The business community has greeted with enthusiasm the China-Hong Kong Closer Economic Partnership Arrangement (Cepa) signed on June 29 2003. As its name states, Cepa is not a free trade agreement between two autonomous states, but an arrangement between two customs jurisdictions under the One Country, Two Systems principle. Such a regional arrangement is consistent and permitted under World Trade Organization (WTO) rules.
Effective January 1 2004, goods of Hong Kong origin in 374 Mainland 2004 tariff codes enjoy zero tariff when exported to the Mainland and Hong Kong service providers enjoy the liberalization of market access to 18 services sectors in the Mainland. Hong Kong service suppliers will have earlier and wider access to the mainland market, ahead of China's WTO timetable. For some sectors, Cepa even goes beyond China's WTO commitments.
On trade in goods, Hong Kong manufacturers and exporters must apply to the Hong Kong Trade and Industry Department (TID) or one of the five Government Approved Certification Organizations for a Cepa Certificate of Hong Kong Origin (HKO). The HKO must be passed on to the mainland importer for presentation to the mainland customs department to claim duty free treatment for the imports.
On the services side, a Hong Kong service provider (which can be an individual or juridical person) must apply to the TID for a Certificate of Hong Kong Service Supplier (HKSS). A Certificate of HKSS is a prerequisite when a company wishing to enjoy preferential treatment under Cepa applies to the mainland authorities to provide the relevant services.
According to TID, of the 44 applications for HKSS received between October and December 2003, 16 were approved. TID aims to approve an application for HKSS within 14 working days, if the applicant has submitted all the necessary documents and meets all the eligibility criteria set out in Cepa.
Hong Kong manufactures and service providers now enjoy greater access to the mainland market. Overseas manufacturers can take advantage of the market liberalization by partnering with or outsourcing production to a Hong Kong manufacturer. Overseas service suppliers can take advantage of Cepa through a merger with or acquisition of a Hong Kong service supplier, provided they acquire at least 50% of the Hong Kong entity and wait one year after the merger or acquisition before are eligible for any Cepa benefits.
The TID website http://www.tid.gov.hk provides current up-to-date information on the implementation of Cepa.