Biden moves to crack down on Shein and Temu, slow shipments into US
Rapid growth of Temu and Shein threatens US businesses and consumers, Biden says.
arstechnica.com
A big price to pay for cheap goods —
Biden moves to crack down on Shein and Temu, slow shipments into US
Rapid growth of Temu and Shein threatens US businesses and consumers, Biden says.
Ashley Belanger - 9/13/2024, 5:08 PM
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252The Biden administration has proposed rules that could make it more costly for Chinese e-commerce platforms like Shein and Temu to ship goods into the US.
In his announcement proposing to crack down on "unsafe, unfairly traded products," President Joe Biden accused China-founded e-commerce platforms selling cheap goods of abusing the "de minimis exemption" that makes shipments valued under $800 duty-free.
Platforms taking advantage of the exemption can share less information on packages and dodge taxes. Biden warned that "over the last 10 years, the number of shipments entering the United States claiming the de minimis exemption has increased significantly, from approximately 140 million a year to over 1 billion a year." And the "majority of shipments entering the United States claiming the de minimis exemption originate from several China-founded e-commerce platforms," Biden said.
As a result, America has been flooded with "huge volumes of low-value products such as textiles and apparel" that compete in the market "duty-free," Biden said. And this "makes it increasingly difficult to target and block illegal or unsafe shipments" presumably lost in the flood.
Allowing this alleged abuse to continue would hurt not only businesses with US headquarters like H&M and Zara that increasingly struggle to compete with platforms like Shein and Temu, Biden alleged; it would also allegedly make it "more challenging to enforce US trade laws, health and safety requirements, intellectual property rights, consumer protection rules, and to block illicit synthetic drugs such as fentanyl and synthetic drug raw materials and machinery from entering the country."
Raising duties could make cheap goods shipped from China more expensive, potentially raising prices for consumers who clearly flocked to Shein and Temu to fulfill their shopping needs as the pandemic strained families' wallets and the economy.
Specifically, Biden has proposed to exclude from the de minimis exemption all shipments "containing products covered by tariffs imposed under Sections 201 or 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962." That would include, Biden specified, "some e-commerce platforms and other foreign sellers" that currently "circumvent these tariffs by shipping items from China to the United States" and "claiming the de minimis exemption."
New rules would also require e-commerce platforms to share more information on shipments, "including the 10-digit tariff classification number and the person claiming the de minimis exemption." That would help weed out unlawful de minimis shipments, Biden suggested.
Shein and Temu defend business models
Neither Shein nor Temu seem ready to let the proposed guidance slow down their rapid growth.
"Since Temu's launch in September 2022, our mission has been to offer consumers a wider selection of quality products at affordable prices," Temu's spokesperson told Ars. "We achieve this through an efficient business model that cuts out unnecessary middlemen, allowing us to pass savings directly to our customers."
Temu's spokesperson told Ars that the company is currently reviewing the new rule proposals and remains "committed to delivering value to consumers."
"Temu's growth does not depend on the de minimis policy," Temu's spokesperson told Ars.
Shein similarly does not seem fazed by the announcement. Starting this year, Shein began voluntarily sharing additional information on its low-value shipments into the US as part of a US Customs and Border Protection (CBP) pilot program. That change came after CBP expanded the pilot last year in its mission to test ways to "identify and target high-risk shipments for inspection while expediting clearance of legitimate trade flows."
Shein's spokesperson told Ars that "Shein makes import compliance a top priority, including the reporting requirements under US law with respect to de minimis entries."
Last year, Shein Executive Vice Chairman Donald Tang proposed what he thought would be good de minimis reforms "to create a level, transparent playing field." In a letter to an American trade association representing more than 1,000 famous brands, the American Apparel and Footwear Association, Tang called for applying the same rules evenly, no matter where a company is based or ships from.
This would enhance consumer trust, Tang suggested, while creating "an environment that allows companies to compete on the quality and authenticity of their product, the caliber of their business models, and the performance of their customer service, which has always been at the heart of American enterprise."
Shein told Ars that the company remains confident in its business model and is looking forward to "working with all stakeholders on reform."
"Our success is anchored in our unique on-demand business model, which allows us to bring customers the styles they want, efficiently and at an affordable price," Shein's spokesperson said.
US safety regulators, however, have pushed for formal investigations of both platforms due to safety concerns with products, including "the potential sale of deadly baby products," The Verge reported.
For now, Biden has only proposed rule changes, but if finalized, the rules would surely mean that Temu and Shein shipments would "no longer be eligible for the de minimis exemption," Biden said.
In addition to proposing rules, Biden also urged Congress to pass before the 2024 session ends "significant regulatory action to address the surge in de minimis imports that put American consumers, workers, retailers, and manufacturers at risk."
Recommended legislative reforms include explicitly excluding textile and apparel products from the de minimis exemption, as well as increasing "transparency and accountability under the de minimis program by requiring more data from shippers," Biden suggested.
Already being weighed in the House is a law that would come close to doing as Biden bids. If passed, the Import Security and Fairness Act would block any shipments from any country on the US Trade Representative's Priority Watch List from being admitted free of duty or tax. China is among six other countries on that list, including Argentina, Chile, India, Indonesia, Russia, and Venezuela.
So far, efforts to remove de minimis privileges in Congress have repeatedly stalled. Even bills that intended to effectively close the loophole that did pass, like the CHIPS and Science Act, only did so after the language altering de minimis thresholds was removed.
“Growing danger” of China-based e-commerce threats
The proposed rules come after House Democrats in a letter told Biden that disqualifying e-commerce platforms like Shein or Temu from the de minimis exemption "would significantly reduce the volume of small package imports" in the US.
"Instead of millions of individual packages arriving daily in express air delivery centers and via international mail, legitimate goods ordered online would arrive at formal ports aggregated in shipping containers with detailed information about the goods submitted in advance online as required by the SAFE Port Act," House Democrats suggested.
Their letter followed a 2023 report from the US-China Economic and Security Review Commission, which was created by Congress to monitor the national security implications of US-China trade relations.
That report warned that Shein and Temu were already vastly outpacing American businesses with a successful strategy dependent on exploiting trade loopholes, which was already being enthusiastically copied by more than 10 startups. Emerging copycat platforms like Cider, Urbanic, ChicV, Doublefs, Cupshe, and JollyChic are all vying to become the next Shein, the report warned.
"Shein has outpaced competitors—including Zara and H&M—to take a dominant position in the US market, a business model that other Chinese firms are seeking to replicate," the report said.
The commission further warned that "Shein and similar firms serve as a case study of Chinese e-commerce platforms outmaneuvering regulators to grow a dominant US market presence," which allegedly helps platforms like Shein avoid scrutiny of illegal cotton sourcing through forced labor of Uyghur detainees.
There are similar concerns about Temu's labor practices, the report said, as its parent company has been accused by China Labor Watch of "extreme overtime" that requires employees to work "380 hours per month." On top of that, a lawsuit from Arkansas Attorney General Tim Griffin alleged that Temu is "dangerous malware" that is secretly monetizing a broad swath of unauthorized user data, which Temu has denied.
Prompted by such warnings, House Democrats pushed Biden to exclude China-founded e-commerce platforms from the de minimis exemption.
"This would make it possible for Customs and other regulatory agencies enforcing product safety, labor rights, drug interdiction, and other policies to target shipments that need inspection and seize violating imports," House Democrats' letter said. "It would also close the door for bad actors now using the lack of inspection and information about de minimis shipments’ contents to flood the US with illicit, forced-labor, fake, and deadly goods—leveling the playing field for domestic manufacturers and workers."
The lawmakers implored Biden to "use executive authority to end the dangerous de minimis loophole and protect Americans from its growing danger."
"In a particularly stark example of the impact this loophole has on American manufacturers, over the past several months, 18 US textile plants closed due to the flood of imports coming in via the de minimis loophole and putting hundreds of American workers out of jobs," their letter said.
Biden's announcement of proposed rules concluded with a call to protect American businesses from the increasing threat that China-founded e-commerce platforms allegedly pose if left unchecked.
"US textile and apparel manufacturers are facing unfair competition from several China-founded e-commerce giants, as these companies take advantage of the de minimis exemption to ship huge volumes of textile and apparel products to American consumers," Biden said.
To protect US workers, he vowed to explore "other decisive actions." That includes continuing "enforcement efforts against illicit textile and apparel imports through intensified targeting of small package shipments, joint trade special operations, increased customs audits and foreign verifications, and the expansion of" an effort to prevent trade of products made with slave labor, known as the Uyghur Forced Labor Prevention Act Entity List.
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