Trade Perspectives©

24 February 2025

 

Rising costs for purchases on the Temu and Shein online marketplaces? The EU intends to “curb the import of non-compliant products and to protect the environment”

By Stella Nalwoga, Amanda Carlota, and Paolo R. Vergano

On 5 February 2025, the European Commission (hereinafter, Commission) published a Communication titled A comprehensive EU toolbox for safe and sustainable e-commerce (hereinafter, E-Commerce Communication) to address the “surging volume” of products purchased by European consumers through non-EU based online marketplaces, which the Commission refers to as “unsafe, counterfeit, or otherwise non-compliant” with EU laws.

The rise of online shopping in the EU

A Eurobarometer survey cited by the Commission found that 70% of Europeans regularly purchase products online, both from individual sellers’ e-shops as well as from online marketplaces. These online marketplaces include companies based outside of the EU, such as Temu and Shein, which offer products that mostly originate from China. The Commission notes that the increasing purchases via online marketplaces has resulted in an influx of “low-value consignments”, which refers to products with a value of below EUR 150, entering the EU. According to the Commission, in 2024 alone, 4.6 billion low-value items were imported into the EU, often shipped directly to consumers.

The Commission is concerned that many of these low-value products do not comply with EU laws on product safety, sustainability, and competition, and, therefore, could have “serious health consequences” and could pose “direct threats to security”. For example, on 3 February 2025, consumer groups reported that many products sold on the online marketplace Temu did not comply with EU product safety rules, while, on 6 February 2025, the Commission requested information from Shein regarding the presence of illegal products on its online marketplace. In this context, the Commission also notes that non-compliant products could have “very serious detrimental effects on the climate and the environment”, such as due to their use of toxic materials, low quality, or short useful life. Most significantly, according to the Commission, the enforcement of EU product requirements is hindered by the “overwhelming volume of e-commerce imports shipped directly to consumers in the EU, who become the importers for customs purposes”. At the same time, the Commission notes that Customs authorities, which serve as “the first line of defense at the border”, are impeded by limited resources and outdated tools. Finally, by avoiding the costs of compliance with EU rules, sellers of non-compliant products are able to charge significantly lower prices than their competitors, which the Commission says puts compliant sellers “at an economic disadvantage”.

To address these concerns and, more specifically, “to curb the import of non-compliant products and to protect the environment”, the Commission proposes a “holistic approach” with initiatives in seven areas: 1) Customs reform; 2) Environmental standards; 3) Product safety; 4) Consumer protection; 5) Digital tools; 6) Awareness-raising; and 7) International cooperation.

Pursuing Customs reform and removing duty exemptions for low-value goods

In the area of Customs, the Commission intends to address the steady increase in low-value consignments. In this context, the Commission calls for the “urgent adoption” by EU legislators of the Customs Reform package, which the Commission had originally put forward in May 2023. Among other novelties, the package contains proposals for the removal of duty exemptions for goods valued below EUR 150 (i.e., de minimis exemptions) C coupled with the introduction of a simplified tariff treatment for low-value consignments. According to the Commission, the proposals aim at “structurally improving the capabilities of EU Customs to supervise and control the flow of goods entering and leaving the Customs Union, starting with products sold online and shipped directly to consumers”.

Under the Commission’s proposal, online marketplaces and sellers would become the ‘deemed importer’, responsible for collecting the “relevant duty” and the applicable Value Added Tax (VAT), and they would be required to ensure that the goods imported into the EU “comply with other EU requirements”, as well as to provide the “necessary data to customs authorities at the point of sale, prior to the goods’ arrival at the EU border”. While consumers would not directly pay these duties, the costs would likely and ultimately be incorporated into the price of the products. For non-EU based online marketplaces and sellers, who bank on low pricing to attract consumers, removing the exemptions could take away the advantage of duty-free imports into the EU, as consumers would end up paying higher prices. At the same time, this may have the effect of “levelling the playing field” by increasing the competitiveness of EU businesses due to a reduced price disparity with products imported from outside of the EU.

In order to enhance control capacities for e-commerce imports, the Commission calls for the introduction of “a non-discriminatory handling fee for goods imported into the EU directly to consumers” to “address the scaling costs of supervising the compliance of such consignments with EU rules”. The Commission explains that the handling fee “should be incurred by the importer, i.e., the online retailer or intermediary”. Again, related extra costs would likely be passed on to the consumer, thus making products more expensive, and potentially less attractive, than “like” products sold by EU-based online marketplaces. As such, the handling fee could be perceived as aimed at protecting EU companies from competition. Therefore, once further details are known, an examination of the handling fee’s compatibility with the EU’s national treatment obligations under Article III of the GATT, which mandates that WTO Members not discriminate between domestic and imported products with respect to internal taxes and regulations, would be crucial.

Enhanced market surveillance and increasing product safety

With respect to product safety, the Commission intends to put greater emphasis on “structural cooperation” among EU Member States’ Customs and market surveillance authorities through the establishment of Customs Priority Control Areas. Activities within these areas would be “focused on third-country products with significant safety hazards and risk of non-compliance”, and on coordinated activities, such as product sweeps by the Consumer Safety Network, as well as through product testing by the Customs Laboratories European Network (CLEN) and by EU Testing Facilities under the EU’s Market Surveillance Regulation “to enhance product testing capacity for market surveillance authorities” in the EU Member States.

According to the Commission, Customs authorities would “target and suspend the release of the relevant consignments”, while market surveillance authorities would determine, “together with other specialised authorities, whether the controlled products comply with all the relevant legislation”. Still, key details remain unclear as to how this would work in practice, given that, according to the Commission, “up to 12 million” low-value non-food products enter the EU per day. “Ultra-fast delivery” is a major selling point for non-EU based online marketplaces and sellers, with product testing certainly resulting in longer delivery times. Given the practical impossibility of testing every single item that arrives, it is unclear how authorities would select which products to withdraw and test. More importantly, it would also need to be determined who would bear the costs of the testing and how costs would be recovered. Ultimately, it will likely be consumers that bear the brunt of the costs, either in the form of slower deliveries and higher prices, but who would, ideally, benefit from safer products.

Working with third countries to ensure compliance

The Communication emphasises that all traders selling to EU consumers, whether directly or through online marketplaces and regardless of their location, must comply with EU product safety and consumer protection laws. Businesses in and outside of the EU must familiarise themselves with EU product and import requirements. Interested stakeholders should take advantage of available resources, including trainings, business guides, and workshops that are often offered especially for small and medium-sized enterprises and delivered by experts on EU regulation, especially in developing countries. With respect to China, the Commission particularly refers to the project on Safe non-food consumer products in the EU and China (SPEAC), which is intended to educate sellers in China on EU product safety requirements.

Towards concrete initiatives

As the E-Commerce Communication simply “outlines” the Commission’s proposed initiatives, it still lacks the level of detail necessary to properly assess the implications and impact on businesses and the risks and benefits for consumers. Interested stakeholders should engage with the Commission to ensure that their interests are taken into account in the preparation and adoption of the forthcoming initiatives. Businesses exporting to the EU may want to consult experts in Customs law, trade law, and EU product regulations to ensure compliance with the rules in order to maintain their access to the EU market.

For any additional information or legal advice on this matter, please contact Paolo R. Vergano

 

Understanding Indonesia’s new rules on Customs and excise audits under Minister of Finance Regulation No.114 of 2024

By Alya Mahira, Caitlynn Nadya, and Paolo R. Vergano

On 23 December 2024, Indonesia’s Minister of Finance issued Regulation No. 114 of 2024 on Customs Audits and Excise Audits (hereinafter, MoF Regulation No. 114/2024), which will take effect on 1 March 2025. MoF Regulation No. 114/2024 will revoke Minister of Finance Regulation No. 200/PMK.04/2011 on Customs Audits and Excise Audits, as amended by Minister of Finance Regulation No. 258/PMK.04/2016, and introduce changes intended to enhance the effectiveness of Indonesia’s Customs and excise audit process. MoF Regulation No. 114/2024 will, inter alia, broaden the authority of the team conducting the audit and establish a new audit sampling procedure using a “strategic risk-based” approach. This article discusses the key provisions of MoF Regulation No. 114/2024 and highlights the commercial implications for the relevant stakeholders, including exporters and importers.

Indonesia’s Customs and excise audit regime

Customs and excise audits are carried out to assess the level of economic operators’ compliance with the prevailing laws and regulations, such as those related to the import of goods subject to excise taxes (e.g., alcoholic beverages and tobacco products). The audit involves reviewing financial reports, books, records, documents, and electronic data related to business operations, as well as documents related to Customs and excise activities, and inventories of goods. According to Article 2 of MoF Regulation No. 114/2024, Customs audits are carried out on individuals acting as importers, exporters, operators of temporary storage facilities, operators of bonded storage facilities, Customs service providers, and transport operators. On the other hand, excise audits are conducted on individuals acting as manufacturers, storage facility operators, importers of excise goods, distributors, and users of excise goods, who benefit from excise duty exemptions.

Key changes by MoF Regulation No. 114/2024

According to the Head of the Sub-Directorate of Public Relations and Customs Outreach within Indonesia’s Ministry of Finance, Budi Prasetiyo, MoF Regulation No. 114/2024 aims at enhancing Customs and excise audit supervision by establishing “clear guidelines that enable Customs to assess the compliance of service users”. Notably, MoF Regulation No. 114/2024 introduces the following key changes: 1) Expanding the scope of the audit process; 2) Broadening the authority of the team conducting the audit; 3) Establishing a new audit sampling procedure using a “strategic risk-based” approach; and 4) Establishing a new report format for suspended audits.

As per the current regime, Customs and excise audits can take the form of a general, investigative, or special audit. MoF Regulation No. 114/2024 will shorten the period for conducting general audits from the previous timeframe of 24 months to 21 months. This means that activities and data from the past 21 months would be subject to examination. Article 12 of MoF Regulation No. 114/2024 will require that the audit, including the data collection, review, and verification, be completed within a maximum of three months. Reportedly, the previous 24-month period frequently led to issues where the determination of tariffs and Customs valuations, which are only applicable for two years, expired before the audit was completed. Shortening the audit window seeks to provide sufficient time to complete the audit process before the tariffs and Customs valuations expire.

Audit examination process and sampling of data

MoF Regulation No. 114/2024 will expand the authority of the audit team to determine the auditee’s compliance with the applicable Customs and excise regulations. The team will, inter alia, be authorised to request audit data and statements from relevant economic actors, as well as to enter business premises reasonably suspected of being related to Customs or excise activities. Article 13 of MoF Regulation No. 114/2024 will authorise the audit team to appoint experts to support the audit process and to carry out enforcement actions during the investigation, including the confiscation of means of transport. With these new powers accorded to the auditors, businesses may experience increased scrutiny and should proactively engage and cooperate fully with the audit team to minimise any potential enforcement risks.

Article 16 of MoF Regulation No. 114/2024 clarifies the audit technique for examining data related to import and export activities, such as the stocktaking of goods. The audit team may implement a “Strategic Risk-Based Audit Sampling Technique”, which involves selecting a representative selection of the importer’s records or goods for examination. This technique is designed to make the audit process more efficient, particularly for businesses with high volumes of imports or exports. With respect to the obligation of the auditee, Article 15 of MoF Regulation No. 114/2024 foresees stricter enforcement measures and introduces two new responsibilities to ensure the accuracy and completeness of audit data. Notably, the auditee must sign an “integrity pact” with the audit team to ensure confidentiality of audit data and to provide samples of goods from its inventory to support the audit. If the auditee fails to provide the necessary information, the audit team may submit recommendations for blocking Customs access and freezing the Business Identification Number for excise goods. Such measures may disrupt operations, delaying export-import activities and preventing the processing of shipments or the excise-related transactions. To mitigate the impact, businesses should ensure proper record-keeping, conduct regular checks of inventory and transactions, and implement an effective internal monitoring system.

New conditions for audit suspension process

Article 22 of MoF Regulation No. 114/2024 introduces new conditions for suspending a Customs and excise audit, including, inter alia, when the auditee cannot be identified, when the auditee’s data is unavailable due to an ongoing investigation by another government agency, or in a situation where the auditee is declared bankrupt. Article 22 of MoF Regulation No. 114/2024 also clarifies the documentation process for suspension of audits, allowing a suspended audit to be re-opened. Under the current regime, suspended audit periods were recorded in the “Audit Report” and could not be re-opened. As a consequence, businesses were required to restart the compliance process, including gathering the relevant documents. This often led to operational delays, particularly for export and import activities, as businesses faced restrictions on Customs and excise activities until compliance was verified, and had to reallocate human and financial resources for new audits. Under MoF Regulation No. 114/2024, suspended audits may be resumed when further examination is justified. Each suspension will be documented in an “Audit Suspension Report”, which must state the reason for the suspension. The report will be used to prepare a separate “Suspension Report”, serving as the official administrative document.

Implications for traders and businesses

Indonesia’s Directorate General of Customs and Excise is optimistic that MoF Regulation No. 114/2024 will streamline the Customs and excise audit process, ensuring that audits are conducted in a more systematic, effective, and transparent manner, while still allowing businesses to protect their proprietary information. As MoF Regulation No. 114/2024 is set to enter into force on 1 March 2025, economic operators engaged in export and import activities should start familiarising themselves with the revised audit timeframes and ensure proper documentation and recordkeeping to facilitate compliance during audits.

For any additional information or legal advice on this matter, please contact Paolo R. Vergano

 

European Commission proposes digital labelling, a colour scheme, and a bee pictogram in new labelling requirements for plant protection products

By Ignacio Carreño García and Tobias Dolle

On 6 January 2025, the European Commission (hereinafter, Commission) published a draft proposal to further harmonise the labelling requirements for plant protection products. The initiative aims at further harmonising the labelling requirements for plant protection products in the EU and at improving risk communication to the end users of these products. The Commission notes that it would “ensure implementation of safety precautions and risk-prevention and risk-mitigation measures to protect human health, animal health and the environment”. This article analyses the main novelties contained in the draft proposal and the criticism expressed by stakeholders.

The current EU rules regarding the labelling of plant protection products

The labelling of plant protection products in the EU is currently governed by Commission Regulation (EU) No 547/2011, which implements Regulation (EC) No 1107/2009 of the European Parliament and of the Council as regards labelling requirements for plant protection products. Regulation 547/2011 provides the requirements for the labelling of plant protection products. The requirements include certain information that must be provided clearly and indelibly on the packaging, such as the trade name or designation of the plant protection product, the name and address of the holder of the authorisation, and the name of each active substance expressed, as well as the standard phrases for special risks to human or animal health and safety precautions for the protection of human or animal health, or of the environment.

The main novelties contained in the draft proposal

The draft proposal for a Commission Regulation repealing Commission Regulation (EU) No 547/2011 implementing Regulation (EC) No 1107/2009 includes four main novelties: 1) A digital label for plant protection products; 2) A reorganisation of the standard phrases for special risks to human or animal health, and of the safety precautions for the protection of human or animal health, or of the environment; 3) A specific phrase and pictogram to improve the communication towards the user about products that might be potentially hazardous to bees; and 4) The introduction of a coloured scheme on the label of plant protection products indicating the regulatory status of the active substances contained in the plant protection product.

With respect to labelling, Article 8 of the draft proposal provides that the label must be provided in the following two formats: “a physical label securely affixed to the packaging of the plant protection product” and “a digital label”. Article 9(2) of the draft proposal states that the digital label “may not be an exact copy of every character written on the physical label”, but that it is to “reflect the content of the plant protection product authorisation or the parallel trade permit granted in accordance with Regulation (EC) No 1107/2009”. According to Article 10(1) of the draft proposal, “The digital label shall be accessible: (a) via a link to a website or any other machine-readable format”.

With respect to the reorganisation of the standard phrases for special risks to human or animal health, and of the safety precautions for the protection of human or animal health, or of the environment, such as “Do not re-use container for any other purpose” and “May cause photosensitisation”, Recital 5 of the draft proposal notes that, since 2011, the Commission has been compiling the additional phrases as notified by the EU Member States. These phrases should now be categorised following the risk assessment of plant protection products regarding potential risks to human health (operators, workers, bystanders, and residents) and the environment. To improve the communication towards the user about products that might be potentially hazardous to bees, a specific phrase (i.e., “Hazardous to bees”) and a pictogram are foreseen by the draft proposal.

Finally, the draft proposal foresees the introduction of a coloured scheme indicating the regulatory status of the active substances contained in the plant protection product The scheme aims at facilitating the identification by the users of low-risk plant protection products (i.e., pesticides that have a minimal impact on human health and the environment), of pesticides that include microorganisms, such as bacteria, fungi, and viruses that target specific pests or pathogens, and of plant protection products that contain a candidate for substitution (i.e., pesticides considered more hazardous compared to alternatives, which are subject to stricter evaluations and which may eventually be replaced by safer options):

A

The plant protection product has been authorised in the respective EU Member State as a low-risk plant protection product.

B

The plant protection product contains or consists of only active substance(s) approved as low risk and has not been authorised in the EU Member State as a low-risk plant protection product.

C

The plant protection product contains or consists of only active substance(s) that are approved micro-organisms.

D

The plant protection product does not contain any active substance approved as a candidate for substitution and contains or consists of at least one active substance(s) other than approved micro-organisms.

E

The plant protection product contains or consists of at least one active substance that is approved as a candidate for substitution.

 

Criticism by stakeholders in a public consultation

The Commission held a public consultation from 6 January 2025 to 3 February 2025 and received 144 comments from stakeholders. Some criticism has been expressed with respect to the draft proposal. CropLife Europe, an association that represents the crop protection sector, does not believe that the introduction of a coloured scheme on the labels would increase the safety of plant protection users or the environment, stating that, “While information on the regulatory status of an active substance may be of interest, it does not result in any difference regarding the safety of uses since all uses comply with strict regulatory approval criteria”. Indeed, regarding safety, Regulation 1107/2009 already prescribes that products that are essentially unsafe to handle or use may not be used.

In addition, CropLife Europe notes that “introducing additional colours on the label will generate confusion with existing labelling systems, (e.g., in the UN Hazard colour coding, red is the symbol for poison under GHS)”. CropLife Europe also suggests to use an alternative for the bee icon developed by CropLife International and endorsed by the Food and Agriculture Organization of the United Nations (FAO) in 2022 in the Guidance on Good Labelling Practice for Pesticides. The Pesticide Action Network Europe (PAN Europe), a network of non-governmental organisations working to minimise negative effects of pesticides, welcomed the Commission’s draft, but “identified several areas of concern that weaken the quality of risk communication”, noting that “toxic pesticides should not be used in agriculture” and that, “for those currently in use, clear and accurate labelling of their hazardous properties is essential”.

Outlook

The adoption of the new Commission Regulation repealing Commission Regulation (EU) No 547/2011 implementing Regulation (EC) No 1107/2009 was originally planned for the fourth quarter of 2024. According to the draft proposal, the new rules would then take effect on 1 January 2026. Plant protection products that are authorised or have a parallel trade permit granted by 1 January 2026 would only need to comply with the rules under the current Regulation (EU) 547/2011. Companies submitting a national marketing authorisation application before the entry into force of the new rules may choose whether to apply the labelling requirements as set out in the new Regulation or in Regulation (EU) 547/2011. As the Regulation has not yet been formally adopted, changes to the final version remain possible. Interested stakeholders should contribute to the legislative process by interacting with relevant EU Institutions, trade associations, and other affected stakeholders.

For any additional information or legal advice on this matter, please contact Ignacio Carreño Garcia

 

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Amanda Carlota, Ignacio Carreño García, Tobias Dolle, Alya Mahira, Caitlynn Nadya, Stella Nalwoga, and Paolo R. Vergano contributed to this issue.

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