Beijing designated Hainan as a distinct customs zone in effort to targeted accession to a trans-Pacific trade pact

Central to the initiative is the “first-line liberalization, second-line control” customs system. Under this system, most goods (74 percent of tariff lines) entering Hainan from abroad are exempt from import duties, VAT, and consumption taxes. However, if these goods are then shipped to other parts of China, they will be subject to import tariffs and taxes as if they were imported from abroad, unless substantially transformed or circulated on the island.