At the ISRI Summer Board and Governance Meeting in Washington, DC, ISRI staff provided the Paper Division with an update on China's scrap market situation, including the National Sword inspection initiative, the rumors circulating that the Chinese government was considering an import ban on scrap materials, and the Ministry of Environmental Protection's investigation of domestic scrap processors and importers.
Shortly after that meeting, ISRI learned that the Chinese government filed a notification to the World Trade Organization (WTO) formally announcing its intent to ban mixed paper and other scrap from import into China. ISRI immediately reacted with an alert to members about the announcement, and since then, ISRI staff has been working to clarify the government's intent, including to get information on how mixed paper is specifically defined. Here is what we know so far:
- According to the WTO notification, Harmonized Tariff Schedule (HTS) code 4707.90.00.00 - "Waste and scrap of paper or paperboard, not elsewhere specified or indicated (NESOI), including unsorted waste and scrap" - will be prohibited. It is our understanding that this is a broad, catch-all category for paper grades that cannot be classified under a more specific HTS code, such as HTS 4707.10 for OCC. What is still unclear is how this aligns with industry grades, such as whether or not grades 54 and/or 56 are included, and does it include unsorted mixed paper processed at a MRF or single-stream mix exported for further processing in China?
- According to the WTO notification, the materials listed will be prohibited "by the end of 2017" but will enter into force on September 1, 2017. We have learned that shipments must be on the water by September 1 to be allowed entry by December 31.
- China's Ministry of Environmental Protection (MEP) has inspected more than 1,700 domestic enterprises, focusing primarily on scrap plastic but also looking at paper processors. Approximately two-thirds of the inspections resulted in some form of regulatory non-compliance (we do not know how many were in the paper sector). According to sources, many importers - even those that cleared inspection - have curbed purchasing out of uncertainty of the government's actions.
- The issuance of new import licenses was put on hold until these investigations were completed. We have no news on whether the government will restart new license issuance, in general, but it is not likely that new licenses will be issued for the materials to be banned.
- The Chinese government released an official policy statement on July 27 to outline its plans to regulate "solid waste" imports into China. The statement says the government will continue to crackdown on illegal trade and poor business practices by domestic processors, accelerate its plans to upgrade domestic recycling, and announce additional import restrictions by the end of 2019. In fact, the policy paper specifically identifies a goal to replace shortfalls in foreign imports of scrap material with domestically-sourced materials by 2019.
Below you'll find the market report presented to the Paper Division at the ISRI Summer Board and Governance Meetings. In order to reshape and improve our market analyses and to better analyze and respond to new policies and regulations, as with what is happening in China, we need your help to improve our market information offerings, so they are concise and useful to your buying/selling operations. In doing so we can more accurately assess market trends and provide tools to you. This includes providing us a clearer understanding of what HTS export categories ISRI paper stock specifications can reasonably fall under.