NEWS  /  Analysis

Numerous Countries Tighten "De Minimis" Policies, Chinese Cross-Border E-Commerce to Feel the Pinch

By   xinyue  Jul 01, 2024, 4:19 a.m. ET
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Since the beginning of this year, many countries have made significant adjustments to the "de minimis" exemption policy, leading to stricter regulations for Chinese cross-border e-commerce platforms and sellers.

AsianFin--As Chinese cross-border e-commerce platforms like Temu, Shein, TikTok Shop, and AliExpress experience rapid global growth, many countries are rushing to stop the loophole in their regulations and laws towards cross-border e-commerce.

One of them is the "de minimis" exemption, which refers to the exemption of tariffs for imports whose value below a certain value and the waiver of customs clearance and declaration. This lenient policy for low-value cross-border parcels is common in trade policies around the world, though the thresholds vary by country. For example, Australia’s threshold is $1,000, Canada’s is $20, and Europe’s average is about $190.

Historically, this policy has made "direct mail for small packages" a favored sales method for Chinese cross-border platforms and merchants. However, with the surge in the number and total value of these small packages, many countries began to realize that the policy reduces their tax revenues and weakens the competitive advantage of their domestic retail and manufacturing sectors.

Since the beginning of this year, many countries have made significant adjustments to the "de minimis" exemption policy, leading to stricter regulations for Chinese cross-border e-commerce platforms and sellers. These platforms must promptly adjust to these policy changes to maintain their competitive edge amidst the seismic shift in international trade.

Countries including Thailand, Vietnam, Brazil, Mexico, South Africa, the United States, and the European Union have recently revised their "de minimis" exemption policies, targeting the fast-growing Chinese cross-border e-commerce platforms and sellers.

Since January 1, 2024, the Malaysian Customs Department has imposed a 10% low-value goods tax on online sales of items imported into the country valued below 500 ringgit (about US$ 106). Following this measure, prices of overseas products on Malaysian e-commerce platforms like Shopee and Lazada have seen slight increases.

On April 19, the U.S. House Ways and Means Committee approved "The End China's De Minimis Abuse Act," adjusting the review rules for "de minimis" entry of Chinese goods, raising the exemption threshold and barriers, and establishing new penalties for violations. This act reflects the U.S. concerns over the recent surge in "de minimis" packages, particularly those from Chinese platforms like Temu and Shein.

In June, the U.S. government announced the suspension of "de minimis" clearance qualifications for six customs brokers, impacting the customs clearance processes for Shein and Temu, causing significant delays for shipments from China.

On June 4, Thailand's cabinet approved a draft to amend the value-added tax (VAT) rate for foreign imported goods valued below 1,500 baht, imposing a 7% VAT. This temporary policy will be effective for a year from the date of publication in the Government Gazette, with customs initially collecting the VAT and later transferring the responsibility to the tax authority.

On June 5, Brazil's Senate approved the abolition of the $50 "de minimis" exemption, deciding to impose a 20% import tax on such goods. This change, pending presidential approval, will retroactively apply to orders placed before the new rate announcement, affecting platforms like Shopee, Shein, AliExpress, and Temu.

Mexico’s National Tax Administration Service also announced revisions to its trade rules, cracking down on underpriced declarations by e-commerce platforms and express delivery companies, classifying such acts as smuggling and tax fraud. This move targets Chinese platforms like Shein and Temu, which have been accused of tax evasion by Mexico’s retail and apparel industries.

The EU plans to cancel the 50-euro exemption limit, with claims that 56% of these package values are undervalued to avoid import duties. The EU also plans to establish a unified customs data center to oversee supply chain and cargo flow comprehensively.

South Africa announced a 45% import duty and 15% VAT on clothing retailers like Shein and Temu starting July 1, 2024, following complaints from local retailers about market disruptions caused by low-cost imports.

The primary reason for these adjustments is the impact of Chinese cross-border e-commerce platforms on local retail and manufacturing. Platforms like Shein, Temu, TikTok Shop, and AliExpress rely on China’s robust supply chain to provide low-cost goods globally. According to ShipMatrix, Shein and Temu ship about one million parcels daily to the U.S., where demand is growing rapidly. The surge in small parcels has raised concerns about tax revenue loss and unfair competition from U.S. retailers.

Chinese cross-border e-commerce platforms' booming business has benefited local logistics, advertising media, and consumers. Temu, for example, has spent millions on advertising during the Super Bowl, benefiting platforms like Facebook, Instagram, and YouTube. Logistics companies like FedEx, UPS, and DHL, forming the American Association of Exporters, have become major opponents of tightening "de minimis" rules.

To navigate these challenges, platforms like Shein, Temu, and AliExpress are focusing on semi-managed services and adjusting their merchant policies. These strategies include encouraging merchants to store inventory in local warehouses and utilize local logistics services to maintain compliance and efficiency despite changing regulations.

While tightening "de minimis" policies presents challenges, it also underscores the need for Chinese cross-border platforms to enhance their resilience and adaptability. By focusing on compliance and localization, these platforms can continue to thrive in the global market.