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4 Dec 2018

China Releases New Policies Favoring Cross-border E-commerce

During the Executive Meeting of the State Council held on 21 November 2018, China’s State Council announced that the current regulatory policies pertaining to cross-border e-commerce (“CBEC”) retail imports will be renewed on 1 January 2019. Accordingly, on 20 November 2018, the Ministry of Finance, together with 10 other ministries and authorities, promulgated the List of Cross-border E-commerce Retail Imports. Subsequently, on 29 November 2018, the State Administration of Taxation, together with two other ministries and authorities, jointly promulgated the Notice on Improving Tax Policies for Cross-border E-commerce Retail Imports, which was followed on 28 November 2018 by the Ministry of Commerce and five other ministries and authorities promulgating the Notice on Improving Regulatory Work for Cross-border E-commerce Retail Imports (collectively, the “New CBEC Policies”). These New CBEC Policies will be implemented as of 1 January 2019.

Current CBEC Regulatory Policies

According to the policies promulgated by the Ministry of Finance and other authorities which went into effect on 8 April 2016 (“4.8 Policies”), CBEC activities were subject to strict supervision in China, requiring (a) the inspection of commodity customs clearance certificates to ensure that all imported commodities comply with official lists of approved commodities; and (b) obtaining approvals for  certain commodities (e.g., cosmetics and infant formula milk powder) being imported for the first time after the implementation of the 4.8 Policies. However, as a step away from this restrictive regime, the State Council subsequently announced that they would postpone the implementation these restrictions and instead regulate commodities imported through CBEC in certain pilot cities under the prior policies that had been effective before the 4.8 Policies (“Transitional Policies”). These Transitional Policies have since been extended on two occasions and were set to expire by the end of 2018. While many CBEC stakeholders had been concerned that the 4.8 Policies would be implemented again in their place after the expiration of the Transitional Policies, the recent promulgation of the New CBEC Policies should eliminate these concerns.

New CBEC Policies Extend the Transitional Policies

The New CBEC Policies extend the following regulatory applications under the Transitional Policies:

  • Commodities imported through CBEC will be classified and regulated under the banner of “personal articles”, which escapes certain import requirements involving inspection, quarantine and customs clearance certificates. Instead, these personal articles can be released by Chinese Customs as soon as the so-called “three certificates” are presented to Customs, showing a match of the consumers’ digital information (i.e., transaction information, payment information and logistics information).
  • Commodities imported through CBEC must still fall under the List of Cross-border E-commerce Retail Imports (“Positive List”), and can only be purchased for personal use and cannot be resold. The Positive List under the New CBEC Policies is further expanded to include more than 1,300 kinds of commodities, covering food (including infant formula), cosmetics, daily commodities, costumes, bags, and home appliances.
  • Unless expressly required by the Positive List, no import approvals, registrations or filing procedures will be required for commodities imported through CBEC.
  • The policies regulating commodities imported through CBEC under the label of personal articles remain applicable to pilot cities only, however the pilot cities have been expanded from 15 cities in early 2018 to cover 37 cities under the New CBEC Policies.
  • Commodities that are on the Positive List and which have a transaction value below an applicable quota[1] will remain subject to zero tariffs and only 70% of the statutory amount of taxes payable for such import’s VAT and consumption taxes will be levied.

New CBEC Policies’ Improvement and Development

The New CBEC Policies further improve the Transitional Policies by clarifying the following issues:

  • Prohibited Products. So-called “commodities from epidemic areas expressly prohibited from being imported” and “commodities with material quality and safety risks” are not regulated as personal articles.
  • “Bonded Online Shopping + Offline Pickup” Prohibited. The New CBEC Policies prohibit the so-called “Bonded Online Shopping + Offline Pickup” model for commodities imported through bonded online shopping in areas beyond the special areas regulated by Customs, and ban outright the offline pickup business. Previously, the booming offline pickup business in Shenzhen, Zhengzhou and Hangzhou had been suspended, and these regulations indicate that the ban will not be relaxed in the future.
  • Clearly Defined CBEC Enterprises and Other Stakeholders. The New CBEC Policies define “CBEC enterprises” to mean overseas registered enterprises which sell commodities from abroad to domestic consumers through CBEC and are the owners of such commodities. Judicial opinions previously differed in determining which entity counts as a CBEC enterprise and owner of imported commodities. This new clarified definition will reduce multiple interpretations related to these classifications, and also excludes domestic enterprises or individuals (such as Chinese individuals living overseas who shop for products and mail or personally bring such products to China)) from the definition CBEC enterprises. The New CBEC Policies also specify that the platform operating entity should be a domestic registered enterprise, and that related service providers (i.e., entities providing declaration, payment, logistics, warehousing services and other services) must be domestic registered enterprises.
  • CBEC Enterprises Required to Entrust Domestic Agents. CBEC enterprises are further required to entrust domestic enterprises registered in China to handle registration with Customs; to make declarations truthfully; to accept the supervision of competent authorities; and to bear joint and several liability for their products.
  • Strengthening Quality Assurance Liability of CBEC Enterprises and Platforms. The New CBEC Policies further require CBEC enterprises to bear quality and safety liability, including: (a) customer refund and replacement obligations; (b) recalling unqualified or defective commodities and ceasing their sale immediately; and (c) compensating consumers for their rights and interests damaged by quality defects in sold commodities. The New CBEC Policies provide that platforms will be liable for “compensation first” for any commodities’ quality and safety problems. The platform should also urge CBEC enterprises to control the quality of sold products and prevent safety risks, and recall or otherwise remedy problems when a commodity quality or safety issue arises.
  • Disclosure Obligations by CBEC Enterprises. The New CBEC Policies require CBEC enterprises to display a risk disclosure notice to consumers in a prominent position on their sales webpage of their CBEC platforms. Consumers may only place purchase orders after having acknowledged such a risk disclosure notice. The notice should include information such as the place of the product’s origin and relevant production and quality standards, a statement of any non-compliance with China’s national standards, an explanation that there is no Chinese label, as well as a statement that the commodities sold are for personal use only.

The New CBEC Policies will without a doubt bring substantial benefits to China’s CBEC industry. Meanwhile, as these New CBEC Policies are newly promulgated, certain implementing regulations remain to be promulgated by competent government authorities. We anticipate that further regulations governing CBEC retail imports will be announced by competent authorities within the near future.

[1] The transaction limit per order per person for commodities imported through CBEC is increased from RMB 2,000 to RMB 5,000 and the transaction limit per person each year is increased from RMB 20,000 to RMB 26,000.

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