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  Hawaii Ethic Commission - To preserve public confidence in government by administering and enforcing State of Hawaii governmental ethics laws to ensure the highest standards of ethical conduct among state officials and employees. Daniel J Mollway, Executive Director, Hawaii State Ethics Commission, Pacific Tower, Suite 970, 1001 Bishop Street, Honolulu, Hawaii 96813, USA, Phone: (808) 587-0460, Fax: (808) 587-0470, Email:

The ICAC (Independent Commission Against Corruption) of Hong Kong and 13 professional organizations/chambers of commerce have collaborated to produce the captioned Guide. It is tailor-made for managers who are not trained IT experts but who have to supervise their teams in the use of computers and the Internet. The Guide offers managers practical advice on how to identify integrity risks in the workplace and proactively reduce them by ethical management. Free copies are now available for collection by business organizations. Contents of the Guide include: Case illustrations from the ICAC's investigation files / An analytical framework for addressing corruption from the legal and ethical perspectives / An ethical management model and some practical measures / A directory of services provided by publishers, particularly the ICAC....Click here to read the Guide

All roads in the global supply chain run through China but appearances can be deceptive. Editorial Director Neil Shister went there to see for himself what's going on - By Neil Shister

China Legal Issues

March 30, 2005

Yemen has developing demand for food products

Yemen's population, currently in excess of 15.8 million and expected to double every 19 years, is in the grip of a huge demand cycle, which local producers are unable to fill. Primary foods such as rice and wheat are expected to see major peaks in demand, according to a report from Dubai's Expolink Exhibitions.

Rice imports currently arrive from China and other Asian countries but further demand is growing, particularly in the country's southern and eastern regions. As for wheat and wheat flour, price instabilities are expected to continue after the country recently eliminated subsidies.

As matters of preference and to meet the growing urban communities, fruit and vegetables are very much on the menu, with an accent on packaged or canned goods. There has also been an upward trend for fish and shellfish processed foods while Yemen's local honey and poultry producers cannot contain demand, and in turn poultry farmers are consumers for imports of maize and soybean meal (being prime ingredients in poultry feed).

The latest uptick in demand has been for food processing equipment, including frozen food processing equipment for fish and shellfish.

March 24, 2005

China stresses protection of well-known foreign trademarks

Chinese government has adopted a series of effective measures to step up investigation and punishment of infringement cases and expand the scope of protection of well-known trademarks.

Enhanced investigation and punishment

In accordance with relevant provisions of the Trademark Law protection of trademarks in China adopts dual-track system, that is, both the law enforcement departments and the industry and commerce administrative departments have the right to handle trademark infringement cases. Meanwhile China has formed local trademark infringement case collaboration networks such as those in the Huaihai economic zone, the northern twelve provinces and cities, northeast three provinces, east China three provinces and one city.

China has launched a one-year special campaign centered on intellectual property rights starting from September, 2004.

In 2004 a total of 5,401 foreign-related trademark infringement cases were investigated and punished, increasing by nearly 160 percent over the 2,092 cases in 2003. Moreover, strengthening legal protection shows the determination of the Chinese government to protect well-known foreign trademarks.

The Supreme People's Court has issued 25 legal explanations and legal explanation documents since 2000, which form a relatively complete IPR legal protection system. In December 2004 the Supreme People's Court and the Supreme People's Procuratorate issued the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate Concerning Some Issues on the Specific Application of Law for Handling Criminal Cases of Infringement upon Intellectual Property Rights.

In 2003 Chinese courts at various levels adjudicated a total of 9,271 IPR cases covering all the areas covered by the WTO IPR agreements relating to trade. From 2000 to 2004 Chinese procuratorial departments brought more than 1,500 cases to the court in accordance with the law, which related to more than 2,400 persons.

Expanded protection scope

As a member of the Paris Convention for the Protection of Industrial Property China actively assume the responsibility of protecting well-known foreign trademarks. As to those trademarks which have not applied for registration in China they can seek protection once they have been recognized by the trademark departments as well-known brands. In another word, plagiarism and preemption applications will be turned down and unauthorized use of well-known trademarks are also banned.

Well-known trademarks are the only brand marks protected worldwide by international laws. China began to protect well-known trademarks in 1985. In 2004 China recognized 28 well-known foreign trademarks according to the law.

China also for the first time protected foreign-related trademarks in the form of issuing public notices.

The Beijing Administration of Industry and Commerce recently issued the No.2 public notice, which involves 23 registered trademarks of 13 well-known companies in seven countries including the United States, Germany, France, Britain, Italy, Switzerland and Holland. These trademarks are mainly used on consumer goods such as cosmetics, garment and accessories, leather products and wristwatch. The notice requires all garment markets and markets of small commodities to refrain from selling, effective as of the date of announcement. In July, 2004 the BAIC issued the No.1 notice, which involves 25 well-known trademarks of four companies in three countries including France, Britain and Luxemburg.

At the request of parties concerned the Shanghai Administration of Industry and Commerce has issued a public notice in October 2004 to carry out emphasized protection of 40 well-known trademarks of 10 companies in six countries including France, Holland, Switzerland, Luxemburg, Britain and Germany.

March 23, 2005

China Lowers Capital Requirement for Foreign Investment in Leasing

According to the Measures for the Administration of Foreign-Invested Leasing Business promulgated by the Ministry of Commerce, the threshold for foreign investment in the leasing sector is lowered effective March 2005. Under China’s WTO commitments, foreign leasing companies are permitted to set up wholly-owned subsidiaries in China within three years of accession. The new measures were put into trial implementation on 5 March.

The measures allow foreign investors to set up wholly foreign-owned leasing and financial leasing enterprises and their entry threshold has also been lowered. The minimum capital requirement on the foreign investor is reduced to US$5 million while the minimum registered capital of foreign-invested financial leasing companies is reduced from US$20 million to US$10 million.

The administration of leasing companies is also changed. The authority to examine and approve limited liability leasing companies is delegated to the local governments. In order to keep a tab on their activities and achieve effective control, the Ministry of Commerce requires all financial leasing companies to submit business reports and audited financial reports of the previous year before 31 March each year.

Book selling turns a page for Eastern China's wholesale mart

With its modern facilities, advanced marketing and highly organized layout, the Yangtze River Delta Publications book mart in Nanjing strikes visitors as no conventional wholesale market. For a start, it is larger and very modern - but it is also more easily negotiated and books are easy to find. The building that houses the book mart is filled with the smell of books, old and new. But the centrally air-conditioned main hall is bright and spacious, with publicity posters everywhere. Shops packed with books and customers create an impression of a market bustling with activity and enthusiasm.

The mart has three levels. The first two are for new and general literature from different publishers and wholesalers, while the third level is for gift sets and printed matter, such as calendars. The mart was built with a total investment of Rmb10 million (HK$9.3 million). It has a gross area of 10,000 sqm and a floor area of 7,000 sqm, with 134 shops employing nearly 700 people.

State-owned and commercial bookstores account for over 50%, while 70% of the shops' owners are from the Jiangsu area. Jiangsu publishers produce books on social sciences, teaching, self-learning tools for examinations, books for adolescents and children, periodicals and art books - indeed all have outlets in this mart. Many publishers have total assets exceeding Rmb10 million (HK$9.4 million).

Sino-Russian border trade includes currency exchange swings

Although local currency settlement is now acceptable in Sino-Russian border trade, it has so far had little effect on the long-term practice of making settlements in US dollars. But the fluctuation of the rouble and regulation practices have cast doubts on the implementation of the "local currency" policy. There is indeed an indirect impact produced by the signing of an agreement between the central banks of China and Russia to introduce local currency settlement in border trade in Xinjiang. Wang Defu, secretary and deputy director of the border trade administrative bureau of the Xinjiang Uyghur Autonomous Region, said that local currency settlement between China and Russia is eye opening and will set an example for Xinjiang's ventures into Kazakhstan, Kyrgyzstan and other neighbouring countries.

Wang, who has been in the fur garment business for eight years, learned about local currency settlements for Sino-Russian border trade from the newspaper. To him, this policy is not of much use because his foreign clients prefer doing business in renminbi and the US dollar. Currencies such as the rouble and the euro are not usually traded. In his opinion, the rouble depreciates too quickly. Although it has now stabilised, he is still apprehensive because he has had some difficult experiences with rouble-denominated trades. Also, since Wang is mainly involved in business with Kazakhstan, local currency settlements in any Sino-Kazakh border trade is more helpful to him.

The person running a foreign trade company at the Alataw Pass said that Sino-Russian local currency settlement does not mean much to his company, which only handles a small volume of Sino-Russia trade and mainly deals with Central Asian countries. Besides, both sides accept and are accustomed to US dollar settlements. It will take time to get used to local currency settlements, he said. Chen Zhifeng, general manager of Xinjiang Yema Trading Co, said Xinjiang Province's trade with Russia only amounted to US$300 million in 2003. Although this is not considered a large amount, he still thinks it is a good idea to adopt local currency settlements as this will reduce the cost of buying foreign currencies. Chen's company may consider using this method of settlement in future, he said. However, more enterprises are concerned about the possibility of local currency settlement with Kazakhstan.

According to statistics published by Urumqi Customs, the volume of import and export in Xinjiang's border trade amounted to US$3.14 billion in the first 11 months of 2004. Kazakhstan accounted for the bulk of this trade with a share of over 70%.

According to Wang Hui from the international business section of the Bozhou central branch of the Industrial and Commercial Bank of China (ICBC), the bank is quite willing to conduct direct currency exchange with neighboring countries. The bank has started offering service for the payment and receipt of the Kyrgystani som since the end of last year. The local currency business has proved useful and successful, because currencies like the renminbi are "soft currencies" and are not in international circulation. The Bank of China (BOC) is the bank handling the largest amount of international settlement currency transactions. Wei Jianling, deputy head of the settlement department of BOC's Xinjiang branch, believed that policy alone is not enough to make local currency settlements successful. For local currency settlement to work, central bank policy executors need to see not only the signing of contracts between the two central banks concerned but also the demand from enterprises on both sides, said Wei. According to an official of the accounting and financial section of Xinjiang's foreign trade department, Xinjiang does not have the kind of border environment that Yunnan and Guangxi have, with the latter regions heavily reliant on the renminbi.

Both Yunan and Guangxi border Vietnam where people have high regard for the renminbi, which is easily convertible and traders are willing to accept the currency. By contrast, in Xinjiang the opening of border trade more than 10 years ago has served to see local currencies in the lead for cross border trading. This practice will only change when the countries concerned introduce policies providing a mandatory provision on acceptable currencies for exchange. Approval by affected countries is vital. Xinjiang could have implemented the policy of local currency settlement with its neighboring countries in 2003. The branches of various banks in Xinjiang have also started business in this respect. However, there is no overarching policy relating to currencies to be used.

The Chinese government has all along attached importance to the question of renminbi settlement in its border trade areas. The Department of Finance led a delegation which included members from the Xinjiang sub-bureau of the State Administration of Foreign Exchange on a four-day tour to Kazakhstan in November last year. Local currency settlement between banks on both sides was on the agenda although no agreement was signed. The policy should provide a new channel for foreign trade when both sides find it acceptable.

March 17, 2005

Stiglitz says current RMB debate irony

Former Nobel Prize winner in economics Joseph Stiglitz described the current RMB debate as "irony" on a forum held Tuesday in Hong Kong.

"China was urged not to devalue (RMB) in 1997, and it was argued that greater flexibility would destabilize global financial markets", he said, adding the current pressure on China to appreciate its currency is of certain irony.

He said it is necessary to "recognize that there are problems with all exchange rate systems", noting that even if China adopts an exchange rate system in accordance with what other countries have asked, it could not be a perfect one.

According to him, on the real side, prospect of stronger dollar remains slim. He said central banks may further diversify away from US dollar as reserve currency, and he argued that the end of dollar as the reserve currency is coming.

March 16, 2005

Guangdong Requires Liability Insurance for High-Risk Sectors

Liability insurance for mining, firework and firecracker enterprises can provide better coverage for workers in these high-risk sectors. Recently, the Guangdong bureau of the China Insurance Regulatory Commission and the Guangdong Provincial Administration of Production Safety jointly issued a set of guiding opinions on liability insurance for high-risk enterprises, requiring such enterprises to take out insurance for employer liability and public liability.

The guiding opinions point out that high-risk enterprises should take the following types of insurance coverage: employer liability insurance for mining enterprises; employer liability and public liability insurance for firework and firecracker production enterprises; and employer liability and public liability insurance for enterprises engaged in the production and sale of dangerous chemicals. Operators of high-risk enterprises are recommended to insure each of their employees for no less than Rmb100,000. Compensation for injuries should be set in accordance with the social security standards for industrial injuries. For public liability insurance, it is recommended that minimum liabilities be set at three levels according to the annual output value or turnover of the enterprise. For example, an enterprise with an annual output value of less than Rmb1 million should insure itself for no less than Rmb500,000 for each accident and annual accrued claims.

The guiding opinions aim at using commercial insurance to increase compensation for casualty accidents in manufacturing and business units and protect the rights and interests of their employees. Provisions are made for compensation ceiling, premium rates, compensation for casualty accidents, risk control, organizational structure and supervision.

Some 86,115 accidents occurred in Guangdong in 2004, killing 12,154 people and causing direct economic losses of Rmb507 million. Among these, there were 1,232 industrial and mining accidents, which claimed 857 lives. The accidents mostly took place in non-public-owned enterprises, accounting for 82.98% of the total. Most of these accidents occurred in the manufacturing, mining and building construction sectors.

Shanghai experiences digital animation boom

Competition between digital animation product exhibitions has picked up dramatically in China, with Shanghai at the centre of the rush to find better and more attractive digital software. Twelve national or international exhibitions were registered in Shanghai by the end of February, all scheduled to take place in the city during the year. The exhibitions will be held in venues of no less than 4,000 sqm and are extensive in scope. Even in exhibitions for related trades, such as audio-visual products and online games and toys, more than one-third of the exhibition space tends to be devoted to digital animation.

The business covers many different industries, including film and television, publishing and manufacturing, making it difficult to decide which ministry should supervise and promote the industry as a whole. For instance, the exhibitions scheduled to take place in Shanghai this year are sponsored by the State Press and Publication Administration, the Ministry of Culture, the Central Committee of the Communist Youth League and even the Beijing Organizing Committee of the Olympic Games. One of these exhibitions has 20 ministries and commissions as sponsors, reflecting the attention paid by the government to digital animation possibilities. Nearly everyone wants to get in on this highly-regarded and potentially lucrative sector. Events in recent years show that Shanghai has become a hotbed for digital animation exhibitions. Such zeal is rarely seen in other Chinese cities and there are a number of reasons for this.

For a start, digital animation exhibitions tend to be products combining both cultural and technical elements as well as a talent for storylines and financing. Only those with a thorough understanding of the ties between different links of the digital animation chain and a knack for organizing and promoting large cultural events are able to take on such exhibitions. Also, such exhibitions have to be held in cities with sufficient spending power, because they mainly rely on exhibition booth rentals and admission fees for revenue. Rentals depend on the size and financial muscle of participating enterprises while the fee income relies on effective marketing to consumers such as parents (who in the case of online games, control the purse strings of the ultimate consumer, their children).

For both financing clout and a high demographic profile, Shanghai has a distinctive edge over other mainland cities. A successful digital animation exhibition also needs professional coordination from different parties. It seems that only an executive team with cultural sensitivity, business acumen and experience for organizing large events will make a success at putting on such exhibitions.

March 11, 2005

CBP Discusses Security Issues with Representatives from US Trade Community

Members of the US trade community had a chance to discuss a wide range of security and other trade issues with officials from US Customs and Border Protection (CBP) at the most recent meeting of the Departmental Advisory Committee on Commercial Operations of US Customs and Border Protection and Related Functions (COAC), held on 15 February in Washington, DC. The purpose of the COAC is to provide advice to the Secretary of the Treasury and the Secretary of Homeland Security on all matters involving the commercial operations of CBP and related functions within DHS or Treasury. The COAC provides a unique forum for distinguished representatives of various US industry sectors to present their views and advice directly to senior government officials in an open and straightforward fashion. Highlights of the proceedings of the 15 February meeting are given below.

C-TPAT - CBP officials continued to press for input from the trade community on the benefits that should be associated with participation in the Customs-Trade Partnership Against Terrorism (C-TPAT), particularly in light of the tougher criteria CBP is currently developing for the program. Some of these potential modifications include defining the point of stuffing criteria, particularly for importers, their vendors, and foreign manufacturers; and increasing the number of validations performed, which assure that security commitments by C-TPAT participants are being met.

CBP has made a stronger effort in recent months to enumerate the specific benefits that importers are already receiving through C-TPAT participation. For example, CBP has often claimed that C-TPAT shipments are subject to six times fewer enforcement examinations and four times fewer compliance exams. However, with the trade community continuing to press for tangible benefits, particularly relating to expedited commercial operations, CBP seems to be casting a wider net. For example, C-TPAT importers could receive head-of-the-line treatment during secondary exams, mitigation of certain penalties, or expedited rulings. Other possibilities include benefits from other government agencies (e.g., the Food and Drug Administration (FDA), which committee members said has at least some jurisdiction over nearly 33% of all US imports) or tax breaks.

Looking to the future, CBP is expected to adhere to the following fundamental principles as it strengthens C-TPAT while providing more substantial benefits to users:

1) C-TPAT will continue to operate as a voluntary partnership between the government and the private sector.
2) Customized application of security requirements will remain a fundamental feature.
3) CBP will continue to improve the requirements of C-TPAT to enhance the security and efficiency of the supply chain.
4) As it enhances the requirements of the program, CBP will frequently consult with the trade community to ensure that its priorities and concerns are being addressed.
5) CBP will seek to partner with foreign customs administrations and the World Customs Organization to better align C-TPAT with other existing supply chain security and trade facilitation programs.

Contingency planning - COAC members expressed concern about the state of efforts to develop a plan for restoring trade flows if ports are shut down in response to a terrorist incident. DHS officials said in January that they have only recently begun to focus on such contingency planning, but the committee said it is already worried that this process is going awry. For example, there appears to be no single and coordinated government effort thus far. In addition, current efforts are focused on the maritime environment, to the virtual exclusion of air, lorry, and rail shipments. CBP has said it is focusing on the maritime environment first due to its complexity and global importance. Contingency plans for the rail, lorry, and air transportation environments are expected to be developed in time. Importers also want to know what the priority of entry of goods will be as trade is re-opened after an incident.

CBP has so far only developed what seems to be a preliminary contingency planning framework. According to Kevin McAleenan, Director of CBP's Office of Anti-Terrorism, "the first, fundamental step in responding to a serious threat or terrorist attack in the maritime environment is to assess the specific event that is triggering the response." In other words, the government's response to a serious maritime attack will not be the same in all cases. The responsibility to deal with the response would fall to the Secretary of Homeland Security, and both CBP and the Coast Guard would have the ability to make joint recommendations swiftly to the Secretary and other DHS officials.

McAleenan has suggested several key decision-making principles that should be taken into consideration when developing a contingency plan for continuity of trade, namely: (i) security and the prevention of attack(s) must be the paramount concern in determining a process for responding to a serious threat or an actual terrorist attack; (ii) a shutdown of US maritime trade - whether partial or complete - should be avoided if at all possible; (iii) restoration of trade in the event of a partial or complete shutdown must be undertaken as expeditiously as possible and in a manner that comports with the current business practices of the trade; and (iv) if the government is forced to initiate a partial or complete shutdown, it must have an expeditious, coordinated, joint process for the decision to begin recovery and reinstitute the flow of trade.

In addition, McAleenan said, CBP would have to develop a risk-based prioritization process for re-starting trade. Consideration of risk should be based on the following criteria: (i) information provided as part of the advance cargo information requirement; (ii) membership in C-TPAT; (iii) whether the ship or cargo has moved through a Container Security Initiative (CSI) certified port, and whether the last port of lading was a CSI port; and (iv) whether previous ports of call were compliant with the International Ship and Port Facility Security (ISPS) code.

McAleenan has also highlighted the need to build fluid communication channels with the trade community through C-TPAT, trade associations, the Area Maritime Security Committees, the media, and other outlets. Obviously, these channels would be especially useful in case of an attack that forces a partial or total shutdown of US ports.

ACE According to CBP, the Automated Commercial Environment (ACE) is expected to be completed by 2010, with full deployment taking place by 2011. While ACE was originally intended solely to enhance trade processing, its core objectives have since been modified to also reflect CBP's heightened anti-terrorism responsibilities. As a result of this change, it will take more time than previously envisioned to develop the program, whose total cost is now projected at about US$3.5 billion. Nevertheless, CBP officials said they are hoping to move these dates up by focusing on primary functions and possibly eliminating several less important features.

To achieve CBP's dual goals of enhanced security and trade facilitation, ACE is being built as an integrated, fully automated information system that will enable the efficient collection, processing, and analysis of commercial import and export data. Acting Assistant CBP Commissioner for Information and Technology Rod MacDonald elaborated on this concept at the Customs Symposium held on 13-14 January in Washington, DC. According to MacDonald, ACE will be the portal for exchanging a standard set of trade information that will meet the cargo security and trade statistics needs for all components of the US government. To this end, ACE will support a full set of Electronic Data Interchange (EDI) protocols and a secure web portal for the capture of this data and for interaction between the federal government and the trade community. MacDonald stressed the need to build partnerships within the government to ensure a "coordinated reliance on ACE to support our Cargo Security Strategy." A mechanism known as the International Trade Data System (ITDS) has already been created to build and maintain those partnerships.

ACE is being released in stages, with Release 3 issued during the summer of 2004. Release 3 implemented the ACE Secure Data Portal, which provides a single, web-based consolidated screen for a broad array of functions designed mostly to manage trade accounts and some of the associated trade compliance and revenue functions. Release 4 is expected to include, among other things, an electronic lorry manifest and enhanced import processing. Release 5 will focus on post-release processing while Release 6 will add full entry processing and cargo release functionality tied to a multi-modal manifest. Finally, Release 7 will complete the ACE program by providing Foreign Trade Zone and warehouse support, as well as various other functions.

Lastly, it is worth noting that CBP has decided to no longer require C-TPAT participation by importers or brokers as a pre-requisite for establishing an ACE account. CBP will continue to press for participation in both programs, but on separate tracks.

Other Security Issues - The COAC meeting addressed various other security-related issues. For example, there was lively discussion on the kind of parameters that should be utilized to measure the effectiveness of cargo security programs. The private sector claimed that compliance figures are not an accurate measurement of security enhancements and requested more input from the government to determine the benefits of the programs implemented to date. COAC members argued that the government should use risk management to determine screening priorities and asked DHS to provide information it has already gathered on how security programmes developed after the terrorist attacks of 11 September 2001 have actually affected security.

CBP also advised that a draft regulation on mandatory container security seals is in the works. The seal requirements for these so-called "smart" containers are currently undergoing economic analysis and it is expected that 2-3 months will pass before draft regulations on this matter are published for public comment.

Textiles and Apparel - Although not directly related to security, the COAC meeting also addressed textile and apparel trade in a quota-free environment. With the elimination of textile and apparel quotas, importers said they want CBP to conditionally release shipments of such goods without the submission of paper documents. However, they added, CBP does not seem to be moving in that direction, in part due to an apparent desire to continue receiving paper textile country of origin declarations for enforcement purposes.

A CBP official responded that the agency is working with the Committee for the Implementation of Textile Agreements (CITA) to eliminate the paper declaration requirement within the next several months. The official added that CBP is already allowing some paperless entries for non-quota/non-visa goods, and that more are likely in the near future once remaining 2004 over-shipments are resolved.

Bush Administration Resists Industry Calls for WTO Case over China's IPR Practices

Effective protection of US intellectual property rights (IPR) in China has long been one of the defining pillars of the bi-lateral trade relationship and its relevance is only likely to grow further this year. A number of US business associations have stepped up their lobbying and public outreach efforts in recent months in order to increase awareness of both the systematic violation of patents and copyrights in China and the alleged failure by Chinese authorities to effectively deter further violations by pirates and counterfeiters. According to various estimates, US companies lost approximately US$2.5 billion in 2004 to piracy in China.

In its recently released China-specific trade agenda for 2005, the National Association of Manufacturers (NAM) welcomed the progress that the Chinese government has achieved in tightening IPR enforcement but still urged the Bush Administration to file a WTO case against China by early 2005 if Beijing does not show sufficient progress in meeting the commitments made within the framework of the US-China Joint Commission on Commerce and Trade (JCCT) and the WTO.

The US Chamber of Commerce (USCC), the world's largest business association, representing more than three million US businesses, argued on 10 February that China "has failed to adequately enforce its own laws and regulations when it comes to piracy and counterfeiting" and called on the Bush Administration to pursue WTO action if Chinese authorities do not provide clear evidence that the IPR climate is improving on the mainland. Such evidence would include recent figures showing the number of prosecutions, convictions, and incarcerations for IPR violations. The USCC has also asked the Office of the US Trade Representative (USTR) to list China as a priority watch country in the context of the ongoing Special 301 out-of-cycle review of China's IPR practices.

The International Intellectual Property Alliance (IIPA), a coalition of six trade associations representing 1,500 US copyright-based companies, is following a similar line. The IIPA is also recommending that the USTR designates China as a priority watch country but has urged the Administration to conduct another out-of-cycle special 301 review at the end of July to assess any progress and determine whether further bi-lateral or multi-lateral action (including a WTO case) would be appropriate. In the meantime, the IIPA has asked the USTR to commence immediate WTO consultations with the Chinese government in an attempt to move the entire IPR enforcement process forward. The IIPA has also expressed its wish to form an alliance with Europe, Japan, and South Korea to establish a multi-lateral forum to address IPR issues in China.

The Administration has so far resisted the repeated calls by these and other domestic business groups in favour of a WTO case, opting instead for a policy of active and constructive engagement with Chinese authorities. On 16 February, Deputy (now Acting) USTR Peter Allgeier reaffirmed the Administration's longstanding commitment to work closely with Chinese officials to improve China's IPR enforcement regime. In Allgeier's own words, "sometimes you have to sue somebody, take them to court, take them to dispute settlement, if they're not really following through on their commitments, but our strong first inclination is […] to work with countries to have more effective enforcement of the existing obligations. So that is the approach to China." This statement strongly suggests that the US will not file a WTO case against China in the foreseeable future. Although it remains to be seen whether Robert Zoellick's yet-to-be-nominated replacement as USTR will adopt a more forceful position on this and other issues vis-à-vis China, a deviation from current practice appears highly unlikely. In addition, Zoellick is expected to continue to play a visible role in trade matters in general, and China-related issues in particular, from his new post as Deputy Secretary of State.

Although both the Clinton and Bush Administrations have preferred to resolve any trade disagreements with other countries through more amicable bi-lateral channels, the US has certainly not shied away from using the WTO dispute settlement mechanism to settle nagging IPR disputes. In fact, the US has initiated 15 of the 24 dispute settlement cases filed to date at the WTO for alleged violations of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These cases targeted 12 different WTO members (Argentina, Brazil, Canada, Denmark, the European Union (EU), Greece, India, Ireland, Japan, Pakistan, Portugal, and Sweden) and involved a broad spectrum of issues, ranging from compulsory licensing of test data in Argentina to geographical indications for agricultural products in the EU. Three of these cases, against Denmark, Greece, and the EU, were filed specifically for alleged failures to fully comply with the enforcement requirements of TRIPS.

Should the US eventually decide to bring a WTO case against China's IPR practices, it is likely to contend, inter alia, that the Chinese government has failed to adhere to the general requirements of TRIPS Article 41.1. That provision requires WTO members to ensure that IPR enforcement procedures are available under their law so as to permit "effective action against any act of infringement of intellectual property rights covered by [TRIPS], including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements."

In a potential case, the US may very well build its case on the allegations that the Chinese prosecutorial and judicial system neither is "effective" in preventing IPR violations nor provides remedies "which constitute a deterrent to further infringements." The US would also be expected to rely heavily on TRIPS Article 61, which requires that available remedies in criminal procedures include "imprisonment and/or monetary fines sufficient to provide a deterrent, consistent with the level of penalties applied for crimes of a corresponding gravity," especially when the IPR violations are committed "wilfully and on a commercial scale."

DOC Action Could Subject Virtually All Candles from China to AD Duties

A new US Department of Commerce (DOC) action could result in the imposition of anti-dumping (AD) duties against virtually all candles imported from China. The DOC currently maintains an AD duty order against certain scented or unscented petroleum wax candles from China that have fibre or paper-cored wicks. These candles are sold in the following shapes: tapers, spirals, and straight-sided dinner candles; round, columns, pillars, and votives; and various wax-filled containers.

On 28 February, the DOC launched two anti-circumvention inquiries to determine whether traders are attempting to avoid AD duties under this order by shipping mixed wax candles composed of petroleum wax and varying amounts of either palm or vegetable-based waxes. These two inquiries are being conducted under the "minor alterations" provision - i.e., whether the addition of vegetable and/or palm-based wax results in a minor alteration and thus a change so insignificant as to render mixed wax candles subject to the AD duty order - and the "later-developed merchandise" provision - i.e., whether mixed wax candles were developed after the AD investigation on petroleum wax candles was initiated and can therefore be considered subject to the AD duty order.

If the DOC makes a preliminary affirmative decision in either case, it will require importers to begin making cash deposits of AD duties on these mixed wax candles.

The Coalition for Free Trade in Candles, a group represented by the US law firm of Sandler, Travis & Rosenberg, P.A. is set up to oppose the DOC's anti-circumvention investigations.

March 9, 2005

China Announces Tax Policy on Debt-turned-Equity

With the approval of the State Council, the Ministry of Finance and State Administration of Taxation recently issued a circular concerning value-added tax, consumption tax and corporate income tax policy for enterprises approved by the State Council to conduct debt-turned-equity. Under this policy, an enterprise which transfers property assets as investment to a recipient company according to a debt-turned-equity agreement signed with a financial asset management company will be exempt from value-added tax.

An enterprise which transfers dutiable consumer goods as investment to a recipient company in a debt-turned-equity deal will be exempt from consumption tax but will still have to pay corporate income tax. Corporate income tax paid on additional profits generated by the recipient company as a result of not distributing interest will be refunded to the original enterprise by the central and local financial authorities in accordance with existing corporate income tax regulations regarding revenue sharing. Such refund has to be used specifically on the purchase of shares held by the asset management company in the recipient company, thereby increasing the state capital of the original enterprise.

The method of revenue refund is based on the relevant provisions of the joint circular issued by the Ministry of Finance, State Administration of Taxation and People's Bank of China on the administration of refunds for income tax following the income tax revenue sharing reform. The buy-back of equity from the asset management company will be handled in accordance with the relevant regulations of the Ministry of Finance regarding asset management. People in the industry pointed out that the implementation of the new policy will help boost the debt-turned-equity trend and render support to enterprise reform.

   Central Asian investment flows from Xinjiang on the rise

Growing economic developments in Central Asian countries have brought investment opportunities to small- and medium-sized enterprises in Xinjiang. With their strategic geographical advantage between more prosperous Chinese provinces and the Central Asian plains, these thrusting and flexible companies are actively looking for business opportunities. The Foreign Economic and Trade Relations Department of Xinjiang reports that 11 enterprises entered into offshore investment deals in 2003 and another 20 did so in 2004. With the exception of a few large enterprises, such as petroleum companies, most of these businesses are small- and medium-sized enterprises and the majority of their investment goes to Kazakhstan and Kyrgyzstan.

According to a local foreign economic and trade relations official, contractual investment abroad from the autonomous region totalled US$12.5 million in 2004, averaging about US$600,000 per enterprise, far lower than the national average but nevertheless significant as a benchmark for future activity. Between 60% and 70% of the investor enterprises are engaged in light industry and only about 25% are trading firms.

By the end of 2004, 62 Xinjiang enterprises (including those from other parts of China actually investing in Xinjiang) were engaged in investment cooperation projects abroad, mostly in neighbouring Central Asian countries, with contractual investment totalling US$42.7 million. However, these firms have made little attempt to invest through Hong Kong, except for a few import-export companies doing business in the SAR.

According to the Xinjiang trade official, there are not many large enterprises in the autonomous region, and big investment projects are few and far between. Major enterprises are more inclined to cast their eye on the domestic market. Also, while Central Asia is said to be a burgeoning market, the political situation there is still unstable and risks are high.

Bolder, more sophisticated investment approach - Large enterprises not familiar with the situation in these countries are ill-prepared (or advised) to take risks. State-owned enterprises, in particular, are reluctant to venture into Central Asia because they have only a slight understanding of the region and its business patterns. Most large enterprises that do go in set up production facilities near entry-exit ports and sell their products to Central Asian firms or agents.

However, the bigger firms are getting bolder and are beginning to embark on offshore ventures. The TV assembly plant set up by Xinjiang Yema Trading Co Ltd in Kazakhstan has begun production and is going through the process of filing for registration as an offshore investor. Such larger enterprises are being encouraged to draw on the successful experience of South Korean and Japanese companies that successfully took a position in the China market over the past few years.

In other words, Xinjiang firms are similarly being urged to make a foray into Central Asia by capitalising on their leading edge in branding, capital and technology, building their own industrial parks, integrating with the Central Asian market, and striving to upgrade the position of Chinese products in these markets.

According to people in the trade, the legal and trade systems in Central Asian countries have continued to improve. By directly investing in their export markets, Chinese enterprises can effectively steer clear of anti-dumping sanctions against Chinese exports and overcome technical trade barriers imposed by European countries, so bringing about a substantial increase in exports.

A successful case in point is Xinjiang Dacheng Asia-Europe Investment Co Ltd, which has bought a chicken farm in Kyrgyzstan for poultry breeding and the export of chicken meat to Europe. Xinjiang enterprises are also turning their attention to well-developed economies such as Hong Kong and Singapore for offshore investment and cooperation.

According to Xinjiang's foreign economic and trade relations department, geographical distance and differences in cultural and business environments have led enterprises to aim for financing through public listing only. Meanwhile, some large manufacturing and processing enterprises plan to set up trade outposts in Hong Kong to pick up overseas market information and expand the volume and geographical scope of their foreign trade.

March 5, 2005

The upcoming 15th session of China (Guangzhou) International Furniture Fair will put an impetus on the export business of the furniture suppliers of the nation and provide them with access to the latest global industrial information, market insiders said. "The event, to be held at two phases, will provide furniture suppliers with more space for their product display and will attract more global professional buyers than ever," Wang said. "That will mean much greater business potential for both furniture suppliers and buyers," he added. The first phase of the fair, set from Friday to next Monday, will highlight home furniture, while the second phase, scheduled from March 26 to 29, will focus on office furniture and commercial furniture. To be held at the same time as the first phase is the Interzum Guangzhou 2005, jointly organized by Koelnmesse BmbH, a leading global exhibition giant based in Germany; and the Hometextile China 2005, co-organized with the China Home Textile Trade Association, will be held concurrently with the second phase of the fair. Intermzum Guangzhou 2005 will focus on the latest innovations in manufacturing and production machinery, equipment, tools, electronics and software, as well as the latest manufacturing techniques for furniture production; and the Hometexitle China 2005 will concentrate on beddings, and linens for bathroom and kitchen. Some 410 renowned furniture suppliers will show off their latest products at the first phase of the fair; and another 400-odd suppliers will seek business opportunities at the second phase of the event.

March 2, 2005

Hong Kong and Macau Service Providers Step Up Investment in Guangdong

The lowering of market access thresholds since the implementation of CEPA has made it easier for Hong Kong and Macau service providers to extend their business to Guangdong. Through the implementation of measures aimed at promoting CEPA, Guangdong’s foreign economic and trade relations department has helped accelerate investment by Hong Kong and Macau service companies in the province. The following are some of the measures.

First, building databases for investment projects. Through this measure, Hong Kong companies can find projects in various sectors that are suitable for their investment. Based on Guangdong’s need to develop its service sectors, the departments concerned have optimized imported services in the light of Guangdong’s industrial structure to organize service trade projects and publicise them in investment project databases and in all large investment promotion activities. Information is also provided on Guangdong-Hong Kong service sector cooperation websites.

Second, accelerating the examination and approval procedures. At present, approval for foreign-invested service companies are granted by the provincial authorities or by the central authorities. For projects requiring the approval of the provincial foreign economic and trade relations department, the department will delegate the approval authority and do away with prior approval. Guarantee is also given that applications will be approved or submitted to the Ministry of Commerce for approval within five working days.

Third, providing convenient service. Foreign investment service centers, administrative service centres and offices are established in various parts of the province to provide one-stop service to investors.

According to figures published by Guangdong’s department of industrial and commercial administration, 1,259 Hong Kong and Macau service companies with total investment amounting to US$2.89 billion and registered capital of US$1.77 billion registered for business in the province in 2004, up 56.9%, 10.7% and 16.5% respectively year-on-year. As at the end of 2004, there were 7,705 Hong Kong and Macau service companies in Guangdong with a total investment of US$57.06 billion and a registered capital of US$27.31 billion, accounting for 19.6%, 35.1% and 28.2% respectively of the total number of Hong Kong and Macau enterprises in Guangdong.

Qingdao appliances become "replacement" models

In Qingdao, product innovation is heading in a number of different, profitable directions. At the high-end, the marketing strategy for home appliance manufacturers is to upgrade their core technologies and place emphasis on cutting edge products - and the approach can work well. Hisense, China's leading home appliance manufacturer, disclosed that its sales increased by a large margin during the holidays, thanks to the excellent sales performance of high-definition TVs, convertible air-conditioners, Blue Lady refrigerators and other high-end products.

Among these products, total sales of TVs increased by 40% year-on-year for 2004, with plasma and high-definition TVs showing a 100% increase. Hisense's deluxe 4211 plasma TVs, with a price tag of nearly Rmb30,000 (HK$28,000), couldn't keep up with demand. Meanwhile, sales of air-conditioners increased by 58% over the same period in 2004, with sales of convertible models showing an increase of 82%. Sales of refrigerators rose by 63% year-on-year for 2004, with the upper market Blue Lady model accounting for 45% of the total.

Health concerns turned out to be another issue worthy of innovative product options. Catering to people's health worries, developing products that can reduce air pollution and promote healthy living has become a serious direction for research and development in appliance manufacture.

The growing popularity of bacteria-resistant, CFC-free and all-purpose refrigerators, healthy separate action washing machines, health-care electric fans, green air-conditioners and eco-TVs all suggest that health is indeed a popular trend and a potential sales agent for products.

As consumers become more aware of the need to conserve energy, more energy-saving appliances are becoming available on the market, to comply with regulations and requirements. Modified stoves are 30% more energy efficient than traditional models; intelligent ovens can shorten cooking time from seven minutes to about 2.5 minutes. Many refrigerators also claim to be able to save energy.

Simple operation has also become an effective weapon for the marketing of home appliances. Many automatic fuzzy logic washing machines claim that they can work with just "one touch". Home theatre products make extensive use of digital audio-visual technology and can be "controlled with one finger". Closely related to simplicity, manufacturers have done a lot of work in the area of multi functions to satisfy consumers' growing demand. For example, a new computer with a floppy drive has both VCD player and other functions. Washing machines with separate wash function are in demand because they can wash different types of fabric.

Home appliances that combine advanced technology with health, energy saving or other concepts are indeed likely to be far better sought after in the Chinese mainland market.

Xiamen sees changing fortunes of China's TV set producers

Xiamen made remarkable progress in its development of color TVs in 2004. Not only does the thrusting producer Xoceco continue to lead the country in the domestic sales and export of flat panel TVs, even newcomer Amoi Electronics has made up ground. In fact, TV set production has become the second biggest industry in the city, after mobile phones.

According to a report published by Sino Marketing Research Co on the sales of flat panel TVs in 2004, Xoceco's LCD TVs topped national sales for five consecutive months to December, accounting for the largest market share of 11.7% for the year and ranking top in the domestic market, outside Hong Kong and Taiwan. Xoceco's share of the plasma TV market was second only to that of Panasonic. Since Sharp does not produce plasma and Panasonic does not have LCD, Xoceco naturally captures the largest market share of flat panel TVs in China.

According to Sun Guangrong, Xoceco's manager for branding, figures compiled by the Chinese customs showed that Xoceco exported TVs worth US$203 million last year. Its plasma TVs accounted for 23.53% and LCD TVs with a screen of 22 inches or more accounted for 23.5% of China's total TV exports, which both rank top nationally. Further, Xoceco has become the top manufacturer of flat panel TVs in China. Sales of flat panel TVs now account for 80% of Xoceco's total TV sales while kinescope TVs only account for 20%. The company is expected to increase its proportion of flat panel TV production and has already made the transition from an enterprise that mainly produced CRT TVs to one that now mainly produces flat panel TVs.

Another company has meanwhile quietly emerged in Xiamen's TV manufacturing sector. Amoi Electronics has embarked on the production of flat-panel TVs and has built a 200,000 sqm LCD production base at Haicang with an investment of Rmb600 million (HK$566 million), with the hope of clinching an 8% market share. According to an Amoi executive, the company has accumulated a great deal of technological experience in the production of LCD TVs and can progress without the "burden" of CRT TVs. TV set production has become the second largest business for Amoi outside of its mobile phone division.

Amoi first embarked on TV set production in 2001 and its first was a LCD flat panel TV. While traditional TVs attract only a small profit margin, flat panel TVs command profit margins of over 20%, obviously the main reason why Amoi ventured into this area. According to people in the TV industry, Amoi has become one of the "four new manufacturers" along with Hisense, Haier and Shinco. As heroes of the new age, they are said to have overtaken the "four old manufacturers", being Changhong, Skyworth, Konka and TCL.

Feb 26, 2005

Chinese models dress up in the latest traditionally-designed wedding costumes at a wedding fair in Beijing on Friday. Modern Chinese couples spend 1,000 times more than their parents' generation on lavish weddings and other expenses linked to starting a family, with most couples easily spending 200,000 yuan (US$24,000), equivalent to the life savings of the previous generation. Twenty-five years ago, the shopping list of young couples planning to get married consisted of a wardrobe, bed and bedding, some candy and cigarettes.

Feb 25, 2005

USCC Hearing Elicits Discussion on US-China Trade Relations

The US-China Economic and Security Review Commission (USCC), a commission of US Congress, held a two-day hearing on 3-4 February to examine China's ongoing efforts to comply with its World Trade Organization (WTO) commitments and explore options for using US trade remedy laws and WTO mechanisms to address nagging problems. The hearing considered several issues of particular interest, although it focused specifically on the undervaluation of the yuan and China's protection of intellectual property rights (IPR). USCC Chairman Richard D'Amato emphasized the importance of these two issues in his opening statement at the hearing, as he contended that "the viability of the WTO itself, as a pre-eminent global trade organization, depends on whether it can deal with issues of the magnitude of China's IPR and exchange rate practices." D'Amato also conveyed his opinion that China "is a far, far cry from a market economy" and expressed his concern that market economy status for China might be treated as a "bargaining chip to be traded away as part of a political strategy."

The hearing had decidedly protectionist overtones, although it offered a voice to proponents of a more open and less confrontational bilateral relationship. As expected, National Association of Manufacturers (NAM) Vice President Franklin Vargo criticised the longstanding undervaluation of the yuan and noted that, while a free-floating yuan would be the most desirable option, China could take several other actions immediately to alleviate the mounting pressures on the US trade balance. For example, the tight peg on the dollar could be replaced with a "soft" peg (i.e. a peg with a relatively wide fluctuating band) on a basket of major trading partner currencies. Alternately, China could revalue its currency and re-peg the yuan to the dollar at a higher rate. Vargo urged the Bush Administration to work with Chinese officials to re-align exchange markets in order to "avoid the dangers that misaligned exchange rates pose to the United States, China, Asia and the global financial system."

Senators Lindsey Graham (R-NC) and Charles Schumer (D-NY) also blasted China on the currency issue and formally announced the re-introduction of a bill in the Senate that would establish a compensatory tariff of 27.5% on all US imports from China if the Chinese government refuses to eliminate the peg on the dollar following a 180-day negotiating period with US officials. Graham and Schumer have vowed to attach this bill to the first "must pass" piece of legislation that is considered by the Senate this year. The measure has so far received the backing of nine other senators: Harry Reid (D-NV); Herb Kohl (D-WI); Elizabeth Dole (R-NC); Jim Bunning (R-KY); Debbie Stabenow (D-MI); Christopher Dodd (D-CT); Carl Levin (D-MI); Hillary Clinton (D-NY); and Evan Bayh (D-IN).

Randal Quarles, Assistant Secretary of the Treasury for International Affairs, countered by reiterating the Bush Administration's position on the valuation of the yuan. Quarles acknowledged that China should move towards a floating exchange rate system but noted that "financial diplomacy" is the most effective way to achieve this objective. Quarles mentioned that the US Department of the Treasury is providing active assistance to China on various technical matters, including the mechanics of exchange rate flexibility, banking supervision, credit analysis and assessing and supervising currency risks in banking systems and developing financial instruments to manage that risk. This assistance will continue in 2005, focusing on the more practical aspects of exchange rate flexibility. Quarles also highlighted some of the steps that the Chinese government has taken to move towards a floating exchange rate, including (i) reducing barriers to capital flows to deepen markets involving foreign currency transactions and (ii) working to strengthen domestic banks, bank supervision, and regulatory structures (for example, last year China's central bank eliminated a ceiling on bank lending rates, which will give greater scope to pricing credit risks). This year China is expected to concentrate on banks' capital adequacy ratios, the accuracy of non-performing loan classifications, and whether banks have sufficient provision coverage.

Beijing was also criticized for its alleged failure to enforce IPR protections. According to Eric Smith, President of the International Intellectual Property Alliance (IIPA), China's copyright law is generally good, the "low risk and high profits associated with pirate activities can only be countered with coordinated and effective criminal enforcement." On 8 February, IIPA submitted a recommendation that the Office of the US Trade Representative (USTR) immediately request WTO consultations with China over its IPR enforcement practices. The group said that, if another Special 301 out-of-cycle review does not find that Beijing has made adequate progress on this issue by late summer, the USTR should request the establishment of a WTO dispute settlement panel.

For his part, Timothy Trainer, President of the International Anti-Counterfeiting Coalition (IACC), reiterated that the Chinese criminal enforcement system must be willing to impose higher penalties on counterfeiters and pirates "so that the penalty is higher than the rewards of returning to the illegal activity." Trainer welcomed the recent move by the Chinese government to lower the criminal thresholds for criminal liability, although he stressed that the new judicial interpretations "still leave many previous questions unanswered and contain vague, ambiguous and undefined terms."

Deputy Assistant Secretary of State Shaun E. Donelly praised the efforts of the Chinese leadership to bring China into compliance with its WTO obligations but also expressed the Bush Administration's ongoing concern with China's inadequate protection of US intellectual property. In Donelly's own words, "simply put, we must see substantial improvement in 2005, and the State Department will work with the new IP Negotiator as well as the IP Policy Coordinator, both created by Congress in 2005 budget legislation, to ensure that China makes progress on this vital front."

There was also an energetic discussion in the area of textile and apparel trade, with apparel importers and domestic textile manufacturers trading punches on a variety of subjects. Cass Johnson, President of the National Council of Textile Organizations (NCTO), fired the first round with a vigorous attack on the "pervasive intervention of the Chinese government throughout its textile and apparel sector." Johnson repeated what he and his NCTO colleagues have often condemned over the past year, namely: (i) China's unfair currency advantage, estimated by NCTO at 40%; (ii) the unending supply of loans to the textile industry from China's state-owned banks; and (iii) the heavy subsidization of the textile industry by the Chinese government. As expected, Johnson called on the Administration to move quickly to implement the textile safeguards and self-initiate additional safeguard actions if necessary. He also urged the Administration to:

1) advocate a permanent textile safeguard mechanism for China during the ongoing Doha Round;
2) impose punitive sanctions if China does not move quickly to float its currency;
3) initiate WTO cases to combat China's use of government banks to finance its exports;
4) adopt tougher measures to fight illegal transshipment and smuggling of Chinese textile and apparel products; and
5) allow the industry to file countervailing (CV) actions against Chinese products.

Erik Autor, Vice President of the National Retail Federation, fired back by placing the blame for the increase in imports from China squarely on the US textile manufacturing industry, saying its actions have encouraged retailers to source an increasingly large share of their products from China. He claimed that the textile industry has tried to make it as difficult as possible to do business in countries or regions that would be alternatives to China, by: (i) opposing preference programs; (ii) insisting on the inclusion of "unworkable" rules of origin in free trade agreements; (iii) pushing for new quotas on countries like Vietnam; and (iv) goading US Customs and Border Protection (CBP) into "harassing textile and apparel imports under the claim that everything is really transshipped from China." He urged the industry to follow the example of Milliken & Co. and International Textile Group by phasing out the production of low-cost commodity yarns and fabrics used in the manufacture of apparel and instead focusing on specialized, high-performance, high value-added products.

Julia Hughes, Vice President of USA-ITA, conceded that the China textile safeguard may be appropriate in certain cases, provided the following three pre-requisites are met: (i) the targeted product is no longer subject to quota when the safeguard is requested; (ii) the US actually produces the product at hand; and (iii) there is a legitimate demonstration of market disruption. Hughes argued that "an increase in imports by itself does not equal market disruption" and noted that such disruption has historically been demonstrated after a comprehensive review of a wide range of economic factors. Hughes did not provide any new information on USA-ITA's lawsuit against CITA, which is now on appeal before the US Court of Appeals for the Federal Circuit (CAFC), although she asked whether CITA was "above or outside the law" by choosing not to follow its own safeguard regulations.

Although agriculture was featured less prominently at the USCC hearing, two panellists provided useful insights as to China's progress in implementing its WTO commitments in this area. Gary Martin, President and Chief Executive Officer (CEO) of the North American Export Grain Association, referred to China's implementation record as "mixed," with notable progress in tariff reduction on the one hand and failure to remove several onerous non-tariff barriers (NTBs) on the other. Some of these NTBs include requirements for (a) the use of permits for soybean imports and (b) approval of quarantine import permits prior to contract signing.

Update on China Safeguard Litigation: CIT Denies Government's Request for a Stay

On 30 December 2004, the US Court of International Trade (CIT) temporarily enjoined CITA from taking any further action on any threat-based safeguard petitions on Chinese apparel products, including the petitions to re-apply the three safeguards that expired on 24 December 2004. The US government submitted a notice of intent to appeal to the US Court of Appeals for the Federal Circuit (CAFC) on 26 January, and one day later filed a motion with the CIT requesting a "stay" of the injunction pending conclusion of the appellate proceedings. The CIT denied the stay request four days after it was filed, leaving the injunction in place.

The CIT also refused to respond to a request by the US Sock Manufacturers and Distributors Coalition to clarify the scope of the preliminary injunction. The initial suit covered the safeguard action on socks and the Coalition requested that the judge force CITA to lift the associated quota. The safeguard limit on socks therefore remains in place.

The US government has filed an additional motion to stay the preliminary injunction with the CAFC, and is also requesting an expedited briefing schedule at that court for its appeal of the injunction. USA-ITA, the plaintiff in this case, has announced that it will "strongly oppose the stay motion" and advised the US government that "it supported an expedited schedule, but not the schedule proposed by the Government. The US Government filed an appeal brief with the CAFC on 14 February 2005.

CBP Allows Entry to Textile and Apparel Over-Shipments

On 24 January, CBP began to process entries for textile and apparel merchandise exported during 2004 in excess of 2004 quotas (over-shipments). As was previously reported, CITA had directed CBP not to allow entry of any over-shipments in safeguard quota categories until 24 January, and any over-shipments in regular quota categories until 1 February. On those dates, entry was to be permitted for goods in an amount equal to 5% of the applicable base quota limit. This procedure would be repeated each succeeding month until all over-shipments were entered.

As required, the three safeguard limits for categories 222 (knitted fabric), 349/649 (cotton and man-made fibre brassieres and other supporting garments), and 350/650 (cotton and man-made fibre robes and dressing gowns) re-opened on 24 January in amounts equal to 5% of the embargoed limits. The limits for categories 222 and 350/650 did not oversubscribe at re-opening. Thus, all merchandise presented for entry in these limits was allowed entry. Additional merchandise subject to the quota limit (i.e., exported before 24 December 2004) and presented for entry after the quota re-opening will also be allowed entry until the limit is filled, although it is not likely that there will be any additional entries for these limits. By contrast, the limit for category 349/649 was oversubscribed at re-opening. CBP came up with a pro-rata distribution factor of 99.45% for entries in this category, which means that 99.45% of the total quantity in each entry presented to CBP has been allowed entry and the remaining 0.55% will be released on 24 February.

CBP began to process over-shipments in regular quota categories on 1 February, with only three limits oversubscribing at re-opening: China category 326 (cotton sateen fabric); Pakistan category 369-S (cotton shop towels); and India Group II. CBP determined the following pro-rata distribution rates: 78.48% for China 326; 85.01% for Pakistan 369-S; and 82.025% for India Group II. These categories will be increased by an additional 5% of their respective base limits on 1 March, and it is very likely that all remaining embargoed merchandise will be released at that time.

Feb 23, 2005

New Rules for Registration and Management of International Freight Forwarders

According to a circular issued jointly by the Ministry of Commerce (MOFCOM) and State Administration for Industry and Commerce (SAIC) in February 2005, international freight forwarders can now directly register with the local administration for industry and commerce. Following the abolition of the requirement on the examination and approval of the qualifications of international freight forwarders by the State Council last year, new measures are introduced by MOFCOM and SAIC to strengthen supervision and administration and to ensure the sound and orderly development of the international freight forwarding business:

After the cancellation of the qualifications approval procedures, MOFCOM will no longer be responsible for approving the qualifications of enterprises applying for permission to engage in international freight forwarding business. Applicants may directly register with the local industrial and commercial administration and enterprises that are not registered may not engage in such business.

When handling registration formalities, the industrial and commercial administration must strictly implement the provisions of the Regulations on the Administration of International Freight Forwarders regarding minimum registered capital of enterprises engaging in international land, sea or air freight forwarding. An enterprise with international freight forwarding as its principal business should have a name that reflects its "international freight forwarding" business. Its scope of business should in principle be ratified in accordance with the relevant provisions. If approval by the competent department is required by law and administrative regulations, approval documents by the competent department must also be submitted. After the abolition of the qualifications approval procedures, registered enterprises that do not measure up to the said requirements should be made to meet the requirements.

Departments of commerce will strengthen the regulation and administration of the international freight forwarding sector by actively exploring ways and means of management. In the administration of the sector, support will be given to the work of the industry association, fully bringing its role into play, strengthening self-discipline, regulating the business conduct of members, and safeguarding their legitimate rights and interests.

Life of leisure a coming Shanghai trend

Leisure is becoming part of the lexicon of life in Shanghai, China's most vibrant commercial city. Shanghai is said to have grossed Rmb5.6 billion (HK$5.2 billion) from movies, other performances, entertainment, cyber café attendances and cultural venues in 2002.

Some 2.7 million foreign and 87 million domestic tourists visited Shanghai and spent Rmb118.2 billion (HK$111.9 billion) in the city in 2002 (2002 figures are a better indication of developments, as concerns about SARS had deterred many visitors in 2003).

The retail turnover of the catering industry actually reached Rmb21.5 billion (HK$20.2 billion) in 2003, an increase of 3.2 times 1995 turnover and representing an annual growth rate of 20%. The leisure scene is a constantly changing, dynamic environment in the city, which is intensely demand driven but subject to quite dramatic changes of direction. Bowling for example, which just a few years used to be a highly popular leisure pastime, has now been rapidly overtaken by tennis, badminton and snooker, to suit changes of mood and venue where people like to socialize or do business, and forcing many bowling centres in Shanghai to change.

The same is true for the catering industry. The popularity of Cantonese cuisine, Hangzhou cuisine, morning tea, hot pots, buffets, western fast food, western and other cuisines is also helping to swing the demand in the areas of foods and beverages, cooking, seating and interior décor, among many other sectors. While people try to make time for leisure and even hire domestic helpers to do so, DIY has still emerged as a surprisingly popular pastime. Small holding or gardening is another area to be tapped for leisure consumption, while sight-seeing and tourism agriculture hold immense appeal to urban dwellers. For office workers, going to the countryside to be "one-day farmers" can be the best way to spend a day off. Changes in leisure patterns mostly find expression in the changes and upgrade of popular consumer goods, such as from radios to hi-fis, from LCDs to VCDs, super VCDs and DVDs; from black-and-white TVs to colour TVs, flat panel TVs, projector TVs and OLEDs.

Mobile phones are everywhere, as are digital and video cameras, while MP3 players are picking up the pace. People are getting about more easily too, with their new cars and motor bikes.

While supply and demand for consumer goods can be regulated by adjusting stock, it is more difficult for leisure services. There is often heightened demand on long holidays and a quiet market after them. How to regulate leisure demand in high and low seasons, so that quality and profitability can be sustained, is an issue that is even now worthy of study.

On the one hand, leisure demands boost the development of consumer goods. For example, electronic audio-visual products, home appliances, communications products, and cultural and sporting goods have seen rapid growth in recent years in Shanghai because of the growing leisure demand in the city.

On the other hand, new types of consumer goods, such as new technologies, have in turn opened new areas of leisure consumption and even changed Shanghai residents' way of life. For example, mobile phones and SMS, computers and the Internet, and private cars have brought tremendous changes to leisure consumption.

There is also a growing trend for combining work with leisure, which hitherto had been the antithesis, one to the other. In some work, such as research, design, writing and other areas which require creative and cognitive skills, work can very easily be combined with leisure. Indeed, the new thinking is that working in a relaxed environment is more stimulating and can often produce unexpected and successful results. For home office workers and freelancers, the traditional boundaries between work and leisure are getting blurred, and the development of the Internet has helped to accelerate this trend. In addition, leisure consumption also has the characteristics of putting greater emphasis on spiritual rather than simple material needs and so is becoming more personal and diversified.

Foreign tourists are major spenders - Tourism forms the most important part of the leisure market. Shanghai receives over 3 million foreign tourists and 90 million domestic tourists each year. According to a sample survey by the statistical department in 2002, tourists spent a total of Rmb118.2 billion (HK$111.5 billion) in Shanghai, with domestic tourists spending Rmb99.4 billion (HK$93.7 billion) and foreign tourists spending Rmb18.8 billion (HK$17.7 billion).

There is quite a big disparity in per-capita spending between domestic and foreign tourists. Spending by foreign tourists is six times that of domestic tourists. Speaking of disparity, some people have become well-off ahead of others since reform and opening up, and a higher-income societal level has taken shape in Shanghai. These better-off people have greater ability and awareness of leisure consumption.

New ways of spending one's leisure are constantly emerging. High-income earners go after comfort and enjoyment in their leisure and revel in the status and achievement associated with their leisure consumption. For example, the gold card membership launched by Phase One of Luodian Xinzhen Golf Course in Baoshan district was sold out as soon as it was launched.

Travel freedom and demographics broaden buying impulse - The development of private cars has opened new horizons for leisure and multiplied the scope of activities by car owners. New ways of spending one's leisure, such as camping, vacationing in resorts and going out for a drive, are constantly emerging. The growing middle class will become the main force and mainstream of leisure consumption. In particular, young people have a greater awareness of the need for leisure and hope to enjoy each day to the full. They also go after the latest leisure activities.

The popularity of mobile phones and networks have also opened up new horizons for leisure, especially for young people.

Payment by installments and credit spending (using credit cards) for travels and other types of leisure consumption are more readily acceptable to younger consumers. By contrast, older people who have plenty of free time also have their leisure needs. Shanghai is becoming an aging society. There were 2.55 million people aged over 60 in Shanghai at the end of 2003. Better living conditions mean people can live a longer life.

In 2003, the average life expectancy of people in Shanghai was 79.8 years. The number and percentage of old people continues to be on the rise. A longer life expectancy means people have a leisure time of between 20 and 30 years or even longer after their retirement.

Of course, leisure demand cannot be measured by income alone. The differences in the leisure demands of different income groups are basically reflected in the quality of the activity. At present, old people's leisure activities mainly include Tai Chi, jogging and other types of morning exercise, chess games, dancing, fashion shows for the elderly, singing, going to traditional Chinese operas or ballad singing concerts, and attending calligraphy, painting, musical instrument or flower arrangement classes at old people's universities. The venues are mostly in their own communities.

The quality and increasing demands by old people for leisure activities will increase as their income and requirement for leisure increase. The market potential is big. Shanghai is an international metropolis with a large transient population, which stood at 4.9 million at the end of 2003, equivalent to 37% of local households. The fashionable leisure consumption pattern brought in by foreign businessmen, foreign employees of foreign-invested enterprises and foreign students in Shanghai (the foreign population amounted to 73,000 at the end of 2003) is emulated by many.

Business can be done in leisure - and indeed the idea of corporate hospitality is just taking off in Shanghai, with the growth of a golf and tennis culture, for example.

Leisure is also a new area of business growth within itself, with higher regard being paid to consultancy, management and professional expertise, particulary in the entertainment, shopping and catering sectors.

Hong Kong's Dickson Concepts ventures into Chengdu

Hong Kong's Dickson Concepts (International) is making a strategic push into the Chinese mainland, with the choice of Chengdu rather than Shanghai and Beijing as the best site available. The new store will be a seven-storey building at the heart of the city's commercial district and is due to open at the end of this year or early next year.

Dickson Concepts has two Seibu stores in Shenzhen and has indicated its intention to expand its Seibu chain on the mainland in addition to its new venture.

Earlier, there were media reports that Seibu plans to venture into Chengdu also. Industry experts believe that Dickson's new store could indeed be named Seibu too, to leverage a recognizable brand.

Dickson indicated that its Chengdu store will carry men's and women's clothing, leather goods, accessories and cosmetics for leading international brands to ensure a place for the company in the high-end retail market in western areas of China.

Shenzhen Seibu is seen by local people as an upmarket store that sets fashion trends. Luxury brands all over the world, such as Louis Vuitton and Cartier, all have specialized counters at the store.

Dickson's Chengdu store will likely carry on this style of retail and sell top international brands alongside other leading stores in Chengdu, such as Meimei Licheng and Renhe Spring.

Feb 18, 2005

Stung by Our (Hawaii) Reputation (Letter to Pacific Business News - Honolulu, Hawaii USA)

 In PDF Format

When I left Hong Kong to attend the UH School of Travel Industry Management in 1973, friends and family questioned whether I was in Hawaii for fun, hula girl, beaches or really getting a college degree? I have proved them wrong that I got my BBA and MBA in 5 1/2 years.

32 years later, Hawaii as a tourist destination associated with fun, hula girl, sun and beaches has not changed. Hawaii as a serious place to do business still questioned by many.

If you live in Hawaii long enough, it is rather confusing who promote trade, business, tourism and film festival. After doing business with Asia for more than 25 years, almost any group going to Asia from Hawaii involved a lot of parties. Parties is an important element of networking and business, but should not be the chief component. Few, if any serious business actually get done.

Many of the decision makers who had enjoyed the Hawaiian parties during the past 25 years are decision makers today. For the same decision makers, the table is now turned that decisions must be made whether to go to the Hawaiian parties or to talk business with serious business delegations from throughout USA and around the world. Post Enron era and with Company's interest first, it has become an easy choice not to engage Hawaii or to stay away from Hawaii.

It is really regretful that many of us that are serious about doing business in Hawaii and in Asia continue to face questions on our real intension - business or pleasure in the name of businesses!? It may be a wake up call for some, but probably business as usual for many.

Feb 17, 2005

Guangzhou Invites Bids for Phase II of Baiyun International Airport

According to the Guangdong Airport Management Corp, phase II of Guangzhou Baiyun International Airport will involve a total investment of Rmb7.5 billion. Public bidding started on 26 January and will end in March, after which construction will begin. As one of the three air hubs on the Chinese mainland, Guangzhou Baiyun International Airport has seen rapid growth since its opening in August 2004. The airport handled 180,000 takeoffs and landings and 20 million passengers last year, both record breaking figures.

At this rate, Baiyun Airport’s passenger handling capacity could break the 25 million mark this year, the designed capacity for 2010. Thus, there is an urgent need to start work on phase II of the airport.

Phase II of the airport is expected to handle 36-38 million passengers and 1.2 million tonnes of cargos by 2010, by which time the functions of the new airport as an air hub would be further enhanced.

Phase II will feature considerable changes to the airport’s original design. While retaining its large framework, glass curtain walls and ringed roof, it will have a more modern appearance, more practical functions and more scientific design.

Phase II mainly comprises a number of projects. First, an additional 31 gates. The design has been completed and approved by experts and the government. Construction would commence after the Spring Festival and is slated for completion in the second half of 2007.

Second, a 40,000 sqm cargo terminal, 88,000 sqm of cargo aircraft parking area and three gates. Construction is expected to commence in the second half of March. When completed, this new cargo terminal capable of handling 400,000 tons of cargoes annually will further increase Baiyun Airport’s cargo throughput. The new terminal will provide cargo owners with one-stop service from storage and safety inspection to loading.

Third, the international section of Terminal Two and three corridors, with a total floor area of 320,000 sqm. The design has been completed and approved. It is planned that construction will begin in the second half of 2006 and complete by the first half of 2010 to meet the needs of the Guangzhou Asian Games.

2010 Asian Games spurs huge investment

The Olympic Council of Asia approved Guangzhou's bid to host the 16th Asian Games in 2010, as it met in Athens for last year's Olympic events. According to the constitution of the Olympic Council of Asia, the host city must set up an Asian Games Organising Committee within six months after winning the bid.

In fact, the relevant committee has not yet been set up, and matters of cooperation relating to the Games will have to be left until after the organizing committee and its functional departments have been established.

The government of Guangzhou plans to invest over Rmb220 billion in the next few years in the run-up to the 2010 Asian Games, to improve its sports facilities and urban infrastructure. In addition to government investment, funds will be raised from the private sector to finance a variety of projects.

For a start, the city will need 88 competition and training venues for the 34 events of the Games. The Asian Games Village is expected to cover an area of 120 hectare for the accommodation of 11,000 athletes and coaches. Also, although there are about 80 star-level hotels in Guangzhou today, the number will have to be increased to 300 by 2010, providing over 50,000 additional rooms.

Guangzhou will start its development of rail transport and intelligent transport to bring the Asian Games Village within a 30-minute distance of all competition venues. In addition, the city will also further develop its telecom and television industries and promote its tourism, convention and exhibition, advertising, catering, retail and other services.

Time "box" for licensing - Asian Games licensed products will be marketed between 2006 and 2010. There will be three levels of sponsorships, namely "Asian Games partners", "Asian Games sponsors" and "Asian Games suppliers".

A benchmark price is fixed for sponsorships at different levels, each with its own entitlement of marketing rights, including advertising and marketing using the emblem and name of the Asian Games Organising Committee, exclusive rights to particular products and services, priority to buy television airtime and outdoor advertising space during the Games, and priority options to sponsor cultural events, torch relaying and other theme activities.

The organizing committee will authorize qualified enterprises to produce and sell intellectual property rights which are protected products bearing the Asian Games emblem or mascot.

The franchised enterprises will pay royalties to the organizing committee. This program is divided into different parts, with the domestic program beginning in the second half of 2005 while the international one will start after the East Asian Games in Doha in 2006.

Guangzhou enterprises do not have any special privileges and will compete with other enterprises on an equal footing.

Broadcasting rights will be franchised. Broadcasters will be allocated their own broadcasting rooms at the International Broadcasting Centre to be built by the organizing committee, as well as basic television signals provided by the principal TV relay station. Projects for the authorized issuance of commemorative stamps and coins will start later this year.

Plan for construction - Guangzhou will renovate 37 existing sports facilities and build a new Asian Games Village, a media centre and a number of large stadiums before 2008.

In addition to government investment, venue naming rights, BOT and other means will be adopted to attract investment. Separation of ownership from operating contracts will be practiced for large and medium-sized sports venues, and people from all sectors will be encouraged to operate these venues through cooperation, contracting out, transfer and franchising.

Feb 11, 2005

Agri-products giants eye local farms

A purchasing conference was held at farms near Dalian City in Liaoning Province, rather than in expo centers or hotels as usual. The conference, jointly organized by the Dalian Commercial Bureau and Dalian Agricultural Development Bureau, and has attracted many foreign purchasing giants such as Wal-mart and Carrefour.

In the workshops in the Zoujia Village of Changcheng County, Sanjianbao County and Xiaolianpo Village, all kinds of vegetables, fruits and grains were exposed to domestic and international purchasers. "It is the first time that I have driven so far and come so close to farmers to purchase products for our company. It left a strong impression on me," said a purchasing representative of a company. At the workshops, representatives from the city's vegetable planting association gave vivid introduction of the planting to visitors and gave detailed answers to their questions in planting.

After the conference, some of the organic food producers signed contracts with some supermarkets such as Haoyouduo and Xinmate. Chen Yu, director of the Jinzhou Houshi Development Company, said: "It gives me a valuable chance to showcase the planting conditions and technique for our bases." At the Jinke Organic Food Park, the non-soil planted oranges and grapes attracted many purchasing representatives.

A purchasing representative from the Wal-mart said the company is expected to establish long-term partnerships with some of the farms and invite them to showcase their products in the supermarkets of the company.

Feb 4, 2005

China Safeguard Litigation: US Government Appeals Preliminary Injunction Order

On 30 December 2004, the Court of International Trade (CIT) temporarily enjoined the Committee for the Implementation of Textile Agreements (CITA) from taking any further action on any threat-based safeguard petitions on Chinese apparel products. On 26 January 2005, the US government filed a notice of intent to appeal the preliminary injunction order to the Court of Appeals for the Federal Circuit (CAFC). Upon the filing of an appeal, the rules allow the respondent, i.e. the US Association of Importers of Textiles and Apparel (USA-ITA), 40 days to file a response and the government would have 14 days to file a reply. The rules also require the reply to be filed at least 3 days before a hearing on the appeal. Thus if a hearing is promptly held, and given a few days after the hearing before the court issues its decision, the normal rules and expected government actions would result in a decision approximately 2 months after the appeal is filled. However, it is reported that the US government intends to request expedited appellate proceedings, which could shorten the proceeding time to about one month.

Additionally, the US filed a motion in the CIT on 27 January 2005 requesting a stay of the preliminary injunction pending conclusion of the appellate proceedings. The USA-ITA would then have eight days to respond and the government would have five days to reply. This request asks the CIT to allow the US government to continue to: (i) gather and analyze data on threat-based petitions; (ii) meet with interested parties, including the government of China; (iii) request and enter into consultations with China under its WTO Accession Agreement; and (iv) self-initiate consideration of consultations with China, provided that CITA does not impose any safeguards on imports of textiles or apparel from China in response to threat-based petitions pursuant to CITA's May 2003 procedures. If granted, the stay would essentially allow CITA to proceed with its consideration of the 12 threat-based safeguard petitions filed to date.

According to the US government, a stay is necessary to "eliminate any impediment to communications between the United States and [China]" concerning potential market disruption from trade in textile and textile and apparel products, and "to protect domestic textile producers from the irreparable harm they could suffer as a result of the injunction's bar upon even the consideration of safeguards, pursuant to existing procedures, until imports from China have caused actual market disruption." The plaintiff, the US Association of Importers of Textiles and Apparel (USA-ITA), has already stated that it will "strongly oppose" the government's motion for stay of the injunction.

In another development, the CIT refused to respond to a request by the United States Sock Manufacturers' and Distributors' Coalition (USSMDC), a non-party to the case which had filed an amicus curiae brief supporting the injunction, for the court to clarify its preliminary injunction order regarding whether it is sufficiently broad to cover CITA's action in imposing safeguard quotas on cotton socks from China last fall. USSMDC is currently considering an application to formally intervene in the case in order to gain proper standing as a party and have the issue addressed. However, the court has discretion to allow or not to allow intervention by a new party in the case.

Finally, the USA-ITA filed its brief in opposition to the government's motion to dismiss the USA-ITA's complaint. That motion remains pending before the CIT.

The National Textile Association (NTA) urged the Bush Administration on 19 January to "promptly get the threat-based China safeguard petitions back on track, to self-initiate safeguards based on market disruption, and streamline import data reporting so the US textile industry can file safeguard petitions promptly when disruption begins to occur." The NTA had requested that the Administration appeal the court's injunction as quickly as possible and called for the development of a system to tally import data in real time. Such a system would theoretically enable the US textile industry to file safeguard petitions based on market disruption in a more timely fashion.

CBP Symposium Stresses Security; Stronger C-TPAT Planned

The unmistakable message from US Customs and Border Protection (CBP) officials speaking at the Customs Symposium held on 13-14 January in Washington, DC was that security issues will continue to dominate the agency's approach to trade policy in the years to come. Senior managers repeatedly called on the trade community to re-capture the sense of urgency that prevailed immediately after the 11 September 2001 terrorist attacks. This message was clearly part of an effort to prepare traders for the expansion and tightening of cargo security programs. Virtually all of the two-day conference was dedicated to the various aspects of supply chain security, with traditional customs issues such as compliance, regulations, and rulings all but ignored. Indeed, one official said plainly that all of CBP's constituent branches have as a primary focus the issue of how their traditional missions affect the agency's priority mission of homeland security. Within this context, it was no surprise that much of the discussion at the symposium centered on two topics: (1) the development of a national cargo security strategy (NCSS), a draft of which was circulated by the Department of Homeland Security (DHS) in December 2004; and (2) overhauling the Customs-Trade Partnership Against Terrorism (C-TPAT).

CBP Commissioner Robert Bonner described his plans for an NCSS in a speech delivered at the Cargo Security Summit on 12 December 2004. CBP plans to base this strategy on five inter-related, mutually-reinforcing initiatives: (i) the 24-hour rule, which requires advance electronic notification of all shipments 24 hours before containers are loaded on ships bound for the US; (ii) the National Targeting Centre, which uses CBP's Automated Targeting System to evaluate all cargo shipments headed to the US and identify shipments that pose a potential terrorist threat; (iii) mandatory anti-terrorism security inspections using detection technology; (iv) the Container Security Initiative (CSI), which evaluates and targets high-risk containers moving from foreign ports to the US; and (v) C-TPAT, a programme designed to enhance the security of the supply chain in exchange for expedited processing at US ports.

Bonner emphasised the role of technology in the NCSS as he noted that CBP has tripled the number of large-scale gamma ray and x-ray imaging systems in operation and has installed approximately 300 highly sensitive radiation portal monitors and 400 radiation isotope identifying devices at US ports of entry since 11 September 2001.

Far from being complete, Bonner stressed that the NCSS must be strengthened with at least seven additional initiatives:

The development of "smart" containers with embedded electronic tamper detection devices. The seal requirements for "smart" containers are currently undergoing economic analysis and it is expected that 2-3 months will pass before draft regulations on this matter are published for public comment.

Expanding CSI to cover 95% of the total volume of US-bound containers, up from 70% currently. At the symposium, Commissioner Bonner noted that CBP plans to expand CSI to 40 ports by the end of 2005 and 50 by the end of 2006. This expansion is expected to include Buenos Aires (Argentina), Santos (Brazil), Balboa and Colón (Panama), Shanghai and Shenzhen (China), Colombo (Sri Lanka), Kaohsiung (Taiwan), Izmir (Turkey), Dubai (United Arab Emirates), Lisbon (Portugal), and Barcelona and Valencia (Spain).

Improving C-TPAT in three specific ways: (i) defining the point of stuffing criteria, particularly for importers, their vendors, and foreign manufacturers; (ii) increasing the number of validations performed, which assure that security commitments by C-TPAT participants are being met; and (iii) improving the facilitation benefits in the form of reduced inspections or even no inspections in certain cases.

Expanding the advance information available to CBP to better identify high-risk cargo.

Developing a "continuity of trade" contingency plan whereby inbound trade to the US would be restored as quickly as possible after any decision to halt trade in the aftermath of a terrorist incident.

Creating one single portal or window into the US government for all trade data and enabling key DHS agencies to access such data. This window could potentially be CBP's Automated Commercial Environment (ACE).

Internationalizing the core elements of the NCSS to secure and facilitate global trade and to avoid the development of multiple standards that businesses would be expected to comply with. This initiative would logically be pursued under the auspices of the World Customs Organization.

CBP officials stressed that they plan to maintain C-TPAT as a voluntary program for the foreseeable future, rather than one governed by regulatory requirements. A strategic plan released during the symposium noted that C-TPAT needs to remain "a dynamic, flexible program designed to keep pace with the evolving nature of the terrorist threat and the changes in the international trade industry." The plan added that because C-TPAT has "security requirements that allow for customized application," most participating companies not only meet but exceed the minimal standards of the program.

However, CBP is also planning a major effort to strengthen the criteria for C-TPAT participation. In short, CBP is looking to push the program all the way back down the supply chain to the point of manufacture so that it can obtain more and better information about every step of an item's journey to the US market. It is clear, though, that CBP is in the early stages of this effort. The agency is therefore looking for input from the trade community as to what additional data can and ought to be provided and how to expand C-TPAT participation to other entities in the supply chain.

Over 8,000 companies have now enrolled in C-TPAT. CBP says 40% of total US imports by value are entered by C-TPAT companies, a figure it hopes to increase to 60% by the end of 2005. Mexican manufacturers are currently the only foreign manufacturers allowed to enrol, but CBP plans to expand eligibility to Canadian firms soon.

Officials at the symposium spent a good deal of time outlining the benefits of C-TPAT participation, something the trade community has consistently pressed CBP to quantify. The most cited statistic was that C-TPAT shipments are subject to six times fewer enforcement examinations and four times fewer compliance exams. Other benefits that CBP continues to assert but has done little to quantify include streamlined company operations and reductions in cargo theft and pilferage. However, nearly three years after the programme's inception, CBP has still not come up with a firm plan for when and how to implement one of the primary benefits it has pledged for C-TPAT companies, expedited cargo processing. It is in this area that CBP will apparently focus its efforts this year, reasoning that it will have to offer concrete, money-saving results in return for the additional measures it plans to ask participants to take.

Specifically, CBP will engage the trade community in developing a "green lane" for imports. This concept envisions a process whereby approved cargo can enter the US virtually unimpeded. However, CBP is also considering a system of tiered benefits where only shipments that meet the most stringent criteria would receive the fastest processing. These criteria would likely include: validated C-TPAT participation for all of the importer's supply chain partners; transportation of goods in a "smart box" equipped with tamper-evident seals; and shipment of goods through foreign ports participating in CSI. As was mentioned previously, some type of security standard regarding container stuffing may also be involved.

How exactly to implement the green lane is turning out to be more problematic. It is somewhat easier in the land environment, where CBP is already designating Free and Secure Trade (FAST) lanes on the northern and southern borders that allow truckers carrying C-TPAT loads to enter the US more quickly, especially where the road structure allows faster access to a primary screening point to deliver these benefits. For ocean-borne containers, officials said they want to hear from the trade community as to what a green lane should mean.

Feb 2, 2005

Beijing Releases Olympic-Licensed Products for Spring Festival

On 25 January BOCOG launched a series of Olympic-licensed souvenirs to greet the forthcoming Chinese Spring Festival.
Among the new souvenirs are two pins, each with a limited edition of 10,000 pieces. The “Spring Lantern” pin, which ingeniously combines the Olympic logo with the lantern design to celebrate the festivity, fully embodies the harmony between the modern Olympiad and traditional Chinese culture. The “Golden Rooster Proclaiming Spring” pin integrates the Chinese character “Spring” with the Olympic logo. The pins come with beautiful greeting cards, one showing a lantern against the window and the other showing a rooster crowing to welcome spring. The cards may be used for writing messages by the sender and kept by the recipients as souvenirs. Another souvenir is the “Old Beijing Pen” which combines Beijing’s age-old culture with the Olympic spirit. Sold in its unsophisticated yet beautiful packaging, it is an exquisite collectible item with practical value.

BOCOG has so far released more than 300 types of Olympic-licensed products of four major categories, namely sportswear, pins and other metal items, handicraft and stationery. The one-ounce gold pin showing the handover of the Olympic flag has a hefty price tag of Rmb6,880, while ball point pens with the Beijing Olympic logo cost as little as Rmb15 each. These souvenirs are currently available at 11 licensed shops in Beijing, including Wangfujing Department Store, Wangfujing Gongmei Building, Beijing Urban-Rural Trade Centre, Chungyo Department Store, Beijing Modern Plaza, Guiyou Store, Mudanyuan Store of Cuiwei Mansion, Summer Palace Store and three shops at Beijing Capital International Airport Airstop Building.

All Olympic-licensed products sold at the above stores bear an anti-counterfeit label with the words “thank you for supporting Beijing Olympics 2008” on. Ten percent of the proceeds from the sale of the souvenirs will be used to fund preparations for the Beijing Olympics. Thus, every purchase is a contribution towards the Games.

Olympic-licensed products were first launched on a trial basis on 5 August 2004 and have been selling hot from day one because they are collectible items with practical value. While continuously launching new varieties, BOCOG will increase the scale and number of the licensed shops and authorize the setting up of stores outside Beijing.

Recycled auto tires gives CEPA another spin

Tires discarded by the automotive and transportation industries are giving mainland cities a headache and are often referred to as "black pollution". China has some of the longest and least repaired highways in the world, so it is no surprise that tires need to be replaced regularly. There are also over three million motor vehicles on those roads, which means that there needs to be about 130 million tires a year. Surprisingly, there is a comparatively low rate of tire retreading, with the ratio of new tires to retreaded ones at 26:1, significantly lower than the world average.

The situation not only encourages a waste of resources but also results in serious environmental pollution, with the huge rate of production of new tires. The China Tire Reteading and Utilisation Association reckons that there are about 1,000 tire retreading enterprises on the Chinese mainland, most of which dated back to the mid-1990s and are all privately-owned. There were over 500 state-owned operations in the early days, but state-owned enterprises have all but disappeared after more than two decades of market-oriented reform. In terms of scale, the majority of the existing tire retreading enterprises are small operations, with technology and equipment lagging behind international standards. Only about 20 are capable of retreading more than 100,000 tires annually and only four to five of them have the ability to retread over 200,000 tires a year.

As for geographical distribution, the industry is developing much faster in coastal provinces than in the interior regions. The majority of tire retreading factories are found in Guangdong, Fujian, Zhejiang, Jiangsu and Shandong, with over 30 in Guangdong alone. These southerly and more coastal factories have more advanced imported equipment and can retread about two million tyres a year, about a quarter of the national total. Tire retreading has become a unique industry in Xingning, Guangdong. There are 11 retreading enterprises in the city. They can retread 600,000 tires a year, with annual output value exceeding Rmb100 million (HK$94 million). Some of these local enterprises saw the great potential of tire retreading 10 years ago. A private entrepreneur, Liao Jiaquan, set up his wholly-owned Qiangli Tire Retreading Factory in 1995 with an environmentally friendly and high-tech production line imported from the US.

Today, Liao's factory retreads 150,000 tires annually and its output tops the whole province. Its products are sold throughout the country and are exported to Hong Kong, Macau, Malaysia, Panama and other countries and regions. In fact, the operation was named as one of China's top 10 enterprises in 2003. The tire retreading industry has also seen swift development in Shanghai in recent years. The number of retreading enterprises has soared to 18 in three years. There are only four to five retreading enterprises in Beijing although the capital boasts the highest car ownership in the country with 2.27 million motor vehicles of various types and discards about 7 million tyres each year.

Hong Kong's leading edge in re-treading - China Tyre Retreading and Utilisation Association chairman Jiang Zhiyun welcomes the entry of Hong Kong retreaded tyres and enterprises into the market. In his opinion, Hong Kong enterprises have more advanced technology and equipment than their mainland counterparts and their entry could help raise the level of tyre retreating. Three or four Hong Kong companies have already set up retreading facilities on the Chinese mainland. Zhonglian Tongtai and Dali are among the first of these operations set up by Hong Kong companies in Guangdong.

Beijing Jitong Tyre Retreading and Utilisation Co Ltd, the largest joint venture of its kind, is established between a Hong Kong company and Beijing Sanyuan Group Investment Co Ltd, with a Hong Kong stake of Rmb20 million (HK$18 million). The venture is not yet operational, but is expected to have a capacity to re-tread over 200,000 tyres a year. According to Jiao Henghui, chairman of Beijing Jitong Tire Retreading and Utilization Co Ltd, Beijing's market potential is not to be underestimated despite the fact that retreaded tires are not yet widely acceptable.

A high-temperature revulcanization production line for engineering vehicle tires. With 100,000 dual-purpose vans needing tyre retreading, there is a current demand for about 300,000 tires each year, to say nothing of the potential demand, as people's concept about retreaded car tires changes. At present, retreaded tires in Beijing mostly come from Shanghai, Tianjin and Shandong.

Jiao also pointed out that it makes good business to recover used tires in Hong Kong for retreading on the mainland. Hong Kong has no retreading facilities and all tires are basically imported. Used tires are still of good quality and Hong Kong people generally accept the concept of using retreaded tires. It is much easier recovering used tires in Hong Kong than on the mainland. Under the Closer Economic Partnership Arrangement (CEPA II) signed by Chinese Vice Minister of Commerce An Min and Hong Kong Financial Secretary Henry Tang in Beijing in August 2004, the mainland has agreed to apply zero tariffs to the second batch of 713 products of Hong Kong origin as of 1st January 2005. These products include retreaded bus and truck tires, used tires and retreaded aircraft tires.

Jiang Zhiyun, chairman of the China Tire Retreading and Utilization Association, noted that tyre retreading is a big and mature business in the world but is still at a toddler's stage with ample room for development in the mainland.

China scraps about 100 million tires each year and retreaded over seven million tires in 2003. Low ratio between new and retreaded tires. The number of tires retreaded in 2004 is expected to exceed eight million, only slightly above 3% of used tyres available for retreading as against the average of 10% in developed countries.

The disparity is even more obvious for car tires. The rate of car tire retreading is 18.8% in the EU and virtually zero in China. Analysing the reasons for the low rate of retreading in China, Jiang pointed out that radial tyres are not very common in the mainland. While radial tires have a market share of over 90% in the world, their market share in China for buses and trucks (which are major consumers of retreaded tyres) is below 60%.

The second reason is consumer psychology. Many car owners pay little attention to the maintenance of tires and most tires are used beyond their service life. The tires have to be scrapped because serious surface wear and tear has made retreading impossible. Some private car owners do not even know that tires can be retreaded. This is very different from the international practice where radial tyres are often retreaded three to four times.

The third reason is the lack of a used tyre distribution centres and recovery mechanism. Used tyres are mostly used by township enterprises as raw materials or processed into rubber soles for shoes - a practice that continues to remain unchanged.

The Environment and Resource Comprehensive Utilization Division of the State Development and Reform Commission is currently drafting a new set of regulations for the administration of scrapped tyres to tackle the problem of the serious waste of resources due to the failure in recycling scrapped tires. According to Jiang, the drafting process is close to completion and the regulations should be promulgated and put into practice before long this year. The introduction of the regulations will have a positive impact on the retreading industry, as they will provide norms for the handling and recovery of scrapped tyres, regulate the recovery mechanism, increase government investment in the industry, and provide guarantees for the healthy development of retreading enterprises.

Feb 1, 2005

Octopus spreads its tentacles worldwide

Octopus CEO Eric Tai explains how Hong Kong "smart card" technology is making lives easier for commuters around the globe
With nearly 9 million transactions a day and over 11 million cards in circulation, Hong Kong's contactless smart card operator, Octopus Cards Limited, is indisputably the world's number one electronic payment system operator and smart card issuer. Nearly everyone in Hong Kong has one or more of the Sony-made rechargeable, multi-application cards, which have a 96 per cent penetration rate amongst the 16-65 age group. The contactless smart card can be passed over a reader to ride on almost every train, bus or ferry, for retail transactions and parking - transforming Hong Kong into a practically cashless society. The card can also be used to access schools, office buildings and housing estates.

"Hong Kong is the showroom to the world on how we can successfully make the contactless payment system work," said Octopus Cards Limited chief executive officer Eric Tai. Delegations from around the world come to check out the Octopus system and to understand the complexity and requirements for implementing a similar system.

Hong Kong expertise in demand - Octopus Card Limited is a prime example of a successful Hong Kong company taking its unique brand of operational expertise and technology to global markets. It acts as an international consultant to many overseas businesses especially those in the transport sector. The London Underground and London buses are clients. Two years ago, Octopus clinched a deal to replicate its contactless smart card technology for the rail, bus and tram systems in the Netherlands. It is tendering for deals in Melbourne and Toronto and is in "heavy discussion" with Shenzhen parties. It is also eyeing opportunities in Switzerland, North America and the Asia region.

Mr Tai said the success of the Octopus card lies in its convenience and simplicity. "We make a difference to people's lives. We make everyday life simpler, easier and more convenient. Very few companies have such a universal impact," he said. The contactless card takes only 0.03 seconds to register a payment. Such is its mass appeal that one of the first things a tourist gets on entering Hong Kong is the Octopus card. "Every regional business tourist has one; most Chinese mainland tourists take it home as a souvenir," added Mr Tai.

Sky's the limit - When Octopus Cards Limited was formed by a group of Hong Kong transport operators in 1994, it had a vision of using a single smart card for all modes of transport. An Australian company was contracted to do the work using technology derived from Sony, Japan. Technical knowledge was also gleaned from other shareholders such as the Mass Transit Railway and the Kowloon Canton Railway Corporation. The result was the launch of the reusable, bio-gradable Octopus card in 1997. Over 3 million cards were sold in the first three months.

Mr Tai said the sky's the limit for the Octopus card. "A technology that can handle nearly 9 million transactions a day is big business. Growth in the non-core business like retail business grew between 20 to 30 per cent last year so obviously we will look for more opportunities in this sector. Our smart card system is admired the world over and with our expertise and experience, I am convinced there will be more opportunities in overseas markets."

January 24, 2005

United States using old law to stifle intellectual piracy threat

Some United States companies straining under competition from China have adopted a new tactic, using an obscure provision in a 75-year-old trade law to press claims of intellectual property theft against mainland exporters.

Analysts say Chinese manufacturers will have to find a way to deal with such challenges as they move up the value chain with more sophisticated products. Seldom invoked before now, Section 337 of the US Tariff Act of 1930 allows companies that claim their intellectual property rights have been violated to apply to the US International Trade Commission (ITC) for an order that can go as far as to block Chinese goods at customs.

Trade experts say the numerous patents held by many American firms now amount to a kind of ``non-tariff trade barrier.''

Not every intellectual property complaint against China is upheld, of course, but even the news that a company is under investigation can scare off potential customers concerned about security of supply. Section 337 orders the ban of sale in the US of goods that are found to infringe on the intellectual property laws which protect US-registered patents.

The ITC may, after a brief investigation of a complaint, mete out swift relief - through an ``exclusion order'' instructing the US Customs Service to prevent offending articles from entering the United States, a ``cease and desist order'' prohibiting sale of such articles already in the country, or both. A company hit with or threatened by an order will almost certainly lose business as customers begin to doubt its ability to fill orders.

``An exclusion order, together with a cease and desist order against a Chinese business can effectively prevent it from future access to the US market,'' said Simon Luk, a lawyer at Heller Ehrman White & McAuliffe.

As Chinese manufacturers produce more sophisticated goods with a higher intellectual property content, the number of Section 337 complaints against them has mushroomed. Beijing law firm DeHeng reckons that over the next 10 years, Section 337 proceedings will become a bigger headache for mainland exporters than anti-dumping measures, which at worst result in the imposition of duties but do not bar imports or sales.

By the end of 2002, there were 46 active Section 337 investigations involving Chinese firms, almost double the number two years earlier. And Chinese firms now are the most frequent target of competitors that invoke the provision.

January 21, 2005

DOC Announces Changes to NME Practice in AD Proceedings

On 28 December 2004, the US Department of Commerce (DOC) issued a notice in the Federal Register announcing a change in the way it evaluates separate rate requests in anti-dumping (AD) investigations involving non-market economy (NME) countries like China. In AD proceedings involving NMEs, the DOC presumes that all companies are under governmental control. As a result, all exporters/producers in NMEs are assigned a single country-wide AD margin, which is often so high that it makes continued exports to the US very difficult and, in some cases, virtually impossible. Yet, individual firms can steer clear of the single country-wide margin by applying for their own separate rate. The DOC's separate rates test focuses on both de jure and de facto governmental control over a firm's export activities. The DOC's Section A questionnaire currently requires NME exporters to provide detailed information on:

>their ownership and how their management is selected;
>their relationship with other producers or exporters of the subject merchandise;
>their relationship with the central government as well as with provincial and local governments, including details on any laws or other formal governmental measures that centralise or decentralise control of export activities;
>how their prices are set and how sales to the US are negotiated;
>whether they are expected to achieve government-set foreign exchange targets and whether there are any restrictions on the use of their export revenues;
>how export profits are calculated and who decides how the profits will be used; and whether they have had losses on export sales in the past two years and how such losses were financed.

If absence of de jure and de facto governmental control is established during an investigation, the DOC assigns a mandatory respondent its own, individually calculated rate. In the case of a non-mandatory respondent receiving a separate rate, the DOC assigns a weighted-average of the rates of the investigated companies (mandatory respondents), excluding any rates that were zero, de minimis, or based entirely on facts available.

Currently, the DOC considers all separate rate requests submitted by Section A (non-mandatory) respondents to review their eligibility and may ask for further proof in supplemental questionnaires. However, the increasing number of requests for separate rate treatment in recent years, as well as the increasing need to issue supplemental questionnaires, have created a significant administrative burden for the US government. The investigations on wooden bedroom furniture from China and frozen and canned warm water shrimp from China and Vietnam were particularly taxing on the DOC, largely as the result of the considerable number of inadequate submissions filed for separate rate treatment.

In addition to the drain on resources triggered by this growing administrative workload, various parties have raised concerns that the DOC separate rates test "may not offer the most effective means of determining whether exporters act independently of the government." The current separate rates practice has also been referred to as "unfair" because the dumping rates are assigned only to exporters and apply to all exports of the subject merchandise by that company. This could easily lead to a situation where a particular exporter is subject to a dumping rate on merchandise supplied by a producer that was not investigated by the DOC. Moreover, some parties claim that there is a potential incentive for the evasion of duties by channelling shipments through the exporter(s) with the lower margin in instances where the margin rates vary widely from exporter to exporter. If channelling occurs, some parties argue that the purpose and effect of an AD order is undermined.

In response to these concerns, the DOC has provisionally adopted a new application process for evaluating separate rate requests by non-mandatory respondent companies. Currently, these companies are required to submit a Section A questionnaire response. Companies selected by the DOC as mandatory respondents in AD proceedings will continue to be required to respond to the entire dumping questionnaire, although Section A will be updated to conform with the new information included in the application. The DOC is also considering the institution of exporter-producer combination rates (also known as chain or channel rates) for all firms receiving a separate rate in AD cases involving NMEs. Combination rates would thus replace exporter-specific rates in such proceedings.

According to the DOC, the new application process for non-investigated companies does not alter the standard for evaluating whether an applicant is subject to de jure or de facto government control. Rather, the DOC has focused on making the process more straightforward and complete in order to minimize the need for extensive supplemental questionnaires, saving time and resources for both respondents and DOC analysts. More specifically, the DOC will process only those separate rate requests from respondents that submit completed applications with all the required supporting documents demonstrating their eligibility for a separate rate. Companies submitting incomplete applications will be rejected outright without supplemental questionnaires. All the required documentation will be specified clearly in the application to avoid any sort of confusion. The DOC may issue supplemental questionnaires to further confirm the export independence of a particular company but will not issue supplemental questionnaires to correct deficient applications.

Among other things, the new application form clearly specifies that exporters must submit their US Customs 7501 entry summary or the US Food and Drug Administration release form for their first and last sales during the period of investigation (POI). If exporters are unable to provide either of these documents, the application form stresses that they must demonstrate that they have attempted to obtain said documents from their customers. Exporters may provide additional documentation as proof of their first and last sales, including bills of lading for sale, China customs declaration forms for sale, value-added tax applications/refunds for sale, sales contracts, sales invoices, packing lists, and payment receipts. Furthermore, an explanation must be submitted if an exporter submits documentation on sales other than the first and last sales during the POI.

The application for each specific AD proceeding will be readily available on the website of the DOC's Import Administration ( Respondents will be required to submit their separate rates application in the same way they currently submit documents to the DOC, although the DOC may consider switching to an electronic system sometime in the future. A draft application, which is based on a China AD investigation, has been posted online at

The modification of the application process in separate rates proceedings reinforces the need for experienced legal counsel in AD investigations because any errors or omissions would automatically disqualify an otherwise potentially successful application for a separate rate. Thomas Vakerics of the Washington law firm of Sandler, Travis & Rosenberg observed, "The shift by the DOC from a Section A response to an application process is primarily motivated by the Department's desire to reduce its administrative burdens. Under the Section A procedures, the DOC was obligated by law to issue supplemental questionnaires to enable a respondent to correct any deficiencies in the original Section A questionnaire response. Under the application process, the DOC avoids the burden of preparing supplemental questionnaires and reviewing supplemental questionnaire responses for potentially large numbers of non-mandatory respondents. Now, if the original application is not perfect, it will simply be rejected by the DOC and the applicant will automatically receive the China-wide rate."

As regards the introduction of combination rates, the DOC is proposing to assign such rates to NME exporters in separate rates analyses. Currently, the DOC assigns exporter-specific separate rates rather than exporter-producer combination rates, with three exceptions: (i) exporters excluded from AD orders who source from producers included in those AD orders; (ii) exporters/producers who sell to unaffiliated middlemen with the knowledge of the ultimate destination of the merchandise; and (iii) exporters/producers evaluated in new shipper reviews. Under the proposed new practice, exporters applying for a separate rate would be required to list all the suppliers whose merchandise they exported to the US during the period of investigation or review. The dumping margin assigned by the DOC to those exporters would only apply to merchandise produced by the specific suppliers listed in the application form. Merchandise produced by other suppliers would be subject to the China-wide dumping rate, although these new suppliers could be incorporated into the exporter-producer combination rate during administrative reviews where final dumping duties are assessed. Of particular note, the separate rates investigation would not in any way seek to establish absence of de jure and de facto governmental control for any of the producers included in the combination rate.

The DOC will make a final decision on exporter-producer combination rates only after it has conducted a full analysis of the advantages and disadvantages of this change in practice, with an opportunity for public participation. Interested parties may submit comments to the DOC on the new application process, the draft application, or the proposed exporter-producer combination rates by 24 January.

Court Preliminarily Enjoins Further Consideration of Threat-Based Safeguard Petitions

On 30 December 2004, the United States Court of International Trade issued a preliminary injunction against the US government prohibiting further consideration of or action on petitions filed by the domestic textile industry to impose safeguard quotas against Chinese textiles and apparel products based on the threat of market disruption. Such petitions were filed in October and November 2004 against certain textiles and apparel categories, for example, cotton and man-made fibre knitted and woven shirts; cotton, wool, and man-made fibre trousers; and cotton and man-made fibre underwear. Safeguard quotas are already in effect against cotton, wool, and man-made fibre socks; cotton socks were already under WTO-permitted quotas.
The court's action prevents the US government from proceeding to the next step in the China safeguard process, according to the published timetable; i.e., imposition of the safeguard quotas within 60 days of the end of the comment period, concurrent with a request for consultations with the Chinese government. While the court's order appears to be sufficiently broad to cover the current safeguard quota on socks, it is unclear whether the US government agrees and will remove this quota without further court action. It is also unclear whether the government continued to accept comments on the threat-based safeguard petitions.

The court's decision will not affect the consideration of any petitions that may be filed on the basis of actual market disruption caused by imports from China.

In summary, the court's order bans the Committee for the Implementation of Textile Agreements (CITA), in the short run, from taking any further action under the threat-based petitions. This ban means that CITA cannot move forward with a decision to request consultations with China seeking to impose a quota. As a result, exports from China in these categories will remain unrestricted. It also means that there will be no new safeguard actions taken on these specific products unless a new petition based on actual threat is filed or until such time as the judge lifts the injunction.

There is some question as to what impact, if any, this order has on the petitions that have been filed to re-impose the safeguard actions that were taken last year with respect to cotton and man-made fibre robes and dressing gowns (category 350/650), cotton and man-made fibre brassieres and other supporting garments (category 349/649) and knitted fabric (category 222). It is possible that the order will entice a party to file a similar lawsuit alleging that CITA's re-imposition of the quotas is based on threat and therefore should not be allowed. However, it appears that such an argument is much weaker in this instance. The original safeguard quotas were imposed in 2003 as a result of actual market disruption. Nonetheless, it is possible that a challenge will ensue.

Additionally, since the court's order currently does not explicitly cover socks, all cotton, wool, and man-made fibre socks in categories 332/432 and 632 part will remain subject to a safeguard quota of 42,433,990 dozen pairs for the period 29 October 2004 through 28 October 2005. That quota was only 8.1% filled through 10 January.

The US government has not announced whether it plans to file an expedited appeal to the US Court of Appeals for the Federal Circuit. Since the effect of the 30 December 2004 decision is to delay -- during the pendency of the case -- the imposition of safeguard quotas on certain textiles and apparel categories from China with quotas that expired after 31 December 2004, it is possible that the government will file an expedited appeal to shorten the time period of the case and the injunction.

If the government does not appeal the preliminary injunction, the case will proceed to a trial court decision on the merits; i.e., whether the government can lawfully impose safeguard quotas on the basis of the threat of market disruption, rather than actual market disruption, under the terms of China's accession to the WTO. Previously, the government had made public statements that safeguards were not authorized on the basis of threat of market disruption by imports that were still under quota and had not yet surged to the point of creating actual market disruption. The government's abrupt change on this position and its acceptance of such threat-based petitions were the basis for the legal action brought by the US Association of Importers of Textiles and Apparel (USA-ITA), an association of apparel importers. There are also fundamental challenges to the authority of CITA that the court will decide.

DOC Official Downplays Impact of China's New Export Tax on Apparel

As had been previously announced, on 1 January the Chinese government formally established a tax on exports of certain apparel. The tax, which only applies to HTS Chapters 61 and 62, ranges from 0.2 to 0.3 yuan per piece for apparel items and 0.5 yuan per kilogramme for apparel parts classified under HTSCN 6117.90.00 and 6217.90.00. The tax is one of eight measures put forth by China's Ministry of Commerce in an effort to assuage fears in the US and the European Union by ensuring a smooth transition to a quota-free global trading environment.

The reaction of the Bush administration to the implementation of the export tax has not been as welcoming as the Chinese government may have initially expected. Under Secretary of Commerce for International Trade Grant Aldonas, who is visiting China during the week ending 14 January to follow up on a number of bilateral trade issues, downplayed the impact of the tax during a stop in Hong Kong. Aldonas stated that, in addition to being too low to have an appreciable effect on apparel export flows, the taxes are "technically illegal" under WTO rules. He further argued that, instead of imposing an export tax, China should take steps to increase market access to foreign textile and apparel products and eliminate incentives that make domestic production "unfairly cheap." Aldonas' reaction appears to confirm the administration's intention to closely monitor textile and apparel imports from China in the coming months and to invoke the textile safeguard if necessary to thwart market disruption.

January 19, 2005

China Raises Tax Rebates on Integrated Circuits

According to a circular jointly issued by the Ministry of Finance (MOF) and the State Administration of Taxation (SAT), China is raising its tax rebates on the export of certain information technology products to 17%. The rebates are retroactive to 1 November 2004. These information products include integrated circuits, certain discrete devices, mobile telecommunications base stations, etherswitches, routers, hand-held (vehicle-mounted) radio phones, other automatic digital microprocessors, microcomputer systems, LCD, cathode ray tube displays, hard disk drives, and unspecified automatic digital data processing equipment.

Raising export tax rebates to 17% means a full rebate. In September 2004 the State Development and Reform Commission announced the government’s decision to implement a policy of full rebates for the export of integrated circuit products in support of the sustained development of the integrated circuit industry.

Following negotiations between China and the US in July 2004, MOF and SAT jointly issued a circular in November 2004 stating that the policy of VAT rebates put forward in the notice on tax policies for further encouraging the development of the software and integrated circuit industries will be abolished on 1 April 2005. Under the former policy, integrated circuit products (including single-crystal chips) are eligible for rebates between 2002 and 2010 if their actual VAT burden exceeds 3% after VAT is levied at 17%.

Henan auto group is ahead of the traffic for sales
Zhongyuan Car Trade Group roared into life at the end of 1996 with a registered capital of Rmb51 million (HK$48 million), a Henan government-linked group that soon spawned a list of related units, including branches, a maintenance staff training centre and a used car mart. The group has won dealerships from many manufacturers after nearly 10 years of high octane operations. Today, notable names such as Mercedes Benz, BMW and other such marques are frequently on display in its exhibition hall. Additionally, Chinese companies such as China FAW Group, Harbin Hafei Motor Co, Dongfeng Automobile Corp, Zhengzhou Nissan Corp, Dongfeng Peugeot Citroen Automobile Co (DPCA), and Beiqi Foton have all chosen the Zhongyuan group as their prime distribution and marketing base in Henan.

A positive business environment and astute management have contributed to the group's well-regarded sales record. Individual companies are also generating handsome profits for the group itself, as well as car dealers and manufacturers doing business in the sales mart end of the business. The group sold more than 20,000 vehicles of various types each year between 2000 and 2002, and 17,181 in 2003. According to statistics released by the State Automobiles Circulation Information Centre, Henan Zhongyuan Car Trade Group ranked as the country's fourth in total sales of motor vehicles in 2002. It came third in the sale of FAW products, for example, and scored first second or third for sales in Dongfeng, Tianjin, Shenlong and Hafei.

According to the staff of the group, they receive many phone calls from manufacturers and dealers every day, expressing interest in cooperative ventures. Some manufacturers even send representatives to make enquiries in person. The group has established a sound after-sales service, with staff on duty round the clock to provide prompt repairs. At the same time, customers are offered assistance in purchasing, insurance arrangements, licence registration, installment plans and other services before, during and after sales. The group practises centralised purchasing and decentralised marketing, while offering door-to-door delivery. Its marketing division combines strategy, image building, competition strategy and information management. Henan Zhongyuan assigns great importance to cooperation with external car dealers and to brand building.

On the whole, cooperative ventures take the form of leasing space to dealers to set up businesses at the mart. The monthly rental for shops (about 20 sqm in size each) is between Rmb500 and Rmb800 (HK$471 and HK$754), and for the most expensive ones, rentals of up to Rmb1,000 (HK$943). Henan Zhongyuan will negotiate the terms of cooperation deals with manufacturers prepared to make significant investments. While providing good service to new tenants, the group also keeps its hand on management to prevent products from obscure sources, as well as preventing fakes, revamps or vehicles without certification from entering the mart.

The group has also built a 12,000 sqm indoor distribution warehouse and a 36,000 sqm garage, where over 4,000 cars can be stored for distribution. On the 15th floor of the complex is a 15,000 sqm spare parts inventory and a 4,000 sqm workshop, complete with inspection lines, hoists, wheel balance systems, paint baking rooms, lathes and other equipment for car maintenance and repair.

The existing car trading mart has a floor area of over 60,000 sqm. There are indoor and outdoor exhibition areas for the display of cars. The indoor exhibition hall has a total area of 10,000 sqm for the display of vehicles of different grades. The outdoor exhibition area of 14,000 sqm, is where heavy-duty trucks, engineering vehicles, special-purpose vehicles, mini-vans and sedans are put on display in open air. Situated in the eastern part of Zhengzhou, the capital of Henan, the mart sits right next to National Highway 107, the north-south artery of the province. The market is easily accessible, with Zhengzhou Railway Station, the hub of the Beijing-Guangzhou and Lianyungang-Lanzhou railways, just about 10 km away and Zhengzhou Xinzheng International Airport only about 20 km away. Surrounded by upmarket residential areas in an attractive environment, it could be said to be an ideal trading venue for car dealers.

Dalian to host top fur show

Messe Frankfurt (HK) Ltd has signed with Dalian International Garment Exhibition Co Ltd (DIGEC) to jointly host the China International Fur Garment Show. Under the agreement, the two companies will also join hands in hosting an annual fur show in Dalian, as well as strive to make it a top international event. Fur has always been a significant part of Hong Kong's garment industry, and fur garments with Hong Kong labels have always maintained a reputation and sales record in the three northeastern provinces of the Chinese mainland. The show is expected to add to the influence of Hong Kong brands in these provinces and the surrounding areas.

The first of these shows will take place in September 2005 to coincide with the Dalian International Garment Festival. The organiser aims to make the show a premier event in the country's fur industry, as well as regionally recognized, within about four years. According to people in the international garment exhibition industry in Dalian, conditions are ripe for the hosting of this event. Hong Kong labels are well-known.

Dalian is centrally located in northeastern China, adjacent to the Bohai Sea Economic Zone and northeastern Asia, including Japan, Korea and Russia's Far East regions. These countries and regions are major fur consumers and importers. With a long and cold autumn and winter season lasting five months, Dalian has the right climate for hosting fur shows.

DIGEC general manager Li Suzhen says that although the company is the first garment exhibition firm in China to join the Union of International Trade Fairs, it is lagging considerably behind partner Messe Frankfurt, which has a long history and solid foundation in the concepts and methods of organizing exhibitions. Li says cooperation with Messe Frankfurt will give DIGEC a chance to learn directly from the advanced exhibition concepts, market-oriented and corporate management, along with efficient and scientific systems and mechanisms, thus speeding up its integration with the international exhibition industry.

January 13, 2005

U.S. Embassy in Beijing Extends the Term of Validity for B-1, B-2 Visas

The Embassy of the United States of America in Beijing is pleased to announce that beginning January 15, 2005, the U.S. embassy and four consulates in China, as well as U.S. embassies and consulates around the world, will begin issuing to otherwise qualified Chinese citizens, who wish to visit the United States temporarily for business (B-1) or pleasure (B-2), visas that are valid for 12 months and multiple entries. The previous maximum validity of U.S. visas for these purposes was six months.

On a reciprocal basis, the Chinese Ministry of Foreign Affairs has also agreed to issue to American citizens visiting China on temporary business and tourism visas valid for the same 12 months and for multiple entries. While China and the U.S. will in principle issue maximum validity visas to each others citizens, on a case by case basis each side may limit the period of validity and number of entries as required by law and regulation. The U.S. Embassy and Chinese Ministry of Foreign Affairs exchanged diplomatic notes on this agreement in December 2004.

The Embassy believes this mutual extension of visa reciprocity will be a significant benefit to frequent travelers between China and the United States. The longer validity of visas means these frequent travelers will not have to renew their visas so frequently, saving time and money and making travel more convenient.

In 2004, the U.S. Embassy and four consulates in China issued 228,600 nonimmigrant visas. Of these, 173,140 or more than 77% were to visitors for temporary business (B-1) or tourism (B-2). The Embassy believes as many as one in ten of these travelers for temporary business or tourism visit the United States more than once a year.

January 12, 2005

China Grants National Treatment to Foreign Commercial Franchises

The Ministry of Commerce promulgated the Administrative Measures on Commercial Franchising Operations on 30 December 2004, which will take effect on 1 February 2005. Under the new measures, restrictions on market access and national treatment for franchising will be removed in line with China’s WTO commitments. Drawing on the experience of developed countries, detailed provisions are made for franchising parties, franchise contracts, information disclosure, advertising and publicity, supervision and management, foreign-invested enterprises (FIEs) engaging in franchising business, legal liability and other issues.

The new measures will apply to all enterprises engaged in commercial franchising in China. In addition to providing franchisees with guidance in conducting their business as well as training and a stable supply system, a franchisor is required to have at least two direct outlets established by itself or its subsidiary or holding company with a history of over one year within the territory of China.

The franchisor should file the trademark license contract for the record in accordance with China’s Trademark Law and other regulations before launching its franchising business. FIEs wishing to engage in commercial activities by means of franchising should apply to the department that originally approved its establishment to have “commercial franchising” included in its scope of business.

Logistically speaking: Zhonglu Wuliu Square is central China leader

Zhonglu Wuliu Square in Henan was born out of the desire to push up the modernization of central China's warehousing and transport systems, as the country rapidly opened up to foreign investment. In fact, this Sino-US joint venture, established in 1998, has since become the logistics leader of central China, with over 2,400 tenants and grossing Rmb5.2 billion (HK$4.9 billion) in business turnover annually.

Unlike ordinary warehouse-style malls, Zhonglu Wuliu Square only offers leases to manufacturers or agents with brand-name products. It sets high standards for product quality and tries to reduce intermediary links. Goods are sold wholesale and retail at ex-factory prices. According to company chairman Wang Chaobin, the philosophy of Zhonglu Display Centre is to show the finest of brand-name products from various parts of the country and the world at large. Tenants can set up business under leases, which are normally for one year; those who pay rent for a full year when they sign the contract are eligible for lease renewal on existing terms. Monthly rentals vary from between Rmb60 and Rmb100 (HK$56 and HK$94) per sqm. There are no additional charges for sanitation, security and water.

Zhonglu Wuliu Square has 100% occupancy, featuring as it does all kinds of facilities. Manufacturers and agents from 26 provinces, municipalities and autonomous regions across China and from various parts of Henan have taken up leases. The detergent and chemical city for example, in an area of 20 hectares, is home to thousands of manufacturers and agents of Chinese and imported cosmetics, representing tens of thousands of cosmetics and toiletry brands. It is a busy market with around 100 trucks heading off to dozens of cities in nearby provinces daily. A distributor of the international cosmetics brand Ponds said many business friends were situated in Zhonglu. To this distributor, Zhonglu is an ideal foothold for quickly building a nationwide network at low cost.

A dealer of a well-known domestic brand said that since his office, warehouse and store were in different places in the past, operating costs were high, making the price of many products uncompetitive. With a "one-stop" service at Zhonglu, the dealer can complete transactions in the same place, which cuts both cost and time. Zhonglu Wuliu Square has adopted three words: "variety, genuine and cheap" as its guiding watchwords. The centre insists on setting the bar high for standards of quality and all goods are bar-coded to facilitate tax. Duty is withheld before goods are sold, in order to eliminate tax evasion and sales of fake or inferior products.

Direct sales by manufacturers at bargain prices benefit both the dealer and the consumer. A trader who makes purchases at the centre said he chose Zhonglu because it offered exactly what he needed at prices he could not resist. For example, the market price of a bottle of purified water is Rmb1.5 (HK$1) on average. Zhonglu made purchases at Rmb0.8 per bottle and sold it at Rmb0.9. The profit margin is small, but it makes good money all the same, through volume returns. Zhonglu Wuliu Square boasts a multi-outlet marketing channel made up of franchise stores, distributors, specialty stores and a massive membership-based sales promotion team. The centre has high-calibre purchasing and marketing teams, a membership promotion team and a logistics distribution team.

Additionally, Zhonglu has all the logistical equipment needed, including stowing facilities such as forklifts, stacks, lifts and hoisting equipment, stereoscopic warehousing equipment, aisle stackers and pallet trucks, in addition to storage and delivery facilities. Zhonglu Wuliu Square: burgeoning logistics centre. Zhonglu Display Centre, of some 108,000 sqm, forms the core of Zhonglu Wuliu Square. It consists of a two-storey closed structure, rather like large American-style shopping malls. The place comprises a 108,000 sqm exhibition hall, offices, a 60,000 sqm warehouse, a team of over 100 delivery vans, and a six-storey e-commerce centre.

Down the main axis of the Display Centre is an 18-metre canopied pedestrian shopping street, with 40 passenger and cargo lifts and automatic sprinkler and dynamic security system. Without doubt, it is the largest self-service warehouse-style mall in China. The square is divided into eight sections, including sections for medicine and medical equipment, detergent and cosmetics, food, wines and spirits, office appliances, small items, clothing, and toys. The eight sections are divided yet connected. Product display is backed by warehousing and logistic distribution to provide "one-stop" services. Business people can make deals and also stock, display, transport and deliver their goods through the Internet or other information platforms without leaving their shops.

Shanghai cuisine takes a vegetarian course

Nutritionists say we should eat more fruit and vegetables to stay healthy and slim, and even in the highly rated Shanghai restaurant scene, vegetarianism is coming to the fore. Some observe that women particularly develop a fondness for vegetarian dishes because they are generally more concerned about their figure, so prefer going to vegetarian restaurants when they eat out. Vegetables and culinary excellence are not mutually exclusive in vegetarian restaurants in Shanghai. On the contrary, veggie dishes appeal not only to the palate but can also be quite a novelty.

In Shanghai, there are long-established operations like Gong De Lin and Jade Buddha, where dishes are prepared in a traditional way. Then there are new-style "green" restaurants such as Vegetarian Lifestyle and Tian Ran Natural Health, most of which are operated by Taiwan proprietors. They serve veggie dishes distinctly differing in style, but each has its own merits. Old-style restaurants appear to pay less attention to health and their offerings appear almost to be meat dishes. The food tends to be quite oily and as the better-versed vegetarians say, taste is often sacrificed for form. For example, the vegetarian dumpling noodles are sour and their vegetarian sweet and sour pork and vegetarian fried eel look like the real thing, but apparently are not spectacular where it comes to the taste.

The menu in the older restaurants is somewhat long in the tooth. In fact, the long-established state-run restaurants have much to be desired in terms of service and management too. Way to healthy eating, it's said. By contrast, new-style restaurants give the impression that they pay more attention to healthy eating. They serve light dishes and regularly change their menus.

The newer restaurants feature dishes which are lightly seasoned but are, according to those who regularly eat there, by no means bland. There is innovation even in the cooking of plain vegetables. Some of these new-style vegetarian restaurants, such as L'arbre de Provence, have Chinese and western menus as well as smoking and non-smoking sections. They also serve special drinks and delicacies.

Some restaurants have pictures of the dishes to help patrons with their orders. Such details are welcome to white-collar patrons, who don't even mind paying higher prices and getting smaller servings. While new-style vegetarian restaurants become increasingly popular among young people, long-established operations have to undergo renovation to keep up with the competition. They are able to better live up to their age-old reputation in atmosphere and eating environment after they have been updated.

While these more "traditional" vegetarian restaurants still have their inadequacies, they also have one advantage over nouvelle cuisine: they offer better value for money. Most of these restaurants offer noodles, snacks and takeaways on the ground floor and à la carte menus on the first floor, an arrangement that meets the demands of consumers at different levels of the food chain too!

January 5, 2005

Zhengzhou's building market keeps on growing

Zhengzhou Building Materials World is a wholesale market for both decorative and building materials which opened in 1994, and an investment venture for the Zhengzhou Market Construction and Development Service Centre. The market is divided into eastern and western sections, with the western end covering an area of 38,000 sqm and featuring 260 shops. The eastern market has an area of 267,000 sqm and over 1,000 shops. The whole centre has a total area of 33.35 hectares and grosses Rmb3.7 billion (HK$3.4 billion) a year.

Zhengzhou Building Materials World has in fact become an influential distribution centre for decorative and building materials after just 10 years of development, and has become one of the largest centres in China. Nearly 1,000 building materials manufacturers and dealers from 20 provinces and municipalities have been attracted to set up business in the market, supplying a rich variety of goods. Over 6,000 people visit daily.

Apart from the Zhengzhou Building Materials World, there are many other "satellite markets" adjacent to National Highway 107 and Zhengbian Road, including Mingyou Building Materials Market, Zhangzhuang Aluminium Market, Wangzhuang Lighting Market, and Fenghuangtai Commodities World. Zhengzhou Building Materials World deals with over 12,000 types of goods in 50 major categories, including stone, ceramics, paints, coatings, rugs, doors, glass and hardware, selling its merchandise wholesale to more than 10 surrounding provinces and municipalities.

Shop spaces are for lease only and are 100% occupied. Wholesaling, retailing and placement of orders are all welcome methods of doing business. Value for money and a comprehensive range of merchandise are two major advantages of the market. Prices are always lower than elsewhere in the city for comparable products.

Moreover, situated at the junction of National Highway 107 and Zhengbian Road and with more than a dozen warehousing and logistics companies in the neighborhood, the centre is blessed with convenient transport and trading channels. So, the place is always buzzing with people and traffic, and customers keep coming back.

"Zhengzhou Building Materials World provides us with a commodities exchange venue with excellent services and hardware facilities. We have cooperated well these past years. As living standards improve, there will be more building and home decorating jobs in the market, bringing us [many] business opportunities," says Tian Shuzhong, manager of Datian Sheet Materials, a firm which moved into the market six years ago.

Goods of diverse styles, market positions and quality sold at the market give customers a wide choice. There is a wide variety of building and decorative materials, including sanitary ware, ceramics, coatings, gardening supplies, kitchen cabinets, upholstery, windows and doors, locks, lighting and sheets, as well as wall and floor tiles, aluminum structures, chemical building materials, innovative building materials, household goods, cement and hardware.

Zhengzhou Building Materials World assigns particular importance to brand and quality, to maintain the impetus of sales. The entry of renowned international brands like Toto (Japan Toto Machinery (China) Co Ltd., Arrow sanitary ware, Aupu Electrical Appliances Co Ltd, Bose, Nippon Paint and Dulux Paint has raised the status of the market.

Domestic enterprises such as Huabao rugs, Shuaikang kitchen cabinets, Jianlong decorative materials, Entire electrical appliances and Robam electrical appliances have also each signed up. "There are only things you cannot imagine but nothing you cannot buy at Zhengzhou Building Materials World," says one customer. The market provides a range of services, including medical care, legal advice, application channels for temporary residence, a postal service, business information, cultural and entertainment, and supplies of fast food, grain, oil and vegetables.

Zhongyuan International Exhibition Centre, which is only a few hundred meters from the market, is the largest and busiest venue for trade and product promotion in the city. It hosts many large-scale trade fairs and exhibitions each year, bringing numerous visitors to the market. Not content with its rapid rise, Zhengzhou Building Materials World decided to upgrade its business outlook and management in August this year. According to its overall plan, the renovated market will be taller and more ecologically efficient, with actual trade in building materials as its main function.

While offering improved traditional trading facilities, the market will also assign greater importance to e-commerce, enhance its information and pricing functions and provide customers with more convenient logistics and distribution services. Renovation and expansion of the market, with the increased leasing of shop spaces, will proceed step by step and will involve a total investment of about Rmb300 million (HK$283 million). It expects to achieve an annual business turnover of Rmb4.2 billion (HK$3.9 billion) by 2006.

After renovation, it will become a four-storey market with a total floor area of 350,000 sqm - more spacious, with better lighting and better-arranged shops. Shop spaces range in size from slightly more than 10 sqm to over 200 sqm. Rentals vary from Rmb30 to Rmb200 (HK$28 to HK$188) per sqm, depending on location. A 5% discount is offered to one-off payment for six months and a 10% discount is offered for 12 months. Rental concessions will be reviewed after the market upgrade and transformation.

China Removes Car Import Quotas by 2005

Starting from 1 January 2005, China will abolish the car import quota system and implement in its place an automatic import license system, according to a circular recently issued by the Ministry of Commerce. For the purpose of effectively monitoring the import of car products and safeguarding and regulating the normal order of the domestic car market, China has formulated the Implementing Rules for the Issuance of Automatic Import License of Car Products in accordance with the Procedures for the Administration of Imports of Mechanical and Electrical Products and Procedures for the Administration of Automatic Import License of Goods, which will take effect on 1 January 2005. These rules are formulated in compliance with China's WTO commitments.

Car products here refer to whole cars, complete sets of auto parts, spare parts assembly or system that constitute the features of cars, auto parts assembly or system, as well as key auto spare parts. The Ministry of Commerce is responsible for the administration of automatic import licensing for car products.

Besides the materials stipulated in Article 8 of the Procedures for the Administration of Automatic Import License of Goods, applicants for the import of auto products for sale must submit their dealer authorization certificate of respective brands (for first applications in any calendar year). For imports of automobiles for self-use in the form of general trade, applicants must submit their business license or certificate of organization (copy). Carmakers applying for the import of complete sets of spare parts (including SKD and CKD) or parts assembly (system) for production must submit the Announcement of Road Motor Vehicle Production Enterprises and Products in which the models to be produced are listed.

Custom gives clearance against an Automatic Import License stamped with a special seal of automatic import license of mechanical and electrical products. It is also against this Automatic Import License that banks sell and pay foreign exchange.

More Safeguard Petitions Advance; CITA Issues Entry Procedures for Over-shipments

With the end of the textile and apparel quota system only a few days away, the US textile manufacturing industry is working hard to restrain textile and apparel imports from China for the foreseeable future. The industry was exultant over the outcome of the sock safeguard petition that re-imposed quotas on all socks from China and will be even more thrilled if the interagency Committee for the Implementation of Textile Agreements (CITA) rules in favour of the petitions that were filed against cotton knit shirts (Category 338/339), man-made fibre knit shirts (Category 638/639), man-made fibre trousers (Category 647/648), cotton and man-made fibre underwear (Category 352/652) and non-knit cotton and man-made fibre shirts (Category 340/640). A decision on these petitions is expected in early February 2005 and the eventual outcome remains uncertain. What is certain, however, is that the safeguard mechanism is an innately political process where economic and procedural questions have played, and will likely continue to play, a secondary role.
The aforementioned petitions are particularly important because they will shield apparel manufacturers in Mexico, the Caribbean Basin and the Andean region from Chinese competition. US textile manufactures have developed, over the past decade, extensive co-production schemes with manufacturers in the Western Hemisphere and are eager to preserve and expand these vital business relationships in the years to come. The importance of countries like Mexico, El Salvador, Honduras, Guatemala and the Dominican Republic for the US textile industry cannot be understated, as they accounted for 59.4% of all US exports of fabric and 54.4% of all US exports of yarn during the first ten months of 2004. These inputs are used, for the most part, in the production of trousers, shirts and underwear that are subsequently exported under preferential trade programs to the US market.

In the meantime, CITA has agreed to consider the petitions filed in November and early December to re-apply the textile safeguard on imports of Chinese-origin knitted fabric (Category 222), cotton and man-made fibre brassieres and other supporting garments (Category 349/649) and cotton and man-made fibre robes and dressing gowns (Category 350/650). Comments on the requested safeguard actions must be submitted by 18 January 2005 in the case of the petition filed on Category 222, 26 January for the petition submitted on Category 350/650, and a yet-to-be determined deadline sometime in late January or early February for the petition filed on Category 349/649. Interested persons may submit ten copies of such comments to the Chairman, Committee for the Implementation of Textile Agreements, Room 3001A, US Department of Commerce, 14th and Constitution Avenue NW., Washington, DC 20230, USA. After the end of the comment period, CITA will have 60 days to determine whether imports of these products are threatening to disrupt the US market.

The safeguard actions that were in place on these categories expired on 24 December 2004 and trade in these products has not been subject to any quantitative restrictions from that date forward. If the safeguards are ultimately re-applied, they would be set at an amount no greater than 7.5% (6% for wool products) above the amount entered during the first 12 months of the most recent 14 months preceding the request for consultations. This period is likely to cover the year ending 31 December 2004, which would only give imports about a week of unrestricted growth. However, it is possible?-?although not probable?-?that the US will submit the actual request(s) for consultations to the Chinese government sometime in early April 2005, in which case the import figures for the year ending 31 January 2005 would be used.

After much delay and uncertainty, CITA also announced, on 13 December 2004, the precise administrative procedures that the Department of Homeland Security's (DHS) US Customs and Border Protection (CBP) will follow with respect to textile and apparel merchandise exported during 2004 in excess of 2004 quotas, regardless of whether that merchandise is presented for entry during 2004 or 2005. These so-called over-shipments include merchandise exported to a third country in 2004 and subsequently re-exported to the US in 2005, as well as merchandise shipped in excess of a 2004 limit and kept in a bonded warehouse until the new year. The safeguard limits on Categories 222, 349/649 and 350/650 are also covered by the new CITA procedures. It must be emphasised that the procedures do not affect merchandise exported on or after 1 January 2005, or Category 222, 349/649 or 350/650 goods shipped on or after 24 December 2004.?/font>

CITA has directed CBP not to allow entry of any over-shipments in regular quota categories until 1 February 2005.?On that date, and on the 1st of each succeeding month, entry will be permitted of goods in an amount equal to 5% of the applicable base quota limit. This procedure will be followed until all over-shipments in regular quota categories have been entered. The procedures for safeguard categories are identical except that the staged entries will commence on 24 January and, if necessary, the process will be repeated on the 24th of each succeeding month.

As a matter of illustration, in the case of Category 349/649 from China, entry will be permitted of up to 841,449 dozen starting on 24 January 2005. If necessary, an additional 841,449 dozen will be allowed entry on 24 February 2005, and so forth. It is important to note that CBP will follow the so-called "opening moment procedures" and that all shipments will need to be presented at the moment of opening. Merchandise will not be released for 3-5 days to allow all the merchandise to be presented. In the case of Category 349/649, if the total amount of over-shipped merchandise does not exceed 841,449 dozen, all the merchandise will be released on the 3rd day (i.e., 26 January). However, if the total amount is larger than 841,449 dozen, the merchandise will stay on hold until the 5th day (i.e., 28 January). A pro-ration will be determined on that date and all shipments will be subject to the pro-ration and released up to the 841,449 dozen limit. The balance of the shipments will be held until 24 February and, if necessary, the cycle will be repeated.

The Department of Commerce (DOC) had been looking for a balanced approach to over-shipments that did not cause irreparable harm to US textile and apparel importers but, at the same time, wanted to send a clear signal to the Chinese government that it must control the allocation of safeguard quotas and re-establish a visa system for shipments of these products. While the new procedures are unlikely to cause irreparable harm to the importing sector as a whole, it appears that they are sufficiently stringent to have a severe impact on a significant number of importers. The exact magnitude of what is turning out to be a bumpy transition to a quota-free trading environment is uncertain because CBP will not release any data on over-shipments until 3 January 2005. However, the products that are expected to be hardest-hit by the CITA procedures include, inter alia, knitted fabric, sateen fabric, cotton and man-made fibre brassieres, and cotton and man-made fibre robes and dressing gowns from China; men's and boys' cotton and man-made fibre woven shirts and cotton shop towels from India; and cotton trousers, cotton sheets, man-made fibre sheets and cotton shop towels from Pakistan.

China to Establish Tax on Textile and Apparel Exports; US Response Muted

Ministry of Commerce (MOFCOM) spokesman Chong Quang announced during a press conference held on 12 December that the Chinese government has decided to establish a tax on exports of textile and apparel merchandise, effective from January 2005. The tax is one of eight measures put forward by MOFCOM in an effort to assuage fears in the US and the European Union (EU) by ensuring a smooth transition to a quota-free global trading environment. Chong noted that the export tax would be applied "by considering the conditions of textile manufacturers" but did not specify the exact magnitude of the tax or what specific products it would cover. According to an article published in China's International Business Daily, the tax will range between 0.2 and 0.5 yuan per unit/kg and will cover 148 types of textile and apparel items in six categories: outerwear, dresses, pants, knitted and non-knitted blouses, sleepwear and underwear.
It appears that one of the primary objectives of the new export tax system is to encourage Chinese manufacturers to focus on higher-value textiles and apparel. In a sense, it seems that the tax would assume the role of the soon-to-be defunct quota fee, a sort of export tax also based on quantity which emerged from the need to ration quota allocation as effectively as possible.

The seven other measures announced by Chong at the press conference include: (i) the release of textile export information in a more timely fashion; (ii) offering timely information on investment, improving "risk warning," and preventing over-investment and redundant construction in the sector; (iii) encouraging Chinese enterprises to invest abroad and providing them with policy support to achieve this objective; (iv) expanding the role of intermediary organisations to encourage industrial self-discipline and coordinate exports; (v) promoting the adoption of the ISO9000 standard and the ISO14000 environmental protection standard; (vi) adopting trade promotion measures to develop and strengthen domestic brands; and (vii) enhancing bilateral and multilateral discussions and co-operation to safeguard the legitimate rights of Chinese companies.

As regards measure (iv) above, officials of the Chinese government have indicated their intention to implement an "automatic export permit system" for sensitive products. Export licenses would be issued by the local MOFCOM bureaus in each province, and the eligibility criteria would be determined by the Chinese Chamber of Commerce for Textile Imports and Exports. Although the full scope of this programme is still unclear, it appears that exporters would be required to meet certain labour and environmental standards.

The response of the US government to the measures announced by MOFCOM has been muted so far. On 21-22 December, a Chinese delegation held discussions on this matter with senior officials from the Office of the US Trade Representative (USTR), but an official US response has not yet been issued. It is unclear at this time whether the export tax will be sufficiently restrictive to persuade the US to proceed more cautiously on the textile safeguard process. Not surprisingly, the US textile manufacturing industry has reacted to the news with profound scepticism. For example, Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition (AMTAC), argued that China will continue to manipulate textile and apparel prices even if the tax is eventually implemented, while Cass Johnson, president of the National Council of Textile Organizations (NCTO), stated that "to even the score, the tax would have to be 30 to 50 percent."

USTR Issues Annual Report on China's WTO Compliance

The Bush Administration has avoided thorny confrontations with China in the economic and trade arena and has instead developed a rather fluid working relationship with senior Chinese officials in an effort to resolve matters of interest to US companies. Assuring China's compliance with its WTO obligations has been one of the pillars of this policy of engagement. US officials have continuously drawn attention to areas where China needs to achieve further progress and the Chinese leadership has generally responded with concrete actions.
The US has not shied away from confronting China more forcefully in critical areas where it believes further compliance work is necessary. For example, in March 2004 the US filed the first-ever WTO dispute settlement case against China, targeting its value-added tax (VAT) policies for semiconductors. This dispute?was resolved amicably last July when the Chinese government committed not to offer any additional VAT refunds that favor semiconductors manufactured in China. Helped by additional funding from Congress, the Administration has vowed to continue to work with China during 2005 to address any outstanding issues.

On 11 December, the USTR issued its third annual report to Congress on China's compliance with its WTO commitments and obligations. Like the prior reports, the 2004 review assesses China's compliance in nine broad categories: trading rights and distribution services; import regulation; export regulation; internal policies affecting trade; investment; agriculture; intellectual property rights (IPR); services and legal framework. The report calls China's efforts to implement its WTO commitments "impressive" but also notes that they are "far from complete and have not always been satisfactory".

The USTR report points out that the Chinese government implemented its trading rights commitments nearly six months ahead of schedule, allowing companies to import and export goods in China directly without having to use a middleman. China was scheduled to implement its distribution services commitments by 11 December and thereby allow foreign companies to freely distribute goods within China. The USTR is equally positive in its assessment of China's import regulations, noting that China has continued to implement its tariff reduction commitments in a timely fashion. In addition, significant progress has been achieved in enhancing transparency in anti-dumping investigations and ensuring the uniform application of WTO rules in the valuation of royalties and license fees by customs officials.

The report lists several areas of particular concern, however. On services, for example, the USTR notes that Chinese regulatory authorities "continue to frustrate efforts of US providers of insurance, express delivery, telecommunications and other services" through, among other things, "an opaque regulatory process and overly burdensome licensing and operating requirements." Although the Chinese government committed to eliminate certain restrictions on express delivery services at the April 2004 meeting of the US-China Joint Commission on Commerce and Trade (JCCT), the USTR finds that progress in this area has been slow. The USTR is also concerned with China's IPR enforcement efforts and vowed to take "whatever action is necessary" in the future to ensure that China develops and implements an effective system for IPR enforcement.

The report also claims that the implementation of China's WTO commitments in the agricultural sector is "beset with uncertainty." It alleges that "capricious practices by Chinese customs and quarantine officials can delay or halt shipments of agricultural products into China, while sanitary and phytosanitary standards with questionable scientific bases and a generally opaque regulatory regime frequently bedevil traders in agricultural commodities." The USTR commends MOFCOM for "its impressive moves toward adopting WTO transparency norms" but claims that other ministries have not made sufficient progress.

In general, US companies are more satisfied with China's progress in 2004 than in the previous two years. In a written submission to the USTR, two US trade associations representing many US companies doing business in China declared that "it has been a good year for American companies in China" and said they believe that "China is now substantially in compliance with its [WTO] obligations." The current level of market openness and transparency has boosted US exports to China, which increased by 30.8% to US$28.5 billion during the first ten months of 2004.

(Information Source & Credit: Hong Kong Trade Development Council)

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