By Chan, Rico
The China Business Review , Vol. 28, No. 2
Amendments to the 1987 law bring muchneeded improvements to the legal framework for Customs activities
A majority of foreign investors and traders, when asked which aspect of Chinese law (and which law enforcement agency) they dread most, will list customs law and the General Customs Administration (Customs) first. This dread may be the result of poor communication on both sides, or of serious problems in China's customs system. Either way, if China manages to join the World Trade Organization (WTO) this year, its annual trade volume will jump from $165 billion in 1999 to $1.3 trillion by 2005, according to official estimates. Thus, the importance of improving customs laws and procedures cannot be overstated.
Indeed, many analysts regard the amended Customs Law of the People's Republic of China as one of the most important legislative changes that China has implemented to prepare itself for WTO membership (see p.31). The law, which was promulgated on July 8, 2000 and took effect January 1, 2001, includes substantial amendments to its predecessor, the Customs Law, enacted in 1987. Whereas the 1987 law had seven chapters and 61 articles, the amended Customs Law has nine chapters and 102 articles. As the new national legal framework for China's customs regime, it will usher in a wave of detailed regulations in 2001 that will change many basic PRC customs practices (see p.32). For domestic firms, foreign firms, and the Chinese government alike, the big question is this: Will the amended Customs Law equip China with a modern customs regime that can handle the likely explosion in trade volume?
In brief, the amendments to the Customs Law can be grouped into three general categories. First, they align China's customs tariff regime with WTO requirements. Second, they bring the customs system into line with the more modern and rational customs systems contemplated by the 1999 Amendment Protocol to the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Customs Convention), which originally came into force on September 25, 1974 (see p.33). The 1999 Amendment Protocol aims to simplify and coordinate customs procedures among members to meet the needs of rapidly growing international trade volume, and developments in information technology that affect international trade and customs practices. Third, the amended Customs Law confers more investigative and enforcement powers on Customs, but at the same time subjects these powers to a greater degree of accountability.
Meeting WTO requirements
The amended Customs Law institutes a new customs tariff regime, bringing Chinese customs law into line with WTO rules, particularly in terms of the following:
Customs valuation (dutiable value)
The most important issue in customs law is the calculation and levy of customs duty on imported goods. The exact amount of customs duty depends on, among other factors, classification of imported goods, valuation methodology, rules of origin, and duty rates. Since the Tokyo Round of the General Agreement on Tariffs and Trade (GATT) negotiations in 1979, GATT members have agreed to adopt "transaction value" as the primary basis for valuation of imported goods. This agreement was eventually absorbed into Annex IA of the 1994 WTO Agreement-more commonly called the WTO Customs Valuation Agreement. Under this agreement, other customs valuation methods are to be applied only when the "transaction price" is unavailable or inappropriate.
Although GATT members have established transaction value as the primary basis for customs valuation since 1979, China refused to adopt transaction value completely as its valuation method when it amended its Customs Law and Customs Tariff Regulations in 1987. Under the 1987 Customs Law, the dutiable value of imported goods shall be the "normal CIF [cost, insurance, and freight] value of the imported goods determined by Customs. …