Prior to the pilot reform of the import payment foreign exchange verification system for trade in goods, in agency import business, domestic enterprises as actual buyers could directly remit payment to foreign sellers without going through import agents. However, according to the "Hui Fa [2012] No. 38" document issued by the State Administration of Foreign Exchange, from August 1, 2012, all agency import trade nationwide must be settled by import agents through foreign exchange payment, and domestic enterprises are prohibited from directly remitting payment abroad.

In such circumstances, many domestic and foreign-invested enterprises often encounter an awkward situation when importing through agents: insufficient RMB funds to pay the import agent, who would then purchase foreign exchange and remit payment externally.

In response, this article introduces the corresponding foreign exchange payment operation procedures to solve the difficulties encountered by domestic and foreign-invested enterprises due to insufficient RMB funds in the process of entrusted agency import payment.

I. Impact of Hui Fa [2012] No. 38 on Agency Import Business

Article 14 of the "Guidelines on Foreign Exchange Management for Trade in Goods" in Annex 1 of Hui Fa [2012] No. 38 stipulates: "Enterprises shall handle trade foreign exchange receipts and payments in accordance with the principle of 'the exporter receives foreign exchange, the importer makes payment'...... Agency import and export business shall be handled by the agency party for foreign exchange receipts and payments."

That is to say, for foreign exchange payments under agency import business, domestic buyers have only two options: first, pay RMB to the import agent, and then the agent purchases foreign exchange and makes external payment; second, directly transfer foreign exchange to the import agent, who then makes direct external payment.

II. Foreign Exchange Payment Operations for Domestic and Foreign-Invested Enterprises under Entrusted Agency Import

In practice, many domestic and foreign-invested enterprises, especially those newly established, often lack sufficient RMB funds, so they can only choose to transfer foreign exchange (such as registered capital or foreign currency external debt) to the import agent, who then makes external payment.

However, when domestic and foreign-invested enterprises transfer foreign exchange to import agents, they often encounter a bottleneck issue: banks refuse to process foreign exchange transfer procedures citing Article 8 of the Regulations on Foreign Exchange Administration, which prohibits the circulation of foreign currency and settlement in foreign currency within China. In this situation, domestic and foreign-invested enterprises find themselves in a dilemma: they cannot directly pay foreign sellers, nor do they have sufficient RMB to transfer to import agents, nor can they directly transfer foreign exchange to import agents, thus preventing agents from making external payments.

In fact, banks' refusal to process foreign exchange transfers based on the provisions prohibiting foreign currency circulation and settlement in foreign currency within China is incorrect. This is because although Chinese law generally stipulates that any unit or individual shall not settle in foreign currency or use foreign currency for pricing and settlement within China, and financial institutions shall not handle foreign exchange transfer procedures for them, this is not entirely absolute.

The "Interim Provisions on the Administration of Foreign Exchange Transfers Within and Outside China" effective from October 15, 1997, provide for relevant exceptions to the above situations:

According to these "Interim Provisions," where the principal under agency import is a foreign-invested enterprise, the principal may apply to a financial institution for direct foreign exchange transfer by presenting the following documents:

1. Original agency agreement (specifying that the foreign-invested enterprise is the principal and the agency is the agent)

2. "Foreign Exchange Registration Certificate for Foreign-Invested Enterprises" or "Foreign Exchange Account Usage Certificate."

After visiting the relevant functional departments of the Foreign Exchange Administration, the above analysis was confirmed. It is believed that the above practical operation procedures can provide convenience and reference for the majority of foreign-invested enterprises when handling agency import foreign exchange payment business.