Member Article

The Ministry of Commerce (“MOFCOM”) and the General Office of the General Administration of Customs jointly issued the Notice on Relevant Issues in the Administration of Foreign Trade in Free Trade Zones and Bonded Logistics Parks on 13 July 2005. Previously, enterprises and individuals (“operators”) inside free trade zones and bonded logistics parks (collectively referred to as the “Zones”) needed to employ agents to trade with China proper and the legal basis for their right to distribute inside China was tenuous. The Notice clarifies how operators inside Zones may obtain foreign trade and distribution rights in China proper. Procedure The Notice provides that operators inside Zones can obtain foreign trade rights and apply for distribution rights in accordance with the Foreign Trade Law of the People's Republic of China (as discussed in the 2004.2 issue of China Legal Update), the Measures for Registration for the Record of Foreign Trade Operators (as discussed in the 2004.3 issue of China Legal Update) and the Measures for the Administration of Foreign Investment in the Commercial Sector (as discussed in the 2004.2 issue of China Legal Update). Those operators who have obtained foreign trade rights may engage in trade and distribution with enterprises and individuals (including those without foreign trade rights) inside and outside the Zones. In other words, they no longer need to use agents with foreign trade rights to trade with China and may be granted full distribution rights in China. Foreign investment enterprises inside Zones need to apply to MOFCOM in order to obtain distribution rights in China. After obtaining the distribution rights, they may engage in distribution activities inside China. Trade between Zones and China proper Trade between the Zones and the territory of China outside the Zones is subject to the regulations regarding customs, foreign exchange and tax including customs declaration procedures, although the flow of goods may be exempted from import-export licensing requirements and temporary textile control measures. The Notice specifies that enterprises inside the Zones must comply with China’s industrial policies and may not engage in activities and operations that are prohibited by the state.