Keywords: China, social credit system, certified enterprise, general enterprise, discredited enterprise

China Customs published Customs Interim Measures on Enterprise Credit Management (Interim Measures) on 8 October 2014. It is a part of an effort by the Chinese Government to establish a Social Credit System based on a 2014-2020 plan of the State Council. The new system will replace the existing Customs Compliance Rating Scheme and will come into effect on 1 December 2014.

The Interim Measures require China Customs to establish an enterprise credit management system to collect enterprise information, conduct credit appraisal, supervise enterprises accordingly and disclose the enterprise credit-related information to the public.

According to the Interim Measures, China Customs will place enterprises into one of three categories: the "Certified Enterprise", the "General Enterprise" and the "Discredited Enterprise".

A Certified Enterprise obtains China AEO (Authorized Economic Operator) status is further classified into two groups: "General" and "Senior". Preferential customs treatment will be provided for all Certified Enterprises, this treatment includes a lower customs goods examination rate and a simplified customs review process. For companies that qualify as a Senior Certified Enterprise, China Customs will designate a customs officer to help coordinate between the company and various functions and offices of China Customs. China Customs will publish the detailed standard for the accreditation requirement/ procedure of the Certified Enterprise separately.

While the General Enterprise is a default category, companies should try their best to avoid being categorized as a "Discredited Enterprise".

A Discredited Enterprise is a company which has been found committing non-compliance activities within the last 12 months. Non-compliance activities include smuggling activities conducted criminally or administratively and other violations being penalized by China Customs for a cumulative amount of more than RMB1million.

A Discredited Enterprise will be subject to a higher customs goods examination rate as well as to tightened review of customs declaration documents and tightened supervision when they conduct/ engage in processing trade activities.

Another key point that companies should notice is that China Customs is going to publicly disclose the enterprise credit system information on its website/ notice board. This will include the enterprise category of a company, as well as its customs penalties that a company has been imposed for the past five years. In particular, customs penalties will also be publicly disclosed via the National Enterprise Credit Information Disclosure System.

The National Enterprise Credit Information Disclosure System is to be established by the State Administration of Industry and Commerce according to the Interim Regulation on Public Disclosure of Enterprise Information which is come into force on 1 October 2014. Based on this regulation, penalties imposed against companies by any government agencies are to be disclosed publicly via this system.

Compliance counts, and it is now even more important with China's establishment of its Social Credit System. Customs and trade compliance is often an area that a company does not pay much attention to until a major problem appears. Now a company could suffer huge financial and reputational loss. We recommend that companies take the launch of the Interim Measures as a special opportunity to initiate a self-compliance review of its trade activities and establish or upgrade its trade-related internal controls. This will enable the company to achieve a better balance between compliance and efficiency.

The Interim Measures have yet to provide detailed guidance on a number of areas. These include issues such as what are the appraising standard for Certified Enterprise, how will a company's rating be reconciled between the previous customs system and the new accredited categories, etc. We will monitor the development around these and keep you updated via our Trade Alerts.

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