How much impact will the EGA negotiation upgrade have on Chinese LED companies?

On April 27, Taiwan’s Deputy Minister of Economic Affairs Zhuo Shi said that the Environmental Goods Agreement (EGA) under the World Trade Organization will enter the second phase of negotiations next month. There is a good chance that LED lighting products will be included in the tariff-free list in the future, which will help Taiwan’s LED products that are good at marketing around the world.

It is understood that on July 8, 2014, 14 WTO members including China, the United States, and the European Union officially launched negotiations on the WTO Environmental Products Agreement, aiming to reduce or reduce tariffs on environmental products and promote free trade in environmental products. This negotiation aims to implement the commitment of APEC leaders and further explore various opportunities for free trade in environmental products under the WTO framework based on the APEC environmental products list containing 54 low-energy, low-carbon green products. The final results will benefit all WTO members through the most-favored-nation treatment method. Negotiations will be held regularly in Geneva, with the first phase focusing on issues such as tariff reductions and exemptions for environmental products. The second phase of negotiations will begin next month. If LED lighting products are included in the tariff-free series, what impact will it have on Chinese LED companies?

Chinese LED companies should seize the opportunity

In recent years, with the widespread application of LED products around the world, my country's LED lighting exports have also grown rapidly, with both volume and price increasing. According to statistical data, the top ten countries and regions in the mainland's LED lighting product export market in 2014 were the United States, Russia, Vietnam, Germany, Hong Kong, Japan, Malaysia, Singapore, the United Kingdom and the Netherlands. From January to February 2015, mainland China's LED lighting exports reached US$1.59 billion, a year-on-year increase of 42.3%. Due to the high investment in infrastructure construction in these countries or regions, the demand for LED lighting products has shown an obvious upward trend. If the second phase of the WTO Environmental Products Agreement is successful, LED products exported to these countries can enjoy low or even zero tariffs, which will be a very good opportunity for Chinese LED export companies.

Currently, many Chinese LED companies invest overseas. If LED is included in the tariff reduction and exemption project, this will bring a lot of policy benefits to Chinese LED companies and become a niche point for Chinese LED companies to enter overseas markets. Different companies have different specific strategies. For example, packaging manufacturers should seize the opportunity to enter the supply chain of local lighting factories, or invest and build factories locally; lighting foundries should turn more to directly selling finished products to the local market, and use new transportation methods to shorten transportation time and distance. Lighting brand factories can use a single agent or office, or they can invest and build factories locally. LED companies should seize the golden opportunity to enter overseas markets and open up new markets.

Competition intensifies and risks increase

As we all know, tariffs are closely related to commodity prices, production, and sales. As a developing country, China is often at a disadvantage in international exchanges due to low labor productivity and low grade and quality of export products. In other words, because of the low value content of Chinese LED export companies, the microeconomic benefits of the companies in export trade often appear as "losses"; while the macroeconomic benefits of national economic development need to be achieved through the import of advanced technology, equipment and the conversion of domestic scarce resources. The direct impact of lowering tariffs and reducing import restrictions is to stimulate imports, and it also has the connotation of optimizing the import structure.

If import and export tariffs on China's LED products are reduced or zero tariffs are implemented, it will have a significant impact on the LED industry. Although lowering tariffs can promote the large-scale export of mainland LED products, it is not entirely positive from the perspective of the overall LED market. At present, LED lighting and other application fields are in an accelerated growth stage in China. If tariffs are lowered, the direct result will be that Taiwanese LED companies or international giants will reduce product prices, which will also cause the price of end products to decline. Generally speaking, it is a good development, but it will also intensify competition among Chinese LED companies. Therefore, on the premise of developing market share, Chinese LED companies must vigorously develop their own patented technologies. Only when they develop their internal skills well will they have a stronger backbone to support their development.