Laws of the People's Republic of China

General Administration of Customs

Order of the General Administration of Customs of the People's Republic of China

No.106

The Provisions of the Customs of the People's Republic of China on Executing the Rules of Origin for Trade in Goods under the Mainland and Hong Kong Closer Economic Partnership Arrangement, which were adopted at the executive meeting of this Administration on December 24, 2003, are hereby promulgated and shall come into force on January 1st, 2004.

Mou Xinsheng, the Director of the General Administration

December 30th, 2003

Provisions of the Customs of the People's Republic of China on Executing the Rules of Origin for Trade in Goods under the Mainland and Hong Kong Closer Economic Partnership Arrangement

Article 1

With a view to promoting the economic and trade activities between the Mainland and Hong Kong, and to correctly determining the origin of the imported goods under the Mainland/Hong Kong Closer Economic Partnership Arrangement (hereinafter referred to as CEPA), the present Provisions are formulated in accordance with the Customs Law and the CEPA.

Article 2

The present Provisions shall be applied to the goods imported from Hong Kong under the CEPA (see the Customs Import and Export Tariff of the People's Republic of China for details of the list of goods), however, the goods imported by the way of processing trade shall be excluded.

Article 3

Where any goods is directly imported from Hong Kong under the CEPA, the origin thereof shall be determined according to the following principles:

1)

The origin of any goods fully acquired in Hong Kong shall be Hong Kong; and

2)

For any goods not fully acquired in Hong Kong, the origin thereof may, only if such goods have gone through substantial processing in Hong Kong, be determined as Hong Kong.

Article 4

The term "goods fully acquired in Hong Kong" used in Item 1) of Article 3 as mentioned in the present Provisions refers to:

1)

Mineral products exploited or extracted in Hong Kong;

2)

Plants or their products harvested or collected in Hong Kong;

3)

Live animals borne and bred in Hong Kong;

4)

Products obtained in Hong Kong from the animals mentioned in Item 3) of this Article;

5)

Products obtained from hunting or fishing in Hong Kong;

6)

The aquatic and other marine products obtained from the high sea by ships with the license of Hong Kong and hanging the regional flag of the Hong Kong Special Administrative Region;

7)

Products obtained from processing of the products mention in Item 6) of this Article on the ships with the license of Hong Kong and hanging the regional flag of the Hong Kong Special

Administrative Region;

8)

Discarded and waste materials collected in Hong Kong that are generated in the course of consumption in Hong Kong and that are fit only for recycling of raw materials;

9)

Waste and piecemeal materials that are generated in the course of processing and manufacturing in Hong Kong and that are fit only for the recycling of raw materials; and

10)

Products obtained from processing of the products mentioned in Items 1) through 9) of this Article.

Article 5

The following processing or disposal, no matter whether they are finished separately or conjunctly, shall all be deemed as minor processing and disposal, and shall be disregarded in determining whether the goods are fully obtained:

1)

Processing or disposal conducted for the transport or storage of goods;

2)

Processing or disposal conducted for the convenience of the carriage of goods; and

3)

Processing or disposal, such as packing or display, etc., conducted for the sale of goods.

Article 6

The term "substantial processing" as used in Item 2) of Article 3 as mentioned in the present Provisions shall be determined by using the criterion of "manufacturing or processing operation", criterion of "change of tax code", criterion of "ad valorem percentage", "other criteria" or "combined criteria", and the determination shall be carried out in accordance with the Table of Criteria of Origin for the Goods of Hong Kong Entitled to Preferential Treatment for Trade in Goods. That table shall be part of the present Provisions and be separately promulgated by the General Administration of Customs (GAC).

1)

"Manufacturing or processing operation" refers to the major operation that endows the goods obtained after the processing with the basic characteristics. Where such an operation is finished in Hong Kong, the substantial processing shall be deemed as being conducted.

2)

"Change of tax code" refers to that where the materials of which the origins are not Hong Kong are processed within Hong Kong, the four-figure tax category of the processed products in the Customs Import and Export Tariff of the People's Republic of China has changed, and such products are not to go through any production, processing or manufacturing that will change their four-figure tax category in any country or region other than Hong Kong.

3)

"Ad valorem percentage" refers to the percentage that the total value of the raw materials, components, and labor obtained in Hong Kong and the product development cost accounts for in the FOB price of the export products. Where such a percentage is 30% or more, and the final manufacturing or processing operation of the products are finished within Hong Kong, the substantial processing shall be deemed as being conducted. See the formula below:

(Value of raw materials + value of components + value of labor + cost for product development) / FOB price of the export product ¡Ý30%

a.

"Product development" refers to the product development carried out within Hong Kong for producing or processing the relevant export products. The cost for product development must be in relation to those export products, including the cost for development by the producer or processor himself/itself, the sum paid for development by the entrusted natural person or legal person within Hong Kong, and the sum paid for purchase of the design, patent, know-how, trademark right or copyright owned by any natural person or legal person within Hong Kong. Such cost shall be able to be clearly determined in accordance with the generally accepted accounting standards and relevant international practice.

b.

Calculation of the "ad valorem percentage" shall be in conformity with the generally accepted accounting standards and relevant international practice.

4)

"Other criteria" refers to the methods other than the abovementioned criteria of "manufacturing and processing operation", "change of tax code" and "ad valorem percentage" for determining the origin that are agreed upon by both authorities of the Mainland and Hong Kong.

5)

"Combined criteria" refers to two or more aforesaid criterias that are used at the same time in determining the origin.

Article 7

Simple dilution, mixing, packing, bottling, drying, assembling, classification or decoration shall not be deemed as substantial processing.

Any processing or pricing measure aiming to avoid the present Provisions shall not be deemed as substantial processing.

Article 8

The producing areas of the energy, plants, equipment, machines, and tools used in the manufacturing of the goods, as well as the producing areas of the components not composing the goods and those of the materials of such components, shall be disregarded in determining the origin of goods.

Article 9

The packages, package materials, and containers, as well as the attachments, spare parts, tools, and introductory materials, which are declared for import together with the goods and which are included in the Customs Import and Export Tariff of the People's Republic of China shall be neglected in determining the origin of the goods.

Article 10

The goods imported under the CEPA shall be transported from Hong Kong directly to the ports of the Mainland.

Article 11

In customs declaration of the goods imported under the CEPA, the consignee shall voluntarily declare to the customs office that zero tariff shall be applied to those goods, and shall submit the valid certificate of origin that are in conformity with the Procedures for Issuing and Checking of the Certificate of Origin under the CEPA. Where the certificate of origin is valid upon network check, the customs office shall handle the import formalities of those goods at zero tariff. Where certificate is invalid upon the check and verification of the customs, zero tariffs shall not be applied.

Where the customs office of the place where the goods are declared can not make the network check because of certain reasons, and the consignee require clearance of the goods, the customs office may release those goods after collecting a security of the value equal to the amount of taxes payable at the rate applied to those goods if they were not under the CEPA, handle the import formalities and make the customs statistics. The customs office of the place where the goods are declared shall, within 90 days from the day of clearance of those goods, verify the validity of its certificate of origin, and refund the security or change the security to tariff in accordance with the result of the verification, and shall modify the customs statistics data correspondingly.

Article 12

Where the customs office of the place where the goods are declared has doubt over the validity of the contents of the certificate of origin, it may file a request through GAC or a customs office authorized thereby with the Hong Kong Customs for assistance in the verification. During the period when the Hong Kong customs office makes the verification for confirmation of the relevant certificate of origin, the customs office of the place where the goods are declared may release those goods after collecting a security of the value equal to the amount of taxes payable at the rate applied to those goods if they were not under the CEPA, handle the import formalities and make the customs statistics. After the Hong Kong Customs finishes the verification, the customs office of the place where the goods are declared shall, in accordance with the result of the verification, immediately refund the security or change the security to import tariff, and modify the customs statistics data correspondingly.

Article 13

The customs offices have the obligation to keep confidential the materials provided by the consignee of the import goods for verification of the certificate of origin. Without the consent of the consignee, the customs office may not disclose those materials or use them for any other purpose, however, except the laws, administrative regulations and relevant judicial interpretations have otherwise provisions.

Article 14

The customs offices shall handle any act in violation of the present Provisions in accordance with the Customs Law of the People's Republic of China and the Implementing Rules of the Customs of the People's Republic of China for Administrative Punishment. If any crime has been constituted, the offenders shall be prosecuted for criminal liabilities.

Article 15

The responsibility to interpret the present Provisions shall remain with the GAC.

Article 16

The present Provisions shall come into force on January 1st, 2004.