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Popular Chinese online clothing store Shein is in government’s sights due to complaints from local clothing shops and trade unions that it is finding loopholes to bring clothes into the country at superlow prices.
Established in 2008, Shein ships merchandise to more than 150 countries, including South Africa.
The retailer sells clothes very cheaply – for example, a pair of jeans costs as little as R279, blouses cost less than R200 and dresses start at R100 each.
The garments are particularly appealing among young, fashion-conscious people.
Unions and local clothing groups are complaining that Shein gets clothes across national borders without paying the full, prescribed import taxes.
They also argue that Shein’s presence in South Africa undermines the objectives of the 2019 textile master plan.
According to the plan, local retail sales of clothing, textiles, shoes and leather goods must be increased to R250 billion by 2030. Up to 65% of these goods must be produced locally, compared with the current 44%.
Local players say Shein probably pays less import tax because it bring clothes into the country in smaller quantities and smaller packages. It therefore uses the handy e-commerce loophole – the so-called de minimis value.
This is a value threshold that countries set for imported goods. Anything below that value is exempt from import duty. In South Africa, the threshold is R500.
An official from the department of trade, industry and competition confirmed to City Press that Shein was being investigated, but declined to provide further details.
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Michael Lawrence, CEO of the National Clothing Retailers’ Association, an umbrella body to which stores such as Woolworths, TFG and others belong, says there is anecdotal evidence that companies using the de minimis loophole do not pay the required tax.
“Local clothing retailers pay 45% import tax on one item,” he says.
“You can make your clothes look very cheap if you don’t pay the necessary VAT and import tariff. There are many small packages that come across our borders and it’s a massive problem.”
Local players in the clothing industry are now asking government to adjust the country’s customs clearance regulations.
“The current system’s set up around cargo containers [the way local traders’ clothes enter the country], not small parcels.” Lawrence say:
“The volume of goods in smaller packaging entering the country is much higher and our tax collection needs to reflect that. The rules for 10 can’t be the same as the rules for 100.”
François Fouché, CEO of Growth Diagnostics and research fellow at the Centre for African Markets at the Gordon Institute of Business Science, says the principle of a threshold for imported goods applies in many countries so that smaller packages can cross borders more easily.
“We can’t say it’s a loophole. It’s specially designed so that e-commerce can take place on a smaller scale with smaller transactions,” he says.
So, South Africa should not dispute the ruling if a company is set up to do many small transactions.
A country such as China is easily able to help its companies export, and a company like Shein has invested money over the years to make its e-commerce platform efficient.
Fouché suggests:
Lawrence denies that local retailers complaining about Shein are “anticompetitive”: “We have no problem with companies doing ‘smart’ business, but the rules must be followed. There are guys who look for loopholes to which the authorities don’t pay attention and that creates an environment where illegal things can happen.”
A spokesperson for Shein said the company complied with all the legislation and regulations of the markets in which it did business.
Rumours of unfair labour practices, harmful substances in clothing and the theft of creative ideas often see Shein in global news headlines. Here are some of those occasions:
In July 2021, the US Product Safety Commission pulled thousands of pairs of Shein’s children’s pyjamas off the market for failing to meet safety standards. They were highly flammable;
- In December 2021, a Canadian agency that conducts investigations into health standards found that a children’s jacket contained dangerously high levels of lead;
- On social media, there are rumours that Shein is stealing intellectual property. A photographer from Portland, US, complained that the company had “stolen” one of her photos and used it as a design on a cloth; and
- In December, it was revealed that two of Shein’s suppliers were making their factory employees work up to 18 hours a day.
When contacted for comment, Shein said that it took all complaints about infringements of intellectual property rights seriously and that products that contravened these rights were immediately withdrawn.
It said it had also begun fining or terminating business with suppliers that violated its code of conduct for workers’ rights.
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Regarding safety, Shein said it ensured that its clothes met the international standards of the US and countries in the EU, and that testing of its products in recognised laboratories had begun last year.
