The EU is moving ahead with plans to impose tariffs on cheap goods in a move that could hit imports from online retailers and damage an expected London offering by fast fashion retailer Shein.
The potential change comes amid growing concern among retailers based in mainland Europe, the UK and the US about growing competition from China’s Shein and Temu markets, which take advantage of a loophole that excludes low-value items from import duties.
In the EU, the threshold for the fee is €150 (£127) and in the UK it is £135, allowing retailers such as Shein to ship products directly from overseas to shoppers in these markets without paying any import duty. In the UK, items valued at £39 or less are also exempt from import VAT.
China’s subsidized postage costs make it more cost-effective for China-based businesses to send cheap goods by air.
A spokesperson for the European Commission said: “In May last year we put forward customs reforms for a simpler, smarter and safer customs union. We have now proposed that there is no longer any exemption for packages worth less than €150.
The e-commerce proposal must first be discussed and adopted by the European Parliament, which meets at the end of this month.
Last year, 2.3 billion items were imported into the EU under the €150 duty-free threshold, according to a report in the Financial Times, which highlighted the potential change.
Imports from online retailers more than doubled year-over-year in April to more than 350,000 items.
John Stevenson, an analyst at Peel Hunt, said the impact of the rule change on Shein “would be huge depending on the territory”.
Some countries have imposed import tariffs of up to 30%, he said, and having to pay would force Shein to either completely change its business model, raise prices or turn a profit.
“The whole model is based on not paying duty,” he said. “It would have a huge impact.
Stevenson was quite skeptical that EU countries would be able to close this gap in the short term, given the complexity and cost of checking billions of parcels.
But he said the matter would be high on the list of investors’ concerns, alongside potential ethical issues in the supply chain, if Shein goes ahead with a London listing, as expected as soon as this fall.
Shein also faces increased competition from other social media-driven retailers, including TikTok Shop and Temu, as well as the return of post-Covid shoppers to the high street, which has helped the likes of Primark.
Research by Earnest Analytics found that Shein shoppers in the U.S. allocated 43% of their online discount spending to the brand last month, compared to 66% a year ago, just before the launch of TikTok transactions.
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Shein boss Donald Tang, who is on a “fact-finding” mission in Europe, said he was “in favor of reforming” the import duty threshold. He told Politico, “We want to have fair competition around the world” and said the tax break “is not the foundation of our success.”
Shein said in a statement that it is “fully compliant with UK tax policy and pays the relevant taxes including corporation tax, VAT and employment tax”.
“Shein’s success stems from our ability to create fashion products for our customers. We keep prices affordable through our on-demand business model and flexible supply chain.
“This reduces inefficiencies, eliminates material waste and reduces our unsold inventory. We pass this advantage on to our customers and that is the driving force behind our growth.”
British retailers have called on the government to investigate the niche amid growing competition from Shein and Temu.
On Tuesday, Simon Roberts, the boss of Sainsbury’s and Argos, called on the new government to tackle unfair taxes including business rates and import duties.
“I want to make sure that the loopholes that currently exist are closed for some businesses that don’t pay their taxes the right way, so it’s a level playing field for everyone,” he said.
Theo Paphitis, owner of UK retailers Ryman and Robert Dyas, and Next boss Simon Wolfson have also called on the UK government to review the loophole.