26 Jan 2018
Italy: Market Profile
Major Economic Indicators
- As Italy is a member of the European Union (EU), its trade relations with Hong Kong/the Chinese mainland are affected by EU’s common external trade policy and measures. As a euro-zone member, it adopted the euro as its legal tender on 1 January 2002.
- The EU’s new scheme on generalised system of preferences (“GSP”) entered into effect on 1 January 2014. Under the new scheme, tariff preferences are removed for imports into the EU from countries where per-capita income has exceeded US$4,000 for four years in a row. As a result, the number of countries that enjoy preferential access to EU markets was reduced from 176 to less than 80. While the Chinese mainland remains a beneficiary, many of its exports such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been “graduated” from the preferential treatment.
- A number of Chinese mainland-origin products are subject to EU’s anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards and solar glass, which are of interest to Hong Kong exporters.
- Hong Kong’s total exports to Italy fell by 1% to US$3.0 billion in the first eleven months of 2017, while its imports from Italy increased by 1% to US$5.6 billion.
- As one of the most popular investment destinations, the inflows of foreign direct investment (FDI) to Italy amounted to US$29.0 billion in 2016, with China’s contributing US$633 million. As of the end of 2016, China’s total stock of FDI in Italy exceeded US$1.5 billion, up from US$127 million in 2007. Hong Kong, holding an FDI stock of US$678 million as of end-2016, was Italy’s third-largest Asian investor (after Japan and the Chinese mainland).
- To spur economic growth, the Italian government has put in place comprehensive reforms such as new labour legislation, new financial tools for real estate and dedicated business courts to resolve disputes involving foreign investors to make Italy a more business-friendly economy to invest in. Meanwhile, fiscal incentives including 25% tax credit for private investments in R&D (50% for projects with universities or research centres) and 15% tax credit for investments in machinery and capital goods are made widely available to promote investment into industries such as electro-mechanical, tourism, agri-food processing, fashion, life sciences and chemical. More information on the investment environment and the relevant regulations can be found at the Italian Investment Promotion Agency (INVITALIA).
- Alongside the Comprehensive Agreement for the Avoidance of Double Taxation (CDTA) effective since 10 August 2015, Hong Kong also signed an Investment Promotion and Protection Agreement (IPPA) with Italy in February 1998.
Current Economic Situation
After three years of recession, the Italian economy has returned to growth since 2015. Confidence indicators have gradually improved, while government reforms such as tax breaks for firms hiring young people have improved the labour market conditions. The competitive euro and soft energy prices have ignited a revival in investment sentiment. Thanks also to the benign financing conditions and the extension of tax incentives adopted with the 2018 budget, the Italian economy is estimated to have registered a faster GDP expansion of 1.5% in 2017. Looking forward, the firming domestic demand and the stronger global economy will continue to underpin the growth of the Italian economy. In the face of a bullish euro outlook, decelerating public spending and uncertainty concerning the general election in March, the growth rate is forecast to slow to 1.3% in 2018.
Italy is a member of the EU, and it follows EU's common external trade policy and measures. As a euro-zone member, it has also adopted the euro as its legal tender from 1 January 2002. As it now stands, a total of 19 EU members, namely Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain, has adopted the euro as their legal tender.
No quotas are imposed on textiles and clothing exports, as well as non-textile products exports from Hong Kong and the Chinese mainland at present.
Scheme of Generalised Tariff Preferences
The EU’s new scheme on generalised system of preferences (“GSP”) entered into effect on 1 January 2014. Under the new scheme, tariff preferences are removed for imports into the EU from countries where per-capita income has exceeded US$4,000 for four years in a row. As a result, the number of the countries that enjoy preferential access to EU markets was reduced from 176 to less than 80. While the Chinese mainland remains a beneficiary, many of its exports such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been “graduated” 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 Chinese mainland-origin products are subject to EU’s anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards and solar glass, which are of interest to Hong Kong exporters. As at end-December 2017, 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 came 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 Italy 
Hong Kong’s total exports to Italy decreased by 1% to US$3.0 billion in the first eleven months of 2017, after a 12% increase to US$3.3 billion in 2016. Major export items in January-November 2017 included telecommunications equipment & parts (shared 30% of the total), optical goods (15%), jewellery (5%), travel goods & handbags (5%), electrical apparatus for electrical circuits (4%), articles of apparel, of textile fabrics (4%), watches and clocks (4%) and toys, games & sporting goods (4%).
On the other hand, Hong Kong’s imports from Italy grew by 1% to US$5.6 billion in the first eleven months of 2017, after decreasing by 3% to US$6.1 billion in 2016. Leading import items in January-November 2017 included travel goods & handbags (shared 12% of the total), jewellery (12%), footwear (7%), women’s or girls’ wear of textile fabrics, not knitted (6%), articles of apparel, of textile fabrics (6%), leather (5%), watches and clocks (5%), optical goods (4%), perfumery, cosmetics or toilet preparations (excluding soaps) (3%) and men’s or boys’ wear of textile fabrics, not knitted (3%).
Italy’s Involvement in the Hong Kong Economy
Apart from bilateral trade, Italy also has an involvement in the Hong Kong economy. Currently, there are some 300 Italian firms in Hong Kong, engaging in banking, insurance, telecommunications, logistics, trading and other services sectors. Examples include Alitalia, Fratelli Cosulich Bunkers (HK) Ltd. and Interglobo Queirolo (Far East) Ltd. (logistics), Banca di Roma and Banca Intesa (banking & finance), Telecom Italia (telecommunications), and Prada Asia Pacific Ltd., Ferragamo Hong Kong Limited, Frette Pacific, Giorgio Armani, Dolce & Gabbana, Versace, Valentino and Benetton (fashion/trading/distribution), Emergency Hong Kong Ltd (charity) and Gruppo Pozzi Asia Ltd (retail design and project management).
As of June 2017, there were 39 Italian companies with regional headquarters in Hong Kong, while another 54 had regional offices in the territory. Reflecting Italian widespread interests locally, there were about 710 Italian nationals resided in Hong Kong as at the end of 2017.
 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.