China Tax & Investment Consultants Ltd

Tariff Measures on Import-Export of Commodities in the PRC

The Chinese import-export laws and regulations classify goods into 4 categories: general goods, bonded goods, goods either exempted from duty and taxes, or subject to reduced duty and tax rates, and goods temporarily imported. General goods are subject to the normal customs clearance formality: declaration, inspection, levy of taxes, and release. General goods are freely circulated either in the domestic market or bound for other countries after completing the customs formality.

In contrast to general goods, bonded goods, tax reduction goods or tax-exempted goods, and temporarily imported goods are subject to special customs formalities divided into three separate customs stages: pre-clearance stage, clearance stage, and post-clearance stage. Pre-clearance procedures include the application for tax reduction or exemption certificates, application for approval on temporary imports, and placing of security deposit for duty and tax on input materials under processing trading agreements. The customs clearance procedure is the same as that for general import goods except that the levy of duty and taxes are not required. Post-clearance procedures involve the reconciliation of quantity of the import materials with the output quantity in the production contract under processing trade agreement, release of the security deposit for imported materials in processing trade and temporarily imported goods, and application for the lifting of customs supervision on tax-exempt or tax reduction goods.

Tariff Measures

In broad sense, tariff is defined as the customs tariff (duty) and the internal taxes, such as VAT, consumption tax, and other levies, which are imposed on the imported goods. Import tariff also includes special duties of anti-dumping duty, countervailing duty, safeguard duty, and retaliatory duty. Tariff is reduced to the customs duty excluding special duty and internal taxes if it is defined in a narrow sense.

A tariff schedule (table) consists of items of commodities and tariff rates respectively. There is a unique HS code for each item of commodity in the table. Depending on the country of origin, the Chinese law classifies goods or commodities subject to import tariff rates into 5 categories, namely the most-favored-nation (MFN) rate, treaty rate, special preferential rate, general rate, and temporary rate.
The MFN rates apply to goods originating from countries (regions) who are WTO members, or those who have entered into bilateral trading agreement with China incorporating the MFN clause.

Treaty rates are used for goods originating from countries (regions) that have entered into regional trade agreements (RTA) with China. Goods originating from RTA countries (regions) enjoy a lower than MFN rate. The RTAs include the Bangkok Agreement, the Closer Economic Partnership Agreements (CEPA) with Hong Kong and Macau respectively, and the Framework Agreement between China and ASEAN Countries.

Special preferential rates (SPR) apply to goods originating from countries or regions that have concluded treaty with China incorporating special tariff preferential treatment clauses. The SPR is lower than the treaty rate. Goods, to which preferential rate, treaty rate, and special preferential rates are not applicable or whose country of origins is unknown, are subject to the general rate, which is the highest of all.

Temporary rates apply within a definite timeframe. The application of temporary rates takes priority to goods subject to MFN rates. In the case of goods subject to treaty rates or special preferential rates, the lower rate should apply. Temporary rate shall not apply to goods subject to general rates.

Since 2005, the Chinese government has imposed temporary export tax on certain resource-related goods such as copper, nickel, and lead in order to conserve national resources.

The rates of anti-dumping duty, countervailing duty, and safeguard measures, in the case of the administrative measures taken against import goods in accordance with the Chinese laws and regulations, are applied with reference to the provisions of the PRC Anti-dumping regulations, the PRC countervailing regulations, and the PRC safeguard regulations.

Regional Trade Agreement (RTA)

The import tariff rates under different tariff schedules are adopted depending on the country (region) of origin for the goods exported to China. For example, paints and vanishes based on polyesters, whose HS code is 32081000, is subject to tariff rates ranging from 0% to 50% below.

CEPA-HK rate	0%
CEPA- Macau rate	0%
Special preferential rate	N/A
Treaty rate	9%
Preferential (MFN) rate	10%
General rate	50%

The existence of RTA and the adoption of treaty rate is an exception to the MFN principle under the WTO agreement. Goods originating from other countries (regions) that conclude RTA with China enjoy a lower than MFN tariff rate.

Certain goods originating from Hong Kong to China are subject to a zero-rate tariff under the closer economic partnership arrangement (CEPA) between the Central People’s Government and the Government of HK Special Administrative Regions. The catalog of goods subject to zero-tariff is contained in annex 1 of the CEPA contexts. The addition to annex 1 is made on August 2004. The same arrangement also applies for goods of Macau origin.

The Early Harvest Scheme, which is a provision under the “Framework Agreement between China and ASEAN countries”, provides that the tariff for agricultural products with MFN rates exceeding 15% is to be eliminated in 2006, those with MFN rates between 5% to 15% to be eliminated in 2005, and those rates below 5% in 2004. Goods covered under the Scheme include live animals, meat, fish, milk, live plants, editable oil, fruit, coconut and vegetable oil. China and Thailand has already eliminated the tariff for fruit and vegetable moving between the 2 countries since 2003.

In addition to axing the requirement for quota licenses as from 1st January 2005, the Chinese government reduced the import tariffs of automobiles and the accessories to 30% and 13% respectively. In respect of cosmetic products like lipsticks, eye shadows, and powders the tariff rates are reduced to 10%. The rates for other cosmetic products are reduced in stages to 6.5% until 2008.

Tariff rates

	Name of RTA	Countries(regions)	Tariff Schedule
1	Bangkok Agreement	Sri Lanka, India, South Korea, Laos, China	Annex of the PRC Customs Import Tariff Schedule
2	Framework Agreement between China and ASEAN countries	Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam	Annex of the PRC Customs Import Tariff Schedule,
3	Closer Economic Partnership Agreement (HK)	Chinese Central People’s Government, Hong Kong Special Administrative Region	Annex of the PRC Customs Import Tariff Schedule
4	Closer Economic Partnership Agreement (Macau)	Chinese Central People’s Government, Macau Special Administrative Region	Annex of the PRC Customs Import Tariff Schedule
5	Bilateral treaty including special preferential rate treatments	Cambodia, Laos, Bangladesh, Myanmar	Annex of the PRC Customs Import Tariff Schedule

Certificate of Origin (CO)

To qualify for a lower-rate (or zero-rate tariff) for a certain good, the Chinese importer needs to present to the Chinese customs the certificate of origin issued by the administrative body of the exporting country (region). Country of origin for a good or product is the criterion or base for the Chinese customs to apply RTA tariff schedules and rates, quantity restrictions, or other trade measures to goods from a particular exporting country. Certificate of origin is used to prove the “nationality” of a particular product, irrespective of who make it.

The PRC Administration of Quality Supervision, Inspection and Quarantine and its offices at the sub-national level are vested with the authority to issue COs. Products of Chinese origin sold to EU countries or some OECD countries are unilaterally eligible for lower than the MFN rates under the Generalized System of Preference system.

In 2004, the EU GSP covers live animals, plant products, farm products, textiles, jewelry and transporting equipment. The EU will review the GSP agreement that governs the period from 2006 to 2015. It means that less Chinese products will enjoy preference and that the products may completely graduate from the GSP in the near future.

Classifications of Goods

The issue of classification for a particular product arises once the appropriate tariff schedule is determined, with or without the issue on the country of origin being involved. Change in the classification of a product may affect the rate for a specific imported good from a particular country or region. The Chinese customs may subject the imported goods to inspection and testing if there is any doubt over the classification in the declaration for a particular product. Likewise, the importer can apply for advanced classification ruling from the Chinese customs under the provisions of Chinese laws. Such administrative ruling enhances certainty in trading with China.

A change in the classification of commodity may give rise to a change in the country of origin for a particular good. The 4-digit tariff heading of the HS code for a good will change if that particular good is subject to a process of substantial transformation after importation into the country. That country, in which the activities of the substantial transformation take place, will become the country of manufacture and the country of export. Such change may bring about the adoption of a new country of origin rule and different tariff schedule. The country of export for a particular good may defer from the country of manufacture for the same good, but the former may overlap with the latter in some instances.

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