In a somewhat surprising twist of events, the Section 321 loophole has been cancelled not by the U.S government, but by the new president elect of Mexico, Claudia Sheinbaum.
The Section 321 loophole is a border-skipping strategy of importing goods from China to Mexico, and thus avoiding Section 301 tariffs which the US imposes on Chinese imports. These orders are then shipped to the U.S, one at a time under Section 321, which allows goods valued at $800 or less (per shipment) to enter the U.S. duty-free and with minimal customs paperwork.
For e-commerce sellers, this supply chain configuration offers several benefits such as faster shipping times to the U.S and lower shipping costs from Mexico.
The controversy around Section 321 has been in the media for some time now – at the time of writing, the Biden administration had announced plans to restrict the Section 321 loophole but has not yet implemented a complete closure of the provision. However, it seems that the Mexican government is one step ahead; on December 19th 2024, Mexican President Claudia Sheinbaum issued a decree which, effective immediately, ends the border-skipping strategy for apparel and textile imports that has so far been propping up many e-commerce sellers.
The new decree introduces several changes:
- Tariff increases: Import duties on 121 apparel products and 17 made-up textiles have been raised from 20-25% to 35%. Additionally, 17 tariff headings related to textiles now face a 15% duty, up from 10%.
- IMMEX program restrictions: The decree excludes certain finished products, including clothing and textile articles classified under HTS Chapters 61, 62, and 63, from temporary importation under the IMMEX program.
As the decree focuses predominantly on the textiles and apparel industry, theoretically an e-commerce seller that imports and sells tech for example from China to Mexico would not be affected. However, protectionist measures are continuing to gather steam in the country. At the end of December 2024, the Mexican government announced further regulations aimed at cutting down Asian e-commerce imports. The requirements include additional documentation and more detailed product information. These regulations, separate from the 321 changes, are being enforced in January 2025.
The new import rules in Mexico and changes to Section 321 will likely force many e-commerce sellers to rethink their supply chains. Some may shift to direct imports to the U.S. to bypass the Mexican tariffs or move away from China in favor of other manufacturing regions to avoid rising costs. Others may look at Canada as an alternative, although this comes with its own challenges and is also not immune to Section 321 changes from the U.S.
There are therefore some potential winners from this situation, namely Canadian or U.S 3PL providers. Aaron Rubin, CEO of ShipHero, posted on his Linkedin arguing that “Mexican tariffs are so much that there is now no point going through Mexico anymore. It pays to use either a Canadian 3PL which still benefits from 321, or to just use a U.S 3PL and pay the U.S tariffs as you’ll still get faster shipments and probably cheaper overall costs. Companies are now scrambling to find how to redo their distribution.”
These changes will ultimately lead to more intricate logistics for businesses—a challenge which has unfortunately characterized the post-pandemic period for many companies.
Source: Ti Insight
Author: Nia Hudson
