End of EU duty exemption will hit parcel flows and give shoppers 'sticker shock'

25/06/2021

The end of exemption from duties on imports worth less then €22 into the EU will likely hit parcel flows from China, but large e-commerce platforms have already taken steps that should mitigate the impact.

From 1 July, the EU will remove the €22 threshold for duties on parcels imported from non-EU origins which will then require customs clearance, payment of VAT and, depending on national thresholds, customs duties.

The €22 limit will be scrapped under a wave of protest from EU-based merchants, over a flood of cheap online purchases from China putting them at a competitive disadvantage, and from postal agencies that were receiving paltry compensation for their delivery costs based on the old terminal dues formula.

In addition, there have been concerns over violations of EU regulations. Last year the Danish Chamber of Commerce ordered 54 products from China – mainly toys and electronics – from merchants selling on Amazon, AliExpress and Wish. Of the 50 that arrived, 46 broke EU safety rules and, in 16 cases, the value had been misdeclared to avoid import sales taxes.

Horst Manner-Romberg, principal of parcel research at consulting firm M-R-U, said for merchants there was still a lot of uncertainty around the issue. The regulatory framework is very complex, and further complications arise from national variations in exemptions and tax rates.

He reckons the confusion will be most pronounced around shipments coming through postal services. The commercial parcel carriers and B2B customers are more or less prepared for this, but many consumers will experience ‘sticker shock’ when their parcel arrives. In addition to duties and taxes, they face fees for customs clearance, all adding up to an amount considerably above the original price tag, he said.

Most likely this will cause a marked drop in online orders from overseas, he said. He pointed to Switzerland and Sweden, which implemented administrative changes to their rules on online purchases from overseas that resulted in significant volume declines. Last year, PostNord in Sweden registered a 25% drop in parcels from China.

A lot of Chinese products are actually shipped from within the EU. The large Chinese platforms like Alibaba and JD.com have been setting up direct flights to Europe to feed warehouses in the EU, in order to be able to offer fast deliveries to European consumers. In April, Budapest Airport, Henan Airport Group (operator of Zhengzhou Airport) and business and logistics development company CECZ/Utlink signed a co-operation agreement to develop an “aerial Silk Road” between Hungary and China, which was followed by Cainiao designating Budapest as its central East European hub.

In tandem with the new tax regulations, the EU has set up the Import One-Stop Shop (IOSS) system for consumers to pay VAT directly at check-out. Overseas merchants registered under this (in an EU-member state of their choice) pay the tax on a quarterly basis, and the shipments enter Europe through a ‘green channel’.

For the most part, though, European consumers do not visit Chinese platforms like Wish. According to a recent report from Marketplace Pulse, many Chinese retailers use Amazon to peddle their wares. They account for more than half of the 10,000 largest sellers on Amazon marketplaces in Spain, France and Italy and 40% of the sellers in Germany.

Mr Manner-Romberg noted that Amazon had been monitoring Chinese merchants on its platform more closely over the past year, in agreement with EU officials, and kicked off some sellers. He said the situation was more complex with eBay.

Platforms and merchants that register under IOSS save clearance processing fees. DHL informed its customers this month it would pay the import charges and collect them from the consumer on delivery, charging €6 for the service. It said such fees were common in other countries, with “€10 or more charged in Austria and the Netherlands”.

Some online purchases from overseas will still enter the EU without a need to pay charges, however. Goods with a value of less than €5.23 remain exempt, as VAT under €1 is not collected.