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A tighter EU regulatory regime: major moves affecting Hong Kong exports

Trade is the fuel that powers the global economy, and is one of the major factors in the recovery in Europe and elsewhere. While the volume of global trade has revived far above the trough reached in May 2009 and surpassed its pre-crisis level, in many countries exports have been the major, if not the only, engine of growth. For example, in 2010, net exports from the EU were responsible for one-third of the bloc’s 1.8 percentage point GDP growth, helping to keep people in work and companies in business.

According to a recent report jointly published by the WTO, the OECD and UNCTAD, however, measures to restrict trade are on the rise even as world trade recovers. For the EU, an anaemic economic growth, along with the lingering sovereign debt crisis and harsh austerity stance, will keep fuelling its export drive, while probably stirring up protectionist sentiment.

Under the banner of a level playing field, Karel De Gucht, the European Commissioner for Trade, reiterated in his recent speech at the European Policy Centre that the Commission will “manage to deploy instruments – technical, legal, diplomatic and where necessary political – to address trade barriers … and open possibly considerable new export and investment opportunities for European companies and people”.

The EU will not be hesitant to use the tools of trade defence – anti-dumping and anti-subsidy measures – to ensure that European markets are not unduly affected by unfair trade practices abroad, while deploying specific safeguard measures in trade agreements to protect European producers in the case of unusual import surges.

Anti-dumping hand-in-hand with anti-subsidy measures

Anti-dumping duties against imports from the Chinese mainland have long been a common feature of EU trade defence policy. Underscoring this unabated trend, anti-dumping duties, for example, have been imposed lately on melamine and mesh fabrics, as well as glass strands and roving, while duties on bicycles have been extended by five years, as opposed to an earlier planned three years. And not surprisingly, the mainland has remained a major target of new anti-dumping investigations. Such developments will certainly affect Hong Kong manufacturers and exporters, as most of them have their production or sourcing across the border.

New EU investigations initiated during 2008 to first half of 2011

Origin of imports

2008

2009

2010

1H 2011

Armenia

1

-

-

-

Belarus

1

-

-

1

Bosnia & Herzegovina

-

-

1

-

Brazil

1

-

-

-

China

6

7

10

3

India

-

2

3

3

Indonesia

-

-

1

-

Iran

-

2

-

-

Korea (Rep. of)

1

1

-

-

Malaysia

-

2

1

-

Moldova

1

-

-

-

Oman

-

-

-

2

Pakistan

-

2

-

-

Saudi Arabia

-

-

-

2

Taiwan

1

1

-

-

Thailand

1

2

1

-

Turkey

2

-

-

-

Ukraine

1

-

-

-

UAE

-

2

-

-

US

4

-

1

-

Total

20

21

18

11

Note:  Including both anti-dumping and anti-subsidy investigations
Source:  European Commission

What’s more, the imposition of anti-subsidy duties is a new element. The approval of the first ever anti-subsidy duty against imports of coated fine paper from the Chinese mainland, combined with a parallel anti-dumping duty, is a clear indicator of the EU’s continued tough position against imports from the mainland, and the possibility that anti-subsidy cases against China might become a trend.

New legislation governing EU decision-making

Hong Kong exporters may also like to be kept up to date with new rules in the decision-making process for the adoption of trade defence measures. Effective from March 2011, the so called “comitology” procedure has been amended. This procedure allows for a review of the European Commission’s implementing acts, such as regulations imposing anti-dumping and anti-subsidy duties, by committees that are made up of Member State representatives.

If anything, the change in the voting system from a simple majority to a qualified majority (55% of Member States’ votes, accounting for at least two-thirds of the EU population) to reject a draft implementing measure, i.e. an anti-dumping or anti-subsidy investigation, can allow more populous Member States to force measures through. This may mean that some of the larger and more protectionist Member States can group together to push for the adoption of trade defence measures.

Possible tightening of EU trade policy

Against this background, Hong Kong exporters may find it alarming to note that the European Commission has initiated an inquiry among European industries with a view to receiving information on how the EU’s trade policy could be improved. This includes, among other matters, procedural aspects of investigations, as well as the effectiveness of measures adopted in the past.

More specifically, the questions posed for EU companies concern, for instance, the perceived existence of subsidised or dumped imports in their field of activity. In addition, businesses were invited to express their opinion on the level of duties imposed in the past, and in particular whether they were sufficient to shield the companies from the impact that imports from third countries may have had on them.

This may raise concerns for Hong Kong exporters since the inquiry may draw the interest of firms that are exposed to competition from non-EU exporters. As such, such firms, which may have an interest in enhancing protection through trade defence measures, may want to downplay the effectiveness of the current trade policy, although the WTO has found the EU’s anti-dumping laws are partially incompatible with global trade rules, and the EU will need to amend its anti-dumping legislation likely of benefit to non-EU exporters.

Impending changes in GSP

In another expected trade-related development, the EU is in the process of amending its Generalised System of Preferences (GSP) rules. The GSP Scheme allows developing countries to benefit from reduced or zero import tariffs on certain product lines. The mainland has been a beneficiary country of the GSP scheme, except for its better developed sectors, such as footwear, textiles and toys.

Unfortunately, in proposals for a GSP reform, the Commission announced that it would be considerably reducing the number of countries benefiting from reduced or zero tariffs. This would affect businesses exporting from the Chinese mainland, since China is one of the countries expected to be taken out from preferential treatment. The Commission plans that the reformed rules would apply as of 2014.

New toy safety Directive

The EU, on the other hand, is charging ahead with new and revised regulations concerning both the protection of the environment and consumers. The most far-reaching laws affecting imports of consumer goods include the recast RoHS Directive, the soon-to-be adopted recast WEEE Directive, the extended ecodesign Directive, the ubiquitous REACH Regulation and, last but not least, the new toy safety Directive.

Although more than two years have passed since the new toy safety Directive was adopted, most of its key provisions only began to apply throughout the EU on 20 July 2011. Under the new Directive, toys which are placed on the market in the EU are required to comply with an expanded set of essential safety requirements, including their physical, mechanical, flammability and electrical properties. New essential safety requirements are set out regarding noise from sound-emitting toys, and specific safety requirements are imposed to cover potential hazards from toys in food.

The new Directive also sets out appropriate conformity assessment procedures to be followed by the manufacturer. It is therefore vital that Hong Kong manufacturers examine all these provisions carefully to ensure that their products will not fail the inspections of Member States’ authorities, which are empowered to demand withdrawals and/or recalls if it is discovered that toys being placed on their markets are dangerous. Heavy fines may also be levied.

Recast RoHS Directive

Another important development concerns all electrical and electronic equipment (EEE) supplies to the EU. The recast restriction of hazardous substances (RoHS) Directive was published on 1 July 2011. It will have to be implemented throughout the EU-27 as of 2 January 2013. The new Directive will continue to prohibit EEE that contains the same six dangerous substances as the old RoHS Directive. Nonetheless, the new Directive will widen, as from 22 July 2019, the current scope of the previous RoHS Directive, by including any EEE that will have fallen out of the old RoHS Directive’s scope, with only limited exceptions.

The new Directive also places the obligation on the European Commission to review within three years a number of allegedly dangerous substances for possible inclusion. The phthalates DEHP, BBP and DBP, and the flame retardant HBCDD, will all be prioritised for review. The recast RoHS Directive contains a list of exempted applications, allowing for the use of the banned substances in specific circumstances. However, several items on that list have expiry dates, so Hong Kong companies should check the list carefully to see how long certain exemptions that may be applicable to them, if any, are to last.

Soon-to-be adopted recast WEEE Directive

Another important law for Hong Kong companies to grapple with concerns waste EEE, i.e., the WEEE Directive. The old WEEE Directive is currently undergoing a recast, which will ensure that once adopted, it will be tougher, imposing more obligations on EEE producers. However, there remain a number of conflicting issues between the European Parliament and Council that still need to be thrashed out during negotiations over the recast, which means that the implementation of the recast in the Member States may not occur before 2014.

The WEEE Directive requires producers (EU manufacturers and importers) to collect EEE that has been disposed of, and ensure that it is appropriately treated and recycled. Alternatively, they can pay specialised waste management organisations to carry out these obligations on their behalf. Under the recast, the collection and recycling targets will increase, although there is a battle going on at EU level as to how high some of these targets should ultimately be.

The WEEE Directive’s main obligation for producers is the necessity to finance the collection, treatment, recovery and environmentally sound disposal of WEEE which has been deposited at collection facilities. This is the case right now. The European Parliament wishes to add a further cost for producers to shoulder: that of the collection of WEEE from households, and the cost of running the collection facilities and associated awareness-raising campaigns on the management of WEEE.

Extended ecodesign Directive

Another law that concerns EEE sold to EU consumers is the framework Directive for setting eco-design requirements for energy-related product (ErP). To be sure, the ErP Directive is no longer limited to only EEE (as it was under its predecessor, the energy-using product, or EuP, Directive), but potentially covers any product that is related to the use of energy, including shower heads and other bathroom fittings, as well as insulation and construction materials. In reality, though, the ErP Directive’s implementing measures have so far been adopted only for various categories of EEE.

Several implementing measures under the EuP and ErP Directives have already been introduced, and therefore must be complied with, for a number of EEE, including lighting products, televisions, household dishwashers and washing machines, and refrigerators and freezers. Now the Commission is in the process of identify some 25 energy related product groups for which implementing measures are to be drawn up, and a list should be revealed by October 2011.

Ubiquitous REACH Regulation

Moreover, an EU law that potentially affects all suppliers of consumer goods sold to the EU is the far-reaching registration, evaluation and authorisation of chemicals (REACH) Regulation. The Regulation places a myriad of obligations on economic operators, and only a limited number of exemptions apply. Virtually all (more than 100,000) chemicals that are sold or used in the EU have had to be pre-registered or registered to date; if they have not, trade in these chemicals has to be suspended until a proper registration, which incurs huge expenses and efforts in creating a registration dossier per chemical substance, is carried out.

Other than this, suppliers of articles, including consumer articles such as toys, clothing, shoes, EEE, jewellery and furniture, have to check if their articles contain dangerous substances that are listed on the EU’s Candidate List of substances of very high concern. If the answer is yes, then information on those substances has to be passed on to any recipient of the articles in the supply chain, and to consumers if the latter so request. There is also a notification obligation as from 1 June 2011 that may have to be fulfilled by the articles supplier in the EU, with respect to those same dangerous substances.

In sum, the EU’s environmental and consumer protection laws are continuously evolving, with ever greater obligations having to be shouldered by businesses. Hong Kong sellers should be mindful not only of the above-mentioned laws, but also of other rules aiming to protect consumers or the environment, including the imminent consumer rights Directive and the energy-labelling Directives for certain household appliances. All these EU rules should be scrutinised on a regular basis and applied, in order to avoid products having to be removed from the market and the possibility of penalties.

Content provided by Hong Kong Trade Development Council
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