Hong Kong Service Suppliers Gain Preferential Treatment In China Under CEPA

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

09 January 2006

Hong Kong's Director-General of Trade & Industry Raymond Young announced last week that an agreement has been reached with mainland China to provide preferential treatment to Hong Kong service suppliers in 27 areas under the third phase of the Closer Economic Partnership Arrangement (CEPA).

Speaking at a seminar organised by the Chinese General Chamber of Commerce on Thursday, Mr Young told delegates that 23 liberalisation measures spreading across 10 service areas, namely legal, accounting, audiovisual, construction, distribution, banking, securities, tourism, transport and individually owned stores, became effective from January 1 under CEPA III.

The agreement provides tariff-free access for all products of Hong Kong origin (except prohibited articles) imported into the Mainland upon applications by local manufacturers and upon the CEPA rules of origin being agreed and met.

According to Mr Young, CEPA has been implemented successfully since its launch two years ago, and he claimed that many Hong Kong-based companies, including those owned by foreign investors, had benefited from the arrangement.

Under the three phases of the Closer Economic Partnership Arrangement, Hong Kong and the Mainland have reached agreement on the rules of origins for 1,370 products, while in excess of 10,000 applications for Certificates of Origin under CEPA with a total export value exceeding $3.5 billion have been issued. The products concerned range from textiles and clothing and foods to pharmaceutical, plastics and plastic products.

"It is encouraging to see that there has been a steady increase in both the number of applications for certificates and the total export value under CEPA," Mr Young noted.

For products where there are no agreed rules of origin, Mr Young explained that rules will be worked out between the two parties within six months upon application by manufacturers.

For trade in services, preferential treatment offered under CEPA takes various forms, including relaxation in equity share restrictions, reduction in the entry thresholds such as registered capital and business turnover, as well as relaxation in restrictions over geographical location and business scope.

In the past two years, the Trade & Industry Department has issued Certificates of Hong Kong Service Suppliers to 900 local companies, enabling them to apply to launch their business on the Mainland. The most popular sectors are logistics and transport, distribution, advertising, construction and management consultancy.

As at September, more than 1,770 Hong Kong residents had set up individually owned stores on the Mainland. Of these, 1,640 were established in Guangdong. However, Mr Young believes that the preferences under CEPA are far from being fully exploited.

"With the emergence of an increasingly wealthy and discerning middle class on the Mainland, the demand for quality products with a 'Made in Hong Kong' label, such as food, clothing, watches, medical and health products, will increase, and these are all within the scope of CEPA," he observed.

Mr Young added that in 2006, liaison with Mainland authorities at central, provincial and municipal levels will be strengthened to help Hong Kong companies to make use of the preferences under CEPA.

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