China-based shopping apps Shein and Temu have found themselves in the crosshairs of the U.S. House of Representatives. The interim findings of a House Select Committee investigating “the threat posed by the Chinese Communist Party (CCP),” was focused almost solely on questionable practices by the two popular shopping apps, in particular Temu, which has experienced a meteoric rise in the U.S. since its September 2022 debut.
Temu is now the No. 1 shopping app in the U.S., according to SimilarWeb, followed by Shein at No. 2, ahead of both Walmart and Amazon. Now, the House Select Committee is accusing both Shein and Temu of exploiting trade loopholes to avoid being subjected to human rights reviews and paying import duties.
The “de minimis” provision of Section 321 of the Tariff Act of 1930 waives import tariffs if the fair retail value of the shipment does not exceed $800, and almost all shipments from both apps fall well below this limit.
“Both Temu and Shein rely heavily on the de minimis exception to ship packages directly to U.S. consumers, allowing them to provide less robust data to CBP [U.S. Customs & Border Protection], avoid import duties and minimize the likelihood that the packages will be screened for UFLPA [the Uyghur Forced Labor Prevention Act] compliance,” reads the report.
“Temu is responsible for millions of shipments that are sent to the United States each year through a network of tens of thousands of sellers on its online marketplace,” the committee added. “However, Temu does not have any system to ensure compliance with the UFLPA. This all but guarantees that shipments from Temu containing products made with forced labor are entering the United States on a regular basis, in violation of the UFLPA.”
According to the committee’s initial findings, Temu and Shein alone are likely responsible for more than 30% of all packages shipped to the U.S. every day under the de minimis provision, and nearly half of all de minimis shipments to the U.S. that originate from China. The report also found that Temu specifically “conducts no audits and reports no compliance system to affirmatively examine and ensure compliance with the UFLPA,” beyond boilerplate terms and conditions prohibiting the use of forced labor that suppliers must agree to.
Temu is of particular interest to the committee because its third-party marketplace is one of the biggest ways its skirts these regulations. In response to the committee’s inquiries about what measures the company has in place to ensure UFLPA compliance, Temu responded that because it “is not the importer of record with respect to goods shipped to the United States, [the UFLPA] and the prohibitions set out in [Section 307 of the Tariff Act of 1930] do not apply directly to Temu’s activities as an online platform operator.”
“Simply put, Temu denies responsibility for ensuring that its 80,000 mostly China-based sellers do not sell products produced with forced labor because Temu is ‘not the importer of record,’” declared the House report.
Unlike Temu, Shein (until recently) operated as a traditional retailer, sourcing and fulfilling all the products it sold itself. But in large part to compete with the growing competition from Temu, Shein added a third-party marketplace of its own in May 2023 and is now expanding beyond fashion into other categories.
Beyond potential human rights violations, the committee also is concerned that these companies’ ability to skirt import tariffs thanks to the de minimis provision gives them an unfair advantage over competitors. “The millions of packages that Temu and Shein ship every year duty-free to the United States, without providing CBP with sufficient data regarding the contents of the packages, stand in stark contrast to the millions of dollars in import duties paid by retail companies,” said the report.
Temu did not immediately responded to Retail TouchPoints’ request for comment. A Shein spokesperson told Retail TouchPoints that “since entering the U.S. market in 2012, Shein has been compliant with U.S. tax and customs laws. We have zero tolerance for forced labor and have implemented a robust system to support UFLPA compliance, which includes a code of conduct, independent audits, robust tracing technology and third-party testing. We have no manufacturers in the Xinjiang region.”
[Editor’s Note: This story was updated on June 26, 2023 at 3 p.m. to include direct comments from Shein.]