Customs reform and the introduction of automated systems in China
This article examines the reform of the customs service in China and its impact on the introduction of automated systems. The main stages of the reform, its goals and objectives are analyzed. Special attention is paid to the analysis of the effectiveness of the implementation of automated systems, their advantages and disadvantages. The study also identifies the prospects for the development of the Chinese customs service and its role in the economic and social life of the country. A general description of the Chinese customs service is given, including a description of the main customs authorities of China and their powers. This article evaluates the risks that foreign companies face when importing and exporting goods.
Keywords: China, customs, customs reform, automated systems, structure, public law.
Introduction
China's customs legislation plays a crucial role in regulating the movement of goods into and out of the country. With its vast territory, diverse economy, and significant global trade presence, China has implemented a robust legal framework to ensure unhindered customs procedures, trade facilitation, and national security protection <1>.
--------------------------------
<1> Fallon T. The New Silk Road: Xi Jinping's Grand Strategy for Eurasia // The interests of American foreign policy. 2015. Vol. 37. pp. 140-147.
Automatic means of detecting customs offenses are an important tool for combating smuggling and other violations of customs legislation. This article will provide a legal analysis of the reform of the Chinese customs service, identify ways and types of implementation of automated systems in the customs sphere in China.
I. Features of Chinese Customs
Unlike other government administrative agencies, China Customs has a specialized unit, the Anti-Smuggling Bureau (ASB), which conducts both administrative and criminal investigations against companies and individuals for violating Chinese customs laws.
The investigations of this bureau are targeted, isolated in nature. Inspections carried out by ASB are carried out without notifying the verification object. Depending on the identified factors and grounds, the ASB has the right to initiate a criminal investigation against such an object of verification.
Unlike other government administrative agencies, China Customs operates independently of other government departments and local authorities. The General Administration of Customs of China (GAC) is the highest authority of the Customs service of China <2>. It is accountable to the State Council of China.
--------------------------------
<2> The Regulation of the People's Republic of China on Customs: adopted at the 19th meeting of the Standing Committee of the Sixth National People's Congress.
This means that China's customs is a closed system and often acts only in the interests of the orders of the State Council. This fact also means that the annual political and fiscal policy of the State Council can significantly affect the trend and intensity of customs supervision in China and the enforcement of customs laws and regulations.
II. Structure and functions of the Chinese Customs
China Customs consists of the GAC, 42 district Customs offices ("District Customs") directly subordinate to the GAC, as well as more than 600 subsidiary customs offices ("Subsidiary Customs") under the control of the District Customs <3>.
--------------------------------
<3> Anikin S.B., Koval V.D. Anti-corruption in the customs authorities of Russia and China // Legal science in China and Russia. 2020. N 3. pp. 143-146.
The field of activity of the Chinese Customs includes:
1) supervision and control of goods and personal belongings imported into and exported from the customs territory;
2) collection of customs duties and other taxes;
3) detection and suppression of smuggling and general violations;
4) compilation of customs statistics and other customs operations.
The GAC manages policy and administrative matters and usually does not carry out daily control over the import and export of goods. The district customs offices are engaged in such control.
The district customs offices monitor the timely submission of import and export declarations, as well as investigate violations related to the preparation of accounting documents or operations of priority importance.
Subsidiary Customs offices in different ports monitor and verify the daily import and export of goods through the port, while subsidiary Customs control and verify all import and export operations of a company registered within their jurisdiction. <4>
--------------------------------
<4> Ramasami B. Trade facilitation in the Asia-Pacific region: analysis of import and export processes, research in the field of trade and investment // Research in the field of trade and investment. 2011. Vol. 71. pp. 1 - 33.
GAC, District Customs and some subsidiary customs also have an ASB division. ASB operates independently from other divisions of the Chinese Customs. The head of the ASB is usually the Deputy director of the customs authority.
ASB has the authority to investigate violations of customs legislation by an importer or exporter and apply administrative sanctions against them. In practice, any customs violations identified by customs clearance, audit or tariff units will be referred to the ASB for investigation if the unpaid amount of import taxes (duties and VAT) is from 2 thousand yuan <5>.
--------------------------------
<5> Regulations of the People's Republic of China on Import and Export Duties (adopted at the 26th Executive Meeting of the State Council on October 29, 2003, promulgated by Decree No. 392 of the State Council of the People's Republic of China on November 23, 2003 and come into force on January 1, 2004).
III. Process automation reform
After successfully completing the integration of regional customs clearance processes in each of the five economic zones of the country (Beijing-Tianjin-Hebei region, Yangtze River Economic Belt, Guangdong Region, Northeast Region and Silk Road Economic Belt), the Chinese Customs Service has moved to a new ambitious customs clearance reform - an automated customs clearance system for importers and exporters, aimed at integrating customs clearance processes across the country.
--------------------------------
<6> Yue L. China's strategy in relation to the financial crisis and economic reforms. China's Geo-economic Strategy // IDEAS Reports. 2012. pp. 38 - 42.
In 2016, China Customs launched an automated clearance system <7>. As a result, most customs declarations are now processed online, without manual inspection of each consignment by customs. According to the policy of the Chinese Customs Service, a company should be responsible for the legal consequences if it violates the customs laws and regulations of China.
--------------------------------
<7> Goda A.Yu., Egorova U.A., Makrusev V.V. Digital customs: foreign experience and current problems of their solution in Russia // Economic research and development. 2019. N 4. pp. 23 - 33.
The automated clearance scheme has raised concerns in Chinese customs that incorrect or fraudulent declarations may affect the amount of import duties, taxes or state security. Accordingly, the Chinese Customs has strengthened risk control before registration and tax supervision after registration by creating specialized centers:
1. New risk control centers.
Since 2016, three risk control centers have been established within the framework of the GAC. The Shanghai Risk Control Center identifies and monitors the risks associated with the import of goods by air, as well as the logistics companies responsible for such transportation. If necessary, the Risk Control Center performs an inspection of the cargo or vessel. The Risk Control Center in Huangpu, Guangdong Province, performs the same functions for shipments by land as the Risk Control Center in Qingdao, and Shandong Province performs the same functions for shipments by water or sea <8>.
--------------------------------
<8> Regulations of the People's Republic of China on Customs Statistics: Decree of the State Council of the People's Republic of China No. 454, published on December 25, 2005 and entered into force on March 1, 2006.
These risk control centers request declarations from freight transport companies and rely on them before processing goods in China. Accordingly, the shipping company requires the shipper or consignee to provide identification numbers and other information of the shipper or consignee so that the control centers can assess the potential risks associated with this vehicle and cargo shipments.
2. Tax collection centers.
Three tax collection centers have been established, which report to the GAC. The Shanghai Center tracks import and export declarations for machinery and electronic equipment covering eight chapters (Chapters 84-87 and 89-92) and a total of 2,286 tariff nomenclature codes.
The Guangzhou Center tracks declarations on chemistry and chemicals (chemical raw materials, polymers, energy, minerals and metals) covering 30 chapters (chap. 25 - 29, 31 - 40, 68 - 83) and a total of 2,800 tariff nomenclature codes.
The center in Beijing and Tianjin tracks declarations for various goods (agriculture and forestry, food, pharmaceutical industry, light industry, miscellaneous, textile and aviation industries), covering 58 chapters (1 - 24, 30, 41 - 67, 88, 93 - 97) and there are only 3,461 tariff nomenclature codes.
The three tax collection centers can schedule inspections during clearance in case of identification of tax risks related to customs assessment, tariff classification or country of origin, as well as send requests after clearance, request an audit or contact ASB to investigate violations of customs legislation.
The detection of any violations by the centers, especially in terms of filling out documentation, carries significant legal and economic consequences for the importer or exporter. Given that Chinese Customs usually does not conduct a preliminary inspection of the declared, preferring instead to step up ASB inquiries, audits and investigations after customs inspection, the importer or exporter may face serious legal obligations related to customs.
Such risks of legal liability may not be initially obvious, and if they are not detected at an early stage, violations may accumulate. Ultimately, they can have disastrous consequences for doing business in China due to high fines, seizure or confiscation of the goods to which the violation relates, as well as criminal liability of companies and individuals if their involvement in sending incorrect declarations for import and export goods or violation of other customs laws is proven.
IV. Liability risks faced by foreign companies
Foreign companies carry out their activities for the import and export of goods in China, observing special conditions and legal norms.
Thus, they may be subject to obligations under the following circumstances:
1. Export to China.
With regard to exports to China, a foreign exporter may be contractually obliged to perform customs clearance <9> of imports to China, when, for example, the delivery condition, in accordance with the applicable Incoterms <10>, is DDU <11>. However, due to Chinese customs regulations, a foreign exporter cannot clear imported shipments at Chinese customs on his own behalf. In practice, a foreign exporter must use the name of the importer to clear the goods.
--------------------------------
<9> The term means "the performance of customs formalities necessary for the introduction of goods into domestic consumption, for their export or for placement under another customs procedure." This is how it is interpreted by the International Convention on Simplification and Harmonization of Customs Procedures of May 18, 1973 (Kyoto Convention). In other words, customs clearance is the fulfillment of a number of customs formalities when moving goods.
<10> International rules recognized by government customs authorities, law firms and entrepreneurs around the world as the basic conditions for international trade in goods. The scope of Incoterms extends to the rights and obligations of the parties under the contract of sale in terms of transportation of goods from the seller to the buyer, liability for loss and damage to the goods, its customs clearance and insurance.
<11> DDU (English Delivered Duty Unpaid - letters. "delivered, duty not paid") - the term Incoterms, used with an indication of the place of arrival, the seller's responsibility ends after the goods are delivered to the specified place in the buyer's country; all risks, all shipping costs (taxes, duties, etc.), liability for damage and loss of goods (except duties and other payments paid upon import) until this moment is borne by the seller.
In this case, the foreign exporter does not assume any obligations to the Chinese Customs Service, since he is not an importer in accordance with Chinese customs legislation. The importer in whose name the goods are cleared in China assumes the risks and responsibilities associated with the declaration and may take legal action against the foreign exporter in accordance with the terms of the contract.
However, if a foreign exporter intentionally submits incorrect shipping documents and invoices, the foreign exporter may be involved in a criminal investigation of ASB smuggling <12>.
--------------------------------
<12> Lyapustin S.N., Barei N.S. China's antique market and the role of Chinese customs authorities in combating smuggling of cultural property // Customs policy of Russia in the Far East. 2017. N 3 (80). pp. 89-97.
2. Import from China.
For import shipments from China, the foreign buyer usually does not have contractual obligations for customs clearance of export shipments at Chinese customs. However, if the delivery time, in accordance with Incoterms, is equal to EXW <13>, the foreign buyer must arrange customs clearance of exports at Chinese customs, as well as customs clearance of imports at foreign customs.
--------------------------------
<13> EXW, according to Incoterms, or in the full designation 'Ex Works' with an indication of the place, is understood as a "Free factory" (Free warehouse) with an indication of the place of pickup and means that the supplier transfers the goods to the buyer at his enterprise (may be in a warehouse, in a store or other place), and at this point, the supplier's obligations are considered fulfilled.
Again, in this case, the foreign buyer must use the name of the Chinese exporter when submitting export declarations. The Chinese exporter bears the risks and consequences of incorrect declarations and has the right of refusal in relation to a foreign importer. However, if, after an investigation, it turns out that the foreign importer was aware of the forged declarations, he will be prosecuted under Chinese law.
If a foreign company has a subsidiary in China, the latter may clear its goods for export or import at Chinese customs, provided that the subsidiary is registered with the local customs and has received a customs clearance identification number. In this case, the Chinese subsidiary will be responsible for incorrectly submitted declarations to the Chinese customs.
Subsidiaries of foreign companies in China may face a serious risk of ASB investigation. In order to avoid or reduce such risks, it is necessary to regularly conduct a compliance audit or a health check to identify legal risks, stop and avoid incorrect declaration or customs clearance methods in the future in order to prevent the accumulation of violations in the future. Regarding past violations, the company may consider voluntary self-disclosure, in which case China Customs provides for the possibility of mitigating any penalties.
A foreign company should refrain from knowingly providing false shipping documents or commercial invoices when its counterparty is responsible for customs clearance of goods in China. This will significantly reduce (if not completely eliminate) the risks associated with Chinese customs for a foreign company when trading with counterparties in China.
Conclusion
Automatic means of detecting customs offenses are an important tool for combating smuggling and other violations of customs legislation. China's customs is a closed system and has a specific structure. The automation of the Chinese customs service has revolutionized and simplified the country's import and export procedures. Through the integration of advanced technologies such as artificial intelligence, big data analytics and robotics, China has significantly improved the efficiency, transparency and security of its customs operations. The introduction of automated processes has significantly reduced manual labor, minimized the number of errors and accelerated the processing time of goods imported and exported from the country. In addition, this digital transformation has contributed to better risk assessment, increased revenue collection, and increased overall compliance with international trade rules. As China continues to invest in automation, it is setting a remarkable example for other countries seeking to modernize their customs services and take advantage of a digitized and efficient global trading environment.
At the same time, the introduction of modern technologies has entailed certain legal and economic difficulties for both importers and exporters of goods.
