4. While the purpose of the lifting of the CO requirement for the USA market aims to facilitate the trade, it must be emphasised that the Department has no intention to relax its control over exports of restrained textile products to the USA and indeed for any market. The major reason why lifting of the CO requirement for the USA market would be possible is that CO is not required for clearance at the US Customs. To maintain control, one prerequisite for lifting the CO requirement is that particulars and declarations currently provided on the CO should not be lost as a result of the change. Therefore, traders will be required to provide certain information and declarations which were only available on the CO on other existing documents. The Department would therefore introduce the following changes to tie in with the lifting of the CO requirement with effect from 18 August 1998.

5. With the removal of CO requirement on all restrained products for export to the USA, a new PN will be required to support licence applications covering cut-and-sewn garments for export to the USA. (For details of the new PN, please refer to paragraph 7 below.) A declaration to the effect that the goods covered by the export licence application are the same as those covered by the PN(s) should be made on all export licence applications covering cut-and-sewn garments. The numbers of the relevant validated PNs, the category, quantity and unit of each supporting PN must also be provided on licence applications. Under the new arrangement, each export licence could at most be supported by 5 PNs. If traders still wish to apply for a CO to cover export of restrained textiles products to the USA after the CO requirement is lifted (e.g. upon the US importer's request), given that PN will be used to support licence applications, it will no longer be required to support CO applications.

6. For the EU and Norway, PN will remain a document to support CO applications covering cut-and-sewn garments while CO will continue be required to support licence applications for all textiles and garment products. Given that the PN number is available on the CO, the PN numbers need not be provided on licence applications covering cut-and-sewn garments. For Canada, the current arrangement that neither PN nor CO is required to support licence applications will remain unchanged.

7. In addition to the change in document linkage for the USA market as mentioned in paragraph 5 above, a new and improved PN with simplified format will be put into use to replace the existing one with effect from 18 August 1998. One of the major differences of the new PN compared to the one in use is that, in addition to a manufacturer's declaration which is currently required on the PN, a subcontractor's declaration box will be included. With the introduction of this subcontractor's declaration box, the subcontractor of the goods covered by the PN will be required to declare that the assembling work of transforming the cut pieces or component parts into finished goods was carried out by itself in its factory in Hong Kong. This new PN should be lodged by manufacturers producing cut-and-sewn garments for export to all restrained markets i.e. the USA, EU, Norway and Canada. The existing requirement to lodge the PN to the Department within 3 working days before commencement of assembly work of cut-and-sewn garments will remain unchanged. For details of the format, requirements and conditions of use of the new PN, please refer to Certificate of Origin Circular No. 8/98.

(Applicable to the USA market only)

8. As mentioned above, a subcontractor's declaration would be included in the new PN. For textiles and garments which need not be supported by PN, including piece-knitted garments, textiles and other non-garment products, the subcontractors carrying out the origin-conferring process should make a subcontractor's declaration on licence applications. If traders are in doubt of the origin-conferring process for any particular product, they may refer to Certificate of Origin Circular No 14/96 of 21 November 1996.

9. In this connection, traders should note that for export of piece-knitted garment, other than sweaters in Categories 845(2) and 846(2), the origin-conferring process is knitting of panels. The subcontractor is required to declare that the knitting process of the piece-knitted garments described in the Form 8 licence was carried out in the subcontractor's factory premises in Hong Kong. In making the subcontractor's declaration for piece-knitted garments, the following arrangements are applicable :

1. for piece-knitted garments knitted, linked/stitched in Hong Kong, the subcontracto's declaration on the Form 8 licence should be made by the panel knitter unless the knitting process is carried out by the manufacturer itself such that a declaration for the same purpose has already been made;

2. for piece-knitted garments knitted in Hong Kong but linked/stitched elsewhere (i.e. supported by valid Special Import Licence Form 8b which was in turn supported by Special Export Licence (Textiles) Form 8a containing the knitter's declaration), a separate subcontractor's declaration is not required on the Form 8 licence application; and

3. manufacturers and subcontractors are reminded that for sweaters in Categories 845(2) and 846(2) for the USA market, the origin-conferring process is linking and/or stitching but not knitting. Therefore, the subcontractor's declaration should be made by the assembler instead of the knitter.

10. Since the subcontracto's declaration is provided on the licence applications or PN, in case traders for the USA market still wish to apply for a CO to accompany its exports, the subcontractor's declaration will not be required on the CO application. Information regarding the subcontractor should nevertheless be provided on the CO. Details on provision of the subcontractor's declaration for piece-knitted and other products on licence applications, the exact wordings of the declarations and the information required on CO application (though optional) are separately announced in Notice to Exporters : Series 1 (USA) No. 42/98 and Certificate of Origin Circular No. 9/98 both dated 9 July 1998.

(Applicable to the EU and Norway)

11. For export of cut-and sewn garment to the EU market and Norway, since the subcontractor's declaration is already available on the new PN, no subcontractor's declaration is required on the corresponding CO. Information regarding the subcontractor should nevertheless be provided on the CO. For textiles products other than cut-and-sewn garments, the subcontractor's declaration will continue be required on the CO.

(Applicable to Canada)

12. The subcontractor is only required to make a declaration on the new PN for production of cut-and sewn garments for export to Canada if applicable.

13. With a view to maintaining control after lifting of the CO requirement for the USA market, Factory Registration (FR) will become a licensing condition. All manufacturers and subcontractors which are engaged in the production of restrained products and appeared on export licences of any restrained markets are required to possess a valid FR. The FR Numbers of both the manufacturer and subcontractor (if any) must be provided on the licence application.

14. In this connection, manufacturers should note that for piece-knitted garments, other than sweaters in Categories 845(2) and 846(2), for export to the USA, the panel knitter of the piece-knitted garments is required to make a declaration on the licence application either as the manufacturer or the subcontractor, or on the related Special Export Licence (Textiles) Form 8a as the knitter, depending on the case. For textiles and made-up articles, the subcontractor's declaration should be provided by the subcontractor which had carried out the principal manufacturing process. Therefore, they must possess valid FRs. Please also refer to paragraphs 8 to 10 above regarding the provision of subcontractor's declaration for licence applications.

15. The FR requirement will be imposed with effect from 18 August 1998. All manufacturers and subcontractors producing textile products for export to restrained markets which will appear on export licences should by then have valid FRs. Otherwise the licence applications they submit will be deferred/rejected. The only exception applies to those which currently are not registered under FR. The group of manufacturers falling under such category include those engaged in the Canada market only and/or those producing textiles and made-up articles for the USA market which are currently not registered under FR. For these manufacturers and subcontractors, they must hold valid FRs by 31 August 1998. Otherwise the licence applications they submit will be deferred/rejected. Exemption to the above FR requirement is only given to tailors producing made-to-measure suits to the USA market under the Quota Window Arrangement in view of the particular nature of the manufacturing process resulting in practical difficulties for such tailors to fulfil the FR requirement.

16. In spite of the lifting of the CO requirement for the USA market, for export licensing purpose, manufacturers appearing on export licences who wish to subcontract out the principal manufacturing process of their goods to any local subcontractor are required to register such arrangement under Trade Department's Local Subcontracting Arrangement (LSA). Manufacturers are reminded that approval from Trade Department must be obtained before the local subcontraction is arranged. Otherwise, the licence application would be deferred/rejected and the parties concerned may be subject to legal and/or administrative actions.

17. On licence applications, manufacturers are required to declare whether the goods they produced and covered by the licence applications have undergone Outward Processing Arrangement (OPA). Furthermore, in case OPA is involved, the OPA Audit number printed on the OPA Combined form must be quoted on the licence application. This requirement is applied to all restrained markets. The exact wordings of the declaration, and the arrangements applicable to paper and EDI licence and the related changes regarding the application of CO involving outward processed goods are announced in notices and circulars mentioned at the beginning of this notice.

18. Paragraphs 5 to 17 above highlight the major changes to export licensing requirements resulting from the lifting of the CO requirements. Such changes are applicable to all markets unless otherwise specified. Furthermore, traders may wish to note that exemptions or special arrangements may be applied to individual markets. They should refer to the notices and circulars quoted at the beginning of this notice for the detail requirements and procedures of individual markets.

19. For convenient reading, we have listed out in Appendix a table setting out the changes brought about by the above measures applicable to each individual market. For details, traders are advised to refer to the descriptions set out in the above referred trade circulars and notices.

20. The Department works closely with the Customs and Excise Department, through checks and inspections, to ensure compliance with the provisions of the textiles export control system. Traders are reminded that breach of any of the provisions of the textiles export controls system and failure to comply with licensing and other requirements specified by the Director-General of Trade including those requirements promulgated by the Department through notices and circulars from time to time may result in prosecution under the Import and Export Ordinance. Furthermore, in addition to deferment, rejection or cancellation of licence and other types of applications concerned, administrative actions may be taken. The administrative actions which maybe taken include suspension and cancellation of registrations, suspension of licensing and quota facilities, permanent surrender of quota, discount of shipment performance and any others actions which the Director-General of Trade deems fit.

21. Traders are also reminded that physical and documentation checks by the Customs and Excise Department are conducted as and when necessary to verify the accuracy of the particulars declared on the licence and other applications. Traders are required to produce the commercial and manufacturing records for checking by Customs officers and be prepared to make available the goods for physical inspection before export. Failure to comply with such requirements may also result in legal and/or administrative actions.

25. For information or enquiry on the content of this notice, please contact the following officers :

Yours faithfully,

( Simon Chan)

for Director-General of Trade