Import from China to Russia: Legal Guide & Customs

 

March 31, 2023

BRACE Law Firm ©

 

Over the past few decades, the People's Republic of China has become a global factory producing a vast range of goods. Almost everything is manufactured in China, from small-scale production facilities to factories for major global brands. China supplies consumer electronics, excavators, automobiles, microprocessor units, clothing, footwear, and general consumer goods to countries worldwide.

In 2022, due to the imposition of sanctions and the inability to purchase goods in Western countries, Chinese manufacturers increased supplies to Russia across various sectors, ranging from basic consumer goods to complex mechanisms and machinery. Furthermore, sanctioned goods pass through Chinese territory, allowing products prohibited by direct supply restrictions from European manufacturers to enter Russia.

Engaging with Chinese partners requires a foreign trade contract reflecting all material and additional terms agreed upon by the parties to the international transaction. Given that diverse goods are imported from China to Russia, it is important to outline the legal framework for importing goods from countries outside the Eurasian Economic Union (the "Union" or "EAEU"). Import is defined as the entry of goods into the customs territory of the EAEU (in this case, Russia) under the customs procedure of release for home consumption.

Legal Regulation of Foreign Trade Between Russia and China

Considering the manufacturing capabilities of Chinese producers, trade between Russian and Chinese entrepreneurs has been developing for a long time. Trade interaction increased significantly following the imposition of sanctions against the Russian Federation. When concluding foreign trade contracts between Russian and Chinese partners, compliance with both international and national law is essential, including:

• Vienna Convention on the Law of Treaties; [1]
• Agreement Between the Government of the Russian Federation and the Government of the People's Republic of China on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income; [2]
• Agreement Between the Government of the Russian Federation and the Government of the People's Republic of China on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income; [3]
• Agreement Between the Government of the Russian Federation and the Government of the People's Republic of China On Settlements and Payments dated June 5, 2019;
• Agreement Between the Government of the Russian Federation and the Government of the People's Republic of China On Cooperation in Ensuring International Information Security dated May 8, 2015;
• Agreement on Trade and Economic Cooperation Between the Eurasian Economic Union and the People's Republic of China; [4]
• Law of the PRC On Foreign Trade; [5]
• Law of the PRC On Companies; [6]
• Law of the PRC On Contracts; [7]
• Law of the PRC On Enterprise Income Tax; [8]
• Customs Code of the Eurasian Economic Union;
• Tax Code of the Russian Federation.

Furthermore, Russia and China conclude agreements in specific areas of interaction that promote the development of trade relations between the two countries. Depending on the type of interaction between Russian and Chinese entrepreneurs, different regulatory documents governing the necessary activities are used to conclude foreign trade contracts.

Customs Procedure for Release of Goods for Home Consumption upon Import from China to Russia

According to the Customs Code of the Eurasian Economic Union, the customs procedure of release for home consumption is a procedure applied to foreign goods under which goods are located and used within the customs territory of the Union without restrictions on possession, use, and (or) disposal provided for by international treaties and acts in the sphere of customs regulation regarding foreign goods.[9]

Conditions for placing goods under the customs procedure of release for home consumption include: [10]

• payment of import customs duties and taxes;
• payment of special, antidumping, and countervailing duties;
• compliance with prohibitions and restrictions established by the EAEU Customs Code;
• compliance with internal market protection measures established in forms other than special, antidumping, or countervailing duties.

The customs authority must complete the release of goods within four hours of the registration of the customs declaration. However, in the case of preliminary customs declaration, the timeframe for the release of goods is calculated from the moment one of the following circumstances occurs:

• amendment (supplementation) of information stated in the customs declaration;
• receipt by the customs authority of a notification that the goods are located in the customs control zone specified in the customs declaration.

Payment of Import Customs Duties, Taxes, Special, Antidumping, and Countervailing Duties upon Import from China

The obligation to pay import customs duties, taxes, special, antidumping, and countervailing duties regarding goods placed under the customs procedure of release for home consumption arises for the declarant upon the registration of the declaration for goods by the customs authority. [11] Furthermore, the obligation to pay import customs duties and taxes, including VAT, must be fulfilled before the release of goods in accordance with the customs procedure of release for home consumption. [12]

For convenience in making payments related to the import of goods into Russia, a unified personal account opened with the FCS of Russia is used, from which customs fees and payments are debited by customs authorities. However, it should be noted that customs authorities do not always debit such payments from the unified account fairly. For example, in a case seeking to declare illegal the actions of the Central Excise Customs regarding the refusal to release goods for home consumption under a declaration for goods,[13] it was established that the customs authority twice collected the customs fee for processing the declaration for the release of the same goods for home consumption. The entrepreneur's claims were satisfied, the actions of the Central Excise Customs were declared illegal, and the court ordered the return of the overpaid funds to the entrepreneur.

When conducting customs clearance of goods imported into the Russian Federation, there should be no dual interpretation of legal norms to exclude disputed issues between the entrepreneur and customs authorities. Nevertheless, a large number of disputes with customs authorities relate to the determination of the customs value of goods, classification of goods, and amendments to the customs declaration:

• Resolution of the Arbitration Court of the Volgo-Vyatka District dated January 21, 2022, No. F01-6791/2021 in Case No. A82-14413/2020 On Declaring Illegal the Decision of the Customs Authority Refusing to Amend the Declaration for Goods and Ordering the Customs Authority to Rectify Violations by Registering a Correction to the Declaration and Returning Overpaid Customs Payments. The company determined the customs value of the purchased goods using the transaction value method. The customs authority adjusted the customs value. The company stated that it had confirmed the originally declared value and demanded amendments to the declaration. The customs authority refused. The petitioner's claim was satisfied because the fact of the foreign trade transaction under the conditions specified in the declaration was confirmed.
• Resolution of the Arbitration Court of the Volgo-Vyatka District dated January 20, 2023, No. F01-7795/2022 in Case No. A11-4650/2021 On Declaring Invalid the Decision of the Customs Authority to Amend Information Stated in the Declaration for Goods. Due to the company providing unreliable information regarding the value of the declared goods, the customs authority adjusted its customs value. The claim was denied because the customs value declared by the company was not based on documented information; therefore, the transaction value method for imported goods was not applicable.
• Resolution of the Arbitration Court of the Volgo-Vyatka District dated August 29, 2022, No. F01-3959/2022 in Case No. A43-27758/2021 On Declaring Illegal the Refusal of the Customs Authority to Return Overpaid Amounts of Customs Payments. The company determined the customs value of declared goods based on the transaction value of the imported goods. Alleging that the company failed to confirm the accuracy of the value information, the customs authority amended the customs value data, determining it based on the transaction value of identical goods. The petitioner's claim was satisfied because the company confirmed the fact of the foreign trade transaction under the declared conditions during customs clearance.

Compliance with Prohibitions and Restrictions Established by the EAEU Customs Code During Deliveries from China

Prohibitions and restrictions include technical regulation measures and sanitary measures. Compliance with technical regulation measures in the release for home consumption procedure is confirmed by submitting documents and information on conformity assessment provided for by the legislation of the EAEU member state.

Compliance with sanitary measures is confirmed based on the results of sanitary and epidemiological control, taking into account Resolution of the Customs Union Commission No. 299 dated May 28, 2010, On the Application of Sanitary Measures in the Eurasian Economic Union.

To control various infections when crossing the border, temporary bans on the import of certain types of goods may be introduced:

• Letter of Rosselkhoznadzor No. FS-ARv-7/4511-3 dated May 27, 2022, On Introducing Temporary Restrictions on the Import of Products from China into the Russian Federation;
• Letter of Rosselkhoznadzor No. FS-ARv-7/4297-3 dated March 15, 2022, On Introducing Temporary Restrictions on the Import of Products from China into the Russian Federation;
• Letter of Rosselkhoznadzor No. FS-ARv-7/4285-3 dated March 3, 2022, On Introducing Temporary Restrictions on the Import of Products from China into the Russian Federation.

After the reasons for the import ban are resolved, a decision is made regarding the possibility of importing the previously prohibited goods:

• Letter of Rosselkhoznadzor No. FS-SA-3/2654 dated February 3, 2022, On the Import of Citrus Crops from China into the Russian Federation;
• Letter of Rosselkhoznadzor No. FS-KS-7/11498 dated April 13, 2020, On Lifting Temporary Restrictions on the Import of Products from a Chinese Enterprise into the Russian Federation.

The introduction of prohibitions and restrictions allows for the regulation of goods flowing into Russia and, if necessary, the interruption of the flow of goods that could cause damage to the state or the health of citizens.

Transportation of Cargo from China

Russia and China share a long land border and have engaged in trade since ancient times. Goods from the PRC are delivered to the Russian Federation via various modes of transport, including rail, sea, air, and road. Delivery methods are negotiated prior to concluding a foreign trade contract and choosing a delivery basis according to Incoterms rules.

It is important to note that when building a logistics chain from China, two options essentially exist:

• a fully legal option in compliance with international law and Russian and Chinese legislation;
• a "gray" scheme where only cargo delivery (weight and volume) is paid for, and customs clearance is absent; this option does not comply with the law.

By choosing the first option, the buyer receives legal goods that have undergone all customs procedures, for which all fees have been paid, quality certificates are available, and settlements are made via bank transfer. By choosing the second option, the buyer cannot always track the movement of the goods, quality certificates are missing or purchased documents are provided, and there is no need to process customs documentation. However, in this case, unpleasant questions may arise from regulatory authorities, such as tax and customs services.

Given the extensive land border, Russia has adopted regulatory documents defining checkpoints across the state border to organize customs clearance procedures.[14]

Cost of Imported Goods from China

Relatively inexpensive labor has significantly reduced the cost of goods manufactured in China, which serves as the world's factory for a diverse range of products. The cost of the goods and their import from China is often much cheaper than a full production cycle. Furthermore, when purchasing large wholesale lots, Chinese manufacturers provide additional discounts.

An important aspect of importing any product is customs payments, which are later included in the cost for the end consumer. Before purchasing goods from China, it is necessary to pre-calculate the customs payments, which depend on several factors. Every imported product is classified under the Commodity Nomenclature of Foreign Economic Activity of the Eurasian Economic Union and the Unified Customs Tariff of the Eurasian Economic Union. [15]

Furthermore, the customs control of the customs value of goods imported into the customs territory of the Eurasian Economic Union is conducted in accordance with Resolution of the Eurasian Economic Commission Board No. 42 dated March 27, 2018, On the Specifics of Conducting Customs Control of the Customs Value of Goods Imported into the Customs Territory of the Eurasian Economic Union.

During the control of the customs value of goods, including after their release, circumstances indicating unreliable determination of the customs value include:[16]

• identification of inconsistencies in information affecting the customs value of imported goods contained in foreign trade contract documents;
• identification of a lower price for imported goods compared to the price of identical or similar goods under comparable import conditions;
• identification of a lower price for imported goods compared to the price of identical or similar goods determined based on information on exchange quotations, exchange indices, auction prices, or price catalogs;
• identification of a lower price for imported goods compared to the price of components (including raw materials) from which the imported goods are manufactured (consist);
• the existence of a relationship between the seller and the buyer of imported goods combined with a lower price for imported goods compared to the price of identical or similar goods sold and purchased by an independent seller and buyer;
• existence of grounds to believe that the structure of the customs value of imported goods has not been maintained (for example, license and other similar payments for the use of intellectual property objects, transportation costs, insurance costs, etc., have not been added or have not been added in full to the price actually paid or payable for the imported goods).

The above circumstances raise suspicions among customs authorities, leading to requests for additional information and subsequent decisions that are not always in favor of the entrepreneur. [17]

During the control of the customs value of goods, the customs authority may request the following documents and (or) information, including written explanations:

• price lists of the manufacturer of the imported goods and its commercial offers;
• price lists, commercial offers, and offers of sellers of imported, identical, or similar goods, as well as goods of the same class or kind;
• customs declaration of the country of departure (origin, transit) of the goods, if the filling of such a customs declaration is provided for in the country of departure (origin, transit);
• documents on the payment for the imported goods;
• shipping (packing) lists;
• accounting documents regarding the recording of imported, identical, or similar goods;
• information on the value of imported goods by brand, model, and article;
• contracts under which the imported, identical, or similar goods are sold within the customs territory of the Union;
• explanations regarding the grounds and conditions for discounts provided by the seller to the buyer;
• documents and information on the physical and technical characteristics, quality, and reputation of the imported goods, as well as their influence on the price of the imported goods;
• documents and information on the transportation of imported goods, their loading, unloading, or reloading, and other operations related to transportation;
• documents and information confirming costs for construction, erection, assembly, installation, maintenance, or technical assistance provided after the import of goods such as industrial plants, machinery, or equipment (estimates and schedules for installation and commissioning, certificates of completion, etc.);
• documents confirming the absence of a relationship between the seller and the buyer or the absence of any influence of such relationship on the transaction value of the imported goods;
• licensing agreement, invoice, bank payment documents, accounting and other documents containing information on payments for the use of intellectual property objects related to the imported goods;
• other documents and information, including those obtained by the declarant from other persons, including persons related to the production, transportation, and sale of the imported goods.

The valuation of imported goods for customs purposes must be based on the actual value of the imported goods, defined as the price at which, at a time and place determined by the legislation of the importing country, such or similar goods are sold or offered for sale in the ordinary course of trade under fully competitive conditions.[18]

Foreign Trade Contract with Chinese Partners

Most Chinese entrepreneurs try to engage with foreign partners without a foreign trade contract or opt for a contract with minimal terms. However, when choosing Chinese partners, special attention should be paid to drafting the foreign trade contract. The entire trade path of the goods delivered to Russia depends on this—from the choice of delivery method and customs clearance to accompanying documents and quality certificates.

The contract must include the subject matter and reflect the parameters of the goods supplied, delivery terms according to Incoterms rules, delivery timelines, cost and payment terms, and force majeure. All sections of the foreign trade contract depend on many factors and are negotiated by the parties to the international transaction directly with the suppliers.

Considering the PRC legislation on contracts, [19] it is necessary to draft the foreign trade contract in both Russian and Chinese. For the accurate translation of legal texts into the foreign partner's language, it is best to use the services of a translator with knowledge of legal terminology, particularly in the field of foreign trade.

Interaction Between China and Russia Regarding Court Decisions

Disputes between Russian and Chinese partners lead entrepreneurs to seek protection of their rights in judicial authorities. Given that parties to an international transaction can choose the applicable law when concluding a foreign trade contract, the dispute may be heard in the courts of either the RF or the PRC. To enable the enforcement of court decisions, Russia and China, aiming to cooperate in legal relations based on respect for sovereignty and reciprocity, decided to provide mutual legal assistance and signed a bilateral treaty. [20] In the context of this treaty, the term "civil cases" also includes commercial, matrimonial, and labor matters.

The contracting parties, Russia and China, are obliged to recognize and, if required by the nature of the decision, enforce in their territory the following decisions rendered in the territory of the other state:

• court decisions in civil cases;
• court decisions on compensation for damages in criminal cases;
• arbitral awards.

The term "court decision" means: in the Russian Federation—a court decision, ruling, order, or court-approved settlement agreement, as well as a judge's order rendered on the merits of a civil case; in the People's Republic of China—a decision, ruling, order, or act of conciliation rendered by a court.

An application for the recognition and enforcement of a court decision is submitted by the applicant to the court that rendered the decision, which forwards it to the court of the other contracting party. When making requests and providing legal assistance in civil and criminal cases, the courts and other competent institutions of the contracting parties communicate through their central authorities. For the Russian Federation, these central authorities are the Ministry of Justice of Russia and the Prosecutor General's Office of Russia; for the People's Republic of China—the Ministry of Justice of the PRC and the Supreme People's Procuratorate of the PRC.

Recognition and enforcement of a court decision are carried out in the contracting party to which the application is addressed, in accordance with the procedure established by its legislation.

The following must be attached to the application for recognition and enforcement of a court decision:

• a copy of the court decision certified by the court; if the copy does not clearly indicate that the decision has entered into force and can be enforced, one copy of a court certificate to this effect must also be attached;
• a document certifying that the party who did not participate in the proceedings was served with a court summons in the manner prescribed by law;
• a certified translation of the relevant documents.

Liability for Non-Compliance with Customs Legislation

When importing goods from China to Russia, cases of being held liable for violations of customs legislation are common.

Administrative liability is imposed under various articles of the CAO RF:

• Article 16.2. Non-declaration or Unreliable Declaration of Goods;[21]
• Article 15.25. Violation of the Currency Legislation of the Russian Federation and Acts of Currency Regulation Authorities;[22]
• Article 16.22. Violation of Deadlines for the Payment of Customs Payments;[23]
• Article 16.11. Destruction, Removal, Amendment, or Replacement of Identification Means;[24]
• Article 16.12. Non-compliance with Deadlines for Filing a Customs Declaration or Submitting Documents and Information, [25] etc.

Many entrepreneurs fail to consider the possible forms of liability that may arise from violating customs legislation and do not pay attention to such details, which can negatively affect the company's business reputation and lead to penalties.

When interacting with Chinese partners, it is important to consider many aspects of such interaction: the culture and traditions of the PRC; international, Russian, and Chinese legislation; the capabilities of suppliers and carriers for cargo delivery; and possessing Chinese language skills or using a translator specializing in legal terminology. One must also consider the level of possible liability for violating not only the contract but also customs legislation.

As a rule, engaging experienced foreign trade lawyers allows for all the nuances and details of interaction with Chinese partners to be accounted for. Such experts identify all important details and draft documents with minimal risks for the participants of the foreign trade transaction.

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References

[1] Vienna Convention on the Law of Treaties. Concluded in Vienna on May 23, 1969.

[2] Agreement Between the Government of the Russian Federation and the Government of the People's Republic of China on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. Concluded in Beijing on May 27, 1994.

[3] Agreement Between the Government of the Russian Federation and the Government of the People's Republic of China on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. Concluded in Moscow on October 13, 2014.

[4] Agreement on Trade and Economic Cooperation Between the Eurasian Economic Union and the People's Republic of China. Concluded in Astana on May 17, 2018.

[5] Law of the PRC On Foreign Trade. Adopted at the 7th session of the Standing Committee of the 8th National People's Congress on May 12, 1994.

[6] Law of the PRC On Companies. Adopted at the 5th session of the Standing Committee of the 8th National People's Congress on December 29, 1993.

[7] Law of the PRC On Contracts. Adopted at the 2nd session of the 9th National People's Congress on March 15, 1999.

[8] Law of the PRC On Enterprise Income Tax. Adopted at the 5th session of the 10th National People's Congress on March 16, 2007.

[9] Clause 1 of Article 134 of the EAEU Customs Code.

[10] Article 134 of the EAEU Customs Code.

[11] Clause 1 of Article 136 of the EAEU Customs Code.

[12] Clause 9 of Article 136 of the EAEU Customs Code.

[13] Decision of the Arbitration Court of Moscow dated September 3, 2021, in Case No. A40-101901/2021-146-732 On Declaring Illegal the Actions of the Customs Authority Regarding the Refusal to Release for Home Consumption Under a Declaration for Goods and Ordering the Customs Authority to Rectify Violations of the Rights and Legitimate Interests of the LLC in the Manner Prescribed by Law.

[14] Resolution of the Government of the Russian Federation No. 732 dated June 22, 2017, On Defining Checkpoints Across the State Border of the Russian Federation Located in the Primorsky Krai for the Arrival into the Russian Federation of a Certain Category of Goods Imported from the Territory of the People's Republic of China.

[15] Resolution of the Eurasian Economic Commission Council No. 80 dated September 14, 2021, On Approving the Unified Commodity Nomenclature of Foreign Economic Activity of the Eurasian Economic Union and the Unified Customs Tariff of the Eurasian Economic Union, as well as on Amending and Declaring Invalid Certain Decisions of the Eurasian Economic Commission Council.

[16] Resolution of the Arbitration Court of the East Siberian District No. F02-6933/2019 dated December 25, 2019, in Case No. A33-23953/2018 On Declaring Invalid the Decision of the Customs Authority to Amend (Supplement) Information Stated in the Declaration for Goods. Based on the results of the customs audit, taking into account documents submitted with the disputed declaration for goods as well as additional documents requested from the company, the customs authority adopted the contested decision. The claim was satisfied because the documents submitted by the company to the customs authority contained sufficient and quantitatively determined price information on the imported goods and contained no signs of unreliability.

[17] Resolution of the Arbitration Court of the Volgo-Vyatka District No. F01-7843/2022 dated January 20, 2023, in Case No. A43-3968/2022 On Declaring Illegal the Decisions of the Customs Authority to Amend Information Stated in Declarations for Goods. Due to the company providing unreliable information about the value of the declared goods, the customs authority adjusted its customs value, determining it using the fallback method based on the transaction value method for similar goods. The claim was denied because the customs value of the goods declared by the company was not based on documented information; therefore, the transaction value method for imported goods was not applicable.

[18] Paragraph 2 of Article VII of the General Agreement on Tariffs and Trade 1994.

[19] Law of the PRC on Contracts. Adopted on March 15, 1999, at the second session of the ninth National People's Congress of the PRC.

[20] Treaty Between the Russian Federation and the People's Republic of China on Legal Assistance in Civil and Criminal Cases. Signed in Beijing on June 19, 1992.

[21] Resolution of the Arbitration Court of the Volgo-Vyatka District No. F01-4474/2022 dated September 8, 2022, in Case No. A43-17938/2020 On the Annulment of the Customs Authority's Order Holding the Company Liable Under Part 2 of Article 16.2 of the CAO RF for Stating Incomplete Information on the Classification Characteristics of Goods (on the technology of its production) During Declaration, Resulting in an Underpayment of Customs Duties. The claim was satisfied because the company, when declaring the goods, provided all necessary classification information, allowing the presence of another substance (aluminum oxide) in addition to the main substance (zinc oxide) in the imported goods to be established; no contradictions affecting the classification of the goods were found between the information provided by the company and the expert's conclusions.

[22] Resolution of the Arbitration Court of the East Siberian District No. F02-5869/2022 dated November 30, 2022, in Case No. A19-18218/2021 On the Annulment of the Order Holding Liable Under Part 4 of Article 15.25 of the CAO RF for a Violation of the Currency Legislation of the RF and Acts of Currency Regulation Authorities. The claim was denied because it was established that the company failed to fulfill the obligation to receive currency earnings into an account in an authorized bank during the disputed period. Furthermore, the additional agreement was found to be a sham transaction concluded for the purpose of circumventing currency legislation requirements and avoiding administrative liability without the intention to create corresponding legal consequences.

[23] Resolution of the Arbitration Court of the Far Eastern District No. F03-5589/2021 dated November 11, 2021, in Case No. A51-14469/2019 On the Annulment of the Order Holding Liable Under Article 16.22 of the CAO RF for the Customs Representative's Violation of the Established Deadlines for VAT Payment Before the Release of Goods. The petitioner's claim was denied because the customs representative, under the terms of the brokerage agreement, is the subject of the offense; VAT on the imported equipment for a pig farm was not paid by the customs representative on time and was only paid after a desk customs audit; no grounds for applying Articles 2.9 and 4.1.1 of the CAO RF were found.

[24] Resolution of the Arbitration Court of the West Siberian District No. F04-4902/2020 dated November 17, 2020, in Case No. A46-4171/2020 On the Annulment of the Order Holding the Company Liable Under Article 16.11 of the CAO RF for the Loss of Customs Identification Means on a Railway Container Door. The petitioner's claim was denied because the elements of the offense were found to exist in the company's actions.

[25] Resolution of the Arbitration Court of the Moscow District No. F05-8062/2021 dated September 3, 2021, in Case No. A40-179419/2020 On the Annulment of the Order Holding Liable Under Part 1 of Article 16.12 of the CAO RF for Non-compliance with Established Deadlines for Filing a Customs Declaration When Releasing Goods Before Filing a Customs Declaration. The claim was denied because the fact that the company committed the imputed administrative offense was proven. In the event of a refusal to release goods, the filing of a customs declaration does not entail legal consequences and does not evidence the declarant's fulfillment of the obligation to place goods under the chosen customs procedure