Yesterday, the State Council’s institutional reform plan was submitted to the 13th National People’s Congress for deliberation and consideration. This plan is one of the most significant restructurings of the State Council ever proposed. Its impact on business in China and trade into China could well be substantial. We have summarized below what came out of the National People’s Congress yesterday as it relates to the trade and business operations of our clients. Whilst there were many significant aspects to the State Council’s reorganisation, the below are those perhaps most relevant to our multinational clients.
What is the State Council?
In plain language, the State Council of the People’s Republic of China is the highest-level government body overseeing all government administrative agencies and commissions. Similar to the Cabinets of the US and the UK governments, agencies of the State Council draft legislation for the National People’s Congress (NPC) to approve and drafts the associated implementing regulations of national law in order to effectuate their application, not unlike US executive branch agencies such as the Department of the Treasury. Organisationally, the State Council is subordinate to the National People’s Congress, although legislation drafted by State Council agencies is not often rejected or amended by the NPC. With respect to daily life as individuals and business operations in China, the State Council is the most visible and significant influence.
Significant aspects of the State Council’s re-structure that impact trade and supply chain operations are:
AQSIQ and CDA
First, for those that import merchandise subject to the web of overlapping product regulatory schemes in China, from pharmaceuticals and medical devices to cosmetics and even wearing apparel, this State Council reform has substantially revamped the departments involved in these operations. A newly created organization has been established called (in English) the National Market Supervision and Administration Bureau (NMSAB).
The NMSAB will assume the responsibilities formerly undertaken by the State Administration for Industry and Commerce (SAIC), the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the State Food and Drug Administration (SFDA or CFDA), the price supervision and inspection of the National Development and Reform Commission and the enforcement of anti-monopoly laws, which currently comes under the Ministry of Commerce (MOFCOMM). This new organization, the National Market Supervision and Administration Bureau (NMSAB) will be a direct constituent of the State Council itself.
In assuming the responsibilities of these myriad legacy agencies, the NMSAB’s main responsibilities will include:
- Implementation and enforcement of the China’s product quality, safety, food safety, and safety supervision of special equipment;
- Maintenance and enforcement of national measurement standards;
- Product inspection and accreditation; market supervision; and
- The enforcement of anti-monopoly laws.
With regard to pharmaceuticals and medical devices, a new specialized sub-department under the NMSAB will be established, called the State Drug Administration (SDA). Market supervision of drug sales will be borne by the various county market supervision departments, which will be subordinate to the SDA nationally.
Customs and CIQ
The import and export product inspection responsibilities currently undertaken by the China Inspection and Quarantine Bureau (CIQ), will be consolidated into the General Administration of Customs. As such, together with the reforms outlined above, both the SAIC and AQSIQ, including the CIQ, will be dissolved.
Taxation
We also note that the local and provisional tax bureaus that currently collect local taxes and non-tax revenues will be merged into the State Administration of Taxation (SAT). Going forward, the collection and enforcement of taxes—both VAT and enterprise income tax—may be unified as a result. We understand that as early as August of this year, tax assessment and collection will be consolidated. As always, we will keep you up-to-date as we learn more.
Ministry of Justice
Finally, we wish to note that the Ministry of Justice has now been elevated to a full State Council level agency and will assume the responsibilities of the former Legislative Affairs Office, which will be dissolved. The new Ministry of Justice will be responsible for:
- Drafting legislation and administrative regulations;
- Legislative coordination with the NPC;
- The recordal, review and interpretation of administrative law enforcement;
- Guiding administrative reconsideration;
- Propaganda;
- Administration of prisons;
- Drug rehabilitation;
- Community corrections,
- Notarizing lawyers; and
- Judicial appraisal and arbitration management.
Whilst it remains unclear at this time, the Ministry of Justice may have a more direct role in administrative appeals or other judicial proceedings following administrative enforcement actions and appeals of the same.
My View
I anticipate several consequences for clients that import products subject to regulations that are administered by these affected agencies. First, I expect that this may help to standardize the national interpretation and application of complex regulations surrounding product quality, inspection, labelling, and approvals across a broad category of consumer and medical products. This may also lead to greater predictability and consistency for China-wide distribution and sales activities. Approvals, inspections, and clearances (in the case of customs) may be more efficient and straight-forward given that duplicative declarations and declaration identity records may no longer be required following this re-structure. There may be other implications with respect to the speed or efficiency of approvals and inspections or the general approach to enforcement. Finally, as I note above, I will also keep a close watch on developments with respect to the Ministry of Justice’s direct involvement in administrative appeals cases and whether that may impact the procedures or remedies available in certain cases where an enforcement action may be subject to challenge. At this time, it is too early to make such assessments, although I will continue to keep a close watch of these developments.