Trade Liberalization and Facilitation (Policy Interpretation - Part I)

The Ministry of Commerce and other 19 government bodies jointly issued the Circular on Several Measures to Promote Trade Liberalization and Facilitation of Hainan Free Trade Port, aiming to further increase support and accelerate the process of trade liberalization and facilitation of the free trade port. To help you understand the background and practical meaning of the measures, we hereby provide a series of policy interpretation.

1. What are the main considerations for formulating and issuing the Circular?

There are mainly “three considerations”. First, to refine the requirements stipulated in the Master Plan and promote systematic integration and innovation of the policies and systems for trade liberalization and facilitation. Second, to meet the requirements for building the FTP and respond to the practical demands of the market players. Third, to promote the quality development of trade in the FTP and achieve the stage goals before 2025 with high standards.

The Circular focuses on 2 areas - free and convenient trade in goods and services and specifies 28 policy measures (13 institutional arrangements for promoting free and convenient trade in goods, 15 measures on free and convenient trade in services). The Circular is full of valuable information and, in general, has “three characteristics”.

First, focusing on trials and attempts. The Master Plan proposes to finish the preparations for the independent customs operations before 2025 and start the island-wide customs clearance in due course. Therefore, the FTP should deliver the policy system design of “easing control on the first front and having effective and efficient control on the second front” as well as related supporting measures in a specific scope and in some areas first, so as to conduct stress tests for future island-wide independent customs operations.

For areas subject to the management mode of “free flow through the first front and efficient control at the second front”, the Circular proposes to relax the restrictions in a targeted manner and roll out regulations in steps to promote the release of development potentials. For example, in Yangpu Bonded Port Area, pilot projects will be launched and import/export of crude oil and refined oil will no longer require corporate qualification or quantity management, imported sugar will be exempt from total tariff quota schemes, and import of these products through the “second front” will be managed according to current regulations. Also, in mentioned areas, the automatic import license management will be removed in principle, and import license management measures for mechanical and electrical products will be canceled when products enter the “first front”, while import through the “second front” will be managed according to current import regulations. These policies and measures will explore paths and accumulate experience for the island-wide independent customs operations in the future.

Second, highlighting the characteristics of Hainan. General Secretary Xi Jinping demanded that the construction of the FTP should conform to Hainan's development orientation. Focusing on the strategic positioning of “three zones and one center” in Hainan, the Circular focuses on developing tourism, modern service and high-tech industries and puts forward practical measures.

For example, delegating the bonded oil license for vessels sailing on international routes in Hainan Province to the Hainan Provincial Goverment will strongly support Yangpu to become an international shipping hub with strong service functions and radiation capabilities. For example, supporting Hainan to develop new type of offshore international trade, digital trade, technology trade, cultural trade and platform projects, supporting the construction of a regional international convention and exhibition center, supporting the establishment of a national cultural export base and a national base of international cultural trade, and encouraging innovative international cooperation models in service trade will accelerate the cultivation of advantageous industries with Hainan’s characteristics and promote the continuous optimization of the soft environment for Hainan's trade development.

Third, overall development and security. It is required to adhere to both “easing control” and “having effective and efficient control”, pay attention to innovative supervision modes and strengthen the construction of risk prevention and control systems.

For example, it is required to implement the hierarchical approval mode whereby the General Administration of Customs is responsible for the approval or authorizing Haikou Customs for the approval, improve the early warning and rapid response supervision abilities for quality and safety risks of import and export commodities; it is also required to improve the statistical monitoring system of service trade, strengthen the monitoring and analysis of cross-border service trade in the FTP, and build an early warning system of industrial security in line with the open market environment, as well as a trade adjustment and assistance mechanism that matches the open economy of the free trade port.

As is known to all, free and convenient trade is the universal characteristic of advanced international free trade ports and the core content of the policy system of the Hainan FTP. Our most intuitive understanding of a free trade port is that it can realize free and convenient trade, the agglomeration of various market players and the prosperity and development of the economy and the society. The Circular issued by MOFCOM and other 19 departments reflects the consensus of all parties, and will help the FTP to expand Z VBits trade flow and upgrade from “a promising port” into a “prosperous port” as early as possible.

2.  As license of bonded oil refueling of vessels on international vogages in Hainan Province is now delegated to the Hainan Provincial Government, what is its significance for increasing trade flows of the Hainan FTP?

Bonded oil for vessels sailing on international routes refers to oil products for refueling vessels on international vogages, which are approved by the State Council, entitled to bonded policies, exempt from customs duties, import value-added tax and consumption tax, not included in import quotas, and are supplied under customs supervision. In China, bonded oil business is designated by the state. Previously, the State Council granted five enterprises the license to operate bonded oil business nationwide, and granted Zhoushan City of Zhejiang Province and Shenzhen City of Guangdong Province the license for local bonded oil business. Such a breakthrough of policy enables Hainan the first region to obtain local business license of bonded oil within the province.

Bonded oil business is the core essential function of outbound ports and an important guarantee for the development of sea transportation and foreign trade. Yangpu Port, as a container hub port on the new international land-sea trade corridor, is an important node of the southbound navigation passageway. The delegation of the power to license local bonded oil to the Hainan Provincial Government has the following benefits. First, it is conducive to expanding the scale of oil supply enterprises, reducing the cost of fuel oil, and facilitating shipping operators to carry out route scheduling and port operations; Second, through the innovative management system, it can mobilize local enthusiasm, stimulate market vitality, and gradually establish a mature and efficient system for the supply and sales of bonded oil; Third, it can give full play to the location and institutional advantages of Yangpu Port, promote the development of the port economic industrial chain, improve maritime service capacity and level, promote the building of Yangpu Port into an influential bonded oil supply base in Southeast Asia, and promote the construction of the Hainan FTP.

3. What should Hainan do to effectively implement the policies, promote high-level opening up, and effectively control risks?

The Circular issued by the 20 government bodies shows that the state attaches great importance to and fully supports the construction of the Hainan FTP. Hainan has been working closely with central ministries and commissions to make full preparations for the prevention and control of policy risks as well as the design and development of relevant support systems. After the measures are issued, Hainan will earnestly fulfill its due responsibilities, implement the policies in a down-to-earth manner, and seize the great opportunity during policy implementation. To accelerate the establishment of a free trade port policy system focusing on trade liberalization and facilitation, Hainan will focus on the following aspects:

First, we will comprehensively and accurately understand the policy connotation of the Several Measures, and lose no time formulating and promulgating various implementation rules. The Several Measures are rich in content, with powerful measures and strong pertinence. Hainan will organize relevant forces to carry out research and further refine the measures in Several Measures at the operational level. Detailed implementation rules will be formulated and promulgated as soon as possible. Hainan will fully assess the risks in matters such as relaxation of access and cancellation of licenses, and prepare for post-event supervision and risk prevention. For matters on power delegation, Hainan will make preparations for taking over the powers, and work efficiently to formulate relevant approval systems and management measures to ensure that the licensing authority is in place.

For innovative pilot projects, Hainan will pay close attention to defining players and scope of the pilot projects and formulating work plans. In the implementation of the Several Measures, we will further strengthen communication with relevant departments to report progress in time.

Second, during the implementation of the Several Measures, we will further strengthen institutional integration and innovation. Hainan will always bear in mind the guiding gist of General Secretary Xi Jinping’s instruction of “putting institutional integration and innovation in a prominent position, emancipating the mind and boldly innovating”, take advantage of the implementation of the Several Measures, closely focus on trade liberalization and facilitation, and positively plan for institutional integration and innovation in implementing the negative list for cross-border trade in service, formulating the list of goods and articles prohibited and restricted by the free trade port, so as to speed up the construction of an new open economic system and achieve a new round of quality development, shoulder the responsibilities and contribute the experience of Hainan.

Third, we should foster and introduce market players through effective policy publication. We will strengthen policy publicity through various media channels, comprehensively interpret the contents of policies and initiatives, and inform the progress of policy implementation in a timely manner, so that market players can fully understand the policies, actively participate in policy implementation and fully enjoy the convenience and benefits brought by the Several Measures.

Fourth, we will ensure effective risk prevention and control. According to the opening-up measures in Several Measures, we will fully demonstrate possible trade risks and industrial impacts brought by the opening-up measures, and discover, judge, warn and evaluate major risks in related fields in a timely manner. We will give full play to the role of the trade risk prevention and control mechanism of the Hainan FTP, strengthen joint prevention and control, and ensure “effective and efficient control” of risks in trade.