25 Sept 2015
The EU Regulatory Regime: Latest Developments in Brief
To facilitate cross-border trade, the European Union will introduce a modern and integrated customs system, based on the Union Customs Code (UCC), from May 2016. Meanwhile, with a view to maintaining a level playing field between domestic and foreign producers, the European Commission relies on a range of trade defence tools – notably anti-dumping and anti-subsidy measures – to protect EU producers against unfair trade practices overseas. Hong Kong exporters are therefore advised to keep an eye on the EU’s trade defence and trade-related measures, as well as its ubiquitous health, safety and environmental protection measures. For example, Directives and Regulations on RoHS, REACH, ecodesign, energy labeling and toy safety have been revised recently.
EU Trade Defence Measures
According to the European Commission, 14 new anti-dumping investigations were initiated in 2014, five of which were targeted at imports from China: stainless steel cold-rolled flat products and four grain-oriented flat-rolled products, namely silicon electrical steel, acesulfame potassium (ACE-K), tartaric acid, and aluminium foils. Two new anti-subsidy investigations were initiated in 2014, one of which was targeted at Chinese imports of stainless steel cold-rolled flat products. This trend further continued in the first half of 2015, with four new anti-dumping investigations, three of which were aimed at imports from China of high fatigue performance steel concrete reinforcement bars, cold-rolled flat steel products, and aspartame.
It is evident from these statistics that China has remained the main target of new EU trade defence investigations. This unabated trend will certainly affect Hong Kong manufacturers and exporters in their production or sourcing activities across the border, although the products most affected have been iron and steel, other metals and chemicals, rather than the consumer goods which Hong Kong companies are traditionally involved in. In 2014, nine out of 16 investigations were directed at iron and steel. In the first six months of 2015, four out of five new trade defence investigations involved iron and steel.
Market Economy Status of China
In addition to the fact that China has been the main target in EU trade defence investigations, duties imposed on Chinese imports have generally been higher than duties imposed on imports from other countries. One reason for this difference is the fact that China is not considered a market economy for the purposes of EU anti-dumping investigations. As a result, in order to calculate the dumping margin for Chinese producers that fail to demonstrate that they operate under market economy conditions, the Commission will rely on prices in an analogue country instead of on the company’s domestic prices. This leads to higher dumping margins.
Whether the EU will cease to treat China as a non-market economy after 2016 will be one of the most closely followed topics in the field of trade defence in the coming year. Although China’s WTO Accession Protocol clearly states its non-market economy provisions shall expire 15 years after accession to the WTO, and although the European Parliament will likely support granting market economy status to China, some have challenged the practical consequences of such a concession. The Commission is currently working on a position paper addressing the issue. The publication of that paper was originally scheduled for June 2015, but its release has now been postponed until the end of the year.
If and when the EU decides to formally recognise China as a market economy, it will have to amend its basic Anti-dumping Regulation. In practice, it can be expected that the treatment of China as a market economy will result in fewer investigations against Chinese imports, since it will become more difficult to provide prima facie evidence of dumping. In addition, duties may become lower as a result of the use of companies’ own data, rather than analogue country data.
Modernisation of EU Trade Defence Instruments
Meanwhile, discussions on modernising the EU’s trade defence instruments, proposed by the Commission in April 2013, have come to a virtual standstill. The proposed modernisation consisted of legislative amendments to the basic EU anti-dumping and anti-subsidy rules, requiring approval from both the European Parliament and the Council. However the Parliament and the Council have been at loggerheads over the removal of the “lesser duty rule” that obliges the Commission to apply the lowest margin – whether injury or dumping/subsidy – that has been calculated.
It appears that modernisation of the EU trade defence instruments is no longer considered a priority by the new Commissioner for Trade, Cecilia Malmström. During an exchange of views in the Parliament, however, the Commissioner did discuss the update to the EU trade strategy currently being prepared and set to be published soon.
One of the most important goals in the updated trade strategy will be to bring the EU’s negotiating agenda for international trade agreements up-to-date. The Commissioner stressed that the EU remains a strong defender of multilateral trading, which not only means trying to reach multilateral trade agreements, as set out at Doha in 2001, but also negotiating more open bilateral trade deals. Regarding priorities with regard to bilateral trade agreements, the Commissioner noted that focus would be on the Asia-Pacific region. Ongoing negotiations with ASEAN partners may be accelerated, while new investment agreements in other parts of Asia are being planned.
Modernisation of EU Customs Procedures
Meanwhile, the EU is set to introduce a modern and integrated EU customs system to facilitate cross-border trade, building on the Union Customs Code (UCC) adopted in September 2013. Essentially, the UCC, which will apply as of May 2016, will harmonise a number of practices which until now have been implemented on a case by case basis. The UCC will therefore offer greater clarity and legal certainty to Hong Kong businesses operating in the EU. Customs rules and procedures will be streamlined and simplified, facilitating more efficient transactions in line with modern business needs.
Importantly, there will be a requirement that all exchanges of data, accompanying documents, decisions and notifications – for example entry summary declarations – between economic operators and customs authorities shall be made using electronic data-processing techniques. Another novelty that will be introduced is the concept of centralised clearance, under which authorised traders will be able to declare goods electronically and pay their customs duties at the customs office where they are established, regardless of which EU Member State the goods are imported into or are consumed in.
In the meantime, the EU is moving forward with new and revised regulations governing the protection of both the environment and consumers. Among the major regulatory developments having an important bearing on imports of consumer goods is the Restriction of Hazardous Substances in Electrical and Electronic Equipment Directive (RoHS), which has recently been significantly amended.
The new Directive will restrict four additional hazardous substances under the category of electrical and electronic equipment (EEE). The four new substances, which join six others which have been restricted for over ten years, are bis (2-ethylhexyl) phthalate (DEHP); butyl benzyl phthalate (BBP); dibutyl phthalate (DBP) and diisobutyl phthalate (DIBP). The maximum tolerated value of each substance, in homogenous materials of EEE, is 0.1%.
The new Directive provides for periods of transition, allowing manufacturers to change their own production processes so as to exclude the newly banned substances from their EEE. Member States have to adopt and publish their transposition of the new Directive by December 2016, and must start to apply the new provisions from July 2019. However, the restriction of the above-mentioned four substances will apply to medical devices, including in vitro medical devices, and to monitoring and control instruments, including industrial monitoring and control instruments, only from July 2021.
Another 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. Intended to regulate the safety of chemicals in the EU, it was amended in April 2015 to add a new restriction for lead and its compounds in a number of consumer products. As a corollary, lead and its compounds cannot not be placed on the market, or used in articles supplied to the general public, if the concentration of lead in those articles or accessible parts thereof is equal to or greater than 0.05% by weight, and those articles or accessible parts thereof may, during normal or reasonably foreseeable conditions of use, be placed in the mouths of children. However, a number of exemptions, including for certain batteries, do apply.
Separately, the European Chemicals Agency (ECHA) added in June 2015 two new substances of very high concern (SVHCs) to the REACH Regulation’s Candidate List. The first involves a series of mixed alkyl diesters usually used as plasticiser or lubricant, due to their reproductive toxicity properties where they contain ≥ 0.3% of dihexyl phthalate. The second is a group of substances, largely used as a fragrance ingredient, with very persistent and very bioaccumulative properties. These additions create new obligations for companies manufacturing, importing or using such substances, whether on their own, in mixtures or in articles.
As regards endocrine disrupting chemicals (EDCs), the report for an online public consultation on defining criteria for identifying endocrine disruptors in the context of the implementation of the Plant Protection Products Regulation and the Biocidal Products Regulation was published in July 2015. Despite the diversity of responses to the public consultation, none of the responses favoured maintaining the status quo by continuing to apply the interim criteria for defining EDCs laid out in the Plant Protection Products and Biocidal Products Regulations.
Known examples of EDCs include phthalates (a plastic softener), brominated flame retardants (often used in household textiles or furniture) and metals such as lead and mercury. Some endocrine disrupting chemicals occur naturally, while synthetic varieties can be found in pesticides, electronics, personal care products and cosmetics. They can also be found as additives or contaminants in food.
The Commission is carrying out a comprehensive impact assessment to analyse different options for defining the criteria to identify endocrine disruptors. Scientific criteria to identify substances with endocrine disrupting properties were supposed to have been established by December 2013. The delay has therefore generated significant frustration among many health and environmental groups. Now the Commission aims to complete the impact assessment in 2016, with a view to taking a decision on the criteria afterwards.
The Ecodesign Directive, which establishes ecodesign requirements for energy-using as well as energy-related products, is another law that has relevance to Hong Kong exporters. While ecodesign measures covering a variety of product categories continue to be adopted by the Commission, the EU’s Ecodesign Regulatory Committee has decided, due to the lack of readiness of LED technology, to postpone a ban on halogen light bulbs until September 2018. They were originally scheduled for prohibition from September 2016. In compliance with the Ecodesign Directive, major games console marketers have also reached an accord with the Commission on a voluntary ecodesign agreement, in lieu of a binding Regulation, that lays down specific ecodesign requirements for games consoles placed on the EU market.
Interestingly, at a conference held in Brussels in June 2015 to discuss the role of the Ecodesign Directive in the framework of a “circular economy”, the Commission indicated that the Ecodesign Directive has so far been underused. The Directive is thought to be capable of addressing issues of reparability and durability, and could moreover be used to facilitate recycling. The Commission is looking into increasing the number of products the Directive applies to, as well as obsolescence practices – measures taken at the manufacturing stage which shorten products’ normal lifespan.
Ecodesign is closely related to the EU’s energy-labelling rules. In July 2015, the Commission presented a proposal for a revision to the EU’s energy labelling law. The current scale, ranging from A+++ to G, was established in 2010 because most modern products fall into the A category. The proposed future system will consist of a return to a simple A to G energy labelling scale, while a digital database for new energy efficient products will also be introduced. The proposal will have to be approved by the European Parliament and the EU Council, a process that could take more than a year.
Lightweight Plastic Carrier Bags
Also noteworthy is the EU’s move to regulate lightweight plastic carrier bags. Due to the widespread use and disposal of some eight billion lightweight carrier bags that reportedly pollute the European environment annually, the EU published a Directive in May 2015 requiring Member States to take measures to achieve a sustained reduction in their consumption of lightweight plastic carrier bags. This involves specific targets to be achieved and a ban on the provision of lightweight carrier bags without charge at the point of sale of other goods by December 2018. The scope of the Directive is limited to lightweight plastic bags thinner than 50 microns (0.05 millimetres).
Controversially, a ban on oxo-degradable plastic bags was not included in the Directive as their biodegradability could not be proven. The Commission will, nevertheless, continue to evaluate the environmental impact of oxo-biodegradable materials and propose appropriate measures in the future.
In June 2015, the Commission published its latest list of harmonised European toy safety standards within the framework of the EU’s Toy Safety Directive. This is a complete list of toy safety standards, and will therefore be useful for Hong Kong toy manufacturers in order to ensure that they are up-to-date with all the aspects of toy safety covered by the standards.
The Safety of Toys Committee has also agreed to an amendment to the Toy Safety Directive which restricts the use of certain chemicals in toys which are intended for children under 36 months, and in other toys intended to be placed in the mouth. The chemicals concerned are chloromethylisothiazolinone (CMI); methylisothiazolinone (MI); CMI and MI combined in a ratio of 3:1; benzisothiazolinone (BIT); and formamide. These new toy safety measures are expected to come into force towards the end of 2015, although there will be a period of transition thereafter to help the industry adjust to the restrictions.
Product Safety and Market Surveillance
As for the protection of EU consumers in general, the Commission proposed in February 2013 a new legislative package on product safety and market surveillance. The Product Safety Regulation and Market Surveillance Regulation is intended to strengthen the existing regulatory framework for safer consumer goods. However, the passage of this amendment remains in deadlock due to the notorious draft EU “made-in” labelling provision.
In order to find a way out of the impasse, the EU Council asked the Commission to present further evidence on the costs and benefits of the proposed mandatory marking of origin. The Commission released its findings in May 2015; however, they did not identify any clear positive impact of the “made-in” labelling provision. In fact, the study found that for products where origin labelling is not currently widespread, and where there is no clear evidence of consumer interest in it, it is unlikely to benefit consumers or companies. Therefore, rather than helping in moving the adoption of the two proposed laws along, the study may have actually slowed it down even further as the debate continues.