13 May 2013
European Union: Market Profile
Major Economic Indicators
Bulgaria and Romania acceded to the EU on 1 January 2007, signifying the sixth round of enlargement of the Union. Now, the EU is a trading bloc of 27 countries, while Croatia is going to become the 28th member on 1 July 2013.
All EU member states adopt common external trade policy and measures, which affect their trade relations with Hong Kong/the Chinese mainland. Meanwhile, following Estonia’s embracement of the euro as their new legal tender on 1 January 2011, 17 EU members have adopted the euro as their legal tender.
Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China had been established to monitor EU imports of Chinese textiles and apparel, which was scheduled to operate for one year, covering 8 out of the 10 previously restricted categories. Starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.
The EU’s scheme on generalised system of preferences (“GSP”) entered into effect on 1 January 2009, and has been extended to remain in force until 31 December 2013. While the Chinese mainland remains a beneficiary, it is among the group of to-be-excluded countries, which also includes India, Brazil, South Africa, Indonesia, Malaysia and Russia, while Chinese mainland exports of, among other product categories, toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been excluded from the preferential treatment.
A number of Chinese mainland-origin products are subject to EU’s anti-dumping duties, including bicycles, candles, fasteners, ironing boards and saddles, which are of interest to Hong Kong exporters.
Hong Kong’s total exports to the EU slid by 4% to US$9.5 billion in the first quarter of 2013, while its imports from the EU levelled at US$9.3 billion.
The total stock of EU direct investment in Hong Kong amounted to US$105.4 billion (or HK$818.7 billion) as at the end of 2011.
The EU economy, upset by the lingering uncertainty over sovereign debt crisis and subdued business and consumer confidence, has remained anaemic alongside the shaky global recovery. Looking ahead, the climbing joblessness rate and the contagious effect of the fiscal and debt problems stemming from the debt-ridden economies such as Greece, Spain and Italy will continue to cast dark clouds on the sustained rebound of consumption and investment across the EU. This, together with the unpopular but inevitable austerity measures inside the bloc and among most of the bloc’s major trading partners, will also hamper the contribution to growth from exports. Against this backdrop, the EU is expected to shrink by 0.1% in 2013, before returning to growth of 1.4% in 2014.
The EU, before 1 May 2004, consisted of 15 developed countries in Western Europe, namely Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom.
On 1 May 2004, the EU enlarged into Central and Eastern Europe and the Mediterranean, and 10 countries in the region, including Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, joined the EU as its member states.
Signifying the sixth round of enlargement, Bulgaria and Romania joined the EU on 1 January 2007. Now, the EU is a trade bloc of 27 countries, with Germany, France, the UK and Italy remaining the four biggest economies, which together account for about two-thirds of the total EU output. After Slovenia, Croatia will become the second of six former Yugoslav republics to join the bloc on 1 July 2013.
Current Economic Situation
Upset by the lingering uncertainty over sovereign debt crisis and subdued business and consumer confidence, the EU economy has remained anaemic alongside the bumpy global recovery. If anything, climbing joblessness, unpopular yet inevitable austerity drive and gloomy business prospects have been a drag on the rebound of consumption and investment. This, together with the slackening demand among member states, will hamper the contribution to growth from exports. Against this backdrop, the EU economy is expected to shrink by 0.1% in 2013, before returning to growth of 1.4% in 2014.
At country level, the German economy, buoyed by the benign labour market and domestic consumption, is expected to continue its stronger-than-peer performance. The near-term prospects, however, will moderate in light of the protracted euro jitters, and the country is forecast to see a slightly slower growth of 0.4% in 2013.
As for France, despite lower inflation, high unemployment rate, plus new taxes targeting high-income households, weighs down on private consumption, while government spending will remain contained in line with continuing consolidation needs. Consequently, the French economy is expected to see a decline of 0.1% in 2013.
In the UK, the weak external sector, coupled with tepid investment sentiment, resulted in three quarters of negative and volatile growth in 2012. Although it posted an annual growth of 0.3% last year, the uptick in inflation and slow progress on the deficit reduction will curtail the growth prospects of the UK economy. For 2013 as a whole, the British economy is projected to see a faster GDP growth of 0.6%, thanks partly to the reducing cost of credit under the Funding for Lending Scheme (FLS), along with other fiscal measures such as an increase in personal tax allowance.
On the other hand, the economic outlook in several southern, highly indebted European countries remains bleak, given their aggravating labour-market conditions, low capacity utilisation and worrying debt levels. The projected GDP declines in Italy, Spain, Portugal and Greece, for instance, range from 1.3% to 4.2% in 2013.
All EU member states adopt common external trade policy and measures. Meanwhile, 17 EU members, including Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain, have adopted the euro as their legal tender.
Textiles and Clothing
Hong Kong’s textiles and clothing exports to the EU were previously subject to the World Trade Organisation (WTO) Agreement on Textiles and Clothing (ATC), under which quantitative restrictions on textiles and clothing were eliminated completely on 1 January 2005.
Likewise, the previous quotas imposed by the EU on textiles and clothing products originating from the Chinese mainland were removed on 1 January 2005. However, as a result of the EU-China agreement reached in June 2005, the EU imposed safeguard quotas on 10 categories of Chinese textile products for the period of 2005-2007. Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China was established to monitor EU imports of Chinese textiles and apparel for one year, covering 8 out of the 10 previously restricted categories.
Starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.
Non-textile Manufacturing Products
Previously, the EU also imposed Union-wide quotas on three categories of non-textile products originating from the Chinese mainland, including certain footwear, porcelain and ceramic tableware/kitchenware. But these quotas were liberalised on 1 January 2005.
Scheme of Generalised Tariff Preferences
The EU’s scheme on generalised system of preferences (“GSP”) entered into effect on 1 January 2009, and has been extended to remain in force until 31 December 2013 (or until such time as the next Regulation becomes applicable, whichever comes first). While the Chinese mainland remains a beneficiary, it is among the group of to-be-excluded countries, which also includes India, Brazil, South Africa, Indonesia, Malaysia and Russia, while Chinese mainland exports of, among other product categories, toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been excluded from the preferential treatment. Regarding Hong Kong, the territory has been fully excluded from the EU’s GSP scheme since 1 May 1998.
The EU has initiated anti-dumping (AD) proceedings against certain mainland-origin products. Currently, there are a number of mainland-origin items subject to EU’s anti-dumping measures, including bicycles (at a duty rate of 48.5%), fasteners (27.4%-85.0%), ironing boards (42.3%) and saddles (29.6%), which are among the affected products of interest to Hong Kong. As at the end of 2012, the EU did not apply any AD measures on imports from Hong Kong.
To combat the spread of the Asian longhorn beetle, the EU introduced in July 1999 emergency controls on wooden packaging material originating in the Chinese mainland. Wood covered by the measures must be stripped of its bark and free of insect bore holes greater than 3mm across, or have been kiln-dried to below 20% moisture content.
For health reasons, the EU has adopted a Directive on the control of the use of nickel in objects intended to be in contact with the skin, such as watches and jewellery. Following the emergency ban adopted in December 1999, the EU has adopted a Directive to ban the use of some phthalates in certain PVC toys and childcare articles on a permanent basis, which will come into effect from 16 January 2007. In addition, the EU has adopted a Directive to prohibit from September 2003 the trading of clothing, footwear and other textile and leather articles which contain azo-dyes, from which aromatic amines may be derived.
On the other hand, the EU has adopted a number of Directives for environmental protection, which may have an impact on the sales of a wide range of consumer goods and consumer electronics. Notable examples include the Directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the Directive on Restriction of Hazardous Substances (RoHS) implemented in July 2006. On 3 December 2008, the European Commission (EC) presented two proposals: one for a recast RoHS Directive and the other for a recast WEEE Directive.
The recast RoHS Directive was published on 1 July 2011 and entered into force on 2 January 2013. The new Directive continues 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.
Another important law for Hong Kong companies to grapple with concerns waste EEE, i.e., the WEEE Directive. With the formal approval on 7 June 2012, the recast WEEE Directive entered into force on 13 August 2012, while Member States have until 14 February 2014 to transpose the new directive into national law. In brief, the recast WEEE Directive will see Member States subject to higher collection/recycling targets (i.e. 45% collection rate as of 2016 and 65% as of 2019) and a wider scope of measure covering essentially all electric and electronic equipment, while establishing producer responsibility as a means of encouraging greener product designs.
On the heels of the recast RoHS and WEEE Directives, the EU’s new framework Directive for setting eco-design requirements for energy-related product (ErP) is now in place. 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.
Moreover, REACH, an EU Regulation which stands for Registration, Evaluation, Authorisation and Restriction of Chemicals, entered into force in June 2007. Among others, it requires EU manufacturers and importers of chemical substances (whether on their own, in preparations or in certain articles) to gather comprehensive information on properties of their substances produced or imported in volumes of 1 tonne or more per year, and to register such substances prior to manufacturing in or import into the EU.
Following the entry into force of the new Toy Safety Directive (Directive 2009/48/EC) on 20 July 2011, the Official Journal of the EU published on 11 August 2011 references to two important safety standards concerning electric toys (EN 62115:2005 and its amendment EN 62115:2005/A2:2011) and two previous standards on the mechanical and physical properties of toys and a standard on the flammability of toys.
Hong Kong's Trade with the EU^
Hong Kong’s total exports to the EU slid by 4% to US$9.5 billion in the first quarter of 2013, following a 7% decrease to US$42.7 billion in 2012. Major export items in January-March 2013 included telecommunications equipment & parts (shared 19% of the total), pearls, precious & semi-precious stones (7%), articles of apparel, of textile fabrics (6%), toys, games & sporting goods (5%), computers (5%), electrical apparatus for electrical circuits (5%), semi-conductors, electronic valves & tubes (4%), jewellery (4%) and watches and clocks (4%).
On the other hand, Hong Kong’s imports from the EU levelled at US$9.3 billion in the first quarter of 2013, after decreasing by 1% to US$39.2 billion in 2012. Major import items in January-March 2013 included telecommunications equipment & parts (shared 9% of the total), pearls, precious & semi-precious stones (8%), travel goods & handbags (5%), raw furskins (5%), non-electric engines & motors & parts (4%), jewellery (3%) and milk and cream and milk products other than butter or cheese (3%)
^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.
EU's Involvement in the Hong Kong Economy
Many EU companies have used their operations in Hong Kong as a springboard to other Asia-Pacific markets, especially the Chinese mainland. As of 1 June 2012, there were 453 EU companies with regional headquarters in Hong Kong, while another 740 had regional offices.
The EU is one of the major sources of foreign direct investment in Hong Kong. According to the latest available figures from the Census and Statistics Department, the total stock of direct investment from the EU amounted to US$105.4 billion (or HK$818.7 billion) as at the end of 2011.
The EU is well represented in trading, finance, insurance, retailing, transportation and other sectors of the Hong Kong economy. Major companies with EU interests include the HSBC, Standard Chartered Bank, Barclays Bank, Inchcape, ICI (China), Prudential Portfolio Managers, Marks & Spencer, British Airways, Commerzbank AG, Deutsche Bank, Olympia Office Machines (H.K.) Ltd., BASF, Henkel Asia-Pacific Ltd., Lufthansa German Airlines, Siemens, TÜV Rheinland, BNP Paribas, Credit Agricole, LVMH Asia Pacific Ltd, Parfums Christian Dior Far East, Air France, ABN AMRO, P&O Nedlloyd (H.K.) Ltd., Philips Hong Kong Ltd., Shell Hong Kong Ltd, Banco di Roma and Ericsson Limited.
Reflecting EU’s widespread interests locally, there were some 31,403 EU nationals resided in Hong Kong as at the end of 2012.