Q&A: China’s 21st century approach to trade and customs modernization

Zhaokang Jiang is a veteran international trade and customs attorney specializing in customs, international trade and supply chain, legal and business consulting services for both global companies and small firms. He worked for the Chinese government in rulemaking, trade negotiations and customs enforcement before entering private practice in the U.S. in 2000. Today, Zhaokang is managing director of Washington, D.C.-based GSC Potomac and continues to provide guidance to clients on customs and trade compliance. He also consults on public policy projects for the Chinese government, World Customs Organization, World Bank, U.N. Conference on Trade and Development, and World Trade Organization (WTO). He is a frequent lecturer at universities and other organizations, as well as an author on trade and customs modernization and compliance, e-commerce and the digital and new economy. American Shipper recently sat down with Zhaokang to discuss China’s continued efforts to modernize its trade policies and customs practices and procedures.

American Shipper: China was working on trade and customs modernization before it joined the WTO about 20 years ago. When was the last time that a comprehensive rewrite of the China Customs laws took place? How long did that process take and, in your view, was it successfully implemented throughout China Customs?

Zhaokang: “The last comprehensive China Customs law revision started in 1998, when intensive major trade negotiations with the U.S. and Europe presented challenges and opportunities for China’s institutional reform and modernization, and was passed by the Congress of China on July 8, 2000. It then took effect on Jan. 1, 2001. It took about another three years to revise and draft the administrative regulations and rules.

“When drafting the new customs law, a task force reviewed the customs and supply chain process, customs laws and regulations of other countries and proposed new programs such as customs rulings, surety, advance clearance and self-compliance.

“There have been some minor changes to China’s customs laws since then, which took place in 2013, 2016, 2017 and 2018 based on continued observance of best practices in the U.S., EU and other countries. China Customs has also made significant changes related to regulations, information technology infrastructure and organizational and procedural improvements.

“The China Customs law of 2000 has basically been well implemented nationwide, but new questions, other than conventional customs valuation and classification technical issues, and challenges such as cross-border e-commerce, fair competition, product safety, environmental protection and rules of origin have arisen during the past 20 years.

“China Customs is an enlarged organization encompassing 43 districts, six national centers of excellence for revenue management and compliance risk management, 450 ports of entry and a staff of about 70,000. To implement new regulations and procedures, Customs headquarters in Beijing will monitor reports from the districts, conduct field studies and receive input and proposals from the trade community and other government agencies.”

China Customs officers conduct a cargo exam. [Photo Credit: China Customs]

American Shipper: What changes in trade, as well as regulatory implementation, did China’s customs laws not foresee when first implemented? Did the laws anticipate the possibility of trade disruptions, such as bilateral free trade agreements and tariff fights that we’re seeing today? What about the increase in e-commerce exports, as well as container exports in general, from China?

Zhaokang: “Undoubtedly, there have been significant changes in the past 20 years for China’s trade and business environment. Trade volume in 1999 was about $360 billion and reached $4.62 trillion in 2018 and is expected to reach $5 trillion in 2019. The country’s e-commerce grew from almost zero to $1.3 trillion, of which $200 billion was cross-border.

“China implemented an e-commerce law on Jan. 1, 2019, which generally requires the government to treat different business models fairly and equally, as well as protect consumers.

“China has signed and implemented free trade agreements with ASEAN, Australia, Singapore, Pakistan, New Zealand, Chile, Peru, Costa Rica, Iceland, Switzerland, Maldives, Georgia, Hong Kong, Macao and holds ongoing negotiations with the GCC (Gulf Cooperation Council), Japan and Korea, Sri Lanka, Israel, Norway, Mauritius, Moldova, Panama and Palestine. The Regional Comprehensive Economic Partnership (RCEP) agreement is expected to be signed early next year.

“While bilateral trade agreements were considered as early as 2000, other significant trade disruptions were not expected. This has resulted in new challenges for China Customs, including rules of origin regulation and enforcement, balance between trade compliance and facilitation, and intellectual property rights protections and consumer product safety. China is also reviewing and revising its export control legislation.”

American Shipper: Describe the most significant regulatory and policy changes that China Customs has undertaken since the country joined the WTO.

Zhaokang: “In the past 20 years, especially before and after the WTO Trade Facilitation Agreement was accepted in September 2015, China has made great efforts to further modernize its trade and customs environment for trade efficiency and compliance enforcement.

“After its adoption of a customs ruling program in 2002, China Customs implemented new regulations regarding customs online monitoring and control for processing trade in 2006. In 2012, the agency implemented its first rules for cross-border e-commerce retailing, but the pilot implementation was limited to certain ports and mainly certain large e-commerce platforms.

“In 2014, China Customs implemented the enterprise classification and Authorized Economic Operator programs for customs and trade compliance, facilitation and security.

“The agency working with other governmental partners implemented free trade zone pilot programs for periodic entry of customs clearances, introduced a paperless customs entry process, emphasized informed compliance with the trade and strengthened its enforcement of intellectual property rights.

“In 2017, China Customs announced its Customs Clearance Integration and Comprehensive Reform to promote nationwide, centralized customs clearance and procedures, establishing six national centers for revenue administration and risk management.

“With the international trade single window project, it has further advanced customs automation and trade facilitation by integrating more government agencies such as the Ministry of Commerce, the State Administration for Quarantine, Inspection and Quality, the State Taxation Administration and the Administration for Foreign Exchange into the E-Port customs and trade automation platform. In 2018, China Customs absorbed the Commodity Inspection and Quarantine Administration into its operation.”

China Customs officers display a seized shipment of counterfeit handbags. [Photo Credit: China Customs]

American Shipper: How important is it for China Customs to continue upgrading its laws and regulations? How fast can this be done, especially with the rapid pace of change in trade? In your view, is China Customs committed to upgrading its laws and regulations?

Zhaokang: “The leadership of the central government and customs administration have a sincere commitment to further modernization of trade and the customs laws and regulations.

“However, China must shift its international trade from a “gross” growth model to a “quality” growth model with rule of law to reduce trade disputes and ultimately reduce transactional costs and best service the people. We must especially recognize that fair competition, intellectual property rights protection and product safety are critical for establishing a trusted business environment for the consumers. All these cannot be accomplished by customs alone. In October 2019, the Chinese central government announced its nationwide cross-agency regulations on improving the business climate.

“In my view, the crucial elements to further trade and customs modernization in China include a comprehensive review of the trade supply chain with an emphasis on centralized, simplified and transparent processes and procedures for both the trade and customs officials to follow. This should also include integrated port and border management and reorganization, where necessary, to remove hurdles from legitimate trade and remove loopholes for violations.

“We would like to see China Customs promote national pilot programs that effectively apply the latest information technology and data science, such as GS1, blockchain and AI to prevent fraud and promote efficiency and compliance. Intelligence-driven risk management and targeting is most effective.

“China Customs must continue to engage in bilateral and multilateral cooperation to share information and knowledge with other customs agencies and build customs-trade partnerships aimed at capacity building and compliance and facilitation of cross-border trade.”

American Shipper: China Customs this year introduced the Customs Further Reform Framework 2020, which considers the role and operation of the agency through the remainder of the 21st century. How important is it for China Customs to commit to this type of future framework?

Zhaokang: “With the 21st century framework initiated by WCO, the trade community expects that the China trade and customs environment be based on the following values of rule of law in trade: transparency, due process, fairness, justice, imparity, predictability, consistency, uniformity and efficiency, which demands the government improve the customs and trade legal system. This must be accomplished through detailed customs law, regulations, implementation of rules and orders, ruling decisions and providing compliance guidance. The new campaign and process for revising the national customs law and regulations fitting for the next generation of commerce demands a deep-dive review and may take two to three years at the least.

“While uniformity, consistency and transparency of customs laws and regulations have been improved over the past decades, there are still issues with different processes that result in unfair treatment and compliance concerns for businesses operating in different customs districts. Some pilot programs such as for cross-border e-commerce and free trade zones that operate without limitations may create significant discrimination and inconsistency for companies. Timely evaluation process must be conducted on all programs to ensure cost-effectiveness and fair competition.

“I would like to reiterate that China and the whole world should have a rules-based international trade and customs environment for the sake of openness, efficiency, compliance, fair competition, consumer protection and sustainable growth.”