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As approved by the State Council on 23 July 2007 Ministry of Commerce (MOFCOM) and General Administration of Customs (GAC) jointly issued Announcement No. 44 (Announcement No. 44) introducing the catalogue of a new batch of commodity restrictions for processing trade. The catalogue covers 1,853 HS Codes, which represents 15% of all the HS Codes in China.
The main change from a cash flow perspective is that Announcement No. 44 introduces a cash deposit management for restricted commodities under processing trade.
Announcement No. 44 will take effect on 23 August 2007.
Intention
The purpose of the new catalogue, together with the recent catalogue for processing trade prohibitions and the notice for reduction of export VAT refund rates, is to optimize China's export commodity structure, tighten the control over the export of "high pollution, high energy consumption and resource consumption" products and restrain the export of "low value-add, low technology" products, ease trade friction, harmonize foreign trade and relieve conflict resulting from the outstanding trade surplus. This is also in line with the state economy development policy.
Highlights
- There are separate lists for import and export commodities mainly relating to plastic raw materials and products, textile yarn, fabrics, furniture and other labour-intensive industries.
- Substantial cash deposit for enterprises in the Eastern region and bank guarantee for enterprises in the Central and Western regions (for Class A and B). Cash deposit is required for all Class C enterprises regardless of the location.
- Grandfathering of existing Processing Trade activities is allowed for contracts registered before 23 August 2007 and for enterprises registered under enterprise-based i.e. e-account supervision before 23 August 2008.
- Enterprises in the Eastern region which have not obtained I/E rights and engaged in Processing Trade before 23 July 2007 are disallowed from Processing Trade for restricted commodities. Enterprises already engaged in Processing Trade should obtain I/E rights before 23 October 2007.
Exclusions
Special customs supervision zones i.e. EPZ and FTZ and factory transfers outside of the special zones are excluded from Announcement 44.
Other Notes
Announcement No. 44 also reflects the cooperation with the state regional development strategy for the Central and Western areas by differentiating treatment between the Eastern area and the Central and Western areas.
Options
Affected enterprises may consider the following:
- Maximise the import and/or export value for contracts registered before 23 August 2007 per estimated production plans.
- Re-structure the supply-chain or sales involving "further processing" rather than direct import and export.
- Review the existing HS Codes and explore possibility of using legitimate alternative unrestricted HS Codes.
- Move the affected processing activities to production facilities in an EPZ, FTZ or Central and Western
region to minimize the cash flow issue.
Summary
The information contained within this update is for general guidance on matters of interest only. The application and impact of processing trade rules can vary widely, based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PricewaterhouseCoopers client service team.
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