Cost-saving with Compliance and Efficiency: Customs Classification, Valuation and IPR Border Enforcement The German Chamber of Commerce in China The European Chamber of Commerce in China The American Chamber of Commerce Tianjin, Holiday Inn Riverside March 24th, 2009
Economic Situation and Customs, Trade Efficiency 2
Economic Situation and Customs, Trade Efficiency 3
Economic Situation and Customs, Trade Efficiency 4
Economic Situation and Customs, Trade Efficiency 5
World Customs Organization Statement In this environment, efforts to sustain confidence in the global trading system are crucial and it is important to avoid new barriers to trade or measures that will increase costs and create additional delays at the border. We share the views of the World Customs Organization that the government and the trade should come together to contribute to these efforts by taking the following steps: developing a package of instruments and technical assistance that support risk management, audit-based control, compliance and use of technology; streamlining customs and trade process and compliance program to provide government with accurate required trade information to avoid unnecessary government inspections and audits; continuing to support the World Trade Organization and other international organizations in their trade facilitation efforts; strengthening customs modernization through expanded capacity building for both public and private sectors; continuing to work on the authorized economic operator system and mutual recognition arrangements; promoting the enforcement of intellectual property rights, public health and safety and facilitate legitimate trade; urging all customs administrations to seek ways of reducing administrative burdens and transactional costs on legitimate trade. 6
China Customs Facilitation Statement Customs facilitation to reduce clearance time and cost; Implementation of customs clearance under bond/surety/guarantee; Enterprise Classification for facilitation; Integration of customs special zones; Support processing trade business upgrade; Export tax refund increase for promoting trade; Customs statistics and analysis service; Customs IPR enforcement; Enforcement to prevent violation and promote legitimate trade; 7
Customs, International Trade, and Supply Chain Legal Issues (1) Customs Valuation; Transfer Pricing and Related Parties Transaction; Customs Duties and Taxes for Royalties and License Fee Payment; (2) Customs Classification; (3) Advance Ruling Program, and advance decision, HQ advisory; (4) Customs Bonded Operations (5) Processing Trade; (6) Product Safety and Import and Export Requirements and Licensing; (7) FTA, Government Procurement, COO Marking, and ROO; (8) AEO/C-TPAT: Customs and Trade Compliance, Security and Facilitation (9) Customs Enforcement of IPR; (10) Trade Remedies; (11) Foreign Exchange Regulation; (12) Freight Forwarding and Customs Brokerage (13) CSR in Supply Chain and International Trade; (14) Government Audit, Investigation and Dispute Settlement for Customs and Trade Matters; (15) Responsibilities and Liabilities in Commercial documents: sales contract, transportation contract, agency contract 8
Customs, International Trade, and Supply Chain Legal Issues not only for money but also for: Supply Chain Security and Efficiency; Customs and Trade Compliance, Facilitation and Liabilities; Foreign Exchange Regulation; Taxation; Business Reputation; Customer Relationship; Sarbanes-Oxley Compliance Corporate Social Responsibilities. 9
Functions, Roles and Responsibilities for Customs, International Trade, and Supply Chain Issues in Corporate World and Why Legal Staff Should Have at least some Control Legal Staff Production Staff Tax Staff Supply Chain/Logistics Finance Staff 10
CUSTOMS VALUATION: Objective of the GATT Transaction Value Concept A fair, uniform and structured system for valuation Simple and equitable criteria consistent with commercial practices Without distinction between sources of supply 11
Definition of Transaction Value Price paid or payable to or for the benefit of seller for the imported goods when sold for export to the country of importation Conditions: 12
History of China Customs Valuation Legislation 1950, Customs Act and Customs Tariff Regulations 1985, Customs Duties and Taxes Regulations 1987, Customs Act 1992, Customs Duties and Taxes Regulations 2000, Customs Act 13
Customs Valuation Legislation for WTO obligation January 1st, 2001, Customs Act January 1 st, 2004, Customs Duties and Taxes Regulations January 1 st, 2002, Regulations on Determination of Customs Valuation May 1 st, 2006, Regulations on Determination of Customs Valuation 14
Customs Valuation Legislation-General Rules Customs Valuation shall be based on TRANSACTION VALUE, which is the price actually paid or payable for the goods when sold for exportation to the country of importation, inclusive of freight, insurance and other related costs for transportation to the first port of entry of the country of importation, with adjustments, provided that: (a) that there are no restrictions as to the disposition or use of the goods other than restrictions which : (i) are imposed or required by law or by the public authorities in the country of importation; (ii) limit the geographical area in which the goods may be resold; or (iii) do not substantially affect the value of the goods; (b) that the sale or price is not subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued; (c) that no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made; and (d) that the buyer and seller are not related, or where the buyer and seller are related, that the transaction value is acceptable for Customs purposes. 15
Customs Valuation Legislation-General Rules (Adjustments, Plus) In determining the Customs value, there shall be adjustments added to the price actually paid or payable for the imported goods : a) to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods; (i) commissions and brokerage, except buying commissions; (ii) the cost of containers which are treated as being one for Customs purposes with the goods; (iii) the cost of packing whether for labor or materials; (b) (assists) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable; (i) materials, components, parts and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the imported goods; (iii) materials consumed in the production of the imported goods; (iv) engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the country of importation and necessary for the production of the imported goods; (c) royalties and license fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable; (d) the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller. 16
Customs Valuation Legislation-General Rules (Adjustments, Minus) In determining the Customs value, there shall be adjustments not to include the following charges or costs, provided that they are distinguished from the price actually paid or payable for the imported goods; (a) charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment; (b) the cost of transport after importation; (c) duties and taxes of the country of importation; The flow of dividends or other payments from the buyer to the seller that do not relate to the imported goods are not part of the Customs value. 17
Customs Valuation Legislation-General Rules (Relationship) In a related transaction case the circumstances surrounding the sale shall be examined and the transaction value shall be accepted provided that the Relationship did not influence the price. Related persons are: (a) they are officers or directors of one another's businesses; (b) they are legally recognized partners in business; (c) they are employer and employee; (d) any person directly or indirectly owns, controls or holds 5 percent or more of the outstanding voting stock or shares of both of them; (e) one of them directly or indirectly controls the other; (f ) both of them are directly or indirectly controlled by a third person; (g) together they directly or indirectly control a third person; or (h) they are members of the same family. 18
Customs Valuation Legislation-General Rules In a sale between related persons, the transaction value shall be accepted whenever the importer demonstrates that such value closely approximates to one of the following occurring at or about the same time : (i) the transaction value in sales to unrelated buyers of identical or similar goods for export to the same country of importation; (ii) the Customs value of identical or similar goods of deductive valuation; (iii) the Customs value of identical or similar goods of computed valuation; In applying the tests, due account shall be taken of demonstrated differences in commercial levels, quantity levels, and costs incurred by the seller in sales in which the seller and the buyer are not related that are not incurred by the seller in sales in which the seller and the buyer are related. 19
Customs Valuation Legislation-General Rules (Transaction value of identical goods) If the Customs value of the imported goods cannot be determined under the method of transaction value of the imported goods, the Customs value shall be the transaction value of identical goods sold for export to the same country of importation and exported at or about the same time as the goods being valued. In applying this method, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the Customs value. Where no such sale is found, the transaction value of identical goods sold at a different commercial level and/or in different quantities, adjusted to take account of differences attributable to commercial level and/or to quantity, shall be used, provided that such adjustments can be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustment, whether the adjustment leads to an increase or a decrease in the value. 20
Customs Valuation Legislation-General Rules (Transaction value of similar goods) If the Customs value of the imported goods cannot be determined under the method of transaction value of the imported goods and the transaction value of the identical goods, the Customs value shall be the transaction value of similar goods sold for export to the same country of importation and exported at or about the same time as the goods being valued. In applying this method, the transaction value of similar goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the Customs value. Where no such sale is found, the transaction value of similar goods sold at a different commercial level and/or in different quantities, adjusted to take account of differences attributable to commercial level and/or to quantity, shall be used, provided that such adjustments can be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustment, whether the adjustment leads to an increase or a decrease in the value. 21
Customs Valuation Legislation-General Rules (Order of application) If the Customs value of the imported goods cannot be determined under the method of transaction value of the imported goods, the transaction value of the identical imported goods and the transaction value of the similar imported goods, the Customs value shall be based on the methods of deductive value or computed value, and other reasonable means. At the request of the importer, the order of application of deductive value and computed value shall be reversed. 22
Customs Valuation Legislation-General Rules (Deductive Value) If the imported goods or identical or similar imported goods are sold in the country of importation in the condition as imported, the Customs value of the imported goods shall be based on the unit price at which the imported goods or identical or similar imported Goods are so sold in the greatest aggregate quantity, at or about the time of the importation of the goods being valued, to persons who are not related to the persons from whom they buy such goods, subject to deductions for the following : (i) either the commissions usually paid or agreed to be paid or the additions usually made for profit and general expenses in connection with sales in such country of imported goods of the same class or kind; (ii) the usual costs of transport and insurance and associated costs within the country of importation; (iii) Where appropriate, the costs and charges referred to adjustments; and (iv) the Customs duties and other national taxes payable in the country of importation by reason of the importation or sale of the goods. 23
Customs Valuation Legislation-General Rules If neither the imported goods nor identical nor similar imported goods are sold at or about the time of importation of the goods being valued, the Customs value shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the country of importation in the condition as imported at the earliest date after the importation of the goods being valued but before the expiration of 90 days after such importation. If neither the imported goods nor identical nor similar imported goods are sold in the country of importation in the condition as imported, then, if the importer so requests, the Customs value shall be based on the unit price at which the imported goods, after further processing, are sold in the greatest aggregate quantity to persons in the country of importation who are not related to the persons from whom they buy such goods, due allowance being made for the value added by such processing and the deductions. 24
New Customs Valuation Legislation-General Rules (Computed Value) Computed value shall consist of the sum of : (a) the cost or value of materials and fabrication or other processing employed in producing the imported goods; (b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the country of importation; (c) the cost or value of all other expenses necessary to reflect the freight, insurance and other related cost for transport to the first port of entry of the country of importation. 25
New Customs Valuation Legislation-General Rules (Reasonable Means) If the Customs value of the imported goods cannot be determined under the methods discussed the Customs value shall be determined using reasonable means consistent with the principles and general provisions of the WTO customs valuation rules and on the basis of data available in the country of importation. No Customs value shall be determined by using reasonable means on the basis of : (a) the selling price in the country of importation of goods produced in such country; (b) a system which provides for the acceptance for Customs purposes of the higher of two alternative values; (c) the price of goods on the domestic market of the country of exportation; (d) the cost of production other than computed values which have been determined for identical or similar goods; (e) the price of the goods for export to a country other than the country of importation; (f) minimum Customs values; or (g) arbitrary or fictitious values. If the importer so requests, the importer shall be informed in writing of the Customs value determined under the provisions of this Article and the method used to determine such value. 26
Customs Valuation Legislation-Rules for Special Scenarios Processing Trade: (i) for buy-sale processing, if the duties and taxes for the materials need to be paid at the importation; (ii) imported materials and finished products (including defective or by products) of buy-sale processing for sale into domestic commerce; (iii) imported materials and finished products (including defective or by products) of assignment processing for sale into domestic commerce; (iv) sale of the processed goods from Processing Trade Zone into domestic commerce; (v) sale of the processed goods from Free Trade Zone into domestic commerce (100% imported materials v. imported materials with nonimported materials); 27
Customs Valuation Legislation-Rules for Special Scenarios Sale of imported goods from free trade zone, processing trade zone. Or bonded warehouse into domestic commerce; Export for repair and then re-import; Export for processing and then re-import; Import based on leasing; Purchase of sample, advertisement and exhibition articles; Re-import of unchanged goods due to unsatisfied quality and specification; Import of replacement or compensatory goods; Import of software media; 28
Customs Valuation Legislation-Procedural Rules Importer s responsibility to truthfully report transaction value and produce invoice,contract, manifest, packing list and other documents, written information and electronic data which can testify the truthfulness, completeness of the reported value; Customs may request the importer provide information regarding the relationship between the buyer and seller; In order to examine the truthfulness and the accuracy of the reported value, customs may: inspect commercial documents; enquire information from businesses involved in the transaction; enter into premise to inspect documents and operation; enquire from financial institution and tax agency for information of payment and internal tax; 29
Customs Valuation Legislation-Procedural Rules Customs may request more information from the importer if it doubts about the truthfulness of the reported value and relationship; The importer shall produce the information requested with 15 days from the date of the request; To apply the transaction value of the identical or similar goods, Customs may conduct consultation with the importer; Importer may request Customs provide written explanation on determination of the customs valuation; Importer may request customs release the goods in question under a bond if customs needs to take time to make a decision on customs valuation, and customs shall make a decision with 90 days from the date of posing the bond; Importer may request a ruling for customs valuation; Customs shall keep secret of the confidential business information from the importer. 30
Customs Valuation - Practice Often times, TV is still not accepted: Government reliance on customs duties for national revenue (35% of the Central government revenue comes from customs duties and taxes, US$ 117 billion in 2008) Port specific decisions rather than nationally based centers of expertise & administration Lack of adequate resources/infrastructure training, technical resource materials, materials, equipment Negotiation between customs and importer rather than consultation based on the technical rules Fear of being cheated by the importers Application of reference price, minimum value and arbitrary or fictitious values Key technical Issues for Education and Consultation: Related parties transaction; Loyalties and license fees; Assists; data media 31
Related parties transaction-practice Disclosure of relationship; Arguments for non-impact of relationship on the transaction value: * arm s length transaction as if with a non-related party * selection of a TP method, if necessary * circumstances surrounding the transactions Internal transfer pricing policy, method, process and economic study; Mere TP may not satisfy Customs; Refusal of application of test values; Avoid double taxation by Customs and Tax 32
Loyalties and license fees payment-practice Payment directly or indirectly to the seller of the imported goods or its related parties Royalties and license fees related to the goods being valued; as a condition of sale of the goods being valued; to the extent that such royalties and fees are not included in the price actually paid or payable; Report; Payment to the seller or a related party of the seller? Payment related to the imported goods? ((1) payment for manufacturing occurs in China and imported materials; (2) payment for finished imported goods with intellectual property on; (3) payment for IT equipment with licensed software; (4) payment for chain store franchise royalties based on net sale with imported trademarked goods; (5) payment based on net sale after importation, proceeds of a subsequent resale? ) Payment as a condition for the sale of the imported goods from the seller to the buyer (importer of record) Royalties and license fees: contract management; 33
Related party transactions and Loyalties and license fees payment- case study transactional net margin method utilized by most of the IT companies; FTZ operation and Related party transactions and Loyalties and license fees payment; Franchise agreement, commodities with or without trademark and Related party transactions and Loyalties and license fees payment; 34
Assists-Practice Report; When to pay customs duties and taxes? Foreign exchange control; 35
Data media, software-practice Report; Distinguish the values of hardware, data media and software; Use service contract and technology transfer contract duty-free software for foreign exchange payment; 36
CUSTOMS CLASSIFICATION: General Information Classification, and, when ad valorem rates of duty are applicable, appraisement, are the two most important factors affecting dutiable Status and import requirements. Classification is initially the responsibility of an importer, customs broker or other person preparing the entry documents. The movement of merchandise in international trade, however, would be very slow and costly if the merchandise had to be classified under differing tariff systems of various countries. Under the auspices of an international body known as the Customs Cooperation Council (now known as the World Customs Organization or simply the WCO), on January 1 1988, all this was resolved with the entry into force of the International Convention on the Harmonized Commodity Description and Coding System to which the Harmonized System with the General Rules of Interpretation, legal notes is appended as an annex. Most Asian countries and regions, including China, are the signatories of the Convention. 37
General Information At the international level, the Harmonized System consists of approximately 5,000 descriptions which appear as headings and subheadings. These descriptions are arranged into 97 chapters grouped into 21 sections, which deal separately with merchandise in broad product categories. These categories cover animal products, vegetable products, products of various basic materials such as wood, textiles, plastics, rubber, and steel and other metal products in various stages of manufacture, chemicals, machinery and electrical equipment, and other specified or non-enumerated products. The last section, Section XXII, covers certain exceptions from duty and special statutory provisions. Coding beyond the 6- digit level is usually at the 8-digit level and is generally referred to as the national level, and the 10-digit level is for trade statistics purpose. 38
General Rules of Interpretation (GRIs) There are six General Rules of Interpretation (GRIs). Rules one to four are related and must be applied in sequence, Rules five and six stand on their own and are to be applied as needed. RULE 1: The titles of Sections, Chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and according to the following provisions. 39
General Rules of Interpretation (GRIs) RULE 2: (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled; (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3. 40
General Rules of Interpretation (GRIs) RULE 3: When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods; (b) (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable; (c) (c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. 41
General Rules of Interpretation (GRIs) RULE 4: Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin. RULE 5: In addition to the foregoing provisions, the following Rules shall apply in respect of the goods referred to therein: (a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This Rule does not, however, apply to containers which give the whole its essential character; (b) Subject to the provisions of Rule 5 (a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision does not apply when such packing materials or packing containers are clearly suitable for repetitive use. 42
General Rules of Interpretation (GRIs) RULE 6: For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purpose of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires. The GRIs provide that goods must first be classified by heading level, and only after the appropriate heading has been determined, then by equal subheading levels (by six-digit international levels) within that heading. When considering the appropriate classification at a particular subheading level, no consideration should be given to any of the terms of any lower-level subheading. This step-by-step analysis applies without exception throughout the Harmonized System (and throughout any national subheading levels as found in a particular country s Harmonized System-based tariff system). 43
Advance decision, District Ruling and HQ Ruling Advance decision, District Ruling HQ Ruling 44
ADVANCE RULING PROGRAM Since January 1, 2002, China Customs has implemented the regulations on administrative ruling procedures to enhance customs clearance efficiency and improve transparency and consistency of trade law enforcement, which will significantly change the administrative process of China Customs. 45
ADVANCE RULING PROGRAM Ruling requests: A ruling may be requested by any person on record with Customs, who is authorized to import and export and who either does or intends to import or export merchandise related to the ruling request, or by an authorized agent of such person. Filing applications: Applicants may file ruling requests at the Customs headquarters or the Customs District closest to the applicant. Prospective transactions: A ruling may be requested only with respect to prospective transactions. China Customs will not issue rulings on hypothetical or actual transactions. Effect: A ruling shall have the same legal effect as a regulation, and would be applied consistently to a specific set of facts and within the customs jurisdiction for which the Customs Law of 1987, as amended in 2000, has effect. 46
ADVANCE RULING PROGRAM Scope of application: These regulations will apply to tariff classification, rules of origin, trade control and other issues the CGA (Customs General Administration) deems necessary. Power of attorney: If the applicant authorizes an agent to apply for a ruling, a power of attorney must be filed jointly with the ruling request. Content: Each ruling request must contain a statement of all relevant facts relating to the transaction, including: name; address; enterprise customs code; contact; description of transaction and merchandise; anticipated importation or exportation date and port; any other information Customs deems necessary. Sample: When Customs deems it necessary, the applicant should provide a sample of the merchandise. Timing: Applicants should file ruling requests three months prior to the date of anticipated importation or exportation; Customs will determine whether or not to accept the ruling request within 15 days of the receipt date of the request; Customs will issue a ruling within 60 days following the acceptance date of the request. 47
ADVANCE RULING PROGRAM Publication: Once issued by Customs, a ruling will be published nationwide, and will be effective as of its publication date. Administrative Review: Only parties involved in an actual transaction, who are dissatisfied with a customs decision based on a ruling, may file a petition for administrative review to challenge both the decision on the transaction and the ruling. A ruling cannot be challenged without the existence of an actual transaction and Customs decision. 48
ADVANCE DECISION 45 days before the date of the planned importation or exportation, the importer or exporter of record may request an advance decision from the customs district where the goods are to enter or leave. Where the customs district finds the request involves a commodity can be properly classified without controversy under the HS rules and notes, and the Customs HQ decisions and rulings, the district should issue a Classification Advance Decision within 15 days from the date of acceptance of the request. Advance Classification Decision shall be repealed or changed by the issuing district when error is found or change is demanded. 49
CLASSIFICATION REGULATIONS New regulations on modernized classification system of imports and exports will take effect May 1, 2007. These regulations are designed to promote the consistency and uniformity of customs classification decisions and to facilitate trade efficiency and customs compliance. Following are highlights of some of the new regulatory provisions that may have an impact on the business processes and compliance programs of traders in China. 50
HQ CLASSIFICATION ADVISORY The new regulations also provide that, on the ex officio basis, China Customs HQ can issue HQ Classification Advisory Decisions which have same legal effect with rulings wherever they find it necessary. 51
DATABASE In addition to the announced rules, to administer the classification system, China customs will establish and maintain a database and automatic system internally to prevent the districts from issuing contradicting advance decisions. 52
Customs Enforcement of IPR STOP at the BORDER Proactive Recordation with Customs: Recordation proactively with the GAC before an infringement occurs allows a right holder to expedite the approval of an application for Customs protection if an infringement actually does occur. An application for proactive recordation should contain the following information: The name, nationality or registered locality, address, legal representative and primary business location of the right owner; Information on the right to be protected, including documentation establishing right ownership; A list of persons authorized or licensed to use the right; Information on the products to which the right is related, including the manufacturer, primary importers or exporters, primary points of customs entry or exit, key product characteristics and price; The name, place of manufacture, key product characteristics, standard prices, primary importers or exporters, and primary points of customs entry or exit, and if known, information concerning any infringing products; Other information as required by Customs 53
Customs Enforcement of IPR STOP at the BORDER The application should be accompanied by the following documentation: A photocopy certified by the registration authority of the registration certificate of the right holder; Documentary proof of right ownership; Other documents required by Customs The GAC must respond to an application within 30 working days of receipt. The application and subsequent approval forms will be placed on file immediately. The application and approval is valid for ten years, renewable within six months of the end of the term. Any changes should be reported to Customs within 30 working days after the changes are archived. 54
Customs Enforcement of IPR STOP at the BORDER Request for Customs Protection When an Infringement Occurs: An application for customs protection from an actual infringement should include the following: the right being infringed; The Customs number assigned to the request upon approval; The name, address, legal representative or primary place of business of the suspected infringer; The name, specifications and other information concerning the infringing products; Possible ports of entry or exit, the time, mode of transport and consignor (imports) or shipper (exports) of the infringing products; Evidence establishing the infringement; Measures requested to be taken by Customs; Other information required by Customs If a proactive recordation is not already on file for a right for which customs protection is being sought, the request must be submitted along with the application for Customs protection. In addition, if Customs discovers goods that appear to infringe upon a right already on file or not on file, Customs may on its own initiative seize the goods. Customs will then provide immediate written notice to the right holder, who must file an application for Customs protection within three days after receipt of such notice. 55
Customs Enforcement of IPR STOP at the BORDER If the right holder requests that the infringing products be seized, the copyright holder must post a security deposit with Customs which shall be used to indemnify the losses caused to the consignee or consigner if the detainment is found to be inappropriate and to pay for warehousing, custody and disposal fees. If Customs agrees to seize the products, Customs will send a Customs Holding Receipt to the recipient or sender of the products, as the case may be, and provide written notice to the right holder. If the recipient or sender of the goods raises no objection, Customs shall have the authority to dispose of the products immediately as "infringing products." 56
Customs Enforcement of IPR STOP at the BORDER Unless the right holder has referred the matter to a local IPR authority or a People's Court within 15 days of receiving notice of the seizure, Customs will commence an investigation. Customs may release the products held under any of the following circumstances: The products are found not to be infringing after investigation by Customs or by a local copyright authority; The case filed with a People's Court is dismissed or the court does not impose an order for preservation of evidence; The right holder does not respond to notice received from Customs within the stipulated period or abandons its request for Customs protection When products are released under any of the above, Customs will refund the security deposit after deducting costs for storing, safekeeping and handling the goods and any compensation payable to the importer or exporter. 57
Customs Enforcement of IPR STOP at the BORDER Recent Changes: Annual continuing surety; No recordation required; Customs police is authorized to refer IPR criminal cases to the prosecutors; 58
Customs Enforcement of IPR STOP at the BORDER To protect the intellectual property rights effectively at the border, the right owners shall diligently work together with their lawyers to: register their intellectual property rights in China; record their intellectual property rights with China Customs; establish good working relationship with customs; provide genuine product training to customs officials; collect more and accurate intelligence and request targeted detention; mobilize your internal team and respond quickly to the customs action; work with the customs attachés at the embassies in China who play a significant role for customs border enforcement of IPR; So long as the IPR right owner work diligently with specialized lawyers to fight the infringement at the border effectively, it is possible to leash infringements in the international trade. 59
SANDLER, TRAVIS & ROSENBERG, PA Established in 1977 The biggest law firm in the world dedicating itself to customs and international trade service 12 offices around the world More than 300 professionals having government and/or corporate experience Integrate political, legal and technical factors for customs and international trade solution 60
SANDLER, TRAVIS & ROSENBERG, PA The Development and Implementation of Cost-effective and Compliant trade, Customs, Global Sourcing and Supply Chain Strategies, Programs and Processes; Transfer Pricing Analyses, Other Customs/Tax Valuation Assistance and Import Cost Minimization; Tariff Classification and Engineering; Country of Origin and Marking Determinations; Preference Program and Trade Agreement Eligibility; Bonded Facilities and Operations, Processing Trade, Temporary Import and Export, and Duty Drawback Programs; Utilization of Investment-encouraging Duty and Tax Policies and Programs; Customs and Trade Regulatory Compliance Audit; 61
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Thank You! QUESTIONS? XIAO Xuquan, Deputy Director for Classification, Tianjin Customs District SU Nan Section Chief, Valuation Branch, Beijing Customs District Zhaokang JIANG, Esq. Sandler Travis and Rosenberg, PA China World Tower 1, Suite 2705, 1 Jianguomenwai Avenue, Beijing 100004, P.R. China Tel: +86(10)6505-9900 Direct line: +86(10)6505-3075 Fax: +86(10)6505-7390 Mobile: 86-13901291150 zjiang@strtrade.com 1300 Pennsylvania Avenue, N.W. Washington, DC 20004 Tel: 1(202)216-9307 Fax: 1(202)330-5990 zjiang@strtrade.com 63