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European and American retailers are anxiously looking over their shoulders. Ultra low-price clothing and homeware from online Chinese marketplaces have recently eaten into their market share. Shein, which specialises in “fast fashion” is rapidly closing in on traditional clothing outlets Zara and H&M. Temu, which sells everything from discount decor to electronics, boosted its profile after running ads during this year’s Super Bowl. Smart TikTok campaigns and slick supply chains have raised both companies’ appeal too. But western vendors see something else in this success.
Temu and Shein are able to charge low prices partly by shipping items in small packages direct to consumers, thereby avoiding customs duties. The EU, US, and UK apply “de minimis” rules which set a monetary threshold below which imported items are able to avoid duties. The allowances are designed to avoid placing onerous costs on small businesses and households for low-value consignments. Customs procedures for such items are often uneconomical.
The European Commission is now exploring scrapping its €150 threshold. America politicians have been considering lowering or removing its generous $800 ceiling too. There are two main motives. The first is to avoid what is deemed to be unfair competition for domestic retailers. The second is to block Chinese suppliers, which could potentially flout product safety, human rights and environmental rules since their packages can receive less scrutiny at the border. That the west is engaged in a broader trade tussle with Beijing is perhaps an additional reason.
Officials have a stronger case on ethical grounds than on competition. Shein and Temu have simply honed a business model to take advantage of what is a legal exemption. Last week, Amazon announced plans to emulate them by shipping directly from Chinese warehouses. The strategy gives consumers — especially at a time when they are stretched by a cost of living crisis — access to cheaper products and wider choice. Retail competition also remains sturdy. Indeed, while the Chinese retailers compete well on price, deliveries take longer, and the products are not always the most durable. The business model may not be sustainable either; Temu has reportedly been burning through cash.
But consumers must be protected from buying potentially harmful products. A European toy industry body recently found that 18 out of 19 toys it test-bought from Temu posed a real safety risk for children. “De minimis” rules should not be a back door for unethically sourced items to enter western markets. Shein has faced allegations of forced labour in its supply chain, which the company denies.
Significantly curtailing the “de minimis” allowance would, however, impose collateral damage: raising costs for domestic consumers, small enterprises and households, while also stymying trade, including with developing countries. Nations may enact retaliatory measures too.
To prevent potentially harmful products entering the EU, the bloc should instead expedite proposals that place responsibility on the likes of Shein and Temu to ensure sellers on their platforms comply with standards. The marketplaces should be treated as official importers, requiring them to conduct due diligence on product quality and sourcing. The EU must also raise its checking capacity. If the platforms continue to defy the rules, then they ought to face fines and a curtailing of privileges, alongside product bans, until compliance is proven.
Britain’s Labour party — which has been leading pre-election polls — said it had no plans to remove the relief. Shein is looking to list in London. If it does, authorities should ensure it upholds high corporate governance standards. Pressure will come from shareholders, too.
China’s ecommerce giants need to be coaxed and cajoled into respecting product safety and labour standards if they want to sell goods in western markets. But lifting duty exemptions is a blunt tool.