‘Grace Period’ for Cross-Border E-Commerce extended

A State Council executive meeting chaired by Chinese Premier Li Keqiang decided, on 20 September 2017, to extend the Cross-Border E-Commerce (CBEC) Pilot Programme.

As a result, the ’grace period’ before the implementation of tougher new rules that will increase taxes and regulations on products sold via cross-border channels, has also been extended by one year until 31 December 2018. It was scheduled to expire on 31 December 2017.

This postponement will give relevant enterprises more time to prepare and adapt. It also means that there will be no updating of the current Positive List of commodities that can be imported to China through CBEC.

The CBEC programme was originally launched by the State Council in Hangzhou in 2015 and then expanded to 12 more cities, including Shanghai, Tianjin and Chongqing, in early 2016. However, the nascent CBEC market was subsequently disrupted by regulatory and tax changes that created widespread confusion for retailers and brands.

The first major change was the introduction, as of 7 April 2016, of a “List of Imported Commodities for Retail in Cross-border E-Commerce”, commonly known as the ‘Positive List’. This imposed import licensing, product registration and commodity inspection and quarantine (CIQ) requirements on consumer goods imported and sold under the CBEC programme.

These included, most notably, the pre-importation registration of infant milk formula, cosmetics, health food, medical devices and other sensitive products, as well as the requirement for most consumer goods undergoing the CIQ procedure to ensure compliance with Chinese national standards and product safety and quality rules.

The second major change was the Circular on Tax Policy for Cross-Border E-commerce Retail Imports, which was brought into force a day later. This removed many of the preferential tax policies that previously applied to CBEC transactions and also introduced an annual spending limit of RMB 20,000 for Chinese individuals on CBEC platforms.

Due to the disruption caused by these changes, the Chinese government subsequently offered a ‘grace period’ during which the implementation of requirements was suspended. The further extension of this ‘grace period’ by the State Council suggests that imported consumer goods sold under the CBEC programme will continue to be exempted from these requirements until at least the end of 2018.

The State Council also said it will now look to set up more pilot zones with looser restrictions on cross-border trade. In addition, some good practices – the development of online comprehensive service platforms incorporating customs clearance, logistics, tax refunds, payments, fund-raising and risk control services, as well as offline industrial parks providing whole-industrial-chain services – would be rolled out nationwide.

While the new CBEC extension announcement is welcome, companies interested in CBEC do need to develop a comprehensive market strategy. It could be that in a little over a year’s time, your business model may be undermined when the ‘grace period’ expires and the new requirements are implemented.

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