There are thousands of stories, many of which we’ve read here at China Law Blog, of companies attempting to sell into China before understanding the legal and regulatory environment for their product. Importing into China is one of these often-overlooked areas, specifically, the rules and regulations as they apply to individual products. In my experience, [...]
There are thousands of stories, many of which we’ve read here at China Law Blog, of companies attempting to sell into China before understanding the legal and regulatory environment for their product. Importing into China is one of these often-overlooked areas, specifically, the rules and regulations as they apply to individual products. In my experience, the importation process creates more issues and lost revenue over time than any other day-to-day activity involved with selling into China.
From the inception of your idea to enter the China market, to the daily grind of fulfillment and sales, there are three keys to getting your goods into the commerce of the PRC.
First, understand the importation process and how it should be performed for your specific product before you ship anything (even samples). DUE DILIGENCE.
Second, if you are importing your own products into China, your relationship with China’s importation regulatory institutions is vital to your success. If you are not the importer of record for your product, see point one.
Third, always make sure your paperwork is correct before you ship, especially with samples and new products. This includes keeping up to date with new laws, regulations and enforcement rules for your industry.
Click here to read the complete article.
Source: Shawn Mahoney via Dan Harris @ China Law Blog
Contractors involved in the Federal Government’s procurement of information technology (IT) systems should consider taking affirmative steps to prepare for significant legal uncertainties arising from a confusing provision enacted by Congress to combat Chinese cyber-espionage. The new provision, which Congress recently included in the “must-pass” appropriations measure that averted a government shutdown, generally prohibits certain [...]
Contractors involved in the Federal Government’s procurement of information technology (IT) systems should consider taking affirmative steps to prepare for significant legal uncertainties arising from a confusing provision enacted by Congress to combat Chinese cyber-espionage. The new provision, which Congress recently included in the “must-pass” appropriations measure that averted a government shutdown, generally prohibits certain agencies from acquiring IT systems that potentially have even a remote connection to the Chinese government. The White House expressed concerns about the provision, but these concerns did not prevent the President from signing the larger package. U.S. businesses, particularly in the high-tech sector, have been critical of the provision, and the White House reportedly has indicated that it may seek to modify or even drop the provision in future years. In the meantime, however, the provision is the law of the land, and contractors should be aware of its potential effects.
Background
Section 516 of the FY 2013 Continuing Appropriations Act, which funds the Federal Government through September 30, 2013, generally prohibits the Departments of Commerce and Justice, as well as NASA and the National Science Foundation, from acquiring IT systems “produced, manufactured or assembled” by entities that are “owned, directed or subsidized by the People’s Republic of China.” Agencies may only make such acquisitions if the head of the agency, in consultation with the FBI, assesses the risks of cyber-espionage associated with the acquisition and certifies to Congress that the acquisition is “in the national interest of the United States.”
The House Appropriations Committee originally added the legislation during its consideration of the FY 2013 spending measure in April 2012. While the Senate version did not include such a provision, it was nevertheless among the provisions that survived into the final package presented to the President. Although the measure applies only to procurement of IT systems throughout the remainder of FY 2013, now that the template has been set, it is possible that similar prohibitions could be included in future appropriations measures.
Click here to read the complete article.
Source: Lawrence A. Schneider & Paul A. Howard | Arnold & Porter LLP
One of the most important issues facing companies conducting trade with China is the subject of taxes and duties imposed on goods imported into and exported out of the country. This is a complex subject, and rates and regulations differ of course from product to product, however there are general tax principles to follow, and [...]
One of the most important issues facing companies conducting trade with China is the subject of taxes and duties imposed on goods imported into and exported out of the country. This is a complex subject, and rates and regulations differ of course from product to product, however there are general tax principles to follow, and we outline the most important issues foreign companies should be aware of below.
Importing to and exporting from China generally involves three types of taxes:
1) Value-added tax;
2) Consumption tax; and
3) Customs duties.
1. Value-added Tax for Imported Goods
Imported goods to China are subject to value-added tax (VAT), and the applicable tax rates are the same as those applied to goods sold within the domestic market (i.e. 17 percent, and 13 percent for some goods). VAT is payable on the day of customs clearance. The input VAT imposed on importing goods can be used to deduct the output VAT paid when the imported goods are sold in the domestic
market.
2. Consumption Tax for Imported Goods
Items subject to consumption tax (CT) include luxury products such as high-end watches, non-renewable petroleum products such as diesel oil, and high-energy consumption products such as passenger cars and motorcycles. Import CT is collected either on an ad valorem basis or quantity basis, with tax rates and amounts varying greatly. CT should be paid within 15 days from the day that Customs issues the Import CT Bill of Payment.
3. Customs Duties
Customs duties include import duties and export duties, with a total of 8,238 items taxed, according to China’s 2013 Customs Tariff Implementation Plan (“2013 Tariff Plan”). Customs duties are computed either on an ad valorem basis or quantity basis.
Click here to read the complete article.
Source: Shirley Zhang | Dezan Shira & Associates via China Briefing
Canada’s trading patterns have changed fundamentally over the past decade. The Canadian–U.S. trade relationship is waning in importance, while emerging markets, particularly China, are becoming increasingly important. Also, our trade strengths are shifting away from some manufactured products toward professional services and products related to our natural resource wealth. These changes are not just the [...]
Canada’s trading patterns have changed fundamentally over the past decade. The Canadian–U.S. trade relationship is waning in importance, while emerging markets, particularly China, are becoming increasingly important. Also, our trade strengths are shifting away from some manufactured products toward professional services and products related to our natural resource wealth. These changes are not just the result of the strong dollar; the growing role of emerging markets and shrinking trade barriers are key drivers. This briefing examines these changes and a wide array of factors affecting them.
Click here to download the report (free subscription required).
Source: Conference Board of Canada
Related: USTR Sets Out Trade Policy Priorities with China for 2013
A secret foreign policy document obtained by CBC News suggests that the Harper government should hasten its pace in forging trade deals with China and other emerging economies. “Our influence and credibility with some of these new and emerging powers is not as strong as it needs to be and could be,” the document reads. [...]
A secret foreign policy document obtained by CBC News suggests that the Harper government should hasten its pace in forging trade deals with China and other emerging economies.
“Our influence and credibility with some of these new and emerging powers is not as strong as it needs to be and could be,” the document reads.
“Canada’s trade and investment relations with new economies, leading with Asia, must deepen, and as a country we must become more relevant to our new partners,” it said.
The document also mentions Africa as place with a fast growing middle class. “The fact remains that, over time, African countries have the potential to challenge the likes of Brazil and China as major investment destinations,” it said.
Click here to read the complete article.
Source: CBC News
Update: Secret Conservative Foreign Policy Document Draws Fire
“A problem with thinking in acronyms is that once one catches on, it tends to lock analysts into a world view that may soon be outdated.” — Ruchir Sharma Ruchir Sharma is the head of Emerging Markets and Global Macro at Morgan Stanley Investment Management. He is also the author of Breakout Nations: In Pursuit [...]
“A problem with thinking in acronyms is that once one catches on, it tends to lock analysts into a world view that may soon be outdated.” — Ruchir Sharma
Ruchir Sharma is the head of Emerging Markets and Global Macro at Morgan Stanley Investment Management. He is also the author of Breakout Nations: In Pursuit of the Next Economic Miracle, published earlier this year.
In six short pages, Mr. Sharma pours a lot of cold water on the notion of the BRICs – Brazil, Russia, India, and China – as a four-team economic powerhouse, with more than a few barbs at economic forecasting generally. After noting, for example, the relative weakness in recent years of the Russia economy and the Russia stock market, he suggests that “Russia remains a member of the BRICs if only because the term sounds better with an R.” He is not much kinder to India and Brazil. As for China, in Mr. Sharma’s view, most of the hype over emerging markets can, or should be, attributed to China alone.
On economic forecasting generally he offers these insights:
• “The current fad in economic forecasting is to project so far into the future that no one will be around to hold you accountable.”
• “The longest period over which one can find clear patterns in the global economic cycle is around a decade.” And,
• “Most CEOs and major investors still limit their strategic vision to three, five, or at most seven years…”
Broken BRICs: Why the Rest Stopped Rising is a link to Mr. Sharma’s Foreign Affairs article as it appears on the website of the Council on Foreign Relations.
Chinese, Georgia, and Taiwanese Companies Conspired to Avoid Millions in Customs Duties by Bribing Officials and Transshipping Chinese Goods through Taiwan The U.S. Attorney’s Office for the Northern District of Georgia reports that a Georgia-based paper company, its chief executive officer and its chief financial officer have been indicted in a scheme to avoid over [...]
Chinese, Georgia, and Taiwanese Companies Conspired to Avoid Millions in Customs Duties by Bribing Officials and Transshipping Chinese Goods through Taiwan
The U.S. Attorney’s Office for the Northern District of Georgia reports that a Georgia-based paper company, its chief executive officer and its chief financial officer have been indicted in a scheme to avoid over $20 million in antidumping duties on Chinese paper products.
Jennifer Chen, chief financial officer of a Georgia-based paper supply company, was arraigned on charges of conspiracy to import paper products from China with fraudulent invoices and bills of lading and to avoid customs duties on such products. On October 17, 2012, a federal grand jury returned an indictment charging Chen, ex-husband Chi Cheng “Curtis” Gung, and their Georgia-based paper company, Apego, Ltd., with the conspiracy and twelve counts of importing notebooks and filler paper from China using false documents. Curtis Gung, chief executive officer, reported through counsel that he went to Taiwan last week for medical treatment and wished to surrender voluntarily next month.
Three leading Chinese paper manufacturers, a Taiwanese company, and their respective chief executive officers (CEOs) were also charged with the conspiracy and twelve fraudulent importation counts. Forth Wu, 69, a citizen of Taiwan and resident of Tainan, was indicted along with Fromus Psyche International, Inc. (Fromus), a Taiwanese company he owns and operates. Zuoru He, 66, a citizen and resident of the People’s Republic of China (China), was indicted along with three companies he controls and partly owns, Watanabe Paper Product (Shanghai) Co., Ltd., Watanabe Paper Product (Linqing) Co., Ltd. and Hotrock Stationery (Shenzen) Co. (collectively the Watanabe Group).
Two years ago, Calibur11 in Duluth, Minn., did what any other cash-strapped manufacturer looking to prune costs would do: Turned to China. Now, the maker of game console cases is shifting its manufacturing operations back to the United States, discovering that doing business overseas was more trouble than it was worth: One supplier lost the [...]
Two years ago, Calibur11 in Duluth, Minn., did what any other cash-strapped manufacturer looking to prune costs would do: Turned to China.
Now, the maker of game console cases is shifting its manufacturing operations back to the United States, discovering that doing business overseas was more trouble than it was worth: One supplier lost the molds for the its decorative shells while another demanded a bribe — all on top of quality problems.
“We just kind of got kicked right in the teeth dealing with China. It wasn’t any fun by any means. But it helped us learn to bring stuff back to the United States,” said Calibur11 owner Coy Christmas.
The hassle of operating abroad has triggered some companies to move production stateside, a move called “reshoring.” Coming home not only bolsters the speed, quality and simplicity of doing business, it’s also more economical than it used to be. Average wages in China have jumped 10 to 25 percent a year, hitting $4 to $6 an hour in some plants. Add in shipping and high fuel costs, and offshore manufacturing is no longer a bargain.
The return of production to America has been somewhat of a surprise. The government doesn’t track corporate reshoring efforts, but experts say they are hearing of more companies bringing work home.
Click here to read the complete article.
Source: Minneapolis Star Tribune
MSNBC’s Lawrence O’Donnell explains why the policy of “getting tough on China” isn’t as easy as some U.S. political figures assert. “What’s absolutely true is that any tariff put on any product in this country is paid, not by the country that produces the product, it is paid by American consumers when they purchase that [...]
MSNBC’s Lawrence O’Donnell explains why the policy of “getting tough on China” isn’t as easy as some U.S. political figures assert.
“What’s absolutely true is that any tariff put on any product in this country is paid, not by the country that produces the product, it is paid by American consumers when they purchase that product. Tariffs are simply sales taxes on American consumers and that’s why tariffs are almost always self-defeating. So, if a president wants to get tough with China and slap some heavy tariffs on Chinese products, the question for that president is very simple…”
On September 26, 2012, the Canadian government tabled a new Agreement for the Promotion and Reciprocal Protection of Investments with China, a bilateral investment treaty (BIT), also referred to as a Foreign Investment Protection and Promotion Agreement (FIPA). The BIT was signed on September 8, 2012 at the Asian Pacific Economic Cooperation Leaders’ Meeting in [...]
On September 26, 2012, the Canadian government tabled a new Agreement for the Promotion and Reciprocal Protection of Investments with China, a bilateral investment treaty (BIT), also referred to as a Foreign Investment Protection and Promotion Agreement (FIPA). The BIT was signed on September 8, 2012 at the Asian Pacific Economic Cooperation Leaders’ Meeting in Vladivostok, Russia. This will be Canada’s third BIT to come into force in 2012 and brings to 24 the number of BITs Canada has signed and brought into force. Canada also has concluded negotiations on BITs with five other countries and is currently in active negotiations with 13 other countries.
Over the last decade or so, BITs have quickly emerged as an important consideration for businesses seeking to understand what protection their investments have in foreign jurisdictions. Traditionally, when investment disputes arose, foreign investors were limited to seeking remedies either through the domestic courts of the host country or through diplomatic channels. These BITs are an attractive alternative because they provide a mechanism for investors to pursue damages claims directly against host states through independent international arbitration.
Negotiations With China
Negotiations for the China-Canada BIT commenced in 1994, but slowed as China prepared for accession to the WTO and as Canada drafted its 2004 Model FIPA. Negotiations were re-started in September 2004. The China-Canada BIT is comprised of 35 articles and some four pages of reservations and exceptions. A typical Canadian BIT contains under 20 articles.
Concluding a BIT with China was seen as a priority given the increasing level of investment the two nations are making into each other’s markets. The stock of Canadian Foreign Direct Investment (FDI) in China was valued at nearly C$4.5 billion at the end of 2011. The stock of Chinese FDI into Canada for the same time period was C$10.9 billion.
Key Substantive Protections for Foreign Direct Investment
Canada’s BIT with China contains, as does its BITs with other countries, three core substantive obligations which can be briefly described as follows:
non-discriminatory treatment: the foreign investor and the investment must be accorded treatment no less favourable than that accorded to domestic investors (national treatment) and investors from any other country (most-favoured-nation treatment or MFN treatment);
fair and equitable treatment: the foreign investment must be accorded fair and equitable treatment in accordance with international law, including full protection and security; and
compensation for expropriation: expropriation, or indirect measures equivalent to expropriation, must be for a public purpose, non-discriminatory, in accordance with due process of law and accompanied by payment of prompt, adequate and effective compensation.
Click here to read the complete article.
Source: McCarthy Tétrault LLP
A first for a Canadian trade tribunal could mark a turning point in the wave of anti-dumping cases lodged against the world’s most populous country. As the manufacturing power they are, Chinese companies often find themselves in anti-dumping and countervailing (illegal subsidy) cases around the world – with some estimates suggesting the Chinese are involved [...]
A first for a Canadian trade tribunal could mark a turning point in the wave of anti-dumping cases lodged against the world’s most populous country.
As the manufacturing power they are, Chinese companies often find themselves in anti-dumping and countervailing (illegal subsidy) cases around the world – with some estimates suggesting the Chinese are involved in four of every five.
While many of these cases are justified, some are little more than calculated moves by domestic manufacturers who’ve noticed a declining market share and need to turn the tide.
In Canada’s bifurcated trade remedy process, which involves both the Canadian Border Services Agency and the Canadian International Trade Tribunal, questionable claims are supposedly weeded out; by the time a final determination is made, most would agree they are.
The problem, however, is that these cases usually take about seven months from start to finish.
And while that’s getting sorted out, foreign companies – many of which are SMEs – find themselves priced out of the market by the imposition of temporary duties, regardless of whether claims turn out to be unsubstantiated in the end.
But that might be changing. Click here to read more.
Source: iPolitics
Virtual Summit: September 27, 2012 Expanding your business into new markets can be daunting; however the benefits can open your business to a world of opportunities. But how do you know which markets are right for you? Join global business specialists and a panel of experts for a full day of presentations on trade solutions that [...]
Virtual Summit: September 27, 2012
Expanding your business into new markets can be daunting; however the benefits can open your business to a world of opportunities. But how do you know which markets are right for you?
Join global business specialists and a panel of experts for a full day of presentations on trade solutions that will help you grow your business. On September 27, 2012, Export Development Canada (EDC) will present Get in Top Shape for Trade 2012, an inventive virtual conference and exhibition intended to provide you with information, tips and resources that will help you succeed more efficiently in international trade.
Highlights:
• Find the right markets and learn how and where to diversify
• Discover how to achieve operational excellence by leveraging cash flow management, avoiding financial fraud, and more.
Who Should Attend:
• Canadian exporters considering doing business in markets such as China and India.
• Canadian companies interested in the infrastructure, cleantech and healthcare sectors.
More information on event speakers and partners here.
Click here to register for this free event.
Canada and China this week released a study that examines the “economic complementarities” that exist between the two countries as part of a broader effort to expand bilateral trade and economic relations. According to a press release by Foreign Affairs and International Trade Canada, the study provides a broad overview of the Canadian and Chinese [...]
Canada and China this week released a study that examines the “economic complementarities” that exist between the two countries as part of a broader effort to expand bilateral trade and economic relations. According to a press release by Foreign Affairs and International Trade Canada, the study provides a broad overview of the Canadian and Chinese economies and bilateral trade relations and examines seven economic sectors in greater depth. These sectors are agriculture and agri-food (including fish and seafood), clean technology and environmental goods and services, machinery and equipment, natural resources and derived products, services, transportation infrastructure and aerospace, and textiles and related goods.
The study concludes that the Canadian and Chinese governments should continue to deepen and strengthen bilateral trade and investment ties through appropriate bilateral instruments to ensure that citizens in both countries can continue to build a prosperous and sustainable future. Minister of International Trade Ed Fast indicated that the Canadian government is “carefully reviewing the information contained in the study” and “considering its findings.”
China is Canada’s second-largest single-nation trading partner with two-way merchandise trade of $65 billion last year. Canadian exports to China grew by 27% last year while imports from the mainland increased 8%. The Harper government has identified China as a priority market under its Global Commerce Strategy and has declared that advancing Canada’s trade and investment interests with that country is “key to the future and prosperity of Canadians.”
This webinar provides information on trade, supply chain management and exporting when doing business in China. This event is available on-demand until May 3, 2013. Representing nearly one-fifth of the world’s total population, combined with a growing economy and now less restrictions on foreign investment regulations, it’s no wonder that China is dominating the business [...]
This webinar provides information on trade, supply chain management and exporting when doing business in China. This event is available on-demand until May 3, 2013.
Representing nearly one-fifth of the world’s total population, combined with a growing economy and now less restrictions on foreign investment regulations, it’s no wonder that China is dominating the business landscape and becoming a priority market for many foreign investors. As new opportunities arise with the increase in globalization, China can be considered one of the most important markets for Canadian companies looking to expand internationally.
As China continues its ascent as a global economic power, issues involving China under the Foreign Corrupt Practices Act, (FCPA) have emerged as major business problems for multinational companies (MNCs). In a recent Wisconsin Law Review article, “China under the Foreign Corrupt Practices Act,” I discuss several major issues under the FCPA that concern MNCs doing [...]
As China continues its ascent as a global economic power, issues involving China under the Foreign Corrupt Practices Act, (FCPA) have emerged as major business problems for multinational companies (MNCs). In a recent Wisconsin Law Review article, “China under the Foreign Corrupt Practices Act,” I discuss several major issues under the FCPA that concern MNCs doing business in China. I summarize the findings here. Those who wish a more in-depth look should consult the article, which offers many more examples than there is room to discuss here.
I.E.Canada introduces its International Webinar Series. These three, ninety minute sessions will cover the basic customs processes and procedures in the three key markets of Brazil, Mexico and China. Hear from experts on the ground in each country and learn tips and tricks to ensuring your goods flow smoothly. The sessions are: 1) Importing into Brazil, [...]
I.E.Canada introduces its International Webinar Series. These three, ninety minute sessions will cover the basic customs processes and procedures in the three key markets of Brazil, Mexico and China. Hear from experts on the ground in each country and learn tips and tricks to ensuring your goods flow smoothly.
The sessions are:
1) Importing into Brazil, July 18, 2012 1:00 pm – 2:30 pm EDT
Speaker: Arnon Melo, Managing Director, Mellowhawk
.
2) Mexican Customs 101, August 23, 2012 1:00 pm – 2:30 pm EDT
Speaker: Edmundo Elias, Partner, Baker McKenzie
3) Customs in China, October , 2012 1:00 pm – 2:30 pm EDT
Speaker: Eugene Lim, Baker McKenzie
Click here for the International Series webinar pricing and registration information!
Jack Yong, a partner with the law firm Gowlings and co-chair of their “China Initiative” discusses some of the challenges and opportunities of for businesses dealing with the world’s second largest economy. This is an excerpt from an online webinar held earlier this year in which a panel of experts explored the legal environment in [...]
Jack Yong, a partner with the law firm Gowlings and co-chair of their “China Initiative” discusses some of the challenges and opportunities of for businesses dealing with the world’s second largest economy.
This is an excerpt from an online webinar held earlier this year in which a panel of experts explored the legal environment in China including:
· The anatomy of a joint venture – what to do and to avoid
· Contract manufacturing in China
· Managing IP disclosure
· Business norms and business culture in China
To view the full 1.5 hour long seminar, click here.
Chinese import tariffs can be as much as 270% for certain products, usually levied on the importer, according to a new guide released by credit insurance specialist Atradius. This proves an expensive disincentive to buy so foreign suppliers should account for it in their pricing, whilst ensuring that their supply agreements protect against these costs [...]
Chinese import tariffs can be as much as 270% for certain products, usually levied on the importer, according to a new guide released by credit insurance specialist Atradius.
This proves an expensive disincentive to buy so foreign suppliers should account for it in their pricing, whilst ensuring that their supply agreements protect against these costs being passed on to them by the importer, advises the guide, called Trade Successfully with China: Ten Important Principles.
Foreign suppliers should also be aware that, although there may have been agreement that their country’s law covers the contract of sale, certain aspects of Chinese law must still be complied with, including China’s competition laws such as those relating to misleading advertising and predatory pricing.
Here are some other important notes from the guide:
Beware of import restrictions
Not all goods can be freely imported into China. The Ministry of Commerce – the government department in charge of foreign trade in China – regularly revises its lists of restricted or banned goods. It is therefore advisable for foreign suppliers to first clarify whether their goods are subject to any licensing or quota requirements. Otherwise, there is a risk that the goods will not be allowed into the country.
Observe foreign exchange administration regulations
Importers must report payments to the Chinese State Administration of Foreign Exchange if the value of the goods and the amount paid differ by more than the equivalent of U.S.$10,000 for a single contract.
Although it is the importer’s responsibility to comply with foreign exchange laws, foreign suppliers should take into account the risks associated with the Chinese foreign exchange control regime, as it can hinder or prevent payment: for example, some importers are not entitled to make advance payments or to pay the purchase price by way of letter of credit.
Atradius’ chief market officer Andreas Tesch commented: “Growing affluence within China is stimulating private consumption and this creates real opportunities for foreign exporters, provided that they understand the nature of the market and take sensible measures to protect their assets”.
Source: Atradius Credit Insurance N.V.
Canada’s economic relationships with the People’s Republic of China continue to grow each year, creating attractive partnership opportunities for Canadian and Chinese companies. Despite the obvious benefits of such growth, Canadian and Chinese companies should be aware of the sleeping dragon that can surface in the event of a contract or trade dispute, based on [...]
Canada’s economic relationships with the People’s Republic of China continue to grow each year, creating attractive partnership opportunities for Canadian and Chinese companies. Despite the obvious benefits of such growth, Canadian and Chinese companies should be aware of the sleeping dragon that can surface in the event of a contract or trade dispute, based on differences in how some parties approach the process of dispute resolution. These differences can add cost and complexity, as w
ell as uncertainty, to an already complicated process. This bulletin highlights some of these differences and offers suggestions to mitigate the risks that can arise in the course of resolving a dispute involving Canadian and Chinese companies.
Given the legal, commercial and cultural diversities between Canada and China, it is not surprising that there could be differences in how some parties in each country approach dispute resolution. These differences often relate to the significance of the terms of a contract or trade legislation, rules of procedure and court (or tribunal) orders. Being aware of these potential differences can reduce the likelihood of unwelcome surprises in the event that a dispute arises regarding a proposed or completed transaction. This is particularly important given the additional (and typically unbudgeted) operational and financial resources that may be required in order to resolve the dispute.
Canadian Dispute Resolution Processes: Designed to Deliver Compliance and Certainty
In Canada, the framework and structure of commercial and trade dispute resolution is carefully prescribed by legislation and rules of procedure, such as each province’s Rules of Court, each arbitration centre’s Rules of Procedure, and, in the case of trade disputes, the Special Import Measures Act, the Customs Act and related Canadian legislation. These various sets of rules prescribe numerous mandatory steps and timelines for the resolution of disputes in each forum. Canadian courts have expressly stated that parties’ contractual and legislative obligations should be given effect barring very good reasons otherwise, in aid of providing market certainty. As such, Canadian courts and tribunals seek to ensure the litigation process closely follows the rules of procedure in order to resolve disputes in a manner that is intended to be both just and efficient.
Similarly, the Canada Border Services Agency (CBSA) and the Canadian International Trade Tribunal (CITT) have consistently demonstrated an intention to investigate allegations of trade law violations in order to ensure strict compliance with trade legislation. Both agencies are governed by legislation that sets tight timelines and filing requirements, and which offers limited flexibility. Imports from China have often been the target of such investigations. A recent example is the January 12, 2012 CITT preliminary injury determination regarding stainless steel sinks imported from China. The CITT concluded that there is evidence that discloses a reasonable indication that dumping and subsidizing of the imports have caused or are threatening to cause injury to the domestic industry. As a result, a full inquiry will proceed, and duties may be assessed on the subject imports.
Failure to abide by the terms of a contract, trade legislation, or the rules of procedure invites an adverse ruling by a court, arbitrator, the CBSA or the CITT. Further failure to abide by such an order will result in additional consequences and penalties, including increased legal costs. Companies operating in Canada should be aware that Canadian courts will expect strict compliance on these matters and will penalize contraventions of such rules, particularly once an order has been issued setting out clear expectations and deliverables. Read the complete article here.
Source: Roy Millen and Andrew Crabtree — Blake, Cassels & Graydon LLP
Export manufacturers in China typically carry on their operations utilizing the Processing Trade, which allows them to import raw materials, parts, components, etc. on a bonded basis if used in export production. Processing Trade currently accounts for approximately 40% of China’s total import and export trade volume and saves companies billions of dollars in upfront [...]
Export manufacturers in China typically carry on their operations utilizing the Processing Trade, which allows them to import raw materials, parts, components, etc. on a bonded basis if used in export production.
Processing Trade currently accounts for approximately 40% of China’s total import and export trade volume and saves companies billions of dollars in upfront duty and VAT costs.
This means the value and importance of the Processing Trade to a company’s business strategy should not be underestimated.
Processing Trade has been widely utilized by multinational companies because they can avoid the upfront payment of duties/taxes on imported materials.
These savings are particularly relevant in China as often payments of customs duty (China does not have a duty drawback program) or import VAT (there is an export VAT “leakage” cost) cannot be recovered or may only be partially recoverable.
However, as a result of the huge cost savings and importance to the operations, one of an export manufacturer’s largest business and tax risks in China revolves around the ability to continue using Processing Trade.
Consequently, there have been many discussions in the government on how to strengthen the management of Processing Trade and more closely monitor companies’ compliance with the regulations.
More focus on the “Customs Handbook”
The Processing Trade is managed by the Ministry of Commerce (MOFCOM) and the General Administration of Customs (China Customs).
While MOFCOM provides the approvals for a company to operate as a Processing Trade entity, China Customs is the operational and execution agency to administer the program on a day-to-day basis.
China Customs issues a “Customs Handbook,” either in a manual or electronic form, to track the bonded materials/components from the time of importation, through the manufacturing process and finally to the exportation of the finished goods.
Entities using a “Customs Handbook” are held accountable by China Customs to “reconcile” the imported bonded and domestically sourced materials (i.e., the inputs) against their usage in exported finished goods (i.e., the outputs).
However, variances in the usage, consumption and tracking of the bonded materials may occur for a variety of reasons and this can create a significant business and tax exposure for companies.
In order to strengthen the management of Processing Trade, China Customs has recently introduced an internal structural reform that may have a significant impact on the business operations of entities engaged in Processing Trade.
The Processing Trade Supervision Department was previously responsible for overseeing and administering the Processing Trade.
However, certain bonded inspection functions have been transferred from the Processing Trade Supervision Department to the Audit Department within China Customs.
Historically, the Processing Trade Supervision Department would normally allow a company to reconcile their “Customs Handbook” on their own and would largely rely on the bonded inventory quantities provided by the entities to conclude the “Customs Handbook” reconciliation.
With the recent changes and based on experience, it is expected that the Audit Department is likely to apply a more thorough and aggressive approach in executing their inspection and reconciliation review responsibility.
It is highly likely that companies will experience more frequent and robust “Customs Handbook” reconciliations and audits in the future.
This will require a processing trade entity to ensure they have robust internal controls, comprehensive record-keeping practices and sufficient experienced resources to manage the operations and possibly facilitate an on-site inspection/audit by customs officials, should it arise.
Many large entities operating under Processing Trade rely heavily on the uninterrupted enjoyment of the program’s costs savings to be competitive.
Should these entities lose their ability to efficiently access the benefits, they would have to rethink their export manufacturing position in China.
