Member Article

The Central Government of the People’s Republic of China (“the Mainland”) and the Government of the Hong Kong Special Administrative Region (“Hong Kong”) reached a further understanding regarding the Closer Economic Partnership Arrangement between the Mainland and Hong Kong (“CEPA”) on 27 August 2004. The understanding, which is referred to as CEPA II, expands the scope of goods which are eligible for duty free treatment and further liberalises PRC market access for qualified Hong Kong service suppliers. Most provisions of CEPA II will enter into effect from 1 January 2005, although the commitments in the area of construction and some commitments in the area of distribution entered into effect on 27 August 2004. Trade in goods Under CEPA II, the Mainland will not apply tariffs to products under 713 Mainland 2004 tariff codes, in addition to the 374 products which have been eligible for zero import tariff treatment since 1 January 2004. The 713 Mainland 2004 tariff codes cover both existing production (529 tariff codes) and planned production (184 tariff codes). Products under the 529 tariff codes currently produced by Hong Kong manufacturers will enjoy zero tariffs starting from 1 January 2005. For the remaining 184 products, the Mainland will apply zero tariffs from 1 January 2006 after both sides have confirmed that the products have come into production in Hong Kong. Trade in services CEPA II expands preferential treatment in services to eight new areas and deepens the liberalisation in 11 of the 18 service sectors which were already eligible for preferential treatment under CEPA. The conditions for qualifying as a qualified Hong Kong service supplier in the service sector have not changed under CEPA II. The eight new areas are airport services, information technology services, patent agency services, trademark agency services, job referral agencies, cultural and entertainment services, job intermediaries and professional and technical qualification examinations. The Mainland has also agreed to broaden the liberalisation for 11 out of the 18 service sectors enjoying preferential treatment under CEPA. The 11 sectors are: legal services; construction services; distribution services; transport services (including road passengers transportation and maritime transport); freight forwarding agency services; medical services; audio-visual services; accounting services; banking services; securities and futures services; and individually owned stores. In the distribution sector, qualified Hong Kong services suppliers are permitted to establish wholly-owned enterprises to deal in books, newspapers, magazines, pharmaceutical products, pesticides, mulching films and processed oil as a retailer, wholesaler or commission agent. CEPA II allows qualified Hong Kong service suppliers to set up wholly-owned car retail enterprises in the Mainland without satisfying any threshold requirements.