China knows how to protect its own textile relevant interests
Since the latest news on the successful completion of a FTA Free Trade Agreement have been very attractive for TextileFuture’s readers, we undertook an analysis of the available documents, plus supporting agreements, in order to find out what effect it might have on textile machinery and textiles. In addition PwC PricewaterhouseCoopers (international consultancy group) has established a timely paper titled “China-Switzerland FTA Recast International Trade – explore value chain opportunities while maintaining compliance”, and we offer you also an insight on this document
We have contacted also Swiss textile machinery manufacturers and evaluated all the comments on the subject after the documents became public, and on the agreement being signed in China by the ministers on July 6, 2013.
Swissmem, the umbrella organisation of Swiss electro and metal industry (MEM) interests, disposing also of a Textile Machinery Division, has enlightened its members first hand on the outcome through a letter to its members.
The letter praises that the Swiss negotiation team has been able to reach substantial enhancements in view to the majority of the industry sectors concerned. Only the sector of the relevant industry entails 2800 different custom tariff numbers. Around 28 % of these positions will be freed from custom duties immediately after the FTA comes into force. Another 40 % will be granted a scaled duty reduction, and after five years the grace of total duty exemption. Further 24 % are subjected to a ten year time, and some few even wait 12 or 15 years. For two percent of all MEM Products duties will be decreasing over 10 years by 60 %, meaning that after ten years 92 % of all products of the relevant industry sectors will be freed from duties and taxes.
But then follow the not so good news that this is not true for all of these products. The reason for this is that China was firmly protecting a part of its industrial sector by taxing Swiss high tech with duties. This is affecting around 5 % of the products of the sectors, foremost machine tools, textile machinery and electro techniques. The share of these excluded products amounts to over 10 %.
Swissmem was involved in the negotiations and wanted that all its members and their products should benefit of a duty relief, but this aim has not found the total consent of the Chinese negotiators, because China expressively wanted to protect its corresponding industrial sectors.
Swissmem stretches the fact that the FTA provides the possibility to re-negotiate on market access every two years, and Swissmem is dedicated to make use of it for the benefit of the now exempted items.
The objectives of the FTA agreement are as follows: to achieve the liberalisation of goods, the liberalisation of trade in services, to mutually enhance investment opportunities, to promote competition in the in the two countries, to ensure adequate and effective protection and enforcement of intellectual property rights, to achieve further understanding of the government procurement of the parties and lay the ground for future cooperation in this field. Further to remove and avoid unnecessary technical barriers to trade, including sanitary and phytosanitary measures, and to develop international trade in such a way as to contribute to the objective of sustainable development, as well as to ensure that this objective is integrated and reflected in the parties’ trade relationship.
To the entire document of around 1100 pages exists an annex to annexes and one appendix mostly dedicated to details to tariffs and schedules, another to product specification and rules and one annex to the labelling of textiles.
Switzerland’s parliament will have to ratify the FTA and its annexes and there is also the possibility of a referendum. Should the latter taking place, then the Swiss people will have the last say by vote. Authorities hope that the FTA will come into force mid 2014. Rumours are that some of the political forces are disappointed that the aspect of human rights does not formally form part of the FTA and they consider this fact as a missed opportunity.
Rules of origin and protection of intellectual property rights
That a product is considered of Swiss origin the added value has to be in line with the relevant product category of the mentioned industrial sectors and between 40 to 50 %. Other specific products, Swiss and Chinese producers will need to ensure up to 70 % local content and/or that a particular manufacturing process has taken place.
Notwithstanding the cited proportions to guarantee the rules of origin, the products have to undergo one or more of the following operations or processes: operations to ensure the preservation of products in good condition during transport and storage, freezing or thawing; packaging and re-packaging; washing, cleaning, removal of dust, oxide, oil, paint or other coverings; ironing or pressing of textiles and textile products;, simple painting and polishing, husking, partial or total bleaching, polishing, and glazing of cereals and rice, operation to colour sugar or form sugar lumps, peeling and removal of stones and shells from fruits, nuts and vegetables; sharpening, simple grinding or simple cutting: sifting, screening, sorting, classifying, grading, matching; simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations; affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging; simple mixing of products, whether or not of different kinds; simple assembly of articles to constitute a complete article or disassembly of products into parts; slaughter of animals.
“Simple” describes activities which need neither special skills nor machines, apparatus or equipment especially produced or installed to carry out the activity. All operations in the production of a given product carried out in a party shall be taken into account when determining whether the working or processing undergone by that product is considered as minimal operations or processes referred to in the above mentioned paragraph 1.
With the FTA also legal certainty for services are enhanced, as well as the protection of intellectual property rights. The stipulated paragraphs are exceeding the standards of WTO Word Trade Organisation. In addition, the FTA covers also the sectors of investment protection and public sourcing.
The Labelling of Textiles
If a party has mandatory permanent labelling requirements for textiles and clothing, it shall respect the following: information requirements shall be limited to size, fibre content and care instructions; relevant ISO standards shall be accepted for textiles’ care labelling instructions; the party shall notify the other party, in English, any additional requirements to those set out before. The notification shall in particular explain how such requirements are not more trade restrictive than necessary to fulfil a legitimate objective in accordance with Article 2.2 of the TBT Agreement.
The evaluation and the benefits of the FTA according to PwC
PwC weighs the FTA as not just any FTA ,but as a gateway! By “right” sourcing the value chain, the China-Switzerland FTA unlocks ample opportunities for trilateral trade. It widens the market access to China and Switzerland, and their respective FTA networks, namely Europe, Mediterranean basin, APTA, ASEAN and worldwide. PwC underlines the importance of selecting the “right” location for each element in the value chain, including global and regional headquarters in Europe and Asia, and concludes “All in all the FTA recasts the international trade landscape by establishing a free trade gateway for cross border trade”.
The system of Trilateral Trade (PwC) can be had from Table 1
Table 2 gives examples and illustrates the Vale Chain Transformation (PwC)
Of course, to realise an effective business model for the new circumstances, a company has to take into account the benefits of the FTA, as well as to consider Customs and Tax Savings in order to create a win-win for ones business and market. It is also mandatory to ensure regulatory compliance while exploring opportunities, and there PwC can give support in value chain planning, organisation /customs team, evaluating the origin of goods and legitimate trade. The support offered is in the planning and transformation phase, in building up a global or local customs and trade organisation and maintaining the relevant collaboration. As well as training with regard to the origin requirement and rules, also the origin calculation and review of the internal FTA approaches. Also the implementation of SAP based Global Trade Solution and pWc’s OriginComplianceTM. The other services offered is to asses a value chain management process and find ways to maximise supply chain efficiency, to create an operational structure that aligns the customer organisation’s unique elements, and to align operational, tax and legal structures to achieve sustainable financial and operational benefits during business transformation.
TextileFuture has tried to receive comments from Swiss textile machinery manufacturers, but most were not in a position to give their evaluations, given the short time the voluminous texts were available, but there is one exception, the new CEO of the new Saurer (belonging to Chinese Jinsheng Group), Daniel Lippuner, commented the influence of the FTA for his company and its activities in Switzerland, as follows: “We found out that we will benefit at Heberlein Components, in a magnitude of 6 % tariff reduction over 5 years. This is good news for us”. The other activity in Switzerland concerns Saurer’s embroidery machines, they don’t seem to have a Chinese competition and would probably therefore also profit of the new FTA.
We would like to add a second reaction from Swiss Benninger Group:” In general, the free trade agreement, as well as the associated reduction or even the elimination of protective measures in trade are certainly welcome. Unfortunately, at the moment there is no direct benefit for our industry and the related customs tariff reductions. Therefore, we will still have to defend ourselves in the Chinese market. At least, there exists a chance that certain adminstrative barriers will be reduced and custom’s procedures will improve”.
It is worth mentioning that the full texts of the FTA between China and Switzerland can be loaded down from the fourth link below.