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EU’s Proposed Import Duty on Cheap Goods May Impact Shein and Temu

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EU’s Planned Customs Duty on Cheap Goods May Affect Shein and Temu

The European Union is advancing plans to impose customs duties on low-cost goods, a move that could impact imports from online retailers like Shein and complicate the fast-fashion seller’s planned London listing. This change aims to address concerns from retailers in Europe, the UK, and the US about rising competition from Chinese-linked marketplaces such as Shein and Temu, which currently benefit from a loophole exempting low-value items from import duty.

In the EU, the import duty threshold is €150 (£127), while in the UK, it is £135. This allows retailers like Shein to ship products directly to customers without paying import duties. Additionally, in the UK, items valued at £39 or less are also exempt from import VAT. Subsidized postage costs in China further make it economical for businesses there to ship cheap goods by air.

A spokesperson for the European Commission stated, “In May last year, we proposed customs reforms for a simpler, smarter, and safer customs union. We are now proposing to eliminate the exemption for packages valued below €150.” This e-commerce proposal will be discussed by the European Parliament later this month.

According to a report in the Financial Times, 2.3 billion items under the duty-free €150 threshold were imported into the EU last year. John Stevenson, an analyst at Peel Hunt, noted that a change in the rules could significantly impact Shein, potentially forcing the company to alter its business model, increase prices, or absorb profit losses due to import duties of up to 30% in some countries.

Stevenson expressed skepticism about the EU’s ability to close the loophole quickly, given the complexity and cost of inspecting billions of parcels. However, he said investors would likely be concerned about this issue, along with potential ethical concerns in Shein’s supply chain, if the company proceeds with its anticipated London listing this autumn.

Shein faces growing competition from other social media-driven retailers like TikTok Shop and Temu, as well as a post-COVID resurgence of in-store shopping benefiting retailers like Primark. Research by Earnest Analytics found that Shein’s share of online discount spending in the US dropped from 66% a year ago to 43% last month, coinciding with the rise of TikTok transactions.

Shein’s CEO, Donald Tang, who is currently on a fact-finding mission in Europe, has expressed support for reforming the import duty threshold. He told Politico, “We want fair competition worldwide,” and added that the tax break was “not foundational to our success.”

In a statement, Shein asserted its compliance with UK tax policies, including corporation tax, VAT, and employment taxes. The company attributed its success to its ability to produce fashionable products at affordable prices through its on-demand business model and flexible supply chain, which reduces inefficiency and waste.

UK retailers have urged the government to address the loophole amid increasing competition from Shein and Temu. Simon Roberts, CEO of Sainsbury’s and Argos, called on the government to review unfair taxes, including business rates and import duties. He emphasized the need for a level playing field, urging that loopholes be closed for businesses not paying taxes appropriately. Theo Paphitis, owner of Ryman and Robert Dyas, and Simon Wolfson, CEO of Next, have also called for a review of the loophole.

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