Since China joined the World Trade Organization (WTO) in December 2001, its automotive industry has entered a fast track of development. China's vehicle exports have now risen to first place in the world, and the overseas automotive market continues to expand.

However, technical barriers to trade between different countries remain the biggest obstacle restricting and affecting China's vehicle exports, and meeting the market access requirements of different countries has become the first hurdle for domestic automakers going global.

Overseas technical barriers should not be underestimated

According to data released by the China Association of Automobile Manufacturers, in the first five months of this year China exported 1.758 million vehicles, up 81.5% year on year. Another set of data from the General Administration of Customs shows that in the first five months the total value of China's automotive product exports reached 266.78 billion yuan, up 124.1% year on year.

These figures show that China's vehicle exports are growing in both volume and value, with new energy vehicles in particular acting as the ballast of China's vehicle exports. Moreover, as the pace of going global accelerates, more and more independent brands are shifting their focus from Asia, Africa and Latin America to the European and American markets, and China's vehicle exports are showing an increasingly diversified market pattern.

Before vehicles are exported to overseas markets, especially high-end markets in Europe and the United States, comprehensive preparations must be made at the access stage. Besides the well-known compulsory certifications, there are also access-level environmental regulations and technical barriers to trade in the relevant markets. For domestic automakers there are more or less difficulties and challenges: they should neither be blindly overconfident nor underestimate overseas technical barriers.

As early as February 2001 the European Commission published the White Paper on the Strategy for a Future Chemicals Policy, which proposed a new chemicals policy to guarantee a high level of chemical safety and the competitiveness of the chemical industry through a system of registration, evaluation, authorisation and restriction of chemicals. According to the Automotive Industry Guideline on REACH (AIG) 4.0, both new energy vehicles and traditional internal combustion engine vehicles fall within the scope of the EU REACH Regulation, and automotive products must meet a series of compliance measures under REACH, which has created considerable obstacles to the export of Chinese automotive products to the EU market.

The United States has also successively introduced a series of environmental regulations, such as the Toxic Substances Control Act (TSCA). In addition, the well-known California Proposition 65, the ELV Directive, the recycling Directive, the POPs Regulation, the WFD Directive, the new EU Battery Regulation and GADSL are among the technical barriers that have made Chinese vehicle exports considerably more difficult.

Compliance awareness among exporting automakers needs strengthening

Compliance is the lifeline of Chinese automotive exports. To meet the environmental requirements of overseas markets, independent brands need to control automotive chemicals from the source and fulfil a series of obligations including identification, notification, information transfer and restricted use. At present, as Chinese vehicles go global ever faster, domestic automakers are gradually deepening their study of overseas environmental regulations.

The automotive industry generally controls whether materials contain regulated substances by requiring downstream suppliers to submit declarations through the CAMDS or IMDS systems. In practice, however, there are still many problems with the data submitted: on the one hand, downstream suppliers differ in their understanding of the regulatory requirements and reporting systems; on the other, their professionalism and commitment vary considerably. This inevitably creates hidden risks of inaccurate or incomplete system data, which ultimately brings control risks to automakers exporting overseas.

There is also a problem that is easily overlooked. Because vehicles are exported in smaller quantities than other products and are bulk commodities, overseas spot-check supervision is currently relatively light, and there are few cases of notification, recall or penalty arising from environmental regulations. This situation leads some exporting companies to take chances and to manage overseas environmental regulatory requirements rather loosely.

Non-compliance triggers a chain reaction

Once non-compliance is discovered, the consequences are serious. Under REACH, penalties for violations are set by each EU Member State and generally include product recall, destruction, withdrawal from the market, a ban on entering the EU market, fines and even imprisonment. Judging from actual EU enforcement in recent years, mandatory recall and destruction of products is the norm, and voluntary recall and destruction has also been required. In addition, products with excessive chemical substances can generally only be treated as hazardous waste, and the disposal cost is very high.

Besides the economic losses mentioned above, the knock-on effects can also be considerable. Once a penalty is notified by one EU Member State, other Member States may well step up supervision in succession, or even launch targeted enforcement actions.

Therefore, once non-compliance occurs, besides affecting the company's brand image and export plans, it may have a knock-on negative impact on the pace at which other Chinese independent brands go global. The key is to strengthen management from the product development stage and ensure that the chemicals in products are compliant.

Manage compliance from the product development stage

Faced with increasingly stringent export requirements, vehicle and component companies need to manage compliance from the product development stage. The following steps are recommended:

Enterprises need to establish an internal regulatory tracking mechanism to keep abreast of the latest developments in foreign regulations, such as updates to the EU REACH Regulation, the ELV Directive and the POPs Regulation, and to monitor notifications from foreign enforcement bodies, so as to avoid the risk of non-compliance caused by failing to follow updates in controlled substances.

Establish an internal environmental regulation management and assurance system, such as green procurement systems covering green product purchasing and chemical management manuals, and cascade regulatory control requirements through key processes including product design and development, material certification, supply chain development and management, procurement, outsourcing, manufacturing, inspection, product marking and traceability control, and change management, so as to reduce product risk.

Automotive hazardous substance regulations control a very large number of substances, with thousands of substances listed across the various regulatory lists. Automakers are advised to create their own high-risk database, identify high-risk substances in each type of material, determine part risk levels through appropriate decision rules and manage parts by risk level, so as to achieve precise control of hazardous substances, improve control efficiency and reduce control costs.

Provide training on the relevant regulations to internal staff and the supply chain to help them understand the requirements, build regulatory awareness and capability, and improve work efficiency.

Enterprises are advised to carry out regular self-inspections so that risks can be identified and rectified early, strengthen production consistency control of hazardous substances and ensure continued product conformity.

After years of unremitting effort, the moment for China's vehicle exports has arrived, but overseas markets are deep waters with big fish, and the voyage is not without waves and hidden reefs; going far and steady remains full of challenges. NTEK works together with automotive industry organisations to build customised compliance solutions covering solution design, inspection and testing, database verification and export certification, aiming to provide enterprises with comprehensive compliance assurance, help them open up overseas markets and achieve global development.