Improving the business environment through reform and innovation: a look at recent changes in China regarding the administration of rules of origin

25 October 2021
By Ms. Jiang Feng, Director General of the Duty Collection Department, China Customs

China Customs plays a key role in the administration of rules of origin, from their formulation to their implementation. Insiders who follow trade and Customs reforms in China may have noticed the emergence, in recent years, of new expressions and terms in this domain, such as “self-service printing of certificates of origin”, the Electronic Origin Data Exchange System (EODES) and “intelligent examination”. This article explains each of these terms.

Two recent moves have triggered a transformation in the way that rules of origin are administered in China. The first was the launch by China Customs of an initiative known as “Smart Customs, Smart Borders, and Smart Connectivity,” or the 3S initiative, which establishes a roadmap towards smart solutions for Customs control, governance and cooperation. The second was the decision by the Chinese Government to integrate into China Customs the functions and workforce of China’s entry-exit inspection and quarantine services from March 2018, including the administration of certificates of origin.

These two measures gave China Customs the impetus to review the processes surrounding rules of origin and ultimately improve the implementation of free trade agreements (FTAs) and preferential trade arrangements (PTAs). Three key initiatives are explained below: “self-service printing of certificates of origin”, the Electronic Origin Data Exchange System (EODES) and “intelligent examination”.

Self-service printing: making life easier for exporters

There are three types of certificate of origin issued in China: non-preferential, preferential and special. This last category of certificate is used for particular products and industries for which specific rules of origin requirements apply in the importing country.

Exporters can submit their certificate application in paper copy or electronically, either by connecting to the International Trade Single Window System or by visiting the “Internet + Customs” website. Once the application has been examined and approved, China Customs notifies the exporter. In addition, exporters can obtain a certificate from the China Council for the Promotion of International Trade. The issuance process will then be supervised by China Customs.

Upon receiving notification, exporters have two choices: they can ask Customs to provide them with an original paper copy of the certificate which will bear a manual signature and the stamp of the regional Customs office; alternatively, they can use the “self-printing service” and print their own certificate which will bear the electronic signature and seal of China Customs. The document has equal effect as a certificate manually signed and stamped by a Customs officer. Only the “first” printed copy will be considered as the original certificate to be presented to authorities when requested. If the exporter prints the document again, it will bear a reference indicating that the certificate is a copy.

For the self-printing service to work, self-printed certificates must be recognized in the importing country. To ensure that this is the case, China Customs had to reach out to the contact point indicated in each FTA/PTA. It also published articles and held seminars to ensure exporters make use of this feature.

The Customs authority and traders in the importing country wishing to cross-check details of a certificate of origin can consult for those issued by China Customs and for those issued by the China Council for the Promotion of International Trade.

EODES: towards greater digitalization

Importers wishing to claim preferential treatment under an FTA or PTA must submit, electronically or in paper format, documentary proof of origin as set out in the FTA or PTA (such as the certificate of origin and documents requested to prove that no manipulation or alteration has taken place).

A risk engine then analyses the submitted data according to predefined risk indicators and classifies the declarations. Transactions identified as low risk will be released without being subject to any further inspection (green channel), while those posing a high risk (red channel) will undergo in-depth checks. The importer or its representative may be required to provide the hard copy of the certificate of origin or additional information. This document check may be followed by a physical inspection of the goods. During controls, Customs therefore focuses both on the nature of the goods and on the authenticity of the documents provided by the importer.

There are two main issues with the process currently in place. The first is that checking the authenticity of scanned copies of documentary proof of origin furnished by parties and authorities located in another jurisdiction (exporting country) is a cumbersome process. The second is that this cannot be done in “real” time, when the Customs declaration is submitted.

To resolve these issues, China Customs has developed the Electronic Origin Data Exchange System (EODES). It 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. Importers and exporters do not need to submit and exchange certificates or other documentary evidence; instead, they simply need to indicate the certificate number on their declaration. The Customs authority on the import side can then compare the data submitted by the importer at the time of claiming preferential tariff treatment against the information recorded in EODES.

Intelligent examination

With a view to further automating checks of documents submitted by applicants and more effectively identifying attempted fraud, China Customs launched a pilot project called “Intelligent Examination” in August 2020. Its objective was to create an artificial intelligence (AI) system, which can be defined as “a group of algorithms that can modify its algorithms and create new algorithms in response to learned inputs and data as opposed to relying solely on the inputs it was designed to recognize as triggers”.[1] The technology has been in application since December 2020 and has already been used for the secure processing of over 4.6 million requests for origin certification. The AI system is still being trained. Its developers hope that it will be able to mimic the thought processes of a fraud analyst and detect and adapt to new fraud patterns as they emerge.

Thanks to “self-service printing” and “intelligent examination”, it only takes a few minutes for applicants to obtain a certificate of origin. These initiatives, together with EODES, have contributed to transforming the way rules of origin are administered in China, thereby making the process more convenient, intelligent and efficient for importers, exporters and Customs authorities in other countries.

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