Australian China Wool Trade
Responsible for the vast majority of Australian wool exports, China is Australia’s most important wool-trading partner. AWI outlines some of the most important factors influencing this relationship.
China is Australia's most important wool customer
China is becoming the dominant source of global demand for wool. It is by far the world's largest importer of raw wool fibre, with annual imports of greasy, scoured and lightly processed wool reaching 328 million kilograms (mkg, actual weight) in 2004. This is more than double that of Italy, the next largest importer.
China is also the world's largest clothing and textile producer and exporter. The leading worsted mills in China rely almost exclusively on imported wool, much of it Australian. The current decade has seen China's imports of wool fibre average around 256 mkg clean per annum, compared to 145 mkg clean in the 1990's.
Chinese wool imports, by value, 1994-2004. Australian exports made up 75 per cent of Chinese wool imports by value in 2004.
Source: Woolmark Company
Not only is Australia of increasing importance to China as a wool supplier, but China is growing more important to the Australian industry, as well.
In the mid 1990s, around 20 percent of Australia's wool exports, by volume, were going to China. In 2004, the figure had risen to nearly 50 per cent.
In the mid 1990s around 20 per cent of Australia's wool exports, by volume, went to China. In 2004, the figure was nearly 50 per cent.
Source: Woolmark Company
The trend of growing demand for wool in China seems set to continue. The Woolmark Company projects that China's demand for apparel wool at the manufacturing stage could rise from an estimated 256 mkgs clean in 2004 (equivalent to around 35 per cent of global apparel wool demand) to 473 mkgs clean (around 62 per cent of global wool apparel demand) in 2010.
Chinese apparel wool demand as a proportion of global apparel wool demand at the manufacturing stage.
Source: Woolmark Company
Given that Australia supplies much of the fine wool that China requires, Australia could be expected to take a substantial share of this rising demand for wool, provided wool is permitted to trade freely.
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Chinese quotas and tariffs on wool
As part of China's accession WTO commitments, China's key wool exporting countries agreed to implement a tariff rate quota (TRQ) system.
In 2005 China's quota for wool is 287mkg greasy for raw wool (greasy, scoured, carbonised and waste) and 80 mkg clean for top (carded and combed) and applies to imports from all sources, whether or not the exporting country is a WTO member.
As Table below shows, to date these quotas have not been restrictive, although the greasy wool quota in 2002 was almost filled.
Table: Wool Imports to China compared to quotas.
| | Quota (tonnes) | Imports (tonnes) | % Fulfilled |
| Raw Wool |
|
|
|
| 2002 |
264,500 |
262,403 |
99.2% |
| 2003 |
275,750 |
218,127 |
79.1% |
| 2004 |
287,000 |
223,000 |
77.7% |
| Tops |
|
|
|
| 2002 |
72,500 |
45,064 |
62.2% |
| 2003 |
76,250 |
27,816 |
36.5% |
| 2004 |
80,000 |
23,500 |
29.4% |
The within quota tariff rate is:
- three per cent for tops
- one per cent for greasy, scoured and carbonised wool.
The out of quota tariff rate for both raw wool and top is 38 per cent.
VAT and Rebates
The Chinese government applies a VAT to enterprises engaged in imports/exports, production, distribution or retailing activities. The following VAT is paid by wool importers:
- 17 per cent on tops
- 13 per cent on greasy, scoured and carbonised wool.
Chinese companies that re export wool products processed in China receive a VAT rebate of 5 per cent on greasy wool, 13 per cent on raw wool (scoured, carbonised, and top), and 13 per cent for yarn, fabric and garments.
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Tariff Rate Quota (TRQ) administration is a concern
For many years, China operated a system whereby only designated traders were permitted to import wool. As a result of China's WTO accession, the designated trader system has been removed. But the current TRQ administration still puts restrictions on import volume for individual importers. The administration system has following problems:
- The 2005 quota amount for wool and wool tops remains at 2004 level. There is no increase of 5 per cent as China had committed to in the last three years.
- Quota allocation is still based on past year import performance rather than on current year market demand. For example, importer's share of the quota is limited to their actual imports recorded in the previous year, and for new importers and importers with actual imports of less than 300 tons, their share of quota is limited to 300 tons. Importers can only apply for additional quota after 30 Sept when there is unused quota for the year.
- Greasy wool is included in WTO agricultural negotiations, while wool tops are included in WTO industrial negotiations. China treats greasy wool and wool tops as one harmonized system category with a single set of trading rules.
The way quota is allocated suggests that exporters may have to store wool to ensure they have sufficient to sell for the final quarter of the year, in order to maximise their quota entitlement for the following year. The flow of wool to China is distorted under this system, because a single importer is not free to import as much as market forces would dictate.
TRQ administration poses another problem. As 'in-quota' rights become more valuable, how will China distribute the scarce right to import at the lower tariff rate?
The current system is basically "first come, first served," but this does not guarantee 'in-quota' volume for the most competitive supplier. Already there have been anecdotal reports of an occasional preference for Uruguayan wool in the allocation of the quota and subsidised terms of foreign exchange for Uruguayan importers of tops.
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Mandatory retesting of imported wool
China has a mandatory inspection law for a number of commodities, including wool. The law is enforced by Administration of Quality Supervision, Inspection and Quarantine (AWSIQ). Provincial AQSIQ, also known as CIQ, are responsible for this testing of imported wool, even though the imported wool is accompanied by IWTO certificates.
While all wool imports are being charged for re-testing, it is said that only 20 percent of that wool is actually tested. The charge is being levied on the importer who passes it back to the exporter.
Quality inspection costs 0.167 per cent of the value of the wool imported with a minimum fee of 66.7 RMB Yuan (A$10). If the value of import is more than 5000 RMB Yuan, then only 80 per cent of 0.167 per cent is collected for the part exceeding 5000 Yuan. Weight checking fee is 0.2 RMB Yuan per ton.
Mandatory retesting of imported wool is a major barrier to trade, imposing a needless expense on the industry and slowing down trading times. Retesting of a product already tested according to international standards is not WTO consistent.
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Chinese tariffs on imported finished goods
China also applies tariffs to imported finished textiles. Under the WTO these tariffs are progressively declining as shown in below table:
| Product | 2001 | 2002 | 2003 | 2004 | 2005 |
Worsted Yarn
HS5107.1 |
14.00% |
11.00% |
8.00% |
5.00% |
5.00% |
Worsted Fabric
HS5112.11 |
23.30% |
20.00% |
16.70% |
13.00% |
10.00% |
Mens's Suits
HS6203.11 |
25.00% |
23.10% |
21.30% |
19.40% |
17.50% |
Men's Trousers
HS6203.41 |
25.00% |
22.80% |
20.50% |
18.30% |
16.00% |
Women's Jackets
HS6204.31 |
25.00% |
22.80% |
20.50% |
16.80% |
16.00% |
Women's trousers
HS6204.61 |
25.00% |
22.80% |
20.50% |
18.30% |
16.00% |
Jumpers, Jerseys
HS6110.1 |
25.00% |
22.30% |
19.50% |
19.50% |
14.00% |
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Australian Tariffs on Imported Textiles
Australia has been quota-free since 1993.
The Australian Government announced this year that it will implement a gradual ten year program of tariff reduction, as shown in Table 12.
Schedule of Australian Tariffs on Some Imported Textiles
| Item | Current | 2005 - 10 | 2010 -15 | Post 2015 |
| Clothing and finished Textiles |
25.0% |
17.5% |
10.0% |
5.0% |
| Carpet |
15.0% |
10.0% |
5.0% |
5.0% |
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Textile Safeguards
As part of China's accession agreement into the WTO, a 'safeguard' provision was allowed, this measure allows a WTO member country to impose restrictions if its domestic industry is threatened by rising imports from China. So far around 20 categories of Chinese textile and apparel products have been put under US curbs or safeguard investigation (mainly cotton and man-made fibres, and one category on wool trousers).
The US has decided to cap imports of these products to an annual growth rate of 7.5 per cent. These safeguards are valid for one year but can be re-applied for eight years after accession, and in the case of wool products, China will be expected to limit the annual growth rate to 6 per cent. The lower growth rate for wool products is because wool and wool product imports, particularly from Asia, have been a sensitive issue especially with the US, which maintains a relative highly protected industry.
European Union also considered implementing the safeguard measure on imports of 9 categories of Chinese textiles. After negotiations with China in June, it reached an agreement to limit the growth of Chinese textile and clothing exports to EU in the coming three years, to secure a smooth transition before the complete opening of the European market to Chinese textile products in 2008.
Three rounds of negotiations on Chinese textile exports have taken place between China and USA, but no specific deal has been reached in the third round recently held in the US. In case the disputes cannot be solved through negotiation before the end of Aug, the US is likely to announce new safeguard measures on additional categories of Chinese textile imports.
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The China-Australia Joint Working Group on Wool
This JWG was established under a Joint Ministerial Economic Mission in 1985. During the 1990's a number of assistance programs operated that were funded by AusAID and ACIAR. After a break of more than five years the JWG reconvened with a meeting of industry and government personnel from both countries on 23 April 2004. The meeting was to review bilateral wool trade and seek to solve the remaining wool trade issues. Next JWG meeting is likely to be held in Beijing in the second week of OCT 2005.
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AWI Offices in China
AWI has an office in Beijing managed by Mr Jeff Zhu. The office is responsible for all trade and research activities conducted by AWI in China.
AWI has recently established an office in Shanghai. The Shanghai team is responsible for all technical projects conducted by AWI in China.
Staff details are:
Hilary Chen-Account Manager (Men's wear)
Flora Wang-Account Manger (Women's wear)
Michael Yang-Account Manager (Knitwear)
Lesley Gu-Promotion Manager
Mirror Xu-Administrative Officer
AWI is currently conducting several projects with the major Chinese wool textile mills, which includes machine washable suit with Heilan Group, wool business shirts with Nanshan Group, Merino fleece with Haitian Group.
AWI also funds the China-Australia Wool Innovation Network (CAWIN) managed by Deakin University in Australia which aims to train Chinese textile students in wool textile technology and conduct research programs with five textile universities.
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The Woolmark Company
The Woolmark Company has three offices in China (Beijing, Shanghai and Guangzhou) and an office in Hong Kong. The manager is Li Shaoping, who is based in Shanghai, and there are a total of 16 staff employed by The Woolmark Company in China, with a further 9 in Hong Kong. The Woolmark Company offices in China provide access for China-based companies to the full range of services of the global operations of The Woolmark Company.
These services include Woolmark licensing, wool technologies, commercial testing of wool fabrics, machinery and equipment sales, fibre and fabric sales, and wool business intelligence services. There are over 540 Woolmark licensees in China and Hong Kong, which are serviced and supported by the China/Hong Kong offices of The Woolmark Company.
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