Since early 2023, improvement of the COVID-19 situation has resulted in the speedy recovery and notable expansion of international trade, exemplified by the increased import and export activity in China. For those engaged in trade with China, some guidance on the Customs clearance procedures and the potential issues some traders might face, may be helpful.
This article will focus on:
- the general Customs clearance process for importing cargo into China through bonded areas, and
- the potential issues traders may face, together with relevant suggestions for addressing these.
Customs clearance process for importing cargo through bonded areas
The import of cargo through a bonded area is generally a two-stage process:
- transporting the cargo from overseas to the bonded area/warehouse within China.
- delivering the cargo from the bonded area/warehouse to a non-bonded area in China.
However, we would like to point out that since there are significant variations in the Customs practices throughout China, this article is intended to only provide some general information on the Customs clearance procedure and should not be treated as legal advice.
Customs declarations are required for both stages.
During the first stage, it is usually the consignee or its agent (it can also be the consignor and/or its agent, depending on the circumstances) who submit the corresponding transaction documents, transportation documents, certificate of origin, and other documents, as the case may be. The application will be reviewed by Customs. Once approval is granted, the cargo will be discharged into the bonded area/warehouse.
Here, we have seen cases where the named consignee or its agent is not the actual cargo buyer but is instead the warehouse operator for the bonded area. In certain bonded areas, Customs only permits an international trader to enter into a sale contract with a Chinese warehouse company registered within the bonded area if it wishes to store its cargo there and requires the same Chinese company to appear as the consignee in the relevant shipping documents (including Customs Declaration Form/Record). In practice, many international sellers will choose to enter into a sale and storage contract with the warehouse company (i.e., the warehouse company acting both as a storage provider and buyer) to satisfy that requirement.
During the second stage, the consignee or its agent submit the delivery order issued by the bonded warehouse and the relevant documents to Customs. Customs will then handle customs clearance and grant approval for releasing the cargo, with taxes exempted or levied based on different types of cargo and specific trade transactions. After that, the cargo can be transported from the bonded area/warehouse to non-bonded areas.
Potential issues traders might face and suggested solutions
During the first stage, sellers sometimes need to sign a sale and storage contract with a warehousing company to satisfy Customs’ requirements, which may involve the transfer of cargo ownership.
For international sellers, there may be the potential risk that the warehousing company does not cooperate in transferring the cargo back or in handling the cargo as required. Such risk may exist even if both parties have agreed in the sale and storage contract that the ownership of the cargo will remain with the seller and will not be transferred. This is because although, from a legal perspective, the seller still has ownership of the cargo, in practice, the cargo is under the control of the warehouse company and is discharged into the bonded warehouse under the warehouse company’s name. For this reason, it is advisable to work with trusted warehousing companies to minimise the risk.
During the second stage, there is the potential risk that the buyer could decide to reject the cargo before it is transported into a non-bonded area and not pay for it, for a number of reasons (such as a decrease in market prices). In this case, subject to the contractual terms of the sales contract, ownership of the cargo is usually not transferred to the buyer (original documents such as bills of lading may still be in the hands of the seller).
From a legal perspective, the sellers are entitled to deal with the cargo at their discretion (such as selling it to a third party located in China or overseas). However, from a practical perspective, before the sellers are able to move the cargo successfully, they will have to make another Customs declaration (so as to either move the cargo into a non-bonded area if they have located a third party Chinese buyer or move the cargo overseas), and they may face a situation where the consignee/buyer already made a Customs declaration (when the cargo was discharged into a bonded area) and the original Chinese buyer was recorded as the consignee or the cargo owner on the Customs Declaration Form.
In this case, if the seller wishes to move the cargo, they will have to seek assistance from the Chinese entity to initiate an application to amend the Customs record first, i.e., to change the identity of the cargo owner from the buyer to the seller. After that, the seller will be able to complete the Customs clearance process through their local agent and regain control over the cargo.
To minimise the risk that counterparties may refuse to cooperate with, for example, the amendment of the Customs Declaration Form, one possible solution could be for sellers to engage their own local agents to clear Customs in the first place (when the cargo is discharged into a bonded warehouse) and state clearly on the Customs Declaration Form that the seller is the owner of the cargo.
Comment
As Customs-related processes are usually more of a practical issue, the practices of different Customs may vary significantly, and the issues may also vary depending on different factual scenarios. As such, when there is a potential dispute involving Customs issues, we suggest that traders consult their lawyers or local trusted agents so as to obtain more information on the specific steps involved and the potential impact on the transactions. This will also provide additional security for traders who can take measures in a timely manner to protect their own interests.
For further information on this topic, you are welcome to contact the authors of this update or your usual contact at Clyde & Co.
Disclaimer
Please note that the information in this article is for general information purposes only. It does not claim to be comprehensive or provide legal or other advice. It is current as of its date of publication and does not necessarily reflect the present law or regulations. For these reasons, we do not intend the information in this article to supplement or be a substitute for the expertise and judgment of your independent legal advisor. Any reliance on this information is solely at your own risk. Accordingly, to the fullest extent permitted by applicable law, we exclude any liability or responsibility for any loss which may arise from reliance upon the information appearing in this article.