China has classified products into the prohibited, restricted and permitted categories in its processing trade management since 1999. Since 2004, the Ministry of Commerce, General Administration of Customs and State Environmental Protection Administration have jointly announced four batches of products that fall into the prohibited category, putting about 341 products in the list of products under the prohibited category in processing trade, covering high energy consumption and high pollution products such as used and scrap machinery and electrical products, chemical fertiliser, aluminium oxide and iron ore. Together with the new items listed in Circular No.82, the prohibited category now contains 1,145 (10-digit) products, accounting for 9.3% of the total tariff numbers.
According to Circular No.82, the list of products under the prohibited category in processing trade will be adjusted from time to time in line with the relevant policies of the state. The Ministry of Commerce will in future work with other competent ministries under the State Council to further improve the measures for the management of processing trade products by category in keeping with state policies on macro economic control, industrial development and environmental protection. Efforts will be made to establish a dynamic system for monitoring the list of industries and products granted market access, classifying step by step high energy consumption, high pollution, high resource consumption and low value-added products into the prohibited and restricted categories under processing trade, upgrading the product structure of processing trade, and raising the overall development level of processing trade. It is understood that the relevant government departments are in the process of studying and formulating a new list of products under the restricted category in processing trade, as well as revising the measures on the management of processing trade by category.
Processing trade refers to the business activity of importing all or part of the raw and auxiliary materials, parts and components, elements, and packaging materials from abroad in bond, and re-exporting the finished products after processing or assembly by enterprises on the mainland. This activity includes processing with supplied materials and processing with imported materials. Under processing with supplied materials, the imported materials and parts are supplied by the foreign party and hence the processing enterprise does not have to make foreign exchange payment for the imports. The processing enterprise only charges the foreign party a processing fee, while the foreign party is responsible for selling the finished products. As for processing with imported materials, the processing enterprise not only makes foreign exchange payment for the imported materials and parts but also exports the finished products after processing.