Every day, millions of cheap products bought online are mailed directly to consumers in the United States, European Union and elsewhere, from China. But unlike most imports, they are allowed to circumvent customs procedures.

In just three short years, Temu has grown into a major rival to Amazon and other Western online shopping platforms, offering up to ten million products from clothes to toys, electronics to beauty treatments, at ultra-low prices.

In the first nine months of 2024, Temu achieved revenues of $40.3 billion, a nearly 80% increase on the same period in the previous year. A YouGov poll published in March last year found that nearly nine in ten Americans are aware of Temu, while a quarter say they would buy through the Chinese platform again.

Another platform, Shein, which specializes in fast fashion aimed at younger age groups, achieved a 10-year headstart on Temu's direct-to-consumer model. It cut out middlemen fashion retailers to overtake brands like H&M and Zara in sales.

Last year, Shein reached $38 billion in sales, a 19% year-on-year increase, according to British business newspaper Financial Times.

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Exploiting customs loophole for huge profits

The Chinese platforms are taking advantage of a little-known trade rule called de minimis, which allows products worth less than $800 (€764) in the United States or €150 ($157) in the EU to be shipped duty-free with minimal customs checks.

"All these products arrive from China as individual parcels, so it's impossible for customs authorities to open and check them all," Agustin Reyna, director general of the European Consumer Organisation (BEUC), told DW.

The rise of Temu and Shein has Western regulators concerned on many fronts.

First, the Chinese platforms are exploiting a loophole that was not designed for large-scale e-commerce. De minimis was created so as not to burden customs agencies with the handling of small gifts and personal items sent across borders.

Second, many of the products for sale on Chinese platforms don't meet safety or environmental standards. Toy Industries of Europe (TIE), a Brussels-based industry body, tested 19 toys bought from Temu at the end of 2023 and found that none were fully compliant with EU safety rules on toys. All but one was found to pose a real risk to children.

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Costs kept low by cutting out middleman

Third is the unfair advantage that Chinese retailers get by exploiting the loophole. By mailing products directly from China to consumers worldwide, the Chinese platforms avoid the huge warehousing costs that other major retailers like Amazon must invest in.

With the likes of Temu and Shein eating into their market share, Western manufacturers and retailers are crying foul, while governments complain about lost tax revenue.

"Temu and Shein can produce on a massive scale and benefit from Chinese state subsidies, which enables them to absorb the shipping costs," Reyna explained. "These perks make their products much cheaper than from European companies."

Now both Washington and Brussels are clamping down on the de minimis rule, alongside other measures — including tariffs — reining in China's economic might. But on both sides of the Atlantic, policymakers are finding it easier said than done.

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Trump forced to U-turn as parcels amass at ports

More than a million parcels piled up recently at New York's John F. Kennedy International Airport and US maritime ports after US President Donald Trump,soon after taking office, ended the de minimis exemption for cheap Chinese goods entering the country.

But he was forced to temporarily U-turn, having given just three days' notice for the order to take effect. The White House insists the ban will be reinstated once systems have been developed to process and collect tariffs on those imports.

Clara Riedenstein, a program assistant at the Washington-based Center for European Policy Analysis, says the move was "very Trump-like" —  first scrapping the exemption and then U-turning. "But the core concern will remain, so hopefully, he'll come up with a more staggered and durable solution," she told DW

Brussels is also pressuring EU states to scrap the duty-free exemption for parcels arriving in Europe below €150. The European Commission — the bloc's executive arm — proposed the measure in 2023. Since then, the number of low-value parcels entering the EU has doubled to around 4.6 billion annually.

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EU proposes new fees to offset cost of bureaucracy

The Commission said earlier this month it would propose a new handling fee for e-commerce imports sent directly to consumers to offset the cost of the increased red tape, which is expected to be extensive.

"You are going to have to hire thousands and thousands of more customs officers if you want to scrap the exemption," Riedenstein warned. "It's going to cost the US and the EU to punish Beijing for taking advantage of these legal loopholes."

Brussels also wants to make the likes of Temu and Shein — rather than individual sellers — liable for the sale of dangerous products on their platforms and has suggested that checks could be made before products are shipped from China to ensure compliance.

Christoph Busch says this is necessary because "from a contract law perspective, Temu is currently not the seller, it's just an intermediary."

"The seller sits somewhere in China, and the buyer is a consumer in the US or EU," the director of the European Legal Studies Institute at Germany's University of Osnabrück, told DW.

Busch also said the Commission wants the platform operator to become the importer, so they would be obliged to pay the customs duty, which would also cut much of the new red tape facing European customs authorities.

Instead of dealing with tens of thousands of individual Chinese sellers, he added, EU customs bodies would need to liaise with just a handful of e-commerce platforms that are frankly making billions from a loophole that should never have existed.

Edited by: Uwe Hessler

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