China implements import restrictions on scrap and waste

China recently took steps to close its waste and scrap market—the world’s largest—to imports, jeopardizing more than $5 billion in exports from the United States, the world’s largest waste and scrap exporter.

On July 18, China notified the World Trade Organization (WTO) that it would no longer accept imports of plastic, textiles, unsorted paper, artificial fibers, metal scrap such as steel, copper and aluminum, as well as tires, and glass. The notification stated China’s restrictions would enter force in September 2017 and all imports of these items would be blocked by the end of the year.

It’s been a relatively short time since these initial restrictions came into effect, and the drop-in volume of scrap shipments to China has been noticeable. (See sidebar on this page.)

On July 27, China’s State Council went further, setting a goal of ending all solid waste and scrap imports by 2019 and replacing them with domestic sources. Chinese regulators have also taken steps that place de facto limits on waste and scrap imports into China. China’s Ministry of Environmental Protection (MEP) issued a draft regulation in August setting a maximum contamination rate of 0.3 percent for scrap imports.

According to the Institute of Scrap Recycling Industries (ISRI), a US recycling industry association, China’s proposed contamination threshold would constitute a ban on the import of all scrap imports to China, as it would be next to impossible to achieve such low contamination levels. Approximately one-third of the scrap recycled in the United States is exported, with China being the largest customer of US exporters, according to ISRI.

China has not issued new import permits for plastic or paper scrap for several months, preventing importers whose permits have expired from doing business, according to a report from the US-China Economic and Security Review Commission.

Global Impact

China’s closure of its waste and scrap market will have a significant effect on waste and scrap trade worldwide. China has long relied on imported scrap metal, paper, and plastic as a low-cost source of raw materials for its manufacturing sector. Today, China is the world’s largest importer of waste and scrap accounting for 22% of global waste and scrap imports in 2015, totaling $24 billion out of $109 billion total imports.

In 2015, China accounted for 57% of global plastic scrap imports, valued at $4.2 billion, 31% of nonferrous metal scrap imports, $11.3 billion worth, 51% of paper scrap imports, totaling $5.3 billion, and 28% of electronics scrap imports, $1.8 billion. China’s waste and scrap imports grew from $12 billion in 2005 to $42 billion in 2011, an increase of 246%, before declining to $24 billion in 2015.

China’s decision to stop accepting waste and scrap will negatively affect the United States, the world’s largest exporter of waste and scrap. In 2015, the U.S. exported $17.7 billion of waste and scrap, accounting for 19% of global waste and scrap exports. China is the largest export market for waste and scrap for US exporters, accounting for roughly $5.2 billion, or 30%, of all US waste and scrap exports in 2016.

While US waste and scrap exports to China have declined—largely due to Chinese concerns over waste and scrap contamination and a Chinese inspection crackdown—they continue to constitute a large share of US goods exports to China. In 2011, US waste and scrap exports to China peaked at $11.6 billion—11% of all US goods exports to China—before declining to $5.2 billion, or 4.5% of goods exports, by 2016.

Despite this decline, in 2016, waste and scrap was the sixth-largest goods export to China for the United States, behind transportation equipment, agricultural products, computer and electronic products, chemical exports, and machinery.

According to the ISRI, China’s ban on plastics, fibers, paper, and textiles as described in its July 18 WTO notification would put 18% of US waste and scrap exports to China at risk, or roughly $532 million annually. If China fully closes its market by 2019, the remainder of the United States’ waste and scrap trade would be jeopardized, resulting in the loss of more than $5 billion annually.

The move by China has already hit the radar screens of US port planners. Developments in scrap markets are being considered by the Port Authority of New York and New Jersey as part of its ongoing long-term planning, noted Bethann Rooney, assistant director in the Port Authority’s port commerce department. “Ports that have a niche in bulk cargoes will have to look carefully at this,” she told the AJOT.

According to the ISRI, 40,000 US jobs are directly supported by waste and scrap exports and 94,000 are indirectly supported. More than $3 billion in federal, state, and local tax revenue is collected from US waste and scrap exports.

Ocean carriers will also take a hit on the Chinese scrap ban. Although the carriers don’t earn much per TEU carrying scrap as it’s a backhaul trade for them—a recent report from Drewry estimates that the Chinese policy could put as much as four- to five-million TEU at risk—nearly three percent of world loaded container traffic. Potentially easing the pain for carriers are increases in exports of beef and other foodstuffs to China.

Representatives of recyclers from the US, the European Union, Canada, Korea, and Australia have raised questions about China’s policy at the WTO’s Committee on Import Licensing, which oversees the WTO Agreement on Import Licensing. That agreement is designed to ensure that procedures used to administer import licenses are “simple, neutral, equitable and transparent.”

The ISRI was among those filing comments, saying it “opposes measures that restrict the free flow of specification-grade commodities around the world.” “China’s ban on solid waste,” the ISRI comments said, “will have a negative economic impact on the recycling industries in the United States and China, the manufacturing sector in China that relies on these highly valuable commodities, and the environmental sustainability opportunities from the use of recyclable materials in China.” ISRI requested a revision of the policy to avoid a disruption in trade as well as clarification of the ban’s scope.

The rules under the WTO Agreement on Import Licensing require members to publish and notify new or changed import licensing procedures to other WTO members, to apply simplified procedures without discrimination, and to process import applications within reasonable time limits. The purpose of the rules is to provide transparency to help avoid trade disruptions, and to promote good governance practices among WTO members. The committee meets twice a year, and provides a forum for members to ask questions and seek clarification about draft laws and import procedures.

The WTO may provide members with a forum to discuss processes and procedures and how new rules will be implemented, but it has no authority to demand changes in a member’s policies and it is doubtful that China is inclined to reverse its articulated policies on scrap and waste.