Assessing China’s trade facilitation progress – observations from an independent institution
24 June 2024
By Zhou Zhuojian, Deputy Director and Li Yaling, Senior Research Fellow, Beijing Re-code Trade Security and Facilitation Research Centre
Beijing Re-code Trade Security and Facilitation Research Centre, an independent not-for-profit research institute, has been evaluating trade facilitation progress made in China since 2016. The findings of this annual evaluation are published in the Trade Facilitation Annual Report of China (in both Chinese and English). This article is based on the findings of a total of six reports from 2019 to 2024.
On 4 September 2015, China became the 16th WTO Member to ratify the World Trade Organization’s Trade Facilitation Agreement (TFA). The entry into force of the TFA in February 2017 paved the way for significant progress in China through a series of concrete measures, such as simplifying documentary requirements, optimizing formalities and procedures, improving timeliness and reducing costs.
Since 2016, Beijing Re-code Trade Security and Facilitation Research Centre (hereinafter Re-code), an independent not-for-profit research institute, has been continuously evaluating qualitative and quantitative implementation of the TFA provisions, thereby forming a vertical comparative analysis and enabling government agencies to identify achievements made and areas for improvement.
An introduction to the methodology used to compile the Trade Facilitation Annual Report of China
In order to conduct the evaluation and compile the Trade Facilitation Annual Report of China, Re-code established an expert team in 2016. Today, the team consists of nine individuals: two fellows from Re-code and seven external volunteers, including incumbent or former officials of China Customs and corporate compliance experts in the field of Customs affairs.
The expert team carried out the evaluation which is both qualitative and quantitative.
Qualitative evaluation
The qualitative evaluation is based on the structure of the TFA, which includes 11 articles and 65 paragraphs, with certain paragraphs containing items, sub-items and further sub-items (there are up to five levels under an article), totalling 145 specific elements.
For each of the elements in the TFA, Re-code takes the following actions:
Assess the degree of adequacy of domestic legislation (including laws, rules and regulations);
Examine the implementation of the above-mentioned laws, rules and regulations based on the experts’ experience as Customs officials or managers responsible for trade compliance;
Categorize the elements in four classes:
Implementation is adequate;
Implementation is fairly adequate, but partial improvement is needed;
Implementation is not adequate, and overall improvement is needed;
No implementation;
Make recommendations on how to improve implementation.
Quantitative evaluation
Quantitative evaluation is conducted according to the following steps:
Establishment of an indicator system in accordance with the hierarchical structure of the text of the TFA (11 first-level indicators and 64 second-level indicators under which several third-level, fourth-level and fifth-level indicators are set);
Calculation of the scores of each basic indicator (at article/paragraph level), which will then be transferred to the scores as a percentage;
Setting the weight of each indicator:
from the bottom-level indicators to the first-level indicators: the weight of an indicator at a given level is set according to the ratio between the number of elements it includes and the number of elements of all the indicators at the same given level (see example in box);
from the first-level indicators to the final Trade Facilitation Index: the weight of each first-level indicator is graded by the expert team; and
Calculation of the final Trade Facilitation Index from the scores of the indicators at each level.
An example of a second-level indicator weight setting:
The first-level indicator “Publication and availability of information” consists of four second-level indicators. Each of them covers a different number of basic elements of the TFA. Indicators 1.1, 1.2, 1.3 and 1.4 cover 11 elements, 5 elements, 4 elements, and 1 element respectively. Taking indicator 1.1 as an example, its weight is calculated as 11/(11+5+4+1) = 52.38%.
The quantitative assessment results for the year 2023, as published in the Trade Facilitation Annual Report of China 2024 Edition, are shown in Table 1 below.
Changes from 2019 to 2024
The evaluation shows that, out of the 145 requirements of the TFA, 133 have been implemented to an adequate degree or fairly adequate degree in China, while one provision has not been implemented and eleven provisions have not been implemented to an adequate degree or fairly adequate degree. During the six years from 2019 to 2024, the proportion of adequately implemented provisions of the TFA increased from 58.62% to 61.38%, and the proportion of inadequately implemented or non-implemented provisions decreased from 9.66% to 8.28%.
The overall score of the Trade Facilitation Index of China has steadily increased during the past five years, indicating that the performance of trade facilitation has made significant progress. The overall score for the Trade Facilitation Index for 2024 is 87.25, an increase of 3.33 points compared to 83.92 in 2019. There are significant changes in the implementation of Articles 1, 2, 6, 7 and 8 of the TFA, as indicated in Figure 2.
Major measures adopted to improve China’s trade facilitation
Four measures have been identified as having had a major impact on China’s trade facilitation performance.
Launching of a “Customs Regulations Database” on the website of China Customs
In January 2022, the General Administration of China Customs (hereinafter GACC) launched on its official website a section entitled “Customs Regulations Database”, where all Customs regulations can be found in a unified format, with the complete text and authoritative specifications. Users can download the regulations as Word or PDF files. In addition, the GACC publishes in a timely manner information on the latest policies and regulations, as well as on the interpretation of major policies and regulations, through public channels, such as its official website, its social media accounts and video platforms.
Creating a new general guarantee
Since 1 December 2021, economic operators have been able to provide a single general guarantee from a bank or insurer to cover multiple transactions under temporary duty and tax payment suspension, including temporary admission of imported and exported goods, such as goods imported for repair and exported for processing, as well as leased imported goods. The same guarantee can be used in all Customs offices across the country.
Establishing a Single Window environment and developing new functionalities
As of July 2023, the China International Trade Single Window has integrated 23 categories of basic service functions, such as cargo declaration, manifest declaration, and certificate of origin application. Trade operators can access a single portal to manage all procedures with border agencies, without leaving their premises. The platform also enables information sharing and business coordination among the various stakeholders involved in trade operations.
Application of information and automation technologies
The application and issuance of instruments such as import and export licences and certificates of origin has become paperless and the Electronic Origin Data Exchange System enables China Customs and the designated administrations in the 11 partners having signed an FTA/PTA with China to exchange electronic data on proof of origin for goods being imported into or exported from their respective country under a preference claim. The electronic issuance of the Inspection and Quarantine Certificate for Imported Goods has also been implemented. Deep integration of artificial intelligence technology in machines to automatically process scanned images and verify documents has also been promoted.
In addition to the measures mentioned above, before 2019, the GACC had taken some other measures. The most significant was regarding advance rulings: GACC Decree No. 236, the Interim Measures for the Administration of Customs Advance Rulings of the People’s Republic of China, was issued on 26 December 2017, and came into effect on 1 February 2018. It stipulates that an enterprise may apply to Customs for advance rulings on the classification, price, and origin of goods three months prior to the importation or exportation of goods. By 31 August 2023, the GACC and its subordinate Customs offices had issued a total of 7,818 advance rulings.
Room for further improvement
Several areas of improvement have been identified during the assessment:
Article 2, “Information Available Through Internet”, states that “whenever practicable, the description referred to in subparagraph 2.1(a) shall also be made available in one of the official languages of the WTO”, which are English, French and Spanish. The content coverage of the English website of China Customs and the timeliness of updating are far from sufficient.
The functions of China’s National Trade Facilitation Committee have not been adequately realized. The Committee should play a leading role to foster communication and cooperation among relevant agencies.
Article 4, “Procedures for appeal or review”, states that “each Member shall ensure that the person referred to in paragraph 1 is provided with the reasons for the administrative decision so as to enable such a person to have recourse to procedures for appeal or review where necessary”. In China, the criteria for the determination of administrative penalties have not yet been fully published.
The importation of some categories of goods requires a two-stage access procedure: the first stage determines whether the goods are allowed to enter the port, and the second stage determines whether the goods are allowed to enter the domestic market for sale or use. The inspection carried out at the second stage is called a “destination inspection”. However, the formalities for conducting the destination inspection are still not definite and the uniformity of enforcement in this regard needs to be strengthened.
China Customs pushed forward a series of pilot projects for possible reforms to processing trade, which is “the process through which companies source intermediate inputs from various countries, assemble them in another for the final consumption in third markets”.[1] Such reforms fall under the implementation of Article 9 of the TFA, “Movement of goods intended for import under customs control”, which states that WTO Members shall “allow goods intended for import to be moved within its territory under customs control from a customs office of entry to another customs office in its territory from which the goods would be released or cleared”. The pilot projects aim, for example, at extending the time limit for reporting inter-plant transfer for deeper processing, optimizing the management of returns and exchanges of exported processed goods, supporting the development of bonded repair and maintenance, and allowing the free flow, exchange and disposal of bonded components and materials among the enterprises within a conglomerate (including enterprises within a conglomerate located across different Customs districts). These reforms make the movement of imported goods subject to Customs supervision in processing trade easier and cheaper but are being piloted on a small scale.
Bonded goods display transaction is an innovative form of Customs clearance which allows Customs-registered businesses within Customs-controlled areas to transport bonded goods out of such areas for exhibition and transaction. Although some regions are testing the possibility for such operations to cross Customs districts, such pilots are still limited to few Customs districts and need to be further expanded.
Conclusion
To conclude, we would like to give some recommendations to organizations wishing to assess a country’s trade facilitation level and the implementation of trade facilitation measures. Firstly, such an evaluation should integrate perspectives from both the governmental and commercial sectors to prevent the final assessment from being overly optimistic or pessimistic.
Secondly, experts in charge of the assessment should not only possess extensive professional experience, but also have specific expertise in the domains to be assessed.
Last but not least, the composition of the team should remain as stable as possible. Indeed, even if the evaluation methodology is clearly established, there may be minor variations in the assessment of the same indicator among different experts. Having a stable team of experts ensures consistency in the evaluation process across different years.