Govt probes Shein amid concerns over its rapid gains in SA
As parts of business and labour in SA sound the alarm that Chinese fast-fashion retailer Shein could be exploiting tax loopholes to undercut local retailers and manufacturers, the government has confirmed an investigation is underway.
Shein meanwhile says it is committed to ethical business and wage practices as well as abiding by the laws and regulations, but there are mounting concerns in some quarters about the rapid gains it is making the South African market.
Founded in 2008, Shein is a Chinese online retailer that ships to more than 150 countries. It markets its clothes primarily via social media, and has gained a fast-growing market in South Africa - as was evidenced by long queues outside its local logistics partner`s premises during the past festive season.
The retailer`s clothing sells at super-cheap prices, with dresses on offer from far below R100.
The company has been accused of violating worker rights, with reports of 75-hour working weeks. Being a seller of cheap fast fashion, it has also been criticised for adding to waste and environmental problems.
But central to the concerns of the Southern African Clothing and Textile Workers Union (Sactwu) and the National Clothing Retail Federation (NCRF), is a belief that Shein may be exploiting tax loopholes to bring in goods far more cheaply than other international players and local companies.
They also believe the Chinese retailer could be undermining both the manufacturing and retail aspects of the Retail-Clothing, Textile, Footwear, Leather Master Plan (R-CTFL), which the government and local clothing sector agreed on in 2019 to try and encourage more local content and jobs.
Sactwu`s national industrial policy officer, Etienne Vlok, says the union has concerns about Shein`s growing impact in SA.
`We think it is bad news for workers, it`s bad news for the economy and it`s bad news for the environment.`
He said the union and the NCRF, which represents top retailers such as Foschini owner TFG, Truworths, Woolworths, Mr Price, Pick n Pay Clothing, Queenspark, Cape Union Mart, the LA Group, Cotton On and Retailability, had raised their concerns with the Department of Trade, Industry and Competition (DTIC).
They are hoping for a probe of whether there are any loopholes that could be helping Shein.
The DTIC confirmed to News24 that its investigation on Shein is progressing in partnership with organised business and labour.
Model concerns
Vlok said that the model Shein used appeared to be based on avoiding or paying reduced import duties, `exploiting the ecommerce loopholes`.
`In terms of customs legislation if you bring in small packages, you don’t pay duties, that is because the duties are reserved for larger consignments. And so, what Shein seems to be doing is exploiting that loophole by exporting in very small quantities often directly to the customer or their local distribution warehouses. They also, we have been told, apportion the contents of packages so that they can be put in more than one smaller parcels, so they stay below the threshold for duties on small packages. This means they are paying much less import duty than they would otherwise do.`
SARS did not want to comment, saying it was not permitted to disclose the confidential tax affairs of any taxpayer.
Another issue for Vlok was that there did not seem to be any meaningful local investment in SA by Shein, adding that at best `there may be a couple of jobs in warehouses`.
As a result, there was no significant benefit to SA in terms of additional revenue, taxes or jobs being created and that the fiscus was also possibly losing out because import duties were `not being paid in the way that they were intended`.
`Our concern is that this has a negative impact on the industry because those import duties are supposed to support local job creation and local investment. It has a negative impact on local clothing manufacturers and also on those businesses in SA who do comply with import duties. Now it means that suddenly, Shein is bringing in a garment for which they may be paying only a third or quarter of the duties payable, whereas its competitors, both local and international, may be paying the full duty.`
`This has an impact on the jobs of those businesses, but it could also mean that those local companies may start to use the same loopholes if they are legal and find other ways to ensure they are more competitive, which is a race to the bottom we should not be getting into.`
Questions over labour practices
Vlok said it was well-documented that Shein also used `sweatshop labour` to produce extremely cheap products.
`There have been reports done on the conditions in their factories and the conditions seem to be very bad with people working weeks on end with one day off a month, sometimes working 18-hour days. A kind of return to old sweatshop models, quite different from what we`ve been seeing recently in China where employment conditions have been improving.`
As for the environmental impact, he said Shein`s fast-fashion model resulted in products being made that were `not of a high quality` and `not supposed to last beyond a couple of months`.
`The result is the consumer is winning in the short term because they are getting a very cheap product, but that product does not last. Then the products have to get disposed of and new products have to be bought. The disposed of clothes then land up in landfills, damaging the environment.`
Michael Lawrence, who heads up the NCRF, said his organisation thought that Shein`s practices in SA `may not be fair` and was concerned about the legality of its business model.
He said if Shein was bringing in large containers of goods, NCRF did not know if these were `being correctly cleared through customs`.
`They are a market disruptor at price points we don`t understand and I think may suggest that things are not being done in a fully compliant manner in terms of a fair and competitive environment,` said Lawrence.
Seeking accountability
Of central concern to Lawrence as well was that offshore online clothing platform sales like Shein is not accountable to the same standards as local retailers.
`We have no way of protecting the consumer, we have no way of verifying the integrity of manufacture, we have no way of verifying the integrity of products at all. It`s one thing to say `let the buyer beware`, but we live in an environment where we have come to accept that in SA we are trying to build a confident consumer base off an accountable group of goods and service providers. That will include imported duties. We don`t have any opportunities for accountability mechanisms for offshore platforms like Shein.`
He said the federation had approached the government for help because the R-CTFL master plan was put in place to create `a community of accountability to achieve certain ambitions`.
He said the federation was not trying to take away `the competitiveness` or remove opportunities for improving quality and price for consumers, but that it wanted everyone who operated in the South African environment to be commercially accountable.
`And we don`t know whether Shein are or are not. What we are seeing is incredibly well priced product coming in that does not line up with our understanding of what is available in the international commercial retail market.`
Shein responds
A Shein spokesperson told News24 that the company was committed to respecting human rights and adhering to local laws and regulations in all its markets.
`Our suppliers must adhere to a strict code of conduct that is aligned to the International Labour Organisation core conventions.`
As for the environmental concerns raised, it claims its model was especially good at reducing wastage, because it avoid overproduction due to its on-demand model. `As a result, we only respond with larger production to meet demand if it`s warranted, reducing the unsold inventory percentage to single digits (versus an industry average of 30%).
Shein said it had also begun `on-shoring and near-shoring, opening new distribution centres around the world` such as its one in Whitestown, Indiana, that will help it reduce the fuel it uses for shipping.
It was also committed to sourcing only `forest-safe man-made cellulosic fibres and paper packaging products` by 2025 and had launched programmes such as Shein Exchange, where customers can resell their products.
`When we surveyed customers last year, more than two-thirds shared that they give Shein products to family or friends when they are done wearing them
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