010; Productivity Commission 2011). The de minimis level
therefore has a flow-on effect on choice of transport mode and therefore on the
total landed cost of goods. It can mean that what was an economic transaction
becomes uneconomic because:
‘[T]he choice is on the frequency/size of a shipment and the trade-off is
timeliness versus smaller per shipment administrative costs. The demand
for timeliness requires relatively small and frequent shipments, while the
burden of per shipment administrative costs can be mitigated by reducing
the frequency, and increasing the size, of shipments’ (Hornok and
Koren 2010, p.3).
It is generally accepted that entry processes can be an impediment to trade and
this adverse potential is behind the inclusion of ‘trade facilitation’ in the current
WTO Doha Round of multilateral trade negotiations. Determinations on de minimis
can have a negative impact on entry processes as noted previously and therefore
have that potential to hinder trade, particularly where low value shipments are an
input to business. As the Productivity Commission has recently stated in relation
to Australia:
‘Competition from international retailers can be important in driving
efficiency in the Australian retail industry. In addition many businesses
currently receive goods which enter Australia under the LVT [low value
threshold]. Longer delays or unnecessary charges associated with
processing such imports will also hinder those businesses and there will be
very limited additional revenue collected...’ (Productivity Commission 2011,
p.159)
36
3.3
Qualitative Benefits of Harmonization of De Minimis
While we have highlighted the incidence of ‘informal shipment’ de minimis across
the selected APEC economies we have not conducted any economic analysis of the
potential impact of harmonizing this second level of de minimis. This was outside
the scope of the current project.
It is important, nevertheless to acknowledge that there is the potential for
additional savings to both governments and the private sector from harmonizing
‘informal shipment’ de minimis across the APEC region quite apart from the savings
already identified in relation to the ‘duty-free’ de minimis. The potential savings
are a consequence of adopting a consistent and harmonized approach to simplified
declarations across APEC that results in decreased documentation and faster
release for goods falling within the equivalent of Category 3 of the WCO Guidelines.
The potential savings from harmonization of de minimis thresholds at an
economically optimum level are particularly significant for the express industry,
whose business model relies on the timeliness and hence efficiency of door-todoor delivery. Increased documentation and/or overly complex clearance
procedures create friction for supply chains and in the express industry’s case
reduces efficiency of delivery. This has a knock-on effect for trading firms because
of their reliance on express delivery services for time-sensitive deliveries of
intermediate goods (components and semi-finished products) with a
corresponding negative impact on the wider economy. These potential benefits
were also identified and discussed in the report of the Peterson Institute in 2011
(Hufbauer and Wong 2011).
Trade in intermediate goods constitutes almost 60% of world trade (Miroudot et
al 2009; Gamberoni et al 2010). According to Ueki (2011) intermediate goods
represent a similar percentage of imports for the ASEAN-7 countries (Cambodia,
Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam). Research has
shown that timeliness is critical for trade in intermediate goods (Nordas 2007).
As Gamberoni et al state:
“Delays in delivery increase the cost of holding stocks, impede rapid
responses to changes in customers’ orders and limit the ability to rapidly
detect, fix and replace defective components” (Gamberoni et al 2010, pages
2-3)
The findings in the Gamberoni study suggest inter alia, that improving trade
facilitation would improve participation in production networks, particularly for
developing countries. Harmonizing de minimis thresholds across the APEC region
could therefore prove to be a very effective trade facilitation measure in this
respect; particularly when you consider the potential impact on trade in
intermediate goods, given the volume of such trade within the region and between
the region and other countries.
37
3.4
Does de minimis increase non-compliance?
An argument that is raised in relation to the setting of a particular threshold is that
it encourages non-compliance by traders; that is, traders will engage in ‘underinvoicing’, ‘split shipments’ and other forms of valuation fraud to avoid customs
formalities and the payment of duties and taxes.
These concerns have been behind the recent decision of the UK Government in its
2011 budget to reduce the level of the UK threshold from £18 to £15 from
November 2011. Previously, the stance of the UK Government was a reluctance to
reduce the threshold because of the demands it would place on HM Revenue and
Customs but this view has now shifted to favour an industry protection
perspective.
Box 3.1: Case Study – Philippines
PHILIPPINES – INCREASED INSPECTION OF LOW VALUE SHIPMENTS
In 1990 the Philippine Government progressively lowered the minimum value threshold above which preshipment inspection had to occur. The policy rationale for lowering of the threshold was to improve
Customs enforcement.
In a review of the Philippine Government’s actions, Yang concluded that ‘the empirical analysis finds that
when the Philippine Government increased enforcement by expanding inspections to low-value shipments,
imports from treatment countries shifted differentially to an alternative duty-avoidance method: shipping
via duty-exempt export processing zones’ (2008, p. 2)
The lowering of the threshold was not economic. As Yang concluded:
‘Conservative estimates of tariff revenue gains and losses (net of PSI fees) suggest that the minimum value
threshold reductions were a starkly uneconomic proposition, leading to significant losses in net revenue for
the Philippine government...The minimum value threshold reductions led to two types of revenue gains.
First, because importers were no longer able to avoid the PSI requirement by valuing shipments between
$5000 and $500, import duty collections should have increased on shipments that would not have been
inspected before. Second, shipments were not subject to PSI (thus saving inspection fees) if they were
shifted to valuation under $500 or to export processing zones. I estimate that total revenue gains from these
two sources amounted to roughly $24.6 million...
These revenue gains were considerably overshadowed by two kinds of costs to the Philippine government.
First, the cost of additional inspections of shipments valued between $500 and $5000 would have amounted
to $28 million. Second, losses in import duties due to shifts to the other methods of duty avoidance would
have totalled $33.3 million. These gross revenue losses balanced against gross revenue gains imply that the
minimum value threshold reductions led to a net loss of $36.8 million for the Philippine government.’ (2008,
p.12)
Source: Yang 2008
The decision to lower the threshold in the UK has been a reaction to government
concerns that some UK retailers had been taking advantage of the low value
threshold by selling goods over the internet, VAT-free, from subsidiaries based in
Jersey and Guernsey. The estimated loss to government revenue from that practice
had increased from around £80 million to £130 million over the past five years at
38
the same time as having an adverse effect on UK SMEs who argued that they were
unable to compete with large companies operating VAT-free in the Channel Islands
and elsewhere.
Research on crime displacement in the context of customs reform in the
Philippines raises serious questions about the effectiveness of lowering thresholds
on non-compliance — sees Box 3.1. In that case the work has concluded that
lowering the duty threshold as part of a decision to increase enforcement actually
led to a net loss of revenue for the Philippine government (Yang 2008). This
phenomenon is worth exploring in more detail, given the propensity for
governments to justify low thresholds on the basis of reducing revenue leakage
and improving compliance.
In Australia, the Australian Customs and Border Protection Service (ACBPS)
undertook an ‘enhanced compliance campaign’ in relation to low value imports
over the period from January to March 2011. The campaign was designed to
‘…treat concerns raised by industry about non-compliance with the low value
threshold’. Some 33,000 physical examinations were undertaken on international
mail articles and 32,000 assessments were undertaken on air and sea cargo
declarations to assess compliance with the low value threshold. According to the
ACBPS:
‘[T]hese 65,000 interventions resulted in 1,942 instances of undervaluation
and bulk orders in breach of the low value import threshold....revenue
underpayments...totalled $718,000’ (ACBPS 2011, p.4-5).
The ACBPS report on this compliance campaign does not provide any detail on the
resource and administrative costs that were associated with the campaign so it is
not possible to provide a cost-benefit analysis. However, the ratio of noncompliance against interventions is about 3%. This places some question marks
over its cost-effectiveness, particularly when combined with the report’s
conclusion that estimates of the revenue leakage due to non-compliance with the
low-value threshold were 0.66% of total revenue collected in the 2009-2010
financial year (ACBPS 2001, p. 5).
Similarly, an increase in de minimis thresholds does not jeopardise border security
since advance cargo reporting is required by most APEC economies, irrespective of
the declared value of the goods. As Hufbauer and Wong point out in their research
in relation to the United States, de minimis thresholds can actually have the effect
of freeing up resources ‘…to deal with more important security and product safety
issues’ (Hufbauer and Wong 2011, p.2).
3.5
What is the appropriate de minimis level?
Determining the appropriate quantum of de minimis threshold is fundamentally an
assessment of where the balance lies between revenue gained, on the one hand,
and the overall costs to business and government of compliance and customs
administration, on the other (NZ Customs 2011; Productivity Commission 2011).
39
This assessment differs from country to country depending on a diverse range of
political, trade and socio-economic factors.
Table 3.2 has a comparison between the contrasting conclusions reached by
Australia and New Zealand respectively within a similar timeframe that is
informative in this respect, given the high degree of commonality that exists
between these two economies.
Table 3.2: Contrasting conclusions on de minimis thresholds
Australia: Productivity Commission 2011
New Zealand: NZ Customs Service 2011
Australia should retain its current low value threshold
of $1000. While data are limited, the Commission
estimates that with current processes, without the low
value threshold, about $578 million of revenue would
be collected and over $2 billion of collection costs
would be borne by businesses, consumers and
government. These costs are a deadweight loss to the
community...
Customs considers that NZ’s de minimis is at an
appropriate level based on its costs of transaction
processing...
The costs and benefits of implementing a new process
should be assessed. The low value threshold should
only be lowered to a level which still remains costeffective.(p.151)
Source: Productivity Commission 2011
A higher de minimis would reduce overall
compliance and administration costs and
encourage low value importations, but it would
also have the effect of undermining the integrity of
the taxation system and reduce government
revenue. The impacts of setting a de minimis based
on a customs value of $650 or $1000 have been
examined. The taxation revenue foregone under
these options is estimated to be up to $10.4
million and $24 million per annum respectively,
which would exceed the combined compliance and
administration costs of collecting it, based on
current practice and cost structures. An increase in
the de minimis therefore does not appear to be
justified (p.2)
Source: NZ Customs 2011
What is clear is that accurate data is necessary for governments to make an
informed decision as to where they should set the de minimis threshold for their
economy. As the Productivity Commission has stated:
‘A number of factors affect the calculation of the amount of revenue
foregone and the possible impact of any changes to the threshold. The
accuracy of any estimates will be affected by the reliability of data on the:

Number, value, and distribution of low value consignments
entering [Australia] through international mail, air cargo and sea
cargo;

Rate of duty applicable to low value consignments;

Value of consignments which are GST [VAT] exempt, addressed
to businesses registered for GST [VAT], or to non-profit
organisations exempt from GST [VAT];
40

Level of other costs (such as freight, insurance and customs duty)
which may be included in calculations of the value of taxable
importation for calculation of GST [VAT]; and

Extent to which any change in the threshold may affect the
behaviour of importers and alter the value of consignments
entering [Australia]” (Productivity Commission 2011, p.168)
Again, as a comparison, it is interesting to note what the Common Market for East
and Southern Africa (COMESA) and the East African Community have each done in
this area.28 In each case the countries in question decided to implement a
threshold of USD500 for the application of more simplified customs
documentation and border procedures to the trade between their members. In
both cases the decision was taken with a view to facilitating trade between them.
Box 3.2 has the details.
Box 3.2: Case Study – Common Market for East and Southern Africa
COMESA – SIMPLIFIED CUSTOMS AND ORIGIN DOCUMENTATION
A simplified trade regime for selected types of commodities is being implemented by COMESA member
countries.
Small-scale traders benefit from a simplified customs document and a simplified certificate of origin. Goods
that originate from COMESA member states and whose value does not exceed USD 500 per consignment
qualify automatically for duty-free entry anywhere in the COMESA market. In the East African Community
too, a simplified certificate of origin for cross-border trade of a maximum value of USD500 has been in force
since 1 July 2007.
This was agreed by COMESA Trade Ministers at the Business Summit and Exhibition held in Kigali, Rwanda in
May 2007. It intended to apply initially to maize, rice, beans and traditional food crops such as cassava, as
well as cotton and dairy products.
Source: OECD 2009, p.39
In relation to the United States, Hufbauer and Wong found that:
‘...that the net gain from raising the de minimis threshold on the existing
volume of shipments would be about $17 million, taking into account the
cost savings to all affected parties — customers, express firms, US Postal
Service, and Customs and Border Protection. In other words, the loss of
tariff revenue would be more than offset by the savings to the multiple
parties in the delivery chain’ (Hufbauer and Wong 2011, p.6)
28
The Member States of COMESA are Burundi, Comoros, the Democratic Republic of the Congo, Djibouti, Egypt,
Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, the Seychelles, the Sudan, Swaziland,
Uganda, Zambia, and Zimbabwe
41
The UK Government, on the other hand, gave particular prominence to the issue of
tax avoidance in making its decision to reduce the threshold from £18 to £15 with
effect from November 2011.
42
43
4. Economic Benefits & Costs of De Minimis Reforms
4.1
Overview of the economic analysis
We have estimated the economic benefits and costs that would be generated for
12 APEC economies — namely Canada, Chile, the People’s Republic of China,
Indonesia, Japan, Malaysia, Mexico, Papua New Guinea, Peru, the Philippines,
Thailand and Viet Nam — under a range of de minimis scenarios. For ease of
reference, they are referred to throughout this report as the APEC-12, while the
full APEC membership is termed the APEC-21. We chose the 12 economies in
question as we considered that they were broadly representative of the whole
region, in terms of merchandise trade, geography and stage of economic
development.
For the economic analysis we developed a spread-sheet model of the resource
costs to business and government and the public taxation revenue associated with
the entry of low value import consignments in each of the economies in question.
The model was used to estimate the economic benefits (resource savings to
business and government) and costs (public revenue foregone) for each economy
under a range of de minimis scenarios. These scenarios involved the application of
a minimum threshold value in all 12 economies. The minimum values analysed
were USD50, USD100, USD150 and USD200.
Each scenario assumed that all import consignments with a customs value below
the threshold were exempt from tariffs and other indirect taxes and were eligible
for more streamlined border inspection and customs clearance procedures
compared to consignments that were valued above the threshold. For the
purposes of the analysis, the de minimis arrangements in any given economy were
assumed to be unchanged if its current threshold exceeded the minimum level that
was specified in the definition of the scenario in question.
This report presents and discusses the results of the economic analysis of the
scenarios from three distinct perspectives, which are captured by the following
indicators:
 the value of the net economic benefit in USD (for ease of comparison);
 the ratio of total benefits to total costs; and
 the net economic benefit as a percentage of GDP.
The individual economy estimates are aggregated to provide the collective result
for the APEC-12 economies, which is then projected to the APEC-21 level.
The rest of this Chapter presents and discusses the key results of the analysis. A
complete description of the methodology and approach that was used in the
modelling analysis is in Annex A, while the detailed results that were obtained
from the analysis are set out in Annex B.
44
4.1.1 Aggregate results for the APEC-12 economies
Table 4.1 has our estimates of the aggregate net economic benefit for the APEC-12
economies under each of the de minimis scenarios.
Table 4.1: Net economic benefit of alternative de minimis thresholds in APEC,
USD billion per year
De Minimis
Threshold
USD
Net Economic
Benefit (NEB)
APEC-12 Economies (a)
Benefit-Cost
Ratio (BCR)
NEB as % of
APEC-12 GDP
50
1,954
59.8
0.012
4,342
100
3,138
41.1
0.020
6,974
150
4,251
42.8
0.027
9,446
200
5,357
45.3
0.034
11,903
APEC-21
NEB (b)
Notes: (a) Canada, Chile, the People’s Republic of China, Indonesia, Japan, Malaysia, Mexico, Papua
New Guinea, Peru, the Philippines, Thailand and Viet Nam
(b) Product of the APEC-12 NEB as a percentage of its GDP and APEC-21 GDP in USD.
Source: ITS Global Asia Pacific
The Table also includes an estimate of the net economic benefit of each de minimis
scenario for all 21 APEC economies. These estimates involve the projection of the
net economic benefit of each scenario for the APEC-12 to the rest of the region,
based on the net benefit expressed as a percentage of GDP. Given that the APEC-12
economies are considered to be broadly representative of the whole APEC region,
we believe that this approach is valid.
We estimate that a minimum de minimis threshold of USD200 would generate a
collective net benefit for the APEC-12 economies of around USD5.4 billion a year.
Perhaps what is equally significant about this result is its composition. The value
of the resource savings that the scenario generates completely overshadows the
value of the revenue foregone. This is very well demonstrated by the fact that the
ratio of economic benefits to costs for the APEC-12 averages over 45:1 under the
USD200 scenario and only slightly less for most of the other scenarios. Indeed the
one exception to this was the USD50 scenario, which has a significantly higher
benefit-cost ratio of nearly 60:1.
The absolute net benefit of the USD 200 scenario is equivalent to 0.34% of APEC12 GDP. If this relationship were to hold across the APEC region as a whole, the net
economic benefit for all 21 members would be nearly USD12 billion a year.
As expected, the higher the minimum threshold, the greater the net economic
benefit in monetary terms. What is perhaps not so obvious though is that the
higher the minimum threshold the greater the net benefit as a percentage of GDP.
The net benefit rises from 0.012% of GDP under the USD50 scenario to 0.034%
under the USD200 one. This largely reflects the fact that as de minimis thresholds
rise across the region, a greater proportion of low value consignments enter the
45
economies in question through the less costly de minimis customs channel. The
exception is the USD 50 scenario.
At the margin, the increase in the net economic benefit is not proportionate to
increase in the minimum threshold. For example, doubling the minimum threshold
from USD50 to USD100 increases the net benefit for the APEC-12 economies by
USD1.24 billion a year, an increase of nearly 58%. In contrast a further doubling of
the threshold from USD100 to USD200 would raise the net benefit by
USD2.25 billion a year. This is equivalent to an increase of around 67%.
4.1.2 Results for each APEC-12 economy
Table 4.2 breaks down the APEC-12 net economic benefits under each scenario by
individual economy.
The individual results make clear that each of the APEC-12 would realise a net
benefit from raising its de minimis threshold and that the resource savings heavily
dominate the revenue foregone in each case. This pattern is evident across the
entire range of thresholds that we examined. This implies that any increase in
threshold would generate a net benefit for any of these economies.
Table 4.2: Net economic benefit of alternative de minimis thresholds, by APEC
economy (a), USD million per year
Threshold
USD
CAN
CHL
CHN
IDN
JPN
MYS
50
1,589
24.6
286
0
0
0
100
2,688
33.9
310
4.3
0
0
150
3,579
44.2
351
9.2
118
0
200
4,371
53.4
386
13.3
318
22.5
Threshold
USD
MEX
PNG
PER
PHL
THA
VNM
50
0
0
13.6
14.8
18.6
7.03
100
34.6
0
16.4
17.0
27.0
6.90
150
67.7
0.067
18.3
18.7
35.5
8.63
200
98.4
0.189
20.5
20.6
43.4
9.40
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
Source: ITS Global Asia Pacific
By definition of course where a scenario does not change the threshold that is in
place there can be neither benefits nor costs. This was the case for Indonesia
under the USD50 scenario, Japan under the USD100 scenario and down, Malaysia
46
under the USD150 scenario and down, Mexico under the USD50 scenario, and PNG
under the USD100 scenario and down.29
The size of the net benefit varied substantially across the six economies, both in
monetary terms and as a percentage of the economy’s GSP. Most of these
variations reflected a combination of the extent of an economy’s current de minimis
threshold and the stage reached in its economic development. For example, other
things being equal, the higher an economy’s GDP per capita, the more intensively it
tends to import low value consignments for use by both business (intermediate
inputs) and by households (goods for final consumption).30
The most obvious manifestation of this characteristic is the increasing tendency for
businesses and households to use air express services for the delivery of low value
consignments, even though the freight rate is significantly more expensive than for
either mail or sea freight. For these reasons, we consider that expressing the net
economic benefit as a percentage of GDP provides a better basis for comparing the
results for individual economies.
We estimate that Canada would experience the greatest net economic benefit
under all four scenarios. This is the case on both the absolute and the relative net
benefit measures. The rate of net benefit under the USD200 scenario is 0.288%. In
absolute terms, this amounts to USD4.4 billion a year.
The Canadian results are the consequence of the interplay of several factors. They
include the fact that, within the APEC-12, Canada:
 is the third largest economy in terms of GDP;
 has the highest GDP per head of population;
 makes the most intensive use of low value import consignments; and
 has the one of the lowest de minimis thresholds. 31
Chile has the second highest rate of net economic benefit in the APEC-12 under all
four scenarios. In the case of the USD200 the net benefit rate is 0.026% of GDP —
or USD53.4 million a year in monetary terms. The modelling results reflect the
combination of Chile’s relatively high intensity of use of low value import
consignments — it is ranked seventh in the APEC-12 on this indicator — and the
relatively low level of its de minimis threshold.
Next in rank on the net benefit rate measure under all the scenarios is a cluster of
three economies. In the case of the USD200 scenario, the cluster is headed by
Thailand (0.14% of GDP or USD43.4 a year), closely followed by Peru (0.013% of
GDP or USD20.5 a year) and then the Philippines (0.011% of GDP or USD20.6 a
29
Table 2.1 has the existing de minims thresholds in national currency and in their USD equivalents.
30
For this purpose, we define the intensity of use of low value imports as the ratio of the aggregate value
of import consignments of USD200 or less to GDP.
31
This intensity is measured as the total value of import consignments with a landed valued of USD200 or less, as a
percentage of the importing economy’s GDP.
47
year). Thailand and the Philippines are in the middle of the APEC-12 on the
intensity of low value import use and Peru is just below them.
Mexico, Malaysia and Viet Nam generally rank next in terms of the rate of net
benefit, closely followed by China. Mexico, Malaysia and Viet Nam have a rate of
0.009% under the USD200 scenario, with China at 0.007%. This is despite the
significant differences in their intensity of low value import use and in the level of
their de minimis thresholds. Their absolute net benefit results are, of course, quite
different — respectively USD98.4, USD22.5 million, USD9.4 million and
USD386 million a year — largely due to the extent of the differences in the sizes of
their economies.
Japan, Indonesia and Papua New Guinea are more or less consistently ranked at
the lowest levels on the net benefit rate scale. Their net benefit rates are 0.006%,
0.002% and 0.002% respectively under the USD200 scenario and this pattern is
evident across their rankings under each of the other scenarios. Their relatively
low rankings on the intensity of low value import use are a large part of the
explanation for this. Nevertheless the benefits generated for each of these three
these economies are generally several times the costs.
Despite the fact that Japan is one of the most developed economies in APEC and
has the fifth highest GDP per capita out of the APEC-12, it has the second lowest
intensity of use of low value imports. Moreover, as it has the second highest de
minims threshold of the APEC-12, a much higher proportion of its low value import
requirements already benefit from de minimis entry compared to other economies
in the study.
4.1.3 Composition of the net economic benefit
Table 4.4 breaks down the net economic benefits for the APEC-12 under each
scenario by its key components:

resource savings in:
o merchandise transit time;
o government administration;
o private sector compliance;

public revenue foregone.
The savings in government administration dominate the results for the APEC-12
economies under all scenarios. We estimate that the extension of the more
streamlined and faster customs and other border clearance procedures that are
generally associated with a de minimis clearance channel accounts for around 76%
of the resource savings that were estimated for each of the scenarios.
The savings in public administration would be initially realised by the customs and
other border agencies. If these agencies recover the costs that they incur in
administering the border clearance process — through processing fees and
48
charges levied on importers or their agents — the savings could be expected to be
eventually passed onto to the private sector.
Table 4.4: Composition of net economic benefit of alternative de minimis thresholds,
APEC-12 (a), USD million per year
De Minimis Threshold
Component of Net Economic Benefit
USD50
USD100
USD150
USD200
9
24
44
53
1,512
2,439
3,294
4,150
467
753
1,014
1,275
33
78
102
121
Net economic benefit
1,954
3,138
4,251
5,357
Benefit-cost ratio (b)
59.8
41.1
42.8
45.3
Saving in merchandise transit time
Saving in government administration
Saving in business compliance
Less Tax revenue foregone
Notes: (a) Canada, Chile, the People’s Republic of China, Indonesia, Japan, Malaysia, Mexico, Papua
New Guinea, Peru, the Philippines, Thailand and Viet Nam
(b) The ratio of the total resource savings to the tax revenue foregone
Source: ITS Global Asia Pacific
The other important source of benefits is the saving in compliance costs incurred
by importers or their agents from any extension of more streamlined border
clearance procedures. These costs include the cost of preparing and submitting
the documentation required to obtain the requisite border clearances. We
estimate that these savings account for 23% of the total resource savings
generated by each of the scenarios for all APEC-12 economies.
A notable characteristic of the results is the relatively modest impact that higher de
minimis thresholds have on taxation revenue. The loss of tariff revenue is between
1.5% and 2.5% of the total resource savings under the various scenarios. As would
be expected this share declined with the level of the minimum de minimis
threshold.
In fact the revenue forgone only approximates the smallest of the resource savings
under all scenarios — namely, the savings in merchandise transit time. The more
streamlined customs procedures allow delivery times to be cut by up to 60% for
eligible consignments; their relatively low aggregate value, however, means that
their overall impact is much smaller than the volume-based impacts on
government administration and business compliance costs.
These estimates do not, however, include any allowance for the extension of the de
minimis exemption to GST, VAT or any other broadly based indirect taxes. This
was due to the design complexity of APEC indirect tax regimes and the difficulties
in modelling their impacts, given the paucity of public information on their
coverage.
We have therefore undertaken a sensitivity test of the maximum possible revenue
loss from tax exemption under each of the scenarios. On average these tests
indicate that the VAT/GST revenue loss is at its worst less than 8% of the total
49
benefits on average and in only one case — Papua New Guinea — did they suggest
the costs might be greater than the benefits.
Each of the components of the net benefit estimates is described in more detail in
the rest of this Chapter. This discussion includes an explanation of the
determinants of the results that were obtained, as well as the sensitivity of those
results to the key assumptions used to develop the spreadsheet model used in
estimation process. Before doing so, however, the Chapter canvasses the
projections of the volumes and values of low value imports on which the net
benefit critically depend.
4.2
Projections of low value import consignments
The most critical input to the evaluation is the estimate of the number and value of
import transactions that would be affected by any de minimis expansion. As was
implied by Table 4.2, by far the more important of these two variables is the
number of import consignments that would enter under each of the scenarios.
Unfortunately the public information on low-value import consignments is sparse
and of uncertain quality. In principle the border agencies collect information on all
inwards (and outwards) air and sea cargoes. This includes the classification of the
merchandise in question under the Harmonized System, its country of origin and
declared value for customs purposes. In practice, such information is generally
very costly for customs agencies to collect, check and validate, particularly in
developing economies, while the usefulness of the information that is collected can
vary to a considerable degree. As a general rule, the more valuable the transaction,
the more reliable is the information collected on it.
In the light of this, the approach used to estimate the value and number of lowvalue import transactions by each of the APEC-12 economies is straightforward
and cautious. This was in the knowledge that the estimates of net economic
benefit, which were derived from them, would be highly conservative. We are
confident that a more accurate approach would only increase the absolute size of
the net benefit that we have calculated for each of the scenarios.
Our approach draws on the results of recent research in Australia (CIE 2011). This
research was undertaken on behalf of CAPEC for an official inquiry on behalf of the
Australian Government. Among other things, the inquiry is looking into the de
minimis arrangements in Australia and their impact on the local retail industry.32
The CIE estimated how the number and value of consignments entering Australia
varied along the spectrum of consignment values. Mail and sea cargo accounted
for 84% of the total value of consignments with a landed value of less than AUD
200, and 87% of those with a value of less than AUD 100. Mail and sea cargo were
32
Among other things, the inquiry by the Australian Productivity Commission is examining the de minimis
arrangements that apply in Australia. On 4 August 2011 the Commission has released its Draft Report for public
comment (Productivity Commission 2011).
50
responsible for 89% of the total number of consignments under the AUD 200 and
88% of the total number under AUD 100.
Despite an extensive literature review, we were unable to find any other estimates
that could throw some light on the distribution of low-value imports by
consignment value and number, let alone those that could comprehensively
describe that distribution. In the light of this, we had to estimate the value and
number of low-value consignments that enter each of the APEC-12 economies by
each of the delivery modes by projecting the results of our survey of air express
transactions.
These projections were based on the modal shares estimated by the CIE for low
value import consignments entering Australia by air, sea and international mail
(CIE 2011). In the absence of any other relevant information, we have also
assumed — most conservatively, we believe — that the air express firms that we
surveyed had handled all the inwards air cargo for each of the economies in
question.
The spread-sheet model used to estimate the net economic benefit, however,
allows each of these assumptions to be varied on a case-by-case basis. For each
economy, the model extrapolates our survey results to get the annual value and
number of inwards air express consignments under each scenario. From this the
model projects the total value and number of consignments that enter by each
mode for each evaluation scenario — based on the CIE estimate of the market
share for each mode.33
Our projections for the import consignments that are received by each of the
APEC-12 economies under each threshold scenario are set out in Table 4.5 (the
total value of consignments by all modes) and Table 4.6 (the total number of
consignments by all modes). The full details of the projections — with the
breakdowns for each of the modes — are set out in Annex A.
We have attempted to check the accuracy of these projections against the
information made publically available by official sources.
The projected number of consignments of USD200 or less by all modes for
Indonesia is consistent with the Indonesian customs data on this category of
imports that we obtained from Trade Data International — Annex D has the
details. After adjusting for timing differences, the projections for Indonesia in
Table 4.6 are about 90% of the equivalent levels recorded by Indonesian customs
This suggest that the projection methodology and assumptions are broadly
reliable, if somewhat conservative.
33
The approach may be expressed formally as follows: TV [total value of imports by all modes] = TVa [total value
of imports by air cargo] / Sa [air cargo’s share of the total value of all imports by all modes].
51
On the other hand the total value of import consignments that were less than
USD200 per consignment recorded by Indonesian customs is more than twice as
much as the total value we have projected for Indonesia in Table 4.5.
Table 4.5: Projected value of import consignments under alternative de minimis
thresholds, by APEC-12 economy (a), USD million per year
Threshold
USD
50
CAN
CHL
CHN
IDN
JPN
MYS
797
24.8
339
54
332
93
100
2,165
48.3
597
105
661
199
150
3,030
63.1
700
128
821
305
200
3,720
73.7
756
139
915
353
MEX
PNG
PER
PHL
THA
VNM
89
1.66
13.1
40
56
34.6
100
197
4.31
29.1
83
121
69.9
150
262
6.00
37.1
102
156
84.2
200
317
8.26
44.2
115
182
99.2
Threshold
USD
50
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
Source: ITS Global Asia Pacific
Table 4.6: Projected number of import consignments under alternative de minimis
thresholds, by APEC-12 economy (a), million consignments per year
Threshold
USD
50
CAN
CHL
CHN
IDN
JPN
MYS
44.0
1.98
31.1
4.39
25.1
4.97
100
61.9
2.30
34.7
5.03
29.3
6.32
150
76.4
2.63
38.4
5.63
33.2
7.92
200
89.2
2.92
41.6
6.16
36.6
9.06
MEX
PNG
PER
PHL
THA
VNM
6.41
0.117
1.00
2.92
4.26
3.05
100
7.83
0.153
1.22
3.47
5.08
3.54
150
9.12
0.184
1.40
3.93
5.83
3.96
200
10.33
0.219
1.57
4.35
6.51
4.38
Threshold
USD
50
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
Source: ITS Global Asia Pacific
52
The frequency distribution of the consignments in the Indonesian customs data is
far less skewed towards the lower unit values, than are the results of either our
survey of air express consignments or earlier research into low value imports by
other APEC economies (CIE 2011 and Hufbauer & Wong 2011). This is puzzling
and does not admit any easy conclusions.
As we have already seen the intensity of use of low value import consignments
varies very considerably across the APEC-12 economies. It is lowest in Japan and
highest in Canada; a result that holds for both the volume and the value measures
of intensity. Give the projection methodology that we used, both sets of results are,
of course, a direct reflection of the results that we obtained from our survey of
transactions by CAPEC members in these two economies.
The differences in intensity of use of low-value imports consignments may be a
reflection of the combination of the economic geography of the APEC-12
economies and their regulation of the international supply chain within their
jurisdiction.
For example, Canada shares the longest land border in the world with the United
States, such that the physical location of most Canadian economic activity is closer
to the United States than the rest of Canada. The two also share a common
language, a common system of commercial law, and a common business culture.
Not surprisingly they have the most intensive bilateral trading relationship in the
world. This is reflected in the very high intensity with which low value import
consignments are used in Canada.
In sharp contrast Japan is bound by sea and does not have nearly as much in
common with its major trading partners, in terms of institutions that facilitate
trade. This manifests itself in the very low intensity with which Japan used low
value import consignments.
4.3
Savings in government administration
An inherent part of any de minimis regime is a customs clearance process that is
substantially more streamlined that the one generally used. The general clearance
process tends to be relatively costly in terms of government administration. It
involves a case-by-case assessment of each transaction based on the collection of
extensive documentation, the possibility of physical inspection of the merchandise
in question, and the involvement of multiple government agencies responsible for
border protection.
As low value imports are characterised by high transaction volumes compared to
the aggregate value of what is being imported, savings in the cost of government
administration loom large in any question of extending the de minimis threshold or
the merchandise that it covers. So much so that the savings in government
administration accounted for 72% of the benefits estimated for all of the threshold
scenarios.
53
For the present study we undertook a literature review to identify any published
estimates or public sources of the resource costs of custom clearance as well as the
cost differences between general and de minimis clearances. The review
concentrated on finding the capital and operating costs of clearance costs for each
of the entry channels in economies that had customs arrangements and levels of
economic development that were similar to those of the APEC-12 but did not find
anything particularly useful for the purposes of this evaluation.
We have therefore inferred the unit costs of custom clearance from an examination
of the user charges and fees levied by customs and border protection agencies.
The Australian Productivity Commission (PC) used this approach to analyse the
impact of a change in the Australian de minimis threshold on the costs of customs
administration within that jurisdiction. The PC used the charges and fees levied by
the Australian Customs and Border Protection Service (ACBPS) as a proxy for the
costs of customs administration in Australia (Productivity Commission 2011). It
was also the approach that the CIE had proposed to the Commission (CIE 2011).
Customs clearance charges are unlikely to yield an overestimate of the costs of
customs clearance. The General Agreement on Tariffs and Trade (GATT) expressly
requires that fees and charges levied for any services rendered in respect of
imports — or exports for that matter — are limited to the approximate cost of the
services in question and may not represent an indirect protection to domestic
goods or taxation of trade for fiscal purposes.34
Due to the difficulties of accurately measuring all of the costs associated with
customs clearance, most WTO members do not try to recover all of their import
processing costs in clearance fees and charges. For this reason we were conscious
that, other things being equal, the highest of the observed levels of fees and
charges were likely to be the best proxy for the costs of customs clearance.
Of those that we have examined, the charges levied by the ACBPS are the most
promising for the purposes of the economic evaluation. By law the ACBPS is
required to set its charges so as to fully recover the costs that it incurs in
processing imports by each mode, without regard to the value of the goods in
question.35 Given this requirement and the GATT obligation not to over-recover
import processing costs, we consider that its charges are the best indicators of the
resource cost of conducting a full customs clearance for a low value import
consignment by each of the modes in question.
The ACBPS charges AUD40.20 per declaration for the electronic clearance of mail
and air cargo and AUD50.00 per declaration for the electronic clearance of sea
cargo. Its charges for manual clearance are somewhat higher — AUD48.85 per
34
General Agreement on Tariffs and Trade (GATT 1954), Article VII.1
The legal authority for this is the Import Processing Charges Act 2001. The charges are widely published by the
Service (Australian Customs Service 2006). As far as we are aware, Australia is the only APEC economy that has
mandated the full recovery of customs processing costs.
35
54
declaration for international mail and air cargo and AUD65.75 per declaration for
sea cargo. For the evaluation, we have used their electronic clearance charges,
converted to their USD equivalents.
To reflect the different economic situation and circumstances faced by each of the
economies under evaluation compared to that in Australia, we have multiplied
these USD equivalents by the ratio of GDP per worker in the economy in question
to the GDP per worker in Australia in each case. In calculating this ratio, the GDP
values, of course, have to be expressed in USD.36 This approach assumes that, if the
GDP per worker in USD in one of the APEC-12 economies is half that of Australia,
so too will be the public administration cost of an equivalent customs clearance in
that economy.
The estimates for each of the APEC-12 economies are in Table 4.7. They were used
to evaluate the savings in public administration costs on the basis that the resource
cost for a de minimis clearance is negligible. For each of the scenarios, the unit
costs in Table 4.7 were multiplied by the change in the number of de minimis
clearances that we estimated for the relevant delivery mode under each scenario.
In the absence of concrete evidence to the contrary, we also assume that any
compliance assurance programme would not necessarily have to involve
substantially greater costs to cover any enhanced de minimis regime in an effective
manner.
Table 4.7: Cost to public administration of de minimis consignments, APEC-12
economies (a), USD per consignment
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
Air & mail cargo
38.74
19.85
7.35
5.06
36.61
14.14
Sea cargo
48.19
24.69
9.15
6.29
45.53
17.58
Mode of delivery
MEX
PNG
PER
PHL
THA
VNM
Air & mail cargo
16.05
2.50
8.68
3.37
8.38
1.97
Sea cargo
19.97
3.11
10.79
4.19
10.42
2.45
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
Source: ITS Global Asia Pacific
4.4
Savings in business compliance
The more streamlined customs procedures under a de minimis regime can be
expected to reduce the significant compliance costs that the general customs
clearance regime imposes on importers, either directly or indirectly thorough their
agents. Our estimates indicate that savings in business compliance costs for
36
The GDP and employment data in question were sourced from the April 2011 edition of the World Economic
Outlook database (IMF 2011).
55
consignments under the USD200 scenario accounts for over a quarter of the gross
savings from the change in the de minimis thresholds. The relative size of the
business compliance savings under the other scenarios is broadly in line with this
figure.
Competition will ensure that the agents will eventually pass on any such costs
savings to their clients in the form of lower fees or higher quality of service, and
the importers, in turn, will pass the savings onto their customers in the form of
lower product prices
Our literature review only identified a few published estimates of the potential for
savings in business compliance costs from switching low value transactions from a
general customs clearance channel to a de minimis one.
Hufbauer and Wong (2011) estimated that increasing the de minimis threshold in
the United States from USD200 to USD800 would generate savings in business
compliance costs of up to USD33 million a year for international mail and air
express consignments.
This estimate was based on an assumed saving in employee time of 0.15 hours in
completing the customs documentation for a low value transaction and a labour
cost of USD21 per hour to cover wages and labour on-costs, such as the employer’s
health insurance and pension contributions. In addition Hufbauer and Wong
estimate that the statutory storage requirements in respect of completed customs
documentation cost air express firms in the United States about USD1 million a
year. Their calculations imply that business compliance costs in the United States
for full customs clearance of low-valued import consignments total USD6.60 per
consignment.
The CIE (2011) found that switching from the general to the de minimis clearance
channel in Australia would generate significant savings in business compliance
costs. Customs brokers and air express carriers reported that a formal declaration
took about 10 to 15 minutes of a broker’s time and their typical rate for the service
was charged out at AUD 60 to AUD 80 per hour — or around USD66 to USD88 per
hour. The CIE quoted the fees charged by online customs brokers in respect of low
value consignments as ranging upwards from AUD 50 per consignment —
equivalent to USD55 per consignment.
Using what they considered to be a conservative approach, the CIE estimated the
saving in business compliance costs from switching from full formal to de minimis
compliance in Australia was AUD 30 per consignment. This was substantially
more than what has been estimated by Hufbauer and Wong for the United States
(Hufbauer and Wong 2011). Even allowing for the greater economies of scale that
would be available to express firms in the United States, there appears to be
significant disagreement between the CIE estimate and that of Hufbauer and Wong.
56
For our purposes we have preferred to take the most conservative approach to
each of the components that made up the relevant business compliance costs —
the time taken by an importer or their agent to fulfil the customs requirements and
the opportunity cost of that time.
We conclude that 15 minutes is a reasonable allowance for the minimum amount
of time that it takes a knowledgeable person to process a low value customs
clearance for a private business, while AUD 60 per hour is a minimum estimate of
the opportunity cost of that time based on the fee rates charged by customs
brokers. This gives a minimum business compliance cost of AUD 15 per
transaction, and we stress that it is a minimum estimate.
To apply this estimate to any of the APEC-12 economies, it needs to be adjusted to
take account of the relative differences in GDP per capita, as was the case in
estimating the savings in public administration to reflect the different economic
situation and circumstances faced by each of the economies under evaluation
compared to Australia or the United States.
The USD unit values that were estimated for each of the APEC-12 economies are in
Table 4.8. These values were used to evaluate the savings in public administration
costs under all the threshold scenarios on the assumption that the compliance cost
for a de minimis clearance was negligible. For each of the threshold scenarios, the
unit costs in Table 4.8 were multiplied by the change in the number of de minimis
clearances for the relevant mode under that scenario.
Table 4.8: Cost of business compliance for de minimis consignments, APEC-12
economies (a), USD per consignment
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
Air & mail cargo
14.46
7.41
2.74
1.89
13.66
5.27
Sea cargo
14.46
7.41
2.74
1.89
13.66
5.27
Mode of delivery
MEX
PNG
PER
PHL
THA
VNM
Air & mail cargo
5.99
0.93
3.24
1.26
3.13
0.73
Sea cargo
5.99
0.93
3.24
1.26
3.13
0.73
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
Source: ITS Global Asia Pacific
4.5
Savings in merchandise transit time
In trade as in all economic activity time has an economic cost. The longer a
product takes to get from the producer to the final consumer, the more likely the
product is to perish, to become out of date, to be displaced by a superior
alternative, or to simply lose the interest of consumers. There is also an
opportunity cost in having working capital tied up in inventory. Hence saving the
57
time merchandise has to spend in transit has an economic benefit; the extent of
which depends on the nature of the product.
This study used the approach previously adopted by the APEC Secretariat for the
interim and final assessments of the Second APEC Trade Facilitation Action Plan
(PSU 2010 & 2011). For this purpose APEC used the economy-wide valuations of
merchandise transit time developed Professor David Hummels of Purdue
University (Hummels 2001a, 2001b & 2007).
This study also used the Hummels’ valuations. In the present case they were
expressed in terms of a ad valorem tax equivalent of a day’s transit time for each of
the products classified under the UN Standard International Trade Classification
(SITC) (Hummels 2001b). We converted these SITC tax equivalents to a HS basis
by aligning the two classification systems and estimating a weighted average of the
value of a transit day for low value import consignments at the four-digit level of
the HS. This was based on the HS product weights, which we derived from
Indonesian customs data on import consignments of USD200 or less — Annex D
has the details.
This put the valuation at 1.08% of the value of the consignment per transit day. As
we had no other comprehensive information of how the product composition of
low value consignments might vary across the APEC-12, we have used this for each
of the scenarios in the study.
This value is, however, significantly higher than the estimate of 0.4% calculated by
Hufbauer and Wong (2011) for the United States, which was also based on the
Hummels’ work referred to above. Their estimate was, however, based on a much
wider range of consignment values and a much narrower range of HS classes than
were evident in the Indonesian customs data. For example, Hufbauer and Wong
focussed on consignments valued at between USD200 and USD800.37 Such a
relatively wide valuation range is likely to be characterised by considerably
greater product specialisation but resolving this issue was well outside the terms
of reference for our study.
Under each scenario, the time saving for each mode of delivery was the product of:
 the daily ad valorem tax equivalent;
 the increase in the aggregate value of de minimis imports by that mode as a
consequence of the assumed threshold level; and
 the estimated transit time saving for the mode in question as a
consequence of switching from the general clearance channel to the de
minimis channel.
Our estimates of the increase in aggregate value of de minimis imports were taken
from the projections of import consignments in Tables 4.5 and 4.6. Our estimates
of the transit time savings from switching to the de minimis clearance channel are
in Table 4.9.
37
The current de minimis threshold in the United States is USD200 (PC 2011).
58
The savings in air cargo transit time for each economy were taken from the results
of our survey of CAPEC members. In the case of sea cargo, the size of the assumed
saving in transit time was based on the results of the most recent Time Release
Survey by the Japanese Customs and Tariff Bureau.
The Bureau conducts regular surveys of the time taken between the submission of
an import declaration and the release of the cargo in question. It has used its 2009
Time Release Survey to compare customs processing times for sea cargoes that
entered Japan under its Approved Economic Operator (AEO) programme with the
equivalent times for sea cargo that entered through the general customs clearance
channel.38 The Bureau found that the clearance times for the AEO cargoes were, on
average, 60% faster than those for general cargoes (Igarashi 2010).
To put these results into an appropriate context, the World Bank’s annual series of
Trading across Borders surveys have consistently put Japan well below the APEC
average in terms of the time taken by importers in negotiating what the World
Bank terms as Customs clearance and technical control (World Bank 2010a).
From this we conclude that the transit saving achieved through the Japanese AEO
programme should, as a minimum, approximate what could be achieved through
the de minimis clearance of sea cargo.
Table 4.9: Saving in transit time for de minimis consignments, APEC-12 economies
(a), days per consignment
Mode of
delivery
CAN
CHL
CHN
IDN
JPN
MYS
Air & mail cargo
0.5
1.0
1.5
1.6
0.5
0.5
Sea cargo
0.6
1.8
2.4
2.4
1.2
0.6
Mode of
delivery
MEX
PNG
PER
PHL
THA
VNM
Air & mail cargo
0.8
0.5
3.3
1.6
1.3
0.5
Sea cargo
1.2
2.4
1.8
1.2
1.2
2.4
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
Source: ITS Global Asia Pacific
Accordingly we have used a saving of 60% to estimate the transit time saving for
sea cargo entering any of the APEC-12 economies. It has been applied to the total
time taken in 2010 by sea cargoes to complete Customs clearance and technical
control in each of the APEC-6 economies, as estimated by the World Bank from its
annual Trading across Border survey (World Bank Group 2010).
38
An Approved Economic Operator (AEO) is a private business involved in the international movement of goods in
whatever function that has been approved by, or on behalf of, a national Customs administration as complying with
World Customs Organization or equivalent supply chain security standards. The requirement for an AEO program is
a key component of the WCO Framework of Standards to Secure and Facilitate Global Trade (SAFE) (WCO 2007).
59
This represents a very conservative approach. Greater savings should be possible
in virtually all cases given that the border clearance process in Japan has been
shown to be among the fastest in the world and substantially faster than most
APEC economies (World Bank 2010a). Nevertheless, the relatively low value-tovolume ratio that applies to low value consignments generally means that the
value of any time savings are small compared to the savings that are based on
transaction volumes — such as public administration and private sector
compliance costs.
4.6
Taxation revenue foregone
The tariff revenue forgone from a higher de minimis threshold will vary with the
product composition of the imported merchandise covered by the threshold, the
country of origin of the imports, and the rates of taxation applied by the importing
economy.
As far as the product composition of the imports is concerned, we have drawn on
the results of our analysis in Annex B, which examined the HS classification of
import consignments by Indonesia with a landed value of USD200 or less.
Our decision to use Indonesian HS product weights reflected the clear absence of
any real alternatives in this regard. In our view the substantial differences that we
have identified previously between air cargo imports and those by all modes
argued against the use of the former as the basis for the estimates of the foregone
revenue.
With these HS weights we have estimated the average Most Favoured Nation
(MFN) tariff rate that applies to the low value import consignments that enter each
of the APEC-12 economies — Table 4.10 has the results. Each weighted average
was based on the latest Tariff Schedule of the economy in question.
The estimate for each APEC-12 economy involved weighting the individual MFN
rates in the Tariff Schedule by the HS product shares that we had previously
calculated for Indonesian import consignments with a landed value of USD200 or
less per consignment. These product weights were estimated at the four-digit level
of the HS level — Annex B has the details.
Multiplying the average MFN rate by our projection of the increase in value of de
minimis imports under each de minimis scenario gave an approximation of the
potential revenue loss for the threshold scenario in question. It needs to be
adjusted, however, for the impacts of preferential tariff rates and the current de
minimis revenue exemptions.39
39
For this report we have refined the method, which we had used previously (ITS & CCES 2011), to
estimate the number and aggregate value of the consignments that benefit from its existing de minimis
taxation exemptions. The refinement substantially increased the numbers and aggregate values in each
case as well as their distribution. As a consequence, it significantly changed our estimates of the net
economic benefits under each of the scenarios. For example, it lowered the net benefit for the APEC-12
60
Table 4.10: Weighted average tariff rates on import consignments of USD200
or less, APEC-12 economies (a), per cent
Measure
CAN
CHL
CHN
IDN
JPN
MYS
MFN tariff rate
4.70
6.00
9.49
7.70
1.66
14.68
Applied tariff rate (b)
0.77
3.82
8.55
3.47
1.41
7.14
Revenue yield (c)
0.70
3.05
7.96
2.11
0.27
0.97
Measure
MEX
PNG
PER
PHL
THA
VNM
MFN tariff rate
6.34
4.72
2.82
6.79
10.41
13.59
Applied tariff rate (b)
1.85
4.72
2.82
3.59
5.33
5.61
Revenue yield (c)
1.33
4.72
1.11
3.58
4.24
5.35
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
(b) MTN rate less adjustment for preferential tariff rates under existing Free Trade Agreements
(c) Applied rate less a deduction for existing de minimis exemptions
Source: ITS Global Asia Pacific
For example, since ASEAN established the ASEAN Free Trade Area (AFTA) in the
early 1990s, its has concluded free trade agreements (FTAs) with a number of its
major trading partners, including China (2002), the Republic of Korea (2005),
Japan (2008), India (2009) and Australia and New Zealand (2009). ASEAN has also
concluded the ASEAN Trade in Goods Agreement (ATIGA), which is in the process
of completing tariff liberalization within ASEAN by 2010 for the foundation
member states and by 2018 for the newer member states.
The depth, scope and pace of tariff liberalization under each agreement varies by
ASEAN economy, product and trading partner. In some agreements, such as the
ASEAN–India FTA, certain sectors or products are excluded from the liberalization
provisions in the Agreement. In others, such as the AANZFTA, scope of the tariff
liberalization is far more comprehensive.
The time available for the study did not allow for a highly time consuming,
product- by-product assessment of each of the five ASEAN economies in the APEC12, let alone the rest. We have therefore assumed that all low value imports by the
five ASEAN economies from any of their ASEAN or FTA partners are duty free.
We have used the same approach for each of the other APEC-12 economies. This
assumes that all imports by Canada or Mexico from any of their NAFTA partners
are duty free, as are those by Chile from the United States, and by China or Japan
from any of the ASEAN economies.
under the USD200 scenario from USD5.9 billion a year to USD5.4 billion a year and increased it under
the USD50 scenario from USD30,000 a year to USD2 billion a year.
61
Adjusting for the duty free rates we have assumed are in the process of being
applied to imports from FTA partners, gives an estimate of the effective applied
tariff rate for each of the APEC-12 economies in the study. They are also presented
in Table 4.10.
We have also assumed that the tariff revenue lost due to the existing de mininis
threshold is the existing threshold level as a percentage of the threshold level in
the scenario under analysis. This percentage is multiplied by the applied tariff rate
gives the revenue yield for each economy under the scenario in question. These
estimates are also set out in Table 4.9. They may be thought of as the indicators of
the long-run impact on revenue after the tariff preferences that have been included
in recent FTAs are fully implemented.
In most of the economies in the study the scope for revenue loss is much lower
than many may expect. This is due to a combination of relatively low MFN rates in
all but two of the economies and extensive departures from MFN rates for much of
the trade of all six due to the proliferation of FTAs.
The spread-sheet model that we have developed for this study does not estimate
the impact of changes to de minimis thresholds on other indirect tax revenue. This
reflects the technical challenges of modelling highly complex tax regimes with
different rates for different products at different stages of production. It is,
nevertheless, possible to use a model such as this to test the sensitivity of its
results to a range of key assumptions about the nature of the indirect tax regimes
in the APEC-12.
Except for Malaysia, all APEC-12 economies currently impose a tax at each stage in
the production of most goods and services, along the lines of the Value-Added Tax
that is imposed by the European Union. For its part, Malaysia is planning to
replace its selective sales and services taxes with such a Goods and Services Tax
(GST). The indications are that the rate will be no more than 10%.
At the present time, GST or VAT-type taxes are currently levied at rates of: 5% in
Canada and Japan; 7% in Thailand; 10% in Indonesia, Papua New Guinea, Peru, the
Philippines and Viet Nam; 16% in Mexico; 17% in the People’s Republic of China;
18% in Peru; and 19% in Chile. In no case, however, is this rate applied to all goods
that are consumed within the economy in question.
Applying these nominal rates to the projected change in the value of imports that
enter an economy via the de minimis channel gives an indication of the maximum
amount of VAT revenue that could be foregone by lifting the threshold under each
scenario.
The impact that the maximum revenue loss have on the earlier estimates of net
economic benefit for the APEC-12 economies are respectively summarised in
Tables 4.10 (the APEC-12 results) and Table 4.11 (the individual economy results).
62
Table 4.11: Net economic benefit of alternative de minimis thresholds, APEC-12
economies, VAT/GST sensitivity test, USD billion per year
De Minimis
Threshold
USD
Net Economic
Benefit (NEB)
APEC-12 Economies (a)
Benefit-Cost
Ratio (BCR)
NEB as % of
APEC-12 GDP
50
1,869
16.8
0.012
4,154
100
2,899
10.1
0.018
6,442
150
3,924
10.2
0.025
8,720
200
4,958
10.5
0.025
11,018
APEC-21
NEB (b)
Notes: (a) Canada, Chile, the People’s Republic of China, Indonesia, Japan, Malaysia, Mexico, Papua
New Guinea, Peru, the Philippines, Thailand and Viet Nam
(b) Product of the APEC-12 NEB as a percentage of its GDP and APEC-21 GDP in USD.
Source: ITS Global Asia Pacific
Table 4.12: Net economic benefit of alternative de minimis thresholds, by APEC-12
economy (a), VAT/GST sensitivity test, USD million per year
Threshold
USD
CAN
CHL
CHN
IDN
JPN
MYS
50
1,566
22.7
237
0.00
0
0
100
2,596
27.5
218
-0.79
0
0
150
3,444
35.1
241
1.90
114
0
200
4,201
42.2
267
4.85
309
17.7
Threshold
USD
MEX
PNG
PER
PHL
THA
VNM
50
0
0
11.3
10.87
17.2
4.04
100
17.4
0
11.2
8.65
21.2
0.38
150
40.1
-0.034
11.6
8.52
27.1
0.68
200
62.0
-0.138
12.6
9.09
33.3
-0.04
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA)
and Viet Nam (VNM)
Source: ITS Global Asia Pacific
The message of the sensitivity test is rather clear-cut. The loss of VAT/GST
revenue does not qualitatively change the results that were discussed above, with
the possible exception of Indonesia, Papua New Guinea and Viet Nam. Even in
those cases net losses are evident only in certain circumstances and the absolute
levels of the losses are so small that they are unlikely to be significant in any
statistical sense. For example, in no case do they exceed USD0.8 million a year.
The overall conclusion is strongly reinforced by the fact that our estimates of the
VAT/GST revenue forgone are almost certainly excessive and significantly so in
many cases. The sensitivity test assumes that the nominal tax rate applies to all
low value imports but in fact each of the APEC-12 economies exempts certain types
of goods from their broadly-based indirect tax regimes. The sensitivity test makes
no allowance for such exemptions.
63
More importantly no allowance has also been made for the fact that a high
proportion of low value imports are business inputs. Classical VAT-style regimes,
including those imposed within APEC, work by taxing the value that is added at
each stage of production. To minimise the tax distortions involved in cascading
effective tax rates along the chain of production, most regimes of this type allow
taxpayers to claim a tax credit for any taxes that their suppliers have paid on the
business inputs that the taxpayers use.
This feature means that classical VAT regimes have an automatic mechanism that
tends to eliminate tax avoidance or evasion. In other words, if VAT is not paid on a
business input, for whatever reason, the VAT liability for the product, which it is
used to produce, is increased by the amount of any unpaid tax. In other words any
VAT that is not collected at an earlier stage of production would be expected to be
collected by the time the final product is sold to the consumer or end user.
This means that the only VAT revenue that is forgone by raising a de minimis
threshold relates to the merchandise, which is imported by or on behalf of
households. All the available evidence suggests that this is a clear minority of the
aggregate value imported as low value consignments.
64
65
5. Conclusions & Recommendations
We estimate that a minimum threshold of USD200 would generate a net benefit of
USD5.4 billion a year for the APEC-12 economies, equivalent to about 0.034% of
their GDP. Extrapolation of this to the rest of APEC implies a net benefit of
USD11.9 billion for all 21 economies.
Decreasing the minimum threshold reduces the extent of the net economic benefit
the APEC-12 and does so more than proportionately. It remains true, nevertheless,
that any increase in the threshold in any of the 12 economies is better than none.
Around 98% of the net benefit to the APEC-12 from the USD200 threshold is
accounted for by resource savings in government administration and business
compliance. These savings have, nevertheless, been conservatively estimated
based on the level of fees and charges for the relevant services that apply in
Australia where they are generally considered to be delivered efficiently. While
these have been adjusted to reflect differences in labour costs with Australia, no
allowance has been made for differences in processing efficiency.
The balance of the net economic benefit received by the APEC-12 economies is a
relatively modest saving in merchandise transit time. Taxation revenue forgone is
generally a minor consideration, amounting to no more than 4% of all the
economic benefits. The same broad pattern was evident across the great majority
of the APEC-12.
Although it was not possible to model the impact of de minimis thresholds on
VAT/GST revenues, a sensitivity test based on the maximum possible revenue loss
did not qualitatively change the results. The actual impact is likely to be much less
than this maximum — which is equivalent to less than 8% of the total benefits.
The vast majority of low value imports are business inputs and under classical VAT
regimes any revenue that is not collected at the border is likely to be collected at a
subsequent stage of production. Moreover these maxima make no allowance for
the significant economic cost of public revenue in the form of foregone output —
the so called ‘deadweight’ losses.
Our conclusions on beneficial direction of de mimimis policy have been strongly
reinforced by the Productivity Commission, the Australian Government’s
independent economic advisory body. The Commission is reviewing the de
mimimis threshold that is applied in Australia. Although Australia has the highest
threshold in APEC and a 10% rate of GST, the Commission has concluded that any
reduction in the threshold would impose a net cost on the economy, and a
substantial one at that.
Notwithstanding the severity of the information constraints on our analysis, these
orders of magnitude are unlikely to change with the application of more
information or better quality data. At this level we judge the results to be robust,
at least for the great majority of economies that we have examined. Indeed the
66
conservative nature of our approach should mean that any more refined
estimation is likely to yield higher net benefits than what we have estimated here.
For a start, the estimates in this report have made no allowance for any
behavioural response to any increase in thresholds. Competition will ensure that
the resource savings in transit time and business compliance costs generated by
higher thresholds will eventually be passed on to domestic users and consumers in
the form of lower prices and higher quality products. These changes will, in turn,
stimulate increased output by downstream industries and increased consumption
by households. Neither impact has been accounted for here but both would add to
the net benefit to the community as a whole.
The size of these behavioural benefits would be significantly increased by a coordinated approach within APEC to raising de minimis thresholds and broadening
their coverage across the region. The leverage that is available in this regard is
similar to what multilateral liberalisation of trade barriers through the WTO can
achieve compared to unilateral liberalisation. A co-ordinated increase in de
minimis thresholds is functionally and economically equivalent to a co-ordinated
cut in trade barriers to intermediate goods, which are the fastest growing
component of global trade.
The overall policy implications of our results are quite straightforward. A
commercially attractive de minimis arrangement makes sound economic sense for
all economies. While the optimal level of the threshold for any economy remains
somewhat of an open question, the beneficial direction of policy change in APEC is
quite clear. This is strongly underlined by our estimated benefit-costs ratios,
which put the total benefits for the great majority of the APEC-12 economies at
many multiples of the total costs.
Most, if not all, APEC economies would benefit by increasing their existing
thresholds, and by a substantial amount. APEC could assist this process by
agreeing to recommend a minimum threshold level to its members with the option
of a higher level to better suit individual circumstances.
Where the prospective revenue losses are seen as being unacceptable, there is the
possibility of expanding the ‘informal’ clearance arrangements or establishing such
regimes where they do not exist. Doing so, would provide border clearance
procedures that were more streamlined than the general customs channel but less
so than the de mimimis one but no tax exemptions. This option represents a
middle way between de minimis expansion and the status quo.
At the same time there is a clear need for further research to reduce the
uncertainty that remains about the optimal level of de minimis thresholds generally
and to refine our understanding of the economic trade-offs that are involved in the
design of a de minimis regime. This is particularly true for the minority of cases
where our evaluation results were not so clear cut
67
68
69
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75
Annex A: Methodology & Approach to the Study
There are three components to the study:
•
Component 1: An analysis of the current de minimis regimes in APEC;
•
Component 2: An analysis of the factors that shaped the current de
minimis regimes in APEC;
•
Component 3: An economic analysis of the current de minimis regimes
and the alternatives to them.
The study was undertaken in two stages.
•
The Conference of Asia Pacific Express Carriers (CAPEC) commissioned
and the first stage, which covered Canada, Indonesia, Japan, Malaysia,
the Philippines, and Thailand. It was completed in August 2011.
•
CAPEC and its sister organisations in the Americas -- the Express
Association of America (EAA) and the Latin American Association of
Express Delivery Companies (CLADEC in Spanish) -- commissioned the
second stage. This stage covered Chile, the People’s Republic of China,
Mexico, Papua New Guinea, Peru and Viet Nam and was concluded in
May 2012.
Collectively these economies are termed the APEC-12 economies for the purposes
of this report, while the full membership is referred to as APEC-21. The APEC-12
economies were chosen for the study as they were considered to be broadly
representative of the APEC region as a whole, measured in terms of merchandise
trade, geography and stage of economic development. In 2010, for example, the
APEC-12 economies collectively accounted for 48% of regional merchandise
imports, and 45% of the regional gross domestic product (GDP). The group’s GDP
per capita averaged USD 7,300 per head of population, which may be compared to
the average for all 21 APEC economies of USD 12,900 per head.40
The Centre for Customs and Excise Studies (CCES) at the University of Canberra
completed Components 1 and 2. For its part, ITS Global Asia Pacific (ITS) was
responsible for Component 3 and for the preparation of the report as an integrated
whole.
40
These estimates are based on the April 2011 edition of the World Economic Outlook database (IMF 2011).
76
A.1
Components 1 & 2
Component 1 sought to establish the basic details of the de minimis arrangements
in each of the APEC-12 economies for the purposes of this study. The details sought
included the level of the threshold in national currency, its equivalent USD value,
the types of merchandise covered by the threshold, and the nature of the tax
exemptions available under it.
Component 2 was aimed at establishing the reasons each economy chose their
current de minimis arrangements, particularly the level and coverage of their
threshold. Among other things, this involved an assessment of the:
•
efficiency of their customs clearance processes;
•
speed and reliability of of business transactions — especially for ‘just in
time’ business models in manufacturing, services and the logistics
supply chain;
•
administration and compliance costs in the supply chain — including for
logistics providers, importers, small- to medium-sized business users,
and consumers;
•
facilitation of trade and commerce — including electronic commerce;
and
•
cost to government — including customs infrastructure and
administration resources versus customs revenue foregone.
This work involved desktop research supported, as necessary, by direct enquiry of
the relevant customs administration. This approach was considered to be the best
option given the time constraints on the study and the need for early inputs for the
economic analysis in Component 3.
The research involved seeking facts, general information, historical background,
relevant research results, etc., that have been published or are in the public
domain. This information was obtained from libraries, newspaper archives,
government, university, websites, non-governmental organisations (NGOs) and
CBOs etc. For example, most research undertaken by public agencies is easily
accessible on the internet or from government offices.
The initial research focussed on each economy’s relevant laws and legislation and
any supporting policy documentation that provides the rationale for the threshold.
This policy and legislative context formed the basis for comparative analysis inter
se and also with the results of recent research on these issues by the Organisation
for Economic co-operation and Development (OECD), the World Bank, the World
Trade Organisation (WTO), and more recently the Peterson Institute for
International Economics in Washington, DC.
77
The subsequent analysis examined the implications of adopting a particular de
minimis threshold and thereby identified the key variables that need to be factored
into the economic analysis. Where there were gaps in the documentation available
to inform this process, the relevant customs administration was approached for
information to fill those gaps and/or to test any assumptions.
With this in mind the CCES:
•
Identified and examined the previous research on de minimis thresholds
and policies;
•
Identified, clarified and documented the de minimis threshold and
regulatory framework in the economies selected for the case studies;
•
Analysed the research data and developed recommendations;
•
Prepared draft conclusions and recommendations and discussed with
key stakeholders; and
•
Wrote up the analysis, assumptions used, conclusions reached, and
recommendations proposed for inclusion in the reporting to CAPEC.
A.2
Component 3
Drawing on the outputs from Components 1 and 2, ITS developed a model in
Microsoft Excel and applied it to estimate the net economic benefit to each of the
APEC-12 economies of their adopting less restrictive de minims arrangements to
facilitate trade. The less restrictive arrangements include higher threshold values,
broader product coverage, and faster clearance of eligible imports.
Component 3 sought to estimate:
•
the net economic benefit in USD to the APEC region from APEC
economies adopting a minimum baseline threshold value;
•
the increase in APEC and intra-Asian trade in USD from APEC economies
adopting a recommended baseline threshold; and
•
the net economic benefit in USD to individual APEC economies from
their adopting the recommended baseline threshold or some lower
threshold.
A.2.1 Overview of Approach
Raising the de minimis threshold in an economy will increase the volume of
imports that enter under this arrangement and will simultaneously decrease the
volume of imports that continue to enter under the general clearance regime, other
things being equal.
78
The extent of the switch will depend on the extent of the increase in the de minimis
threshold, the regulation and administrative practice that determine the
merchandise that may use the de minimis channel, and the customs procedures
that apply to the de minimis and general clearance channels.
The economic benefit of the switch is the sum of the following:
•
Time savings in the delivery of imported merchandise to the end-users;
•
Savings in resources by logistics services providers and importers; and
•
Savings in the public costs of customs administration.
Netting out the public revenue foregone from the elimination of tariffs and other
indirect taxes gives the net economic benefit of the change.
Estimates of each of these impacts were made on an ad hoc basis. The information
required to do so was sourced from:
•
a review of the relevant economic literature on the economic benefits
and costs associated with low value imports;
•
data on relevant import transactions that are being collected from each
CAPEC member specifically for this study; and
•
public sources of data on low value imports, the customs and tariff
treatment of different types of imports, the costs of customs
administration .
The literature reviewed was found through searches of bibliographical databases
in the public domain — such as the Econlit database of the American Economic
Association. Google Scholar was used to identify other research that has been
published on the World Wide Web. The review sought to identify the key
relationships that influence the importation of merchandise through the de
minimis channel.
The results were used to choose the values to be assumed for the estimation
process. The key ones included the:
•
unit value of the transit time taken by low value merchandise in
international trade;
•
product composition used to calculate weighted average tariff rates for
different types of imported products;
•
amount of time taken by importers in completing customs clearance and
border screening procedures; and
79
•
unit cost of customs administration for the different clearance channels.
Information was collected from each of the companies represented by the EAA,
CAPEC and CLADEC by way of a sample of air express consignments that each
brought into each of the economies selected for the study. The sample consisted of
the transactions for the week beginning 1 June 2011, which was considered to be
broadly representative of a year’s business.
The data collected included:
•
the declared value of each import valued at up to USD200 that entered
the economy in question during the week beginning 1 June 2011;
•
the nature of each consignment, as declared by the consignee;
•
the origin of each consignment;
•
the average time taken to deliver such imports that enter each of the six
economies under any de minimis arrangements;
•
the average employee time spent on such imports that enter each of the
six economies under any de minimis arrangements;
•
the average time taken to deliver such imports that enter each of the six
economies under their general customs clearance arrangements; and
•
the average employee time spent on such imports that enter each of the
six economies under their general customs clearance arrangements.
In most economies, particularly developing ones, air cargo is only used for a
relatively small minority of import transactions and for a minority of products;
their relatively high cost means that air transport is economic only for products
with a relatively high value to mass ratio.41 Most low value imports enter through
the postal system or as sea cargo (Productivity Commission 2011). For these
reasons one cannot rely on data on air express transactions to describe the nature
or extent of all low value imports.
With that in mind ITS approached Trade Data International (TDI) with a view to
obtaining detailed customs data on all import transactions of USD200 or less for
each of the APEC-12 economies. In the event TDI was only able to provide such
data for Indonesia. It appears that, in the interests of economy, the customs
agencies of the other economies do not collect data on such low value transactions
or did not publish the data it if they collected it.
41
The clear exception to this is the United States (see Hummels 2001a).
80
The data covered all imports cleared by Indonesian customs with a landed value of
USD200 or less for each month of 2009 and 2010. The number and value of the
transactions in question were disaggregated by their country of origin and by their
four- and six-digit codes on the Harmonized Commodity Description and Coding
System (HS) of tariff nomenclature. The data set was also partitioned into subsets — namely consignments that were valued at USD150 or less, USD100 or less,
and USD50 or less.
The method and approach used for each element of the estimation process is
outlined below.
A.2.2 Value of savings in merchandise transit time
This study used the same approach used to estimate the economic value of transit
time in international merchandise trade for the APEC Secretariat (PSU 2010 &
2011). This used valuations of time for 175 countries published by Professor
David Hummels of Purdue University (Hummels 2007). This work was based on
his previous estimates of the ad valorem tax equivalent of a day’s transit time for
products classified at the two-digit level in the Standard International Trade
Classification (SITC) (Hummels 2001a & 2001b).
For each economy the transit time savings from increasing the share of import
transactions entering via the de minimis channel was calculated as the product of:

the Hummels’ ad valorem tax equivalents of transit time;

the increase in the aggregate value of de minimis imports as a consequence
of an increase in the threshold to the given level; and

an estimate of the average time saving from increasing the de minimis
threshold to the given level.
The Hummels’ ad valorem tax equivalents of time were converted from a SITC
basis to a HS basis by aligning the two classification systems. A weighted average
of the ad valorem tax equivalents was then estimated based on the four-digit HS
composition of low value imports. The latter was estimated from the composition
of Indonesian import transactions of USD200 or less in 2010.
This weighted average ad valorem tax equivalent was used for each of the six
economies in the study. Multiplying this by the increase in the aggregate value of
imports for each of the economies in question gives estimates of the economic
value of a saving of one day in transit time across all their low value imports.
The proportionate increase in de minims imports for each economy was taken to
be the increase in the USD value of its existing de minimis threshold, based on a
series of progressively higher alternative thresholds — namely USD50, USD100,
USD150 and USD200. At present the de minimis thresholds in the six economies
range from 35 US cents to USD150 based on prevailing exchange rates.
81
The estimates of the increase in the aggregate value of de minimis imports and the
average saving in transit time for each economy were based on the transaction
data collected from CAPEC members.
A.2.3 Savings in business compliance costs
For consignments valued at between USD200 and USD800 that were imported into
the United States, the Petersen Institute has estimated that the customs paperwork
alone costs around USD33 million a year (Hufbauer & Wong 2011). This estimate
was based on the wages and labour on-costs for the employee time that was
estimated as being employed in completing the official documentation that was
required.
ITS used the same approach to estimate the savings in handling costs to the
express delivery carriers in each of the selected APEC economies. For this
purpose it collected data from each CAPEC member on the extent of the employee
time that is involved in handling consignments that enter through the de minimis
and the general customs clearance channels in each of the six APEC economies.
ITS identified the opportunity cost of the labour skills that are required for this
work. This information will be used to estimate the unit labour cost for the
employee time spent in handling consignments through the two customs clearance
channels for each of the economies.
The product of the employee time and the unit labour cost provided the estimate of
the handling costs for each customs clearance channel in each APEC economy. The
difference between them gave the saving from expanding the coverage of the de
minimis channel.
A.2.4 Savings in customs administration costs
The more streamlined customs procedures that are associated with the de minimis
channel means that any increase in the share of imports entering through that
channel should allow the operating and capital costs of customs and border
administration to be reduced. A de minimis regime saves the public purse from
having to collect public revenue where the cost of doing so is high compared to the
revenue actually received. The collection cost per unit of revenue is generally very
much higher for ad valorem indirect taxes than for most other taxes.
The literature review sought to identify reliable sources of data on the unit costs of
custom clearance for each of the entry channels. The search concentrated on
economies with similar customs arrangements and economic development status
as the six economies selected for this study. This information was intended to be
used to estimate the savings in public administration from increasing the share of
imports that enter via the de minimis channel.
82
In the event this approach proved to be unproductive, therefore ITS has inferred
the unit costs involved from the schedule of user charges and fees that are levied
by the customs and border agencies. This approach was used by the Centre for
International Economics (CIE) to estimate the saving in customs administration
costs from the relatively less onerous clearance procedures that are applied to low
value imports in the Australian context (CIE 2011).
The General Agreement on Tariffs and Trade (GATT) expressly requires that fees
and charges levied for any services that are rendered in respect of imports (or
exports for that matter) are limited to the approximate cost of the services in
question and may not represent an indirect protection to domestic goods or
taxation of trade for fiscal purposes.42 This means that, on average, the fees and
charges that WTO members impose on importers probably do not recover all of
the costs of customs administration and border protection so it was important to
select fee rates that are set explicitly to recover all customs clearance costs.
A.2.5 Revenue foregone from tax exemption
Generally speaking the taxation treatment of the type of low value imports that
might benefit from a higher de minimis threshold will vary with the nature of the
good in question, the economy from where it originated, the tariff and indirect tax
rates that apply in such cases, and the nature and extent of the taxation exemptions
that are available in the economies in question.
ITS analysed the transaction data obtained on low value imports by Indonesia in
terms of its product shares in terms of the WCO Harmonized Commodity
Description and Coding System. The Harmonized System forms the basis for the
Tariff Schedules that the 12 economies use to classify their imports for the purpose
of calculating customs duties.
Using these Indonesian product weights, ITS estimated a weighted average ad
valorem tariff for low value products that are being imported by each of the
selected economies up to the proposed baseline de minimis threshold. This
weighted average was based on the assumption that the origins of low value
imports by Indonesia are similar to those of similar imports by the other five
economies. This approach was a direct consequence of the absence of any reliable
and detailed customs data on the composition of low value import consignments
that enter the other 11 economies in the study.
To estimate the tariff revenue lost from raising the de minimis threshold in each
case, ITS multiplied the weighted average tariff rate by the increase in the value of
de minimis imports under each of the modelling scenarios, which was the
difference between:

42
the projection of the aggregate value of import consignments that would be
eligible for de minimis treatment under the scenario; and
General Agreement on Tariffs and Trade (GATT 1954), Article VII.1
83

an estimate of the aggregate value of import consignments that currently
enter the economy in question under its existing de minimis arrangements.
The estimate of the current value of de minimis entry was inferred from the four
low value import projections that were prepared for each of the economies in the
study. In extending this study from the original six to a total of 12 economies, ITS
significantly refined the approach that it used to estimate the aggregate value and
number of import consignments that entered each economy under its existing de
minimis arrangements.
The change in approach involved summing:

projection of the consignment value that was ranked next in value below
the current de minimis threshold (the lower scenario); and

a percentage of the increase in aggregate value between the projection in
the lower scenario and the next ranked projection in terms of consignment
value (the higher scenario).
The percentage in question was the difference between the level of the current de
minimis threshold and the level of the threshold assumed in the lower scenario,
expressed as a proportion of the USD 50 increment in threshold level, which is
involved when moving from the lower to the upper scenarios. To illustrate, if the
current de minimis threshold is USD 75, the aggregate value of exempt
consignments is assumed to be the aggregate value projected under the USD 50
scenario plus half the difference in aggregate value projected under the USD 100
and USD 50 scenarios.
In the case of the VAT/GST revenue, ITS multiplied the nominal tax rate by the
relevant increment in aggregate value under each of the scenarios. This only gave
an estimate of the maximum possible revenue loss in each case, as it made no
allowance for gaps in product coverage, variations in the rates applied, and any
rebates for tax revenue collected on business inputs. Our ability to allow for such
variations is severely constrained by the complexity of the taxation regimes in
question and the paucity of reliable information on the details of their operation,
which is available to the public. The latter problem has been extensively
highlighted and documented by others, including most recently by the Australian
Productivity Commission (2011).
84
85
Annex B: Results of Economic Evaluation
Table B.1: Net economic benefit of alternative de minimis thresholds in APEC-12 (a),
USD million per year
Alternative Threshold
Component of Net Economic
Benefit
USD50
USD100
USD150
USD200
9
24
44
53
1,512
2,439
3,294
4,150
467
753
1,014
1,275
1,987
3,217
4,353
5,478
33
78
102
121
1,954
3,138
4,251
5,357
Benefit-cost ratio
59.8
41.1
42.8
45.3
NEB as % of GDP
0.012
0.020
0.027
0.034
APEC-21 Net Economic Benefit (b)
4,342
6,974
9,446
11,903
Saving in transit time
Saving in public administration
Saving in private compliance
Total benefits
Less Tax revenue foregone
APEC-12 Net Economic Benefit
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (TH)
and Viet Nam (VNM)
(b) Extrapolation of the net economic benefit for the APEC-12 economies as share of APEC-12 GDP.
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia
Pacific
86
Table B.2: Net economic benefit of alternative de minimis thresholds in APEC-12 (a),
VAT/GST sensitivity test, USD million per year
Component of Net Economic
Benefit
Alternative Threshold
USD50
USD100
USD150
USD200
9
24
44
53
1,512
2,439
3,294
4,150
467
753
1,014
1,275
1,987
3,217
4,353
5,478
118
317
429
519
1,869
2,899
3,924
4,958
Benefit-cost ratio
16.8
10.1
10.2
10.5
NEB as % of GDP
0.012
0.018
0.025
0.025
APEC-21 Net Economic Benefit (b)
4,154
6,442
8,720
11,018
Saving in transit time
Saving in public administration
Saving in private compliance
Total benefits
Less Tax revenue foregone
APEC-12 Net Economic Benefit
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN),
Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (TH)
and Viet Nam (VNM)
(b) Extrapolation of the net economic benefit for the APEC-12 economies as share of APEC-12 GDP.
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia
Pacific
87
Table B.3: Net economic benefit of a de minimis threshold of USD200, by APEC economy (a), USD million per year
Net Benefit Component
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Saving in transit time
21.2
1.0
16.8
2.0
1.9
0.3
2.7
0.069
1.0
1.6
1.9
2.15
Saving in public administration
3,346.5
41.8
328.6
10.9
244.4
19.7
76.5
0.163
16.5
17.7
37.6
9.64
Saving in private compliance
1,029.2
12.8
101.1
3.3
74.3
6.0
23.4
0.050
5.1
5.4
11.6
2.91
Total benefits
4,396.9
55.6
446.5
16.3
320.5
26.0
102.7
0.281
22.6
24.7
51.1
14.70
26.2
2.2
60.2
2.9
2.5
3.4
4.2
0.092
2.1
4.1
7.7
5.30
4,370.6
53.4
386.3
13.3
318.0
22.5
98.4
0.189
20.5
20.6
43.4
9.40
Benefit-cost ratio
167.7
24.8
7.4
5.5
128.2
7.6
24.3
3.1
10.8
6.0
6.6
2.8
NEB as % of GDP
0.278
0.026
0.007
0.002
0.006
0.009
0.009
0.002
0.013
0.011
0.014
0.009
Less Tax revenue foregone
Net economic benefit (NEB)
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
88
Table B.4: Net economic benefit of a de minimis threshold of USD150, by APEC economy (a), USD million per year
Net Benefit Component
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Saving in transit time
17.0
0.9
15.6
1.8
0.9
0
2.1
0.022
0.8
1.4
1.5
1.86
2,739.6
34.6
298.9
7.6
91.0
0
52.7
0.057
14.7
15.9
30.6
8.61
843.9
10.6
92.1
2.3
27.7
0
16.2
0.017
4.5
4.9
9.4
2.60
3,600.5
46.1
406.7
11.7
119.6
0
71.0
0.095
20.0
22.2
41.6
13.07
21.2
1.9
55.6
2.5
1.2
0
3.4
0.029
1.8
3.6
6.1
4.45
3,579.2
44.2
351.0
9.2
118.5
0
67.7
0.067
18.3
18.7
35.5
8.63
Benefit-cost ratio
169.5
24.5
7.3
4.7
103.1
n.a.
21.2
3.344
11.4
6.3
6.8
2.94
NEB as % of GDP
0.227
0.022
0.006
0.001
0.002
0
0.007
0.001
0.012
0.010
0.011
0.008
Saving in public administration
Saving in private compliance
Total benefits
Less Tax revenue foregone
Net economic benefit (NEB)
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
89
Table B.5: Net economic benefit of a de minimis threshold of USD100, by APEC economy (a), USD million per year
Net Benefit Component
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
9.9
0.4
8.5
0.9
0
0
0.9
0
1.0
1.4
1.1
0.33
2,057.9
26.7
266.1
3.9
0
0
27.4
0
12.8
14.0
22.9
7.60
635.1
8.2
82.1
1.2
0
0
8.5
0
4.0
4.3
7.1
2.29
2,702.9
35.3
356.8
6.0
0
0
36.8
0
17.8
19.8
31.2
10.23
14.8
1.4
46.7
1.7
0
0
2.2
0
1.4
2.8
4.1
3.33
2,688.1
33.9
310.1
4.3
0
0
34.6
0
16.4
17.0
27.0
6.90
Benefit-cost ratio
182.6
26.0
7.6
3.5
n.a.
n.a.
17.0
n.a.
13.0
7.0
7.6
3.07
NEB as % of GDP
0.171
0.017
0.005
0.001
0
0
0.003
0
0.011
0.009
0.008
0.007
Saving in transit time
Saving in public administration
Saving in private compliance
Total benefits
Less Tax revenue foregone
Net economic benefit (NEB)
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
90
Table B.6: Net economic benefit of a de minimis threshold of USD50, by APEC economy (a), USD million per year
Net Benefit Component
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Saving in transit time
2.53
0.11
4
0
0
0
0
0
0.5
0.66
0.26
0.15
1,215.59
19.05
234
0
0
0
0
0
10.5
11.80
14.66
6.45
375.16
5.88
72
0
0
0
0
0
3.2
3.64
4.52
1.94
1,593.28
25.04
311
0
0
0
0
0
14.2
16.09
19.45
8.53
3.91
0.42
25
0
0
0
0
0
0.6
1.29
0.88
1.51
1,589.4
24.6
286.1
0
0
0
0
0
13.6
14.8
18.6
7.03
Benefit-cost ratio
407.7
59.3
12.6
n.a.
n.a.
n.a.
n.a.
n.a.
23.0
12.5
22.1
5.66
NEB as % of GDP
0.101
0.012
0
0
0
0
0
0
0.009
0.008
0.006
0.007
Saving in public administration
Saving in private compliance
Total benefits
Less Tax revenue foregone
Net economic benefit (NEB)
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
91
Table B.7: Minimum net economic benefit & maximum revenue foregone from a de minimis threshold of USD 200, VAT/GST sensitivity
test, by APEC economy (a), USD million per year
Net Benefit Component
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Maximum VAT/GST revenue
2.53
0.11
4
0
0
0
0
0
0.5
0.66
0.26
0.15
1,215.59
19.05
234
0
0
0
0
0
10.5
11.80
14.66
6.45
Minimum benefit-cost ratio
375.16
5.88
72
0
0
0
0
0
3.2
3.64
4.52
1.94
Minimum NEB as % of GDP
0.101
0.012
0
0
0
0
0
0
0.009
0.008
0.006
0.007
foregone
Minimum net economic
benefit
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
92
Table B.8: Minimum net economic benefit & maximum revenue foregone from a de minimis threshold of USD 150, VAT/GST sensitivity
test, by APEC economy (a), USD million per year
Net Benefit Component
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Maximum VAT/GST revenue
2.53
0.11
4
0
0
0
0
0
0.5
0.66
0.26
0.15
1,215.59
19.05
234
0
0
0
0
0
10.5
11.80
14.66
6.45
Minimum benefit-cost ratio
375.16
5.88
72
0
0
0
0
0
3.2
3.64
4.52
1.94
Minimum NEB as % of GDP
0.101
0.012
0
0
0
0
0
0
0.009
0.008
0.006
0.007
foregone
Minimum net economic
benefit
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
93
Table B.9: Minimum net economic benefit & maximum revenue foregone from a de minimis threshold of USD 100, VAT/GST sensitivity
test, by APEC economy (a), USD million per year
Net Benefit Component
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Maximum VAT/GST revenue
2.53
0.11
4
0
0
0
0
0
0.5
0.66
0.26
0.15
1,215.59
19.05
234
0
0
0
0
0
10.5
11.80
14.66
6.45
Minimum benefit-cost ratio
375.16
5.88
72
0
0
0
0
0
3.2
3.64
4.52
1.94
Minimum NEB as % of GDP
0.101
0.012
0
0
0
0
0
0
0.009
0.008
0.006
0.007
foregone
Minimum net economic
benefit
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
94
Table B.10 Minimum net economic benefit & maximum revenue foregone from a de minimis threshold of USD 50, VAT/GST sensitivity
test, by APEC economy (a), USD million per year
Net Benefit Component
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Maximum VAT/GST revenue
2.53
0.11
4
0
0
0
0
0
0.5
0.66
0.26
0.15
1,215.59
19.05
234
0
0
0
0
0
10.5
11.80
14.66
6.45
Minimum benefit-cost ratio
375.16
5.88
72
0
0
0
0
0
3.2
3.64
4.52
1.94
Minimum NEB as % of GDP
0.101
0.012
0
0
0
0
0
0
0.009
0.008
0.006
0.007
foregone
Minimum net economic
benefit
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
95
Annex C: Low Value Consignments to APEC-12 Economies
Table C.1: Projection of total value of imports with a consignment value of USD200 or less, selected APEC economies (a),
USD million per year
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
695.9
13.8
141.5
26.0
171.1
66.0
59.3
1.5
8.3
21.5
34.0
18.5
Mail & sea cargo
3,023.9
59.9
614.7
113.2
743.7
287.0
257.8
6.7
35.9
93.6
147.7
80.6
All modes
3,719.8
73.7
756.2
139.2
914.8
353.0
317.1
8.3
44.2
115.2
181.7
99.2
Air cargo
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
Table C.2: Projection of total volume of imports with a consignment value of USD200 or less, select APEC economies (a),
million consignments per year
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Air cargo
11.47
0.38
5.35
0.79
4.71
1.16
1.33
0.03
0.20
0.56
0.84
0.56
Mail & sea cargo
77.74
2.55
36.28
5.36
31.93
7.90
9.00
0.19
1.37
3.79
5.67
3.82
All modes
89.21
2.92
41.64
6.16
36.64
9.06
10.33
0.22
1.57
4.35
6.51
4.38
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
96
Table C.3: Projection of total value of imports with a consignment value of USD150 or less, selected APEC economies (a),
USD million per year
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
499.6
10.4
115.5
21.1
135.4
50.3
43.1
1.0
6.1
16.8
25.7
13.9
Mail & sea cargo
2,530.6
52.7
584.9
106.9
686.0
254.7
218.5
5.0
31.0
85.2
130.3
70.3
All modes
3,030.2
63.1
700.4
128.0
821.5
304.9
261.6
6.0
37.1
102.0
156.0
84.2
Air cargo
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
Table C.4: Projection of total volume of imports with a consignment value of USD150 or less, select APEC economies (a),
million consignments per year
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Air cargo
10.36
0.36
5.20
0.76
4.50
1.07
1.24
0.02
0.19
0.53
0.79
0.54
Mail & sea cargo
66.04
2.27
33.16
4.87
28.72
6.85
7.88
0.16
1.21
3.40
5.04
3.42
All modes
76.39
2.63
38.36
5.63
33.23
7.92
9.12
0.18
1.40
3.93
5.83
3.96
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
97
Table C.5: Projection of total value of imports with a consignment value of USD100 or less, selected APEC economies (a),
USD million per year
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
308.9
6.9
85.2
15.0
94.3
28.3
28.1
0.6
4.2
11.9
17.2
10.0
Mail & sea cargo
1,856.2
41.4
511.7
90.3
566.9
170.4
168.7
3.7
24.9
71.5
103.5
59.9
All modes
2,165.1
48.3
596.9
105.4
661.2
198.7
196.7
4.3
29.1
83.4
120.7
69.9
Air cargo
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
Table C.6: Projection of total volume of imports with a consignment value of USD100 or less, select APEC economies (a),
million consignments per year
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Air cargo
8.83
0.33
4.95
0.72
4.18
0.90
1.12
0.02
0.17
0.49
0.72
0.50
Mail & sea cargo
53.12
1.97
29.78
4.31
25.15
5.42
6.71
0.13
1.05
2.97
4.35
3.04
All modes
61.95
2.30
34.73
5.03
29.33
6.32
7.83
0.15
1.22
3.47
5.08
3.54
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
98
Table C.7: Projection of total value of imports with a consignment value of USD50 or less, selected APEC economies (a),
USD million per year
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Air cargo
113.7
3.5
48.4
7.8
47.4
13.3
12.7
0.2
1.9
5.7
8.0
4.9
Mail & sea cargo
683.4
21.3
291.1
46.7
285.0
80.0
76.3
1.4
11.2
34.0
48.3
29.7
All modes
797.1
24.8
339.5
54.5
332.4
93.3
89.0
1.7
13.1
39.6
56.3
34.6
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
Table C.8: Projection of total volume of imports with a consignment value of USD50 or less, select APEC economies (a),
million consignments per year
Mode of delivery
CAN
CHL
CHN
IDN
JPN
MYS
MEX
PNG
PER
PHL
THA
VNM
Air cargo
6.27
0.28
4.44
0.63
3.58
0.71
0.91
0.02
0.14
0.42
0.61
0.44
Mail & sea cargo
37.70
1.70
26.68
3.77
21.53
4.26
5.50
0.10
0.86
2.50
3.65
2.62
All modes
43.97
1.98
31.12
4.39
25.11
4.97
6.41
0.12
1.00
2.92
4.26
3.05
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the
Philippines (PHL), Thailand (TH) and Viet Nam (VNM).
Source: EAA, CAPEC, CLADEC, Trade Data International Pty Ltd, CIE 2011, and estimates by ITS Global Asia Pacific
99
Annex D: Nature of Low Value Consignments to Indonesia
Detailed knowledge of the structure, commodity composition, and country of
origin of low value imports and the countries from where they originate is
necessary to calculate the value of the savings in merchandise transit time and the
taxation revenue foregone that are generated by expansion of de minimis
arrangements. This reflects the fact that the valuation of transit time and the rates
of taxation can both vary with the nature of the merchandise, the size of the
transaction and from where it has been imported.
In principle the border agencies collect extensive information on air and sea
cargoes. This includes the classification of the merchandise under the Harmonized
System, their countries of origin, and their declared values for customs purposes.
In practice, this information is very costly for them to collect, check and validate,
while the usefulness of the information varies to a considerable degree.
Both of these problems are likely to be most acute in the case of information on the
value and the nature of the merchandise in question. Even basic data on
transaction volumes is not comprehensively collected by many economies on
certain types of imports because doing so is, often rightly, considered to be
uneconomic.
Comprehensive information on each of these aspects, however, is generally scarcer
and less reliable than the information that is publically available on the value and
volume of the imports in this value category. This is true for the six economies in
the study, as well as more broadly (see Productivity Commission 2011; CIE 2011;
and Hufbauer & Wong 2011).
With these limitations in mind, we asked Trade Data International to see if it was
possible to extract finely detailed customs data on low value import transactions in
any of the six APEC economies selected for the study plus Australia.43 For this
purpose low value transactions were specified as those with a landed value
USD200 or less.
Although Trade Data International has access to the most detailed data that
national customs agencies make available to the public, it was only able to provide
such transaction data in respect of Indonesia. They were broken down by the
country of origin and by the six-digit HS code of the merchandise. It appears that,
in the interests of economy, the customs agencies of the other six economies do not
collect data on import transactions under USD200 or do not publish such data it if
in fact they collect it.
43
Australia was added as it applies the highest de minimis threshold in APEC.
100
Given the severity of these limitations and the absence of clearly superior
alternatives, we have relied on the detailed customs data provided to us by Trade
Data International in respect of Indonesia. The data covered monthly merchandise
imports by Indonesia for the 2009 and 2010 calendar years with a landed value of
USD200 or less per consignment. In each case, the data are understood to cover all
three modes of delivery — air, sea and international mail.
D.1
Volume & value of low value imports
Tables D.1 and D.2 respectively summarise the aggregate volume and value of
those imports by Indonesia in 2009 and 2010 that had been declared to the
customs authorities as having a consignment value of USD200 or less. In each case
the table includes the distribution of the relevant values and volumes over USD50
intervals along the range of declared consignment values under examination —
namely, from zero to USD200. Table D.3 has the average consignment values for
the two years on the same basis.
Table D.1: Total volume of imports by Indonesia with a consignment value of USD200
or less, by consignment value range, 2009 and 2010
Range of
Declared
Values
USD
Volume of
Consignments
in 2009
million
Share of
Total
Volume in
2009
%
Volume of
Consignments
in 2010
million
Share of
Total
Volume in
2010
%
Change in
Volume of
Consignments
%
0 to 50
2.120
54.7
2.951
54.6
39.2
51 to 100
0.821
21.2
1.136
21.0
38.4
101 to 150
0.550
14.2
0.780
14.4
41.8
151 to 200
0.381
9.8
0.541
10.0
42.0
0 to 200
3.872
100
5.408
100
39.8
Sources: Trade Data International, estimates by ITS Global Asia Pacific
Table D.2: Total value of imports by Indonesia with a consignment value of USD200
or less, by consignment value range, 2009 and 2010
Range of
Declared
Values
USD
Value of
Consignments
in 2009
USD million
Share of
Total Value
in 2009
%
Value of
Consignments
in 2010
USD million
Share of
Total Value
in 2010
%
Change in
Value of
Consignments
%
0 to 50
40.7
17.3
56.9
17.2
39.8
51 to 100
59.7
25.4
82.8
25.1
38.5
101 to 150
67.8
28.9
96.4
29.2
42.0
151 to 200
66.4
28.3
94.4
28.6
42.1
0 to 200
234.7
100
330.4
100
40.8
Sources: Trade Data International, estimates by ITS Global Asia Pacific
101
Table D.3: Average value of imports by Indonesia with a consignment value of
USD200 or less, by consignment value range, 2009 and 2010
Consignment
Value
USD
Average Value
In 2009
USD per consignment
Average Value
in 2010
USD per consignment
Change in
Average Value
%
0 to 50
19.20
19.28
0.43
51 to 100
72.72
72.89
0.24
101 to 150
123.27
123.59
0.26
151 to 200
174.28
185.10
6.21
0 to 200
60.62
61.10
0.79
Sources: Trade Data International, estimates by ITS Global Asia Pacific
As is the case for the other economies where low value imports have been
examined (e.g. CIE 2011; and Hufbauer & Wong 2011), transaction volumes are
heavily concentrated at the bottom of the range of consignment values, with well
over half of all consignments having a value of less than USD50 in both years.
Despite the strong growth in aggregate consignment volume, there was little
change in its distribution over the selected intervals of the valuation range that
was studied.
In contrast the aggregate value of such consignments is much more evenly
distributed and much less skewed over the valuation range in Indonesia, than
appears to be the case for imports under a similar value threshold in Australia
(CEI 2011) and the United States (Hufbauer & Wong 2011).
In the absence of detailed frequency distributions of these imports in each case —
due to the extreme paucity of the distributional data — the most obvious
manifestation of these differences is the relatively high average value of the
consignments covered by the Indonesian customs data compared to the other data
sources of which we are aware.
The Indonesian customs data implied average values of USD60.62 per consignment
by all modes in 2009 and 61.10 per consignment in 2010.
In contrast our survey of the air express consignments carried by CAPEC members
to Indonesia in the first week of June 2011 put their average value at USD32.92 per
consignment. Given the much higher delivery cost of air express compared to the
other modes of delivery, such as international mail and sea freight, this seems
decidedly odd.
The results recently reported by the CIE for Australia suggest that in 2010 the
average value of imports by all modes in this valuation category was AUD 22.08
per consignment (CIE 2011). In the case of the US the average value of air express
consignments in this category has been estimated at USD15.34 per consignment
(Hufbauer & Wong 2011).
102
In the light of this we have attempted to isolate the problem by attempting a
reconciliation of our projections for imports by Indonesia with the monthly
customs data on imports by Indonesia for 2009 and 2010. As can be seen from
Figure D.1 the monthly time series shows strong growth in the monthly value of
imports with a consignment value of USD200 or less over the period from January
2009 to December 2010.
Figure D.1: Monthly value of imports by Indonesia with a consignment value of
USD200 or less, 2009 & 2010, USD million
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Jan 09 Apr 09
Jul 09
Oct 09 Jan 10 Apr 10
Jul 10
Oct 10 Jan 11 Apr 11
Source: Trade Data International & estimates by ITS Global Asia Pacific
This means that it is important to discount for the differences in timing between
the two sources — the projections being based on the annualised results of our
survey of CAPEC transactions in the first week of June 2011. For this purpose we
have estimated the linear trend in the customs time series and extrapolated it to
June 2011 to get a more or less comparable estimate of customs transactions to
compare with for the projections.
The results of the reconciliation are set out in Table D.4.
After adjusting for the timing differences between the two data sources, as
outlined above, it transpires that our projection of import consignment numbers
by all mode for Indonesia is just 10% less than the numbers implied by the
customs data This suggest that the projection methodology and assumptions are
broadly reliable, if somewhat conservative.
On the other hand the projected annual value of import consignments by Indonesia
based on the air express survey results is less than half the aggregate value
suggested by the Indonesian customs data based on the same value threshold —
namely, consignments of USD200 or less.
103
The frequency distribution of consignments in the Indonesian customs data is
significantly less skewed towards lower consignment values than is the case for
the results of either our survey of air express imports entering Indonesia or
research into low value imports by other APEC economies (CIE 2011 and Hufbauer
& Wong 2011). This is puzzling and does not admit any easy conclusions.
Table D.4: Reconciliation of model projection & customs data for imports valued at
USD200 or less by all modes, Indonesia
Component of the Reconciliation
Value
Average consignment value in customs data for 2009 (USD per consignment)
60.62
Average consignment value in customs data for 2010 (USD per consignment)
61.10
Increase in average consignment value in customs data, 2009 to 2010 (%)
Extrapolation of average consignment value to 30 June 2011 (USD per
consignment)
Monthly value of imports for June 2011, based on extrapolation of linear trend
estimated from monthly customs data for 2009 & 2010 (USD million)
Annual value of imports, based on extrapolation of customs data to June 2011
(USD million)
Annual volume of imports, based on extrapolation of customs data to June
2011 (million)
Model projection of annual value of imports, based on CAPEC survey for 1 st
week of June 2011 (USD million)
Model projection of annual volume of imports, based on CAPEC survey for 1 st
week of June 2011 (million)
0.792
61.58
35.0
420
6.83
139
6.16
Source: Trade Data International & ITS Global Asia Pacific
D.2
Commodity of composition of low value imports
The Indonesian import data were broken down by the classification of the
merchandise. The latter was at the four- and six-digit levels on the Harmonized
Commodity Description and Coding System (HS).
Unfortunately in the time available it was not possible to extract useful
information on the commodity composition of our sample of air express cargo
transactions. (The details in the sample on country of origin were, however, able
to be used.) This reflected the fact that the description of each transaction was as
provided by the consignor and was not necessarily aligned to the HS or any other
system that is used to classify imports for official statistical purposes. Moreover,
the size of the sample and the breadth of the potential commodity coverage — see
below — meant that the effort that would have been required to edit the sample
down to a consistent set of descriptions would have taken much longer than was
available for the study.
Table D.5 has the product breakdown of the aggregate value and volume of
Indonesian import consignments with a landed value of USD200 or less in 2010.
The transactions have been classified at the four-digit HS level. Table D.6 has the
same consignments classified at the six-digit HS level. Both Tables have the value
and volume shares for the ten most valuable HS classes at their level in 2010 —
104
namely those that have the highest share of the total value for all the transactions
of USD200 or less.
Several features of the composition of this import category are worth highlighting.

The most valuable commodity imported in this category only accounted for
3.2% of the aggregate value of all such imports in both years.

There were over 4,300 six-digit HS codes represented in this category of
imports. Every one of the two-digit classes (Chapters) that make up the
Harmonized System was represented in the category, although not to the
same extent.

There are few signs of significant specialisation in the transactions at the
finest (six-digit) level of the HS. This is so from either an aggregate value or
aggregate volume perspective.

More signs of specialisation in the transactions emerge at the four-digit HS
level, from both the value and volume perspectives, and particularly from
the latter. Imports of USD200 or less have tended to be concentrated in the
following seven HS Chapters:
o 39 (Plastics and plastic articles);
o 40 (Rubber and rubber articles);
o 49 (Printed books and newspapers);
o 73 (Articles of iron or steel);
o 84 (Nuclear reactors, boilers, machinery and mechanical
appliances);
o 85 (Electrical machinery, sound and television equipment); and
o 87 (Motor vehicles and parts).

Commodities that are most likely to be used for business inputs dominated
the category, rather than products for final consumption. Of the top ten sixdigit HS classes only one — Books, brochures, leaflets and printed matter —
obviously fell into the latter category and it was only ranked in 9th place by
its share of aggregate value.

The strongest signs of specialisation are not, however, evident in the
descriptions of the commodities or their organisation into groups. It is to
be found in how long they take to get to the end user and the opportunity
cost to them of that delay (Hummels, 2001a, 2001b & 2007).
105
Table D.5: Imports by Indonesia with a value of USD200 or less, by four-digit HS code,
2010, ranked by share of value of all consignments of that value
Rank by Share
HS
of Value of
Code
Imports
Description of HS Commodity Class
Share of
Total
No. of
Imports
%
Screws, bolts, nuts, pins, washers and
similar articles, of iron or steel
10.4
7.2
6.8
6.6
5.4
4.0
Share of
Total Value
of Imports
%
1
731815
2
401693
3
870899
4
840999
Parts for non-spark-ignition internal
combustion engines
3.1
3.3
5
732690
Electrical switches for a voltages of 1,000V
or less; optical fibre connectors or cables
2.4
2.6
6
840991
2.2
2.5
7
848410
Metal gaskets and similar joints; and
mechanical seals
3.1
2.4
8
731822
Vulcanised rubber tubes, pipes, hoses, and
fittings
2.1
2.2
9
490199
Transmission shafts & bearings; gears &
gearboxes; fly wheels & pulleys
1.8
2.1
10
843149
Centrifuges; filtering or purifying machinery
and apparatus, for liquids or gases
1.4
1.9
11
870829
Articles of iron or steel not elsewhere
specified
2.0
1.8
12
871419
Parts for mobile industrial machines, such
as forklifts & graders
1.6
1.8
13
853690
1.8
1.8
14
848790
Taps, cocks, valves and similar appliances
for pipes, boiler shells, tanks, vats or the like
1.4
1.8
15
392690
Parts and accessories of cycles, motorcycles
and invalid carriages
1.4
1.5
16
401699
1.7
1.4
17
730799
1.3
1.4
18
853890
1.1
1.2
19
731816
1.0
1.2
20
400942
Electrical resistors, other than heating
resistors
1.5
1.1
Twenty most valuable classes by value
53.5
49.8
Parts and accessories of motor vehicles
Articles of vulcanised rubber
Ball or roller bearings
Tube or pipe fittings of iron or steel
Books, brochures, leaflets & printed matter
Plastic articles other than sanitary-, table- &
household-ware, builder's ware, packaging
goods or floor, wall or ceiling coverings
Insulated wire, cable and other insulated
electric conductors
Parts for electrical switches
Sources: Trade Data International, estimates by ITS Global Asia Pacific
106
Table D.6: Imports by Indonesia with a value of USD200 or less, by six-digit HS code,
2010, ranked by share of value of all consignments of that value
Rank by Share
of Value of
Imports
Share of
Total
No. of
Imports
%
Share of
Total Value
of Imports
%
HS
Code
Description of HS Commodity Class
1
7318
Threaded screws & bolts of iron or steel
4.8
3.2
2
8708
Gaskets, washers & other seals of
vulcanised rubber
4.2
3.0
3
4016
Vehicle parts & accessories
3.1
2.8
4
8409
Parts for non-spark-ignition internal
combustion engines
1.8
1.8
5
8536
Articles of iron or steel, not elsewhere
specified
1.9
1.7
6
8482
Parts for spark-ignition internal combustion
engines
1.3
1.5
7
8484
Metal gaskets & similar joints
2.0
1.4
8
4009
Washers of iron or steel
2.2
1.4
9
8483
Books, brochures, leaflets & printed matter
1.7
1.4
10
8421
Parts for mobile industrial machines, such
as forklifts & graders
1.1
1.2
11
7326
Parts & accessories of motor vehicle bodies
1.4
1.1
12
8431
Parts & accessories for motorcycles &
mopeds
1.1
1.1
13
7307
Electrical switches for a voltage of 1,000V or
less
1.0
1.1
14
8481
Machinery parts, not containing electrical
connectors, or other electrical features
1.3
1.1
15
8714
Articles of plastics and articles of other
materials of HS 3901 to 3914
1.0
1.0
16
4901
Articles of vulcanised rubber not elsewhere
classified
1.1
1.0
17
3926
Tube and pipe fittings not elsewhere
classified
1.1
1.0
18
8544
Parts suitable for use solely or principally
with the apparatus of HS 8535 or 8536
0.9
1.0
19
8538
Nuts of iron or steel
1.3
1.0
20
8533
Tubes, pipes and hoses of vulcanised rubber
0.9
1.0
Twenty most valuable classes by value
35.0
29.8
Sources: Trade Data International, estimates by ITS Global Asia Pacific
107
D.3
Origin of low value imports
The story of the origins of these transactions has both similarities and differences
with their commodity composition. Table D.7 has details of the shares of
Indonesian imports of USD200 or less by region or country of origin.
Table D.7: Origin of low value imports by Indonesia in 2010 by mode of delivery,
ranked by share of value of all consignments valued at USD200 or less
Rank by
Total Value
for All
Modes
Region or Country of Origin
1
Japan
2
Share of Total
Value by Air
Cargo
%
Share of Total
Value by All
Modes
%
6.3
28.4
ASEAN-10
21.0
16.5
3
People’s Republic of China
21.2
16.2
4
European Union
8.8
13.3
5
North America (a)
15.9
11.5
6
Republic of Korea
2.7
5.2
7
Chinese Taipei
4.6
3.3
8
Hong Kong, China
13.6
1.8
9
India
1.5
1.1
Australia
1.9
0.8
97.5
98.1
10
Ten most valuable origins for all modes
Notes: (a) Canada, Mexico & the United States
Sources: Trade Data International, estimates by ITS Global Asia Pacific
They cover imports by all the modes of delivery, as well as just by air cargo. Trade
Data International provided the data on import transactions by all modes, while
the information on air cargo transactions was based on the results of the survey of
CAPEC members that we have conducted for this study.
Indonesia’s sourcing of low value imports by all modes was relatively heavily
concentrated. In 2010 it sourced 71.4% of imports in this category by value from
the economies of North and East Asia — namely, Japan, the ASEAN member states,
the People’s Republic of China, the Republic of Korea, Chinese Taipei, and Hong
Kong, China. Just 13.3% came from the European Union (EU) and 11.5% from
North America.
The results of the CAPEC survey suggest that this concentration was somewhat
less pronounced for air cargo. Some 69% of Indonesian imports by air cargo
originated in North and East Asia, 15.9% from North America, and just under 8.8%
from the EU.
108
In each case the concentration is not just a matter of distance, even though
previous research has consistently shown that distance is one of the most powerful
determinants of the global pattern of all merchandise trade. If this were the case,
of course, then other ASEAN member states would have had the largest share of
the total for both the air cargo imports and the imports by all delivery modes.