[Case Overview]
On February 8, 2025, Company A, while engaged in processing imported bonded materials to manufacture wigs made from synthetic fiber for export, registered an average unit consumption rate of 1.087 in its processing trade manual filed with Customs, with the actual declaration pending until the manual's final verification upon export completion. From February to March 2025, the company completed the export of the entire batch of such wigs for which the unit consumption had been registered. Subsequent Customs inspection and calculation, however, determined that the actual average unit consumption rate was 1.025. This lower-than-declared rate resulted in a discrepancy involving 9,126.4 kilograms of bonded polyvinyl chloride fiber intended for wig manufacturing. The company had neither applied to Customs to amend the consumption rate in its manual before export, nor truthfully declared the actual unit consumption of the finished processing trade goods. The value of the goods involved was assessed at RMB 369,000 yuan, resulting in unpaid taxes of RMB 66,710 yuan. These actions by Company A constituted violations of paragraph (1) under Article 33 of the Customs Law of the People’s Republic of China and paragraph (1) under Article 14 of the Administrative Measures for Unit Consumption of Processing Trade of the Customs of the People's Republic of China. Consequently, Customs authority imposed administrative penalties on the company pursuant to item 5, paragraph (1) under Article 18 of the Regulations of the People’s Republic of China on Implementing Customs Administrative Penalty.
[Key Analysis]
I. Calculating Unit Consumption in Processing Trade Pursuant to the Administrative Measures for Unit Consumption of Processing Trade of the Customs of the People's Rublic of China, unit consumption means the materials quantity consumed for processing unit finished product by a processing trade enterprise under the normal processing conditions, including net consumption and technique consumption. The standard formula is: Unit consumption = Net consumption / (1 – Technique consumption rate).
Net consumption refers to the quantity of the materials that exist in or are converted into the unit finished product through physical change or chemical reaction after being processed. In this case, it is the precise amount of polyvinyl chloride fiber contained in each finished wig made from synthetic fiber.
Technique consumption represents, excluding net consumption, the quantity of the materials that must be consumed in the normal processing course but may not exist in or be converted into the finished product because of processing technique, and includes tangible consumption and intangible consumption. (This refers to the natural and unrecoverable loss of polyvinyl chloride fiber during the wig manufacturing process.)
Technique consumption rate is defined as the proportion of technique consumption to the consumed materials.
II. Excluding Items from Unit Consumption Management in Processing Trade
According to Article 16 of the Administrative Measures for Unit Consumption of Processing Trade of the Customs of the People's Republic of China, the following items are excluded from the scope of allowable technique consumption: (I) Loss of bonded materials, semi-finished products, or finished goods resulting from sudden power, water, or gas outages, or other human-caused disruptions; (II) Depletion or damage of bonded materials, semi-finished products, or finished goods resulting from loss or damage; (III) Loss, destruction, or shortage of bonded materials, semi-finished products, or finished goods caused by force majeure; (IV) Excess material consumption attributable to imported bonded materials or exported finished goods failing to meet the quality or specifications stipulated in the contract; (V) Loss arising from non-bonded materials used as process ingredients; (VI) Loss of consumable materials used in the processing.
III. Determining Liability for False Declaration of Unit Consumption in Processing Trade
In compliance with paragraph (1) under Article 14 of the Administrative Measures for Unit Consumption of Processing Trade of the Customs of the People's Republic of China, processing trade enterprises should truthfully declare the unit consumption to Customs prior to the export, deep-processing transfer, or domestic sale of finished goods. As provided in paragraph (1) under Article 18 of the Regulations of the People’s Republic of China on Implementing Customs Administrative Penalty, anyone who commits any of the following acts shall be fined not less than 5% but not more than 30% of the value of the goods and the illegal gains, if any, shall be confiscated: …Item (5) fail to declare truthfully to the Customs the material consumption per finished product for the processing trade. In accordance with paragraph (3) under Article 12 of the Discretion Benchmark of the Customs of the People's Republic of China for Administrative Penalties (I), a penalty shall be imposed under the "general circumstances" classification as stipulated therein.
Furthermore, if a false declaration of the unit consumption of finished goods in processing trade constitutes an act of smuggling, it shall be dealt with pursuant to Articles 7 and 9 of the Regulations of the People’s Republic of China on Implementing Customs Administrative Penalty. Where smuggling involves the evasion of payable taxes but not the evasion of license control, the smuggled goods or articles and any illegal gains shall be confiscated, and a fine of up to three times the amount of evaded taxes may also be imposed.
IV. Remedying Errors in Unit Consumption Declaration
Pursuant to the Administrative Measures for Unit Consumption of Processing Trade of the Customs of the People's Republic of China, processing trade enterprises are required to file the unit consumption data with Customs when establishing a processing trade manual. They should truthfully declare the unit consumption to Customs prior to the export, deep-processing transfer, or domestic sale of finished goods. Should an enterprise have legitimate reasons for being unable to declare the unit consumption on schedule, it shall retain samples of the finished products and relevant documents, and submit a written application prior to their export, deep-processing transfer, or domestic sale. Subject to approval by the competent Customs authority, the enterprise may then declare the unit consumption when applying for the final cancellation of the processing trade manual. Should an enterprise discover an error in its declared unit consumption, it may apply to Customs to amend or revoke the declaration, except under any of the following circumstances: (I). The bonded finished goods have already been declared for export; (II). The bonded finished goods have already undergone deep-processing transfer; (III). An application for the domestic sale of the bonded finished goods has already been submitted; (IV). Customs has already conducted verification of the unit consumption; (V). Customs has already initiated an investigation against the processing trade enterprise.
Concurrently, in response to practical business needs, the Discretion Benchmark for Administrative Law Enforcement in the Management of the “Range of Shortages and Surpluses” of Goods in Processing Trade (Announcement No. 49 [2024] of the General Administration of Customs) provides as follows: If, in the course of transportation, storage, processing, or assembly, a processing trade enterprise encounters a discrepancy in its bonded goods under processing trade that is within the official tolerance margin of ±1%, such a discrepancy shall not be deemed a violation, unless the enterprise is found to have acted with willful misconduct. For such discrepancies, the enterprise may apply for duty payment or ledger adjustment. Customs shall conduct cancellation following verification, in accordance with regulations. The management of “Range of Shortages and Surpluses” may also apply to minor discrepancies in the declaration of unit consumption for finished products resulting from processing trade.
In cases of over-declared unit consumption where the resulting remaining bonded materials have not been disposed of domestically, an enterprise may also avoid penalties by making a voluntary disclosure. According to Article 1 of the Announcement on Matters Relating to the Handling of Voluntary Disclosure of Regulatory Violations (Announcement No. 194 [2025] of the General Administration of Customs), where an import or export enterprise or other entity voluntarily discloses a violation of Customs regulations, and one of the following circumstances exists, no administrative penalty shall be imposed: ... Paragraph (4) where the actual unit consumption of a processing trade enterprise is lower than the declared unit consumption due to reasons such as technique improvements or inaccurate declaration of the proportion of non-bonded materials used, and where the remaining bonded materials, semi-finished products, or finished goods either remain undisposed of or have been re-exported under processing trade arrangements.
[Case Implications and Guidance]
Customs authorities advise that enterprises conducting processing trade must strictly adhere to all relevant legal provisions in managing their unit consumption, ensuring declarations are truthful and manual cancellation is based on actual data. Acts of false declaration may result in administrative penalties and even entail risks of criminal liability. In addition, enterprises processing bonded materials must clearly distinguish between leftover bits and pieces, by-products and defective products to prevent errors in unit consumption declaration arising from incorrect categorization.
(By Sun Fuhai, and Li Yuyan from Huangpu Customs)
Disclaimer：The above content is translated from Chinese version of China Inspection and Quarantine Times. The China Inspection and Quarantine Times version shall prevail.
