The European Union is making changes to impose customs duty on inexpensive goods, potentially impacting online retailers like Shein and Temu. This move is causing concern among retailers in Europe, the UK, and the US due to rising competition from Chinese-linked marketplaces that take advantage of a loophole to avoid import duty on low-value items.
Currently, the threshold for import duty in the EU is €150 (£127) and £135 in the UK, allowing retailers such as Shein to ship products directly to customers without paying any duty. The subsidized postage costs in China make it cost-effective for businesses there to send cheap goods by air.
The European Commission has proposed the elimination of exemptions for packages valued below €150, which would affect the e-commerce sector. However, this proposal must be discussed and accepted by the European Parliament, and the outcome will be known later this month.
Last year, 2.3 billion items below the duty-free threshold were imported into the EU, indicating the scale of potential impact. Imports from online retailers have been on the rise, with more than 350,000 items imported in April alone.
Analysts suggest that a change in the rules could have a significant impact on Shein, forcing the company to rethink its business model, increase prices, or take a hit on profit. The complexity and cost of checking billions of parcels make it challenging for EU countries to close the loophole immediately.
Shein is also facing competition from other social media-driven retailers like TikTok Shop and Temu, along with the resurgence of in-store shopping post-Covid, benefiting brands like Primark. Research shows a decline in online discount spending on Shein in the US as competition grows.
Despite these challenges, Shein’s CEO, Donald Tang, is open to reforming the import duty threshold for fair competition. The company emphasizes compliance with tax policies and the ability to offer affordable prices through an efficient supply chain.
In the UK, retailers are urging the government to address the import duty loophole to create a level playing field. Business leaders like Simon Roberts from Sainsbury’s and Argos, Theo Paphitis from Ryman and Robert Dyas, and Simon Wolfson from Next are calling for a review of tax policies to ensure fairness in the retail sector.
As the discussions on customs reforms continue, the impact on online retailers and the e-commerce landscape remains uncertain. The outcome of these changes could reshape the competitive dynamics in the market and influence consumer behavior in the future.