How import-export enterprises can set up customs compliance systems

Since the General Administration of Customs (Customs) began fully implementing its economic operator accreditation system, authorized economic operators (AEO) have benefited from measures to facilitate customs clearance and are also eligible for corresponding facilitation measures from jurisdictions which have mutual recognition arrangements with Customs. It is extremely valuable for enterprises to set up their own customs compliance mechanisms and become customs AEO.

The Customs Law sets out three types of illegal acts – smuggling, violation of regulations and infringing import-export goods – that are subject to administrative investigation and prosecution. An import-export enterprise in violation of these provisions will be subject to administrative penalties and this will directly affect its enterprise credit rating.

The Regulations on Implementing Customs Administrative Penalties stipulates the types of smuggling acts and those acts treated as smuggling for penalty purposes. Smuggling consists of two main elements. The first is a subjective deliberate intent to circumvent customs oversight. The second is that the smuggled items are goods or articles which are restricted or prohibited by the state for import or export, or on which duties and taxes are payable under law, or bonded goods, specific goods with reduced or exempted duties and taxes or other goods subject to customs surveillance on which duties and taxes have not been paid without the permission of customs or the permit or certificate for which has not been presented for verification.

Pursuant to Customs’ Interim Measures on Enterprise Credit Management, an enterprise that smuggles on one occasion will be discredited and subject to such measures as a higher rate of examination of its imports and exports, strict review of its documents and stringent surveillance when, e.g., processing trade. A discredited enterprise can be reclassified as an average integrity enterprise only after being subject to one full year of oversight and then further reclassified as an AEO only after an additional full year of oversight.

In customs administration, violating regulations refers to a violation of the Customs Law or other regulations. This does not constitute smuggling, however, and mainly occurs in the course of the engagement by the party subject to customs administration in activities related to the entry or exit of goods or articles, or in the course of the transport, storage, processing, assembly, consignment sale, exhibition, etc. of goods subject to customs surveillance. Violations are the most common type of case investigated by customs. These include violations involving prohibited or restricted goods for import or export, false declarations and disposal of goods subject to customs surveillance, as well as violations involving goods entering or leaving China, means of transport entering or leaving China, the interruption of the customs surveillance procedures and the forging of customs documents.

Customs’ Regulations on the Protection of Intellectual Property classify infringing goods as goods prohibited to import and export. Customs has consistently taken a stance of repressing illegal imports or exports of infringing goods. In 2014, customs seized 24,000 shipments of suspected infringing goods, totalling nearly 92 million individual items. Customs protects several types of intellectual property, including the exclusive right to use trademarks, copyrights and neighbouring rights, patent rights, the exclusive right to use Olympic logos and the exclusive right to use World’s Fair logos.

Routine regulations

An enterprise must follow routine customs regulations and policies relating to customs clearance, examination, processing trade, special customs surveillance zones, among other areas. As the state’s authority in charge of entry and exit oversight, customs exercises such important functions and powers as surveillance, the levy of duties and taxes and the keeping of statistics.

If an enterprise fails to follow or implement customs regulations, it will not be able to pass customs’ oversight or achieve its own business objectives. Noncompliance may also affect its enterprise credit rating. Delayed payment of payable duties and taxes or an error in an enterprise’s registered particulars that makes communication with it impossible will result in the enterprise being listed as discredited.

The Customs Law sets out that when a consignee or consignor of imported or exported goods or a customs declarer attempts to bribe working customs personnel, customs will revoke registration and impose a fine. A key accreditation condition under the Customs Standards for the Accreditation of Enterprises is that there be no finding of bribery of customs personnel for two years in succession.

Establishing a compliance system

It is recommended that enterprises establish a mechanism for complying with customs regulations to flexibly respond to the variated supervision imposed per the enterprise’s credit rating, as well as to facilitate trade to the maximum extent.

Follow customs rules and local practice closely. Customs is increasingly moving to facilitate global trade by revising its oversight measures in stages. While the hierarchy under Customs is essentially uniform in the majority of its enforcement procedures and criteria, certain regional customs authorities make adjustments based on their specific geographical conditions and the state of economic development in their regions.

Designate staff. Enterprises should establish a before-the-fact compliance assessment and review system to streamline and standardize the stages involved in customs matters via personnel or departments designated for handling customs matters. If customs revises the harmonized system codes, it may result in a significant change in an enterprise’s duty rates or duty refund rate. It may also require revising trade oversight documents which would need to be confirmed by the enterprise in advance.

Outsourcing. Choose a customs declaration service provider with a solid reputation and business capabilities to outsource such matters as preparing import and export declaration documents and declaration data entry.

Emergency compliance response. In customs, investigation and prosecution are extremely time-sensitive administrative law enforcement measures. An enterprise should have a contingency plan in place to respond to any investigation. The plan should include getting a quick understanding of customs law enforcement, a legal assessment of the enterprise’s potentially noncompliant behaviour and a plan to handle incidents as they arise.

Jia Xiaoning is a senior partner of AllBright Law Offices