PRC Customs Measures for the Supervision of Processing Trade Goods (2nd Revision)

Article 2: These Measures shall apply when procedures for the record filing, import and export customs declaration, processing, supervision and verification and cancellation of processing trade goods are carried out.

Hard copy documents and electronic data formats shall be used for the record filing, import and export customs declaration and verification and cancellation of processing trade goods.

Article 3: The following terms herein shall have the meanings attributed to them below:

“Processing trade” means the business activity wherein the business operator imports all or part of the raw materials, secondary materials, parts, components and packing materials (Materials and Components) and, after processing or assembly, re-exports the finished products. Processing trade includes both the processing of supplied materials and the processing of purchased materials.

“Processing of supplied materials” means the business activity wherein the imported Materials and Components are supplied by an overseas enterprise, the business operator does not need to pay foreign exchange for the import thereof, carries out the processing or assembly as required by the overseas enterprise, only charges a processing fee therefor and the finished products are sold by the overseas enterprise.

“Processing of purchased materials” means the business activity wherein the business operator pays foreign exchange to import the imported Materials and Components and exports the finished products.

“Processing trade goods” means the imported Materials and Components and the processed finished products under a processing trade arrangement as well as the scrap material, defective and substandard products, by-products, etc. generated in the course of processing.

“Processing trade enterprises” includes both business operators and processors registered with customs.

“Business operators” means the various types of import/export enterprises and foreign-invested enterprises responsible for executing import/export contracts for the processing trade with foreign parties as well as foreign-related processing and assembly service companies that have been approved and have a permit to engage in the processing of supplied materials.

“Processor” means a production enterprise with legal personality that is engaged by a business operator and is responsible for the processing or assembly of imported Materials and Components, or a factory established by a business operator that, although not having legal personality, practises relatively independent accounting and has obtained a business certificate (or a licence).

“Per unit consumption of materials” means the quantity of imported Materials and Components consumed per unit of finished product for export that is processed and produced by a processing trade enterprise under normal production conditions; abbreviated as “Unit Consumption”.

“Forwarding for further processing” means the business activity wherein a processing trade enterprise transfers products derived from the processing of bonded imported Materials and Components to another processing trade enterprise for further processing before re-export.

“Contractor” means a production enterprise that executes a processing contract with a business operator and undertakes the outsourced processing work entrusted to it by the business operator. A contractor must be registered with customs and have the requisite processing and production capabilities.

“Outsourced processing” or “outsourcing of processing” means the act whereby a business operator, limited by its own production characteristics and conditions, engages, with the approval of customs and after carrying out the relevant procedures, a contractor to process processing trade goods and transport the processed products back to it within a specified period of time, and finally re-exports the same.

“Verification and cancellation” means the act whereby an enterprise engaged in processing trade, after carrying out customs procedures for processing and re-export or for domestic sale, etc. applies to customs for cancellation of supervision on the strength of the prescribed documents, and customs, after examination and verification that such documents are genuine and comply with relevant laws, administrative regulations, and rules, carries out the procedures for the cancellation of supervision.

Article 4: Unless otherwise provided by the state, if Materials and Components imported for the processing trade fall within the category of those the import of which is restricted by the state, the business operator shall be exempted from submitting an import licence to customs. If the finished products of the processing trade that are to be exported fall within the category of those the export of which is restricted by the state, the business operator shall submit its export licence to customs.

Article 5: Subject to customs approval, if Materials and Components imported under a processing trade arrangement are subject to bonded supervision, customs shall, after the processed finished products are exported, carry out verification and cancellation based on the actual quantity determined to have been processed and re-exported. If, in accordance with provisions, duties and taxes are imposed first at the time of import, customs shall, after the processed finished products are exported, refund the duties and taxes that were imposed based on the actual quantity determined to have been processed and re-exported.

If products exported under a processing trade arrangement fall within the category of those subject to export duties, customs shall collect such export duties in accordance with relevant provisions.

Article 6: Customs implements a system requiring the provision of security in respect of processing trade goods in accordance with state provisions.

Article 7: Processing trade goods may not be mortgaged without the approval of customs.

Article 8: In line with supervision requirements, customs may conduct examinations of processing trade enterprises and the enterprises shall give their cooperation in such examinations. A customs examination may not affect the enterprise's normal business activities.

Article 9: A processing trade enterprise shall keep and prepare account books, statements and other relevant documents satisfying the requirements of customs supervision, keep records relating to the import, storage, transfer, moving, sale, processing, use, consumption and export of its processing trade goods, and record in its accounts and do its accounting based on lawful and valid vouchers in accordance with the PRC Accounting Law and relevant state laws, administrative regulations, and rules.

A processing trade enterprise shall, in accordance with provisions, submit to customs information such as its annual statements on its production and business activities for the previous year.

A processing trade enterprise shall manage processing trade goods and goods that are not processing trade goods separately. Processing trade goods shall be stored in a location filed with customs and dedicated materials shall be stored there exclusively. If an enterprise wishes to change the location where its processing trade goods are stored, it shall require the approval of customs.

Part two: Record filing of processing trade goods

Article 10: A business operator shall carry out the procedure for the record filing of processing trade goods with the competent customs of the place where the processor is located.

If the business operator and the processor fall under the jurisdiction of different customs, the business operator shall carry out the procedure for the record filing of the processing trade goods in accordance with customs provisions for the administration of processing trade in an area other than the home area.

Article 11: When carrying out the procedure for the record filing of processing trade goods, a business operator shall truthfully report its trading method, Unit Consumption, port of import/export and the commodity names of the imported Materials and Components and the finished products for export, their commodity item numbers, specifications, model numbers, prices and places of origin, etc.

Article 12: When carrying out the procedure for the record filing of processing trade goods, a business operator shall submit the following documents:

(1) the valid approval document issued by the competent authority approving the business operator's engagement in the processing trade;

(2) if the business operator itself has processing capabilities, the Certificate of Production Capabilities of a Processing Trade Enterprise/Processor issued by the competent authority;

(3) if the business operator entrusts the processing to another party, the entrusted processing contract executed by the business operator and the processor and the Certificate of Production Capabilities of a Processing Trade Enterprise/Processor issued to the processor by the competent authority;

(4) the contract with the foreign party executed by the business operator; and

(5) other supporting documents and materials that customs deems necessary.

Article 13: If, following examination by customs, the documents are found to be complete, valid and in compliance with Articles 10 to 12 hereof, customs shall grant record filing and issue a processing trade carnet within five working days from the date of receipt of the enterprise's record filing application.

If procedures for the provision of security need to be carried out, customs shall issue the processing trade carnet after the business operator has carried out the procedures for the provision of security.

Article 14: Customs shall withhold record filing and inform the business operator thereof in writing if:

(1) the import of the imported Materials and Components or the export of the finished products for export is prohibited by the state;

(2) the processing and production of the processed products in China is prohibited by the state;

(3) the imported Materials and Components are of kinds that cannot be subjected to bonded supervision by customs;

(4) the business operator or the Processing enterprise falls into the category of those that the state does not permit to engage in the processing trade; or

(5) the business operator failed to submit its expired processing trade carnet to customs for verification and cancellation by the specified deadline and it applies to customs for record filing.

Article 15: Customs may grant record filing after the business operator provides a deposit or bank guarantee equivalent to the duty and tax amount payable if the business operator or the processor:

(1) is suspected of smuggling or violating regulations and customs has opened a case against it, is investigating it and the case is still pending; or

(2) has been required by customs to undergo rectification due to mismanagement and the period for rectification has not expired.

If customs has grounds to believe that a business operator or processor presents a relatively high supervision risk, it may handle matters with reference to the preceding paragraph and inform the relevant enterprise thereof in writing, if such enterprise:

(1) leases its factory buildings or equipment;

(2) is engaging in the processing trade for the first time;

(3) has applied to extend the valid period of its processing trade carnet two or more times; or

(4) is carrying out the procedure for processing trade record filing outside its home area.

Article 16: If customs discovers that the documents submitted by a business operator when carrying out the procedure for the record filing of processing trade goods are inconsistent with the facts, it shall handle the matter in accordance with the following provisions:

(1) if the goods have yet to be imported, customs will cancel the record filing thereof; or

(2) if the goods have been imported, the enterprise may apply for them to be shipped back to their origin or, alternatively, it may continue to perform the contract after providing to customs a deposit or bank guarantee equivalent to the duty and tax amount payable.

Article 17: A business operator that has completed the record filing of processing trade goods may collect a sub-carnet or additions to its processing trade carnet from customs.

Article 18: If there is a change in the recorded particulars of processing trade goods, the business operator shall carry out amendment procedures while its processing trade carnet remains valid. If an application to the original examination and approval authority for its approval is required, such application shall also be made to the original examination and approval authority for its approval.

Part Three: Import, export and processing of processing trade goods

Article 19: When importing processing trade goods, a business operator may do so from abroad, a special customs supervised area or a bonded warehouse, or, alternatively, it may transfer them in through forwarding for further processing.

When exporting processing trade goods, a business operator may do so by exporting them abroad, to a special customs supervised area or a bonded warehouse, or, alternatively, it may transfer them out through forwarding for further processing.

Article 20: A business operator shall carry out customs declaration procedures for the import and export of processing trade goods on the strength of relevant documents such as its processing trade carnet, and customs declaration form for goods imported or exported in connection with processing trade.

Article 21: Goods imported or exported by a business operator under a processing trade arrangement shall be included in customs statistics.

Article 22: With the approval of the competent authority, a business operator may engage in forwarding for further processing and shall carry out relevant procedures in accordance with customs provisions for the administration of the forwarding for further processing of processing trade goods.

Article 23: With the approval of customs, a business operator may engage in the outsourcing of processing and shall handle matters in accordance with relevant provisions for the administration of outsourced processing.

When a business operator engages in the outsourcing of processing, it may not sell the processing trade goods on to the contractor. A contractor may not further outsource the processing of the processing trade goods to another enterprise.

Article 24: A business operator that applies to engage in the outsourcing of processing shall provide to customs a deposit or bank guarantee in an amount equivalent to the amount of the tax payable on the outsourced processing goods if:

(1) the outsourced processing business crosses customs areas;

(2) all production processes are outsourced;

(3) the goods are not returned after the outsourced processing but exported directly; or

(4) the goods for which outsourced processing is applied are not involved in a case, but the business operator or contractor is suspected of smuggling or a violation of regulations and a case has been opened against it by customs and the investigation has yet to be completed.

If the business operator has provided to customs a deposit or bank guarantee of not less than the amount of tax payable before applying for outsourcing of the processing of the goods, it shall not be required to provide another deposit or bank guarantee to customs in accordance with the preceding paragraph of this Article.

If the production or operations management of the business operator or contractor do not comply with the oversight requirements of customs and the goods for which outsourcing is applied are involved in a case and such case is still pending, customs will withhold approval of the outsourced processing business.

Article 25: Subject to the approval of the competent customs of the place where the business operator is located, finished products and residual Materials and Components from outsourced processing as well as the scrap material, defective and substandard products, by-products, etc. generated in the course of production need not be transported back to the business operator.

Article 26: The business operator and the contractor shall both accept the supervision of customs. The business operator shall truthfully report as required by customs information such as the transport, processing, Unit Consumption and storage of the outsourced processing goods.

Article 27: With respect to processing trade goods, dedicated materials shall be used exclusively therefor.

If processed goods for export are urgently required, with the approval of customs, a business operator may swap bonded Materials and Components for other bonded Materials and Components or for non-bonded Materials and Components. However, the swapping of Materials and Components shall be restricted to the same enterprise and shall abide by the principles of swapping for the same type, same specifications and same quantity without gain.

Bonded imported Materials and Components under an arrangement for the processing of supplied materials may not be swapped.

Article 28: If a business operator needs to use non-bonded Materials and Components due to the requirements of the processing process, it shall truthfully report to customs in advance the ratios, types, specifications, models and quantities of the non-bonded Materials and Components. When carrying out verification and cancellation, customs shall subtract the same from the total quantity of Materials and Components consumed in the making of the finished products for export.

Article 29: If a business operator needs to return imported Materials and Components to the original supplier for an exchange due to a quality issue, an inconsistency between the specifications or model and the contract, or other such reason, it may carry out customs declaration procedures directly with customs at the port. Bonded imported Materials and Components that have been processed may not be returned for exchange.

Part Four: Verification and cancellation of processing trade goods

Article 30: A business operator shall process the imported Materials and Components and re-export the finished products within the prescribed period of time and apply to customs for verification and cancellation within 30 days from the date on which the last batch of finished products under the processing trade carnet is exported or the date of expiration of the processing trade carnet.

If the contract executed by a business operator with a foreign party is terminated early for any reason, the business operator shall apply to customs for verification and cancellation within 30 days from the date of termination of the contract.

Article 31: When applying for verification and cancellation, a business operator shall truthfully report to customs information on the imported Materials and Components, the exported finished products, the scrap material, residual Materials and Components, defective and substandard products, by-products, Unit Consumption, etc. and submit to customs its processing trade carnet, customs declaration form for the import and export of goods in connection with the processing trade and other documents as requested by customs.

Article 32: If, after examination, the documents are found to be complete and valid, customs shall accept the application for verification and cancellation. If customs refuses to accept the application, it shall inform the enterprise of the reason therefor in writing, and the enterprise shall apply for verification and cancellation anew in accordance with provisions.

Article 33: When carrying out verification and cancellation, customs may do so by hard copy or electronically. If necessary, customs may conduct an examination at the factory, and the enterprise shall give its cooperation.

Customs shall carry out verification and cancellation within 30 days from the date of receipt of the application for verification and cancellation. If an extension is required in special circumstances, the period may be extended for up to 30 days subject to the approval of the director of the customs directly in charge or the director of the authorized sister customs.

Article 34: If bonded Materials and Components imported for the processing trade or finished products from the processing trade are sold domestically for any reason, customs shall, on the strength of the valid approval document of the competent authority approving domestic sale, impose duties and taxes on the bonded imported Materials and Components in accordance with the law and interest for the late payment of the duties and taxes. If the imported Materials and Components fall into the category of those the import of which is restricted by the state, the business operator shall additionally submit its import licence to customs.

Article 35: If a business operator returns Materials and Components imported for the processing trade to their source abroad for any reason, customs shall carry out the verification and cancellation on the strength of the relevant return documents.

Subject to the approval of customs, if a business operator abandons processing trade goods, matters shall be handled in accordance with customs provisions for the administration of abandoned imports and customs shall carry out verification and cancellation on the strength of the documents relating to the acceptance of the abandonment of such goods.

Article 36: The scrap material, residual Materials and Components, defective and substandard products and by-products generated by a Business Operator in the course of Production as well as damaged bonded goods shall be handled in accordance with customs provisions for the administration of scrap material, residual Materials and Components, defective and substandard products, by-products and damaged bonded goods and customs shall carry out verification and cancellation on the strength of the relevant documents.

Article 37: If a business operator loses its processing trade carnet, it shall report such loss to customs in a timely manner.

After handling matters in accordance with relevant provisions, customs shall cancel the processing trade carnet.

Article 38: With respect to a processing trade carnet that has been cancelled and the case relating thereto concluded, customs shall issue to the business operator a Notice of Cancellation and Conclusion of the Case.

Article 39: If the business operator has provided security, customs shall release the business operator from such security after verification and cancellation and conclusion of the case.

Article 40: The record filing documents and verification and cancellation documents of processing trade goods shall be retained for a period of three years from the date on which the processing trade carnet was cancelled and the case concluded.

Article 41: If a processing trade enterprise is divided, merged or goes bankrupt, it shall, in a timely manner, report the same to customs and complete customs procedures.

If processing trade goods are placed under seal by a People's Court or a relevant administrative law enforcement authority, the processing trade enterprise shall report the same to customs within five working days from the date on which the processing trade goods were placed under seal.

Part Five: Legal liability

Article 42: If these Measures are violated, constituting smuggling, a violation of customs supervision provisions or other violation of the Customs Law, customs shall deal with the matter in accordance with relevant provisions of the Customs Law and the PRC Customs Implementing Regulations for Administrative Penalties. If a criminal offence is constituted, criminal liability shall be pursued in accordance with the law.

Part Six: Supplementary provisions

Article 43: If a bonded factory engages in the processing trade, matters shall be handled in accordance with customs provisions for the administration of bonded factories for the processing trade.

Article 44: If a bonded group engaging in the processing of purchased materials engages in the processing trade, matters shall be handled in accordance with customs provisions for the administration of bonded groups engaging in the processing of purchased materials.

Article 45: If a processing trade enterprise subject to online supervision engages in processing trade, matters shall be handled in accordance with customs provisions for the administration of computerized online supervision of processing trade enterprises.

Article 46: If a processing trade enterprise engages in the processing trade in a special customs supervised area, such as a bonded zone and export processing zone, matters shall be handled in accordance with customs provisions for the administration of special customs supervised areas, such as bonded zones and export processing zones.

Article 47: The reporting and verification of Unit Consumption shall be handled in accordance with customs provisions for the administration of Unit Consumption in the processing trade.

Article 48: Customs provisions for the administration of the imposition of duties and taxes on processing trade goods at the time of import and the refund of such duties and taxes after export shall be formulated separately.

Article 49: The General Administration of Customs is in charge of interpreting these Measures.

Article 50: These Measures shall be effective as of April 1 2004.