Overview of China’s duty-free, quota-free market access programme for LDCs

The Chinese duty-free, quota-free (DFQF) market access programme entered into force on 1 July 2010 and was accessible to the 33 LDCs which had diplomatic relations with China. The list of beneficiaries has been adjusted over the years, covering 40 LDCs as of December 2015. Zero tariff rates are applied for 97 per cent of products imported from 24 countries, 95 per cent of products from 14 countries, and 60 per cent of products from two countries (Bangladesh and Mauritania).

China has become the largest export market for LDCs. In 2013, 26.8 per cent of all LDC exports went to China.  Fuel exporters such as Angola and South Sudan, and neighboring Asian countries like Myanmar are the major LDC exporters to China.

A large proportion of the preferential trade from LDCs to China consists of imports of non-agricultural primary products, namely ores and petroleum that under most-favoured nation (MFN) commitments available to all countries are not subject to duty. Table 1 shows that in 2012 exports from LDCs to China totaled $52.7 billion, of which $42.6 billion (81 per cent) were ores and petroleum. Overall 98 per cent of exports were duty free. Only 50 per cent of agricultural products entered China duty free. Data are not yet available for the period since China extended DFQF coverage in July 2013.

Table 1. Preferential treatment of LDC exports in China, 2012

Market

Sector

LDC duty scheme

Imports from LDCs (US$ million)

Number of tariff lines

Number of tariff lines with imports from LDCs

Dutiable

Duty free (%)

Total

Dutiable under MFN

Dutiable under GSP-LDC

Total

Dutiable

Duty free (%)

Weighted applied duty

China Total

3,150

60.5

1,372

1,169

311

52,684.4

958.4

98.2

0.1

Agriculture

491

55.2

156

146

53

1,267.2

636.9

49.7

3.2

Non-agriculture

2,659

61.1

1,194

1,023

258

8,817.9

321.5

96.4

0.1

Ores

0

100

21

0

0

3,606.3

0

100

0

Petroleum

0

100

1

0

0

38,992.9

0

100

0

Source: WT/COMTD/LDC/W/59, table 16 and 18.

Therefore, the “true” duty-free treatment granted to LDCs on tariff lines that are dutiable under MFN may still be low, as China has granted preferential treatment on more than 70 per cent of dutiable products under MFN.

An important limitation on imports from LDCs arises from restrictive rules of origin which establish the level of processing that is required to obtain benefits. The rules of origin specific to the Chinese DFQF scheme for LDCs have been in place since 2010 and were amended in 2013.

Chinese rules of origin require products to originate entirely in the country that exports them or, if external inputs are used, they must have undergone substantial transformation. “Substantial transformation” means either change of tariff heading or that the value of non-originating parts used in the manufacture of the good does not exceed 60 per cent of the value of the product. The final stage of processing must be in the country of origin, and the finished goods must enter China directly.

The rules of origin appear to have more room for discrete application in the case of China. The “cumulation” clause of the rules of origin allows producers to import materials from a specific country or region without affecting the origin. In case of the Chinese scheme, final goods exported by LDCs to China using products and materials produced in non-beneficiary countries can still satisfy the rules of origin, if those non-beneficiary countries have diplomatic relations with China. This is similar to the case of the EU which allows cumulation between LDCs and the GSP beneficiaries, but more flexible because rules of origin depend on whether the countries have diplomatic relations with China.

The eligibility of LDC programme has not been consistently applied to countries that graduated from the LDC category. Maldives was not originally included in the Chinese LDC programme on July 2010, but special treatment was provided under the so-called “Yemen 6 Countries” scheme which granted preferential tariffs for 6 countries including Maldives. The country was later included in the DFQF beneficiary list on 1 January 2011, then removed on 1 January 2012. Therefore Maldives retained preferential market access for one year after it graduated on 1 January 2011 from the list of LDCs. On the other hand, Samoa remains in the list of DFQF beneficiary countries as of December 2015, while the country graduated on 1 January 2014.

Additional resource:

  1. UNCTAD (2014) The Least Developed Countries Report
  2. Laird, Sam (2012) A Review of Trade Preference Schemes for the World’s Poorest Countries, Issue Paper No. 25, International Centre for Trade and Sustainable Development, Geneva, Switzerland
  3. Government of China, General Administration of Customs Announcement No. 40 of 2010 (on Ethiopia and other 33 LDCs, some of the goods zero tariff) 2010-06-29.
  4. Government of China, General Administration of Customs Announcement No. 95 of 2014 (on the 2015 Tariff Implementation Plan Announcement)