Market Analysis

Germany Supports Ending EU Tax Break Benefiting Shein and Temu's Low Prices

Amos Simanungkalit · 23 May3.4K Views

Germany is backing a reform of European Union import taxes, potentially ending an exemption for low-cost parcels that has benefitted online retailers like Shein and Temu. These companies have gained market share by offering inexpensive clothing, accessories, and gadgets from China.

In the United States, critics have accused Shein and Temu of exploiting a similar tax exemption to undercut competitors and avoid customs inspections. This allows them to sell items such as $8 dresses and $25 smartwatches globally. Shein is currently preparing for a listing in London, after facing resistance from U.S. lawmakers over a New York flotation.

EU regulations currently exempt packages bought online from non-EU countries from customs duties if their value is under 150 euros ($163). Germany's main retail association, Handelsverband Deutschland (HDE), has lobbied against this exemption, arguing it has led to a surge in small parcels from platforms like Shein and Temu, overwhelming customs authorities.

Germany's finance minister Christian Lindner has indicated support for eliminating the 150-euro duty-free limit at the EU level, according to the HDE. Germany’s finance ministry has welcomed the European Commission's proposal to reform customs laws to address the challenges posed by e-commerce, including ending the duty-free limit.

Shein stated that it complies with local laws and regulations, including customs and tax compliance. The EU's proposal to remove the limit is part of a broader customs reform project initiated in May 2023. Shein argues that its low prices are due to a technology-based, on-demand business model and a flexible supply chain, not the duty-free policy. Temu, owned by Pinduoduo Holdings, also denies relying on the duty-free policy, citing supply-chain efficiencies and operational proficiencies as key growth factors.

Ecommerce Europe, which includes members like Amazon and eBay, has warned that eliminating the duty-free limit could increase trade frictions and provoke retaliatory measures from major trading partners like the U.S. The European Parliament gave preliminary approval to the customs reform bill in March, but it will be reviewed further after the European elections in June.

The European Commission reported that two billion parcels valued under 150 euros arrived in the EU from non-EU countries in 2023, straining customs capabilities. The Commission also noted that the tax exemption encourages sellers to split shipments, with 65% of parcels being undervalued to benefit from the tax break.

Shein claims it makes necessary declarations and pays required taxes on orders to Europe, including customs duties for orders over the 150-euro threshold. Temu states it does not split parcels to evade customs controls or make false declarations.