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  • 6.2.3-MARKET PROFILES-NON-TARIFF REQUIREMENTS IN THE DOMESTIC MARKET

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  • Non-tariff requirements in the domestic market

    Chapter 6 - Market profiles - China 

     
     

    Customs procedures

    Upon arrival of imported cotton, the importer normally entrusts a professional clearing agency with the declaration to Customs. The agency should first apply to Customs for quarantine and inspection. If any plant diseases or insect pests are observed in the goods during quarantine, measures shall be taken to eradicate them. At the end of the quarantine period, Customs issues a customs clearance note indicating that quarantine has been completed. Next, the clearing agent needs to complete the customs declaration and submit it to Customs along with the full customs documents. Once the documents have been checked, Customs will calculate the tariff and VAT for the goods; when the relevant tax has been paid, the clearing agent can collect the corresponding tax invoice and the customs declaration issued by Customs recording the details of the goods. Then the goods will be released.

    In recent years, more and more international cotton merchants have been exporting cotton to China via consignment in bonded warehouses, which occurs in the following way. Overseas merchants ship the cotton to China’s port, undertake the quarantine and submit the first customs declaration for the bonded warehouse, without paying the tariff. If the client is satisfied with the cotton quality upon checking it at the bonded warehouse and decides to buy the cargo, a second customs declaration is completed. The tariff is then paid by the client according to the quantity and price of the cotton, and the goods are released from the bonded warehouse. The entire process is basically consistent with the general trade system described above.

    Freight forwarding and transport requirements

    Almost all imported cotton is shipped to coastal ports, and the textile enterprises sign contracts on a cost including freight (CIF) basis. In China, the main regions consuming imported cotton are concentrated around the three ports of Shanghai, Qingdao and Tianjin. In addition, a small quantity of Uzbekistan cotton is transported through the Europe–Asia railways to inland China. This process is complicated, so although it takes a shorter time and costs less to transport the cotton overland, most Uzbekistan cotton is still shipped to China’s sea ports. Upon taking delivery at the port, most textile enterprises transport the cotton to their factories by road; a few textile enterprises that are far away from the ports also use rail transport.

    Packaging, marketing, labelling and specific domestic business practices

    According to the Chinatex Contract Terms for Cotton Purchase, there are two main types of packing included: single and group. The contract specifies that cotton packing should be outside packaging, covered with gunny cloth, cotton cloth or other wrappers, suitable for marine shipment, which should be tightened with steel baling straps or iron wire. If the gross weight per ton exceeds the specified volume, the seller pays the freight for the exceeded portion. The cotton bales shall not be allowed to mix with any hemp thread, rags, sawdust, iron scurf or iron nails, or other specified substances. If this is found, the buyer can claim against the seller for the damage according to the findings made by China Entry-Exit Inspection and Quarantine (CIQ) or certification provided by the user.

    Shipping marks are printed on one end or two sides of the cotton bale with non-fading paint one by one. The seller is responsible for the expenses of changing mixed-mark goods due to the seller’s failure to print the contract number.

    Specific contract requirements

    Chinese enterprises have developed some conventions for the import of cotton. The main features are listed here.

    • Definition of contractual variety. In China, the signed contract for cotton import has three ways of stipulating the quality: transaction as fixed standard; transaction as per sample; and transaction as per physical goods, which has become increasingly popular in China as consignment trading has grown in recent years (i.e. foreign cotton dealers store the cotton in China’s bonded warehouses, the buyers inspect the goods at the bonded warehouse before making a deal, and thus there is no claim against the quality).
    • Price terms. China’s cotton importers prefer to adopt CIF price terms, in which the seller pays for shipping and bears the cost of freight. Very few import contracts adopt FOB terms.
    • Fixation of contractual price. Chinese enterprises are used to signing fixed-price contracts. Since few Chinese cotton buyers hedge their cotton on the New York Cotton Futures Exchange, they seldom use overnight firm bids, seller’s on call or buyer’s on call to define the contract price.
    • Final settlement. China’s import cotton mostly adopts landed quality and weight, i.e. final settlement is subject to quality inspection and a weight authentication certificate issued at the port of arrival. However, to import Egyptian cotton, China adopts the Alexander Terms, which take the quality and weight verified by the local Cotton Arbitration and Testing General Organization (CATGO) as the final basis.
    • Contract terms. The contractual terms are mostly based on Chinatex Contract Terms for Cotton Purchase, without using the Liverpool Contract or ACSA Contract (see below).

    Chinatex Contract Terms for Cotton Purchase

    The Chinatex Contract for Cotton Purchase has the following key points.
     

    • In claims regarding delayed issue of L/C and shipment, the defaulter pays compensation at 1.25% per month of the contract price.
    • Landed inspection by CIQ is taken as final, including:
      • Weight. At the destination port CIQ takes random samples of 5% for testing moisture regain, and weigh each bale before issuing the weight certificate. The allowable moisture regain is 8.5%; any excess will be deducted, and percentages below this will not be made up (to restrict the moisture regain).
      • Tare. CIQ samples 3%–5% of the bales for each batch of goods in order to define the average tare. The net delivery weight is calculated based on the actual average tare.
      • Tolerance. The tolerance for the delivery weight for each contract shall not be more than 1% of the contractual quantity. If the New York market price upon shipment is higher than the New York market price upon signing the contract, the extra portion will be counted as per the contract price. For short delivery by less than 1%, the buyer has the right to claim from the seller for the price difference and loss due to the dead freight, referring to the FOB or FAS (free alongside ship) terms. If the New York market price upon shipping is higher than the New York market price upon signing the contract, if the extra delivery exceeds 1%, the buyer has the right to claim from the seller for the price difference.
      • Quality: A random sample of 10% (strength 5%) is taken from each batch as the base for inspecting the quality. If certain samples of the deliveries are lower than the specified range of the contractual grade, length, strength or fineness, the inspection certificate issued by CIQ shall become the base for the two parties to settle the account.
       
    • Inspection fees. The seller will undertake the inspection fee for weight, at 50 cents per bale. If the seller proposes re-inspection for moisture regain, the seller will undertake the sample expenses at 80 cents for each bale, and US$ 2.00 for water-content testing. Quality inspection fees will be borne by the buyer, at a rate of US$ 1.00 per bale, or US$ 10.00 per sample. If the quality is degraded, the seller should cover the inspection fees for the substandard portion, at US$ 5.00 for the grade or length of each sample, $0.75 per micronaire value, and US$ 2.00 per Pressley.
    • Eradication of plant disease and insect pests. The cotton delivered by the seller shall not be allowed to contain any plant disease or insect pest specified by the national quarantine authority. If any aforementioned plant disease and insect pest is observed upon delivery, all the expenses arising from the extermination will be borne by the seller, except for the loss of original carriage period to be undertaken by the buyer.
    • Documentation. Requirements vary depending on the exporting country, but the basic documents include: invoice, bill of lading, plant quarantine certificate, quality certificate, certificate of origin, simple packing list, detailed specification of weight, and non-wood packing certificate.