EU Trade Policy: Looking East

Looking EAST

Isabelle Ramdoo, ECDPM

MEXA Workshop, 26th July 2012, Mauritius

EU Trade Policy

1. A closer look at EU imports from main competitors

1. Countries having an FTA with the EU – The case of South Korea

1. Countries having no FTAs: Which regimes apply?

1. Country cases – exports to EU, tariffs, rules of origin

Structure of Presentation

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1. A closer look at EU imports from main competitors

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YarnCotton Fabric

Denim Fabric

T Shirts Cotton

T Shirts Man made

Pull WoolPull

CottonTrousers

Shirts Cotton

Total imports (€’000)

103,954 214,680 388,905 14,211,039 4,788,144 9,272,782 143,103 11,939,600 5,549,936

China 5.3% 10.0% 17.4% 29.2% 25.5% 18.2% 19.8%Bangladesh 21.9% 14.9% 4.8% 12.9% 9.1%

Turkey 5.5% 13.9% 30.6% 13.4% 19.5% 7.3% 8.4% 8.5% 8.1%Germany 6.6% 5.2% 3.1% 6.1% 6.9% 6.5% 5.6% 6.8% 6.3%

Netherlands 4.0% 4.9% 4.9% 3.7% 4.2%

Italy 29.6% 32.0% 16.7% 4.1% 3.6% 12.6% 5.5% 5.5%Cambodia 3.3%

France 3.4% 2.9% 4.0% 3.9% 5.0% 2.7%India 7.3% 2.6% 2.3% 10.5%

tunisia 2.8% 5.8% 2.2%Pakistan 7.6% 5.4% Morocco 8.7% 1.7% 2.4% Vietnam 3.7%

UK 11.1% Denmark 9.6% Belgium 7.6% 6.5%

Mauritius 4.8% 1.8% Spain 4.3% 9.4%

Austria 8.2% Portugal 7.8% 4.1% 4.8%

Switzerland 6.2%

Yarn and fabric1. Yarn (HS 51.06.10)• Top EU importers: Italy, UK, Denmark Belgium• Top competitors: Turkey, China2. Cotton Fabric (HS 52.08.49)• Top EU importers: Italy, France, Spain, Portugal• Top competitors: Turkey, China3. Denim Fabric (HS 52.09.42)• Top EU importers: France, Italy• Top competitors: Turkey, Morocco, Pakistan. TunisiaGarments4. T-Shirts (cotton) (HS61.09.10)• Top EU importers: Germany, France, UK, Belgium• Top competitors: Bangladesh, Turkey, China, India5. T-Shirts (man made) (HS 61.09.90)• Top EU importers: France, Italy, Germany• Top competitors: Turkey, China

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6. Pullovers (wool) HS (61.10.19)• Top EU importers: Italy, Germany, France• Top competitors: China, Bangladesh, Turkey7. Pullovers (cotton) (HS 61.10.20)• Top EU importers: Germany, France, UK, Netherlands• Top competitors: China, Turkey, Bangladesh8. Trousers (HS 62.03.42)• Top EU importers: Germany, UK, France, Italy• Top competitors: China, Bangladesh, Turkey, Tunisia9. Shirts (cotton) (HS 62.05.20)• Top EU importers: Germany, France, UK, Italy• Top competitors: China, India, Bangladesh, Turkey

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Fish fillets, fresh,

frozen, chilledTuna, skip jack

fish prepared and preserved

Total imports (€ ‘000) 6,847,220 3,148,904 922,443China 27.0% 3.5%

Vietnam 21.7% Norway 8.4% Iceland 7.9%

Germany 6.6% 10.9%Netherlands 5.7% 3.8%

USA 5.2% Denmark 4.5% 3.0%

Russia 4.3% Ecuador 16.6% 3.3%Thailand 10.9% 8.9%Mauritius 8.1% 1.5%Seychelles 7.4%

Cote d'Ivoire 3.9% Ghana 3.9%

Philippines 3.5% PNG 2.7%

Spain 17.8% 10.2%Morocco 9.4%France 7.0%

Lithuania 6.5%Belgium 6.0%

Fish and Fish products

Fish and fish products

1. Fish fillets, fresh, chilled or frozen (HS 03.04.29)• Top EU importers: Spain, UK, France• Top competitors: China, Vietnam, Russia2. Prepared or preserved fish (HS 16.04.14)• Top EU importers: Spain, UK, France• Top competitors: Ecuador, Thailand, Seychelles3. Other prepared or preserved fish (HS 16.04.20)• Top EU importers: Spain, UK, France• Top competitors: Morocco, Thailand, China, Ecuador

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• South Korea signed an FTA with the EU in 2011. This FTA is considered as the most advanced trade agreement the EU has signed so far. S. Korea does not benefit from full duty free and quota free market access to the EU.

• On average, S. Korea is not a large trading partner to the EU: EU’s share of imports from S. Korea represents 2% of its total imports and EU’s share of exports to Korea also represents 2% of total EU export.

• However, for specific sectors, such as automobile and machinery, S. Korea is an important player

2. Countries having an FTA – South Korea

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• Textile products: South Korea is not a major exporter of textiles to the EU. Main markets are in Asia – Mainly Japan and China

• FTA will open up EU market. However, RoO are quite strict for textile products

• Fish and fish products – S. Korea is a large consumer and a producer of fish and fish products, in particular fresh fish (ch 03)

• FTA does not confer improved benefits – no derogation provision

Overview of preferences granted to S. Korea in selected products

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Korean exports of selected textile products by main markets (2011)

Key elements of the EU – Korea FTA for textile products

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Rules of origin for t-shirts and pullovers:Double stage transformation : (spinning of natural and/or man made staple fibres, or extrusion of man made filament yarn accompanied by knitting (knitted to shape products)Value tolerance: 10% of the weight of basic material usedDouble stage transformation: Knitting and making up including cutting (assembling two or more pieces of knitted or crocheted fabric which have been either cut to form or obtained directly to formValue tolerance: 8% of the weight of basic material used

T-shirts - Man

madeT Shirts - Cotton

Pullover - Cotton

Shirts - Cotton Yarn

Total Exports to world (€ '000) 99,151 54,855 17,445 8,313 7,291

EU 1.9% 1.9% 2.0% 10.4% 0.2%

China 8.2% 17.6% 17.8% 28.2% 33.8%

Japan 71.2% 40.7% 27.4% 12.3% 23.9%

Pakistan 20.7%

US 3.6% 5.0% 45.0% 30.2%

Hongkong 13.4%

Rules of origin for shirtsDouble stage transformation: Weaving accompanied by making-up

including cutting; orValue tolerance: 10% of the weight of basic material used• Embroidering accompanied by making up including cutting, provided

that the value of the unembroided fabric used does not exceed 40% of ex-works price of the product, or

• Coating accompanied by making up, including cutting, provided that the value of the uncoated fabric used does not exceed 40% of ex-works price of the product, or

• Making up preceded by printing accompanied by at least 2 preparatory operations (such as scouring, bleaching, mercerising, heat setting, raising, calendaring, shrink resistance processing, permanent finishing, decatising, impregnating, mending and burling), provided that the value of the unprinted fabric used does not exceed 47,5% of the ex-works price of the product

• Value tolerance: 8% of the weight of basic material used

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Rules of origin for yarnManufacture from• - raw silk or silk waste, carded or combed or otherwise prepared

for spinning; • - other natural fibres, not carded or combed or otherwise

prepared for spinning; • - chemical materials or textile pulp;• - paper making materialsValue tolerance: 10% of the weight of basic material used

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Main exports of fish and fish products to main markets (2011)


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Fish fillets, fresh,



Total exports to world (€ '000) 221,167 14,127 34,846

EU 5.5% 0.9% 15.5%

US 7.1% 25.6% 20.3%

China 4.6% 52.2% 9.1%

Japan 82.6% 32.9%

Taipei 8.9%

Vessels registered in Korea or EU and sail under their flags; andCrew requirements: At least 50 % owned by nationals of Korea or EU; orVessels owned by companies with head office in Korea or EU and which are at least 50% owned by Korea or EUValue tolerance: 10% of ex-works price of product

Countries having no FTAs: What regimes apply?

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India Vietnam ThailandPhilippine

sPakistan Bangladesh China

Regime

GSP - some products are

excluded from

preferences

GSP GSP GSP

Special regime for 75 products, GSP

for the rest

GSP - Special LDC Scheme

GSP - but in practice, most products are

excluded from preferences

State of play of EU trade policy:

-India and Vietnam: Currently negotiating FTAs-Thailand and Philippines: Considering negotiating FTAs- Pakistan: Special incentive- Bangladesh and China: no plans of FTAs so far

4. What rules apply for those countries?

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1. India: currently negotiating an FTA

Why? - An important partner for the EU, in both strategic and economic terms.

EU is also a major partner to India- It is a high potential emerging economy- Middle class is rising (currently 150 million, expected to reach 600

million in 2020) – HUGE market potential for EU products

Current state of play:• India is a beneficiary of the EU's GSP scheme. In 2010, around 85% of

Indian exports to the EU entered under a zero or a preferential tariff. But average tariffs is high in India for EU products (31.8 % for agric and 10.1% for industrial products)

• FTA negotiations were launched in 2007 - expected to cover 25% of world population and 30% of world GDP

• The negotiations have entered a crucial phase and intensive activity is expected ahead of the EU-India Summit to be held on 10 February 2012.

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• EU will not provide DFQF – will liberalise 95% of its market (with an exclusion list of 226 products, mostly chemicals, petrochemicals, plastics, ceramics and glassware.

• India will liberalise 90%, with an exclusion list of about 150 agricultural goods (including dairy products, sugar, fruits and vegetables, meat products, fish and fish products) and 250 manufactured products such as some textiles and clothing, textile machinery, cars, and wines and spirits.

Key challenges: • Tariffs: India is inflexible on tariffs on automobiles (peak of 60%) and

want to exclude products where EU has subsidies.• Concerns regarding clauses on human rights, social and environmental

as well as labour standards.• Strict requirements on Intellectual Property Rights issues, which may

curtail the production of cheap generic drugs, especially AIDS drugs which India exports to Africa.

• Concerns in Services – movement of people, liberalisation of services such as professional services

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Indian exports of selected textile products to main markets (2010)

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T-Shirt Cotton

Shirts - Cotton

TrousersT-Shirts

man made

Denim fabric

Pull Cotton

Cotton Fabric

YarnPull

Wool

Total Exports to world (€

'000)

1,472,549 701,562 368,597 225,445 152,048 128,741 9,931 4,290 3,055

EU 47.1 53.7 46.7 24.7 4.9 61.8 14.1 13.6 65.0

US 30.8 28.0 29.3 20.0 31.5 54.1 15.3

Tunisia 10.4

Togo 39.2

Brazil 12.8

Bangladesh 33.2

Turkey 17.0

UAE 7.3 6.0 11.6 30.1

Afghanistan 6.8

India is a major global player in the apparel sector ( t-shirts – 1.4 billion exports in 2011);EU is a major market for Indian apparel products. Most products exported under the GSP Scheme (see below). Note: fabric (denim and cotton) go to countries that benefit from duty free access to EU (and single transformation).

India exports under the Generalised system of preferences, a Scheme providing trade preferences to all developing countries.

Rate of duty applied to Indian textile products

Current duties applied to Indian textiles by EU

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T-Shirt Cotton

Shirts - Cotton

TrousersT-Shirts

man madeDenim fabric

Pull Cotton

Cotton Fabric

YarnPull Wool

Duty applied to Indian products

9.6% 9.6% 9.6% 9.6% 8.0% 9.6% 8.0% 3.8% 9.6%

Scheme GSP GSP GSP GSP MFN GSP MFN MFN GSP

For textile products, GSP tariffs are 20% lower than the normal tariff that EU applies, without preferences (MFN rate). Although India is a large exporter, its volume of exports are not large enough to suspend it from preferences.

GSP preferences are suspended for yarn and fabric because the value of EU imports from India for 3 consecutive years exceeded 14.5% of total EU imports of yarn and fabric from all GSP countries. Here India pays the normal tariff (non-preferential).

Rules of origin applied to Indian textile products:For yarn and fabric, since India does not benefit from preferences, there are

no specific rules of origin

For textiles, the rules are as follows:Pulls and T – Shirts: Double stage transformation, i.e knitting and making up.Value tolerance: non-originating material should be classified under another

heading and their value should not exceed 8% of ex-works price of product (e.x for trousers, it does not prevent the use of items such as buttons or zip fasteners)

Shirts and trousers: Double stage transformation, i.e weaving accompanied by making up, including cutting; or making up preceded by printing accompanied by at least 2 preparatory finishing operations, provided unprinted fabric does not exceed 47.7% of ex works price of product

Value tolerance: non-originating material should be classified under another heading and their value should not exceed 8% of ex-works price of product

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1. Bilateral cumulation – applicable between EU and India

1. Cumulation with Norway, Switzerland and Turkey: If India is a beneficiary of Norway, Switzerland and Turkey GSP Scheme, and that the rules of origin are the same; there is sufficient processing; same treatment apply to Europe. Cumulation does not apply for agricultural products and fish and fish products.

2. Regional cumulation possible between Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Conditions countries should apply the GSP RoO among themselves if their RoO are not the same. Cumulation does not apply if tariffs are not the same for all countries involved in cumulation (eg. Between India and an LDC; for for fabric, where India does not benefit from preferences); Working and processing in beneficiary country should be further processed – otherwise the product will have the origin of the country with highest value of materials used.

Cumulation

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4. Possibility for ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam) to cumulate with SAARC countries (Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka). This is also new and quite important.

5. Extended cumulation (NEW)

At the request of a country, extended cumulation is possible between the country and another country with which the EU has signed an FTA, under the following conditions:

- The request must contain a list of the materials concerned by cumulation. Each time a new material is used, a new request must be made. Each request will be examined by the Commission individually

- Agricultural and fish and fish products are excluded from extended cumulation

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2. Viet NamEU signed a Partnership and Cooperation Agreement with Vietnam in June

2012. This is a political agreement.

Negotiations have started on a FTA in June 2012. EU is not the major market for Vietnamese products (US and Japan) but is quite significant.

Main Vietnamese textile products are cotton pullovers, t-shirts (cotton, man made and trousers

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Pull

CottonT Shirt Cotton

TrousersT Shirts

man madeShirts Cotton

Cotton Fabric

Pull WoolDenim Fabric

Total Exports to world (€ '000)

754,470 577,876 236,752 171,346 169,290 13,000 5,262 2,158

EU 4.7% 7.0% 11.4% 25.4% 37.6% n/a 35.3%

US 87.7% 67.9% 66.7% 41.9% 49.0% 57.1%

Korea 52.8%

UAE 10.9%

Lao 9.5%

Bangladesh 6.9%

Japan 2.1% 15.4% 14.4% 9.0% 6.4%

Vietnam is not an LDC but benefits from GSP Scheme. The same rules of origin and cumulation principles that apply to India also apply to Vietnam. Tariffs applied are a bit different, because the share of Vietnamese imports in the EU is lower than that of India

Tariffs applied to Vietnam on selected textile products

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Pull


TrousersT Shirts


Cotton Fabric


Tariff applied to Vietnam

9.6% 9.6% 9.6% 9.6% 9.6% 6.4% 9.6% 6.4%

Regime GSP GSP GSP GSP GSP GSP GSP GSP

3. Pakistan

• Pakistan is an important partner for the EU, although trade and investment remain below its potential.

• In 2011, after a severe flood resulting in a serious impact on Pakistan's economy, EC agreed on a package of measures to assist in the recovery of Pakistan's economy.

• One element of this package is the granting of 2 years unilateral trade preferences on a number of goods (75 products) imported into the EU from Pakistan.

• Most products are textile products. These include yarns, fabric and apparel – but most products on interest to Mauritius are NOT INCLUDED. The normal GSP applies to these products and Pakistan pays the same duties as Vietnam above.

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Pakistan’s exports to main markets in selected products

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Trousers DenimT Shirt Cotton

T shirt man made

Pull cottonShirts Cotton

Pull Wool

Cotton fabric


'000)636,390 348,889 265,714 58,889 39,979 13,482 802 251

EU 65.5 7.9 24.7 20.0 18.5 40.1 59.2 22.3

USA 23.2 69.2 70.1 78.0 40.7 23.9

South Africa 23.1

Turkey 32.9

Bangladesh 28.6

Egypt 5.6

With the exception of wool pullovers, Pakistan’s main market for the above selected products is in fact the US, with the EU representing less than 25% of Pakistan’s exports

Note also that denim products are mainly exports to Turkey and Bangladesh

Tariff applied to Pakistan

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Pull


TrousersT Shirts


Cotton Fabric

Pull Wool

Denim Fabric

Tariff applied to Pakistan

9.6% 9.6% 9.6% 9.6% 9.6% 6.4% 9.6% 6.4%


For 75 products that benefit from special incentive package: duty free for 55 products; tariff rate quotas for 20 products

5. Bangladesh

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T Shirts Cotton Trousers Pull Cotton

T Shirts man made Pull wool

Denim fabric

Cotton fabric

There are no figures for Bangladesh exports to Europe - latest figures date back to 2007

Total exports to the world 3,831,138 3,293,836 1,954,133 161,288 7,626 1,293 251EU's imports from Bangladesh 3,116,272 1,542,020 1,381,480 77,290 7,626 449 229

Data problems – no export figures before 2007 (no comparison with other markets)

Key issues about Bangladesh – LDC Status and special preferences

Tariff applied to all products from Bangladesh: 0% (duty free and quota on every thing except arms

Rules of origin: More favourable than for other countriesYarnWeaving or printing accompanied by at least 2 preparatory or finishing optionsValue tolerance: 10% of total weight of basic material used

FabricWeaving or printing accompanied by at least 2 preparatory or finishing optionsValue tolerance: 10% of total weight of basic material used

ApparelSingle stage transformation – Manufacture from fabric applicable to t-shirts, pullovers, shirts and trousers

Cumulation: Same rules as for India

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6. Thailand and PhilippinesImportant producer of numerous textile productsEU is a main market

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T Shirts

man madeShirts cotton

T shirts cotton Trousers

Pull cotton

Denim fabric

Cotton fabric

Pull wool


'000) 266,540 114,080 163,352 93,140 75,781 63,797 15,694 1,018

EU 52.8% 23.4% 17.1% 43.0% 37.2% 1.0% 58.0% 6.0%

US 11.7% 28.8% 31.4% 17.0% 46.5%

Japan 10.0% 6.2% 17.5% 43.1%

Bangladesh 60.1% 4.7%

Maldives 22.1%

HKG 8.7%

Vietnam 6.8%

Pull CottonT Shirt Cotton

TrousersT Shirts


Cotton Fabric


Tariff applied to Thailand

9.6% 9.6% 9.6% 9.6% 9.6% 6.4% 9.6% 6.4%



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Thailand Tuna, skip jackfish prepared and

preservedFish fillets, fresh,

frozen, chilled


2,297,696 228,203 174,055

EU 15.1% 17.6% 12.3%

Japan 7.5% 21.0% 64.0%

US 22.6% 11.7% 12.3%

Australia 8.8% 8.3% 3.2%

Philippines Tuna, skip jackfish prepared and

preservedFish fillets fresh, frozen and chilled


209,779 810 No exports

EU 46.5% 7.3%

US 36.2% 29.3%

Japan 3.3% 10.0%

South Korea 12.7%

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Tuna, skip jackfish prepared and


frozen, chilledTariff applied to Thailand and

Philippines 20.5% 20.5% 14.5%

Regime GSP GSP GSP

Rules of origin

1. Fish fillets: Wholly obtained

2. Tuna, skipjacks and prepared fish: all materials from fresh fish are wholly obtained

Value tolerance: 15% ex-works price

Derogations: No derogations

Vessels: Registration and flag requirements;Either 50% owned by nationals or owned by company with head office in country or EU + at least 50% ownership Possibility to use Regional cumulation to vessels of different beneficiary countries (product will have origin of country which flag the vessels)

7. China

• Since joining the WTO in 2001, China has emerged as the world's third largest economy and the world's leading exporter, as well as increasingly an important political power.

• EU-China trade has grown significantly. China is now the EU's second trading partner after the USA and the EU's largest source of imports by far. The EU is also China's main trading partner.

• In January 2007 the EU and China launched negotiations on a comprehensive Partnership and Cooperation Agreement (PCA). The aim is to further improve the framework for bilateral trade and investment relations and also to upgrade the 1985 EC- China Trade and Economic Cooperation Agreement.

• However, positions remain far apart on many important chapters, and the EC has called upon China to demonstrate more ambition.

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Exports of selected textiles products from China to main markets

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Pull cotton

TrousersT shirts

man made

T shirts cotton

Shirts cotton

Denim fabric

Cotton fabric

Pull wool

Yarn


'000)

8,172,821 4,821,539 4,788,144 4,616,777 2,920,506 827,901 151,326 109,043 94,683

EU 29.2 28.7 12.9 20.7 28.2 0.7 4.4 25.2 4.0US 24.2 19.5 10.8 19.5 23.4 18.6

Japan 9.5 11.3 25.5 24.5 17.1 7.1 13.8 Hongkong 10.0 4.7 64.4 16.6 12.2 68.6

Macao 8.4Bangladesh 15.9 22.3 Indonesia 14.7 Vietnam 8.8

Pull

cottonTrousers

T shirts man made

T shirts cotton

Shirts cotton

Denim fabric

Cotton fabric

Pull wool

Yarn

Tariff applied to China

12.0% 12.0% 12.0% 12.0% 12.0% 8.0% 8.0% 12.0% 3.8%

Regime MFN MFN MFN MFN MFN MFN MFN MFN MFN

Note: China does not benefit from GSP preferences for the above products because of size of exports to EU

Fish and Fish products

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ChinaFish fillets, fresh,



Total Exports to world (€ '000) 4,157,982 241,130 417,453

EU 35.0% 15.8% 6.8%Japan 16.4% 9.2% 22.2%

US 29.6% 22.3% 6.5%Thailand 19.5% Russia 8.7%Korea 11.7%Israel 9.9% Brazil 4.3%

Tuna, skip jackfish prepared and


frozen, chilled

Tariff applied to China 20.5% 20.5% 14.5%

Regime GSP GSP GSP

Rules of origin

For textiles: Since China does not benefit from preferences for these products, it does not have to meet RoO

For fish and fish products: China is beneficiary of GSP and subject to GSP RoO (see above)

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EU Trade Policy: Looking East

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