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CIRCULAR OF THE STATE COUNCIL REGARDING THE REFORM AND READJUSTMENT OF IMPORT DUTY POLICIES (SUMMARY)

    Since the Third Plenary Session of the Eleventh Central
Committee of the Chinese Communist Party, China has formulated a
series of preferential import duty policies in order to promote
the development of the national economy. Said policies have
played an important role in extending foreign trade, attracting
foreign capital and importing advanced technology. Along with the
continuous deepening of reform and opening up and the
progressive establishment of the socialist market economic
structure, contradictions between those policies and
international practices and the principle of fair competition in
a market economy have become more and more conspicuous. In recent
years, the State Council has verified and readjusted some
provisions concerning the exemption and reduction of import
duties, and has lowered the general level of import duties from
42 percent to 35.9 percent. However, the problems of high duties,
too many exemptions and reductions and a low tax base are still
prominent. Exemptions and reductions in duties and taxes for a
multitude of things have resulted in unfair competition between
different areas and enterprises, and are of no advantage in
assisting the transformation of the operating mechanisms of
state-owned enterprises or in helping the coordinated economic
development of different regions. The reform and readjustment of
import duty policies must be quickened by further lowering the
general level of import duties, canceling excessive and unfair
import duty exemptions and reductions, and formulating unified,
standard, fair and reasonable import duty policies according to
the needs of the socialist market economic structure and
international practices, in order that we can participate in
international competition and economic cooperation with a more
open attitude, and promote the development of the national
economy. Related problems are as follows:

    1. Lowering the General Level of Import Duties by a
Relatively Large Margin

    In accordance with the needs of China's national economic
development and market demand, and in consideration of the
influence on central finance administration and the standing
production capacity of domestic industry, China's general level
of import duties shall be lowered progressively to the average
level of developing countries on the premise of being
advantageous to the readjustment of industrial structure and the
rationalization of the customs duty structure. For that purpose,
China's general level of import duties shall be lowered to 23
percent on April 1, 1996. The detailed program for lowering the
duties shall be put forward by the Tariff Policy Commission of
the State Council, and shall be promulgated and implemented by
the General Administration of Customs after being submitted to
and approved by the State Council.

    2. Customs Duties and Import-Related Taxes Shall Be Levied at
the Statutory Rates on All Imported Equipment and Raw and
Processed Materials

    (1) Starting from April 1, 1996, customs duties and import-
related taxes shall be levied at the statutory rates on all
equipment and raw and processed materials imported within the
total investment amount of newly approved and established
foreign-invested enterprises (including Chinese-foreign equity
joint ventures, Chinese-foreign contractual joint ventures and
foreign-capital enterprises). Foreign-invested enterprises
approved for establishment before April 1, 1996 may, within a
specified grace period, continue to enjoy the preferential
treatment of exemption from and reduction of customs duties and
import-related taxes, namely for equipment and raw and processed
materials imported for projects with a total investment of US$
30,000,000 or more (excluding any investment added after the
issue of this Circular) shall be handled in accordance with
existing provisions until December 31, 1997; equipment and raw
and processed materials imported for projects with a total
investment of less than US$ 30,000,000 shall be handled in
accordance with existing provisions until December 31, 1996. In
the event of failure to complete the implementation within the
specified grace period, an application for an extension may be
submitted through the Ministry of Foreign Trade and Economic
Cooperation. The Ministry of Finance shall, in conjunction with
the Ministry of Foreign Trade and Economic Cooperation, the
Tariff Policy Commission of the State Council, the State Planning
Commission, the State Economic and Trade Commission, the State
Administration of Taxation and the General Administration of
Customs, offer an opinion after consideration of the application,
and submit them to the State Council for approval. The grace
period may be extended with the approval of the State Council.

    (2) Starting from April 1, 1996, customs duties and import-
related taxes shall be levied at the statutory rates on all
equipment imported for newly approved technological
transformation projects. Imported equipment for technological
transformation projects which have been incorporated in a start-
up plan at the national or provincial level before April 1, 1996
may, within a specified grace period, continue to enjoy the
preferential treatment of exemption from and reduction of customs
duties and import-related taxes, namely that equipment imported
before December 31, 1996 for energy, communication or metallurgy
projects with a total investment of 50,000,000 yuan or more
(excluding investment added after the issue of this Circular) or
for light industry, textile or electronics projects with a total
investment of 30,000,000 yuan or more (excluding the investment
added after the issue of this Circular) shall be allowed a 50
percent reduction in duties and taxes; equipment imported before
December 31, 1996 for projects in the above two categories for
which total investment is less than 50,000,000 or 30,000,000 yuan
shall be allowed a 50 percent reduction in duties and taxes. In
the event of failure to finish the implementation within the
specified grace period, an application for an extension may be
submitted to the State Economic and Trade Commission. The Ministry
of Finance shall, in conjunction with the State Economic and Trade
Commission, the State Planning Commission, the Tariff Policy
Commission of the State Council, the State Administration of
Taxation and the General Administration of Customs, offer their
opinions after consideration of the application and submit them
to the State Council for approval. The grace period may be
extended with the approval of the State Council.

    (3) Starting from April 1, 1996, customs duties and import-
related taxes shall be levied at the statutory rates on all
equipment imported for major construction projects newly approved
by the State Council. Imported equipment for major construction
projects approved before April 1, 1996 shall be handled in
accordance with existing provisions.

    (4) Starting from April 1, 1996, customs duties and import-
related taxes shall be levied at the statutory rates on all goods
and materials imported by various special zones and areas
(including special economic zones, economic and technology
development areas, new and high technology development areas,
open coastal cities, coastal economic development zones, frontier
open cities, frontier economic cooperation zones, open riparian
cities and open inland cities which enjoy the same policies for
open coastal cities, state tourist and holiday zones, the
Shanghai Pudong New Zone and other various development zones).
With regard to goods and materials imported by special economic
zones and the Shanghai Pudong New Zone (both excluding foreign-
investment enterprises therein) for their own use, customs duties
and import-related taxes shall, according to the quotas approved
by the state, be handled in a manner of ``collection first,
refunds after'', decreasing year by year for five years (from 1996
to 2000) of transition. Detailed measures shall be put forward
by the Ministry of Finance in conjunction with the Tariff Policy
Commission of the State Council, the State Planning Commission,
the State Economic and Trade Commission, the Special Economic
Zones Administrative Office of the State Council, the State
Administration of Taxation, the General Administration of Customs
and other relevant departments, and be implemented after being
approved by the State Council. With regard to the Suzhou
Industrial Township established under the agreement reached
between the governments of China and Singapore, related affairs
shall be handled in accordance with the provisions for special
economic zones and the Shanghai Pudong New Zone. As for the
Yangpu Economic Development Zone of Hainan Province, the tax
administration policies approved by the State Council concerning
bonded areas shall remain in force.

    (5) Starting from April 1, 1996, the provisions concerning
the exemption from and reduction of customs duties and import-
related taxes for goods imported in barter trade with neighboring
countries or for economic and technological projects in
cooperation with neighboring countries shall be canceled.
Preferential tax policies for frontier trade between inhabitants
on either side of the border and petty trade in the border areas
shall be formulated separately.

    (6) Starting from April 1, 1996, the provisions concerning
the exemption from and reduction of customs duties and import-
related taxes for processing equipment imported for processing
or compensation trade projects shall be canceled.

    3. Readjusting and Retaining Some Duty and Tax Exemption and
Reduction Provisions in Accordance with International Practices
and China's Actual Situation

    (1) In accordance with the provisions of relevant
international conventions and in light of international
practices, provisions concerning the exemption or reduction of
customs duties and import-related taxes for imported scientific
and educational articles, special articles for disabled persons,
articles needed by foreign diplomatic missions and relevant
international organizations in China or by their personnel and
articles presented gratis by foreign governments or international
organizations shall be retained and readjusted appropriately.

    (2) Provisions already approved by the State Council
concerning the relationship between the domestic proportion of
cars or video camera recorders and the differential tax rates
shall be retained during the Ninth Five-Year Plan period.

    (3) Provisions concerning the exemption from and reduction of
customs duties and import-related taxes for equipment and
materials imported under projects for exploration and
exploitation of off-shore petroleum or natural gas shall be
retained during the Ninth Five-Year Plan period with appropriate
readjustments. With regard to the exploration and exploitation of
on-shore petroleum or natural gas in special areas with the
approval of the State Council, any necessary equipment or
materials which cannot be produced by domestic industry or cannot
be satisfied by a domestic equivalent, may be imported with an
exemption from customs duties and import-related taxes during the
Ninth Five-Year Plan period.

    (4) Provisions concerning the reduction of import-related
taxes for aircraft imported for civil aviation shall remain in
force during the Ninth Five-Year Plan period.

    (5) Provisions concerning the exemption from duties for
articles imported by Chinese foreign-residence personnel of
diplomatic establishments, students studying abroad, visiting
scholars, contract workers sent abroad, personnel aiding foreign
countries and crews of ocean-going ships for personal use shall
remain in force temporarily; personal articles imported by other
persons shall be handled in accordance with the unitary
provisions of the Customs starting from April 1, 1996.

    (6) Duty-free stores at ports of exit shall be retained.
Duty-free stores at ports of entry shall be retained until the
Measures of the Customs of the People's Republic of China
Concerning the Supervision and Administration of Postal Articles
Entering or Leaving the Country and the Provisions of the Customs
of the People's Republic of China Concerning the Administration
of Luggage and Articles Carried by Travelers Entering or Leaving
the Country are amended.

    (7) Provisions concerning the import duty exemption and
reduction in Articles 27, 28, 29 and 30 of the Regulations of the
People's Republic of China on Import and Export Duties shall
remain in force.

    4. Provisions concerning the reduction of or exemption from
customs duties and import-related taxes other than those provided
in this circular shall all be canceled on April 1, 1996.

    The current reform and readjustment of import duty policies
are another significant move in the deepening of reform and
broadening of opening up. The State Council shall continue to
adopt positive measures to progressively bring about national
treatment to foreign-invested enterprises. The various localities
and departments must do their best with every aspect of related
work to ensure the strict implementation of this Circular.