Germany is in favour of a revision to import duties in the EU that would eliminate the exemption for inexpensive packages, which has allowed online retailers Shein and Temu (PDD.O) to gain market share with their inexpensive clothing, accessories, and electronics manufactured in China.

Shein and Temu’s detractors in the US have already voiced their displeasure, claiming that they take advantage of an import tax exemption to undercut competitors and evade goods inspections by customs.

Through this method, the two firms are able to provide smart watches for $25 and gowns for as little as $8 to customers worldwide. Shein is now making more plans for a London listing after US legislators resisted its effort to go public in New York.

Packages worth less than 150 euros ($163) that are ordered online from a non-EU nation are now exempt from customs taxes.

Handelsverband Deutschland (HDE), the leading retail association in Germany, has been putting pressure on the German government, claiming that the exemption has led to a sharp rise in the number of small packages entering the EU through internet retailers such as Shein and Temu and that customs officials are ill-equipped to verify that all the goods adhere to EU regulations.

Christian Lindner, Germany’s finance minister, “has signalled that Germany will support the abolition of the 150-euro duty-free limit at the European level,” the HDE provided Reuters with information.

The European Commission’s “proposals to adapt European customs law to the challenges of e-commerce” were welcomed by Germany’s finance minister. The proposal pertains to a bigger reform plan that involves the removal of the duty-free limit.

Shein responded to queries from Reuters by saying, “We seek to comply with all relevant local laws and regulations of the countries in which we operate, including in relation to customs and tax compliance.”

The Commission’s May 2023 proposal for customs reform includes a discussion by the EU on eliminating the cap.

“Contrary to some common misperceptions, we keep prices affordable through our technology-based on-demand business model and flexible supply chain,” Shein said in response to a question regarding the EU potentially eliminating the cap.

The Chinese online retailer Pinduoduo Holdings, the owner of rival Temu, has refuted claims that the duty-free regime has been the primary factor in its rise.

In written replies to inquiries from Reuters, a Temu spokeswoman stated, “The supply-chain efficiencies and operational proficiencies we’ve cultivated over the years are the primary drivers behind our rapid expansion and market acceptance.”

Amazon and eBay are among the members of the industry organisation Ecommerce Europe, which claims that eliminating the duty-free ceiling will worsen trade tensions and may prompt retaliation from important trading partners like the United States.

After European elections in early June, with a new parliament in place, the customs reform measure will be reevaluated. The European Parliament passed the plan in a preliminary vote in March.

The Commission claims that “the sheer volumes of e-commerce are testing customs’ limits” and that two billion packages with reported values of less than 150 euros came in the EU from outside in 2023.

Additionally, the Commission claims that up to 65% of parcels are devalued in order to take advantage of the tax cut, and that the import tax exemption encourages vendors to divide shipments apart.

Shein stated that for goods dispatched to consumers in Europe, it pays the necessary taxes and makes the necessary reports. For orders priced more than 150 euros, it also reportedly pays the applicable customs fees.

Temu stated that it does not make false declarations or divide packages to get around customs procedures.

(Adapted from EuroNews.com)