Images are generated by AI
With the development of Chinese cross-border e-commerce platforms such as Temu, Shein, TikTok Shop, and AliExpress in the world, the policies of countries around the world for cross-border e-commerce have changed dramatically.
"Small exemption" refers to the value limit set on imported goods, as long as it does not exceed a specified value or weight, tax exemption is granted, and formal customs declaration and declaration procedures are exempted. This kind of tolerant policy for low-value cross-border parcels is widely present in the trade policies of countries around the world.
It's just that the bottom line of exemption is different in different countries, for example, the bottom line in Australia is $1,000, Canada is $20, and the average bottom line in Europe is about $190.
In the past, the existence of this policy made "small parcel direct mail" the most favored way for Chinese cross-border platforms and merchants to sell goods. However, with the sharp increase in the number of small parcels and the expansion of the total value, many countries believe that the existence of this policy is reducing their own sources of tax revenue, resulting in a weakening of the price competitive advantage of domestic retail manufacturing.
Since the beginning of this year, countries have made major adjustments to the "small exemption" policy, and China's cross-border e-commerce platforms and sellers have once again ushered in strong supervision that can be said to be almost global.
The small exemption policy has turned the gun
Recently, Thailand, Vietnam, Brazil, Mexico, South Africa, the United States, the European Union and other countries have ushered in a reversal of the "small tariff exemption" policy, aiming at the rapidly developing Chinese cross-border e-commerce platforms and merchants.
From January 1, 2024, the Malaysian Customs Department has taken the lead in implementing a new tax policy, and online sales of goods less than 500 ringgit (about 770 yuan) imported from abroad to Malaysia will be subject to an additional 10% low-priced goods tax. After this measure, the prices of overseas products purchased on many e-commerce platforms such as Shopee and Lazada in Malaysia have increased slightly.
On April 19, the U.S. House of Representatives Ways and Means Committee approved the "Ending China's Abuse of the 'Small Exemption' Rules Act", which adjusts the rules for reviewing the entry of Chinese goods with "small exemptions", further raises the exemption threshold and barriers, and establishes new penalties for violations.
The bill reflects concerns in the United States about the surge in "small exemption" packages in recent years, especially from China's cross-border e-commerce platforms such as Temu and Shein.
In June, the United States announced the suspension of the "small exemption clearance" qualifications of six customs brokers. At that time, some industry insiders said that it would have an impact on the customs declaration process of Shein and Temu, and the delivery of 1,000 tons of goods from China was delayed or stranded.
On June 4, Thailand's cabinet meeting approved a draft submitted by the Ministry of Finance on revising the VAT rate for foreign imports below 1,500 baht.
The draft stipulates that in order to encourage the development of small and medium-sized enterprises in Thailand and promote fair competition with foreign importers, a 7% VAT will be charged on foreign imports with a value of less than 1,500 baht.
It is reported that the draft is a temporary policy and will take effect within 15 days from the date of publication on the website of the Gazette and will be valid until December 31, 2024. Since the internal system of the tax bureau has not yet been perfected, the first stage will be replaced by the customs department to levy VAT on imported goods; In the second phase, the Tax Law of the Inland Revenue Bureau will be amended, and the VAT will be collected through the online product distribution platform, which will be paid to the Inland Revenue Bureau in a unified manner.
On June 5, the Brazilian Senate not only approved the cancellation of the $50 import tax exemption for small parcels, but also decided to impose a 20% import tax on such goods.
The proposal, which had previously been approved by the House of Representatives, will then be sent to President Lula for approval, with the president exercising veto power. Once the law comes into force, it will be implemented immediately and will retroactively apply to packages that were ordered before the new rates were announced, but did not arrive in Brazil. This will have a big impact on Shopee, Shein, AliExpress, and Temu, which has just entered the Brazilian market.
In the past, goods under $50 were subject to a 17% ICMS tax on goods under $50, but this bill will pay a 20% import tax first, and a 17% ICMS will be levied on each state. The price after taxes increased from $58.5 to $68.5.
Recently, Mexico's National Tax Service (SAT) also announced that it will revise the foreign trade rules to severely punish e-commerce platforms and express delivery companies in the process of importing clothing, electronic products, toys and other goods in the process of low-price customs declaration and tax evasion, defined as smuggling and tax fraud.
Local media in Mexico generally believe that the direction of this statement is very obvious, that is, it targets Chinese cross-border e-commerce platforms Shein and Temu.
Since 2023, Mexico's retail and apparel industries have been accusing e-commerce platforms of abusing the "import duty-free rules for small goods" to evade taxes. The Mexican Chamber of Garment Industries estimates that this type of action results in the loss of 38 billion pesos in VAT and customs duties every year.
In March this year, Mexico's textile, apparel and footwear industry associations launched a boycott of Chinese e-commerce platforms, demanding that government authorities tighten supervision of cross-border trade platforms. In April, Mexico imposed temporary import tariffs of 5% to 50% on 544 items, including electrical equipment, transport equipment, musical instruments, furniture, etc.
A cross-border seller told the titanium media "Overseas Reference" that the Mexican customs review imported goods is very strict, especially electrified, powder solids, textiles, footwear, etc., which need to review the corresponding import qualifications, the customs clearance documents are relatively complex, and the review process is relatively cumbersome. The Mexican government is a typical courtier, and political changes have a great impact on customs clearance, tariffs, etc., which means that all aspects of supervision, tax collection, customs clearance and logistics need to be reopened.
Vietnam's Finance and Budget Committee Chairman Le Quang Manh also said that the removal of the VAT exemption policy for small imports is being considered to add more revenue sources to the finance.
It is understood that Vietnam does not need to pay import tax or value-added tax on goods with a value of less than 1 million VND (about 39.30 US dollars) and imported into Vietnam through express delivery services.
In this regard, Le Quang Manh said that in the past, the number of imported goods in Vietnam below 1 million VND was not large, and even if taxes were levied on these goods, the amount of taxes collected was insignificant. But now, Vietnam's cross-border e-commerce continues to explode, and the import volume of small-value goods is growing, and if it continues to maintain duty-free concessions for low-priced goods, Vietnam will lose a lot of potential tax revenue.
In its latest reform proposal, the EU is also planning to remove the 50 euro tax exemption limit. "Up to 56% of the value of such parcels currently entering the EU is undervalued to avoid customs duties when imported," the EU said. In addition, the EU plans to set up a unified EU customs data centre with comprehensive information on supply chains and the movement of goods.
With the major reform of EU tariffs, it is conceivable that e-commerce platforms, e-commerce sellers and logistics providers standing on the same ecological chain will be affected to varying degrees.
The latest tariff changes come from South Africa. From July 1, 2024, South Africa will impose a 45% import duty and 15% VAT on foreign e-commerce clothing retailers such as Shein and Temu, after local clothing retailers accused Shein and Temu of affecting the market with low-priced imports.
From the perspective of global trends, once the "small exemption" policy is canceled, China's cross-border platforms and merchants will attract a new round of adjustments, and the road to gold will be more difficult.
Pressure and resistance from local retail and manufacturing
The root cause of this is that the tariff adjustment for small goods mostly comes from the impact of China's cross-border e-commerce platforms on local retail and manufacturing.
Cross-border platforms such as Shein, Temu, TikTok Shop, and AliExpress rely on China's strong supply chain to deliver low-cost goods to the world.
At the end of 2023, ShipMatrix, a package shipping consulting company, released data showing that Shein and Temu ship an average of about 1 million packages per day in the United States, and they are growing rapidly.
Mike Gallagher, former chairman of the U.S. House Select Committee on China, said that so far this year alone, 485 million packages have entered the United States through "small exemptions," and Temu and Shein account for one-third of those packages.
It is understood that driven by strong demand, more than 1 billion packages with an average price of $50 are expected to arrive in the United States this year.
The rapid development of Temu and Shein has created a sense of crisis for Amazon and local retailers.
According to a joint research report by the Nihon Keizai Shimbun and the data.ai of American research companies, from the perspective of the overall number of global users in October 2023, Amazon increased by 4% year-on-year; The total number of users of Temu and Shein, the two Chinese e-commerce platforms, has increased to about 110 million, an increase of 2.6 times in one year, approaching 90% of Amazon's users.
Since January 15 this year, in order to strengthen its competitiveness, Amazon has significantly reduced the commission for the clothing category, including the commission for clothing less than $15 from 17% to 5%, and the commission for clothing over $15 from 17% to 10%.
After Temu was launched in the United States, it had a major impact on the U.S. retail market, especially the traditional discount retailers represented by "dollar stores".
As of last November, Temu had a market share of nearly 17% in the U.S. discount store category. The market share of the local "$1 store" Dollar General fell to 43% from 57% in January, and the market share of Dollar Tree fell from 32% to 28%.
（数据来源：Earnest Analytics）
According to the latest data from Consumer Edge, a global consumer transaction data provider, as of the beginning of this year, Shein accounted for 40% of the US fast fashion market, which has long exceeded the market share of fast fashion giants Zara and H&M.
Christopher Tang, a professor at UCLA's Anderson School of Management, said that the U.S. tax loophole "small exemption" made it possible for both companies to lower their prices.
The biggest reason for the tightening of the "small exemption" in the United States is that local companies believe that the sales model of Chinese cross-border e-commerce platforms constitutes an unfair competitive advantage for American retailers because of the "tax exemption concession".
This is highly similar to the reasons for the tightening of the global "small exemption".
Thailand's proposal to impose a VAT of 1,500 baht stems from a large number of complaints from the Thai Industrialists Association at the beginning of the year: low-quality imported elephant pants are sold on Thai online stores at a price less than one-third of the Thai market price, and the local price is 100 baht and online sales are only 30 baht, causing dissatisfaction among local small and medium-sized enterprises.
According to the president of the Thai E-commerce Association, Kortina, once the VAT is fairly introduced, Thai companies can market and compete with goods in the international market, and stressed that Thai companies should pay attention to store displays on e-commerce platforms and increase online live broadcasting.
The local "allies" of cross-border platforms have emerged
Behind the tariff adjustment of small-priced goods, it not only has a direct impact on China's cross-border e-commerce platforms such as Temu and Shein, but also involves the interests of sellers, consumers, local logistics companies, advertisers, financial enterprises, and local small and medium-sized enterprises.
The impact on the local retail and manufacturing industries is only one aspect of the impact of China's cross-border e-commerce platforms on the local market. The development of China's cross-border e-commerce platforms has had a positive impact on the local logistics industry, advertising media industry and consumers.
(The picture comes from the Internet)
Take Temu as an example, it has spent a lot of money on advertising at the "Super Bowl", a sports event known as the "American Spring Festival Gala", for two consecutive years. Based on the Super Bowl broadcaster's $7 million per 30-second ad price, Temu is expected to spend as much as $14 million in 2023 alone. In 2024, Temu will cast 6 30-second ads.
Brian Wieser, head of consulting firm Madison and Wall, estimates that more than $7 billion of cross-border advertising revenue in the U.S. will come from China in 2023. In the third quarter of 2023 alone, Temu and Shein spent about $600 million and $200 million in ads on Facebook and Instagram, respectively.
Social media such as Facebook, Instagram, and YouTube are all beneficiaries of the development of China's cross-border e-commerce platforms. Another major beneficiary group comes from logistics companies.
FedEx, United Parcel Service and DHL and other express companies formed the "National Foreign Trade Commission" and became the main force opposing the abolition of the "small exemption" rule.
There are three general modes of transportation for goods on cross-border e-commerce platforms: direct mail, cooperative logistics transportation between merchants and third parties, and overseas warehouses.
Most cross-border e-commerce packages are mainly low-cost and small. In the field of cross-border e-commerce, it is rare to have a customer unit value of more than $800. A big seller once told the titanium media "Overseas Reference" that the selling price of more than $100 is already a large expenditure for local Americans, and it is a thing that needs to be carefully considered.
Therefore, the small package direct mail model has become the first choice for cross-border sellers because of its cost-effective and convenient customs clearance process. It is also the party that has benefited the most from the "small exemption" rule.
The abolition of the "small exemption" rule not only means that the price advantage of commodities is weakened, but also that the informal customs clearance process is no longer applicable, making the customs clearance process more cumbersome and slowing down.
The first to be affected were international freight forwarders such as SEKO Logistics. Several U.S. customs clearance agencies have been revoked by the U.S. Customs and Border Protection (CBP) for "small exemptions" clearance, resulting in a large backlog of goods, and even the failure of newly landed cargo planes to unload in time.
The SEKO Logistics statement states that SEKO strongly opposes CBP's decision.
The tightening of the "small exemption" in many countries not only increases the operating costs of cross-border e-commerce platforms, but also increases the cost of shopping for consumers. In particular, when cross-border e-commerce is integrated into the local economic system, it will also have an impact on other local business economies.
Semi-custodial and overseas warehouses become risk buffers
For multinational e-commerce platforms, the issue of "small exemption" is not only a matter of increasing costs, but also involves a series of issues such as business compliance, brand building, and overseas layout.
In the face of this problem, Shein, Temu, AliExpress, etc. are all making efforts in semi-custodian business and adjusting investment policies.
In January this year, AliExpress took the lead in fully launching semi-custodial. All merchants can apply to join, and can enjoy a series of benefits such as logistics subsidies, exclusive traffic, commission reductions, on-time delivery subsidies, and free warehouse fees.
In March, Temu's semi-custodial business was officially launched, and sellers with warehouse logistics partners in the target country can decide on their own warehousing and logistics solutions. Compared with the fully managed model, Temu semi-managed operation is simple, and merchants do not need to operate and stream, but only need to be responsible for overseas delivery, fulfillment, and after-sales. It is also 0 commission, 0 advertising fee, and various traffic and resource subsidies.
At the beginning of May, Shein tested the semi-custody model, requiring that the products of the settled merchants must be in stock overseas and can be fulfilled and shipped locally. In other words, the seller must cooperate with overseas warehouses and stock up on inventory management in overseas warehouses in the United States. Self-built warehouses, SHEIN official warehouses, Amazon warehouses and third-party overseas warehouses.
In June, TikTok Shop announced that it would adjust its cross-border U.S. self-operation model (POP), opening up sellers with experience in Amazon, Ebay, Walmart and independent stations to merchants in Chinese mainland and Hong Kong. Sellers are required to have warehousing and logistics capabilities in the United States to ensure that products can be delivered to consumers quickly and accurately.
Previously, in the TikTok Shop entry requirements, merchants were required to provide proof that the annual GMV of a single store in the United States exceeded 2 million US dollars. However, there are no requirements for the GMV of Amazon merchants this time.
It can be seen from the semi-custody and investment promotion policies launched by various cross-border e-commerce platforms that the changes in the requirements for overseas warehousing and local logistics service capabilities of merchants are the most prominent.
Compared with cross-border direct mail, through the way that containerized goods are stored in overseas warehouses in advance, and then sold and managed according to demand, they need to pay taxes when entering the country, which is not only least affected by the change of "small exemption" rules, but also has low logistics costs.
Direct mail relies on the high cost of air transportation capacity, but the shipping timeliness is lagging behind, and the capacity is tight during the peak shopping seasons such as Christmas and Black Friday, making it difficult to deliver on time. Semi-trusteeship is more secure in terms of improving the timeliness of fulfillment and improving the logistics supporting links of the overseas supply chain. This is also the main reason why various cross-border e-commerce platforms focus on semi-custodial business.
At present, overseas warehouses include self-built overseas warehouses, cross-border e-commerce platform overseas warehouses, and third-party overseas warehouses.
In order to avoid the impact of the adjustment of the "small exemption" policy, some large-scale merchants are building their own overseas warehouses. A cross-border seller who is building his own overseas warehouse told Titanium Media "Overseas Reference" that on the one hand, self-built overseas warehouses can meet the compliance requirements of exporting countries, and on the other hand, after the change of the "small exemption" policy, the weakening of price competitive advantage can be compensated for by the improvement of local service capabilities, and also avoid subsequent large-scale out-of-stock.
Regarding the tightening of the "small exemption" policy, Temu and Shein have always stated that they abide by laws and regulations, and the price advantage comes from the efficiency of the supply chain.
In this regard, Zhang Jiansong, a partner of Hebei Zhonghong Law Firm, said that the most direct impact of the tightening of the "small exemption" policy on cross-border platforms and cross-border enterprises is to increase costs, extend turnaround times, and increase the risk of default and litigation. More should be done at the legal level:
1. For the transactions that have occurred, it is recommended to communicate and coordinate with merchants and customers in a timely manner, and make corresponding changes in a timely manner to reduce the risk of default and reduce the liability for breach of contract.
2. For transactions that have not yet occurred, it is recommended to revise the cooperation agreement as soon as possible, and make corresponding adjustments to the terms of price, supply period, and liability for breach of contract.
3. In view of the business model, it is recommended to adjust the business model in a timely manner according to the laws and policies of the country where it is located, and carry out a comprehensive layout of a series of key elements such as localized business model, establishment of overseas warehouses, local compliance of enterprise operation, enterprise layout and brand building.
4. For future operations, it is recommended to pay attention to the legal and policy adjustments of the customer's country and the relevant trade risk early warning in a timely manner. Understand the operation and complex game of local politics, and enhance the ability to operate locally and respond to the resilience of political and economic risks in other countries.
Despite facing multiple global regulations, the Chinese government has also taken proactive measures to support cross-border e-commerce. Nine departments, including the Ministry of Commerce, issued opinions on promoting the construction of overseas warehouses, encouraging local governments to build cross-border e-commerce industrial belts and supporting enterprises to expand overseas markets.
The tightening of the "small exemption" policy is only a microcosm of the complex game in the process of global operation, and the most fundamental thing is that China's cross-border platforms and enterprises should enhance their ability and resilience to deal with risks.
(This article was first published in Titanium Media App, author | Yang Xiujuan, editor | Jinping)