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CIRCULAR OF THE STATE COUNCIL REGARDING RELEVANT ISSUES ON FRONTIER TRADE

    In order to encourage the border areas of our country to actively
develop frontier trade and economic cooperation with neighbouring
countries, the state has recently formulated a series of policies of
measures intended for supporting and promoting frontier trade and
external economic cooperation of border areas. Those policies of
measures have given a vigorous push to the economic development of the
border areas of our country and have played an active role in
strengthening unity between different nationalities, making the
borderland more prosperous and stable, reinforcing and developing the
friendly and neighbourly relations between adjacent countries and our
country. With the reform in our country going more deep and extensive,
those policies of measures need to be adjusted, standardized and
perfected in light of th overall requirement of the establishment of
a socialist market economy. The following issues are therefor notified:

    1. Administraive Forms for Frontier Trade

    In consideration of the actual circumstances of frontier trade
developed in our country and in light of international common practices,
administration of frontier trade in our country shall be performed in
the two forms as the following:

    1) Mutual trade among inhabitants of border area refers to exchange of
commodies which are conducted among border areas inhabitants at the
open zones authorized by the government or at the bizaars nominated by
the government within 20 kilometres behind the boundary and which are
controlled within the prescribed volume and quantity. The regulations
governing mutual trade among inhabitants of border areas shall be
jointly formulated by the ministry of external economy and trade and
the general office of the customs and be executed by the people's
governments of border provinces and autonomous regions.

    2) Small volume frontier trade refers to trade activities conducted
with an enterprise or other organisation of a border area of a
neighbouring country at a land frontier port of state nomination by
an enterprise authorized to engage in small volume frontier trade and
located in a county (qi) or within the jurisdiction of a city on the
land boundary which are approved by the state to be open to the
outside world. All forms of trades developed in the border area except
mutual trade among inhabitants shall from now on be brought under the
administration of small volume frontier trade in accordance with
relevant policies regarding small volume frontier trade. Regulations
governing small volume frontier trade shall be formulated by the
ministry of external economy and trade after sonsultation with relevant
departments of the State Council.

    2. Issues Concerning Tariff and Procedural Taxation on Import in Frontier
Trade

    Inhabitants of the border area will be exempted from both tariff and
procedural taxation if the value of the commodities each inhabitant import
each day through the form of mutual trade is less than 1000 yuan. Taxation
will be executed upon the part of commodities that are beyong the value of
1000 yuan according to relevant provisions. The General Office of the Customs
shall make corresponding amendments to relevant supervisory rules in light of
the present regulations.

    Small volume frontier trade enterprise who imports commodities
originally produced in adjacent countries through a bourder port nominated by
the state during the first three years of the "nineth five-year" (ie from 1996
to 1998) shall be taxed by half of both the import tariff and import
procedural tax that should be levied according to law except for commodities
such as cigaretts, wine, cosmetics and other commodities on which taxation
should be executed according to law.

    Except for frontier trade, products that are imported through barter
or under agreement of economic and technological cooperation from the
former soviet union countries, eastern European countries and other
adjacent countries shall be taxed according to the nationally unified
policy on import taxation.

    3. Issues Concerning Administration of Import and Export in Small Volume
Frontier Trade

    The right of a small volume frontier trade enterprise to engage in
business shall be approved by the local province or autonomous region
after examination based on business qualification and conditions specified by
the ministry of external economy and trade and when the prescribed total
number of such enterprises have not been exceeded. The names of such small
volume frontier trade enterprises shall be reported to the ministry of
external economy and trade for review and confirmation and be submitted to
relevant departments of the State Council for record. Any enterprise who has
not been approved and recorded according to the above stipulations may not do
business of small volume frontier trade. In principle, development of small
volume frontiere trade may not be restricted in the form of trade or by the
division of business areas.

    Border province or border autonomous region is permited to designate
one or two small volume frontier trade enterprises to jointly engage in
export,through nominated border ports to countries that adjoin our
country on land, of commodities produced in the native border area with
companies nominated by the state; or to engage in import of commodies,
the import of which can only be conducted by companies that have been
examined and approved by the state. The name of such exterprises shall
be submitted to the ministry of external economy and trade for review
and confirmation.

    Small volume frontier trade enterprise when exporting commodities that
are subject to state export quota system or export license system
, shall be exempted from the restrictions of the quota or license but
shall be subject to the centralized admintration of the ministry of
external economy and trade and the state planning commission except
for commodities whose export requires nationally unified bidding or
joint efforts, chemicals that can be used for both military or civil
purposes and easily produced poisonous chemicals. The customs
shall, subject to the restriction of the quota divided and notified by
the ministry of external economy and trade, check and let pass such
exports according to the export contracts of the exterprise and
relevant documents issued by the department in charge of external
economy and trade of the border province or autonomous region.

    The state planning commission and the state economic and trade
commission (the state office for import and export of mechanical and
electric products) shall specifically assign certain amount of
import quota for small volume frontier trade to every border region in
light of the situation of small volume frontier trade in the previous
year and the situation of the supply and demands of the internal market.
Suject to the amount of quota already examined and approved, the
ministry of external economy and trade shall empower the department in
charge of external economy and trade of every border province and
autonomous region to issue license for import. When small volume
frontier trade enterprise imports commodities that are subject to state
quota system, the customs shall let pass such imports on the basis of
certificate in testimony of quota made out by the concerned border
province or autonomous region and the license of import. When
small volume frontier trade enterprise imports commodities that are
subject to special regulations and registration control, the relevant
procedures shall also be simplified. The simplified procedures shall be
formulated and made known by the state planning commission and the
state economic and trade commission (the state office for import and
export of mechanical and electric products) after consultation with
relevant departments respectively.

    4. Issues Concerning Import and Export of Commodities under Agreemen of
Economic and Technological Cooperation with Adjacent Countries

    When a border region enterprise which has been authorized by the
ministry of external economy and trade to conduct external economic and
technological cooperation (hereinafter referred to as border region
external business enterprise) imports commodities for the purpose of
the economic and technological cooperation, the business shall be
governed by policy of taxation on small volume frontier trade. Commodities
and materials that are exchanged under project contract and labour
cooperation contract may enter our country with the project and
may not subject to restrictions of business division. Equipments
to be brought out of our country with border region external business
enterprise for the purpose of labour cooperation or under project
contract with adjacent countries and the articles for daily use of the
labours are reasonably necessary and may not be subjected to
restrictions of quota system or business division and shall be exempted
from requirement for export license.

    When border region external business enterprise exports commodities
under agreement of economic and technological cooperation with adjacent
countries, the customs shall let them pass on the basis of document of
approval made out by department in charge of external economy and trade.
Detailed procedures shall be jointly formulated and made known by the
ministry of external economy and trade and the general office of customs.

    5. Issues on Strengthening Regulation in Regard to Frontier Trade

    The people's governments of different provinces and autonomous regions
shall, according to the unified regulations of the State Council and
relevant departments, formulate concrete rules for implementation
thereof, designate departments in charge of frontier trade to
strenthen leadership and administration of frontier trade and economic
cooperation of the respective province and autonomous region so as to
promote the healthy development of frontier trade.

    Relevant departments of the State Council shall, according to the
present provisions, formulate sumplementary procedures of adminstration
as soon as possible, actively render support to frontier trade and the
development of external economic cooperation of border regions. The
ministry of external economy and trade shall, jointly with other
relevant departments, conduct research and formulate national policies
and macro- control measures regarding frontier trade and economic
cooperation. Customs while strengthening services shall reinforce its
role of supervision and regulation, rigorously crack down smuggling
activities so as to safeguard the implementation of state policies on
frontier trade.

    The present notice shall come into effect as of the date of April 1,
1996 and be taken as the criterion in case any relevant old regulations
or rules are inconsistent with the present provisions.