Processing trade (including processing with purchased materials and processing with imported materials) is subject to the examination and approval of foreign trade responsible department of the provincial level or below the provincial level, but the processing of sugar, vegetable oil, wool, natural rubber and crude oil which are managed by the state for the total balance must get the approval of the provincial level foreign trade responsible department in the place where the processing trade enterprises registered.

The Chinese Customs manages the processing trade separately according to the categories of commodities: The prohibited category refer to commodities which are banned to import under the "Foreign Trade Law of the People's Republic of China," and commodities the Customs cannot make bonded supervision; restricted category refers to sensitive commodities that with a big gap between China and foreign countries in price and cannot be supervised; permitted category include other commodities other than the two categories mentioned above.

The Chinese Customs makes a separate management on processing enterprises, and manages the list according to existing situation.

Category A enterprises refer to processing enterprises operated under the supervision of staff sent by Customs or supervised by the Customs through computers, bonded factories with no illegal acts or special processing enterprises engaged in the manufacturing of airplane and ship.

For enterprises under Category A, the tax of imported materials for processing is supervised by the Customs.

Enterprises under Category B refer to those without illegal acts in operating the processing trade.

Enterprises under Category C refer to those considered by the Customs for having illegal acts.

Enterprises under Category D refer to those considered by the Customs for having illegal acts or three illegal acts in the operation of processing trade. These enterprises should deposit their guarantee money for import tax for imported materials and import link value-added tax in the designated account of the Customs opened in the Bank of China. The bank will return the guarantee money to them based on the notice of the Customs after they complete the processing trade at appointed time and pay an interest according to current account. In addition to the treatment of Customs, the responsible foreign trade department will stop the right of managing processing trade of these enterprises, or stop the right of import and export for one year in cases of foreign-funded enterprises.

II. Border Trade

China supports and encourages the development of border trade. Currently, it manages the border trade in the following two types.

1. Border people mutual trade. This refers to border people trade with people of neighboring countries at government approved areas or appointed fairs within 20 kms along the borderline and exchange commodities within a fixed amount and quality. At present, border people are exempted from import tax and import link value-added tax for exchanging commodities (articles for daily use only) under 3,000 renminbi in a day, and the part exceeding 3,000 yuan will be taxed by law.

2. Small amount border trade. This refers to approved small amount trade enterprises along the borderland trade with border enterprises or other trade institutions of neighboring countries at the state-appointed border ports.

Other similar border trade other than border people mutual trade will be regulated in reference to the small amount border trade.

Before the end of 2000, apart from tobacco, wine and cosmetics which will be taxed according to law, other commodities imported through small amount border trade at the appointed ports will be taxed half of the import tax and import link value-added tax. Imported materials exchanged through foreign economic and technological cooperation through border areas will be considered in the light of the above-mentioned policy.

Foreign trade departments will give certain preferential treatment to import and export commodities under quota license exchanged through small amount border trade.

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