Chapter 2.8: China s Tariff Regime after WTO Accession

Wu Naiwen, Vice Chairman, China Customs Research Society

China's accession to the WTO symbolizes a new phase of China's opening up. It has an important bearing on improving China's business and investment environment, and will bring about profound changes and impacts on China's foreign trade and economic cooperation. This article provides a brief introduction to China's tariff regime and tariff administration.

The tariff is an important policy measure that the WTO allows its members to use for the protection of their domestic industries. Compared with various other measures, the tariff has a high degree of transparency in discerning the level of protection, and therefore enables trade competition to take place on a clearer, fairer and foreseeable basis. For this reason the WTO holds that its members should use the tariff as the only means of protection. At the same time, the WTO requires that its members effectively reduce tariff and other trade barriers through mutually beneficial arrangements in order to eliminate discrimination in international trade, and thereby contribute to the realization of the common goal of development.

The 15 years of China's negotiations for the resumption of its status at GATT and subsequently its joining of the WTO have been a period in which China's socialist market economy was established and reforms and opening up were accelerated towards such a market economy. The rules of the WTO have been followed in carrying out a series of reforms . The tariff rate has been voluntarily lowered numerous times during this process. The arithmetic average of the tariff rate has been reduced from 43.2 per cent in 1992 to 15.3 per cent in 2001. At the time of China's WTO accession, the Chinese government made further reductions of previously voluntary tariff cuts. The commitment is that the general tariff level will be progressively lowered from 15.3 per cent in 2001 to about 10 per cent in 2005. Specifically, the tariff for manufactured products will be reduced from 14.8 per cent to 9.1 per cent while that for agricultural products will be lowered from 18.8 per cent to 15.3 per cent. Of the tariff items 98 per cent will be implemented by 2005 while four tariff items will not be implemented until 2010. During this period of tariff reduction, each of the tariff lines is bound by an annual tariff rate. China automatically entered into the Information Technology Agreement (ITA) at the time of WTO accession with the result that all products under ITA will enjoy a zero tariff by 2005 according to the schedule of concessions on tariff reductions. The tariff on exports is limited to 84 tariff headings such as lead, tin and copper , with the highest rate being 40 per cent.

After China's accession to the WTO, the Chinese government has been seriously performing its commitments regarding tariff reductions. The tariff schedule as of January 2002 has the following characteristics:

• The general level of tariff has decreased. The arithmetic average of the tariff rate is down from 15.3 per cent to 12 per cent, which is a reduction of 21.6 per cent.

• The tariff reduction affects a wide range of products. Among the 7,316 tariff items, the rates for 5,332 have been cut by varying amounts. This has effectively covered 73 per cent of all tariff items. The average rate of tariff for industrial products is now 11.6 per cent, while that for agricultural products (including aquatic products) is 15.6 per cent. After the reduction, the average tariff rates for the following products are:

  • agricultural products (excluding aquatic products) 15.8 per cent;

  • aquatic products 14.3 per cent;

  • crude and processed oil 6.1 per cent;

  • timber, paper and their products 8.9 per cent;

  • textiles and garments 17.6 per cent;

  • chemical products 7.9 per cent;

  • communications vehicles 17.4 per cent;

  • machinery 9.6 per cent;

  • electronic products 10.7 per cent.

• The reductions on high tariff commodities are substantial. Examples of such reductions include: polypropylene from 16 per cent to 10 per cent, ceramic sanitary wares from 45 per cent to 27.5 per cent, large cylinder capacity sedan cars from 80 per cent to 50.7 per cent, and small cylinder capacity sedan cars from 70 per cent to 43.8 per cent.

• The terms of the ITA have been implemented. The average tariff rates for 251 items of IT products have been reduced from 12.5 per cent to 3.4 per cent. In fact, a zero tariff rate has already been applied to 122 items of IT products. The tariff revenue in the period from January to June 2002 has declined by 25.6 per cent compared with the corresponding period of 2001.

Customs valuation is an important link in the chain of correct tariff calculation and levy. As provided in the WTO Agreement on Customs Valuation, the customs value is the actual transaction value of the imported goods, which is, in other words, the price actually paid in the normal trade process under the condition of full competition. However, the invoice of a transaction may not truthfully reflect the 'payable or paid price' and, therefore, the import value needs to be adjusted, namely by means of a re-assessment by customs valuation. The Agreement on Customs Valuation has stipulated specific methods of valuation on the basis of different facts it has established in determining the declared value. The purpose of this process is to establish a fair, uniform and neutral system for the valuation of goods for customs purposes and to prevent the use of arbitrary or fictitious customs values. China has committed that, upon accession, it will fully apply the Customs Valuation Agreement. Initially China amended the principles regarding customs valuation in the Customs Law and the Regulations on Import and Export Duties in order to comply with the WTO Agreement on Customs Valuation from a legal perspective. Major changes have been made to the specific methods of valuation practices. In exercising customs valuation, the key point, which is also a difficult point, is the countermeasures against price cheaters. However, with the gradual improvement in the environment of law enforcement by China Customs and increasing awareness of enterprises to abide by the laws, we believe that more targeted anti-price-cheater measures will be taken by China Customs to crack down effectively on price-cheating conduct, which will reduce the negative impact to a minimum following the implementation of the WTO Agreement on Customs Valuation.

Transparency and consistency are the basic principles of the WTO. China Customs will implement a fair and uniform tariff policy within its tariff territory in compliance with the principle of non-discrimination . Laws and regulations that are inconsistent with the rules of the WTO will be rectified. For example, the preferential tariff measures for sedan cars and video cameras in relation to local content requirements have been abolished. Those laws and regulations that will continue to be implemented will be publicly published. In the process of progressively lowering the tariff, tariff reduction and exemption policies will be cleared up. A mechanism for the appeal of tariff disputes and reconsideration will be established. All of these will promote a standardized, fair, transparent and highly-efficient Customs administration and tariff levy.

The tariff regime and its administration is an important policy measure of a country. China's implementation of tariff concessions upon its WTO accession will benefit China's efforts to establish a socialist market economy and to restructure its industrial structure, while at the same time offer new opportunities for the economic and trade cooperation between China and other countries in the world.

^[*] This chapter was originally written in Chinese and translated by Li Yong.