On April 18, Jimo customs in Qingdao, Shandong province, has received a batch of self-produced fabric worth 200,000 yuan ($30,520) for export. The goods will be shipped from Qingdao Port to Vietnam after customs clearance processes are completed.

Qingdao Guihua Knitting Co (Guihua) produced the fabric, and plans to ship the goods to the company's offshore processing factory in Vietnam.

Customs officials inspect the fabric at Qingdao Guihua Knitting Co. [Photo/Qingdao News]

"This will be a historic breakthrough for our company as our overseas factories will finally use fabric produced by our parent company in China," said Li Yuqin, a senior manager from Guihua.

Guihua is a comprehensive knitting company based in Qingdao's Jimo district.

In order to reduce production costs and enjoy Japan's preferential zero-tariff policy to ASEAN member countries, the company has set up knitting garment factories in Vietnam and other Southeast Asian countries, and their products are mainly sold to Japan and other RCEP member countries.

Although the parent company in China primarily produces fabrics, Guihua had to purchase production fabrics from Vietnam in order to take advantage of Japan's tariff preference for knitted garments made in Vietnam, which disrupted the seamless industrial chain and supply chain between the domestic company and overseas factories.

"Under the free trade agreement between Japan and ASEAN, the value of knitted garments produced in Vietnam must reach 70 percent in order to meet the rules of origin under the agreement and enjoy zero tariff in Japan," Li said.

Qingdao customs officials introduce RCEP policies to a local company. [Photo/Qingdao News]

Due to the relatively simple processing of knitted clothing, using the fabric from the parent company in China cannot achieve the value-added requirement of 70 percent in Vietnam.

Therefore, even if the fabric produced by the parent company in China is superior in quality and price, Guihua's branch in Vietnam could not use it, Li added.

"With the help of Jimo customs, we understand that fabrics of Chinese origin used in Vietnamese processing plants can be considered as party components under RCEP accumulative rules of origin, which can enjoy zero-tariff treatment in Japan with the RCEP certificate of origin issued by Vietnam," Li said.

This can not only improve product quality and overall profits of the company, but also stabilize the textile, printing and dyeing industrial chain in China, and extend the industrial value chain, Li noted.

It is estimated that thanks to the tariff reduction policy brought about by RCEP, Qingdao Guihua Knitting Co alone will increase its textile export capacity to ASEAN countries by 21.66 million yuan every year, which will increase the development of other upstream and downstream industries.