Hong Kong authorities are meeting with Guangdong counterparts to combat the resurgence of cross-border parallel trading after the full reopening between Hong Kong and mainland borders, according to Hong Kong customs.

The collaboration comes after Hong Kong and mainland China resumed travel on February 6, anticipating a full comeback of cross-border smuggling activities involving consumer goods from cosmetics, medicines, and luxury goods to fine wines.

In order to avoid the high mainland import and value-added tax of wine, traders would purchase wine in Hong Kong and resell them on the mainland at a higher profit. The cross-border couriers, mostly Hong Kong residents, would pick up the wines in Hong Kong and hand them to people outside the mainland checkpoint in Shenzhen. One trip takes them less than an hour but they can earn from dozens of Hong Kong dollars to more than HK$100(US$13).

mages released by Hong Kong government show thousands of smuggled Penfolds (pic: HK gov)

Imported wines entering mainland China are usually subject to a total tax between 43% and 51%, added up by import tariff(14% for bottled wine and 20% for bulk wine), exercise tax(10%) and value-added tax(13%).

And for Australian wines, the overall taxes including the anti-dumping tariff can add up to 218% altogether after relations between China and Australia soured in 2020. However, Hong Kong has a zero-tax policy for wine, which gives strong incentive for traders who want to smuggle wine to mainland China.

The cross-border smuggling of wines is not an uncommon phenomenon even amid the pandemic in the past three years through land and water transportation.

In February 2022, Shenzhen authoritiesbusted a smuggling caseof fine wines worth RMB 1.5 million(US$236,637) from Hong Kong to Shenzhen Bay. The illegal wines mainly consist of Australian wines like Penfolds, Bordeaux first growths,Chateau Margaux and Chateau Lafite Rothschild.

Last year alone in Hong Kong, authorities dismantled two large wine smuggling cases.

In October 2022,30,000 bottles of smuggled wineswere busted by Hong Kong customs, mainly composed of Penfolds from Australia, which is the largest wine smuggling case of the year. Although the punitive tariff imposed on Penfolds is 175.6%, the brand remains popular in the mainland market.

Also in December 2022,another 9,000 bottlesof fine wines smuggled through two ocean-going vessels from Hong Kong to Shanghai were seized by the Hong Kong customs, also mainly consisting of Australian popular brands Penfolds, as well as some Champagne Moet and Japanese sake Dassai.

According to the Import and Export Ordinance, anyone who imports or exports unmanifested cargo should be liable to a fine of HK$2 million and imprisonment for seven years. Also, importing or exporting pharmaceuticals and medicines without a valid license could commit an offense, facing imprisonment of two years and a fine of HK$ 500,000.

The team of customs officers in Hong Kong met with the Guangdong counterparts this week to combat the smugglers together at its early stage and said they would investigate whether there are gangs behind the cross-border parallel trading activities as well as if there are other districts affected.