Hong Kong And China Announce Rules Of Origin Under CEPA II

by Mary Swire, Tax-News.com, Hong Kong

28 October 2004

The governments of mainland China and the Special Administrative Region of Hong Kong on Wednesday signed the legal text covering further trade liberalisation under the second phase of the Closer Economic Partnership Arrangement (CEPA II).

The legal text, which gives expression to the package of liberalisation measures under CEPA II, contains three annexes: the list of additional products that will be given zero tariff preference, the rules of origin for these products, and further liberalisation measures in services.

As regards the rules of origin for the 713 Mainland product codes covered in CEPA II, 74% of the products will adopt Hong Kong's existing process-based origin rules as the CEPA rules of origin. These items include textiles and clothing, food and beverages, pharmaceutical products as well as some plastic and metal products.

Another 11% of the products will adopt the ‘Change in tariff heading’ basis, and only 7% will use the ‘30% value-added requirement’ as CEPA rules of origin.

For the rest of the products, including fish and aquaculture products, the parties have agreed on their rules of origin after taking into account the characteristics of the products concerned.

CEPA I stipulates that for products planned to be manufactured in Hong Kong, zero tariffs would only be applied from January 1 of the following year upon confirmation by both sides that the products have come into production. That means a manufacturer would only be able to enjoy zero tariff status in 2006 if production of the planned products commenced in 2005.

The Mainland has now agreed to a proposal put forward by the HKSARG to shorten the time gap. Under the new agreement, manufacturers will enjoy zero tariff status upon confirmation by both sides that the planned products have come into production. This flexibility allows manufacturers to enjoy the benefits of CEPA early and encourages them to speed up implementation of their new investment plans.

For trade in services, the Mainland has agreed to grant preferential treatment in eight new areas, and to broaden liberalisation in 11 of 18 services sectors to which preferential treatment has already been provided under CEPA I.

The next cycle of applications for and consultation on additional products to enjoy zero tariff status will begin in January 2005.

Recommended