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China Increases VAT Rebates for Wild Animal Exports, U.S. Told

Posted on Apr. 14, 2020

Although China has banned the domestic sale and consumption of wild animals because of possible links to the coronavirus, the government recently increased VAT refund rates for exports of edible snakes, monkeys, and other animals. 

While there has been no definitive proof published to date, the sale of bats in the wet markets in the Chinese city of Wuhan is widely suspected of being the source of the often-deadly virus. Some theories suggest that snakes might have played a role in the transmission of the disease to humans. 

On February 24 China banned the sale and consumption of wild animals because of concern over their possible link to the rapidly spreading disease. On March 17 the Chinese government increased VAT rebates on 1,464 products, effective March 20. Included in the list of exports qualifying for 9 percent VAT rebates are edible snakes, turtles, and other reptiles, as well as edible raptors and primates. Also appearing on the list are whales, dolphins, porpoises, and rhino horn, none of which have been linked to the coronavirus. Other products on the list qualify for 13 percent VAT rebates, the Ministry of Finance said. 

On April 6 the U.S. Congressional Research Service published a report on medical supply chains and broader trade issues in the context of the outbreak of COVID-19. “The export VAT rebates also appear to be incentivizing China’s export of wild animals and their byproducts overseas,” the CRS said. “While the export incentive might help the government to eradicate [the risk of disease in] domestic markets by providing an economic incentive to export, this move could spread the risk to global markets.” 

In a summary of the products qualifying for the VAT rebates the CRS included civets, a species of small carnivorous mammal that was identified as a conduit for the SARS epidemic in 2002-2003, which originated in bats before ultimately being transmitted to humans. 

“The rebates encourage the export of agricultural products in categories for which China promised to increase purchases from the United States — such as live breeding animals, meat, and dairy — suggesting the government may be incentivizing exports for industries that might face additional U.S. imports,” the CRS said. “Absent in China’s policy push are incentives to encourage the sale of pharmaceuticals, [personal protective equipment], and other medical products overseas.” 

The CRS said its report is intended to draw attention to the U.S. economy's dependence on manufacturing and supply chains based in China. One area of particular concern is U.S. shortages of medical supplies that have been attributed in part to reduced exports from China, the CRS said. “Exacerbating the situation, in early February 2020, the Chinese government nationalized control of the production and distribution of medical supplies in China — directing all production for domestic use — and directed the bureaucracy and Chinese industry to secure supplies from the global market,” the CRS said. 

The report emphasized concerns about supply chains dependent on China that have been blamed for hindering some countries' ability to respond to the pandemic. 

While temporary relief from section 301 tariffs imposed by the U.S. government on medical supplies and pharmaceuticals produced in China could increase imports of those critical supplies, the CRS said it would not address the deeper issues of supply shortages, export constraints, and product certification requirements. 

Recent export barriers imposed by countries highlight potential gaps and limits to the power of WTO rules prohibiting export bans during times of global crisis, the report says. “These actions also raise questions about what new rules or protocols might be needed in the future,” the CRS said. “Liberalization of U.S. import requirements also created some of the challenges the United States is facing now, such as loosening requirements for U.S. pharmaceutical firms to report on shortages and how they classify imported content for finished products that qualify as U.S. products.” 

Further liberalization could reward Chinese industrial policies in medical equipment and pharmaceuticals designed to capture new ground for Chinese firms in overseas markets, the report says. “The potential for China to overwhelm global markets as it leans on exports for economic recovery raises questions about whether additional policy measures might be needed,” the CRS said. “Similar to the Australian government’s decision on March 29, 2020, to impose new temporary restrictions on all foreign investment proposals out of concern that strategic investors — particularly those of Chinese origin — might target distressed assets, Congress may want to carefully monitor or consider whether to impose requirements about potential predatory commercial activity in the United States.”

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