China Export Policies

The Issue:
China VAT Export Rebates The Chinese government reduced or eliminated Value Added Tax (VAT) export rebates on thousands of products starting July 1. For footwear, the VAT rebate has been reduced from 13 percent to 11 percent. The VAT export rebate for most inputs such as leather, textiles, rubber and plastics were also either reduced or eliminated. (List of Affected Products by HS Number)

Companies that export a finished product out of China receive (or did receive) VAT export rebates for the finished product as well as for many of the inputs used in that product. China charges a VAT of 17 percent at every level of the product process (i.e. on all inputs) as well as on the final product (i.e. footwear).

China Deposit Requirements The Chinese government published a new regulation July 26 that requires companies exporting certain products from China and importing certain products into China to place a deposit of either 50 percent or 100 percent (depending on the license of the company) of the value of the contract with the Chinese government. The Chinese government will refund the deposit at some undetermined point after being provided proof that the contract has been fulfilled. The announcement applies to 1853 export products (most of which are fiber, yarn, fabric and plastics) and over 200 import items (many of which are textiles) (the items -- by HS number -- are available as appendices in the Chinese version of the announcement -- Appendix 1 (export products) and Appendix 2 (import products). The new rules only apply to factories operating in the ten east coast cities and provinces listed specifically in the regulation, encouraging more investment in the western and northern regions of China. The announcement shall take effect for all contracts signed starting August 23. With this announcement, it appears that China continues to attempt to use trade policy as it recently did with the VAT export rebates to: 1) lower China's trade surplus with the United States and the rest of the world and 2) reduce and/or eliminate polluting or resource-intensive industries.

AAFA on the Issue:
With this announcement, it appears that China continues to attempt to use trade policy as it recently did with the VAT export rebates to: 1) lower China's trade surplus with the United States and the rest of the world and 2) reduce and/or eliminate polluting or resource-intensive industries.

The Latest News:

02.10.09
According to a February 6 announcement on China's Ministry of Commerce website, China has raised the Value-Added Tax (VAT) export rebate for apparel and textiles from 14 percent to 15 percent (effective February 1). AAFA is currently trying to learn more details on the decision as well as whether the decision also affects footwear.

12.23.08
The US government on December 19 launched a case under the World Trade Organization (WTO) against China over alleged export subsidies. The United States alleges that the Chinese central government as well as provincial and local governments provided export-related subsidies to Chinese "famous brands" and exports of other Chinese products, including apparel and textiles, in violation of global trade rules. Under global trade rules, China and the United States must now begin consultations. If those talks fail, the case will then move to WTO dispute settlement. The case could take years to resolve.

12.02.08
The US International Trade Commission's (ITC) monitoring program for US imports of apparel from China began this week. The result of the monitoring program will be posted bi-weekly on the website.

11.24.08
Amid growing concerns about falling orders, the Chinese government week announced that, effective December 1, it will increase the Value Added Tax (VAT) export rebate for footwear and travel goods from 11 percent to 13 percent (out of a VAT of 17 percent). The announcement Shui Notice (2008) No 144) reverses years of Chinese government policy where the Chinese government had been reducing the VAT export rebate for footwear and travel goods (and other consumer goods) in order to encourage Chinese investment into higher value-added industries. The announcement follows a similar action earlier this month that raised the VAT export rebate for apparel to 14 percent.

10.14.08
House Ways and Means Committee Chair Charlie Rangel (D-NY) sent a letter October 9 to the US International Trade Commission (ITC) requesting a textile and apparel imports monitoring program to collect data on currently quota-protected products. In his letter, Rangel stated that the Committee, which is charged with handling all trade and tax matters, is concerned about what a possible dramatic increase in US imports and a drop in prices of certain apparel and textiles from China when the quotas expire on December 31 could do to US textile manufacturers and US apparel imports from trade preference countries. In response, AAFA again questioned the need for such a monitoring program. The ITC is expected to accede to the request, which would have the ITC report preliminary US import data every two weeks and publish final statistics once a month. The letter does not mention any end date for the proposed monitoring program.

06.16.08
The US government’s inter-agency Committee for the Implementation of Textile Agreements (CITA) announced June 13 the procedures for processing over-quota shipments at the beginning of next year under the current quotas on US apparel and textile imports from China. The procedures are exactly the same as those CITA imposed on over-quota shipments under the China safeguard quotas.

06.16.08
On June 1, Mexico and China announced a deal (original document in Spanish) that will result in the reduction and elimination of the anti-dumping duties charged on Mexican imports of certain Chinese products. A total of 953 tariff lines (mostly footwear and apparel, but some other industries, too, like bicycles) have punitive anti-dumping duties. As of October 5, punitive duties on all but 204 tariff lines will be eliminated under the agreement. While most of those remaining 204 tariff lines include most footwear and apparel, the majority of the punitive tariffs on fabrics, yarns, and made ups will be eliminated as part of the agreement.
Of the tariff lines still subject to punitive duties, apparel items will face duties of 140 percent and footwear items will face duties of 100 percent. The duties will decline slowly each year until they are entirely removed beginning December 12, 2011. This deal will still keep in place regular duties that Mexico assesses on imports from China.

12.03.07
The US International Trade Commission (ITC) announced November 20 that it rejected the first-ever anti-subsidy (countervailing duty-CVD) case against China. The ITC voted 5-1 that a US industry was neither materially injured nor threatened with material injury by reason of imports of coated free sheet paper from China, Indonesia and Korea. Overturning twenty years of precedent, the US Department of Commerce had determined that imports of coated free sheet paper (glossy paper used in magazines and other publications) from China were subsidized and sold in the United States at less than fair value. However, the ITC decision effectively ends the case. To learn more about this countervailing duty (CVD) case and its implications for the US apparel and textile industry, please join us for AAFA's March 11, 2008 seminar in New York City titled Apparel & Textile Trade After 2008: Trade Remedies in a Post-Quota World.

12.03.07
The United States announced November 29 that China has agreed to terminate all the subsidies that the United States alleged were illegal under World Trade Organization (WTO) rules. Most of the challenged subsidies were either export subsidies or import substitution subsidies. Under the agreement, China has committed to complete a series of steps by January 1, 2008 to ensure that the WTO-prohibited subsidies cited in the US complaint have been permanently eliminated, and that they will not be re-introduced in the future.

07.02.07
As we reported in the June 25 AAFA Newsbreaker, the Chinese government reduced or eliminated Value Added Tax (VAT) export rebates on thousands of products starting July 1. For both apparel and footwear, the VAT rebate has been reduced from 13 percent to 11 percent. The VAT export rebate for most inputs such as leather, textiles, rubber and plastics were also either reduced or eliminated. (List of Affected Products by HS Number)

04.26.07
Following recent moves to eliminate the Value-Added Tax (VAT) rebate for major inputs used in footwear exported out of China, the Chinese government appears ready to lower the VAT rebates for exports of cotton and man-made (MMF) textile products (from 11 percent to 9 percent) and apparel (from 13 percent to 9 percent). Like the move on footwear, the Chinese government hopes these moves help to reduce the huge trade deficit with the United States, help move Chinese manufacturers into higher value-added industries and eliminate pollution-producing industries. A final decision is expected shortly.