ChinaWT/TPR/S/161
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III.trade policies and practices by measure[1]

(1)Introduction

  1. China has made major changes in its trade policies and measures since its reform process began in the late 1970s, and particularly in connection with its accession to and subsequent membership of the WTO. Its trade regime has been increasingly liberalized and structural reforms are ongoing to introduce greater competition in the economy. In addition, direct intervention by the Government in the economy has declined. Nevertheless, indirect measures continue to be used to meet industrial policy goals. These include border measures, such as tariffs and other border tax measures that affect both imports and exports, as well as internal measures. The latter include tax incentives for investment, particularly foreign direct investment, in certain sectors or activities, administrative directives and "guidance" to channel credit into or away from certain sectors, and price controls or "guidance" prices.
  2. China has progressively lowered its MFN tariff and reduced non-tariff barriers to trade. Nonetheless, the tariff remains one of China's main trade policy instruments and a significant source of tax revenue (accounting for some 4.3% of total taxes collected). In 2005, the overall average MFN tariff was 9.7%; the averages for agricultural and non-agricultural products were 15.3% and 8.8%, respectively. Slightly lower average tariff rates, ranging from 8.2% to 9.5%, are levied under its bilateral agreements, while unilateral preferences for some products are offered to 39 leastdeveloped countries. In connection with its membership of the WTO, China has also reduced other barriers to imports, notably import prohibitions and restrictions, and the import licensing regime has been simplified.
  3. Import barriers have fallen, but the export regime remains complex and measures are used to manage certain exports. For instance, export taxes and VAT rebate rates are altered, apparently to meet the demands of domestic industry and industrial development goals. China also maintains state trading for imports and exports, including for some agricultural products, coal, some metal ores, and crude and processed petroleum. Exports of other goods are encouraged, notably through concessions for processing trade and special economic and other zones.
  4. China has also updated its legislation and implementation procedures in other areas, including for sanitary and phytosanitary (SPS)measures and technical barriers to trade (TBTs),and contingency measures, such as anti-dumping, countervailing, and safeguards. There are now a large number of laws, regulations, and rules that cover measures and enforcement in these areas. The SPS regime is complex with a large number of laws governing SPS measures, and examination and approval procedures at the border are not clear. In the area of TBTs, China has four different kinds of standards: national, local, sectoral, and enterprise. It is also committed to adopting international standards where relevant; nevertheless, the percentage of national standards that are equivalent to international standards has remained unchanged since 2000, at around 32%.
  5. China's Law on Government Procurement indicates that procurement should facilitate the achievement of State goals for economic and social development. The law, which came into force in January 2003, governs purchases by State organs, public institutions, and social organizations, but does not include purchasing by state-owned enterprises (SOEs); the authorities note that SOEs operate under market rules and therefore are not covered by the law. It also appears that there is a preference for state purchases of "domestic goods, construction and services", which are not defined by the law. Goods may be purchased from foreigners under exceptional circumstances. China has been an observer to the WTO Agreement on Government Procurement since 2002.
  6. While trade barriers have been reduced significantly, a major challenge facing China is domestic structural change to increase competition, particularly reform of the public sector, including SOEs. Significant steps have been taken in this direction. Reform of SOEs began in the late 1970s and has been gradual, mainly due to their pervasive influence on large sections of the economy. Recent efforts include closing down or restructuring loss-making SOEs and subjecting others to improved governance, inter alia, by incorporating them under the Company Law. As a result of these efforts, the number of SOEs appears to have been cut by almost half since the late 1990s. The authorities estimate that around 2,500 additional SOEs and loss-making mines will be closed down gradually over the next four years. Efforts are also being made to improve corporate governance in SOEs and other firms, including by allowing them to list on local or foreign stock exchanges. The challenge to further closures of SOEs, however, is compensation and reallocation of employees and alternative arrangements for the social functions, including health and education, previously provided by large SOEs.
  7. China also appears to have ended subsidies to certain loss-making SOEs and preferences based on export performance and local content. China has not yet notified its subsidies to the WTO. However, it appears that direct budgetary transfers are provided mainly for "capital construction" and agriculture as well as science and technology; in addition, some 3.6% of GDP was spent in 2002 on extra-budgetary transfers. Additional assistance is provided through the tax system; measures include tax holidays and tax and tariff reductions for investors (both domestic and foreign) in particular activities and regions.
  8. The result of these reforms has been an improvement in competition and strong growth in private sector activities. China's non-public (or private) sector plays an increasingly important role in the economy and is an important source of employment, especially in manufacturing and mining and to a lesser extent in services, depending where it is concentrated. The private sector also appears to have higher productivity than SOEs. Nevertheless, it has faced constraints, including in access to financing. In addition, incorporation under the Company Law was difficult for many small and medium-enterprises (SMEs) because of high minimum capital requirements although these requirements seem to have been reduced in the latest revision to the law. The Government is trying to encourage the development of the non-public sector through assistance, including through grants and other measures to ease access to finance.
  9. Adoption of China's pending new Anti-monopoly Law will fill a significant existing gap in the legislative framework for the establishment of a market economy. Competition in the economy is at present enforced through a number of related laws, and appears not to be very effective. Sound implementation of the new law in a transparent and non-discriminatory manner will be vital to its effectiveness.
  10. As part of efforts to create an investment environment conducive for both domestic private and foreign direct investment, significant steps have been taken to update legislation on intellectual property rights, and China has acceded to a number of major international IPR conventions. While China's IPR legislation has been updated, problems remain with enforcement. Efforts are being made to improve enforcement, including through better coordination between the different agencies involved in registration and enforcement. However, relatively low fines, and penalties that are not a sufficient deterrent to IPR violations remain among the significant problems to be addressed.

(2)Measures Directly Affecting Imports

(i)Procedures

(a)Customs procedures
  1. The Foreign Trade Law allows individuals as well as legal persons and other organizations to engage in foreign trade[2]; the most recent amendment replaces the examination and approval requirement with a registration requirement. In addition, under the "Rules for the Registration of Foreign Trade Operators", foreign traders engaged in the import and export of goods or technologies are required to register with MOFCOM, or its authorized bodies (section (vi) below).[3] Some foreign traders, notably foreign-invested enterprises (FIEs), may not need to register as this may already be covered under the FIE registration procedures. Customs will not process the procedure of declaration, examination, and release of goods, if the exporter (or importer) has not registered but is required to do so.
  2. Import declarations must be made to Customs at the port of entry within 14 days of the goods' arrival. Under the Customs Law of the People's Republic of China, importers (and exporters) must register with Customs before making a customs declaration. The registration documents include: a copy of the business certificate and constitution of the enterprise; registration form of a foreign trade operator; tax registration certificate; certificate of the bank account; a copy of the certificate for "the organization code" of the enterprise and registration forms introducing the customs declarer and its management.[4] In addition, foreign-invested enterprises are required to submit a "Certificate of Approval of Foreign Invested Enterprise". A "Certificate of Customs Declaration Registry" is awarded by Customs. Once this certificate of registration is obtained, the consigner or consignee must make a customs declaration, either in person or through an enterprise authorized to do so by Customs.
  3. Customs duty must be paid at a designated bank within 15 days of the memorandum of duty payment being issued by Customs. In case of a delay in payment, a fine of 0.05% of the total amount of duty payable is charged. If the duty is not paid within three months of the payment period, Customs may take certain measures under Article 60 of the Customs Law, including notification to the importer's bank to deduct the amount due directly from the account; and to sell the dutiable goods and/or other goods belonging to the importer in order to raise the amount due. The time limit for payment of duty may be extended to a maximum period of six months by Customs if duty cannot be paid due to, for example, force majeure or adjustments to the taxation policy. Freight, insurance, and other charges on imports that cannot be determined by the importer are calculated by Customs. Freight charges are calculated on "the basis of the freight rate or amount published by the transportation industry at the time of importation". Insurance costs are calculated as 0.3% of the sum of cost and freight, for goods imported by land, air or sea, and as 1% of the price for goods imported by rail or road.[5]
  4. Certain goods are exempt from payment of import or export duties. These include goods valued at Y 50 or less, advertising material and samples of no commercial value, goods and materials provided free by international organizations or foreign governments, goods damaged prior to Customs release, and fuels, stores, beverages and provisions for use en route, loaded on any means of transport in transit across the frontier.
  5. According to information provided by the authorities, the internal maximum examination period is 48 hours and in practice the majority of goods are cleared during this period. However, customs examination is also affected by the "capacities of commodity owners" and port facilities; in addition, if illegal activities are detected, the examination period may be longer. No fees are charged for clearance and other services provided by Customs.
  6. Decisions taken by Customs, if contested, may be examined by a higher authority in Customs under the Law for Administrative Reconsideration. According to data provided by the authorities, between 96% and 98% of requests for appeal against decisions during 2000-04 were accepted by Customs. There seems to have been a sharp increase in the number of appeals rejected, from around 23% of cases reviewed in 2002, to 55% in 2003 and 60% in 2004.[6] Further appeals may be made to the People's Court.
(b)Preshipment inspection
  1. There are no preshipment inspection requirements for imports.

(ii)Tariffs

(a)Overview
  1. The basic legal framework for China's tariff is provided by the Customs Law and related regulations. The tariff schedules are part of the Regulations on Import and Export Tariff of the People's Republic of China (promulgated by Decree No. 392 of the State Council on 23November2003and effective as of 1 January 2004). The tariff is set by the Tariff Commission, an inter-ministerial body under the State Council, based in the Ministry of Finance.[7] Its functions include: making adjustments to the tariff (including interim tariffs), tariff headings, and import and export duty rates; determining products subject to interim duties and their rates; determining tariff quotas rates; and determining the imposition of anti-dumping, countervailing, and safeguard duty, retaliatory duties, and other tariff measures.[8] Retaliatory duty is applied when countries with or without a trade agreement with China impose a discriminatory tariff or measure against goods originating in China; the authorities note that retaliatory duties are used mainly as a deterrent and that currently there are no such duties in force.
  2. Under the Regulations on Import and Export Tariff (Chapter II Article 9), duty rates on imports comprise: MFN rates, agreement tariff rates (previously conventional duty rates), special preferential tariff rates, general tariff rates, and tariff quota rates; in addition, interim tariff rates (previously known as temporary duty rates), which are usually lower than MFN rates, are applied for a specific period of time, usually one year, to certain goods.
  3. China charges at most MFN duty rates to allWTO Members except El Salvador. Agreement rates apply to imports from countries and customs territories with which China has preferential agreements; there are 16 at present.[9] Special preference duty rates are unilateral preferences applied to imports of some goods from countries with which China has trade agreements; on 14September2005, China announced that it would increase the list of countries covered from 29 to39.[10] General Rates are applied to countries that do not have a reciprocal trade agreement with China or to products whose origin cannot be determined. These rates apply to WTO non-members, ElSalvador, as well as the territories of some EU member states.[11] Where countries appear on more than one list, the more favourable rate applies. In addition, there are interim duties that are fixed annually by the Tariff Commission under the Regulations on Import and Export Tariff, and usually apply from 1 January to 31 December of each year. The rates are applied on an MFN basis, and where a particular tariff line has an interim rate, the lower of the two possible rates is applied at the border for countries that are eligible for MFN duty rates; as MFN and interim duty rates both apply on an annual basis, the interim duty effectively replaces the MFN duty for the products it applies to. For this reason, it is not clear to the Secretariat why the MFN rate is not simply reduced to the interim duty rate. The authorities state that not reducing the MFN rate, which is at the bound rate for the majority of the particular tariff lines, givesChinamore flexibility in future WTO negotiations. Interim rates do not apply to imports on which general duty rates are applied.
  4. In addition to these tariff rates, duty exemptions and reductions may apply "in accordance with the provisions set out in the relevant regulations by the State Council on goods imported into or exported out of the designated areas, the designated enterprises or for designated uses."[12] According to the authorities, "designated" refers to unusual and special circumstances authorized by the State Council.[13] The current tariff is applied in the 2002 nomenclature of the Harmonized System.
(b)Bound tariff
  1. As a result of its accession negotiations, China bound 100% of its tariff, at ad valoremrates. In 2005, the average bound rate was 10%, 15.3% for agriculture (WTO definition) and 9.1% for non-agricultural products (Table III.1). There are considerable variations within these averages, especially in agriculture, with average rates for grains (34%), tobacco (25.4%), coffee and tea, cocoa and sugar etc. (20.2%) and beverages and spirits (20.3%) considerably higher than the overall average (ChartIII.1 and Table AIII.1). The final bound rate in 2010 is expected to be 9.9% down from 12.4% in 2002 just after China's accession to the WTO.[14] The average bound rate for agricultural products (WTO definition) is expected to fall to 15.2% when China has completed its staged implementation of its bindings while the final average bound rate for non-agricultural products is expected to be 9%. The bound rate for textiles and clothing has already reached its final bound rate of 11.5% from 17.6% in 2002. In general, the applied MFN tariff has tended to follow closely the bound rates (see below).

Table III.1

Structure of MFN tariff in China, 2001-05

(Per cent)

2001 / 2002 / 2003 / 2004 / 2005 / Final bound ratea
Bound tariff
1. / Bound tariff lines (% of all lines) / n.a. / 100.0 / 100.0 / 100.0 / 100.0 / 100.0
2. / Simple average bound rate / .. / 12.4 / 11.3 / 10.4 / 10.0 / 9.9
Agricultural products (HS01-24) / .. / 17.9 / 16.4 / 15.0 / 14.7 / 14.6
Industrial products (HS25-97) / .. / 11.4 / 10.4 / 9.6 / 9.1 / 9.1
WTO agricultural products / .. / 18.2 / 16.9 / 15.6 / 15.3 / 15.2
WTO non-agricultural products / .. / 11.5 / 10.4 / 9.6 / 9.1 / 9.0
Textiles and clothing / .. / 17.6 / 15.1 / 14.9 / 11.5 / 11.5
3. / Tariff quotas (% of lines) / .. / 0.8 / 0.7 / 0.7 / 0.7 / 0.7
4. / Duty-free tariff lines (% of lines) / .. / 4.3 / 5.9 / 6.4 / 7.7 / 7.7
5. / Non-ad valorem tariffs (% of lines) / .. / 0.0 / 0.0 / 0.0 / 0.0 / 0.0
6. / Non-ad valorem tariffs with no AVEs (% of lines) / .. / 0.0 / 0.0 / 0.0 / 0.0 / 0.0
7. / Nuisance bound rates (% of lines)b / .. / 2.0 / 2.3 / 2.4 / 2.6 / 2.6
Applied tariff
8. / Simple average applied rate / 15.6 / 12.2 / 11.1 / 10.2 / 9.7 (9.8) / ..
Agricultural products (HS01-24) / 23.2 / 17.9 / 16.3 / 15.0 / 14.6 / ..
Industrial products (HS25-97) / 14.3 / 11.1 / 10.1 / 9.3 / 8.9 / ..
WTO agricultural products / 23.1 / 18.2 / 16.8 / 15.5 / 15.3 (15.2) / ..
WTO non-agricultural products / 14.4 / 11.2 / 10.1 / 9.3 / 8.8 (8.9) / ..
Textiles and clothing / 21.1 / 17.5 / 15.1 / 12.9 / 11.5 / ..
9. / Domestic tariff "peaks" (% of all lines)c / 1.7 / 1.8 / 1.9 / 1.9 / 2.6 (2.7) / ..
10. / International tariff "peaks" (% of all lines)d / 40.1 / 29.0 / 25.2 / 18.2 / 15.6 (15.9) / ..
11. / Overall standard deviation / 12.2 / 9.1 / 8.4 / 7.8 / 7.6 / ..
12. / Coefficient of variation / 0.8 / 0.8 / 0.8 / 0.8 / 0.8 / ..
13. / Tariff quotas (% of all lines) / 0.9 / 0.8 / 0.7 / 0.7 / 0.7 / ..
14. / Duty free tariff lines (% of all lines) / 3.0 / 4.9 / 6.7 / 7.2 / 8.6 / ..
15. / Non-ad valorem tariffs (% of all lines) / 0.7 / 0.7 / 0.7 / 0.7 / 0.7 / ..
Table III.1 (cont'd)
16. / Non-ad valorem tariffs with no AVEs (% of all lines) / 0.7 / 0.7 / 0.7 / 0.7 / 0.7 (0.1) / ..
17. / Nuisance applied rates (% of all lines)b / 1.5 / 2.0 / 2.1 / 2.2 / 2.6 / ..

n.a.Not applicable.