Fast Fashion Under Fire: Regulatory Scrutiny Intensifies for Shein and Temu

What is Shein and Temu?
E-commerce platforms have become a go-to destination for trendy and affordable clothing. Among the numerous online shopping websites, Temu and Shein have emerged as popular choices for fashion enthusiasts across the globe. Temu, a China-based company, was launched in the United States in September 2022. They offer a wide range of fashion products, including clothing, accessories and shoes for men, women, and children. Shein, another e-commerce platform, has rapidly gained popularity. Based in Singapore, this fast-fashion company has rapidly expanded into one of the largest online retailers for clothing, accessories, and beauty products, reaching approximately $45 billion in gross merchandise value as of 2023. The success of these international companies stems from their business model, which focuses on delivering trendy and affordable products to a global consumer base. For example, the pricing of jeans, dresses, tops, outerwear, footwear, and accessories for these two companies averaged 50% lower than those of other reputable brands like H&M and Zara.

Temu and Shein are Under Fire in Germany
Germany’s Federal Ministry of Economics is intensifying its focus on Shein and Temu, aiming to enforce stricter regulations on product safety and fair trade in response to growing pressure from retailers and government bodies concerned about the impact of these non-EU e-commerce giants. Through the development of an “E-commerce action plan,” Germany aims to establish legal requirements that level the playing field between third-country merchants and EU merchants. This action plan embodies standards for product safety, environmental protection, and consumer protection, as well as customs and tax law.

The Ministry of Economic Affairs is rumored to be exploring new trade regulations, including new policies and changes to current rules. These recent changes are likely in response to pressure from Germany’s leading retail associations, which have urged the government to ensure fair competition. They argue that customs officials currently “lack the capacity” to verify whether all imported goods comply with EU regulations.

In June of 2024, Germany’s state secretary in the Federal Ministry of Economic Affairs and Climate Action met with Temu and Shein representatives to make sure that all market players were executing fair competition. Temu responded with intentions of complying with the laws and regulations of the markets they operate. They specifically plan to make adjustments to services in order to better align with Germany’s local practices and preferences.

The U.S. Steps in to Regulate
Regardless of these companies’ intentions to cooperate, safety concerns still exist for these two e-commerce platforms. Products that Regulators in the U.S. have deemed unsafe for children are still available to purchase on Shein and Temu. Several scandals have emerged including allegations that Shein and Tumu are offering “deadly baby and toddler products.” As a result of these scandals, U.S. Regulators have conducted an investigation involving padded crib bumpers, which were banned in the U.S. in 2022 for causing the suffocation and death of hundreds of babies.

Additionally, the U.S. has taken steps to regulate Temu and Shein’s use of the De Minimis Loophole, which allows packages valued under $800 to enter the country with minimal duties and customs inspections. By shipping billions of low-cost packages directly to U.S. customers, these foreign companies have been able to bypass the tariffs and scrutiny typically applied to larger imports, gaining a significant advantage over domestic retailers.

As regulatory scrutiny intensifies in both Germany and the U.S., the future of Temu and Shein will likely hinge on their ability to navigate these complex legal landscapes while maintaining their competitive edge in the global market.

Article Written by Aliah Mahshie

Sources:
Anthony Robledo, Regulators call for investigation of Shein, Temu, citing reports of ‘deadly baby products’, USA TODAY (Sept. 4, 2024, 3:29 PM), available at https://www.usatoday.com/story/money/2024/09/03 /investigation-shein-temu-baby-products/75065548007/, (last visited Sept. 14, 2024).

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