Financial Secretary Antony Leung and Vice-Minister of Commerce An Min exchange CEPA documents as Premier Wen Jiabao (5th from left) and CE Tung Chee-Hwa applaud

International firms targeting China's market could enjoy special treatment under the newly-announced Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Chinese mainland.

CEPA offers early market access to qualified Hong Kong-based companies in a way that improves on China's existing timetable for liberalisation as a member of the World Trade Organisation.

From January 2004, countless local and international companies in Hong Kong stand to benefit from CEPA's accelerated pace of market opening, for goods and services, regardless of nationality or size. 

To be eligible for this enhanced "first mover advantage", they must have substantive activity in Hong Kong. In other words, they must be incorporated in Hong Kong for a period of three-to-five years, pay profits tax, own or rent business premises here and employ 50 per cent of their staff locally.
 
Overseas firms not yet in Hong Kong will be able to take advantage of CEPA by partnering with eligible companies based here or by acquiring them.

Positive reaction from overseas chambers of commerce

Overseas chambers of commerce in Hong Kong have responded positively to the opportunities presented by CEPA and to the inclusiveness of its eligibility criteria. For many, it was an even better agreement than expected (click  here for comments by international chamber leaders). 

Apart from improved market access of Hong Kong products and Hong Kong companies, CEPA will enhance Hong Kong's role as an international financial centre and trade platform.

CEPA is the first bilateral Free Trade Agreement (FTA) for both the Chinese mainland and Hong Kong. It abides fully by the WTO's requirements on FTAs. While the agreement eliminates substantial trade and investment barriers between Hong Kong and the Chinese mainland, it does not raise any new obstacles for other economies' access to the two markets. 

First mover market access

CEPA provisions on "first mover" market access for Hong Kong companies cover the following 17 services industries: management consultant services, exhibitions and conventions, advertising, accounting, construction and real estate, medical and dental services, distribution services, logistics services, freight forwarding agency services, storage and warehousing services, transport services, tourism services, audiovisual services, legal services, banking, securities and insurance.

Although exact requirements for a company to be qualified vary from industry to industry, the assessment is on an objective and non-discriminatory basis. A foreign-owned company in Hong Kong that fulfills the above criteria will be eligible to benefit.

Foreign manufacturers with production in Hong Kong and products designated "made in Hong Kong" under country of origin rules, will also stand to benefit from CEPA.

From 1st January 2004, some 270 types of products made in Hong Kong can be exported to the mainland free of tariff. For other categories of "made in Hong Kong" products, zero tariffs will be applied by January 2006 at the latest.

According to the Chief Economist of the Hong Kong Trade Development Council, Mr Edward Leung, CEPA will leverage the institutional strengths of Hong Kong under "one country, two systems" and the huge market potential in the mainland.

"Given the eased market access to the mainland and the stringent protection of intellectual property rights in Hong Kong, the city should be the first choice of foreign companies wishing to enter China's market with products and services that have high intellectual property content."

(See www.tid.gov.hk/english/cepa/ for a copy of the full text of CEPA and other relevant details.)