EU Plans to Impose Customs Duty on Cheap Goods, Impacting Online Retailers like Shein & Temu.

The European Union is advancing plans to impose customs duties on low-cost goods, a move that could affect imports from online retailers and potentially impact the anticipated London listing of fast-fashion seller Shein.

This potential policy shift comes amidst rising concerns from retailers in mainland Europe, the UK, and the US about increasing competition from Chinese-linked marketplaces such as Shein and Temu. These marketplaces currently benefit from a loophole that exempts low-value items from import duties.

In the EU, the threshold for such exemptions is €150 (£127), while in the UK it is £135. This allows retailers like Shein to ship products directly from overseas to consumers in these markets without incurring import duties. In the UK, items valued at £39 or less are also exempt from import VAT.

China’s subsidized postage costs make it economical for businesses there to send inexpensive goods by air.

A European Commission spokesperson stated: “In May last year, we proposed customs reforms for a simpler, smarter, and safer customs union. Our current proposal eliminates the exemption for packages valued below €150.”

The e-commerce proposal must first be discussed and approved by the European Parliament, which will reconvene later this month.

Last year, 2.3 billion items below the duty-free €150 threshold were imported into the EU, according to a Financial Times report highlighting the potential change.

John Stevenson, an analyst at Peel Hunt, remarked that changes in these rules would significantly impact Shein depending on the region. Some countries impose import duties of up to 30%, which would force Shein to either overhaul its business model, raise prices, or absorb the profit loss.

“The entire model is based on not paying duty,” Stevenson said. “It would have a massive impact.”

Stevenson expressed skepticism about EU countries’ ability to close the loophole quickly due to the complexity and cost of inspecting billions of parcels. However, he noted that investors would be concerned about this issue, along with potential ethical concerns in Shein’s supply chain, if the company proceeds with a London listing expected as early as this autumn.

Shein is also facing increased competition from other social media-driven retailers like TikTok Shop and Temu, as well as a post-COVID-19 return to high street shopping, benefiting stores like Primark.

Research from Earnest Analytics revealed that Shein shoppers in the US allocated 43% of their online discount spending to the brand last month, compared to 66% a year ago, just before TikTok transactions began.

Shein’s CEO, Donald Tang, currently on a “fact-finding” mission in Europe, has expressed support for import duty reform. He told Politico: “We want to have fair competition around the world” and stated that the tax break was “not foundational to our success.”

Shein stated it is “fully compliant with UK tax policies and pays applicable taxes including corporation tax, VAT, and employment taxes.”

“Shein’s success comes from our ability to produce fashionable products for our customers. We keep prices affordable through our on-demand business model and flexible supply chain. This reduces inefficiency, eliminates material waste, and lowers our unsold inventory. We pass this advantage to our customers, driving our growth.”

UK retailers have urged the government to address the loophole amid rising competition from Shein and Temu. On Tuesday, Simon Roberts, the CEO of Sainsbury’s and Argos, called for the next government to review unfair taxes, including business rates and import duties.

“I want to ensure that the current loopholes are closed for businesses that aren’t paying tax correctly, creating a level playing field for everyone,” he said.

Theo Paphitis, owner of UK retailers Ryman and Robert Dyas, and Next CEO Simon Wolfson have also urged the UK government to review the loophole.