Inflow of cheap Chinese goods hurting Estonian traders' competitiveness

Jennifer Hudson
June 14, 2024

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Denmark plans to curb the influx of cheap goods from Chinese online stores like Temu by tightening customs regulations. This is also a concern for retailers in Estonia, as the price differences favoring China are significant.

Chinese discount online stores like AliExpress, Temu and Shein have significantly impacted Estonian commerce, said Tõnu Väät, CEO of the Estonian E-Commerce Association.

"In the volume of e-commerce packages, it's very clear that the tougher the economic situation, the more Chinese volumes grow. For instance, starting from relatively early last year, Chinese volumes started to increase, and it's always like this. Normally, 60 percent of orders come from Estonian e-stores and the European Union and 40 percent from Asia, but now it's almost half and half," Väät said.

The major advantage of Chinese online stores over European manufacturers is their low prices. For example, a toothbrush costs 99 cents in Rimi's e-store, but only 57 cents on Temu. The price differences become even more pronounced with more expensive products.

According to Nele Peil, CEO of the Estonian Traders Association, Estonian and European merchants can compete in other ways. Many consumers make value-based purchases, considering environmental sustainability and employee welfare. They also pay attention to product quality and local production.

Changes have already been made to level the playing field. Väät highlighted the declaration fee for merchants from third countries introduced this year.

"Previously, it was quite absurd that if someone ordered a product worth €18 from an Estonian merchant, the Estonian merchant had to pay VAT. However, if an Estonian ordered from Asia or outside the European Union, they didn't have to pay VAT on packages under €20. This was actually a competitive advantage for Asian merchants," Väät said.

He noted that the problem remains with VAT declarations: if an Estonian buys goods from a foreign online store, VAT should be paid to the Estonian state.

"The issue is monitoring how much turnover is declared in Estonia and how much tax is actually paid to Estonia. According to our data, hundreds of millions are still missing," Väät stated.

Regarding restrictive measures, Nele Peil said that ideally, these actions should be taken centrally by the European Union. The problem is that if the EU takes strong measures against Chinese platforms, China will likely respond with its own trade measures against the EU.

"The other option is for Estonia to act independently. I think that if Denmark has made a decision, member states will watch what happens and may follow their example. In such a case, Estonia could certainly consider this," said the CEO of the Estonian Traders Association.

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