MEASURES CONCERNING THE SUBSTITUTION OF PRODUCTS MANUFACTURED BYCHINESE- FOREIGN EQUITY JOINT VENTURES AND CHINESE-FOREIGN CONTRACTUALJOINT VENTURES FOR SIMILAR IMPORTED PRODUCTS

MEASURES CONCERNING THE SUBSTITUTION OF PRODUCTS MANUFACTURED BYCHINESE- FOREIGN EQUITY JOINT VENTURES AND CHINESE-FOREIGN CONTRACTUALJOINT VENTURES FOR SIMILAR IMPORTED PRODUCTS This English document is coming from "LAWS AND REGULATIONS OF THE PEOPLE'S REPUBLIC OF CHINA GOVERNING FOREIGN-RELATED MATTERS" (1991.7) which is compiled by the Brueau of Legislative Affairs of the State Council of the People's Republic of China, and is published by the China Legal System Publishing House.

In case of discrepancy, the original version in Chinese shall prevail.

Whole Document MEASURES CONCERNING THE SUBSTITUTION OF PRODUCTS MANUFACTURED BY CHINESE- FOREIGN EQUITY JOINT VENTURES AND CHINESE-FOREIGN CONTRACTUAL JOINT VENTURES FOR SIMILAR IMPORTED PRODUCTS (Approved by the State Council and promulgated by the State Plan- ning Commission on October 19, 1987) Article 1 These Measures are formulated in accordance with the Provisions of the State Council Concerning the Encouragement of Foreign Investment, to encourage foreign businessmen to invest in setting up technologically - advanced enterprises, and to help enterprises in achieving a balance between their foreign exchange earnings and expenditures.

Article 2 These Measures shall apply to Chinese-foreign equity joint ventures and Chinese-foreign contractual joint ventures of a production nature (hereinafter referred to as joint ventures and contractual ventures) which can provide advanced technologies China needs and are engaged in the development of new products, thereby realizing the upgrading of products and the replacement of old products with new ones.

Article 3 Enterprises with foreign investment that satisfy the following conditions may apply to substitute their products for similar imported products: (1) technologically-advanced joint ventures and contractual ventures whose products are indeed needed in China, and which have, at the initial stage of production, experienced some temporary difficulties in balancing their foreign exchange earnings and expenditures in the course of realizing the replacement of imported products with home-made ones; (2) the products manufactured by enterprises mentioned above belong to the categories of products the central departments, the localities and other departments need to import at present and in the next few years; (3) products that are recommended as substitutes for similar imported products shall meet the needs of domestic users in specifications, properties, the delivery time, technical services and technical training, and undergo the appraisal conducted by the national testing center for the quality of products, thereby confirming that the aforesaid products measure up to the quality standard of similar imported goods; in principle, the prices of the recommended products shall not be higher than those of the international market at the time.

Article 4 Enterprises that recommend their products as substitutes for similar imported goods shall make an application in that connection at the time when they submit their project proposals. When they submit their project feasibility study reports, they must state clearly in the reports the proportion between domestic sales and export sales of the products manufactured by the joint ventures and contractual ventures and the rate of progress for the replacement of imported products with home-made ones; moreover, they shall prove by an ample demonstration or appraise the feasibility of substituting their products for similar imported ones (including a statement concerning the annual quantity of their products to be used to substitute for imported products and annual amount of foreign exchange to be earned therefrom).

Article 5 Pursuant to the principle of administration at different levels, the applications for the approval of using the products manufactured by the joint ventures and contractual ventures to substitute for similar imported goods shall be examined and approved respectively by the central competent authorities and the local competent authorities (or departments). If items above the norm examined and approved by the central competent authorities need to be recommended as substitutes for similar imported products, the matter shall be examined and approved by the State Planning Commission; and the items below the norm examined and approved by the local competent authorities (or departments) need to be recommended as substitutes for similar imported products, the matter shall be examined and approved by the local planning commissions or departments on their own.

Article 6 Import substitution to be effected in the items above the norm to be examined and approved by the State Economic Planning Commission: (1) of the goods which have been included in the Central Government's medium-and long-term import plans approved by the State, except those on which long-term import agreements have been concluded with foreign countries, substitution for imports shall be approved in advance within the Central Government's import plans if it is still possible that some of the goods to be imported can be substituted with domestically - manufactured products when the feasibility study reports are examined and approved; (2) substitution for goods which have not been included in the Central Government's medium-and long-term import plans shall, in principle, not be approved in advance. However, the enterprises may apply to the State Planning Commission for using their products as substitutes for similar imported products if such goods have been included in the Central Government's annual import plans and are available for substitution with home-made similar products. Once the applications are approved, the Ministry of Foreign Economic Relations and Trade shall handle the procedures for substituting home-made product for similar imported products for the current year; (3) with respect to those commodities which have not been included in the Central Government's long-term, medium-term and annual import plans, if they are to be imported by the local governments in the current year, the enterprises may make an application to the local planning commission; upon approval, the local department of foreign economic relations and trade shall handle the procedures for using their products as substitutes for similar imported products.

Article 7 Import substitution to be effected in the items below the norm to be examined and approved by the local competent authorities (or departments): (1) of the commodities which have already been included in the long-term, medium-term and annual import plans of the province, autonomous region, or municipality directly under the Central Government, if there are some available for being replaced by home-made products, they may, within the period for executing the locality's import plan, be approved in advance by the planning commission of the province, autonomous region, or municipality directly under the Central Government with reference to the examining and approving procedures adopted by the central competent authorities, and the aforesaid planning commission shall also handle, within the aforesaid period, the procedures for using the home-made products mentioned above as substitutes for similar imported commodities; (2) with respect to those commodities which have not been included in the localities' long-term, medium-term and annual import plans, but they are to be imported by the local area or by some other areas, a transregional operation may be conducted for using home-made products as substitutes for similar imported commodities. The enterprises may make an application directly to the planning commission of the province, autonomous region, or municipality directly under the Central Government that undertakes the import of the aforesaid commodities; after they have obtained the approval, the department of foreign economic relations and trade of the aforesaid province, autonomous region, or municipality directly under the Central Government shall handle the procedures for using their products as substitutes for similar imported commodities: (3) with respect to the commodities to be imported by some departments with the foreign exchange in their possession, the enterprises may make an application directly to these departments; after they have obtained the consent of the departments, they shall go through the procedures for using their own products as substitutes for similar commodities to be imported.

Article 8 With respect to the aforesaid products which are to be used as substitutes for similar imported commodities as examined and approved by the planning commission of the central competent authorities or of the local competent authorities (or by local departments), if these products belong to the lot of products which are to be approved in advance within the long-and medium-term plans, they shall be further verified and confirmed in the annual plan in accordance with the actual situation of the execution of the import plan in the current year.

The products which have been approved as substitutes for similar imported products shall, under equal conditions (with similar imported commodities), be given priority of being selected for use by domestic users.

The competent departments for imports administration and the examining and approving departments for imports at various levels shall guide and encourage domestic users to give priority to the purchase of the products which are manufactured by the joint ventures and contractual ventures and are in conformity with the conditions of products used as substitutes for similar imported products.

Article 9 When domestic users purchase products which have been approved as substitutes for similar imported products, the payment for such products shall be made wholly or partially in foreign exchange to the joint ventures and contractual ventures in accordance with the terms agreed upon by both parties and subject to the approval of the State administrative department of foreign exchange control.

Article 10 With respect to machinery and electrical products used as substitutes for similar imported products, the State Economic Commission shall formulate and publish a catalogue of products used as substitutes for similar imported products and also the procedures for the administration of substitution of home-made products for similar imported goods, thereby directing the domestic users to give priority to the purchase of the products included in the aforesaid catalogue.

The joint ventures and contractual ventures which manufacture the products included in the aforesaid catalogue may participate in the open tender for imported machinery and electrical equipment conducted by the China Bidding Center for Machinery and Electrical Equipment (or by other bidding agencies authorized by the State Economic Commission); the Center shall issue a certificate to the enterprise which has won the tender, thereby realizing the substitution of home-made products for similar imported goods.

Article 11 The joint ventures and contractual ventures shall, in accordance with the provisions of Article 4 of the Measures of the Ministry of Foreign Economic Relations and Trade Concerning the Application by Enterprises with Foreign Investment for the Export Licence, go through the procedures for the importation of raw materials and component parts needed in the manufacture of products used as substitutes for similar imported goods; when the aforesaid products are supplied to domestic users, the transaction shall be handled in accordance with the provisions of Article 5 of the Measures of the General Customs Administration of the People's Republic of China Concerning the Importation of Raw Materials and Component Parts Needed by Enterprises with Foreign Investment to Execute Their Products Export Contracts.

Article 12 The joint ventures and contractual ventures which have obtained the approval to use their products as substitutes for similar imported goods must fulfil the following requirements: (1) strictly fulfil the requirements for the export proportion stipulated in the contract and the rate of progress for the replacement of imported products with home-made ones; (2) strive to maintain the advanced level of the technical performance and quality of their products; (3) deliver their products in accordance with the quantity and schedule stipulated in the contract; in the event that the users suffer economic losses caused by problems relating to the time of delivery, the quantity of products delivered, and the quality of products, they shall bear the corresponding economic liabilities; (4) provide high-quality service to the users.

Article 13 Once the products manufactured by the joint ventures and contractual ventures have been approved as substitutes for similar imported goods, they shall not be included again in the State plan for the distribution of goods and materials produced domestically.

Article 14 The right to interpret these Measures shall reside in the State Planning Commission.

Article 15 These Measures shall go into effect as of the date of promulgation.

Appendix: Catalogue of commodities which can be replaced by home-made products as included in the central government's import plan to be executed during the "Seventh Five-Year Plan": (1) steel products (2) pig iron (3) timber (4) copper (5) aluminium (6) zinc (7) rubber (8) chemical fertilizers (9) wood pulp (10) poly acrylonitrile fibre (11)polyamide fibre (12) artificial silk