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What is CEPA?

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is the first free trade agreement ever concluded by the Mainland of China and Hong Kong. The main text of CEPA was signed on 29 June 2003.

CEPA opens up huge markets for Hong Kong goods and services, greatly enhancing the already close economic cooperation and integration between the Mainland and Hong Kong.

CEPA adopts a building block approach, and the two sides have been working closely to introduce further liberalization measures continually. The agreed liberalization measures for various phases of CEPA are stipulated in the CEPA Legal Text.

CEPA is a win-win agreement, bringing new business opportunities to the Mainland, Hong Kong and all foreign investors. For Hong Kong, CEPA provides a window of opportunity for Hong Kong businesses to gain greater access to the Mainland market. CEPA also benefits the Mainland as Hong Kong serves as a perfect "springboard" for Mainland enterprises to reach out to the global market and accelerating the Mainland's full integration with the world economy. Foreign investors are also welcome to establish businesses in Hong Kong to leverage on the CEPA benefits and join hands in tapping the vast opportunities of the Mainland market.

Implementation

CEPA covers 3 broad areas:

Trade in goods - All goods of Hong Kong origin importing into the Mainland enjoy tariff free treatment, upon applications by local manufacturers and upon the CEPA rules of origin (ROOs) being agreed and met.

Trade in services - Hong Kong service suppliers enjoy preferential treatment in entering into the Mainland market in various service areas. Professional bodies of Hong Kong and the regulatory authorities in the Mainland have also signed a number of agreements or arrangements on mutual recognition of professional qualification

Trade and investment facilitation - Both sides agreed to enhance co-operation in various trade and investment facilitation areas to improve the overall business environment.

Information from Trade and Industry Department

IMPLEMENTATION DETAILS

According to the CEPA agreement signed on 29 June 2003 and the annexes released on 29 September 2003, the Chinese mainland will apply zero tariffs to import products of Hong Kong origin by phases.

A) Opportunities in Trade in Goods

(1) Import Tariffs

Under CEPA, the Mainland has agreed to apply zero import tariff for exports from Hong Kong meeting CEPA origin rules for goods.  In respect of all kinds of Hong Kong-made products which comply with the agreed CEPA origin rules, they can be exported to the mainland tariff-free since January 2006. Through January 2004 to June 2010, the number of goods eligible for CEPA’s tariff-free treatment expanded from 273 to 1,585. From July 2010, the zero-tariff list will be extended by 7 to 1,592. For the new items, the applicable tariff rates which would otherwise apply range from 1% to 10.5%.

B) Opportunities in Trade in Services

CEPA provisions on market access cover a total of 33 service industries.

Statistics on Application for Certificate of Hong Kong Service Supplier
(as of 31 August 2010)

Service Sector No. of Applications Received No. of Applications
Approved
1 Legal services 17 17
2 Accounting, auditing and bookkeeping services 2 2
3 Construction professional services and Construction and related engineering services 77 73
4 Medical and dental services 9 8
5 Computer and related services and information technology services 16 16
6 Real estate services 25 24
7 Advertising services 111 105
8 Market research services 0 0
9 Management consulting and related services 39 31
10 Mining and prospecting services 0 0
11 Research and Experimental development services on natural sciences and engineering 0 0
12 Public utility services 1 1
13 Job referral agency services and job intermediary services 65 64
14 Building-cleaning services 0 0
15 Photographic services 1 1
16 Printing services 7 6
17 Translation and interpretation services 0 0
18 Convention and exhibition services 11 11
19 Value-added telecommunications services 41 37
20 Telecommunication services - calling card 0 0
21 Audiovisual services 35 32
22 Distribution services 267 261
23 Environmental services 1 1
24 All insurance and insurance-related services 9 9
25 Banking and other financial services (excluding insurance and securities) 10 10
26 Securities and futures services 9 9
27 Social services 0 0
28 Tourism and travel related services 26 25
29 Cultural services (excluding audiovisual services) 6 6
30 Sporting services (excluding the construction of golf courses) 0 0
31 Transport and logistics services 581 575
32 Airport Services 93 91
33 Trade mark agency services 8 8
Total 1,467 1,423

To be entitled to the benefits of CEPA, a service company, regardless of the nationality of its investors or shareholders, must have substantive business activity in Hong Kong by fulfilling the following criteria:

  1. the company must be incorporated under the laws of Hong Kong;
  2. the company must be liable to pay profits tax in Hong Kong;
  3. the company must employ in Hong Kong 50% or more of its total staff.

In addition, companies in different service industries have to meet different extra criteria to ensure that they have been engaging in substantive business operations in such an industry for a minimum period (usually three to five years) in Hong Kong . Although the exact requirements for a company to be qualified vary by industries, the assessment will be on a non-discriminatory and objective basis. Foreign companies can be regarded as a "Hong Kong company" one year after acquiring majority shares in a Hong Kong company through merger or acquisition.