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Updated Jul 25, 2023, 2:03pm EDT
techbusiness

Shein calls for makeover of U.S. trade rule that critics used against it

Reuters/Chen Lin
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The Scoop

Shein is calling for a “complete makeover” of a key U.S. trade provision that lawmakers allege has given an unfair advantage to the online fashion giant and allowed it to import goods produced with forced labor undetected.

The move undercuts one of the main talking points cited by Shein’s critics and could help address growing concerns about the company in Washington.

The so-called “de minimis” policy, which allows individuals to import up to $800 worth of goods at a time tariff-free and with little oversight, needs to be reformed to “to create a more level, transparent playing field,” Shein Executive Vice Chairman Donald Tang wrote in a letter sent to the American Apparel & Footwear Association on Tuesday.

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A report released by the House select committee on China last month found that Shein and Temu, a popular e-commerce site owned by the Chinese tech giant PDD Holdings, ship almost 600,000 packages to the U.S. each day under de minimis, or more than 30% of the total amount.

In an interview with Semafor, Tang said that the rule was “never foundational” to Shein’s success, which he argued should be credited instead to its innovative supply chain management system.

In his letter, Tang didn’t note any specific changes that Shein would endorse. A bill introduced in Congress last month proposed banning certain countries from sending packages into the U.S. under the provision, including China, where most of the products that Shein sells are produced.

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Louise’s view

Since I started following Shein’s rise three years ago, I have been asked the same question again and again: How are the company’s prices so low? It seemed impossible that it was turning a profit on $2 crop tops and $4 leggings, especially since other retailers often sold similar items for more than double that amount.

The common wisdom was that Shein was benefiting from trade policies in both China and the U.S. In 2018, the Chinese government removed an up to 13% export tax on online retailers, which gave a huge boost to so-called “cross-border” firms catering to foreign customers, like Shein.

Shein also didn’t need to pay duties when its packages arrived in the U.S., thanks to the de minimis exemption, which was raised from $200 to $800 in 2016. Bloomberg estimated in 2021 that when Shein sent a cotton t-shirt from China to an American consumer, it could avoid 24% in taxes from the two countries combined.

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Given those numbers, it’s hard to argue that de minimis didn’t play at least a small role in helping Shein grow into a giant clothing company now on par with Zara and H&M. But it’s also true that these same advantages were available to other e-commerce firms.

Shein’s actions indicate the policy isn’t a huge factor in its strategy. It has started operating its own distribution centers in the U.S., and when goods are sent to these warehouses instead of directly to customers, the company is required to pay import taxes on them. That suggests Shein cares more about things like speedy shipping than avoiding taxes.

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Room for Disagreement

Critics say the de minimis policy has made it significantly harder for U.S. customs officials to detect dangerous or illegal goods flowing into the country. Instead of inspecting large containers filled with one type of item, authorities are increasingly contending with millions of tiny packages. “They have no idea what’s coming in and have no way of keeping up,” Rep. Earl Blumenauer, a Democrat from Oregon, told reporters in May.

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Notable

  • Shein is branching out into other product categories beyond clothing, putting itself in direct competition with Amazon, the Wall Street Journal reported earlier this month.
  • The company has also ramped up its lobbying efforts in Washington, hiring eight lobbyists from two different firms, according to Voice of America.
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