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Textile Trade Guidelines in the China-Korea Free Trade Agreement



After eight years of preparation, China and South Korea officially launched free trade agreement negotiations in 2012. In the following two and a half years, the two sides went through 14 arduous rounds of form…

After eight years of preparation, China and South Korea officially launched free trade agreement negotiations in 2012. In the following two and a half years, the two sides went through 14 arduous rounds of formal negotiations and several consultations, and concluded substantive negotiations at the end of 2014. The “China-South Korea Free Trade Agreement” (hereinafter referred to as the “Agreement”) was officially signed in Seoul, South Korea on June 1, 2015. It is expected to be officially implemented by the end of this year or early next year after completing the respective domestic approval procedures.
South Korea is an important export market for China’s textiles and apparel, and is also an important source of China’s imported related products. According to Chinese customs statistics, the bilateral trade volume between the two countries in 2014 was US$11.052 billion, a year-on-year increase of 12.92%. Among them, China’s export volume was US$8.446 billion, a year-on-year increase of 20.31%; China’s import volume was US$2.606 billion, a year-on-year decrease of 5.83%. Two-thirds of South Korea’s imports are under processing trade. In recent years, some Korean-owned enterprises have moved to East Asian countries, resulting in a decline in imports.
After the implementation of the agreement, South Korea’s exports to China are expected to reverse the decline and gradually expand. The main reason is that with the gradual reduction and elimination of Chinese tariffs, South Korea’s advantages in research and development, design and marketing will become apparent, especially the agreement regarding South Korea’s development in North Korea. Specific cargo handling rules for products in the urban industrial park will be more conducive to improving the price competitiveness of Korean textiles and apparel. The editor of this article will give a detailed interpretation of the relevant tax reduction rules of the China-South Korea Free Trade Zone, in order to help my country’s textile and garment enterprises comprehensively understand the good information in the free trade agreement.
Details of tax reduction for originating goods
Since China and South Korea are each other’s important trading partners and have similar industrial structures, the tariff reductions for originating goods in the free trade zone are more complex and take a long time. It can take up to 20 years to complete the tax reduction process.
Judging from the tariff reduction commitments table between China and South Korea, most goods will undergo a long transition period of tax reduction. After the tax reduction process is completed, China and South Korea will implement zero tariffs on 92.23% and 92.87% of each other’s original goods respectively. In the initial stage after the agreement comes into effect, the tax rate of originating goods subject to zero tariffs by both parties will be relatively low, and it will take 10 years to reach a level of 70%-80%.
China reduces taxes on goods originating from South Korea
There are a total of 8,194 8-digit tax items in China’s commitment list to South Korea. The tax reduction model can be divided into 7 categories, and tax reductions will be based on the base rate of China’s customs tariffs in 2012.
South Korea reduces taxes on goods originating in China
There are 12,232 10-digit tax items in South Korea’s commitment list for tax reductions on Chinese-origin goods. The tax reduction model can be subdivided into 9 categories. Tax reductions will be based on the base rate of South Korea’s 2012 customs tariffs.
Detailed rules for tax reduction on textiles and clothing
In the China-South Korea Free Trade Area Agreement, judging from the tax reduction commitments of both parties, not many products will be immediately reduced to zero tariffs after the agreement takes effect. About 80% of textiles and clothing will need to go through a 10-year transition period before their tariffs can be reduced. There is zero tariff. ​
Judging from the number and proportion of retained tax items, South Korea is significantly higher than China.
There are 1,141 8-digit tax items for textiles and clothing in China’s tax reduction commitment list. 84.14% of the products will be reduced to zero tariffs 10 years after the agreement takes effect. After the end of the entire transition period, 96.32% of products will be reduced to zero tariffs. Products without tax reductions account for 2.8% of the total tax items of textiles and clothing, and 5% of the total tax items of all Chinese and Korean products that are not subject to tax reductions.
There are 1,302 10-digit tax items for textiles and clothing in South Korea’s tax reduction commitment list. 10 years after the agreement comes into effect, 79.34% of the products will be reduced to zero tariffs. After the 20-year tax reduction transition period ends, 88.25% of products will be reduced to zero tariffs. Products without tax reductions account for 9.91% of the total tax items of textiles and clothing, and 15.4% of the total tax items of all Korean products with no tax reductions for China.

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Author: clsrich

 
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