Written submission from British Toy & Hobby Association (TWC0023)

 

 

October 2019
 

Introduction

Founded in 1944, the British Toy & Hobby Association (BTHA) is the official organisation representing toy manufacturers in the UK. The BTHA has 154 members ranging from international toy giants to small family-run businesses that together account for more than 80% of the branded, legal toys sold in the UK. Members of the BTHA annually sign the BTHA Code of Practice to demonstrate their commitment to promoting the highest standards of safety and quality in the manufacture and marketing of toys, games and playthings.

 

This submission constitutes the British Toy & Hobby Association’s (BTHA) response on the call for views on a trade or investment agreement with China. The BTHA welcomes the opportunity to input into this important inquiry and welcomes the UK government approach in its willingness to support innovation in UK businesses by listening to the opportunities and concerns of our members. 

 

The importance of China to the UK toy industry - Manufacturing

  1. China is a hugely important country for the UK toy industry. From the 1980’s toy prices have remained comparatively stable, and affordable, for UK consumers as toy manufacturing moved to Hong Kong and then mainland China.

 

  1. For many members of the BTHA China is currently either their only manufacturing source, or their main manufacturing source.

 

  1. An estimated 80% of all toys produced worldwide are made on the mainland. The primary toy production and export bases are Guangdong, Jiangsu, Shanghai, Shandong, Zhejiang and Fujian. Guangdong is the leader of these, with manufacturing centred around Shenzhen, Dongguan, Guangzhou, Shantou’s Chenghai, and Foshan.
     
  2. Many UK companies have a mixed business model when it comes to distribution; they can be “manufacturers” who own the IP and product but have it physically made in China; they import product from Chinese factories who make and sell them the toys; or they are the UK distributor for a non-UK company – many UK companies will have all three models within the portfolio of products they sell in the UK and abroad. Many BTHA member products are researched and developed in the UK, the IP is owned here and then the products are physically made in China for import to the UK and other countries around the globe.
     
  3. The factories members work with are trusted and members have invested a lot of time and money training and developing the skills and standards needed/expected with these manufacturing partners (also see ethical section below). However, there are thousands of toy factories that are also a danger to the UK toy market and UK consumers, and we would welcome government intervention to tackle the issues they pose if, and when, trade negotiations take place.
     
  4. Although China has occupied an important position in toy production for many years, market pressures are increasing. As production costs on the mainland continue to rise many toy companies have started to relocate production to other markets, such as India or Vietnam as infrastructure investment opens new manufacturing markets.
     

The importance of China to the UK toy industry – As an Export Market

  1. According to data from market research company, Euromonitor, the total retail sales of toys and games in China rose by an average annual growth rate of 19%  over the past five years. In 2018, retail sales of traditional toys and games increased by 7.1% year-on-year representing 24.6% of total market turnover, while retail sales of electronic toys and games increased by 20.9% accounting for 75.4% of total market turnover.
     
  2. According to the Hong Kong Development Council, a member of the International Council of Toy Industries with the BTHA, toy demands are beginning to change as incomes rise and quality of life improves. As of 2017 there were around 233 million children under the age of 14 on mainland China, and so this should present a key market for the future for UK toy companies. Manufacturers are testing the market in differing ways. Some members have reported starting to export to China with one member starting to export last year and already reporting China as their second largest export market 12-months on. Others are partnering with their factory manufacturer to act as a sales agent and distributor for their brand. Many report the large opportunity China presents but are frustrated by the lack of a selling infrastructure in this emerging market that needs far more local knowledge than most UK companies have currently. This often means UK companies have to rely on the appointment of a Chinese agent rather than a direct entry into the retail sector. Some members have offices in the manufacturing bases and that local base is helping them to explore Chinese sales.
     
  3. It is widely felt that the opportunity is huge but the market is regional and fragmented in terms of store outlets. It is difficult to get product distributed to retailers throughout the whole country and as a result many members have seen the biggest opportunity via online sales. According to industry data, the total online sale of toys rose by 31% in 2018.

 

  1. However, there are some key issues that need to be addressed to help UK companies to trade more freely.

 

Barriers to Export;

China/UK IP relationship
 

  1. China has taken many steps to improve the enforcement of Intellectual Property, but industries that rely on strong IP frameworks in the markets to which they export still face many challenges in China.  To maximise our trade with China, IP must be at the forefront of any future negotiations.

 

  1. The main issue members report when asked about concerns with trading with China centre around copycat and infringing product. Members report copycat product being identified as coming from China even when they are not trading in China. This impacts negatively on sales in markets that UK companies cannot police (such as Russia and Middle East). It also impacts on the UK market as unsafe and IP infringing products find their way into the hands of UK children. Counterfeit and cheap copies of toys are unlikely to have been made to the strict requirements of the UK regulations, which require investment, and we are seeing a rising number of unsafe toys entering the UK marketplace (see section below on online marketplaces).

 

  1. Some members take protection measures and spend considerable sums protecting their company name and product names from being registered in China. Some members only buy traditional and generic products in order to protect their design rights and ideas from being copied, but for many this is not an option and they have to deal with the devastating issue of having their ideas and designs copied.

 

  1. We support the Alliance for Intellectual Property’s position that it is vital that the protection and promotion of intellectual property is at the heart of trade policy, ensuring that everything we create in the UK has the potential to achieve its maximum value and that creators are properly rewarded. The opportunities of new trade relationships should be used not to threaten the UK’s world leading regime, but to raise the standards in the jurisdictions with which we negotiate.


Ethical Manufacturing
 

  1. The toy industry has had a reliance on China for more than 40 years and so has developed an ethical programme for the toy community to use in both China, and more recently, across other manufacturing bases across the globe.
  2. The International Council of Toy Industries (ICTI) created the Code of Business Practices in 1995. The ICTI Code of Business Practices represents one unified ethical manufacturing standard for the industry. In 2002, a worldwide auditing process was launched to implement and certify against the ICTI Code of Business Practices, with the goal of driving convergence, raising standards, and reducing duplication of social audits in the global toy industry supply chain. In 2004, the ICTI CARE Foundation was created as a non-profit organisation working completely independently of ICTI to oversee the implementation and certification against the ICTI Code of Business Practices.  Today the organisation is rebranded and known as the ICTI Ethical Toy Program (www.ethicaltoyprogram.org). This programme helps the industry to understand the ethical conditions under which their toys are being made and audits the ages of workers, their working conditions and the hours they have worked and been paid for. It has projects that help to train factories to the ethical standards expected by UK toy companies to ensure workers are treated fairly, as well as programmes to make the lives of Chinese toy workers better.

 

  1. More recently members have reported their fear that the present situation in Hong Kong, Xinjiang, Tibet, etc and the additional press coverage, may put off consumers from purchasing toys bearing the “made in China” mark. In addition, emerging reporting regarding Xi Jinping are exacerbating members worries. For these reasons, some are exploring manufacturing options outside China.


Online Marketplaces
 

  1. The greatest threat to toy safety in the UK is the increasing number of toys that do not conform to the requirements of the Toy Safety Directive (and the equivalent UK standards) that are finding their way into the hands of UK children via third party sellers on online marketplaces. The BTHA have been sample testing toys across the three largest sites over the past 12 months and found, of the toys randomly sampled, 58% are not legal for sale in the UK (they do not meet the UK safety standards) and 22% had safety issues that could cause harm to a child.

 

  1. Any agreement with China should seek to reduce this threat to UK consumers. The BTHA has done extensive work in this area and would be happy to discuss this in more detail.

 

  1. On a positive note China is one country that developed legislation regarding the role of the platforms. A trade discussion might wish to explore the policing of this legislation in the future to ensure it is enforced. in addition, the UK could consider taking learnings to apply in the UK. From 1 January 2019, e-commerce platforms in China have been held jointly responsible for the sale of counterfeit goods listed on their websites. Previously, as in the UK, only individual sellers were liable for damages when found to be selling counterfeits – or unsafe, illegal products. The new e-commerce law means that online platforms must respond to reports of violations or face penalties of up to $30 million.

 

  1. One large Chinese marketplace reported in a meeting with the BTHA that they can only see a solution to the surge in unsafe product coming from China coming from political agreements, rather than something they solve on their own. We would encourage trade discussion to look for solutions that enforce against unsafe products coming from Chinese factories to ensure they never harm or kill a child in the UK.

Toy Regulations and Standards

 

  1. All products listed in the China Compulsory Certification (CCC) catalogue are subject to testing by designated Chinese testing and certification centres. This results in repeat testing even where the obligations match EU requirements (e.g. Phthalates). Only products passing CCC certification and granted the CCC mark can be imported. The following six types of toys are subject to CCC certification: children’s vehicles, electronic toys, plastic toys, metal toys, projectile toys, and dolls. The CCC toy standards govern toys’ raw materials, as well as structural and circuit design in a bid to protect children’s safety.

 

  1. In the Standardisation Law of the People’s Republic of China, which took effect on 1 April 1989, four levels of standards are stipulated: national standards, industry standards, local standards and enterprise standards, in descending order of binding force.
     
  2. National standards are classified into mandatory and recommended standards, represented respectively by standard codes GB and GB/T. For industry standards, there are likewise mandatory standards and recommended standards, with the toy industry deemed a light industry and represented by the standard codes QB and QB/T respectively. Local standards are mandatory within their respective administrative regions, while enterprise standards are applicable to the respective enterprises. Details of the standards can be found here: www.standardcn.com and the Standardisation Administration of China (SAC) website.

 

  1. The SAC has revised GB 6675-2003: National Technical Requirements for Toy Safety which was subsequently superseded and replaced by Parts 1 to 4 and 11 to 14 of GB 6675-2014: National Standard for Toy Safety. The requirements are mandatory and have been in force since 1 January 2016. Determination of Total Lead Content in Materials of Toys and Children’s Products (GB/T 22788-2016) has been implemented since 1 July 2017.
     
  2. For the purpose of the Measures for the Administration of Inspection and Supervision of Toy Imports and Exports, as of 21 November 2018, the General Administration of Customs (GAC) has required original CCC certificates for the import of all toys listed in the Catalogue of Products Subject to Compulsory Product Certification. Previously, only a copy of the certificate was required, providing original certificates is very onerous for companies.

 

  1. In May 2019, the GAC announced a third revision to the Measures for the Administration of Inspection and Supervision of Toy Imports and Exports. This latest version designates the GAC as the governing body for the inspection and supervision of imported and exported toys. The GAC will now assume responsibility for the inspection and supervision of all imported and exported toys listed in the Catalogue of Import and Export Commodities Subject to Inspection. Toy exports / imports not listed in the Catalogue, meanwhile, will remain subject to spot-checks in accordance with the prevailing GAC regulations.

 

  1. Any trade discussions should seek to ask for a national standardised approach to governance of toy standards, to remove inspection requirements and local additional testing, to make it easier for importers into China to show compliance, in order to make it as easy for UK companies to import as it is for China to export into the nationalised standards of the UK.

 

The Role of DIT

 

  1. Members have unanimously reported that the Department of International Trade has been very helpful since its inception.
     
  2. One member had the following suggestions if DIT undertook training suggestions;

- How to approach distribution in mainland China vs HK : how the “one country / 2 systems” applies in terms of IP / distribution / products regulations

- How to understand the retail markets in China, working directly or through and agent – How to crack the China market

- Training about cultural differences in terms of communication and social codes in a business environment

Belt & Road
 

  1. Feedback from members on the BRI was that it is far too expensive to compete with sea freight, and only saves a few days transit time and that is benefits China more than the U.K in that it opens the door for cheap/non tested/ unethical/counterfeit goods to flood the U.K market. Given that U.K production costs are higher members do not envisage toys going the other way.
     

Future trade agreements
 

  1. The BTHA would be supportive of trade discussions with China particularly if they could add measures to solve the issues of counterfeit and copycat products that remove profit from UK companies. We would encourage any initiatives that stop unsafe products at source, so they never enter the UK marketplace. Any future Free Trade Agreements or investment agreements with China need to place discussions around IP protection and product safety at their core. 

Members ask that any trade agreement;

We welcome the opportunity to respond to this call for evidence and would be happy to meet to answer any queries that arise during the consultation and ongoing work that might impact on the toy sector.