Commentary: China ends burdensome NVOCC process

The multistep requirements for initial applications and renewals have been simplified by the Ministry of Transport.

   Ironically, during the current tariff turmoil between China and the United States, the Ministry of Transport for the People’s Republic of China is leading the deregulatory trend in ocean shipping as applicable to non-vessel operating common carriers (NVOCCs).
   The Ministry of Transport has quietly deregulated burdensome registration application procedures for NVOCCs from on or about Feb. 27. The ministry has dropped formal application registration and insurance requirements for all NVOCCs — including those from the United States. It is our understanding that as of now, the prior registration certificates issued by the Ministry of Transport have no regulatory function or value.
   The requirements for registering NVOCCs have been substantially simplified, as noted below. Until now, without the aforementioned certificate, U.S. NVOCCs could not issue their house bills in the U.S.-China trade lanes without risk of substantial sanctions and penalties.
   However, note that the NVOCC requirement by the Shanghai Exchange for filing rate ranges remains in place.
   From on or about Oct. 1, 2010, China’s Ministry of Transport implemented NVOCC freight filing rules referred to as Circular No. 40. Until now, U.S. NVOCCs needed to apply to register with the Ministry of Transport and to show proof of insurance or of cash security deposits of up to RMB 800,000  ($125,000). Those Ministry of Transport registrations for U.S. NVOCCs are now void and will require a simpler registration format. 
   The initial application and renewal process both were burdensome for U.S. NVOCCs and involved:
   a) an application form in Chinese;
   b) a feasibility study report;
   c) certified and authenticated U.S. corporate documentation by states, the State Department and the Chinese consulate;
   d) power of attorney and agreements with Chinese liaison persons;
   e) bill of lading language that conformed to Ministry of Transport requirements and in many instances terms and conditions that were required to be modified;
   f) evidence of the insurance or of the cash security deposits of up to RMB 800,000 or $125,000.
   The latter insurance/security deposit requirement was met in the U.S. as a result of agreements between the Federal Maritime Commission and the Ministry of Transport that allowed U.S. NVOCCs to increase their FMC bond by a China rider to raise the U.S. bond to the ministry’s requisite levels. These riders appear to be no longer required.
   From our China sources, it appears that the registration process can now be handled by the U.S. NVOCCs’ Chinese agents via a much simpler procedure at the province levels. At this time, we are only aware of the Ministry of Transport link in Shanghai as being able to process these applications for both domestic and foreign NVOCCs, including U.S. NVOCCs. 
   It appears that the Ministry of Transport is not handling these initial registrations as renewals, but rather as new registrations. Nor are these being considered applications, but it is our opinion that all information requested must be provided in order for the registration to be accepted. What is being requested at this time is very basic corporate information.
   It is our understanding that the chairman of the FMC and commissioners may be soon meeting with Ministry of Transport officials, which we believe will lead to at least a formal recognition by the FMC that it will not be accepting China bond riders as they have been in the past.
   We will be keeping track of the proceedings to ensure that the processes as we now understand them are being implemented — or if other matters will require attention.

Carlos Rodriguez is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He practices in the international trade and supply chain group of the firm’s technology, manufacturing and transportation industry team. Zheng Xie focuses on corporate and regulatory matters associated with international trade transactions and litigation, as well as licensing issues within the Departments of Commerce and State.