INTERIM ASSIGNMENT 3
By Mihaela Marin
Student no 182616 N/A
To Sandra Strong
WORD COUNT 739
The purpose of this report is to examine how tariff influences the decisions a clothing company (the Company) operating within the EU makes. Due to fierce competition in the textile industry the Company is sourcing its products outside the EU to keep the costs down and maintain its competitiveness on the market.
All the imported and exported goods from and to the EU must be declared to customs. Goods must be usually classified according to the Combined Nomenclature (CN) declaring under which subheading of the nomenclature they fall. This classification regulates which rate of customs duty applies and how the goods are treated for statistical purposes. Also it makes it easier for the EU companies to check if any restrictions or charges apply. The CN consists of the Harmonized System (HS) nomenclature with additional Community subdivisions. The Harmonized system is run by the World Customs Organisation (WCO). This systematic list of commodities is the basis for international trade negotiations, and is applied by most trading nations. The CN also include preliminary provisions, additional section or chapter notes and footnotes relating to CN subdivisions. Each CN subdivisions has an eight digit code number, the CN code, followed by a description.
The division in nomenclature of the textile and clothing (T/C) industry is used for analysing the trade and it accounts for 1500 tariff lines, which can be allocated into the textile and the clothing sectors: the textiles sector contains chapters 50 to 60 and 63 of the CN, while the clothing sector includes chapters 61 and 62 of the same classification.
2. Company’s decisions based on tariff classification
The EU clothing industry has undergone major changes in the last decades. These changes have institutional, technological and competitive background. An institutional decision, made by EU, reducing quotas and tariffs increasing imports, will affect the competition. This in turn will put pressure on price reduction. To reduce prices, the Company must produce with lower costs. Therefore, processing of raw materials, production of yarns and fabrics and their alteration into garments are being outsourced outside the EU.
To stay competitive, the Company has gained access to new markets through bilateral and regional free trade agreements (FTAs). FTAs eliminate or reduce tariffs and other barriers to the flow of goods, services and investment. Very low or no customs duties on products from FTA partner countries allow interested companies to better compete with locally produced products and give these company an advantage over other importers.
Before 1 January 2014 the main import markets of the Company were China, India, and Bangladesh. China and India were part of GSP scheme until end of December 2013, meaning no duties applied to the textile imports into the EU. Bangladesh is one of a beneficiaries of ‘Everything but Arms’ scheme with duty-free and quota free access to the EU’s 7000+ tariff lines, including textiles.
From 1 January 2014 the EU has decided to “graduate” exports of several items including textiles, from India and China out of its GSP scheme. Some product groups in certain countries have become competitive on a global scale, and subsequently have been categorized as “graduated sectors,” meaning they will now be subject to import duties.
Due to rising cost in China and India, the Company is looking to source garments in other countries. Cambodia, Indonesia, Vietnam are becoming increasingly popular choices because of their EBA (Cambodia), and GSP status (Indonesia, Vietnam). Also, EU granted zero customs duty on textile imports from Pakistan as of 1 January 2014 when it became a GSP+ country.
But before taking any decision the company has to assess the