On March 17, 2017, China Ministry of Commerce (“MOFCOM”) confirmed on an official news release that further optimized supervision mode will be developed for cross border e-commerce retail import (“CBEC”) after January 1, 2018 for 15 pilot zones.

In April 2016, several PRC authorities jointly issued the new policies to regulate the cross border e-commerce retail import. The new policies, aside from providing new tax rates for CBEC, more importantly, required special products including health foods, infant formulas, cosmetics and medical devices to obtain the registration or filing as required by PRC laws. , These new polices caused big panic to the market and a sharp deduction of almost one third in term of CBEC business revenue in a short time of period. A later notice in May 2016 granted a grace period for the implementation of the registration and filing requirements until May 2017. In November 2016, MOFCOM further announced that the grace period will be extended to the end of 2017.

The news release by MOFCOM for the first time indicates the products sold through CBEC would be treated as personal items, in addition to further confirming the extension of grace period till 1 January 2018, , which signifies much loosen-up regulatory environment in the near future and will cheer CBCE participant up:

Products sold through CBEC will be treated as personal items temporarily

It has been a long debate whether the products sold through CBEC should be treated as goods under general trade or items of personal import. The importance of making such differentiation is that, goods under general trade is of commercial nature therefore should subject to strict regulation and higher tax rates, while items of personal import is more of contingent and personal use nature therefore is not necessary to be strictly regulated, the taxes rates for personal items are also lower and with exemption amount.

Although the April 2016 new CEBC polices have set a separate tax regime for CBEC, which is a comprehensive tax method with certain tax rate discounts, and such tax regime is currently not changed, the recognition of personal item nature of CBEC product may rightly be interpreted as that the authority intents not to regulate the CBEC as strictly as goods under general trade. This also rises up the hope that the registration and filing requirement on special products might not be imposed on CBEC products at the end. In the very least it can be reasonably expected that CBEC will less strictly regulated in terms of registration and filing.

Authority intents to maintain the stability of CBEC

In the news release, the authority stated the notion of promoting the health and stable development of CBEC, and maintaining a stable supervision of CBEC. This sends a signal that the authority might reconsider whether the registration and filing requirements imposed by April 2016 CBEC policy is too rigid, and whether the adverse impact on CBEC caused by such requirements would be worthy.

The registration and filing requirements has raised chaos among CBEC participants, because the application for registration and filing for special products is difficult and time consuming, sometimes even impossible due to different standards of foreign manufacturing country and China. A strict implementation of such requirements might result in stop of CBEC business of some foreign companies.

What is certain?

After this this news release by MOFCOM, the followings are certain:

  • The registration and filing requirements on special product will not be imposed on CBEC products until December 31, 2017;
  • Starting from January 1, 2018, the CBEC products will be treated as personal items temporarily.
  • The comprehensive tax regime will still apply to CBEC sales until further actions by relevant authority;
  • The current “white list” for products sold through CBEC still stand effective.
  • The 15 CBEC pilot zones will be the experimental areas for trial of new supervision mode to be implemented by PRC authorities after January 1, 2018, including Hangzhou, Tianjin, Shanghai, Chongqing, Hefei, Zhengzhou, Guangzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen, Suzhou, Fuzhou and Pingtan.

What is uncertain?

  • Formal legal status of CBEC products. Despite the positive signals, the recognition of CBEC products as personal items comes only from a press release. Formal rule is yet to release.
  • White list and specific registration requirements for CBEC products. Whether the white list model would be still adopted after January 1, 2018 is still unknown. Technically there is still a high chance the authorities would use a white list or black list to screen the products that could be sold through CBEC.
  • Registration requirements for CBEC products. Although the news release this time has sent some positive signals about changing previously issued policies on CBEC, however, to what extend such policies will be changed is remain to be seen. Despite the wishes to promote CBEC economy, Chinese authorities also bear huge responsibility on consumer’s safety. It would not be an easy decision for the authority to balance the two considerations, therefore it is still not definite whether the previous policy will be completely overruled.

In below a translation of the 17 March, 2017 MOFCOM news release provided by us:

On 17 March 2017, the Spokesman of MOFCOM announced post grace period supervision arrangements of products imported through cross-border e-commerce.

In May 2016, approved by the State Council, China issued policies regarding the grace period for the supervision requirements of products imported through cross-border e-commerce. In November 2016, the grace period was extended until the end of 2017. In order to ensure smooth transition of after the grace period, and accord with the requirements of the State Council, MOFCOM, together with the National Development and Reform Commission (NDRC), Ministry of Finance (MOF), General Administration of Customs (Customs), State Administration of Taxation (State Tax), General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and China Food and Drug Administration (CFDA), by conducting extensive researches, considering the opinions of local governments, industries and enterprises, and taking into consideration of the trade nature as well as the personal use and relatively low value nature of products imported through cross border e-commerce, have been actively developing a supervision mode which fits such nature of cross-border e-commerce.

For the smooth development of cross-border e-commerce, and to maintain the stable supervision of cross-border e-commerce, as approved by the State Council, at current stage, cross-border ecommerce products shall be treated as personal items temporarily for supervision perspective. Based on this, the responsibilities of e-commerce entities will be emphasized and the supervision measures will be optimized, quality safety control will be adopted. A risk emergency processing mechanism will be established. With regards to the import products which have a relatively greater quality risk, further measures will be taken. In the future, the supervision will be further updated as necessary based on the E-commerce Law and the development of the cross-border retail import.

In order to promote the “first act and first trial” of cross-border e-commerce and to control risk, the new supervision mechanism will be implemented within the approved pilot cities of cross-border e-commerce retail imports and the cross-border e-commerce business comprehensive pilot zone, which includes 15 cities (Hangzhou, Tianjin, Shanghai, Chongqing, Hefei, Zhengzhou, Guangzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen, Suzhou, Fuzhou and Pingtan).

The above supervision mechanism will be implemented from 1 January 2018. The supervision policies for grace period will still applicable until then. Relevant authorities shall issue the detailed enforcement regulations based on its functions to promote the health development of cross-border e-commerce.