Tuesday, November 24, 2009

The Right and Wrong Ways of Shopping Online

Today, we shall be discussing an aspect of life in Estonia that every enterprising resident has encountered, and everyone else has at the very least bitched about: buying stuff in the US. (I'll be talking about electronics, because that's what I have experience with.)

There's a number of reasons why certain things cost a lot more in Estonia. One of them is market segmentation: the manufacturer will sell for volume in one market and for margins in another. The US consumes a huge number of goods, and there's also more competition. On this side of the Atlantic, people don't buy quite as much vacuous crap; plus there are obligations such as warranties (the EU mandates a minimum warranty of something like a year on all goods, whereas in the US you'd be lucky to get 30 days without having to pay for an "extended warranty"), taxation differences, etc. All this means that manufacturers tend to set higher prices for their goods. In fact, there's a rough rule of thumb that a product will have the same numeric price tag - in USD over there, in Euro over here.

More importantly, manufacturers are really annoyed when people circumvent these limitations. This is why US warranties are often not honoured abroad, even if the manufacturer has an official repair centre in the country and sells the exact same device locally, warranty and all. (There are differences between policy and practice - I've talked to people whose US-sourced cameras were routinely serviced at nominal or no cost by the Canon affiliate in Tartu, and I've also talked to people whose laptops with "worldwide warranties" were denied repairs because the person who brought them in was not an American on a business trip.) This is also part of the reason why Amazon.com has the line "Currently, item can be shipped only within the U.S." in the description of all of their electronic components. The other part of that reason is that Amazon has subsidiaries in Europe, and would prefer you shopped there, and paid higher margins to Amazon as well as Apple.

For Estonia specifically, there is the added problem of us being a very small market. It's mostly not worthwhile for manufacturers to set up a presence here, they just sell the franchise to a local company. The reason an iMac costs $200 more in Tallinn than in Helsinki is because the Apple stores here are actually all iDream or iDeal - local companies that buy small volumes of stock at less than Apple's best wholesale prices, then add their own costs and as much profit margin as they can get away with on top of that.

Fortunately, you can get around all of this. There are companies in Estonia that will buy an item for you in the US, ship it here, take care of all the paperwork, etc. But these schemes involve a lot of extra steps that make the goods expensive, often more expensive than an equivalent that you can get right here, so they are mostly used by people who are looking for a highly specialized niche product that simply is not available in Estonia by any other means - people for whom getting exactly what they want is more important than the cost. (I've never seen a company like this advertise its services for more than a few months at a time, so there's a good likelyhood that such companies just go out of business, or offer the opportunity as a sideline to their main revenue generator.)

These days, there are also ways to buy things from the US directly. B&H is the biggest one I've seen - a store in New York City that started out dedicated to professional photo & video equipment, but now does most of their business online. They will actually ship anything in their (quite expansive) stock anywhere in the world, including Estonia - and if you choose a slightly more expensive shipping method, they will even have their partners deal with customs on your behalf.

Both of the options above, however, involve paying customs duties. It still makes sense on some purchases - the B&H site was pointed out to me by someone who wanted to buy a Canon 50D semi-professional camera, 13 700 EEK delivered to Estonia versus 16 800 EEK at a local supplier. But the true bargain hunter will want to bypass the Tolli- ja Maksuamet entirely.

Here we come to the bit that made me write this entire article. Because in buying electronics from the US, there is a Right Way and a Wrong Way.

The Right Way is to find an acquaintance who happens to be going to the US for whatever reason, and ask them to bring back the gadget for you. I brought a MacBook Pro back for a friend this summer - even with Washington DC's sales tax and whatever SEB charged me to use my credit card abroad, the final cost out of my bank account was 14 000 EEK and change; even half a year later, the same model in Estonia costs over 18 000. The first time I went to the US - years ago - I was bringing back not just the MP3 player and digital camera I got for myself, but a suitcase full of special equipment for my employer's technical support center, and a snowboard. (The snowboard was for a colleague who was returning to Estonia a week later, but couldn't bring it himself because he was already carrying a full desktop tower PC and a huge, professional CRT monitor.)

The Wrong Way, if you're buying anything expensive, is to get it from eBay and have it shipped to you privately.

Postal packages have a declared value for their contents. If the value is below 150 Euro, the Estonian customs authorities won't even look at it - this means that you can buy books, CDs and DVDs from Amazon.com without any trouble. (Actually, even purchases from Amazon's main site will be shipped from the German warehouse half the time if the delivery address is within the EU, but that doesn't happen every time and you shouldn't count on it.)

If the declared value of the package is more than 150 Euro, it will be subject to import duties, equal to the local VAT. 20% right now, but it was 18% years ago, when I was receiving a shipment from India containing spare parts for two thousand inflatable dildos. (It's a long story.) There's also an administration fee attached - the threshold used to be a lot less than 150 Euro, so I've been in a situation where the fee was more than the tax itself. You can find the full set of customs rules for postal packages here, or a partial bad translation into English here.

Finally, here's the Really Wrong Way: you can buy an expensive piece of goods in the States (or on eBay), and try to outsmart the Customs Board. You can have the goods delivered to a friend in the US, who will resend them to you directly, marking them as a gift and declaring a very minor value. Murphy's Law dictates that the package will be lost in transit (more likely than not, stolen by a postal worker en route - a friend in Canada has taken to labeling all his packages "educational materials" on the assumption that the same Canadian posties who appropriate expensive-looking boxes are fundamentally uninterested in education), at which point the international postal system will either shrug, or refund the sender the $1 declared value of the package and tell him to have a nice day.

Then you can do the thing that is not just Wrong, but annoying, the thing that a friend of mine has been whining about all day: buy an expensive piece of electronics via a third-party vendor on eBay, have the vendor declare the package as a gift, then explode in righteous indignation when the Customs Board says, "no, this is actually something you bought, so yes, you'll have to pay the equivalent of Estonia's VAT on it". If, as my friend, you've also selected a private delivery service such as FedEx and UPS and didn't want to pay them to deal with Customs on your behalf, you'll also experience all the joy of getting a bureaucratic institution governed by bysanthine local and international regulations to pay attention to you as an individual - exactly the sort of entity that a Customs authority has absolutely no interest in accomodating.

What annoys me isn't the attempt to get around the Customs rules. The Estonian version of the regulations has a paragraph that specifically addresses eBay purchases with a dubious declared value: A non-commercial package is a goods package that is sent by a private party from a third (non-EEC) country to an EEC resident on an ad hoc basis, contains only goods intended for the personal use of the recipient and his family (such as gifts), whose type and quantity do not indicate a commercial purpose, and which the sender is sending to the recipient for free. (My translation, their emphasis.) Thus, an iMac that the recipient's American cousin received, unboxed, played around with, placed back in the box and sent to Estonia along with pictures of the cousin's new baby and a bag of home-baked chocolate chip cookies is something the authorities should not be taxing. An iMac sent by someone for whose effort you paid, is not a gift or a delivery of your own property - it is a purchase, and as any purchase in Estonia, it is subject to local VAT. (For bonus morality, see this site, which talks about state sales tax on Internet purchases in the US in terms of whether the recipient is benefitting from the services provided by the state and paid for by the taxes.)

I am annoyed by people who claim some sort of ideological high ground for downloading movies & music from the Internet - "information must be free", "copyright is unfair" etc.: just admit that you're doing it because you can, it's convenient and there's an infinetisimal chance of ever getting caught. In the same way, I am annoyed by people who claim the Customs Board is being unfair to them by not accepting their argument that an eBay transaction somehow constitutes a delivery of personal-use property, not a purchase of goods from a commercial seller. It's disingenuous, and it makes you look like a twat.


Kristopher said...

Seems like we agree. That was my point too on FB -- if your Mac has been opened, "used" by your friend, then re-sent to you, it shouldn't be taxed. I hope the probability of an old computer getting stolen is not as high as you say.

But AFAIK, your Right Way is breaking the law. You have to declare that Mac Pro and they CAN stop you. When I came through with an unopened iPod Touch which I later sold, I should have actually declared it.

Flasher T said...

It seems you're right - it's 300 Euro for air travellers (which means your iPod would have been alright, but not a MacBook Pro). Still, it's by far the safest way of escaping import tax, since the chances of being challenged by customs are infinetisimal. It's not legal, it's just commonplace.

Pierce Bacchus said...

I'm on holiday to the land of bargains shortly. Any smaller gizmo's that would be worth buying and bringing back to Eesti for profit?

Not lugging anything big as I'll already have loads for me and my family.

Flasher T said...

The only thing I can think of is a specialized device of some kind, like a high-end microphone for a recording studio or such. The truth is, most stuff is either available in Estonia already, or can be shipped from inside the EU, and the price difference will not be drastic enough to go through the trouble.

Flasher T said...

The other thing is photo equipment. You can try to find a buyer in advance on the hinnavaatlus.ee forums, but for example, the Canon G11 (something I'd be interested in myself if I didn't have my SX1, which isn't worse than the G11 by enough) is $450 at B&H, and over 9 grand here.

Pierce Bacchus said...

Thanks for that. Saw that Canon G11 today for 9900 at a camera shop in Kristiine Keskus. Maybe I'll pick one up on speculation and if I can't sell it, not a bad thing to keep.

I also intend to purchase this camera that I can easily keep in my pocket and shoot photos for one of my blogs. It's small but supposed to offer excellent image quality.

New laptop and netbook are on the list as well.

Flasher T said...

Consider this. It's got the G11's sensor in a tiny body Reviewers say it feels cheap to hold though...

Justin said...

I sometimes bring back things (usually electronics) from the US for friends. My rules are:
1. They buy it online and it should be waiting at my destination in the US (usually my parents' house) when I arrive.
2. If I lose it en-route, it's not my fault.

I imposed these rules after one friend asked me to buy an expensive camera/lens set, and agreed to pay only after I delivered the item. That's the kind of thing I'd take as carry-on luggage due to its cost, but it's also something I might inadvertently lose since I'm not used to carrying along a camera bag as a supplement to my usual carry-on. Luckily it made it through OK and I didn't lose it, but there's no reason for me to take on the risk unnecessarily.

There's a website for people who want to "courier" items back and forth: http://www.telegets.com/


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