Voluntary Report - Public distribution

**Date:** 1/20/2009

**GAIN Report Number:** CH9004

CH9004

**China, Peoples Republic of**

**Agricultural Situation**

**Quality Credit Assessment of Overseas Cotton Exporters**

**2009**

**Approved by:**

![](media/image1.wmf)Michael Woolsey

AgBeijing

**Prepared by:**

Jorge Sánchez and Wu Xinping

**Report Highlights:**

On November 28, 2008, the General Administration for Quality
Supervision, Inspection, and Quarantine published a circular on the
Issuing of Administrative Regulations on Quality Credit Assessment of
Overseas Cotton Exporters. These new requirements are in addition to to
new cotton exporter registration rules also announced last year
(Announcement No. 87 on the registration of overseas exporters of
cotton, see GAIN8075). Despite the concerns raised by the international
cotton industry regarding the ambiguity of the requirements for
registration and credit assessment, AQSIQ is on schedule to implement
this measure in early Spring. The new credit assessment requirements
were not notified to the World Trade Organization. This report contains
an UNOFFICIAL TRANSLATION of the circular and the Administrative
Regulations on Quality Credit Assessment of Overseas Cotton exporters.

Includes PSD Changes: No

Includes Trade Matrix: No

Trade Report

Beijing \[CH1\]

\[CH\]

**Executive Summary**

On November 28, 2008, the General Administration of Quality Supervision,
Inspection and Quarantine of People's Republic of China (AQSIQ)
published "Circular on Issuing Administrative Regulations on Quality
Credit Assessment of Overseas Cotton Exporters" (for trial
implementation). These regulations are in addition to measures
stipulated in Announcement (2008) No.87 on Administration Measures for
the Registration of Overseas Cotton Exporters published on August 5,
2008 (GAIN8075). Announcement No.87 requested that all overseas cotton
exporters supplying cotton to mainland China voluntarily file an
application for registration beginning September 15, 2008. According to
AQSIQ, the registration and the credit assessment are aimed at
strengthening management and supervision of the inspection and
quarantine of imported cotton and to prevent fraudulent trade practices.
Announcement No.87 was notified to the World Trade Organization (WTO) on
February 20, 2008 (G/TBT/N/CHN/336), however, the Administrative
Regulations on Quality Credit Assessment of Overseas Cotton Exporters
was not.

Industry sources reported that AQSIQ faced new challenges along with an
increasing number of overseas cotton exporters to China in recent years.
Some overseas cotton exporters are concerned about the ambiguity of the
requirements for registration and credit assessment. At this point, it
is unclear how the registration and credit assessment system will impact
cotton trade. On January 16, Post sent a letter requesting AQSIQ
postpone the implementation of the registration for six months due to
the general lack of understanding of the policy. This report contains an
UNOFFICIAL TRANSLATION of the circular and the Administrative
Regulations on Quality Credit Assessment of Overseas Cotton Exporters.

**BEGIN TRANSLATION**

General Administration of Quality Supervision, Inspection and Quarantine
of People's Republic of China

**Circular on Issuing Administrative Regulations on Quality Credit
Assessment of Overseas Cotton Exporters (trial implementation)**

All Inspection and Quarantine Bureaus directly under AQSIQ:

In accordance with the Announcement on Implementing Registration
Administration of Overseas Cotton Exporters (2008 No. 87 of General
Administration of Quality Supervision, Inspection and Quarantine of
P.R.C.), in order to carry out the quality credit assessment
administration of overseas cotton exporters, we hereby issue to you the
Administration Regulations on Quality Credit Assessment of Overseas
Cotton Exporters. The Circular encourages cotton exporters to comply
with such registration and publicize it to domestic cotton consumers.

Any problem or suggestion arising in the implementation of these
regulations herein shall be reported to AQSIQ in a timely manner.

General Administration of Quality Supervision, Inspection and Quarantine
of P.R. China

November 28, 2008

**Administrative Regulations on Quality Credit Assessment of\
Overseas Cotton Exporters (for trial implementation)**

I. Assessment Scope

Overseas exporters supplying cotton to China registered and unregistered
with AQSIQ (hereinafter referred to as "overseas cotton exporter").

II\. Assessment Authorities

1\. AQSIQ is responsible for the quality credit assessment
administration of overseas cotton exporters. A working group
(hereinafter referred to as the working group) designated by AQSIQ will
be responsible for the specific quality credit assessment of overseas
cotton exporters.

2\. The Inspection and Quarantine Bureaus (CIQ) directly affiliated to
AQSIQ are responsible for reporting on the quality of each cotton
consignment provided by overseas cotton exporters registered or
unregistered within the jurisdiction and the basic information of
unregistered overseas cotton exporters.

III\. Assessment Criteria

The following provisions are applicable to the quality credit assessment
of overseas cotton exporters. The assessment will analyze and compare
that the contract details and invoice have matching specifications.

1\. Twenty percent or higher of the cotton bales are down-degraded by
two grades or above;

2\. Twenty percent or higher of the cotton bales have a 1/16 inch or
above length shorter than contracted;

3\. Sixty percent of the cotton bales contain macronaire value not
matching the contract;

4\. Three percent and higher weight shortages;

5\. Five percent and above cotton bales are found to have grease, water,
mold or other contaminates or hardened cotton;

6\. The exterior package is seriously damaged;

7\. Foreign fiber and harmful matter are found in the bales, and are
proven to cause significant impact or loss to cotton buyers;

8\. Cotton bales are adulterated with inferior cotton, such as cotton
sweepings, cotton waste, other oil, cotton seeds and cotton linters, and
are proven to cause significant impact or loss to the cotton buyers; and

9\. Other serious violations of the inspection and quarantine
regulations or a breach of the contract.

IV\. Quality Credit Assessment Grades for Overseas Cotton Exporters

AQSIQ implements grade list administration for quality credit of
overseas cotton exporters based on the quality of cotton arrived at port
and the contract performance record by the overseas cotton exporters.
The list is classified into three categories A, B, and C and will be
managed dynamically.

Category A: Overseas cotton exporters which are registered with AQSIQ
fall into category A.

Category B: Overseas cotton exporters in category A which have recorded
one of the problems stipulated in "Assessment Criteria" fall into
category B.

Category C: Overseas cotton exporters in category B which have recorded
problems stipulated in "Assessment Criteria" for the second occasion,
and unregistered overseas cotton exporters which have had one of the
problems stipulated in the "Assessment Criteria" fall into this
category.

V. Supervision and Administration

AQSIQ maintains a dynamic list and will notify in writing (of any action
taken) overseas cotton exporters and the inspection and quarantine
bureaus directly affiliated to AQSIQ, and will report to relevant
ministries, commissions, and associations.

The inspection and quarantine bureaus affiliated to AQSIQ shall, upon
receipt of the notification, inform the subordinate inspection and
quarantine agencies, cotton-users, and cotton traders.

The inspection and quarantine agencies shall implement different
inspection and supervision measures for cotton imported by overseas
cotton exporters based on the category-A, B, and C that the exporters
fall into.

1\. Supervision and Administration of Registered Overseas Cotton
Exporters

1). AQSIQ will issue a registration certificate indicating the
registered overseas cotton exporter is in category A. Upon application
for inspection of each consignment at the entry port, the consignee
shall present the registration certificate (duplicate) to the inspection
and quarantine agencies of the entry port. The inspection will be
conducted at the destination according to the cotton-importing
inspection procedures by the inspection and quarantine agency.

2). As for category B overseas cotton exporters, upon application for
inspection for each consignment at the entry port, the consignee shall
present the registration certificate (duplicate) to the inspection and
quarantine agency of the entry port. The inspection will be conducted at
the destination. The inspection and quarantine agency will conduct a
strict inspection of the cotton provided by category B overseas cotton
exporters.

If the cotton imported from category B overseas cotton exporters do not
record any problem stipulated in "Assessment Criteria" within 3 months
upon being notified, the supplier will be upgraded to category A; if the
cotton imported from category B overseas cotton exporter presents a
problem stipulated in "Assessment Criteria" again, the supplier's
registration will be revoked and downgraded to category C.

3). Category C overseas cotton exporters shall sign a pre-shipping
inspection provision in the contract signed with the consignee. Such
inspection shall be conducted by the inspection and quarantine agencies
or qualified inspection agencies designated by AQSIQ. An inspection
certificate and a declaration of quality compliance shall be provided
for the application for inspection at the entry report. The inspection
and quarantine agency shall conduct spot inspections by opening bales at
the first port of arrival.

If the cotton provided by the overseas cotton exporter does not record
any of the problems specified in "Assessment Criteria" within 6 months
after being notified, the enterprise's qualification for registration
will be resumed and will be upgraded to category A; if the supplier
records any of the problems again within six months, it will remain in
category C for an additional year beginning from the date the problem
was recorded. The inspection and quarantine agency will conduct
inspections by opening more bales at the first port of arrival.

2\. Supervision and Administration of Unregistered Overseas Cotton
Exporter

1). When the cotton is provided by an unregistered overseas cotton
exporter, the exporter shall sign a pre-shipping inspection provision in
the contract signed with the consignee. The inspection shall be
conducted by inspection and quarantine agencies or the qualified
inspection agencies designated by AQSIQ. Upon application for inspection
at the entry port, an inspection certificate and a declaration of
quality compliance, together with the relevant documents as stipulated
in the "Registration Form for Overseas Cotton Exporters"(see No. 87
Notice of 2008) shall be provided. The inspection and quarantine
agencies shall conduct spot inspections by opening bales at the first
port of arrival.

2). Unregistered overseas cotton exporters which record any of the
problems stipulated in "Assessment Criteria" will directly fall into
category C.

3). For unregistered category C overseas cotton exporters, based on the
pre-shipping inspection results and other relevant documents provided by
the exporter, the inspection and quarantine agency shall conduct
inspection by opening more bales at the first port of arrival.

If the cotton imported from an unregistered overseas cotton exporter
recorded any of the problems stipulated in "Assessment Criteria" within
six months of being notified, the exporter will be removed from category
C; if the imported cotton records any of the problems stipulated in
"Assessment Criteria" within six months after being notified, the
exporter will be placed in category C for one additional year counting
from the date the problem was recorded. The inspection and quarantine
agency shall conduct spot inspections by opening each bale at the first
port of arrival.

VI\. Assessment Procedures

1\. The inspection and quarantine agencies in different regions shall
sort out and record the inspection and appraisal results of each cotton
consignment imported from overseas cotton exporters and the basic
information of unregistered overseas cotton exporters, and seizure of
the cotton with the problem stipulated in "Assessment Criteria" in
accordance with Regulations on Seizure of Goods in Entry-Exit Inspection
and Quarantine.

Bureaus of inspection and quarantine directly affiliated to AQSIQ shall
report the violation of "Assessment Criteria" and the basic information
of unregistered overseas exporters to AQSIQ within five working days
upon completion of the cotton inspection.

If the inspection and quarantine agency find records of a problem
stipulated in "Assessment Criteria" by the cotton-user in the process of
using the cotton, it shall advise the cotton-user to stop using the
cotton, seize the cotton and report it to AQSIQ in a timely manner.

2\. The working group shall review and confirm the cases reported by
bureaus of inspection and quarantine directly affiliated to AQSIQ
according to relevant requirements of "Assessment Criteria", and shall
submit assessment results to AQSIQ.

3\. Assessment results submitted by the working group shall be subject
to re-checking and approval by AQSIQ.

4\. The overseas supply exporter, in the case of disagreement or
objection against the assessment made by AQSIQ, may apply to AQSIQ for a
reassessment within 15 days upon receipt of the written notice. The
results may be corrected if the original assessment results are proven
to be incorrect after the reassessment.

VII\. This regulation shall be also applicable to the quality credit
assessment of cotton exporters in Hong Kong SAR, Macau SAR, and the
Taiwan Region of China.

VIII\. The regulation shall take effect March 15, 2009.

**END OF TRANSLATION**