Last month Carrie Lam, Chief Executive of Hong Kong, witnessed the signing of the Agreement on Trade in Goods by the Financial Secretary, Paul Chan, and the China International Trade Representative and Vice Minister of Commerce, Fu Ziying.
This Agreement is the next important step in formalising better trade relations between the Hong Kong Special Administrative Region Government and the Ministry of Commerce under the framework of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA 更緊密經貿關係).
CEPA is a free trade agreement between Mainland China and Hong Kong and covers four main areas: trade in goods, trade in services, investment, and economic and technical cooperation. CEPA has already strengthened the trade relationship and encouraged additional investment between the two. The ultimate scope is to speed up economic integration and fortify the long term economic and trade integration of the Mainland and the Special Administrative Region. The initial agreement was signed in June 2003 and has already opened up vast market opportunities for Hong Kong goods and services on the Mainland, greatly enhancing the already close economic cooperation and integration between the Mainland and Hong Kong.
This new Partnership Arrangement assumes a modular approach, and both governments have been gradually introducing different liberalisation measures and updates in separate phases, as stipulated in the CEPA Legal Text.
The implementation of CEPA brings new business expansion prospects not only to the Mainland and Hong Kong, but also to foreign investors: Hong Kong companies now have a greater and smoother access to the huge China market, while for the Mainland, it serves as a valuable platform to enhance its presence within the global market and increase its speed of integration within the world economy. Another extremely significant effect is for foreign investors to establish business in Hong Kong in order to tap into China local market.
- Trade in goods: products of Hong Kong origin can enjoy zero tariff preference when imported into China according to the CEPA Rules of Origin regulations and included in a specific Certificate of Origin. To enhance the liberalisation and facilitation of trade in goods between both parties, the Agreement on Trade in Goods has included several chapters on “Customs Procedures and Trade Facilitation”, “Sanitary and Phytosanitary Measures”, “Technical Barriers to Trade” and “Trade Facilitation Measures in the Peral River Delta Area”.
- Trade in services: preferential treatment is granted to access China market for Hong Kong providers in specific service areas enjoy preferential treatment in entering into the Mainland market in various service areas. This area is also impacted by quite a few agreements and arrangements on the mutual recognition of professional qualifications between the Mainland and Hong Kong.
- Investment: preferential treatment is also extended to non-service sectors from Hong Kong investors which are facilitated in investing across the border.
- Economic and Technical Cooperation: there are many areas where promotion of trade and investment as well as cooperation is extended between the two sides, including finance, accounting, IP protection, trademark and branding, Dispute Resolution, e-commerce, culture, education, tourism, environment, medicinal and pharmaceutical products, and other areas connected to cooperation in specific geographic areas (e.g. the Pearl River Delta, the HK Qianhai Nansha Hengjin Region, the Pilot Free Zone).
Starting from 1st January 2019, goods of Hong Kong origin will be imported into the Mainland with zero tariff thanks to the enhanced arrangement for Rules of Origin (ROOs). In addition to the existing Product Specific ROOs (PSRs), a general ROO based on the calculation of the value added to the products in Hong Kong is introduced under the Agreement, thus allowing products currently without PSRs to instantly enjoy zero tariff upon importation into the Mainland subject to the fulfilment of the general ROO.
It also includes new terms for trade facilitation, including stipulation of commitment of the two sides in streamlining trade between the two places, simplifying customs procedures, promoting transparency of related measures and strengthening cooperation in the relevant areas, and in particular establishes new ways to advance customs clearance of goods with the purpose of enabling movement of goods in the Pearl River Delta Area, hence providing improvements to the customs clearance capacity and efficiency of the control points in Guangdong and Hong Kong. The Agreement came into effect on 14th December 2018 and is actually to be implemented on 1st January 2019.
With this Agreement in place, Mainland China and Hong Kong had already anticipated the scope of promoting the CEPA Upgrade under the National 13th Five-Year Plan and allowed CEPA to become a wide-ranging and updated framework free trade agreement covering the above mentioned four major areas.
On the other side, while success stories are many, some businesses trying to enter the Mainland market have had limited success. Some common issues include: hurdles at provincial level, implementation problems on the ground; mutual recognition of professional qualifications; transparency of regulations; application and approval procedures; and communication channels. Implementation is the key to ensuring the continued success of the agreement, yet the same applies in terms of greater transparency, which is part of this most recent effort made by both governments.
With the unreserved support of the Central and Hong Kong governments, as well as the business community, the constant development of CEPA should benefit to expand both investment and trade in a wider range of industries, as well as contribute to having more significant economic benefits.
Our team at Hugill & Ip has extensive experience in dealing with commercial, investment and trade issues – so if you need further advice on these subject and other topics discussed, get in touch with us to find out how we can help.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.