TAX NEWS - January 2010

China: New tariffs in effect in 2010

Additional adjustments to China's import and export tariffs apply as from 1 January 2010 as part of the country's commitments to the World Trade Organization (WTO) and its efforts to encourage international trade.


Changes to import and export duty rates

Changes to the import and export duty rates are reflected in the most favored nation (MFN) duty rates, interim duty rates and conventional duty rates.


MFN duty rates – Products originating from WTO member countries are eligible for MFN rates, a number of which are reduced in 2010 according to the tariff concession schedule agreed to with the WTO. By making these adjustments, the Chinese government has fulfilled all of its commitments to the WTO with respect to tariff concessions and, therefore, China will not be obliged to make any further reductions in the MFN duty rates under the current WTO agreement.


Interim import and export duty rates – The Chinese government sets interim import and export duty rates on certain products to encourage imports or restrict exports. Hence, interim import duty rates are lower than MFN duty rates, while interim export duty rates are higher than any normal export duty rates that apply. The interim import and export duty rates are generally valid for one year, subject to an annual review by the government.

On the import side, there are 619 tariff codes in the 2010 list of products with interim import duty rates, as compared to 673 tariff codes for 2009. Advanced technology products (e.g. mechanisms for laser video compact disk players and LCD monitors used for automobile GPS devices) and a number of resource saving and environment-friendly products have been added to the list. Other products have been removed (e.g. phosphoric acid, refined oil and wind power generation equipment), as a result of which the MFN import duty rates apply to these products as from 2010. Products are removed from the list once China has a sufficient domestic supply and there is no longer a need to encourage the import of the products by imposing lower duty rates. On the export side, the government still imposes interim export duty rates to restrict the export of high-energy-consuming, polluting and resource-intensive products, such as certain raw oil and steel products.


Conventional duty rates – Conventional duty rates apply to products originating from counties that have concluded a Free Trade Agreement (FTA) with China. More products will enjoy conventional duty rates under existing FTAs, according to the duty concession schedule set by the agreements. In addition, according to the Closer Economic Partnership Arrangement for the Mainland and Hong Kong and Macau, eight more products originating from Hong Kong (including certain fruit and mechanical equipment) and 46 products originating from Macau (including certain food and marble carvings) enjoy a 0% duty rate on import into Mainland China beginning in 2010.


Revisions to import and export tariff codes

The number of import and export tariff codes has increased from 7,868 to 7,923 in 2010 to enable the classification of a product to be as precise as possible. The changes are ultimately aimed at identifying products that will require tighter export controls or differentiating products that are eligible for preferential duty rates. These changes mainly affect certain agricultural products, textile products, chemical products and mechanical and electrical products.


Summary

Companies should review any changes to the tariff codes of their products and the applicable duty and VAT refund rates to ensure compliance with customs and to identify any tax saving opportunities, and should determine whether their import and export products are affected by the adjustments in interim import and export duty rates.