At least one country is closing the so-called de minimis “loophole” that critics say is fueling the growth of ultra-fast-fashion e-tailers like Shein and Temu at the cost of domestic businesses.
Come July 1 in South Africa, small overseas shipments valued at under 500 South African rands (roughly $27) will be taxed at the same rate as larger ones. This means that Shein and Temu items that previously squeaked by with a 20 percent import duty and 0 percent value-added tax will have to pay the same 45 percent tariff, plus a 15 percent VAT on the total amount, that local sellers importing textiles have to pony up.
Neither Shein nor Temu responded to requests for comment.
Trade and industry minister Ebrahim Patel told textile industry workers last month that the rise of global online platforms could undermine progress in South Africa’s manufacturing and retail sectors, where more than half a million jobs have been created over the past five years. Any rules the local industry follows must apply to foreign online traders selling into the market, he said, adding that there was an “urgent need” to address the issue.
Unfair competition for domestic companies is the same reason American lawmakers like Senators Sherrod Brown and Rick Scott and Representative Earl Blumenauer have been pushing for action on de minimis in a rare show of bipartisan unity during a time of congressional gridlock. In the United States, any parcel worth less than $800 doesn’t have to pay customs tariffs or duties. More controversially, they’re less likely to come under the intense scrutiny that the Uyghur Forced Labor Prevention Act demands of larger freight. This, experts say, could allow goods that could have been made by forced labor to breeze into the country.
Related Stories
The fact that Shein and Temu are often namechecked by those who urge the loophole’s closure is no coincidence. Despite respective headquarters in Singapore and Boston, Shein and Temu have Chinese founders and—for the most part—hawk Chinese-made products. Frustration over the firms’ meteoric success has only fueled deteriorating U.S.-Sino relations already stoked by mutual rivalry and distrust.
Shein has also been inundated by allegations of worker exploitation, leading U.K. advocacy groups such as Labour Behind the Label to call its hotly anticipated float on the London Stock Exchange “problematic.”
“At a time when governments around the world are acknowledging that more needs to be done to regulate supply chains and companies, the city of London is acting as an outlier, welcoming Shein with open arms despite ethical and environmental consequences,” the nonprofit said in a recent briefing. “While Shein is by no means the only brand to be embroiled in controversy around cheap labor, exploitation and environmental damage of fashion, the model that this company promotes needs to be curtailed rather than rewarded.”
Earlier this week, Senator Marco Rubio, who had previously urged the Securities and Exchange Commission to block Shein’s IPO, wrote to U.K. Chancellor of the Exchequer Jeremy Hunt about the “slave labor, sweatshops and trade tricks” that he said are the “dirty tricks” behind the e-tailer’s success.
“Shein previously sought to list in New York City, but failed due to concerns about its unethical and irresponsible business practices,” he said in a letter dated June 10. “At the time, I warned U.S. securities regulators about Shein’s alleged exploitation of slave labor and trade loopholes. I now feel a duty of friendship to repeat these warnings and urge caution before the United Kingdom allows Shein to list in London.”
Back in South Africa, Ecommerce Forum South Africa (EFSA), the nation’s e-commerce authority, told ITWeb in April that it has been flooded with complaints from its members about Shein and Temu’s purportedly “unethical tactics,” which the e-tailers denied. Shein made its bargain-priced wares available in South Africa in 2020. Temu did the same this past January.
“The main issues raised by members are the extremely low prices the South African businesses can’t compete with and using large advertising budgets to prevent anyone else from promoting their products,” said EFSA CEO Alastair Tempest. “There is also the perceived failure to adhere to South African laws, which allegedly gives them unfair advantages—and reduces their overheads. Many are also asking what [the] government is doing to protect South African business and the manufacturing sector.”
With the new rule, a 100-rand ($5.38) order from Shein or Temu that previously paid 20 rands ($1.08) in import taxes and no VAT will have to shell out a 45 rand ($2.42) duty and 21.75 rands ($1.17) in VAT. Instead of 120 rands ($6.47), the cost of the order will jump by 39 percent to 166.75 rands ($9.14).