JOHANNESBURG—South Africa’s government said Monday that it is investigating fast-fashion company Shein following complaints from the local textile union and industry association that it may be exploiting tax loopholes to gain an unfair advantage in Africa’s most developed economy.
A spokesman for the Department of Trade, Industry and Competition declined to provide details on the investigation, but he said that it was initiated in response to concerns raised by labor and industry groups. The issues raised by the South African groups resemble complaints by manufacturers and unions in the U.S. that claim that Shein and other Chinese retailers are taking advantage of an exception in U.S. customs law that allows them to import goods without paying tariffs.
The South African probe is the first time a government has confirmed an official investigation into Shein’s import practices. Closely held Shein, which was founded in China but is now based in Singapore, has become one of the world’s largest online fashion retailers by shipping ultralow-priced merchandise from China directly to consumers in more than 150 countries. Women’s tops on Shein’s website sell for as little as $2 and some dresses can be purchased for less than $5.
The Southern African Clothing and Textile Workers’ Union and the National Clothing Retail Federation of South Africa allege that Shein deliberately sends its goods in small packages of lesser value to reduce import duties. Those duties have been put in place to help local industry compete against cheap imports.
“The initial indications that we’ve seen based on import documents is that the company uses a loophole that is really intended for individual customers,” said Etienne Vlok, the union’s national industrial policy officer. “Below a certain value threshold, you don’t have to pay the same taxes as someone importing tens of thousands of garments.”
The South African government normally charges tariffs of between 40% and 45% on imported clothing, depending on the value, but Shein may be paying as little as 10% to 20%, Mr. Vlok said.
“If that is the case, we should be looking at a way to close that loophole,” he said. Shein “doesn’t seem to be playing by the rules others are playing by.”
A Shein spokesperson said the company is committed to complying with local laws and regulations of the markets in which it operates.
Groups in the U.S., such as the Coalition for a Prosperous America, which includes U.S. manufacturers and labor associations, have raised similar concerns about a law, known as the de minimis rule. This law allows American tourists to bring back souvenirs from overseas duty-free and is now being used by companies to avoid paying billions of dollars in tariffs.
The law allows U.S. retailers who sell Chinese imports and Chinese companies that sell directly to American consumers to avoid tariffs as long as goods are packaged and addressed to individual buyers and fall below an $800 cap.
“The fact of Shein having very, very aggressive—as in low—price points is kind of a worldwide phenomenon,” said Michael Lawrence, executive director of the National Clothing Retail Federation of South Africa. “It’s not just my membership that is trying to get their heads around what allows for such aggressively low price points.”
Write to Alexandra Wexler at alexandra.wexler@wsj.com
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Appeared in the March 14, 2023, print edition as ‘Clothes Retailer Shein Probed Over South Africa Complaints.’
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