Sino-US trade talks resume but outcome still uncertain

19 August 2019 – Trade talks between Mainland China and the United States resumed earlier this month, although a consensus has yet to be reached. As the US continues to impose additional tariffs of up to 25% on many imported Chinese products, Hong Kong traders are looking to cushion the impact by actively shifting their production or procurement bases to Association of Southeast Asian Nations (ASEAN) countries that benefit from the US’s Generalized System of Preferences (GSP).

The Hong Kong Trade Development Council (HKTDC) organised a seminar titled “Sino-US Trade Dispute: How the US GSP Programme Fits in the Supply Chain Strategy” last Friday (16 August) at the Hong Kong Convention and Exhibition Centre (HKCEC), with HKTDC Assistant Principal Economist (Global Research) Louis Chan as the moderator. Sally Peng, Member, Asia Pacific Practice Group Leader, and Henry Fung, Manager, from Sandler, Travis & Rosenberg Ltd provided practical tips to help local companies take advantage of the zero or low tariffs offered to developing countries by the US. Leanne Ma, Senior Administrative Officer (Industries Support) from the Trade and Industry Department of the Hong Kong Special Administrative Region (HKSAR), introduced enhancement measures for the Dedicated Fund on Branding, Upgrading and Domestics Sales (BUD Fund), while Band Yeung, Assistant General Manager at the Hong Kong Export Credit Insurance Corporation, briefed participants on the special enhanced measures to help local exporters cope with rising credit risks amid the current uncertainties. More than 100 representatives from local small and medium-sized enterprises (SMEs) joined the seminar.

Legal experts offer tips on optimising supply chain through GSP

ASEAN countries such as Cambodia, Indonesia, Myanmar, the Philippines and Thailand benefit from the US’s Generalized System of Preferences (GSP). The GSP eligibility of Turkey and India was removed earlier this year while that of Thailand, Indonesia and Kazakhstan is undergoing review. Ms Peng and Mr Fung explained the mechanism of the GSP and highlighted how, to cope with the business challenges brought about by the trade dispute, local companies can take GSP possibilities into account when adjusting or optimising their supply chains.

Mr Fung noted three qualifying requirements for GSP − direct import, “product” of beneficiary developing country (BDC) and a 35% minimum value content. For articles imported directly from a BDC, they must be imported without passing through the territory of any other country. If the shipment is from a BDC to the US through the territory of any other country, the merchandise cannot enter the commerce of any other country while en route to the US. The invoice, bill of lading and other shipping documents should show the US as the final destination.

He went on to elaborate that articles must be grown, produced, or manufactured in a BDC. If articles are made of imported materials, those materials must undergo a Double Substantial Transformation in the BDC for the article to qualify as a “product” of the BDC. Inputs from member countries of the same association of countries will be treated as single-country inputs for the purposes of determining the origin. Imported material must be transformed in the BDC into a new and different material with a new name, character and use. Using the example of “wet blue” split leather from a non-BDC that is processed into finished leather in a BDC, he pointed out that the finished product cannot be regarded as “originating” from the BDC as it does not constitute a Double Substantial Transformation. However, plastic film roll stock undergoing printing, cutting and lamination before the conversion operation into a finished bag can be regarded as Double Substantial Transformation.

The sum of the cost or value of materials produced in the BDC and the direct costs of processing operations must equal at least 35% of the appraised value of the article. Mr Fung said that the value of originating materials includes the manufacturer’s actual cost for materials, freight, insurance, packing and all other costs associated with transport to manufacturer’s plant and taxes imposed on materials by the BDC and the actual cost of wastage.

Mr Fung reminded exporters to keep records of origin, the cost of direct processing operations and value, such as origin certificates and raw-material purchasing records. They should also ship merchandise into the US “using reasonable care”.

Enhanced government measures to help SMEs explore ASEAN markets

Ms Ma introduced enhancement measures for the government’s Dedicated Fund on Branding (BUD Fund) that was set up to help local enterprises capture opportunities in the Mainland China and ASEAN markets, as well as other support measures provided by the HKSAR Government. Ms Ma said the government extended the geographical scope of the BUD Fund from the mainland to ASEAN countries in August 2018, adding that the funding ceiling per enterprise has been increased from HK$500,000 to $2 million, including $1 million for the mainland market and $1 million for ASEAN market.

Ms Ma also introduced the SME Export Marketing Fund, advising participants that the cumulative funding ceiling for enterprises under the SME Export Marketing Fund has been increased from $200,000 to $400,000 with conditions regarding the last $50,000 of grants being removed. Until 31 July 2019, a total of 48,657 enterprises, including the trade, wholesale and electronics sectors, have benefited from this measure. She added that the SME Loan Guarantee Scheme provides loan guarantees to SMEs to help them secure loans from participating lending institutions for acquiring business installations and equipment or for general working capital, with the maximum guarantee for each SME being $6 million.

In the seminar, Mr Yeung also introduced the Hong Kong Export Credit Insurance Corporation’s special enhanced measures, such as the small business policy and Online Micro-Business Policy, that have been introduced to help local exporters cope with rising credit risks amid the current uncertainties.

Media enquiries

Please contact the HKTDC’s Communications and Public Affairs Department:

Leslie Ng       Tel: (852) 2584 4239           Email: leslie.ss.ng@hktdc.org

About HKTDC
The Hong Kong Trade Development Council (HKTDC) is a statutory body established in 1966 to promote, assist and develop Hong Kong's trade. With 50 offices globally, including 13 in Mainland China, the HKTDC promotes Hong Kong as a two-way global investment and business hub. The HKTDC organises international exhibitions, conferences and business missions to create business opportunities for companies, particularly small and medium-sized enterprises (SMEs), in the mainland and international markets. The HKTDC also provides up-to-date market insights and product information via trade publications, research reports and digital news channels. For more information, please visit: www.hktdc.com/aboutus.