Problems relating to Trade and Investment on China

 
10. Restrictive measures for operations in Free Trade Zones ("FTZs") and Special Economic Zones ("SEZs")
Issue
Issue details
Requests
Reference
(1) Uniform Application of the Bank Deposit Account System - On 1 October 1999, GOC classified enterprises engaged in process trade into A, B, C and D categories, in order to enhance the autonomous law abiding spirit and to eliminate smuggling of bonded cargoes, compelling Shizhuan (actual deposit) under the bank security bond ledger system (BSBLS) upon 11 R-Cat items, inclusive of steel (excluding electromagnetic sheet steel) on enterprises classified in B and C, excepting A categories.
Hot, cold and surface coated sheet steels are subject to the BSBLS, forcing a severely onerous burden of BSBLS on enterprises classified in B, or C category. After filing petition, petitioners attained some relief such as halving the security bond amount, or excluding electro galvanised sheet steel, implemented in May 2000 as to halving the bond amount, and July 2000 onward as to exclusion of galvanized sheet steel. The same measure was continued in 2004.
On 23 August 2007, with the objective of promoting Mid-Western Regions, GOC made a distinction on BSBLS between the Eastern Region (Beijing City, Tianjin City, Liaoning Province, Hebei Province, Sandong Province, Sandong Province, Jiangsu Province, Zhejiang Province, Fujian Province, and Guangdong Province) and Mid-Western Regions to promote Process Trade in the latter Regions. More precisely, Shizhuan, or Actual Security Deposit for 50% of the BSBLS applies in the Eastern Region as to enterprises classified in A category, and nominal BSBLS (Kongzhuan, or without actual deposit) applies to enterprises classified in B category in Mid-Western Region.
From 1 December 2008, GOC has shifted to BSBLS (Kongzhuan or transfer without cash deposit) as regards Restricted products handled by A category enterprises, with the view to support the processing trade through cash flow improvement to enable them to combat the aggravating economic conditions.
- Beginning August 2007, GOC has imposed BSBLS on all watch manufacturers regardless of the operational scale, whereas BSBLS had applied only to relatively small-scale manufacturers, exempting large-scale manufacturers.		 - It is requested that GOC repeals the BSBLS. - Notice of MOC/GAC on Issuing the List of Restricted Commodities in Processing Trade MOC/GAC [2007]No.44 promulgated on 23 July 2007
  (Action)
- Since 1 January 2000, the basic deregulation for Group A Industry (GAI) and limited scope deregulation for Group C Industry (GCI) have been enforced. As a result, the GAI status is granted to any enterprise with an annual export of more than US$1 million, while the bond deposit requirement on Bank Guarantee Ledger is excused for such GAI. The scope of the GCI status record, on the other hand, is expressly exclusive of the following: any illegal business conduct resulting in penalty of less than RMB 10,000, any enterprise (with 2 or more violations per year which represented less than 1/1,000th of the number of the customs clearance for the preceding year), and any violation committed prior to 1 June 1998. All of these will be disregarded for the purpose of the GCI evaluation record.
- General Administration of Customs (GAC) and Bank Of China together issued on 1 January 2000, "Detailed Rule of PRC on Implementing Various Types of Bond Security for Enterprises in the Processing Trade" enforced from 1 April 2000. This Detailed Rule made it possible for enterprises to file reporting to customs authority a bank guarantee issued by a designated Chinese bank payable to the customs, in the event payment of the deposit itself is not workable. However, Chinese Bank will assess the assets and credibility of the enterprise applying for the bank guarantee to hedge its own risk management.
- CAC issued on 26 February 2004 "Measures of the Customs of PRC on the Control of Processing Trade Goods", enforced from 1 April. The same measures have integrated into one legislation, provisions for both domestic and FFEs, with the purpose to shift its administration from contract based control to enterprise based one, and from handwritten to electronic notes, and the scope of its application is directed to control of the Processing Trade Commodities, and involves the administration of the registration notes. The new Measures expressly provide that the Processing Trade Commodities include wastes thereof, while for the first time the new Measures stipulate the practical details of the contract notification, such as the definition for the issuing period of the Process Trade Notes as "within the 5 business days from the date of accepting the filing of notification", the express provision of 5 reasons for refusal of contract notification, and the stipulation of the 6 reasons requiring the bond security. Furthermore, it requires the Customs to provide a written notification in the event of its refusal of contract notification, and its collection of the security bond.
- On 21 November 2008, MOFCOMGAC promulgated Notice to provisionally suspend from 1 December actual payment of BGBLS for Process Trade on 1,853 of export goods and 2,125 items import goods. (Notice No.97 [2008])
- On 2 July 2014, MOF, GAC, and SAT promulgated Notice No.37 [2014] on canceling the bonded policies for steels imported under processing trade for 78-items of steel products, levying customs duty, etc.
(2) Delays in the Deliveries in and out of Bonded Zone - Depending upon regions, FFEs must put up with approx. one-week cargo retention: 2-3 days for INTO the bonded zone, and additional 2-3 days for out of the bonded zone. Upon filing application for the customs declaration, it is necessary for the applicant to type HS code, product description (in Chinese), and quantity, in addition to typing the entire details into the customs computer. It takes further full 1-2 days for the applicant to receive the licence. The prolonged delay in cargo movement compels hiatus in the economic activity.
Substantive issues (individual case examples)
-- Weekend customs clearance at central-western airports:
While the customs clearance operation is open during the weekend (Saturdays and Sundays) at the Eastern China airports, offices are open only for half a day for customs clearance. Although overtime application is accepted, in effect, it prolongs the lead-time for movement of the imported goods.
-- Numerous customs:
Numerous customs are located in the same region. (Example) As a result, in-bond cargo movement becomes necessary between the 2- warehouses in the same area, which is a factor that necessitates a longer lead-time.
-- Dilly-dallying customs clearance procedures:
Customs inspection impacts the most among the factors that prolongs the customs clearance procedures. When customs inspection takes place, normally, imported cargoes must tarry for 1-2 days at minimum.
-- Delayed data processing at customs procedures (Waigaoqiao):
In the Waigaoqiao free trade pilot zone, data processing for cargo acceptance lags behind the physical cargo arrival. It interferes with the immediate shipment of the arrived cargoes.
- Emergency parts imported from Japan cannot be shipped out to customers that operate on 24-hours basis at once, as it takes much time for stock registration. While some improvement has been achieved in some areas such as Shanghai Comprehensive Free Trade Zone, the big gap remains in each bonded zone. It is felt that a wide room remains for further improvement, hand in hand with the expanding business regions.		 - It is requested that GOC streamlines and expedites the customs clearance procedures.
- It is requested that the Customs will permit stock registration in the bonded zone after the goods are delivered out of the bonded zone.
(3) Excessively Low Allowable Rate of Loss on the Subject Materials - Allowable rate of loss for resin material in bond (of less than 3%) is unrealistically low. In actual process, about 10% is the realistic rate. The loss during processing is now taxable. - It is requested that GOC raises the allowable rate of loss.
(4) Restrictions on Lease/Rental of Machinery and Equipment in EPZ - GOC restricts lease/rental of machinery and equipment in EPZ so that machinery and equipment cannot be transported into EPZ in the name of lease or rental. (Customs clearance must be made as purchase of commodities.) - It is requested that GOC authorises lease or rental of machinery and equipment also in EPZ, the same as the other Zones. - Provisional Measures for Administration of Export Process Zones
(5) Complex Procedures for Carry Out of Waste Assets from Export Processing Zones - For disposal of waste assets, pursuant to customs formalities, Customs requires receipt ("Fapiao") of the past purchase of the assets in concern. Applicant must expend much work time to retrieve Fapio for the old assets. In some cases, they are unable to dispose of the waste assets in a timely manner. - It is requested that GOC facilitates the procedures by accepting data from account ledger/or electronic accounting data in lieu of Fapiao.
(6) Nebulous Procedures for Cargo Transfer in Bond - Nebulous Scheme applicable to bonded zone. By right, transfer of products in bond from one city to another domestically that is authorised to GOC/GAC, as it stands, is not allowed in private sectors. Denial of cargo transfer in bond from one city to another domestically substantially hampers private sectors' rationalization effort by mixed cargo loading, etc., while certain transport routes and transport vehicles are unavailable for in bond cargoes. - It is requested that GAC expands the customs scheme to cover the regional cities by assuring the total uniformity and thoroughness. - Domestic In-Bond Transfer Scheme for Bonded Cargoes in PRC
(7) Shanghai Pilot Free Trade Zone - A Member Firm has established a joint venture overseas tourist company in the Shanghai pilot free trade zone (in October 2013). While the JVC so established has filed application for the licence for overseas travelling service departing from PRC, no guideline on the permit standard and the requisite period for the licence issuance is available as yet. The JVC so established remains unable to organise its business plan. - It is requested that GOJ builds up a domestic organisation with the ability to transmit the unified information.
- It is requested that GOC clearly identifies the various standards.		 - Notice of the State Council on Issuing the Framework Plan for China (Shanghai) Pilot Free Trade Zone
  (Action)
- "Notice of the State Council on Issuing the Framework Plan for China (Shanghai) Pilot Free Trade Zone (CSPFZ)" promulgated by the end of September 2013, sets forth the specific purposes for transformation of government functions: formation of new economic management system, facilitation of foreign trade/investment, and search of directionality for further reform and liberalisation. Reform measures including the Foreign Investment Negative List administered in CSPFZ, streamlining of customs clearance procedures, etc. have gradually spread into Central and Local Governments, such as National Development and Reform Commission, Chengdu City, Sichuan Province, Wenzhou City, Zhejiang Province.
(8) Changes in Personnel Related Application / Examination in SEZ - A member firm's subsidiary (MFS) is located in Tianjin Economic Development Area (TEDA). To this date, MFS's personnel related scheme and examination have been made under the rules in TEDA. The change in the scheme, effective since 2011, has empowered Tianjin City to administer the scheme uniformly, enabling the processing of all filings and examinations in Tianjin City. Some changes have taken place in the degree of applying the system, requiring MFS to take responsive actions. - It is requested that GOC makes it possible to conduct various registrations and application work also in Tianjin Economic Development Area (TEDA).
(9) Complex Procedures to add Items in the Scope of Business. - While Negative List in the Shanghai Pilot Free Trade Zone (Shanghai PFTZ) is available, the procedures are complex for an enterprise in Shanghai PFTZ to add an item in the scope of its business. - It is requested that GOC simplifies the application procedures.
(10) VAT in the Bonded Zone - GOC passes over to FFEs, VAT relative to Bonded Warehouse/Transport Service (Warehousing 6%, Domestic Transport 10%).

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