"Major European customers require carbon emission reports", and the compliance difficulty of foreign trade enterprises has escalated

With the implementation of the "boot" of carbon tariffs, domestic foreign trade enterprises need to face more environmental compliance challenges to open up the market to the international market, so as to get the ticket to participate in the global market competition. Earlier than the issuance of carbon emission reports, China's foreign trade companies have been exposed to environmental protection taxes that have been levied in recent years – to be precise, EPR (Extended Producer Responsibility (EPR) taxes under the EU Waste Directive. Official account: 3060 carbon peak and carbon neutrality.

For foreign trade enterprises of different sizes, do EPR taxes and fees account for a large cost, and in the context of the shortage of carbon-related talents, how will enterprises respond to the environmental protection and carbon reduction related rules that are constantly updated by various countries?

01

background

This year's foreign trade enterprises, in addition to geopolitical and global logistics related uncertainties and risks, also need to pay more attention to the environmental compliance challenges that have come and will become more fierce in the future.

"We have recently had several large European customers who have asked us to issue carbon emission reports. In the process of actively exploring the European and American markets, Ding Yandong, the head of Ningbo's small and medium-sized foreign trade enterprises, saw business opportunities, but also encountered a higher threshold - under the global carbon reduction process, the implementation of environmental protection related policies in various places has been accelerated. Official account: 3060 carbon peak and carbon neutrality.

Among them, the policies that have attracted much attention from the outside world include the "Establishment of the Carbon Border Adjustment Mechanism" announced by the European Union in the middle of last year, which finally clarified the scope of the carbon border adjustment mechanism, emission calculation, declaration requirements, rights and responsibilities of all parties, and compliance rules and procedures. This is the result of several revisions since the EU first announced the proposal for the carbon border adjustment mechanism bill in July 2021, and it has also put the "boot" of carbon tariffs on the ground.

Earlier than the issuance of carbon emission reports, China's foreign trade companies have been exposed to environmental protection taxes that have been levied in recent years – to be precise, EPR (Extended Producer Responsibility (EPR) taxes under the EU Waste Directive. This is based on the "polluter pays" principle, which requires producers to manage and recycle goods sold to the corresponding country, with the aim of preventing and reducing the environmental impact of commodity waste.

"One of the types of problems that we've spent a lot of energy on this year is EPR. Environmental protection taxes are different in different countries, and the environmental protection requirements for different product categories are also different, and there are many requirements for plastics and recyclable materials. Zhang Kuo, head of China's B2B cross-border e-commerce platform Ali International Station, said when talking about changes in the foreign trade market, such a trend has made the original niche hand-woven products more favored, and also made enterprises including cross-border e-commerce platforms and merchants face greater compliance pressure.

Jiang Nanqing, a former official of the United Nations Environment Programme and president of the Qinghe Institute of Circular Economy and Carbon Neutrality, told Yicai that the EU revised the waste directive in July last year, and more EU member states will successively introduce and accelerate the implementation of relevant policies in the past two years, the most direct manifestation of which is that products sold in the EU market, including products imported into the EU, pay relevant fees according to EPR. For the EU, the carbon reduction policy is committed to covering the whole life cycle of products, so in addition to the export of end consumer goods and intermediate goods involving back-end recycling, the EU also issued ESPR (Eco-design for Sustainable Products Regulation) for the front-end of products in 2022 In the first quarter of this year, a new relevant directive will also come into effect, which requires all products, including traditional manufacturing industries such as textiles, to provide EU Digital Product Passports (DPP) and meet mandatory requirements such as the use of a certain proportion of homogeneous recycled materials.

This means that this year's foreign trade enterprises, in addition to geopolitical and global logistics related uncertainties and risks, also need to pay more attention to the environmental compliance challenges that have come and will become more intense. Official account: 3060 carbon peak and carbon neutrality. For more and more Chinese companies, this will become the basic threshold for shortlisting and participating in global market competition.

02

The cost of environmental tax is geometric

In the case of EPR taxes, it consists of a registration or certification fee for entry into a country, plus a regular fee based on the quantity or weight of the goods.

Liu Mingyang, general manager of Yiwu Ouchi Import and Export Co., Ltd., showed the page of cross-border e-commerce background to Yicai, and the registration fee for entering Germany, Spain and other countries is generally a few hundred yuan per year, and the registration fee for them to export business in the European market is about thousands of yuan per year. If the weight of the export product is more than 1.5 tons, an additional tax will be levied on the excess amount on a quarterly, semi-annual or annual basis.

A staff member in charge of helping merchants apply for registration on the cross-border e-commerce platform, taking electronic and electrical products exported to Spain as an example, said that the local environmental protection organization that levies this fee will have a commodity CODE fee schedule, if the merchant sells 5 refrigerators, the refrigerator is priced according to the weight of the product, assuming that the weight of each refrigerator is 10 kg, then the environmental protection fee is "5 refrigerators * each weight 10KG * environmental protection organization pricing 0.22 euros", that is, 11 euros is the environmental protection fee to be paid for 5 refrigerators," Some environmental organizations may charge a percentage of insurance or service fees on top of this, and there will be slight differences in pricing depending on the category."

For some small and micro cross-border e-commerce enterprises that have just begun to explore the EU market, if the initial order amount is small and the profit is limited, they will indeed hesitate or even temporarily abandon the market because of the complicated processes and costs in the early stage. However, for SMEs that are already of some size, the cost is not high compared to the overall export value. Official account: 3060 carbon peak and carbon neutrality.

"We have been paying the EPR tax for more than two years, and when we first did compliance, we paid it according to local requirements. Luo Chang, CEO of Shenzhen Zoetis Technology Co., Ltd., which is engaged in the export of industrial electronic products, told Yicai that the EPR registration fee they handed over to each country was about 3,000~4,000 yuan. However, as far as the market segment of industrial electronic products is concerned, the annual certification fee is already a large amount, "a certain certification of a model may be 200,000 yuan, so the cost of EPR does not feel very stressful."

In recent years, Luo Chang has transformed from OEM for first-line brands to build their own brands, and used cross-border e-commerce platforms to complete the transformation from domestic sales to foreign trade, the company's overseas market accounts for as much as 80%, of which 70% come from online, and the European and American markets account for nearly half. Through the construction of their own brands and the help of cross-border e-commerce directly facing end customers, their products have a higher premium, and the compliance costs related to environmental protection are further diluted.

Luo Chang believes that the overall low tax will not affect too much on enterprises that have a certain bargaining power or have considered this cost in advance, and the most troubled are those who rely on low prices to gain the market or do not have the relevant budget.

Liu Mingyang has similar feelings. He felt that the annual environmental tax of several thousand yuan was not enough to make a company doing global business abandon the European market. If this is the rule of entry, Chinese companies should strive to be shortlisted and face the challenge of raising the bar head-on. Official account: 3060 carbon peak and carbon neutrality.

Although admitting that it is "very troublesome" to issue a carbon report, Ding Yandong is well aware that once this threshold is entered, it will inevitably mean a larger market. In fact, it can make large customers interested and "put forward requirements", but also thanks to their efforts to develop the market and supply chain transformation and upgrading in recent years, "for long-term cooperation, we must find a way to cooperate, which is forcing us to upgrade."

03

How businesses are responding

For China's foreign trade manufacturing enterprises, the amount of EPR tax is not much, and it is more difficult to find out the environmental protection and carbon reduction related rules that are constantly updated by various countries, and complete the entire registration and payment process in a timely manner.

According to public information, the EPR of EU countries involves the registration requirements of various product categories, and merchants have the responsibility and obligation to register, declare and pay recycling fees to overseas recycling agencies. Different countries have different EPR registration, declaration requirements and payment procedures, and EPR certificates cannot be used universally in different countries.

Both Luo Chang and Liu Mingyang chose to hand over to a cross-border e-commerce platform or a professional third party to pay EPR taxes on their behalf. Since the beginning of this year, business models such as semi-custody launched by major cross-border e-commerce platforms such as International Station and Temu can allow the majority of small, medium and micro enterprises to obtain one-stop compliance services, and entrust these together with the pressure of logistics performance.

"Orders taken through the platform will use the platform's services, and the rest of the orders will also find third-party laboratories to do compliance, which will also provide EPR-related services. Luo Chang said frankly that at present, carbon-related talents are scarce, and it is difficult for small and medium-sized enterprises to quickly build independent teams, so cooperation with large platforms is the most efficient and low-cost party. Official account: 3060 carbon peak and carbon neutrality.

Looking at the world, compared with the EU's carbon tariffs or environmental protection taxes, as well as the U.S. trade tariffs, most Belt and Road countries and emerging markets have relatively low thresholds, which has also become the focus of China's foreign trade enterprises in recent years. For many companies, they are also using different product strategies to focus on the two tracks of Europe, the United States and emerging markets.

"Belt and Road-related countries and emerging markets have relatively low compliance requirements, and the core of China's technology product output is what they really need. Although their price tolerance will be lower than that of European and American customers, as long as they can meet local demand, the profit margin will not be bad. Luo Chang said that the incremental space in emerging markets is huge, and their largest order on the international station is an information transformation project of up to 180 million yuan from Pakistan.

At the same time, the European and American markets are the main battlefield for Chinese enterprises to build brands and innovate and upgrade. To this end, on the one hand, they will use more cost-effective products to cover the new needs of emerging markets, and on the other hand, they will also use cross-border e-commerce to continue to explore the European and American markets.

According to Luo Chang's observation, overseas markets have indeed changed in recent years. As Chinese enterprises continue to work the construction of overseas brands, more and more Chinese brands have gradually gathered fan-type customers through the low-cost model of e-commerce, affecting the local market.

In addition to EPR, a large number of Chinese foreign trade manufacturers will also face front-end ESPR challenges, which means that in addition to issuing carbon footprint reports or EU digital product passports like Ding Yandong, they will also need to make more use of homogeneous recycled materials, that is, recycled materials recovered from similar products for production, which will put forward new requirements for design and production processes. Official account: 3060 carbon peak and carbon neutrality.

If you grasp the trend change in advance, it is possible to find opportunities in the response to challenges.

"More than 70% of our current European orders are made from renewable materials, and we expect it to be closer to 100% by 2025. Yuan Lin, general manager of Ningbo Haishu Peining International Trade Co., Ltd., which is mainly based on European and American brand OEM, told Yicai that they have seen the local market's low-carbon consumption trend, so this year they have focused on design and materials in the direction of renewable and more environmentally friendly, and this trend is quite clear.

Jiang Nanqing proposed that the circular economy will become the next "outlet". In addition to the European and American markets, the Chinese market is also aiming at the circular economy and increasing efforts. A few days ago, the State Council issued the "Action Plan for Promoting Large-scale Equipment Renewal and Trade-in of Consumer Goods", proposing to accelerate the formulation and revision of standards in the fields of energy conservation and carbon reduction, environmental protection, safety, recycling and other requirements. At the same time, according to the plan, the United Nations Plastics Convention is expected to be reached this year, "plastics involve all consumer goods industries, and everyone will use something", which requires China to speed up the construction of a traceability and recycling system covering the whole life cycle, and take the initiative to respond.