• As France is a member of the European Union (EU), its trade relations with Hong Kong/the Chinese mainland are affected by EU's common external trade policy and measures. As a euro-zone member, it has also adopted the euro as its legal tender from 1 January 2002.
• Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China had been established to monitor EU imports of Chinese textiles and apparel, which was scheduled to operate for one year, covering 8 out of the 10 previously restricted categories. On 11 December 2008, the European Commission announced that the regime of double checking surveillance system was to expire on 31 December 2008. Accordingly, starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.
• The EUs new scheme on generalised system of preferences ("GSP") entered into effect on 1 January 2009, and will remain in force until 31 December 2011. While the Chinese mainland remains a beneficiary, certain products, including toys, textiles and textile articles, footwear, furniture, jewellery, electrical equipment and watches and clocks, will be excluded from preferential treatment.
• A number of Chinese mainland-origin products are subject to EU's anti-dumping duties, including bicycle parts and certain leather footwear, which are of interest to Hong Kong exporters.
• Hong Kong's total exports to France increased by 6% to US$4.8 billion in 2008, while its imports from France grew by 9% to US$3.2 billion.
• The total stock of French direct investment in Hong Kong amounted to US$3.6 billion as at the end of 2007.
• The French economy grew only by 0.7% in 2008, and is expected to contract by 1.8% in 2009. Domestic demand has weakened sharply as a result of worsening employment prospects, plummeting property prices and decreasing availability of personal finance, while industrial production and business investment have been dampened by deteriorating external demand and increasing corporate failures.

Current Economic Situation

After recording a 2.2% increase in 2007, the French economy grew by 0.7% in 2008. Domestic demand has weakened sharply on the back of poorer employment prospects, plummeting property prices and decreasing availability of personal finance, while industrial production and business investment have been dampened by deteriorating external demand and rising corporate failures. Weak demand from key external markets including Germany, the UK and the US has not only contributed negatively to France's exports, but also capacity utilisation and business sentiment, with demand for automotive products and capital goods being hit particularly hard.

Looking ahead, the deepening of the current global recession will remain a drag on the French economy. Domestic demand is forecast to stagnate as joblessness rises, consumption sentiment deteriorates and house prices further decline, although a descent in general prices is expected to somewhat underpin the spending power of both French companies and consumers. On the other hand, banks' unwillingness to lend will continue to hold back private consumption and business investment. Externally, lacklustre external demand will curb France's exports, although lower oil prices and a weaker euro will help check imports. All in all, the French economy is expected to contract by 1.8% in 2009.

Trade Policy

France is a member of the EU, and it follows EU's common external trade policy and measures. As a euro-zone member, it has also adopted the euro as its legal tender from 1 January 2002.

Textiles and Clothing

Hong Kong's textiles and clothing exports to the EU were previously subject to the World Trade Organisation (WTO) Agreement on Textiles and Clothing (ATC), under which quantitative restrictions on textiles and clothing were eliminated completely on 1 January 2005.

Likewise, the previous quotas imposed by the EU on textiles and clothing products originating from the Chinese mainland were removed on 1 January 2005. However, as a result of the EU-China agreement reached in June 2005, the EU imposed safeguard quotas on 10 categories of Chinese textile products for the period of 2005-2007. Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China was established to monitor EU imports of Chinese textiles and apparel for one year, covering 8 out of the 10 previously restricted categories.

On 11 December 2008, the European Commission announced that the regime of double checking surveillance system was to expire on 31 December 2008. Accordingly, starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.

Non-textile Manufacturing Products

Previously, the EU also imposed Union-wide quotas on three categories of non-textile products originating from the Chinese mainland, including certain footwear, porcelain and ceramic tableware/kitchenware. But these quotas were liberalised on 1 January 2005.

Scheme of Generalised Tariff Preferences

The EU's new scheme on generalised system of preferences ("GSP") entered into effect on 1 January 2009, and will remain in force until 31 December 2011. The scheme classifies products into two categories, namely sensitive products that enjoy the benefits of reduced tariff rates by 3.5 percentage points, and non-sensitive products that enjoy total tariff suspension. Under the new GSP scheme, the Chinese mainland remains a beneficiary. But certain products, including toys, textiles and textile articles, footwear, furniture, jewellery, electrical equipment and watches and clocks, will be excluded from preferential treatment. Regarding Hong Kong, the territory has been fully excluded from the EU's GSP scheme since 1 May 1998.

Anti-dumping Measures

The EU has initiated anti-dumping proceedings against certain mainland-origin products. Currently, there are a number of mainland-origin items subject to EU's anti-dumping measures, including bicycle parts and certain leather footwear (definitive duty at 16.5%), which are among the affected products of interest to Hong Kong.

Other Measures

To combat the spread of the Asian longhorn beetle, the EU introduced in July 1999 emergency controls on wooden packaging material originating in the Chinese mainland. Wood covered by the measures must be stripped of its bark and free of insect bore holes greater than 3mm across, or have been kiln-dried to below 20% moisture content.

For health reasons, the EU has adopted a Directive on the control of the use of nickel in objects intended to be in contact with the skin, such as watches and jewellery. Following the emergency ban adopted in December 1999, the EU has adopted a Directive to ban the use of some phthalates in certain PVC toys and childcare articles on a permanent basis, which will come into effect from 16 January 2007. In addition, the EU has adopted a Directive to prohibit from September 2003 the trading of clothing, footwear and other textile and leather articles which contain azo-dyes, from which aromatic amines may be derived.

On the other hand, the EU has adopted a number of Directives for environmental protection, which may have an impact on the sales of a wide range of consumer goods and consumer electronics. Notable examples include the Directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the Directive on Restriction of Hazardous Substances (RoHS) implemented in July 2006.

On 3 December 2008, the European Commission (EC) presented two proposals: one for a recast WEEE Directive and the other for a recast RoHS Directive. As per the EC, the purpose of a recast WEEE Directive is to tackle a number of technical, legal and administrative difficulties since its entry into force, while as for the recast RoHS Directive, the EC aims to improve implementation by the Member States (e.g., by ensuring a more harmonised implementation), improve enforcement and increase understanding of the provisions.

On the heels of the WEEE Directive and RoHS Directive, the EU's new Directive on the eco-design of Energy-using Products (EuP) is now in place. This EuP Directive does not directly introduce binding requirements for specific products, but does define conditions and criteria for setting via subsequent measures. On 16 July 2008, the EC presented a proposal to extend the EuP Directive to set compulsory minimum ecodesign requirements for not only energy-using products but all energy-related products. The EuP Directive as it stands now already applies to a wide range of equipment, from office appliances, televisions and hairdryers to boilers, water heaters and industrial fans. The proposed extension, while continuing to apply to energy-using products, will cover products that - while not themselves consuming energy - nonetheless impact on the consumption of energy. The proposal is expected to be subjected to a first reading by the European Parliament and Council before the end of spring 2009.

Moreover, REACH, a EU Regulation, which stands for Registration, Evaluation, Authorisation and Restriction of Chemicals, entered into force in June 2007. Among others, it requires EU manufacturers and importers of chemical substances (whether on their own, in preparations or in certain articles) to gather comprehensive information on properties of their substances produced or imported in volumes of 1 tonne or more per year, and to register such substances prior to manufacturing in or import into the EU.

Highlighted by the 2007 summer of recalls, the European Parliament voted through the new Toy Safety Directive by an overwhelming majority on 18 December 2008. As adopted by the European Parliament, the new Toy Safety Directive provides a clearer definition of what is considered to be a 'toy', bolsters safety regulations, clarifies warnings and age-limit descriptions, bans substances which are carcinogenic, mutagenic or toxic for reproduction (CMRs) and restricts the use of heavy metals and fragrances. The Directive has now been forwarded for approval by the European Council. Once adopted, the Directive is expected to enter into force twenty days after its publication in the Official Journal.

Hong Kong's Trade with France ^

Hong Kong's total exports to France increased by 6% to US$4.8 billion in 2008, after growing by 7% to US$4.6 billion in 2007. Major export items included telecommunications equipment and parts (shared 11% of the total), articles of apparel, of textile fabrics (10%), jewellery (6%), toys, games and sporting goods (6%), and travel goods and handbags (5%).

On the other hand, Hong Kong's imports from France grew by 9% to US$3.2 billion in 2008, after growing by 12% to US$3.0 billion in 2007. Major import items included travel goods and handbags (shared 20% of the total), jewellery (7%), perfumery, cosmetics/toilet preparations (7%), alcoholic beverages (6%), and telecommunications equipment and parts (5%).