China question: How can I import products into China under lower tariffs?

Chinese and foreign-invested enterprises with strong design, R&D, manufacturing capabilities and core technology should examine the sales records and contracts on their equipment and products to assess how the new rates may affect them. Before making any adjustments or applications, a thorough review of the tariff codes of the imported goods and a check with customs authorities on tariff classifications is the best way to assess your eligibility for the duty-free import regime.

Guo Min, Gide Loyrette Nouel, Beijing

The domestic perspective

As part of the government's efforts to reinforce macroeconomic control, accelerate industrial restructuring, and transform economic development patterns, the Tariff Committee of the State Council issued the 2012 Tariff Implementation Plan (2012年关税实施方案) on December 9 2011.

To encourage imports and satisfy the needs of local economic development as well as local consumption, 737 commodities were approved to enjoy the interim import duty rates, with an average rate of 4.4%. That is more than 50% lower than the most favoured nation duty rates. Commodities with interim import duty rates in 2012 cover the following categories:

• Energy and resource related commodities, such as coal, hard coke, refined petroleum products, marble and copper;
• Key equipment and parts required for high-end equipment manufacturing, new information technology, new-energy automobile and other industries with strategic importance, such as air jet looms, camera components for mobile phones, special moulds used for body stamping and press parts for processing automobiles;
• Means of agricultural production, such as tractors with large horsepower engines, chemical fertiliser, and animal fodder;
• Daily necessities that are used to improve people's livelihood and encourage consumption, such as baby food, preparations for the care of the skin, and kitchenware; and
• Public health related commodities such as vaccines and serum.

In addition, to encourage the development of the nation's cultural industry, interim import duty rates are also applied to commodities like digital movie projectors, original paintings and sculptures. Importers may refer to Appendix III of Circular 27 (Table of 2012 Interim Duty Rates on Imported Goods) (进口商品暂定税率表) by searching the HS code of any commodity for the specific interim tariff rate.

On March 28 2012, the State Council announced four measures to stimulate imports into China, better balancing the import and export trade. The measures include: reduced import duty rates by means of applying interim tariff rates, expanding the scope of commodities under zero rates and importing from free trade zones; providing diversified financing options to stimulate imports; improving the level of trade facilitation; and reforming customs administration methods to reduce import costs.

We believe that during 2012, the PRC government will still encourage import businesses and companies might find it easier to get goods into the market because of these reduced import rates. However, when applying for the reduced tariff rates, importers need to consider some important issues.

In addition to the announcement of annual interim tariff rates, the PRC government has also adjusted and increased tariff codes. The total number of tariff codes increased from 7,977 in 2011 to 8,194 in 2012. This change might affect importers' tax costs on commodities coming in and out of China. Companies should review the tariff codes in use against the 2012 tariffs. They can identify potential tax saving opportunities and might consider adjusting the tariff codes of imported or exported goods to enjoy reduced tax costs. However, importers should be cautious of the risks related to the adjustment of tariff codes.

Importers that used to take advantage of free trade zones might find less benefit in operating through them by comparing the saved tax costs against the increasing warehouse and management fees. Companies might need to review their current business models under the revised 2012 tariff codes.

The PRC government is also expanding its treaty network through negotiations with more countries and regions. It was reported that companies have not fully utilised the treaty network in the past. As well as reviewing the current tariff codes, businesses should also pay attention to new treaties the government signs. They should consider reviewing and adjusting business models to maximise benefits under the PRC treaty network.

Clare Lu, Llinks Law Offices