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6 - Exporting

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6.1 The tariff regime
6.2 Value Added Tax (VAT)
6.3 Non-tariff export barriers
6.4 Inspections
6.5 Product labelling for exporters
6.6 Prohibited imports
6.7 Trading Rights


6.1 The tariff regime

Tariffs on exports to China are monitored and collected by the Customs General Administration (CGA), which publishes a comprehensive guide to rates across all imported goods, along with details of China's national customs rules and regulations.

The Practical Guide to Import and Export Tax of the Customs of the PRC is available from:

Xing Sheng Zhong Hai Fa Xing Zhong Xing Company
No. 6 JianNei DaJie
Dong Cheng Dist, Beijing, 100730

Tariffs on goods exported into China vary between industries. In sectors where China is trying to develop domestic firms, they can be as high as 80% (for instance, on auto parts) but in the case of goods, which the government have identified, as necessary to develop key industries, tariffs may be very much lower. WFOE's are allowed tariff reductions to bring in goods they need for manufacturing. Special zones may also offer tariff reductions as part of their location packages.

Full details of which tariffs apply where can be obtained from the GCA or the relevant local authorities or government ministries.

Tariff rates across all industrial sectors now average around 15%. As part of its commitment to the WTO, China will reduce these to an average of 9.4% by 2005. Some industries, including hardware for IT (e.g. semiconductors) will fall to zero.

Tariffs on goods exported to China are charged at ‘Cost, Insurance and Freight’ (CIF) price, which is the normal transaction price of the good, plus the cost of packing, freight, insurance, and seller's commission.

While China's tariff regime is comprehensive and wide ranging, the category in which a particular import may be placed is often subjected to administrative guidance, which the exporter is not privy to. This often enables local customs officials to "negotiate" duties on individual consignments. The CGA launched a drive to standardise enforcement of customs regulations throughout China in 1998. However, a lot of flexibility remains in the system and can be expected to do so for the foreseeable future.

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6.2 Value Added Tax (VAT)

All enterprises in China engaged in import-export, production, distribution or retailing activities must pay VAT. This is charged at a standard rate of 17%. Items defined as necessities - for instance, agricultural implements - pay a reduced rate of 13%. Enterprises defined as "small businesses" (i.e. with total wholesale and retail sales of not more than 1.8 million RMB) pay 6% VAT.

VAT exemptions on certain categories of goods may be offered as a means of attracting certain categories of imports or foreign investment. Additionally, the central government may take steps to raise or lower VAT rates at any time to pursue general economic goals. In the late 1990's, for instance, VAT on processed exports was reduced to encourage foreign invested enterprises in China to raise production for export.

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6.3 Non-tariff export barriers

Import quotas:

Imports in over 40 categories of goods are limited to a certain amount per year. These include automobiles, various agricultural products and textiles. Quotas and other quantitative restrictions are barred under WTO rules, and China is committed to eliminating them over the next five years. Certain other categories of goods are liable to Tariff Rate Quotas (TRQs), where imports above a set level trigger the imposition of extra duties. Under WTO rules, these TRQs are legal, but China has committed to raising the level before which extra duties apply.

Import Licensing:

In the past, many categories of goods required licenses issued by MOFTEC (Ministry of Foreign Trade and Economic Cooperation, which was replaced by Ministry of Commerce since March, 2003) or the CGA on a case-by-case basis before permission was granted for them to enter the country. These have been gradually eliminated, a process that is likely to accelerate post-WTO accession. Areas where they still exist include the import of passenger vehicles, commercial aircraft, cotton and iron and steel products. Applicants for import licenses must prove that the products they want to import are ‘necessary’ and that they have the foreign currency to pay for them.

Certain designated commodities must go through an automatic registration process and secure a "Certificate of Registration for the Import of Special Commodities" prior to importation. The certificate is valid for six months.

Import Substitution Policies:

China committed to eliminate all import substitution policies and regulations back in 1992, but periodically continues to issues such regulations. Recent examples-in the fields of generic medicines, telecom equipment, power generation and the automotive industry-have been the result of informal directives that have not been publicly announced.

Anti-dumping rules:

As China has liberalised its import regime, many local companies have found themselves in direct competition with exporters, often offering better goods at lower prices. In response, some Chinese companies have responded by bringing anti-dumping actions against importers.

Legal under WTO agreements, anti-dumping rules are designed to prevent the import of goods at prices below their normal value and if this threatens the existence of an industry in the importing country or impedes its development.

Hard-pressed State Owned Enterprises (SOEs) have been particularly keen to use China’s own anti-dumping regulations to ward off foreign competitors and have had a large degree of success. Defendants in such cases are often not allowed access to detailed information about the charge, or given the ability to make representation to the adjudicating body, usually Ministry of Commerce.
Under its’ WTO agreement, China is committed to making the anti-dumping investigation process more transparent, to offer foreign exporters more detailed explanation and to provide a judicial review of its decisions, if necessary.

Anti-Competitive Practices:

Exporters to China continue to struggle with disincentives created by local protectionism, predatory pricing, preservation of industry-wide monopolies, and monopolistic practices designed to protect the state-owned sector. In some cases, industrial conglomerates operating as monopolies or near monopolies have been authorised to fix prices, allocate contracts, and in other ways restrict competition among domestic and foreign suppliers.

There are several existing competition and anti-monopoly laws in place, and as China's reforms continue the business environment for exporters will become more of a level playing field in more areas. However, domestic companies facing threatening competition can be expected to use whatever opportunities are provided to them for rising administrative or policy based barriers to exporters.

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6.4 Inspections

Under Chinese law, goods included on a published Inspection List, subject to inspection under other laws and regulations, or as provided for under contract terms must be inspected prior to importation, sale, or use in China. In addition, safety license and other regulations also apply to importation of medicines, foodstuffs, animal and plant products, and mechanical and electronic products.

Chinese buyers or their purchase agents must register for inspection at the port of arrival. The scope of inspection undertaken by local commodity-inspection authorities entails product quality, technical specifications, quantity, weight, packaging, and safety requirements. The standard of inspection is based upon compulsory Chinese national standards, domestic trade standards or, in their absence, the standards stipulated in the purchase or sale contract.

To meet the arrival inspection requirements, it is advisable that Chinese quality certification be obtained from Chinese authorities prior to shipment of goods to China. The quality and safety certification process appears to require extensive investigation and may be time-consuming.
More details of this process, and of which goods require inspection, can be obtained from the State General Administration for Quality Supervision and Inspection and Quarantine (AQSIQ), at: http://europa.eu.int/comm/enterprise/electr_equipment/internat/aqsiq.pdf

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6.5 Product labelling for exporters

Products approved by the above process must carry a safety label with the relevant information in Chinese. The National Health and Quarantine Administration also require imported food items such as candy, wine, nuts, canned food and cheese to be affixed with a laser sticker evidencing the product's safety.

Chinese regulations on food labelling standards additionally state that all non bulk [packaged food products must have Chinese labels clearly stating the type of food, brand name, trademark, manufacturer's name and address, country of origin, ingredients, date of production and sell-by date.

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6.6 Prohibited imports

China bans the import of certain items, most of which - illicit drugs, pornography and counterfeit currency - are of no interest to legitimate businesspeople. However, China also bans the import of printed matter, films, photographs or magnetic media whose content is deemed to be detrimental to the cultural, political or moral health of China - a fluid category that could potentially be used to apply to any published material. Additionally, certain food additives and colourings are banned on health grounds.

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3.5.7 Trading Rights

The Chinese government has moved to dismantle the near monopoly on import-export rights previously enjoyed by a few state-owned firms. Liberalisation of the trading system was given major impetus in early 1999 when MOFTEC announced new guidelines allowing a wide variety of Chinese firms to register to conduct foreign trade and giving exporters a much wider choice of potential partners. The guidelines allow, for the first time, both manufacturing and ‘non-production’ firms to register for trading privileges. These guidelines were further loosened in 2001. Some goods such as grains, cotton, vegetable oils, petroleum and related products are imported principally through state trading enterprises. Firms with trading rights must undergo an annual qualifications test and certification process. Wholly owned foreign enterprises and individuals are still not permitted to directly engage in import activities, except to bring in material and equipment necessary for production.

As part of its bilateral WTO accession agreement, China committed to phase out many restrictions on trading rights. To meet these commitments, the Ministry of Commerce is working on guidelines to allow foreign companies, subject to certain restrictions, to engage directly in trade.

Currently, the ability of foreign firms to distribute directly their products in China is subject to strict limitations. In general, foreign firms are only allowed to sell products that they manufacture in China and must go through local agents to distribute imported goods. China has agreed to gradually eliminate distribution restrictions as part of its WTO commitment.

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