G/RO/W/197  
 
21 July 2020 
(20-4993) Page: 1/5 
Committee on Rules of Origin  Original: English  
 
FURTHER CLARIFICATION ON THE  LDC GROUP'S REPORT OF  
UTILIZATION BY LDCS OF CHINA'S PREFERENC E 
The following submission, dated 15 July 2020, is being circulated at the request of the delegation of 
China.  
 
_______________  
 
 
1  BACKGROUND  
1.1.  On 8 October 2019, the LDC Group  submitted a report to the WTO Committee on Rules of 
Origin containing utilization rates of LDC exports to China under China 's LDC preferential trade 
arrangement. The report reviewed the utilization of China's preferences based on the 2016 import 
data. In view of the issues raised in the report, China verified its trade statistics and examined the 
assertions made in the paper o f the LDC Group. China based its analysis on taxable import data 
from the LDCs in 2016. This note contains the main findings.  
2  THE CHINESE UTILIZAT ION RATES – OVERVIEW  
2.1  Calculation method of utilization rate  
2.1.  In accordance with the relevant provisions of China, the utilization rate of preferential trade 
arrangements (including preferential treatment) is calculated as follows:  
- Utilization rate = (actual preferred value  / Adjusted Dutiable Imports) *  100% . 
2.2.  The above calculation method is consistent with the me thod adopted by the WTO Committee 
on Rules of Origin.  
2.3.  In the case of  Bangladesh; Cambodia; Myanmar ; and Laos, additional preferences are 
available. In fact, they can claim preferences under the LDC -specific preferential trade arrangement 
(PTA) or under the Asian Preferential Trade Agreement (APTA) or the CHINA -ASEAN Free Trade 
Agreement. As a result, i n the case of these LDCs , the combined value of goods enjoying preferential 
tariff rates must be taken into account to calculate utilization rates.  
2.4.  As for the Adjusted Dutiable Imports , it should fulfil three conditions. F irst, it concerns goods 
that were actually imported . Second, for the taxable import goods, it should not include the goods 
that do not pay customs duty in the import ing process , such as the goods that enter under special 
customs programmes such bonded goods under customs control . Third,  the value of imports must 
exclude commodities that are not covered by preferential treatment, or commodities that are subject 
to a most -favoured -nation rate equal to or less than preferential rate. Thus, the value of Adjusted 
Dutiable Imports cannot be equiv alent only to the value of imports under the LDC -specific alone, as 
was the case in the calculations of the LDC report.  
2.5.  It was found that the import value algorithm applied to MFN in the LDC report is the difference 
between the total import value and LDC's preferential value, which is not consistent with China's 
real import situation. In China, in addition to preferential import, there are special import regimes 
such as processing trade, bond ed, temporary entry and exit, and other import methods that do not 
need to pay customs duties, and the import value of these goods should be deducted from the G/RO/W/197  
 
- 2 - 
 
  calculation of the applicable MFN import value.  This should be clearly reflected in all the illustrations 
mentioned in the LDC report.  
2.6.  Figure s 1 and 2 as well as Table 1 reproduced at the end of this analysis  show utilization rates 
for LDCs imports covered by preferential treatment with a value above USD 50 million  and import 
values  between USD 1 million and USD 50 million .  
2.7.  Bangladesh, Cambodia, and Myanmar  are the  top three countries with the largest exports to 
China, the total value  enjoy ing benefit value accounted for 54% of the total value of the goods 
import from LDCs. Those  three countries enjoy preferences under other agreements, as stated 
above, and have a comprehensive utilization (i.e. all preferential schemes combined) of 61%, 77% 
and 53% respectively. In addition, with the exception of Angola, where utilization was zero, 
utilization remained high in most of the 14 African countries, exceeding 94%.  
2.8.  Figure 2 shows utilization rates in 13 countries with an annual import value between 
USD 1 million and USD  50 million. Ten of these countries have utilization rates close to or above 
70%.  
2.9.  Regarding  statements in the LDC report (reproduced below in italics ) concerning individual  
countries , China's verifications found the following : 
- "While s ome LDCs exhibit high utilization rates, it is remarkable to observe that the five biggest 
LDC exporters to China - trade values between USD 626 million and USD 2 billion - all face 
difficulties to benefit from DFQF preferential treatment. Indeed, four of these five LDCs, 
namely Zambia; the  Democratic Republic of Congo; Cambodia; and Myanmar report a 
utilization rate of zero. Bangladesh, the third biggest exporter to China in terms of covered 
imports only reaches 45%. " 
- "Given the low/zero utilization rate s, a significant amount of imports from LDCs are entering 
China under the MFN rate. As an illustration, with a preferential margin of 35% , the 
USD 73 million imports of precious/semi -precious stones from Myanmar  (TL 71162000), could 
generate a saving of USD 26 million by using the preference."   
2.10.   After c hecking the data, it was  found that only USD 65,000 of goods imported from Myanmar 
were taxed in 2016, all of which were imported by means of embassies, consulates, personal luggage 
and samples, etc. The goo ds imported in this way are subject to the duty -free policy in China and 
no tariff is levied. More than USD 70 million are imported through processing trade, bonded trade 
and temporary import and export. Goods imported through these means enter China's cus toms 
territory and enjoy the preferential treatment, that is, the customs do not levy tariffs at the entry 
point. For those imported in the form of processing trade or bonded trade, the relevant tax shall be 
levied at the domestic sales link. According to the data, we  found that these goods have not been 
declared for domestic sales in 2016 (note: it may be sold in 2017 but may be exported again).  
- "In the Case of the Democratic Republic of Congo, despite the lower preferential margin (4%) 
the use of the pr eferential treatment could also trigger substantial duty savings given the 
extensive amount of trade. Combining the two tariff lines for cobalt (TL 81052010 and 
81052090) the duty saving can be estimated to USD 30.2 million (4% of USD 755 million)."  
2.11.   After check ing the data, it was found that in 2016, China implemented a temporary tariff rate 
of zero (applied MFN rate) for the goods with this tax code. The above goods imported from the 
Democratic Republic of the Congo (DRC) directly enjoyed zero tariff under  the general trade tax, 
totalling USD 590 million.  The estimated duty of  USD 30.2 million  was not paid.  
-  "Somalia exported USD 4.7 million of Fish and crustacean of HS chapter 3 to China but did 
not receive the preferential treatment and therefore paid U SD 560,000 of MFN duties."  
2.12.   After c hecking the data, it was found that USD 4.7 million of fish and crustacean of HS 
0307.4900 were declared for import through bonded means, and the goods were not declared for 
exporting out of the zone that year.  It means no duty was paid as assumed in the report . G/RO/W/197  
 
- 3 - 
 
  -  "In Zambia, almost USD 2 billion of copper of HS chapter 74 have been exported to China in 
2016. While the tariff line did not appear in the previous table due to the filtering (preference 
margin abov e 2%), the duty saving that could be generated by a full use of the preferential 
treatment amount to more than USD 35 million."  
2.13.   After check ing the data, it was found that there were four kinds of dutiable commodities 
imported from Zambia, including unrefin ed copper, copper anode for electrolytic refining (HS code 
7402.20.00), cathode refined copper (HS code 7403.11.11) with copper content exceeding 
99.9935% by weight, other cathode refined copper (HS code 7403.11.19) and other unwrought 
copper alloys (HS co de 7403.29.00). The first three types of taxable imports of USD 1.75 billion are 
directly entitled to the temporary tariff rate of zero (applied MFN rate) , while only the fourth type of 
taxable imports of USD 1.286  million are subject to the most favoured nation tariff rate of 1% . 
The tariff paid is USD  12,860, instead  of more than USD 35 million  as assumed in the LDC report . 
2.14.   In 2016, China imported goods from LDC countries that met the eligibility criteria and had 
actual imports in a total of 1,213 HS code s, including 606 for goods with a value of more than 
USD 10,000. Among them, 139 items had utilization rates comprised between 95 and 100% 
(accounting for 23% of items), valued at USD  1.47 billion (accounting for 55% of the value of 
available goods). Goods  valued at USD 1.75 billion, or 66% of total value corresponded to utilization 
rates which exceeded 70%. Codes with utilization rates of 0 -5% totalled 244 (34%) with an annual 
import value of only USD 270 million (see Table 2 below  for details).  The polarization noted in the 
LDC report can be confirmed and is biased towards high utilization rate s when import value s are 
considered . 
2.15.   Finally, according to the Table 3 of the Annex in LDC report, it was found that 10 LDCs have 
zero utilization rates.  China must undertake further examinations to identify possible reason s. 
For instance, propane imported from Angola (HS code 2711.12.00) accounted  for 80% of the cargo 
value (USD  52.06  million) and received no preferential benefits. China's analysis does not rule out 
that the importer imported it under the temporary tax rate  (applied MFN rate) . China impose d a 
temporary tax rate on propane in 2016, with a tax rate of 1%.  
3  CONCLUSION  
3.1.  According to the numbers  shown in Figure 1 and 2 below , the utilization rates o f China's 
preferential rules of origin for LDCs are generally very high. All LDCs are subject to the same policy 
and same procedures, and a majority of LDCs in the top 27 exporting countries enjoy more than 
80% utilization rates. This shows that China's po licy implementation is generally complete and 
robust.  
3.2.  China has also noted that some least developed countries have low utilization rates. China is 
actively studying the reasons behind these rates. Faced with the same policies and workflows , why 
is utilization high in most countries and low or non -existent in some? Perhaps this is related  to 
corporate awareness and cost considerations in some countries. The reasons for these countries' low 
utilizatio n may be manifold . 
3.3.  China is completely transparent and consistent in its policies. For countries with low utilization 
rates, even if the import value s are relatively low, China is  willing to strengthen communication, and 
collaboration with the LDC Group to  further understand the practical difficulties they face and provide 
assistance and capacity building.  To support the LDC Group  to utilize the preferential rules, China  is 
actively developing  the "special preferential tariff treatment issuing system". The system is 
scheduled to be in operation  in 2020.  We look forward  to further cooperat ing with LDCs delegations 
to optimize the utility of preferential rules of origin for LDCs . 
  G/RO/W/197  
 
- 4 - 
 
  Table 1 Chinese Utilization Rates and  Adjusted Dutiable Imports (ADI) from LDCs  > 
USD 1 million  
No. LDCs Utilization 
Rate (%)  Value of imports covered by the 
preferential treatments  
(USD million)  Adjusted 
dutiable 
imports  
(USD million ) Percentage of 
all ADI (%)  
1 BGD 61.10  449.73  379.69  (LDC)  736.09  27.52  
70.04 (APTA) 
2 KHM 76.91  416.33  0.03 (LDC)  541.35  20.24  
416.30  (CN-ASEAN ) 
3 MMR 52.75  94.13  0.27 (LDC)  178.44  6.67 
93.86 (CN-ASEAN ) 
4 TZA 97.68  149.51  153.07  5.72 
5 SDN 99.19  126.17  127.20  4.76 
6 NER 99.41  120.79  121.50  4.54 
7 MDG 83.09  97.43  117.25  4.38 
8 SEN 99.43  114.54  115.19  4.31 
9 TGO 99.97  101.88  101.91  3.81 
10 MLI 99.82  85.78  85.94  3.21 
11 LAO 95.11  66.20 (CN -ASEAN)  69.60  2.60 
12 AGO 0.00 0.00 65.42  2.45 
13 ETH 94.19  57.82  61.39  2.30 
14 MOZ 94.35  57.58  61.03  2.28 
15 ZMB 88.18  34.03  38.59  1.44 
16 UGA 85.64  28.82  33.65  1.26 
17 NPL 47.32  8.76 18.50  0.69 
18 YEM 69.26  12.59  18.17  0.68 
19 MRT 74.59  5.53 7.42 0.28 
20 SOM 80.19  5.03 6.27 0.23 
21 VUT 72.85  2.41 3.31 0.12 
22 AFG 54.46  1.42 2.60 0.10 
23 LSO 4.42 0.10 2.25 0.08 
24 RWA 86.54  1.56 1.80 0.07 
25 MWI 99.05  1.76 1.77 0.07 
26 BDI 96.44  1.23 1.27 0.05 
27 BEN 80.20  0.84 1.04 0.04 
 
Table 2 – Number of tariff lines and trade values over utilization rates categories  
UR (%) #TL Percentage  Adjusted dutiable Imports (USD million)  percentage  
0-5 244 40.26%  267.52  10.01%  
5-10 16 2.64%  11.54  0.43%  
10-15 15 2.48%  19.45  0.73%  
15-20 10 1.65%  6.46 0.24%  
20-25 15 2.48%  18.36  0.69%  
25-30 13 2.15%  30.45  1.14%  
30-35 5 0.83%  54.1 2.02%  
35-40 10 1.65%  13.88  0.52%  
40-45 10 1.65%  46 1.72%  
45-50 8 1.32%  12.25  0.46%  
50-55 16 2.64%  102.62  3.84%  
55-60 13 2.15%  43.05  1.61%  
60-65 13 2.15%  168.95  6.32%  
65-70 12 1.98%  126.09  4.72%  
70-75 7 1.16%  15.34  0.57%  
75-80 8 1.32%  34.13  1.28%  
80-85 14 2.31%  23.89  0.89%  
85-90 19 3.14%  155.56  5.82%  
90-95 19 3.14%  50.95  1.91%  
95-100 139 22.94%  1,472.64  55.09%  
Total 606 100%  2,673.23  100%  
  G/RO/W/197  
 
- 5 - 
 
  Figure 1 – Chinese Utilization Rates and  Adjusted Dutiable Imports from LDCs  > 
USD 50 million  
 
Figure 2– Chinese Utilization Rates and Eligible imports from LDCs USD 1 million 
<Adjusted Dutiable Imports <= USD 50 million  
 
 
__________