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The State Council executive meeting convened on 21 November 2018 decided that the current policies implemented starting from April 2016 with respect to the cross-border e-commerce pilot program (CBE) will continue after the current “grace period” expires on 31 December 2018.

Highlights of the State Council Decisions

The highlights of the decisions announced at the meeting include:

  1. The pre-importation registration or approval requirements for certain special products (e.g., infant milk formula, cosmetics, medical devices, health food, etc.), which would be applied if they are imported as ordinary commercial goods, will continue to be waived after December 31, 2018. Unlike the previous announcements which simply extended such waiver for an additional period, this waiver has now been extended indefinitely.
  2. The current tax policy under which customs duties are exempted and import VAT and consumption taxes are collected at a 30% discount for the products imported under CBE will continue to be implemented.
  3. The scope of the “positive lists”, which contain the tariff categories for the products permitted to be sold under CBE, will be expanded to include 63 new tariff categories. The list of these new tariff categories has yet to be announced.
  4. The value limit for each shipment under CBE will be increased from RMB 2,000 to RMB 5,000 in order to allow importation of high-end consumer goods, and the annual quota of the goods imported by each individual under CBE will be increased from RMB 20,000 to RMB 26,000.

The State Council meeting did not announce the effective date of the new policies regarding “positive lists” expansion and the changes to the value limit and annual quota, but we believe that the new policies and the relevant changes would most likely take effect on January 1, 2019.

Observations and Suggestions

The decisions announced during the State Council meeting are generally consistent with the provisions of the new E-Commerce Law of PRC, effective from January 1, 2019, which do not make any exception for cross-border ecommerce operations, including those conducted under CBE. In the meantime, we also have the following observations and suggestions.

The “retaliatory tariffs” imposed by Chinese government on the U.S. origin products in the context of the ongoing U.S.-China trade tension are currently not applied to the goods imported under CBE. This may result in more U.S. products diverted from the ordinary channel to the CBE channel.

In the meantime, there is a clear tendency of Chinese authorities, in particular, China Customs, to tighten up enforcement against manipulation of the CBE channel for shady business activities, such as Daigou traders importing products under CBE and distributing them to individual consumers for a profit.

Given the expanded scope of the “positive lists”, the tariff classification disputes, which are commonly seen in ordinary commercial imports, may also arise in the CBE imports, as retailers endeavor to classify their products as qualifying for the CBE channel.

Last but not least, notwithstanding the waiver of the pre-importation registration requirements, there remains uncertainty as to whether the products under CBE need to comply with part (if not all) of the Chinese national or industrial standards. As a matter of fact, the border authorities in China retain the authority to inspect the products under CBE for any significant issues concerning human health and safety.

Therefore, a revisit of the e-commerce supply chain structure in the context of these new policies and enforcement trends would be useful to ensure compliance with the relevant regulatory, customs and tax requirements.

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