China is evolving and one of the biggest changes has been how China has greatly tightened up its enforcement of its laws, particularly against foreign companies; certain things that were “no big deal” five years ago are a big deal now. Dealing with China customs law is a prime example of that. If you are a foreign company doing business in China that involves importing products into China (or exporting, but less so), it behooves you now more than ever to get things right.
This is part three of a four part series of posts by Shawn Mahoney designed to help you avoid China customs problems. Go here for Part I, China Importation 101, which dealt mostly with the core concepts related to importing product into China. Go here for China Importation 101. Part II, which mostly discussed China’s Harmonized Tariff Schedule and the similarities between China customs laws and US and EU customs laws.
This and the next post will examine the most effective ways to communicate and interact with China’s main importation enforcement agencies, GACC (the General Administration of Customs) and AQSIQ (The General Administration of Quality Supervision, Inspection and Quarantine). Here is part III of Shawn’s series:
The core to any interaction with GACC and AQSIQ is relationship building. My good friend Professor John Osburg writes, “Information in China flows through personal relationships. These relationships are best viewed as communication channels which equal resources for assistance.” It is vitally important to the success of your ongoing China importations to create communication channels with both GACC and AQSIQ in a legal and legitimate manner.
One of the complaints I consistently hear is about the capriciousness and unpredictability of Chinese customs officials. The reality is China’s system is no less capricious than in the US. Both countries provide ample flexibility for customs enforcement of ambiguously written laws. In the end, dealing with China customs is a person-to-person interaction and there are some people, regardless of country, that are harder to deal with than others.
In many ways, dealing with China Customs is no different from dealing with US customs. They are not your friends, but if you take the time to treat them as humans and to create a relationship, they typically will not make your life any harder than it has to be as an importer. No one likes it, government official, vendor or customer, when you only talk with them when you have a problem that needs to be solved. In our experience if you follow three simple rules, your interactions with GACC should be greatly improved.
- Understand the laws and regulations as they pertain to your specific product. Whether you are acting as the importer of record (IOR), or another organization is the IOR, it is your responsibility to make sure all documentation is accurate and correct. There is no faster way to get on a custom official’s bad side than by you or your IOR importing goods incorrectly, especially if you are not using accurate information that is basic to any importation in China. Guanxi, or relationships, will not excuse you or your importer from failing to import goods under the laws and regulations of the PRC. In the end, it is your product and your brand name that will be negatively impacted by importing goods incorrectly.
- All the knowledge in the world only goes so far when dealing with an individual government official. Someone in the importation chain must have a working relationship with China customs. Whether you are importing for yourself, using a broker, or relying on your customer to import, it is vital to build a legitimate relationship with your local GACC office. The best way to do this is via the Enterprise Classification Management (MCME) system, which I will discuss below. We always advise to maintain a wide breadth of contacts at your local customs office, as part of your ongoing transactions and for maintaining or improving your AEO (Authorized Economic Operator) status. Additionally, even if your volume of imports cannot meet the requirements for AA status (see below), it helps more then it hurts to maintain these lines of communication with GACC.
- Always approach customs officials from a position of mutual respect (this is also vital when dealing with AQSIQ). If you approach the conversation angrily, accusing the official of ineptitude or any other manner of disrespect, things will not go well. Even if the governmental body has clearly incorrectly applied the law, find a way to make the conversation positive and use it as an opportunity to build a relationship, rather than turning the interaction into a confrontation. This is true in the US, but holds even more weight in China. Individual customs officers are accustomed to being approached with a lack of respect from the importer and are typically ready to react accordingly.
The MCME system in China incorporates an Authorized Economic Operator (AEO) classification system. All information on how to achieve and maintain status and the current status of each importer are publicly available. There are five (5) management categories of AEO in China:
- Class AA: AEO Certified
- Class A: Preliminary AEO Status
- Class B: Normal Status
- Class C: Easy to obtain, Subject to Intense Scrutiny
- Class D: Beginner, Subject to Intense Scrutiny
Within classes AA and A there are very tangible benefits:
- Customs Account Manager (AA only)
- Trust Release (AA only)
- Electronic and Paperless Clearance (with release prior to physical arrival at port becoming more frequent)
- Early Clearance Against Cash Deposit
- Expedited clearance schedule
- Prioritized access to GACC including after hours service
- Lower rate of deposit for GACC Bank Guarantee Deposit Account System
- Allowed to participate in GACC pilot programs
My next post will continue this discussion.