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Import: Non-Tariff Barriers

Many countries use non-tariff barriers as a means to restrict imports.

Import Substitution Policies

Automobiles

China's automobile industrial policy, the Policy on Development of the Automotive Industry, includes provisions for discouraging the import of automotive parts and promoting the use of domestic technology in new vehicles assembled in China.

Measures adopted by the Ministry of Finance and the State Administration for Taxation (SAT) make income tax preferences available to foreign-invested firms for the purchase of domestically manufactured equipment. However, these refunds are not available for the purchase of imported equipment or equipment assembled in China using imported parts.

The Administrative Rules on Importation of Automobile Parts for the Assembly of Complete Vehicles levies charges that discriminate against imported automotive parts and discourage automobile manufacturers in China from using imported automotive parts to assemble vehicles.

Steel and Iron Development Policy

According to the Steel and Iron Industry Development Policy, foreign enterprises seeking to invest in Chinese iron and steel enterprises must possess proprietary technology or intellectual property in processing steel. Foreign investors are disallowed to have a controlling share in steel and iron enterprises in China; hence, this requirement seems to constitute a de facto technology transfer requirement.

The policy also appears to discriminate against foreign equipment and technology imports. It encourages the use of local contents by calling for a variety of government financial supports for steel and iron projects utilizing newly developed domestic equipment.

The policy describes the number and size of steel producers in China, the place where they are located, the types of products that may or may not be produced, and the technology that may be used. It also lays down a high degree of government direction and decision-making regarding the allocation of resources into and out of China’s steel industry.

Other Policies

China promotes the development of its domestic integrated-circuit (IC) industry through discriminatory value-added tax (VAT) policies
China has excluded all phosphate fertilizers except di-ammonium phosphate (DAP) from the VAT. This selective exemption is disadvantageous to imports from countries that produce DAP.
China Telecom discourages the use of imported equipment or components.

Tariff Classification

Chinese customs officers have wide discretion in classifying a particular import. While foreign businesses, at times, benefit from their ability to bargain tariff classification into tariff categories with lower import duty rates, lack of uniformity makes it a challenge to expect border charges.

Customs Valuation

Transaction Price versus Reference Pricing

Technically, imported goods are customs valued on the basis of the transaction price. However, many Chinese customs officials are still improperly using "reference pricing," which generally leads to a higher dutiable value.

Digital Media

Exporters face problems from the customs administration’s way of handling imports of digital media (such as DVDs) imported for the purpose of subsequent production of multiple copies. It has been reported that the customs administration has improperly assessed the duties based on the estimated value of the yet-to-be-produced copies.

Customs Delays

Exporters face difficulties due to the inconsistent and inefficient customs clearance procedures in China. These procedures differ from port to port. The system suffers from widespread delays and the fees levied are also very high.

Border Trade

China’s border trade policy continues to produce Most Favored Nation (MFN) and other concerns. China gives preferential import duty and VAT treatment to particular goods, often from Russia.

Tariff-Rate Quotas (TRQs)

China imposes quantitative controls on particular goods that can enter at a low "in quota" tariff rate, and any imports over that quantity are subjected to high duty. China has a Tariff Rate Quota (TRQ) regime on six agricultural products, namely, wheat, cotton, corn, rice, wool, and sugar, as well as on three chemical fertilizers that include di-ammonium phosphate.

Import Licenses

China’s inspection and quarantine agency, the General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ), has imposed inspection-related requirements that have led to restrictions on imports of many foreign agricultural goods.

China’s Ministry of Agriculture (MOA) mandates the registration licensing procedure for animal-feed ingredients and feed additives. License applicants have reported that in order to get licenses, they are required to give out often-confidential product or manufacturing details. MOA’s registration period is changeable, and its evaluation process lacks clarity.

Taxation

The tax changes introduced in 2007 by the Chinese government resulted in narrower profit margins for foreign-invested enterprises in China. The law led to reduction in measured foreign direct investment, as it closed a "round-tripping" loophole through which money from China is sent overseas and brought back to China as "foreign investment" to take advantage of preferential tax treatment policies.

Value-added tax (VAT) ranges from 5 to 17 percent depending on the product. This tax continues to be uneven. Importers from a wide range of sectors report that, because taxes on imported goods are collected at the border, they are sometimes subject to application of VAT that their domestic competitors often fail to pay.
China uses a substantially different tax base to calculate consumption taxes for domestic and imported products. The tax burden charged on imported consumer goods ranging from alcoholic beverages to cosmetics to automobiles is higher than for competing domestic products.

Intellectual Property Rights (IPR) Protection

China lacks a strong enforcement system (criminal, civil, and administrative). This leads to a poor intellectual property rights (IPR) enforcement record.

China faces various challenges, such as high legal thresholds for criminal enforcement, defects in China’s laws concerning border enforcement, and the enforceability of copyrights during the period before a work obtains censorship approval.

China’s maintenance of import and distribution restrictions affects legitimate copyright-intensive products, such as music, theatrical films, books, digital video discs, newspapers, and journals, as well as related foreign service suppliers. These controls lead to delays for the introduction of IPR-protected goods. Consequently, the infringing products continue to dominate those sectors within China.

Investment Barriers

Banking, Insurance, and Financial Services

Foreign life insurance companies can only be established as joint ventures, with foreign equity capped at 50%. China’s markets for third-party liability automobile insurance and for political risk insurance are closed to foreign participation.
Regulations for the Administration of Foreign-Funded Banks allow foreign banks to compete in all lines of banking business on the same terms as domestic banks. These regulations, however, require foreign banks to incorporate in China. Moreover, according to the regulations, only foreign-funded banks that have had a representative office in China for two years and total assets exceeding $10 billion USD can apply to incorporate in China.
After incorporating, these banks only become eligible to offer full domestic currency services to Chinese individuals if they can demonstrate that they have operated in China for three years and have had two consecutive years of profits.
Foreign bank branches cannot issue domestic-currency credit cards to Chinese enterprises or Chinese individuals.

Telecommunications

Foreign participation in China’s telecommunications market, which includes both basic and value-added telecommunications services, is very limited. China maintains foreign equity controls and other barriers in the telecommunications sector. The investment approval procedures lack clarity and are very protracted. Other considerations:

China’s foreign-equity controls (a maximum of 49% foreign equity for basic telecommunications and 50% for value-added telecommunications) drastically reduce the commercial opportunities in the sector.
Chinese policy only allows foreign joint ventures with existing licenses. These licenses are all majority state-owned enterprises. The policy makes sure that the market structure is completely regulated by the government policy, resulting in low market access opportunities.
Lack of transparency regarding services that a foreign-affiliated firm is permitted to offer is a major problem faced by foreign companies in choosing a service to obtaining a license.

Note: The above information is subject to change. Importers and exporters are advised to obtain the most current information from a customs broker, freight forwarder, logistics professionals, or local customs authorities.

Source: General Administration of Customs