News Alert - VAT rebates eliminated for inorganic chemicals, cut to 5 percent for organic chemicals

Beijing, China; Brampton, ON Canada; June 19, 2007 (Phancorp Asia sources, Reuters)   Today’s announcement  by the Chinese Finance Ministry on export Value Added Taxes (VAT) rebate cuts scheduled for July 1, 2007 will mean the elimination of the export VAT rebate for Chinese exporters on most inorganic chemicals and a reduction from 13 to 5 percent on organic chemicals, says Tao Lu, Manager, Phancorp Asia.

These cuts could increase chemical prices by up to 13 percent on inorganic chemicals imported into North America and by up to 8 percent on organic chemicals, should Chinese producers pass the full impact to their profit margin onto their customers, he said.

“Phancorp will continue to leverage its strong relationships with Chinese chemical producers to try to ensure an uninterrupted supply of product to its chemical distributor customers over the next critical month,” said Lu.  “We are hoping that the announcement will at least enable our chemical suppliers in China to release quotes on expected new chemical prices.

“Once we know what kind of increases we are dealing with, we can begin to assess steps we can take to ensure the best possible service for our customers,’ says Lu.

“Phancorp will still be the chemical distributors’ best source for its chemical needs,” said Isabel Alexander, Phancorp Inc. President.  “Our strong on-the-spot presence in Asia and our flexibility in sourcing product all over the globe, will still enable us to provide reliable service, high product quality and availability and on time delivery at highly competitive prices.

China has cut export rebates on various types of exports three times this year. The Chinese tax bureau in April reduced tax breaks on seven products, including stainless steel and cold-rolled coils. On March 28, China eased import rules for 338 products to forestall trade disputes that may come from the nation's record surplus.

Some of the changes address specific complaints by China's trading partners. For instance, U.S. welded pipe producers earlier this month asked Washington to impose duties on competing imports from China, arguing they were sold at unfairly low and subsidized prices.  Others were long expected. Aluminum product exports had nearly doubled in the first five months, with April's hitting a record high and May exports a close second as fabricators rushed to get products out.

"The export tax rebate policy adjustment is an important part of a series of measures to curb export growth and to mitigate the excessive trade surplus problem," the ministry said in an announcement on its Web site.

The rebate changes are expected to have a cooling effect on exports, but "will not have a significant negative impact," it said without elaborating. The changes will take effect starting July 1.

There will be no grace period for most products, except ship sections and some construction equipment, since previous grace periods on export-policy changes resulted in many cases of fraudulent export contracts, the announcement said.