China Is Changing the Rules for Export ManufactureWord格式.docx

China Is Changing the Rules for Export ManufactureWord格式.docx

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ssuccesshasbeenthegrowthinexportmanufacturingthroughapro-gramcalledProcessingTrade.ThisprogramhassavedcompaniesbillionsofdollarsindutyandVATcosts.With-outProcessingTrade,pricesforChi-neseexportgoodswouldbelesscompetitive.ButrecentregulatorychangestoProcessingTradearein-creasingcosts,addingoperationalcom-plexityandcausingcompaniestorecon-siderChina'

sstatusasapreferredglo-balmanufacturingbase.

　　ThefollowingarticleoutlinesthebasicsofhowtheProcessingTrade,re-gimeworks,theimpacttocompanyoperationsfromrecentchanges,com-monissuesencounteredbyProcessingTradeentitiesandsomethoughtsre-gardingwhatthefuturemayholdforexportmanufacturers.

　　IntroductiontoProcessingTrade

　　ProcessingTradeisthenamegiventotheprogramwhichpermitsacom-panytoimportrawmaterialsfreeofduty/VATforproducingexportgoods.Itisusedbyamajorityofexportmanu-facturerstolegitimatelymanageindirecttaxcosts.

　　Injustover25yearsthevalueofProcessingTradehasincreased333timesfromUS$2.5billionin1981toUS$831.9billionin2006andaccountedforover50%ofthetotalimport/exportvalue.Inthefirsthalfof2007,thePro-cessingTradetotalimportandexportvaluerose17.6%toUS$440.9billion.

　　Thefollowingtwotypesofmanu-facturingstructuresareemployedun-dertheProcessingTradeprograminChina:

　　*ContractManufacturing（进料加工）-Themanufacturerpurchasesallrawmaterialsfortheirownaccount,ownsthegoodsthroughproductionandsellsthefinishedgoodstoitscustomers.Themanufacturerearnsaprofitonthesaleofthegoods.

　　*TollManufacturing（来料加工）-Anoverseascompanypurchasestherawmaterialsfortheirownaccountandcon-signsthemtothemanufacturer.Themanufacturerimportsthematerialsbutisonlyresponsiblefortheprocessingactivitiesanddoesnotsellthefinishedgoods,Instead,theyearnrevenuethrougha"

processingfee!

'

paidbytheoverseascompany.

　　MostfactoriesmanufactureunderProcessingTradeusingoneoftheabovestructures.

　　HowDoesProcessingTradeWork?

　　TheProcessingTradeprogramal-lowsfortheupfrontexemptionofdutyandVATonimportedrawmaterials,whichareconsideredtobeina"

bonded"

state,Thesebondedrawmaterialsmustbetrackedandrecon-ciledtothefinalexportedfinishedgoods；

Withsuchaprogram,Customsisconcernedthatrawmaterialswhichwereneverduty/VATpaidareintro-ducedintothedomesticmarketwithoutpaymentoftherelevanttaxes.Thus,atrackingmechanismisnecessarytomonitortheinputsandoutputs:

　　ProcessingTrade'

strackingmechanismiscommonlyreferredtoasa"

customshandbook"

or"

customslogbook"

.Acustomshandbookcanbeeitherapaper-basedbookorcanbeanelectronicversion,sometimesreferredtoaseitheran"

e-handbook"

networksupervision"

.Thepicturebelowisasimplegraphicillustrationofhowinputsintothecustomshandbookaretrackedandreconciledtooutputs:

　　Theactualproceduresaremuchmorecomplexthanoutlinedaboveandcanbedifficulttopracticallyapplyinacompliantmanner.Butsincethepro-grammaysavetheexportmanufacturersignificantcosts,itisusuallyworththeadditionaladministrativeburdentomakeitwork.

　　RecentChangestoProcessingTrade-Prohibited,RestrictedandWhatNext?

　　TherehasbeenaflurryofnewPro-cessingTraderegulationspromulgatedoverthelastcoupleofyears.Unfortunately,thenewregulationsaretriggeringconcernsoverhowitwillim-pacttheoperationsofexportmanufacturers.Manyoftheseruleswereissuedwithlittleornowarningand/orwithoutdetailedimplementationmeasures.Forexample,arecentrulewasannouncedonedayandbecameeffectivetheverynextday.Companiesarebeginningtoexpresstheirfrustra-tionatthesuddennessandlackoftrans-parencyaccompanyingtheserulesandwonderingwhatwillhappennext.

　　ButtheChineseAuthoritieshaveadifficultjobtooanditisimpossibletosatisfyeveryone.AsChinaendeavorstoaddressinternationaltrade,economic,socialandpoliticalchallenges,itisincreasinglyutilizingtradeprograms,suchasProcessingTradeandexportVATrefunds,as"

tools"

toguidecertainmacro-economicpoli-ciesandadjustlong-standinginvest-mentpatterns.TheViceMinisterofMOFCOM,WeiJianguo,statedthat"

wearestrivingtoimprovethedevelopmentofChina'

sProcessingTradeprograminabidtopromotetradebalanceandreducethetradesurplus"

.Manydiffer-entAgencieshaveavestedinterestinmakingsuretheiropinionisincorpo-ratedintothechanges.

　　Notallcompaniesandtypesofpro-duc'

tioncanenjoythebenefitsofPro-cessingTrade.CompaniesmustbeapprovedbyMOFCOMandCustomstoconductsuchactivities.ThereisalsoalistofproductsandprocesseswhichareprohibitedfromusingProcessingTrade.Finally,anew"

Restricted"

cat-egorywasrecentlyintroduced.

　　ProhibitionList

　　Therehasalwaysbeenalistofdes-ignatedproductswhichChinadoesnotallowtobeproducedunderProcessingTrade.ThemostrecentListplacespro-hibitedproductsinintothefollowingcategories:

exportedfinishedgoods;

importedrawmaterials;

andcombina-tionsoffinishedgoodsmadewithcer-tainimportedrawmaterials.Prohibitedproductscanbemanufacturedforex-portbuttherawmaterialscannotbeimportedonabondedbasis.Thatis,customsdutyandVATwouldbepay-ableatthetimeofimportationandthisincreasesmanufacturingcosts.

　　Thefollowingrecentpolicyadjust-mentshavesignificantlyexpandedtheproductcoverageoftheProhibitionListoverthelastyear:

　　*DecreeNo.139and145（September2006）statedthatproductswitha0%exportVATrefundratewouldbeplacedontheProhibitionList;

　　*AnnouncementNo.82（November2006）releasedanupdatedversionoftheProhibitionList;

　　*AnnouncementNo.17（April2007）addeditemstotheListaswellasconsolidateddifferentProhibitionLists;

　　*SupplementtoAnnouncementNo.17（July2007）includedadditionalitemsandclarifiedothersthatarenotontheList;

　　*Others.

　　Manyoftheseruleswereconfusing,contradictoryorinconsis-tentlyinterpretedbyvariouslocalAuthorities.Fromnowon,theAuthori-tieswillnolongerissueaformalregu-lationeverytimetheProhibitionListisupdated.Rather,itwillbeupdatedonlineandcompaniesmustmonitorthechanges.TheeasewithwhichtheonlineProhibitionListcanberevisedislikelyanindicationtoexpectfuturechanges,possiblybothadditionsanddeletions.

　　TheAuthoritieshavestatedtheyin-tendedtotargetproductsandactivitieswhicharenotentirelyinlinewithChina'

slong-termstrategicgoals（i.e.,thosewithhighenergyconsumption;

createhighlevelsofpollution;

useChina'

snaturalresources;

andareconsideredtobelow-valueadd）.

　　RestrictedList

　　Anew"

restricted"

categorywasaddedtothechanginglandscapeofProcessingTrade.OnJuly23rd,An-nouncementNo.44createdalistofre-strictedproductsthatcoversover1,800tariffcodesandplacesmonetaryandgeographicrestrictionsonexportmanufacturers.Thenewrestrictionscanhaveaseriousimpactonacompany'

ssupplychain,cashflowandoperatinglocation.

　　AsummaryoftheHSchaptersofproductsaffectedisprovidedinthetablebelow:

　　Theseproductswereselectedforanumberofreasons,buttheapproachwastoidentifyproductswithrelativelylow-valueadd,highamountsofmanualintensivelaborandthosecausingfric-tionwithChina'

stradingpartners.Bytargetingsuchproductionandencour-agingthewestwardmovementofinvestment,theAuthoritiesarehopingtoaddressanumberofsocialissuesatthesametime.

　　Thefollowingrestrictionsareim-posedonaffectedproducts:

　　*Companiesmustpostcashde-positsfortheestimatedamountoftheirduty/VATliability.CompanieswithanAorBgradingareallowedtopostonly50%oftheamount,whileCgradecom-panieswillhavetopost100%.IfanAorBgradecompanyisalreadylocatedinmiddleandWesternChina,thenthedepositrequirementmaybewaived.

　　*Ifafactorytomanufacturere-strictedproductswasnotapprovedtoconductProcessingTradebeforeJuly23rd,thenthecompanywillnotbeal-lowedtoconductthisactivityinthecoastalprovincesofChina.Thatis,thecompanywillneedtobelocatedinmiddleandWesternChinaifitwouldliketomanufactureunderProcessingTrade.

　　*Acompanycurrentlymanufactur-ingunderProcessingTradewithoutim-port/exportrightsmustobtaintherightsbeforeOctober23rdtobeabletocon-tinueproducingsuchproducts.

　　*TherestrictedlistappliestoE-handbooksbutdoesnotapplytospe-cialzones（e.g.,exportprocessingzone,bondedzone,etc.）andspecialtypesofbondedfactorytransfers.

　　Thereisare