Germany supports ending an EU tax credit that helps Shein and Temu keep prices low

by Helen Reid

LONDON (Reuters) – Germany is backing a change to EU import taxes that could end a low-cost package exemption that has helped online retailers Shein and Temu gain market share with discount clothes, accessories and gadgets made in China.

Critics of Shein and Temu in the United States have already complained that they use the import tax exemption there to undercut competition and avoid customs inspections of their products.

This practice helps both companies offer dresses for as little as $8 and smart watches for $25 to customers around the world. Shein is now stepping up preparations to list the company on the London Stock Exchange after an attempt to list on the New York Stock Exchange was met with resistance from US lawmakers.

Under current EU rules, parcels purchased online from a non-EU country are not subject to customs duties if their value is less than €150 ($163).

Germany’s main retail association, Handelsverband Deutschland (HDE), is lobbying the German government, arguing that the exemption has caused a huge increase in the number of small parcels entering the EU via online platforms such as Shein and Temu and that customs authorities are unable to check all the products comply with EU regulations.

German Finance Minister Christian Lindner “has signaled that Germany will support the abolition of the 150-euro duty-free limit at European level,” HDE told Reuters.

The German Ministry of Finance expressed satisfaction with the European Commission’s presentation of “proposals to adapt European customs law to the challenges of e-commerce”, referring to a broader reform plan that includes the abolition of the duty-free limit.

In response to questions from Reuters, Shein said: “We strive to comply with all applicable local laws and regulations in the countries where we operate, including compliance with customs and tax regulations.”

The EU is considering lifting the cap as part of the customs reform project proposed by the Commission in May 2023.

Asked about the possibility of the EU lifting the cap, Shein said: “Contrary to some common misconceptions, we keep prices affordable thanks to our technology-driven, on-demand business model and flexible supply chain.”

Rival Temu, owned by Chinese online retailer Pinduoduo Holdings, also denied that its growth was mainly due to its duty-free policy.

“The primary drivers of our rapid expansion and market acceptance are the supply chain efficiency and operational proficiency that we have developed over the years,” a Temu spokesman said in written responses to Reuters questions.

Industry association Ecommerce Europe, which includes Amazon and eBay, said removing the duty-free limit would increase trade frictions and could result in retaliatory action from key trading partners such as the US.

The European Parliament approved the customs reform bill in a preliminary vote in March, but the bill will be subject to further assessment after the European elections in early June, when the new parliament will be in force.

Two billion parcels with a declared value of less than €150 arrived in the EU from third countries in 2023, according to the Commission, which says “the sheer volume of e-commerce puts customs limits to the test.”

The commission also found that the import tax exemption encourages sellers to split shipments and as many as 65% of parcels are undervalued in order to benefit from the tax relief.

Shein said it declares and pays the required taxes on orders shipped to customers in Europe, including applicable customs duties on orders above the €150 threshold.

It said it does not split parcels to avoid customs controls or submit false declarations.

($1 = 0.9224 euros)

(Reporting by Helen Reid; Additional reporting by Tom Sims; Editing by Matt Scuffham and Mark Potter)