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Waste & Recycling

Issue # 3, Vol: 3

Cover Story: Green Fence for better quality control

By Swaliha Shanavas

The Green Fence initiative of China which was launched in February 2013 with the aim of filtering out substandard and hazardous scrap material entering the country has impacted businesses worldwide, at least in the short term. The regulation is being enforced by rigorous container inspections, with a lot of material being rejected, and the action has led to difficulty in shipping mixed loads, customs clearance delays at ports, slower inbound movements, re-packaging of material and diversion to other ports, with its effect being felt in various countries including the US and Europe.

Operation Green Fence was one of the significant topics touched upon by many speakers at the Bureau of International Recycling (BIR) 2013 World Recycling Convention in Shanghai, with a great deal of emphasis placed on it at the Plastics Committee meeting. “A butterfly in China is creating a tornado in Europe,” stated Surendra Borad, Plastics Committee Chairman and chairman of Gemini Corporation.

Steve Wong, managing director of Fukutomi Company Ltd., said the Green Fence action is mainly to defend “the living environment” of China against pollution. He underlined the implications of the action on the recycling industry. “Post production plastic waste will soon become the major type of plastic waste to be imported… At the same time, traders who rely much on trading of plastic waste will naturally be eliminated from the business. Only those recyclers who also involve producing finished products for export can survive.” Another consequence could be overseas suppliers seeking alternative markets he said. “In order to survive, overseas suppliers have started recycling and processing their post-consumer waste into recycled raw materials locally.”

Guest speaker Renwu Cai, general manager of Guangzhou GISE-MBA New Plastics Technology said the Green Fence operation was to “crack down on illegal enterprises and standardise the industry” but acknowledged that this brought about customs clearance delays, resulting in additional costs to even the law-abiding enterprises.

Gregory Cardot of Veolia Propreté pointed out that Green Fence is only a strict application of a Chinese regulation of 2010 concerning the importation of waste in China. “Consequently, all plastics mixed with more than 2% of contamination are no more welcome in China.” He stressed that this is an opportunity for all to improve the quality and ‘develop the plastic recycling processes for tomorrow’.

Ranjit Baxi of UK-based J & H Sales International and BIR Paper Division’s President observed that for success in business “the word ‘quality’ must be right on top of every business agenda”, and when supplying recovered fibre they should increase their focus on the specific quality requirements of the individual receiving country. He said, for instance, China operated to its own long-established material classifications, and while consumers in that country did not expect overseas suppliers to achieve zero prohibitive materials, neither were they prepared to accept 10% wax-coated paper.

“Operation Green Fence was set up by China Customs to ensure the correct enforcement of existing legislation on waste imports,” Minnie Kong, Associate Economist (Fiber) at RISI pointed out, adding that in the short term the policy was hurting the exporters in USA and Europe, also creating problems for Chinese paper mills relying on imports, ‘at least temporarily’.
Ranjit Baxi, CEO, J&H International Ltd

Middle East perspective

Considering the significance of the Green Fence initiative, we sought the views of some of the major recyclers in the region The green fence regulation is necessary on the part of China to have the required environmental and economic controls over the increasing import of scrap materials, said Salman Shaban, Manager-Commercial, Lucky Star Alloys. “In the short run, it might disturb business in terms of price reductions, slowdown in supply and port demurrages. But, in the long run, it will have a positive impact on the waste scrap trade as it will streamline the type of material coming into China and will limit the environmental impact on China.”
Surendra Borad, Chairman, Gemini Corporation

Shiraz Hamirani, Managing Director, Paper Chase views the Green fence as a positive step by China, towards improving quality for some packers who have not been able to meet international standards for supply of raw materials to Paper mills. “Several thousand containers are blocked at the Chinese ports and are being asked to be shipped back to origin. This means huge costs being incurred by the packers whose cargos are being returned.” According to Surendra Borad of Gemini Corp., who referred to the development as ‘a blessing in disguise’, the regulation “will force the recycling industry to adopt better sorting techniques; it would improve the image of the scrap industry. The inexperienced and off-and-on traders in the industry will have a difficult time. Overall, the quality of scrap will improve. There are some types of plastic scraps which can be better recycled in Europe as they have better technology.”
Shiraz Hamirani, Managing Director, Paper Chase

Bilal Effendi, Director, Paklite fzc and Paklite HK Limited said China is the biggest importer of plastic scrap, which comprises production wastes and recovered materials and that waste plastic imports in China stood at 2.4 million tons in 2002 to about 11 million tons in 2012. “I have been in the waste plastic business since 2006, and we have seen the noose around the quality of materials being tightened gradually since then. The regulation has been there since 2010 and we had seen considerable changes in the requirement of materials from our buyers over a number of years. As per my understanding, operation Green Fence has two objectives from the Chinese government’s stand point: 1) to regulate the quality of waste material entering the country; 2) to regulate the business on the mainland.”

Impact of Operation Green Fence

In Borad’s view, “USA and Europe have been insanely dependent on exports to China. Alternative destinations will be looked into and rightly so. There will be some reduction in the quantity of exports from USA and Europe. Under the Green Fence the role of traders is being eliminated. This may have some negative consequences as the processors do not have enough working capital or human resources to source the scraps.”

China has strict measures to control quality and eventually only good reliable packers with standard quality will be allowed to ship their material to the country, said Hamirani. “This will result in a shortage of good fiber in the short run, till packers are forced to improve their quality to meet green fence requirements.” He added that every packer when exporting has to be more careful in improving the quality to meet the requirements and “this is going to be a challenge for small packers and traders”.

The director of Paklite sees the new regulation as an opportunity. “If only clean scrap materials are allowed for import, you would have to do your recycling, at least to a certain extent, in the country of origin. So the governments in the Middle East or elsewhere should now support recycling and not just collection activities.” But clean scrap is not the only issue, he noted. The regulation states: 1) The import license should neither be borrowed nor sold; 2) The imported material should only be used as raw stuff by the importers and in any case reselling of the imported material is strictly prohibited as indicated in the license; 3) most importantly, the importer should get a clearance from his local customs only and not any other customs in the country.

“This is cutting the business,” Effendi said, further explaining that a majority of the materials enter China via Hong Kong. The Guangdong province has seen 30-40% of the recycling business shut down after the launch. Those involved in the business clearly acknowledge that the final end-use buyers of the plastics scrap have nothing to do with the initial purchase. The material changes hand from the supplier in a foreign country to a buyer in most probably Hong Kong. The Hong Kong company takes responsibility to clear the imported goods in Hong Kong, re-export to China and clear the goods in China before handing over to usually a broker/trader who again resells to recyclers on the mainland. Licenses are borrowed and in a majority of the cases, the importer in China as per the documents is lender of the license only.

“I understand that this is a good move by the Chinese Government as it will restrict the control of the raw materials with a few people holding the license; this might help reduce costs of imported scrap, meaning a lower net back to the foreign supplier and better portion going in the Chinese economy. From a trader’s point of view dependent on the Chinese market, this move will cut off a lot of business and might even drive some players out of business. However, for the local industry anywhere, it is a blessing in disguise as waste raw material will be available at better prices,” he added.

Its effect on the Middle East recycling industry will not be as much since the industry is relatively smaller than Europe and US, said Shaban. “I feel that it will have a greater impact on exporters based in the EU and US. This issue can be addressed by improving the quality of their export material and avoid exporting those items prohibited by the green fence guidelines.”

In Borad’s view, there will be a reduction in exports of scrap from the Middle East as far as Plastics Scrap is concerned, and the collectors need to invest in modern sorting and packaging equipment. “The reduction in export is good for the domestic plastics industry. There is shortage of plastics scrap in the Middle East region. The Green Fence action may reduce the local prices. It goes without saying that quality improvement should be a constant objective. This action has prompted the Middle East industry that every scrap cannot be exported. You need to “work” on the scrap. You need to add value by way of sorting and better packing. All in all, this action is good for the industry in the region.”
Salman Shaban, Manager-Commercial, Lucky Star Alloys

Effendi also stated that there will not be a big impact on the region’s industry as a lot of material is being collected and converted into raw material here, which is then exported for recycling elsewhere including China. “Also recently many industries have been setup which require scrap, but were previously unable to buy due to fierce competition from China. Again, a lot of waste moves into India, Pakistan and other far eastern countries. And if the materials are not exported, it will end up with local processors, so I view it as a gain for the local industry.”

CCIC Dubai expressed their views on the initiative. Following are some excerpts.

“With China’s ever increasing environmental pressure, Chinese government has been putting more emphasis on environmental protection in recent years. The ‘green fence’ action as part of China’s green drive aims at preventing environmentally substandard scrap materials and dangerous wastes from entering the country. China’s Customs and environmental protection organisations are the main authorities responsible for carrying out this action,” said Song Xiaofeng, general manager at China Certification & Inspection Group (CCIC), Dubai. “As far as we know, ‘green fence’ is a positive move targeted at releasing China’s environmental pressure coming from outside which has confounded the environmental conditions within the country. We think the move is helpful in greening the international scrap market. The Middle East suppliers of scrap material could take ‘green fence’ as an outside encouragement or spur for better quality control.”
Bilal Effendi, Director, Paklite fzc & Paklite HK Ltd

Impact of Green Fence initiative

“We think it will produce positive results for excellent companies with good quality control. The action will push companies to exercise extra care in selecting the source and improving the quality of their materials, thus upgrade their material structure to cater for greener needs in China,” he emphasised, adding that in the long run, it will provide companies with a competitive advantage in material quality and environmental control to survive and prevail.

“While companies within China that use scrap as raw materials might face temporary shortage of production materials and higher cost for scraps, they might get better quality scraps and face low environmental pressure from supervisory department in the long run. So it is not very meaningful to appraise the immediate consequences or benefits for the companies within China,” Xiaofeng noted.

He also said they did not think the action will generate considerable impact on the Middle East recycling industry. “If it will, the impact would only be short pangs of upgrading the company and materials. As far as we learn, the Middle East recycling scrap market is healthy and market oriented. The material structure and quality are generally good. And as China is still a great market for scrap materials, there will always be demand for Middle East recycling materials,” he stated.

“Our business figures did show some decrease in scrap export to China in May. However, the constitution of business decrement is mainly on low quality end market, and affected clients are mainly small scale suppliers buying materials with relatively poor quality and low profit margin, therefore with less market adaptability. Middle East mainstream suppliers with good quality assurance and correct business orientation should obviously be less affected. And the types of scraps most affected are only plastics because of its diversity of sources, especially those coming from city garbage and industrial wastes. Impact on paper and metals are relatively small, because the environmental risks of paper and metals are relatively limited,” the general manager explained.

In his view, the only way to address the ‘quality’ issues is to have better quality control. “China’s policy and law for environmentally safe scraps can hardly be disputed. Any country with certain awareness of environmental protection may apply laws of this kind. The laws are strict but not too exorbitant. We think every businessman should be on the positive side of the quality challenge as it is a stimulus for the industry’s growth. You will be better prepared and more adapted if you do not worry about your material quality, on the contrary, are confident in it.”

Inspection procedures

Scrap materials will have to undergo pre-shipment inspection (PSI) before they are actually shipped to China for customs clearance, where the cargo will go through the final inspection from the port customs and the health and quarantine department (CIQ). China has a set of compulsory national standards for scrap materials. Both PSI and the CIQ inspection are carried out against the same compulsory standards, while the customs also check for forbidden cargoes listed in China’s forbidden lists during scrap inspection.

“The Chinese compulsory standards for different scrap materials mainly control dangerous wastes, explosives, radioactive materials, city garbage and other carried-on wastes. Those are any inspector’s main concern. So always make your materials clean and environmentally safe. Try to keep your materials free from forbidden wastes (dangerous wastes, explosives, radioactive materials, city garbage) and keep other carried-on wastes within limits of standards,” the official stated.

The message is simple: Keep it clean and green!

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