USTR Report: Import & Export Regulations

Friday, December 15, 2006 4:25
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Pages 25 to 36 contain the text related to import and export regulation, and it is suggest you the reader go get another coffee (might add some sugar for good measure).
Again, there is a lot of information in these sections, and it is suggested that readers download the report and read through the fine print as needed.

The table of contents for this section is as follows:

  • Import Regulation: (a) Tariffs; (b) Customs and Trade Admin; (c) Non-Tariff Measures; (d) Tariff-Rate Quotas on Industrial Products; and (e) Other
  • Export Regulations

for companies looking to import goods into China, this section is very key as many of the hurdles U.S. manufacturing are facing are highlighted here, and understanding the current situation is going to be critical to any company looking to export to China from U.S. or E.U. facilities.

Import Regulation:

Tariffs:
The first section to get a clean bill of health, China has in the eyes of the USTR kept up with commitments and “Overall, China’s tariff changes have increased market access for U.S. exporters in a range of industries”. On average, the tariffs paid have gone from 25% of the industrial base in 1997 to 7% in 2002.

Customs and Trade Administration:
Customs Valuation – In the area of valuation, the USTR reports that China has yet to uniformly implement agreed upon valuation measures, and that current methods of using “reference pricing” results in higher tariffs paid.

The most interesting portion of the valuation issue is that “The Customs Administration has been inappropriately assessing duties based on estimated value of yet-to-be-produced copies. No specific products were mentioned here, but for manufacturers of publications, software, audio CDs, and DVDs, that could be an issue to consider before moving production to China.

Rules of Origin – As part of their ascension, China was responsible for implementing the terms under the WTO agreement on Rules of Origin, and apparently they have as stated. with the purpose to “increase transparency, predictability, and consistency”, “U.S. exporters have not raised concerns with China’s implementation of these rules”

Import Licensing – Import Licensing is an area where the USTR believes improvements in transparency need to occur. Using steel import licensing as their example, China is not supposed to impose licensing procedures that are restrictive, yet in the case of steel only 48 traders and 70 producers were given licenses, and neither the list of qualified enterprise nor the qualifying procedures was published.

to date, this issue has yet to be resolved and the risk (in USTR eyes) is that China will arbitrarily repeat this for other products

Non-Tariff Measures:
While tariff rate change implementation were apparently a mess and difficult to accurately monitor, the schedule to remove NFMs was followed, and in some case the scheduled NFMs were removed before required (cranes and motorcycles).

Tariff Quotas on Industrial Products:
Under a tariff quota system, China set a quantity of imports that are allowed at a lower rate, while anything beyond that is subject to a higher rate. In highlighting the problems here, the USTR using fertilizer exports from the U.S. to show how China used the TRQ as a protective measure for domestic fertilizers.

Other Import Regulations:
Antidumping: China is the leading user of AD measures (86 measures affecting 18 countries, and 25 investigations ongoing), and as is the case with most of the USTR’s complaints thus far, the investigation process is lacking the necessary transparency.Unfortunately for U.S. manufacturers, this lack of transparency makes it difficult to defend proper importation of goods into china, and often companies are not given enough information from the investigating body.

The investigation of U.S. kraft paper was highlighted

Countervailing Duties: – The WTO version of do unto others as others do unto you, members have the ability to implement duties on products to recoup losses from the tariffs others have put in place, and it can result in a product specific trade war. fortunately, China has yet to implement these measures, but as they have yet to do so, no one knows what the response will be like.

Safeguards: – to date, China has only initiated one investigation (steel) and followed WTO consistently.

Export Regulation:
Not only responsible for enabling access to China’s markets for imported goods, China is also bound to ensure WTO member countries are able to access China’s exports in a fair manner.

One would think that the U.S. would not complain if China were holding back on some exports, but as in the case of blast furnace coke, there are a couple of exceptions. In addition, when China imposed quotas and license fees on the exports of fluorpar, U.S. companies once again took to writing their senators.

In both cases remedies were sought immediately as U.S. manufacturers were immediately in a position where their costs of raw materials rose above the sale prices of similar Chinese products.

Wrap-up:
In general, the main concern of this section is with the import side of the equation. Opening up the Chinese market to U.S. goods is of the up most importance, and thus 3/4 of this section are devoted to pointing out the roadblocks that still remain under the WTO commitments.

In reading through this report, it appears that roadblocks are limited to specific sectors and there is no macro level roadblocks being put in place that would suggest the China market is closed. As mentioned before, and as should be expected, the Chinese government (who are focused on the stability of 1.3 billion people) have done what they can to protect some industries and at times have one last run up before opening the gates (blast furnace coke).

Companies should expect these activities to continue, and expect more resistance in areas where domestic industry/ players are weak and/ or a regional economy may rely on that industry for jobs. It is in those cases that resistance is highest as allowing foreign products to enter such a market would be taken by the people as a sign that the government did not really have their best interests in mind.

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