"A law that allows low-price packages to enter the U.S. duty-free and with little customs scrutiny has enabled the breakneck growth of two e-commerce companies, Shein and Temu, with roots in China.
Packages valued under $800 can enter the U.S. under simplified procedures known as the de minimis exemption.
Lawmakers and some U.S. businesses say it is a loophole that the Chinese companies are using at a huge scale, allowing shipments of products that are unsafe or made with forced labor, while avoiding taxes.
A record of more than one billion packages entered the U.S. in the fiscal year ended Sept. 30 under the de minimis exemption -- twice the 2019 level, according to an estimate by U.S. Customs and Border Protection. A separate congressional study concluded that Shein and Temu account for about one in three of those packages. The two bargain shopping apps have lured tens of millions of American consumers with $4 T-shirts, $10 hair dryers and other products.
"De minimis is the world's greatest black market and astonishingly legalized by the U.S. government," said Kim Glas, head of the National Council of Textile Organizations, a U.S. trade group.
Shein's and Temu's shopping apps are putting pressure on U.S. companies including Gap, Amazon and Walmart. Amazon has seen traffic on its site decline, and a Gap executive acknowledged in an August earnings call that Shein was gaining market share. An Amazon spokeswoman said the company continues to see growth online and with its app.
Shein's monthly active U.S. users more than doubled to 30.2 million in the third quarter of 2023 from 2021, according to Sensor Tower, a market-intelligence provider. Temu grew even faster, surpassing Shein's total users within a year of its launch to become one of the top downloaded shopping apps in the U.S.
The companies ship most of their products directly from China to individual American customers. Nearly all the orders fall below the $800 de minimis threshold, meaning they generally aren't subject to tariffs or inspected at the border. The average order value on Shein was $71 in May, according to the Hong Kong-based data provider Measurable AI.
Both companies said they comply with trade laws and that their growth isn't dependent on the de minimis policy.
The de minimis provision dates to the Tariff Act of 1930. Congress wanted to exempt American tourists from paying taxes on small purchases when they returned from trips abroad. In 2016, just as e-commerce was taking off, lawmakers raised the threshold for exempt packages to $800 from $200, with the goal of reducing customs officials' workload.
U.S. Customs and Border Protection hasn't updated regulations in response to the surge, despite concluding in a report last year that the overwhelming volume of low-price packages created an "unacceptable risk" of allowing imports of unsafe products. A CBP official said tightening regulations on such shipments is the "top priority" for the agency, adding it plans to propose a new regulation to require more data on each package within the next few months.
In April, the U.S.-China Economic and Security Review Commission, a government agency that makes policy recommendations to Congress, criticized Shein's business practices, citing potential health hazards stemming from harmful chemicals in its products, waste and pollution caused by its high-volume production, and dozens of claims of copyright infringements. The commission's members include Glas, the U.S. textile-industry representative.
The companies also face allegations that forced labor has been used to produce the cheap goods they sell. Lawmakers and state attorneys general have pressed Shein to respond to allegations that it sources cotton from China's Xinjiang region, where the U.S. has accused Chinese authorities of committing genocide and of using forced labor in its repression of mostly Muslim Uyghurs -- allegations that Beijing denies. U.S. law that went into force in June 2022 largely bans the import of goods tied to that region.
Shein said it has "zero tolerance" for forced labor. Temu said the allegations are "completely ungrounded." The company doesn't have a team in the U.S. to liaise with regulators and legislators, but "our commitment to full compliance has been unwavering since our inception and underpins all of our business activities," said a Temu spokesperson.” [1]
1. U.S. News: U.S. Loophole Fuels Rise of Chinese Firms. Hayashi, Yuka; Shen, Lu; Vanderford, Richard. Wall Street Journal, Eastern edition; New York, N.Y.. 27 Oct 2023: A.2.
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