A Q&A guide to international trade in goods and services in China.
This Q&A covers key matters relating to the regulation of international trade in China, including recent trends, trade agreements, trade negotiations, rules relating to the supply of services, imports and exports requirements, trade remedies, and international trade restrictions.
1. What are the recent trends affecting the regulation of international trade in your jurisdiction?
Recent trends relating to international trade in China include the following:
Import and export figures. The amount of imports and exports increased moderately in 2017. The annual trade surplus was about USD 422 billion, a decrease of about 17% compared with 2016.
"Belt and Road" investment and co-operation. In 2017, following the "Belt and Road" policy, China made outward foreign direct investment in 59 countries, including Singapore, Malaysia, Laos, Indonesia, Pakistan, Vietnam, Russia, the United Arab Emirates, Cambodia, and so on. In addition, China signed 7,217 project contracts in 2017, a 14.5% increase compared with 2016. In the first quarter of 2018 , China has signed 680 project contracts with a total value of USD 20.6 billion dollar.
Trade conflicts between China and the US
2017 and the first half of 2018 have been a difficult period for trade relations between China and the US. The US initiated several investigations targeting China in 2017. In the first quarter of 2018, those investigations led to the imposition of tariffs on various products from China. China also imposed tariffs on US imports in response to US’s “sanctions”. The trade conflicts between the two countries may also have effects on some business entities like ZTE Corp. and Qualcomm.
With regard to the WTO disputes, the two countries have filed new requests to the World Trade Organization (WTO) for consultation while the dispute relating to the market economy status of China in anti-dumping investigations (DS515) is still pending.
The main trade-related events in 2017 and the first quarter of 2018 included the following:
In February 2017, the ITC decided that imports of certain truck and bus tires from China did not cause any substantial injury or injury threats. The investigation ended with zero anti-dumping duty.
In March 2017, the US initiated the anti-dumping investigation against imports of aluminium foil from China. In the final determination issued in February, 2018, the US Department of Commerce (DOC) decided that China is a non-market entity (NME) and therefore continued to use surrogate prices in its investigation.
In April 2017, the US initiated two national security investigations against imports of steel products and aluminium products under Section 232 of the Trade Expansion Act of 1962. In March 2018, the US decided to impose tariffs on steel and aluminium products based on the results of these investigations.
In August 2017, the US initiated a Section 301 investigation against China based on Section 302(b) of the Trade Act of 1974. The US Trade Representative (USTR) issued an affirmative decision, which led to the imposition of additional tariffs on various products from China.
In March 2018, in its Section 337 investigation against Chinese steel enterprises, the US International Trade Commission (ITC) issued a favourable decision on all of the three claims brought by US Steel (anti-trust claim, business secret claim, and false designation of origin claim).
Trade remedy investigations
In 2017, China faced 75 trade remedy investigations initiated by 21 countries and regions, including 55 anti-dumping investigations, 13 countervailing investigations and 7 safeguard measures investigations. The US and India have initiated 22 and 16 investigations respectively, being the top two countries having initiated investigations against China.
The number of trade remedy investigations initiated in 2017 decreased slightly compared with 2016. However, China remains a major target for trade remedy investigations, and it is difficult to identify future trends in this field.
Negotiations of international trade agreements
China is still negotiating the following three regional trade agreements:
Regional Comprehensive Economic Partnership (RCEP), which is a free trade agreement (FTA) between the member states of the Association of Southeast Asian Nations and six other states (Australia, China, India, Japan, South Korea and New Zealand).
Free Trade Zone between China, Japan and South Korea.
Free Trade Zone between China and the Gulf Cooperation Council.
In addition, China is negotiating FTAs or free trade zone co-operation agreements with Sri Lanka, Israel, Norway, Mauritius and Moldova.
Trade agreements 2. Is your jurisdiction a member of the World Trade Organization (WTO)? What are the main international, regional or bilateral trade agreements to which your country is a party?
China has been a member of the WTO since 11 December 2001.
China is a party to the following main international agreements related to international trade:
Convention on the establishment of the World Intellectual Property Organization 1967.
Patent Cooperation Treaty 1970.
UN Universal Copyright Convention 1952.
WIPO Berne Convention for the Protection of Literary and Artistic Works 1971.
WTO Agreement on Trade-Related Aspects of Intellectual Property Rights 1994.
WIPO Copyright Treaty 1996.
WIPO Madrid Agreement Concerning the International Registration of Marks 1891.
WIPO Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations 1961.
WIPO Paris Convention for the Protection of Industrial Property 1883.
Convention on the Unification of Certain Rules for International Carriage by Air 1999.
WIPO Performances and Phonograms Treaty 1996.
UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions 2005.
UN Convention on Contracts for the International Sale of Goods 1980.
Customs Convention on the International Transport of Goods under Cover of TIR Carnets 1975.
To date, China has concluded 16 FTAs with 24 countries or regions (including Australia, Chile, Costa Rica, Georgia, Hong Kong, Iceland, Macau, Maldives, New Zealand, Pakistan, Peru, Singapore, South Korea, Switzerland, and the Association of Southeast Asian Nations).
China is a party to the Asia-Pacific Trade Agreement 1975, which is a preferential trade agreement between Bangladesh, China, India, Laos, South Korea and Sri Lanka.
Trade negotiations3. What are the authorities responsible for negotiating trade agreements? How long does it usually take to conclude a trade deal with your country?
China's International Trade Representatives, who work for the Ministry of Commerce, are responsible for negotiating trade agreements.
There is no average duration for trade negotiations. The duration of trade negotiations can vary depending on various factors, such as the subject of the negotiations, policy issues, and so on. For example, it took ten years for the China-Australia Free Trade Agreement to be officially signed (from April 2005 to June 2015).4. Does your country apply interim rules during trade negotiations?
As a member of the WTO, China applies WTO rules while trade negotiations are ongoing.
Certain countries recognised the market economy status of China while trade negotiations were planned or ongoing (including Australia, Iceland and Switzerland).
Supply of services5. Is your jurisdiction a party to international agreements on cross-border trade in services? Is your jurisdiction taking part in the negotiations of the Trade in Services Agreement (TiSA)?
As a WTO member, China is bound by the General Agreement on Trade in Services (GATS).China does not take part in the negotiations of the TiSA.
All 16 FTAs concluded by China contain provisions relating to trade in services.
The full text of these FTAs can be found at:http://fta.mofcom.gov.cn/english/index.shtml.6. What domestic legislation and international rules apply to the supply of financial services, legal services and retail sales in your jurisdiction? What are the main requirements that suppliers must comply with?
Special Administrative Measures (Negative List) for Foreign Investment Access (Edition 2018) (“The List”)
The List sets out prohibited industries for foreign investors and sets out some special requirements (for example, requirements on equity or officials etc.) for foreign investors to access the industries not prohibited by the List. The List took effect on 28 July 2018.
There are also specific domestic regulations that govern the supply of financial services, legal services and retail sales. The main regulations include the:
Administrative Measures on Law Firms.
Regulations on the Administration of Resident Representative Offices in China of Foreign Law Firms.
Regulations of the People's Republic of China on the Administration of Foreign-funded Banks.
Commercial Banking Law of the People's Republic of China.
Administrative Regulations of the People's Republic of China on Foreign-funded Insurance Companies.
Insurance Law of the People's Republic of China.
Rules on Supervision over Securities Companies.
Nationality requirements.Foreign persons can supply financial services, provided that they comply with the requirements set out in the List.
Authorisation and registration requirements. The establishment of a financial organisation (except for securities companies)must be approved by certain authorities. There are also other approval, authorisation and registration requirements to supply specific financial services.
Prohibitions. Banks cannot carry out trust investment and securities operations.
Reporting requirements. Financial organisations (including banks, securities companies and insurance companies)must make regular reports on their financial situation and operations to the relevant supervisory authorities.
Nationality requirements.Foreign suppliers cannot provide advice on Chinese legal matters.
Authorisation requirements. To provide legal services, a supplier must obtain approval or a licence, such as a lawyer's licence.
To establish a representative office or have a representative in China, a foreign law firm must obtain permission from the Administrative Department for Justice of the State Council.
Reporting requirements. A law firm must report annually to the local administrative authorities on its legal practice and its lawyers' performance.
Nationality requirements.Foreign suppliers cannot conduct wholesale and retail sales of tobacco, cigarettes, redried tobacco leaves and other tobacco products.
Authorisation requirements. Suppliers must obtain approval or a licence to sell certain goods, including medicines, tobacco, fireworks, oil, and so on.
Export and import restrictions. Suppliers cannot import or export certain categories of goods. There are also quotas on the import and/or export of certain goods (such as cereal, coal and so on).7. Are there restrictions on market access for specific services sectors?
Foreign investors are prohibited from supplying certain services, for example:
Consultation on Chinese legal matters.
Operating news agencies.
Editing and publishing books, newspapers and periodicals.
Editing, publishing and producing audiovisual products and electronic publications.
In some services sectors, foreign investors are subject to certain restrictions (for example, medical services, production of radio and television programmes and films, and so on).
Restrictions on suppliers
Some entities/persons cannot provide certain services, for example:
Social societies and individuals cannot establish social welfare institutions for orphans.
Private operators cannot establish certain specific schools, such as police schools, military schools and political schools.
Private medical institutions cannot conduct operations for birth control purposes.
Approval, authorisation and registration requirements
Many services are subject to specific approval, authorisation or registration requirements. See Question 6 for requirements related to financial services, legal services and retail sales.
Customs authority 8. What is the authority responsible for enforcing customs laws and regulations?
The General Administration of Customs (Customs Administration) and its local branches are responsible for enforcing customs laws and regulations in China.
The Customs Administration can inspect imported and exported goods, seize goods and impose fines (where applicable). The Customs Administration is also entitled to collect customs duties and other taxes and fees.
Import duties, tariffs and rates 9. What are the main customs import tariffs and duties?
The general import tariffs include:
Import excise duty.
Import value added duty.
The rates vary according to the types of goods.
There are various import duty rates, including:
General tariff rates.
Preferential tariff rates.
Most favoured nation tariff rates.
Conventional tariff rates.
Tariff rates for quota items.
The Customs Administration publishes preferential tariffs applicable to certain countries or goods on its official website: www.customs.gov.cn/publish/portal0/tab49576.
Non-tariff barriers to imports 10. Are there non-tariff barriers to imports into your jurisdiction?
The competent authorities mainly regulate imports through:
In special circumstances, the competent authorities can take temporary restrictive measures in relation to the value or quantity of imported goods, or to restrict or prohibit imports.11. Can customs decisions and import restrictions be challenged?
Customs decisions are administrative decisions. Licences to import goods and certificates of tariff quota are also administrative measures. A party can challenge these decisions and measures in accordance with the procedures set out in the administrative laws and regulations (for example, administrative reconsideration, administrative litigation, and so on).
Regulatory framework 12. What are the main regulations on trade remedies? What are the authorities responsible for investigating and deciding on trade remedies?
The main regulations relating to trade remedies include the:
Foreign Trade Law of the People's Republic of China.
Anti-Dumping Regulations of the People's Republic of China.
Countervailing Regulations of the People's Republic of China.
Regulations of the People's Republic of China on Safeguard Measures.
The Ministry of Commerce (MOFCOM) is the main administrative authority responsible for investigating trade remedies in China, including anti-dumping and safeguard measures. In particular, the MOFCOM:
Decides on whether to initiate investigations.
Investigates and issues preliminary and final determinations on whether there are unfair trade activities causing injury to the domestic industry.
Proposes the imposition of countervailing or anti-dumping duties (if relevant).
The MOFCOM reports its investigations results to the Tariff Commission of the State Council (TCSC),which will issue a decision on trade remedies. The decisions of the TCSC are enforced by the General Administration of Customs (Customs Administration).
Investigations and enforcement 13. What are the requirements and procedure to start trade remedies investigations?
Anti-dumping and countervailing investigations
Application requirements. The following persons can request the MOFCOM to start an investigation:
To constitute a domestic industry, the producers who support the request must both:
Represent more than 50% of the total production of the producers who support, or object to, the request.
Represent at least 25% of the total domestic production of similar products.
An applicant must file a written application with the MOFCOM. The application must include certain information, including:
Basic information on the applicant.
A complete description of the imports complained of.
Quantity and value of similar products in the domestic market.
Impact of the conduct on the domestic industry.
The applicant must also provide evidence of dumping or subsidy, injury to the domestic industry and of a causal relationship between the dumping or subsidy and the injury.
The MOFCOM can also initiate an investigation if there is sufficient evidence of unfair trade activities, injury to the domestic industry, and a causal relationship between the unfair practices and injury.
Assessment. To start an investigation, the MOFCOM must:
Examine the qualification of the applicant, the application and the supporting evidence.
Make a decision on whether to initiate the investigation within 60 days from receipt of a written application and relevant evidence.
Notify the government of the relevant exporting country/region before it decides to initiate an investigation.
Announce the decision to initiate the investigation and notify the applicant, known exporters and importers, the government of the exporting country/region, and other interested organisations and individuals.
Send copies of the application to known exporters and the government of the exporting country/region.
Safeguard measures investigations
Application requirements.A natural person, legal person or relevant organisation related to a domestic industry can request the MOFCOM to start an investigation. A domestic industry refers to all domestic producers of similar products or directly competitive products in China, or producers whose total outputs represent a major part of the total domestic output of such products.
The MOFCOM can also start an investigation if there is sufficient evidence to determine that a domestic industry is damaged by increased imports.
Assessment.The MOFCOM must examine the application promptly and decide whether or not to accept the case for investigation.
The MOFCOM must announce the decision on acceptance or establishment of a case for investigation, and must inform the Safeguard Measures Committee of the WTO.
Appeals 14. Is there a right of appeal against the authority's decision? What is the applicable procedure?
Any interested party can bring an appeal for administrative reconsideration or judicial review against final determinations of the MOFCOM and decisions of the Tariff Commission of the State Council on whether to impose anti-dumping and countervailing duties.
Regulatory framework 15. What are the main requirements to export goods from your jurisdiction?
The main regulations relating to the export of goods include the:
Law of the People's Republic of China on Administrative Licensing.
Customs Law of the People's Republic of China.
Law of the People's Republic of China on Foreign Trade.
Law of the People's Republic of China on Import and Export Commodity Inspection.
Regulations of the People's Republic of China on the Administration of the Import and Export of Goods.
The main authorities responsible for regulating exports include the:
Customs Administration and its local branches(www.customs.gov.cn/customs/index/index.html).
Administration responsible for import and export commodities established by the State Council.
Quota and Licence Administration Bureau of the Ministry of Commerce (www.licence.org.cn).
The main requirements to export goods from China include:
16. Are certain categories of goods subject to specific export quotas, restraints or other controls?
Making a customs declaration.
For certain goods, being subject to an inspection.
Obtaining an export licence (if required).
The MOFCOM and the Customs Administration issue the list of goods that are subject to export quotas and/or export licensing requirements. The most recent list, which took effect from 2018, lists 44 classes of goods.
In addition, certain dual-use Items and technologies are subject to export licensing requirements under administrative orders of the MOFCOM and Customs Administration.
The Quota and Licence Administration Bureau of the MOFCOM is responsible for issuing export licences. To obtain a licence, the applicant must file an application and specific documents (such as quota certificates, registration as a foreign trade operator, and so on).
Penalties 17. What are the consequences of non-compliance with export regulations?
The Customs Administration must not release the goods if an exporter does not provide the required export licence.
Violation of export restrictions may be subject to administrative or criminal penalties. Administrative penalties include confiscation of the goods, articles and illegal gains as well as fines. Criminal penalties include imprisonment, detention and fines.
International trade restrictions
Trade sanctions 18. Are there specific restrictions on trade with certain jurisdictions?
The Chinese Government rarely imposes specific restrictions on trade with certain jurisdictions. However, to implement the resolutions of the UN Security Council, certain goods from the Democratic People's Republic of Korea (DPRK) are embargoed.
The relevant announcements are published on the official website of the MOFCOM:
19. What is the authority responsible for imposing trade restrictions?
MOFCOM and Customs Administration Announcement No. 52 of 2017 on Implementation of United Nations Security Council Resolution 2375(http://english.mofcom.gov.cn/article/policyrelease/buwei/201710/20171002654923.shtml).
MOFCOM Announcement No. 11 of 2016 on List of Mineral Products Embargo against the DPRK (http://english.mofcom.gov.cn/article/policyrelease/buwei/201604/20160401291199.shtml).
MOFCOM and Customs Administration No. 81 Announcement of 2016(http://english.mofcom.gov.cn/article/policyrelease/buwei/201701/20170102497804.shtml).
Generally, the Ministry of Commerce and the Customs Administration are responsible for issuing decisions or announcements on trade restrictions. The Customs Administration is generally responsible for enforcing trade restrictions, such as ordering specific measures of supervision and regulation.20. What are the consequences of non-compliance with trade restrictions?
The Customs Administration can impose administrative penalties on any person who fails to comply with trade restrictions. Criminal penalties may also be imposed. See Question 17.
In addition, when a person has failed to comply with trade restrictions, the relevant authorities can:21. Are businesses subject to specific compliance requirements? What practical steps should a business take to ensure compliance with trade restrictions?
There are no mandatory compliance requirements for businesses. However, in practice, companies engaged in international trade business are advised to carry out due diligence and training programmes for their managers and employees. It is also recommended to seek advice from professionals (such as international trade lawyers and consultants) to prevent or decrease potential risks arising from international transactions. Companies can take the following steps to ensure compliance with trade restrictions and regulations:
Obtain registration as a foreign trade operator.
Check whether import/export quotas and licences are required.
Screen restricted goods.
Keep up to date with embargoes and economic sanctions.
Check the value and quantity of exported goods.
Obtain an overview of international trade regulations in the country of export.
Check trade remedies measures in the country of export.
Verify the credentials of any counterparty.
Keep relevant documents and data.
Foreign trade barriers 22. What is the procedure for local exporters to complain against foreign trade barriers contrary to the WTO or other trade agreements?
In practice, local exporters can complain against foreign trade barriers to the relevant industry institution or industry commercial association. Most of these industry institutions and commercial associations are non-governmental organisations. Local exporters can also complain to the local commerce authority.
After receipt of a complaint from exporters, the industry institution, industry commercial association or the commerce authority may report it to the MOFCOM. The Chinese Government may then negotiate with the country concerned or seek resolution of the dispute through the WTO dispute settlement framework.
Developments and reform 23. Are there impending developments or proposals for reform affecting international trade in goods and services?
China is encouraging the import of critical and/or cutting-edge technologies, equipment, parts, and so on, and encourages the world's biggest companies and investors to develop their strategies. China is also accelerating its relations with other countries, especially neighbouring countries, in the areas of goods and services exports, infrastructure construction, outbound investment, and so on.
In addition, in line with China's "opening-up" policy, the Chinese Government announced its plan to make Hainan island an international free trade zone and free port. There are also proposals to give foreign investors full access to China's general manufacturing sector.
Reproduced from Practical Law with the permission of the publishers. For further information, visitwww.practicallaw.com or call+44(0)2075426664.