Laws of the People's Republic of China

No. 141

The Decision of the General Administration of Customs on Amending the Provisions of the Customs of the People's Republic of China on Carrying Out the Rules of Origin for Trade in Goods under the Mainland/Hong Kong Closer Economic Partnership Arrangement, which was adopted upon deliberation at the executive meeting of the General Administration of Customs on December 27, 2005, is hereby promulgated and shall go into effect as of January 1, 2006. Mu Xinsheng, Director General of General Administration of Customs

December 30, 2005

Decision of the General Administration of Customs on Amending the Provisions of the Customs of the People's Republic of China on Carrying Out the Rules of Origin for Trade in Goods under the Mainland/Hong Kong Closer Economic Partnership Arrangement

In order to promote the Mainland and Hong Kong to set up closer economic partnership, the General Administration of Customs decides to amend the Provisions of the Customs of the People's Republic of China on Carrying Out the Rules of Source area for Trade in Goods under the Mainland/Hong Kong Closer Economic Partnership Arrangement (promulgated by Order of the General Administration of Customs No. 106, hereinafter referred to as the Provisions) as listed below:

I.

Article 6 of the Provisions shall be amended as:

"Article 6 The term 'substantial processing' as mentioned in Item (2) of Article 3 of these Provisions shall be determined by using the standard of 'manufacturing or processing operation', the standard of 'change of tariff code', the standard of ad valorem percentage', 'other standards' or 'combined standards'. If meeting the prescribed circumstances, it may be determined by using other additional conditions. The specific determination shall be implemented according to the Table of the Criteria of Source area for the Hong Kong Goods enjoying Preferential Treatment for Trade in Goods in the CEPA). That table, as a part of these Provisions, shall be separately promulgated by the General Administration of Customs (GAC).

The term 'manufacturing or processing operation' refers to the major operation giving the basic characteristics to the goods gained after processing. An operation shall be considered to have been carried out the substantial processing, if this major operation is finished in Hong Kong,.

The term 'change of tariff code' means that if any material whose source area is not Hong Kong is processed in Hong Kong, the four-digit tariff category of the gained product in the Customs Import and Export Tariff of the People's Republic of China has changed, and such product will not undertake any production, processing or manufacturing which will lead to the change of their four-digit tariff category in any country or region outside Hong Kong.

The term 'ad valorem percentage' means the percentage of the total value of the raw materials, components, labor gained in Hong Kong and the product development cost against the Freight on Board price(FOB) of the finished export products . In case such a percentage is not less than 30%, and the final manufacturing or processing operation of the products is finished in Hong Kong, the substantial processing shall be considered to have been carried out. The formula is as follows:

(Value of raw materials + value of components + value of labor + cost for product development) / FOB price of the finished export product ¡Á100% ¡Ý 30%

The term 'product development' in the formula mentioned above refers to the product development implemented in Hong Kong so as to produce and process the related export products. The cost for product development shall be pertinent to those finished export products, consisting of the cost for development by the producer or processor himself/itself, the sum paid for entrusting the natural person or legal person to develop in Hong Kong, as well as the sum paid for the purchase of the design, patent, know-how, trademark right or copyright owned by any natural person or legal person in Hong Kong. Such costs shall be able to be clearly determined in accordance with the generally accepted accounting principles and related provisions of the Agreement on Carrying Out Article VII of the General Agreement on Tariffs and Trade 1994.

The calculation of the 'ad valorem percentage' shall be governed by the generally accepted accounting principles and related provisions of the Agreement on Carrying Out Article 7 of the General Agreement on Tariffs and Trade of 1994.

The term 'other standards' refers to the methods to determine the source area, which are mutually agreed upon by both authorities of the Mainland and Hong Kong, other than the above-mentioned standards of 'manufacturing and processing operation', 'change of tariff code' and 'ad valorem percentage'.

The term 'a combined standard ' refers to two or more of the above-mentioned standards used simultaneously to determine the source area.

The term 'other additional conditions' means that the additional conditions such as brand requirement shall be used upon the mutual agreement between both authorities of the Mainland and Hong Kong, if it is not enough to determine the source area by using the related standards on 'substantial processing' mentioned above."

II.

Article 14 of the Provisions shall be amended as follows:

Any violation of these Provisions shall be conducted by the customs house according to the Customs Law of the People's Republic of China and the Implementation Rules of the Customs of the People's Republic of China for Administrative Punishment; and if the violation constitutes a criminal offence, criminal liabilities are investigated in accordance with the law ".

The present Decision shall go into effect as of January 1, 2006.

The Provisions of the Customs of the People's Republic of China on Carrying out the Rules of Source Area for Trade in Goods under the Mainland/Hong Kong Closer Economic Partnership Arrangement shall be amended in accordance with the present Decision and be re-promulgated.