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 - Microsoft Excel file) 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:

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 - Microsoft Excel file) 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. apparel and footwear).

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.