HONG KONG New Vape Ban.Hongkong vaping re-export business is facing a huge challenge01In February this year, the Hong Kong Government submitted a draft amendment to the Legislative Council of the Hong Kong Special Administrative Region, to prohibit the import, manufacture, sale, distribution and promotion of new tobacco products such as e-cigarettes. On June 25, a non-binding resolution proposed by a member of the Hong Kong Legislative Council has been passed, which means the new amendment has not yet been passed, and the “e-cigarette ban” has been suspended. Even so, China domestic e-cigarette industry has faced export problems, even the re-export distribution in Hong Kong has been affected.

As we all know, Shenzhen is the main factory of e-cigarette products in the world. China domestic manufacturers can obtain a certain proportion of export tax rebates according to the total value of the goods when exporting. However, because there are sometimes many small orders from foreign purchases, if the manufacturer declares the products for each order separately, they must pay more fees according to the number of orders. Therefore, the consistent practice of them is to apply for only one declaration form to the domestic customs, and then transport a large number of products to the Hong Kong warehousing and logistics companies. After being dismantled, re-allocated and re-packed according to different order, these products will be re-exported to all over the world. A manager of a warehousing and logistics company in Hong Kong said that “For China domestic manufacturers, this method not only saves costs, but also earns export tax rebates. And Hong Kong has a relatively frequent shipping schedule, so it will also drive warehousing and re-export business.”

Hongkong vaping re-export business is facing a huge challenge02However, since the new amendment do not allow distribution, although the “sealed removed” is allowed, many manufacturers have took precautions. They stopped the cooperation with Hong Kong companies, and transferred their business to Macao. Related companies in Hong Kong have lost huge business, and many companies have laid off employees and even closed their business.

Chen Minhui, the chairman of the Hong Kong Electronic Cigarette Association, said that Hong Kong’s e-cigarette warehousing, re-allocating, re-packaging and re-export business was flourishing before. There were three large and dozens of small companies with a total monthly turnover of over 100 million RMB. However, in recent months, many companies have closed down. It is estimated that the monthly turnover will plummet to about 100 million RMB. “One company once had about 180 employees, but now there are only about 20 people left.” He stressed that all the warehoused e-cigarette products will be exported after re-allocated, and none will be sold in Hong Kong. He did not object to the ban on importing, manufacturing and selling e-cigarettes, but he thought the re-allocate and re-pack business should be exempted.

“Many people will lose job. It is better to regulate than to forbid. I hope the government can listen to the voice of the industry. The workers’ job should be guaranteed.”

Hongkong vaping re-export business is facing a huge challenge03In response to the industry’s request, the spokesperson of the Food and Health Bureau said that if the new tobacco products are allowed to be re-exported from Hong Kong, a comprehensive law enforcement system is needed, to monitor the entire supply chain. “This will require too much resources and will put unnecessary pressure on the overall law enforcement work.”

According to research, the amount of Hong Kong’s re-exports has dropped from $206.16 million this January to $67.82 million this April. The emergence of the lowest export data is exactly this February when the amendment was proposed.

=CHINA-US Trade Friction=

Besides the new amendment, there is another problem which impact the Hong Kong re-export business-Tariff problem of China-US trade friction. So far, the United States has implemented three tariff adjustments for electronic cigarettes.HK new vape ban04

08, 23, 2018- The tariff on e-cigarette set products increased by 25% from the 2.6%.

09, 24, 2018- The tariff on e-cigarette accessories increased from 0.6% to 10.6%.

05, 10, 2019- The tariff on e-cigarette accessories increased from 10.6% to 25.6%.

Before August last year, the tariff of vape accessories had not been increased, the way that many exporters generally adopt is to declare their products through he form of accessories, and then go to the United States to process and assemble. The price did not increase much. However, with the latest round of tariff adjustments covering vape accessories, and the United States Custom began to strictly check the origin and name of the goods, so that many e-cigarette companies must face the issue of how to export.

According to the General Agreement on Tariffs and Trade(GATT), in accordance with the International Convention for the Simplification and Harmonization of Customs Procedures of 1973, established by the Customs CO-operation Council, the price percentage standard determines the imported product of the origin, and the total value is determined according to the FOB price of the goods. The ad valorem percentage as the criterion is 40%.

Therefore, even if the vape company sets the factory in other countries, or declares it as a transit country to avoid tariffs, as long as the battery inside their products is Chinese battery, the origin of the products are difficult to be identified as not China, because the main value of a vape comes from its batteries. In addition, the United States has very sound trade laws. If the false declaration is checked, it will seriously affect the sales of the product in the United States, and it may expose the company to the risk of being sued by the US government. It should be known that the US Customs has a retrospective period of five years. If there is a violation record, the customs will inevitably conduct a thorough investigation of the goods.HK New vape ban05In general, the vaping re-export business in Hong Kong is facing a huge crisis now. On the one hand, the rising enthusiasm of e-cigarette ban makes most e-cigarette warehousing and re-allocate companies a hard survival. On the other hand, since the largest export market for China is still the United States, the tariff issue will no doubt be a tough problem for a long time.