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Business
Free Trade Zones

In China there are currently 15 free trade zones (FTZs). FTZs are special zones which were established with State Council approval and in which the Customs Office permits special policies involving exceptions to the usual customs procedures. In the FTZs no licences or quotas are required (except for passive quotas) and preferential treatment for import duty and import-related taxes is usually offered.

All kinds of trade and commercial activities conducted between enterprises in FTZs and enterprises outside the zones (but within China) are regarded as foreign trade. The normal import and export rules apply.

Commodity inspection and quarantine
Certain imported or exported commodities are subject to compulsory inspection by state-certified
authorities. The State Exit and Entrance Inspection and Quarantine Bureau (or authorised local delegates) carry out such compulsory inspections. Commodities which need not be inspected may nevertheless be inspected upon application by the consignee or the end user.

Export processing trade
Special import and export rules apply to goods imported and exported under export processing trade
arrangements involving manufacturing contracts where all of the manufactured goods will be sold outside China. Processing trade involves certain limited manufacturing activities carried out in China using materials supplied from abroad or from elsewhere in China. Processing may be conducted with materials supplied from elsewhere in China (ordinary commission processing) or processing with imported materials (import processing). All processing and assembly contracts signed with foreign companies must be approved by MOFCOM or its local offices.

Generally, no import quota and/or licence is required either for the import of raw materials or for the import of equipment necessary for production under a processing contract if all of the output will be exported. If the finished products are commodities which require an export quota or an export licence, the raw materials or equipment will be released by customs only if evidence of the requisite export quota and/or licence can be produced.

Anti-dumping
Dumping happens when the price of the products exported to a foreign country is less than the price
charged for an identical or similar product in the country where the product was manufactured. To determine if a product is being dumped on a foreign market at a price below cost, its price to foreign customers (export price) is compared to its cost or to prices of similar goods in its market of manufacture (domestic price). If the export price is less than the domestic price, the product is being dumped.

Products made cheaply in China and sold cheaply in the UK may be liable for anti-dumping duties. This is also true if a British company sets up a joint venture with a Chinese partner to make a product in China for sale in Europe.

It is expected that there will be a sharp increase in the number of new anti-dumping investigations initiated by the Chinese authorities because of China"s accession to the WTO. There are three reasons for the increase:

• as a condition for joining the WTO, China has promised to significantly reduce its levels of tariff protection for imported products which means many Chinese industries will be exposed, perhaps for the first time, to the forces of international competition;

• the urgent need for restructuring of many Chinese state-owned enterprises means that some of these industries may try to seek protection from international competition in order to enhance possibilities for their continued survival;

• Chinese exporters, including for this purpose foreign investors in Chinese industry, have historically been the main targets for anti-dumping actions by the European Union, the United States, Canada and other

WTO Member countries.

VAT refund for exporters
Normally only exporters or suppliers for international purchase projects (tender projects financed by
international financial institutions such as world bank or foreign government"s aids) are eligible to reclaim VAT. However, the relevant regulations are not as straightforward as they seem and not every eligible exporter or supplier can reclaim the 17 per cent VAT. Whether and to what extent VAT can be reclaimed will depend on the type of products they supply or export and only those who export or supply under government-labelled categories of machinery and electronic products can reclaim the full 17 per cent from the tax authorities.

For most of exportable products, eligible exporters or suppliers can only reclaim 13 per cent VAT. For petrol, a 11 per cent VAT can be reclaimed. For other commodities like coal, only a 5 per cent VAT can be reclaimed.

The procedures for reclaiming VAT are very complicated. Most import and export companies hire financial specialists to process the application which is made to designated tax authorities.

 
   
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