China Customs released Provisional Measures on Credit Management of Enterprises

The General Administration of Customs announced the Provisional Measures of the PRC on Credit Management of Enterprises on 8 October 2014, and it will come into operation on 1 December 2014.

The main reason for revising the Provisional Measures is to keep the enterprise management system in line with international standards, particularly with regard to: a) the use of an AEO system that will provide differential customs treatment for enterprises with various credit levels, and b) alignment with the upcoming Certification Criteria that conforms to the World Trade Organization (WTO) standards. Compared with the current Administrative Measures, the Provisional Measures differ in the following ways:

I. Changes in classification measures for enterprises

China Customs is now more geared towards enhancing its AEO system. Companies in China that are certified (i.e., advanced certified enterprises and generally certified enterprises) as AEO will be able to enjoy preferential customs clearance benefits in China and in countries which China has mutual recognition agreements with (e.g., Korea, Singapore). However, instead of a one-time classification, enterprises of a high credit standing will be re-evaluated from time to time, to better manage potential customs risks. Furthermore, the Customs will apply a credit rating system within the Validation Audit procedure to clarify administrative standards. These changes are summarized below:

  • Simplified classification of enterprises. The current system that divides enterprises into five categories (AA, A, B, C and D) will be replaced by a simplified system with four category levels:
  • Advanced Certified Enterprises (ACE)
  • Generally Certified Enterprises (GCE)
  • Regular Credit Enterprises (RCE)
  • Discredited Enterprises (DE)

ACE and GCE (also known as Certified Enterprises or CE) will be considered as AEOs in China. In addition to management measures applied to GCEs, ACEs can enjoy special customs clearance privileges in China and in countries which have mutual recognition agreements with China. Whereas, whether GCEs can enjoy the special customs clearance privileges would depend on the AEO negotiation results between the China Customs and the counterparties of other countries.

  • Establishment of a dynamic adjustment system. Article 15 of the Provisional Measures states that “Customs should review the qualifications of Advanced Certified Enterprises every three years and perform a reassessment on Generally Certified Enterprises on a random basis. Generally Certified Enterprises who fail the reassessment, will lose their General Certification and will not be allowed to apply for certification within one year. Advanced Certified Enterprises who fail the advanced assessment but pass the general assessment would be subject to the management of Generally Certified Enterprises”.
  • Allow the involvement of agencies in customs administrative procedures. The Provisional Measures state that “Customs or enterprises can entrust qualified agencies to perform the customs assessment. The results can be taken as references for the credit assessment once recognised by Customs”.
  • Clarify the credit rating treatment for enterprises in the case of registration information changes, merger and acquisition (“M&A”). Under the circumstances where enterprises change their company name or the Customs registration numbers, the previous customs assessments of enterprises’ credit status and management measures should remain unchanged. On the other hand, as for the newly established enterprises as a result of the M&A, they should be regarded as the first-time-registered enterprises for the credit rating assessment purposes.

II. Clarify treatments of customs clearance for enterprises of different classification

The Provisional Measures grants CEs preferential treatment during the Customs clearance and clarifies the supervision measures for discredited enterprises.

  • Preferential treatment to be granted for GCE include:
    i. A relatively low inspection rate on import/export goods
    ii. Simplified document review of import/export goods
    iii. Prioritised clearance treatment of import/export goods
    iv. Other administrative principles and treatments announced by the GAC

  • On top of the preferential treatment applied to GCEs, ACEs shall enjoy the following administrative measures:
    i. Advanced release of import/export goods before the completion of customs clearance procedures, such as goods classification, valuation, country of origin, etc.
    ii. Assignment of a dedicated liaison officer for the enterprises
    iii. Bank deposit account system would not be required for enterprises engaged in processing trade
    iv. Preferential clearance benefits in countries that have signed AEO Mutual Recognition Arrangements with China

  • Management principles and measures for regular credit enterprises will include:
    i. An average inspection rate on its import/export of goods
    ii. General document review of its import/export operations
    iii. A sequential, chronological clearance procedure for the import/export of goods
    iv. Other administrative principles and treatments announced by the GAC

  • Finally, the management principles and measures for discredited enterprises will be as follows:
    i. A relatively high inspection rate on its import/export of goods
    ii. Intensive document review of its import/export operations
    iii. Key supervision on processing trade and other businesses
    iv. Other administrative principles and treatments announced by the GAC

III. An innovation in customs management measures

The Provisional Measures introduces a system of managing the credit / reputation of companies based on their levels of customs management. For the first time, the Customs will publicize the credit rankings of companies, which indicates that China Customs is becoming more transparent. This also encourages companies to improve their compliance and to strive for smoother clearance options by maintaining their image and reputation.

  • The Article 6 of the Provisional Measures states that the Customs shall collect the following information which would reflect the credit levels of enterprises that would help in establishing how the credit management system applies to them:
    i. Registration information with the Customs
    ii. Information on import/export operation
    iii. AEO mutual recognition information
    iv. Information in other administrative departments
    v. Other information related to trading business

  • The Article 7 of the Provisional Measures reads that the Customs shall, under the condition of that state secrets, confidential business information and personal privacy are protected, publish the following credit information of enterprises:
    i. Registration information with the Customs
    ii. Customs assessment of the enterprises’ credit status
    iii. Administrative penalty information
    iv. Other information that shall be published