After successfully completing the integration of regional customs clearance processes within each of the five economic zones in the country (Beijing-Tianjin-Hebei Region, Yangtze River Economic Belt, Guangdong Region, Northeastern Region and Silk Road Economic Belt), China Customs has moved on to a new ambitious customs clearance reform - an automated customs clearance system for importer and exporter of record, aiming to integrate a countrywide clearance processes.

Under such automated clearance system, the Customs will no longer examine import or export declaration documents or determine whether or not a given declaration is accepted or declined. Once the declaration filing is done on-line, the system will automatically accept it without further need to review manually the hard copies, and the declarant will have no chance to rectify any errors or mistakes. Upon submission, customs declaration is deemed done,and the importer/exporter will bear the relevant legal consequences for any improper or untruthful declaration it has made to the system of automated clearance. The window of routine declaration document review at the Customs Houses will be closed. The importers/exporters must watch out by themselves before such declaration submission.

The automated clearance system was launched on a trial basis in Shanghai recently by the General Administration of Customs (“GAC”). The automated clearance system was made available to several selected companies of Advanced Certified Enterprise (ACE) under China Customs’ AEO Program who may clear imports/exports online with the Shanghai Customs.

While the on-site declaration review function may fade away during the process of clearance within the Customs, the GAC intends to intensify selective and targeted entry/exit safety risk check at the clearance as well as in the post-clearance duty levy risk audit. Accordingly, the GAC set up two new national function centers in Shanghai, Customs Risk Surveillance Center (“CRSC”) and Duty Levy Administrative Center(“DLAC”). These two function centers would supervise all the countrywide customs clearances of imports/exports falling into Chapters 84, 85 and 90 of PRC Tariff Schedule.

As soon as the trial in Shanghai turns out to be successful, more function centers will gradually be established in several other major customs districts to take care of imports/exports falling into other chapters of PRC Tariff Schedule. The DLACs are planned to gradually replace the regional customs document inspection centers, which are unified platforms previously built within the above five regions to watch over the clearances occurring therein only.

As such, a more linear structure of customs supervision over the countrywide import/export clearances will be built up in China eventually.Meanwhile, the focus of customs supervision will dramatically shift from a detailed on-site examination at the clearance to a post-clearance, risk-based approach.

What would be the functions of CRSC and DLAC ?

Focusing on border safety and security risks,the CRSC tends to analyze and detect internally, during the process of import/export clearance, whether any risks exist, including any prohibited or restricted goods, IP infringement, or any fraud in declaring product descriptions, specifications or quantity (“Border Safety Risk Screening”).Once any such risk is detected, the CRSC may directly issue an inspection instruction to the local customs port office. After the further inspection, those importers/exporters maintaining good credit rating under the Customs’ AEO program or upon the payment of fund guarantee may have the goods released first. The port offices may take samples from the shipments and collect other evidences before the goods release.

Focusing on taxation risks, the DLAC tends to review on a batch basis, after the goods clearances, all the taxation related elements in previous declarations (“Tax Compliance Risk Evaluation”), such as tariff classification,transaction price and place of origin. Once any tax risk is targeted, the DLAC may issue, via the CRSC,an evaluation instruction to the relevant local customs port office or an audit instruction to the local customs audit office. After the evaluation/audit, the local customs offices will report the result to the DLAC. Those suspected breach of customs regulations or smuggling cases may be forwarded to the Anti-Smuggling Bureau (“ASB”) for further investigation.

What is different in such automated clearance system?

Under such system, at the customs declaration, an importer/exporter will be required to do the following actions on its own or via a customs broker: (i) after compliance self check, electronic filing viathe H2000 (“Self-Filing”), (ii) after passing the CRSC’s online Border Safety Risk Screening, printing out tax statements and (iii) paying up the relevant customs duty and VAT. Upon the completion of all the steps, the goods will be released by the local customs port office. Every step appears to be more self serving, straightforward and time saving.

Unlike the traditional clearance practice, under the automated clearance system, during the clearance, except the CRSC’s online Border Safety Risk Screening, no customs officers would be on site to check the declaration filing or point their finger on errors therewith to have the declaration corrected.The system seems to count more on importers/exporters to perform compliance self assessment before and during the clearance, and allocate more customs staff and other resources to post-clearance supervision. Those in violation might be found out and punished through the Customs audit or investigation after the goods release. Moreover, any non-compliance with the customs clearance requirements would also affect the importers/exporters’ credit rating under China Customs’ AEO (Authorized Economic Operator) Program.

HaoLiWen Observations

Compared to the traditional excessive and time-consuming check at the point of clearance, this automated clearance system tends to bring more clearance conveniences to importers/exporters in China. In the meanwhile, the system does call on the entire trade community to keep higher standard of trade compliance and oversight over their own clearance activities.

As the CRSCs and DLACs are being built up as the unified platforms to centralize customs risk control associated with countrywide clearance activities, it is expected that the customs law enforcement on those controversial issues, such as tariff classification, license control, customs valuation and related-party pricing, will go more uniform, effective and efficient among all the customs districts. As such, the declaration of different HS Codes or transactionprices for the same product at different customs offices in different regions would now be easily caught and subject to significant exposures to regulatory customs violation or even smuggling charge.

Moreover, by addressing self assessment on importers/exporters at online declaration filing, the system expects to usher in a new era of trust based supervision system between the Customs and trading businesses. Whilst retaining selective and targeted checks at the frontier, the system tends to concentrate on post-clearance approaches.As such, with no physical presence of Customs officers at the Customs Houses to check key elements in the declaration filing (such as goods description, classification,valuation, country of origin and licensing requirement), importers/exporters must ensure, on their own, their declaration filings comply with the relevant customs laws and regulations. Otherwise, non-compliant importers/exporters might encounter post-clearance audits/smuggling investigations, and face legal consequences on account of accumulated improper declarations or even smuggling charges.

To avail of the benefits of the system and control the risk exposures for improper declarations, importers/exporters are advised to have a trade compliance system and processes in place. Moreover, it is also advisable to conduct a comprehensive internal compliance check in advance, such as whether each element of customs declarations has been presented in compliance with the customs requirements, whether goods liable to specific import/export control have been properly declared, whether the conditions relating to specific license control have been observed, whether any royalties paid or payable are relevant to the imported goods. Should there any non-compliance be identified, we advise importers/exporters to seek professional legal advice on the solutions and defense strategies.

Given lacks of the relevant implementing rules, we will be keeping a close watch and have our clients posted on the evolution of the system.It might still take time for China Customs to consolidate its resources and systems for purposes of the system. However, a centralized customs clearance system is expected to be in place sooner or later in China.

Only when customs and trade regulatory compliance is ensured, can importers/exporters indeed benefit from the efficiency of such automated clearance system.