Germany backs ending EU tax break that helps Shein and Temu keep prices low

By Helen Reid

LONDON (Reuters) - Germany supports an overhaul of European Union import taxes which could end an exemption for cheap parcels that has helped online retailers Shein and Temu grab market share with their cut-price clothes, accessories and gadgets made in China.

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

The practice helps the two companies offer dresses for as little as $8 and smart watches for $25 to shoppers around the world. Shein is currently stepping up preparations for a London listing, after an attempt to float in New York faced pushback from U.S. lawmakers.

Under current EU regulations, packages purchased online from a non-EU country are not subject to customs duties if their value is under 150 euros ($163).

Germany's main retail association, Handelsverband Deutschland (HDE), has been lobbying the German government, saying the exemption has encouraged a massive increase in small parcels entering the EU from online platforms like Shein and Temu, and that customs authorities lack the capacity to check all the products comply with EU rules.

Germany's finance minister Christian Lindner "has signalled that Germany will support the abolition of the 150-euro duty-free limit at the European level," the HDE told Reuters.

Germany's finance ministry said it welcomed the fact the European Commission had put forward "proposals to adapt European customs law to the challenges of e-commerce", referring to a broader reform plan that includes ending the duty-free limit.

In response to Reuters' questions, Shein said: "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 EU is discussing abolishing the limit as part of a customs reform project proposed by the Commission in May 2023.

Asked about the EU possibly scrapping the limit, Shein said: "Contrary to some common misperceptions, we keep prices affordable through our technology-based on-demand business model and flexible supply chain."

Rival Temu, owned by Chinese online retailer Pinduoduo Holdings, has also denied that its growth has been mainly driven by the duty-free policy.

"The primary drivers behind our rapid expansion and market acceptance are the supply-chain efficiencies and operational proficiencies we've cultivated over the years," a Temu spokesperson said in written responses to Reuters' questions.

Industry association Ecommerce Europe, whose members include Amazon and eBay, has said scrapping the duty-free limit would increase trade frictions and could result in retaliatory measures from key trading partners like the U.S..

The European Parliament approved the customs reform bill in a preliminary vote in March, but the bill will be assessed further after European elections in early June, with a new parliament in place.

Two billion parcels with a declared value of less than 150 euros arrived in the EU from outside countries in 2023, according to the Commission, which says "the sheer volumes of e-commerce are testing customs' limits".

The Commission has also said the import tax exemption encourages sellers to split shipments up and as many as 65% of parcels are undervalued to benefit from the tax break.

Shein said it makes relevant declarations and pays required taxes on orders shipped to customers in Europe, including relevant customs duties on orders valued above the 150 euro threshold.

Temu said it does not split parcels to bypass customs controls or engage in false declarations.

($1 = 0.9224 euros)

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