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EU Probing Mainland Shoemakers(HKTDC Hong Kong Trade Services, Vol 02,2004)

Vol 2, 2004

Economic Outlook

EU Probing Mainland Shoemakers

EU Probing Mainland Shoemakers

Costs count: the significant price advantage enjoyed by Chinese mainland footwear manufacturers means huge potential for growth in the European Union

The European Union (EU) is likely to launch an investigation this autumn into imports of shoes produced on the Chinese mainland in a bid to protect EU manufacturers, according to the mainland's Ministry of Commerce (MoC).

A report on the Hong Kong Trade Development Council (TDC) tdctrade.com website says, the EU is particularly concerned about the threat posed to EU companies from mainland imports once quotas are removed in 2005.

The significant price difference between footwear produced on the Chinese mainland and in the EU means there is huge potential for growth of the mainland industry at the expense of its EU counterpart, and any EU investigation could have significant consequences for shoe producers based on the mainland.

The MoC believes that the EU is likely to launch anti-dumping investigations or impose general protective measures, with leather shoe imports widely thought to be the focus.

It is not yet clear if the EU investigations will lead to safeguard measures, but shoe exporters should maintain a watchful eye on this matter, and hope that the EU avoids taking any action.

The MoC has urged enterprises likely to be concerned by such measures to actively take precautions, and this would also be of concern to Hong Kong companies operating on the Chinese mainland that export to the EU.

Elsewhere on tdctrade.com, the TDC reports on the radical reform of the EU's trade preference regime and highlights a recommendation put forward by the High Level Group on Textiles that seeks to improve the access of the EU textiles industry to third countries.

The recommendation came as part of a series of recommendations by the group designed to improve the competitiveness of the EU industry, including strengthening the protection of intellectual property rights, improvement of education, training and employment, the re-focus of regional funds in support of the textile industry, and more R&D and innovation for the textile sector.

It highlights a number of points of action including:

  • negotiating a decrease in tariffs at the lowest possible level (such as in the context of the Doha Development Agenda)
  • establishment of an "Action Plan" to address existing trade barriers in third countries
  • making trade defence instruments and the Trade Barriers Regulation more user-friendly for sectors that include mainly small- and medium-sized enterprises
  • the continuation of work on the marking of origin and social/environmental labelling of products

Hong Kong traders should be aware that the recommendation also envisages better targeting of poorer and smaller developing countries by focusing EU unilateral trade preferences (Generalised System of Preferences, or GSP) to favour them.

The recommendation thus calls for the lowering or elimination of trade preferences for large countries, such as the Chinese mainland and India, which have highly competitive textile exports. Under the current GSP, such countries benefit from substantial trade advantages in terms of import duties to the EU.

The recommendation will form part of a forthcoming report by the European Commission that will provide proposals for its eventual implementation, which will inevitably influence the selling price of textile products from the Chinese mainland.

Although the regime does not directly affect Hong Kong textile traders, it may prove relevant to those that have Chinese mainland subsidiaries exporting textile products to the EU.

The group also made specific mention of the importance of the Chinese mainland as a destination of EU exports, and suggested that a monitoring system be set up to examine the evolution of imports from the Chinese mainland, the market access that it offers to the EU and compliance with its World Trade Organization (WTO) commitments.

It further recommended the establishment of transparent procedures and criteria for the evaluation and handling of requests for safeguard measures under the textile-specific safeguard clause for the mainland in the WTO.

A key reason for these recommendations is the meteoric rise of exports from the Chinese mainland into the EU. Since joining the WTO, the mainland has increased its global textile market share from 9% to 65% for some products. Indeed, clothing from the mainland represents 30% of all textile imports into the EU.

The phenomenal rise in exports has to be viewed in the light of increased allegations that exports from the Chinese mainland are being sold at dumped prices.

This year alone, there has been a plethora of anti-dumping investigations initiated against the Chinese mainland on products ranging from castings to barium carbonate. For example, in the textile sector there has been a recent investigation initiated against certain finished polyester filament apparel fabrics.

Amid such concerns, it comes as no surprise that the EU will seek to monitor developments on the Chinese mainland more closely and introduce measures to ensure that prices of mainland imports are kept at a level that will not harm industries within the EU.

According to TDC, Hong Kong's total exports to the EU grew by 12% to US$5bn in the first two months of 2004, after growing by 12% to US$30bn in 2003.

Major export items in 2003 included clothing and clothing accessories (22% of the total), toys, games and sporting goods (10%), audio and video recorders/players (6%), telecommunications equipment and parts (6%), parts and accessories of office machines/computers (5%), watches and clocks (4%) and travel goods and handbags (4%).


Russia growing closer to EU

The disappearance of the "Iron Curtain" and the enlargement of the European Union (EU) have brought Russia closer to the western economic powerhouse that is the EU.

The Russian economy grew at a faster pace in 2003, with consumer spending continuing to expand amid wage increases while falling inflation -although still at double-digit levels - also enhanced consumer purchasing power.

Sales of consumer items grew steadily as households strived to improve their living standards. Industrial production and business investment also performed well, facilitated by inflows of foreign capital and good foreign orders.

Externally, exports were fuelled by higher prices of energy products and commodities, which account for more than half of Russian exports. Although imports also grew at a fast pace along with economic growth, a continued trade surplus was recorded.

Looking ahead, the Hong Kong Trade Development Council says the Russian economy will continue to grow steadily in 2004 and consumer spending will expand further, given continued rise in real incomes and a reduction in value-added tax.

Employment prospects will remain bright, industrial production will continue to perform well and business investment will be further bolstered by continued inflow of foreign capital, as well as steady foreign orders in view of sustained world demand for energy products and commodities.

The Russian import regime has been liberalised considerably, with all enterprises and individuals allowed to trade without special registration and free to import nearly all products. Import licensing and other controls only apply to a few items, including some strategic products of very little interest to Hong Kong.

However, certain imports, including consumer goods, are required to comply with appropriate Russian safety standards in a bid to protect Russian consumers from defective products.

Importers are required to present certificates of conformity to relevant standards certified by the Gosstandart of Russia (GOST), or its authorised agencies.

Hong Kong's total exports to Russia surged by 30% to US$281m in 2003, after a 2% increase to US$216m in 2002. Major export items to Russia in 2003 included parts and accessories of office machines/computers (22% of the total), toys, games and sporting goods (12%), footwear (12%), clothing and clothing accessories (9%), watches and clocks (6%), audio and video recorders/players (5%) and telecommunications equipment and parts (5%).

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