FAS Combating Inflated Customs Valuations in China for Ag., Other Products
The Foreign Agricultural Service’s Guangzhou Agricultural Trade Office (ATO) is working to tackle the problem of inconsistent customs valuation of some goods, including agricultural products, when imported into China, according to a Nov. 2 Global Agricultural Information Network report. Port officials in Shenzhen, who are responsible for determining valuation for merchandise entering under Harmonized System chapters 1-46 for all ports in China, often base their tariff calculations on their unique assessment of the commodity’s value, as opposed to the contract price or many other factors that are usually determinative of fair market prices around the world, FAS said.
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Instead of considering market factors in determining value of merchandise, China Customs officials at Shenzhen are only taking historical price information from the previous collections of transactions, FAS said. The methodology can lead to situations where market price fluctuations based on supply and demand can be completely ignored. For wood products, for example, tariffs and taxes are being assessed based on valuations that are 30 to 50 percent higher than contract price, FAS said. In one case, Chinese importers tried to provide copies of contracts to China Customs to reflect the actual transaction, but they were rebuffed by customs inspectors, it said. Other commodities facing this problem include cherries, wine, seafood, and alfalfa.
ATO Guangzhou staff met with the Shenzhen Customs Valuation Division in September to discuss the problem, it said. During the meeting, the director of the pricing division claimed to strictly follow World Trade Organization guidelines on processing duty issues, and said importers have the right to apply for reviews when concerned about the import price set by Shenzhen Customs, the report said. But the legal procedure can be long and costly. The container at issue is held at port, and the importer is forced to incur daily storage, warehousing or demurrage fees, FAS said. The length of time needed for an appellate review can be seven working days. And China Customs usually sides with the port inspection official, it said.
Traders in nearby markets like Japan, Taiwan and Vietnam do not face customs valuation problems, because in those countries tariffs are not assessed until after the products are sold to a third party, FAS said, citing industry contacts. Duties in those countries are derived as a percentage of the profit that was made in the sale. In China, however, value added taxes (VAT) are collected up front, so payment must be made before shipments are cleared. As a result, a higher China Customs valuation means importers need to tie up more cash for the VAT payment, irrespective of when a subsequent sale takes place. The practice limits the size of wood shipments and incentivizes lower quality and lower priced purchases by traders.
Shenzhen Customs was receptive to the FAS offer of assistance and requested regular meetings with the Guangzhou ATO and U.S. agricultural industry associations, FAS said. It also agreed that importers could seek the Guangzhou ATO’s support when they encounter price issues.