Japan reduce ceiling amount of GSP preferential tariff to limit China origin items

According to The Nikkei news paper on July 26, 2010, the Ministry of Finance (“MOF”) is considering to reduce the ceiling amount of GSP preferential tariff of one country. The ceiling for each product group is open for utilization by all preference-receiving countries equally, however there is maximum ceiling percentage per one country as 20% of total ceiling amount per year in order to avoid inequality among GSP countries. MOF try to reduce this ceiling percentage per one country to 10 – 15%. In these years, Chinese origin items fulfill this ceiling percentage for most of items, therefore MOF aim to equalize the GSP preferential opportunity to many other developing countries.

In Japan, GSP preferential tariff is applicable to approx. 3,500 items which are originated in 154 developing countries or regions. Among GSP eligible items, approx. 1,180 items can be allowed until they exceed the ceilings of either limited amount or quantity.
For example, Chapter 76 (Aluminum and articles thereof) have GSP preferential tariff as 0%, while MFN tariff for Chapter 76 is from 2% - 7.6% depending on items. The annual ceiling amount of Aluminum item is JPY11.7 billions for fiscal year April 01, 2010 to March 31, 2011. As for GSP utilization of Aluminum item from China, it reached the maximum amount per country or 20% of total ceiling amount in May 2010, therefore MOF suspended the GSP preferential for Aluminum item originated in China on May 18, 2010. After this suspension date until the end of the fiscal year, Chinese origin Aluminum items are to be imposed in MFN rate. Other same examples of suspension of GSP privilege to Chinese origin items are; Fireworks (HS 36.04) on May 18, Article of leather (HS 43.02 - 43.03) on May 18, and certain carpets and other textile floor coverings (HS 57.02) on June 16, and garments and clothing accessories of cotton (HS 62.09) on May 18 etc. Most of GSP ceiling amount of textile items in apparel industry are used up by Chinese origin items in early stage of fiscal year.

The background of this amendment plan is rapid increase of the import from China. The import amount from China to Japan exceed JPY10 trillions, this makes China as top trade partner country for Japan. Chinese origin products are generally accepted as competitive in international market, questions come arise why Chinese origin products occupy the most of GSP preferential treatment which is a trade measure for contributing to developing countries.

MOF plan to implement this GSP ceiling limitation amendment starting from next fiscal year, April 2011. This will correct the disproportion among GSP eligible countries, and the developing countries other than China will be able to enjoy more GSP preferential opportunity, but the cost of import from China is expected to increase due to less GSP utilization allowance to China. Especially for small medium companies who import apparel items and daily necessities will be negatively affected because most of such items are imported from Chinese manufacturing sites and supply source is not diversified enough to other countries or regions.

Traders who import from China and utilize GSP preferential tariff are encouraged to carefully plan the sourcing strategy for next fiscal year.