Slide1: The Making of CEPA Closer Economic Partnership Arrangement


What is CEPA: What is CEPA July 2003: CEPA signed between Central Government of PRC and HKSAR January 2004: CEPA effective January 2005: 1st supplement (CEPA II) January 2006: 2nd supplement (CEPA III) January 2007: 3rd supplement (CEPA IV) January 2008: 4th supplement (CEPA V)


What is CEPA: What is CEPA First Free Trade Agreement by China and by Hong Kong with another WTO member Aim of CEPA: to promote joint economic prosperity and development and to facilitate the economic links between them and other economies.


What is CEPA: What is CEPA Three components of CEPA Trade in goods Trade in services Trade and investment facilitation


Origin of CEPA: Origin of CEPA 1986: China applied to join GATT 1995: GATT became WTO April 1999: breakthrough in WTO accession negotiations May 1999: Hong Kong General Chamber of Commerce project on “China’s Entry into the WTO and the Impact on Hong Kong Business”


Origin of CEPA: Origin of CEPA January 2000: HKGCC report “China’s Entry into the WTO and the Impact on Hong Kong Business – a Business Perspective” (One conclusion is) “to explore the benefits of a Free Trade Area agreement with the Mainland, similar to the NAFTA type regional trade agreement, which would be in keeping with WTO rules. Sectors such as banking, retail, distribution and textiles will be able to take advantage of the integration between the two economies for the benefit of both.”


Origin of CEPA: Origin of CEPA January 2000: HKGCC report “China’s Entry into the WTO and the Impact on Hong Kong Business – a Business Perspective” (One conclusion is) “to explore the benefits of a Free Trade Area agreement with the Mainland, similar to the NAFTA type regional trade agreement, which would be in keeping with WTO rules. Sectors such as banking, retail, distribution and textiles will be able to take advantage of the integration between the two economies for the benefit of both.”


Origin of CEPA: Origin of CEPA “Free Trade Area agreement similar to the NAFTA type regional trade agreement” “in keeping with WTO rules” “integration between the two economies” “for the benefit of both”


Initiating CEPA – 2000: Jan Submission of HKGCC report on "China's Entry into the WTO and the Impact on Hong Kong Business" to Chief Executive CH Tung proposing the RTA concept Mar HKGCC letter to the CE with analysis on the feasibility of a RTA between Mainland China and Hong Kong Jun Letter to the CE reporting on the result of the HKGCC mission to Beijing during which HKGCC lobbied the Central government leaders on the concept of RTA Initiating CEPA – 2000


Initiating CEPA – 2001: Oct HKGCC letter to Financial Secretary Antony Leung clarifying the misunderstanding over "preferential treatment" at a speech giving by the then Mayor of Beijing, Liu Qi Nov China signs WTO Protocol of Accession in Doha, Qatar Letter to the CE again proposing RTA with Mainland CE proposes RTA concept to the Central Government Long Yongtu told Chamber that Central Government accepted RTA idea Dec Central government formally agreed to RTA Letter to the CE welcoming the formal agreement by the Central leadership on RTA with Mainland Initiating CEPA – 2001


Negotiating CEPA – 2002: Jan HKGCC letter to the FS on content of the RTA, raising the concern of the definition of Hong Kong company First meeting (Antony Leung & An Min), CEPA named Mar Letter to FS with a 70-page submission on CEPA May Further submission to FS Jun CEPA setback after five working group meetings Letter to FS after the HKGCC mission to Beijing, emphasizing the benefits to HK's service industries from a timely-concluded CEPA Jun Submission to government on "Rules of Origin” Aug Letter to the FS regarding "The Impact of Zero Tariff on employment in Hong Kong” Dec CE announced that CEPA would be concluded by mid-03 Negotiating CEPA – 2002


Completing CEPA – 2003: Jan Letter to FS giving our latest situation-analysis on CEPA Feb Letter to CE on the benefits of CEPA to Hong Kong and China and urging the government to conclude CEPA as soon as possible March to May: SARS Jun 29 CEPA text signed Jul Submission on clarification and further contents for CEPA Sep 29 CEPA Annexes signed 1.1.04 CEPA comes into effect Completing CEPA – 2003


CEPA provisions: Trade in goods: CEPA provisions: Trade in goods Main benefits: zero tariff Rules of Origin Substantial transformation Content requirement: 25% value added Change of tariff heading High-tariff goods benefit E.g. jewelry, sunglasses, hats Hong Kong brand and design


CEPA provisions: Trade in services: CEPA provisions: Trade in services Management Consulting Services Convention services Advertising services Accounting services Construction and real estate services 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 services Securities services Insurance services Telecommunications Medical services Airport services Patent agency Recruitment Trade mark services Computer and IT Professional qualifications exams Individually-owned stores Public utilities Performing arts Sports services Elderly care Market research Photographic services Translation and interpretation


CEPA Provisions:Trade in services concessions: CEPA Provisions: Trade in services concessions Early liberalization: time advantage e.g. Wholly-owned subsidiaries for management consulting services: time advantage of 4 years Lowering of threshold e.g. Banking: asset requirement for bank branches reduced from US$20 billion to US$6 billion Mutual recognition and relaxation of regulations e.g. Legal services: “practice in association” allowed New commitments e.g. Audiovisual services: no quota for Hong Kong-made films


CEPA provisions in services: additional provisions: CEPA provisions in services: additional provisions Article 13: Financial Services Mainland banks to move services to Hong Kong (e.g. forex trading) Mainland banks can expand by acquiring HK banks Use of HK financial intermediaries in Mainland reform Strengthen regulatory cooperation Mainland insurance companies to list in HK Article 14: Tourism Individual travelers allowed to HK Article 15: Professional mutual recognition


CEPA provisions: Trade and investment facilitation: CEPA provisions: Trade and investment facilitation Trade and investment promotion Customs clearance Quarantine and inspection of commodities, food safety and quality assurance Electronic commerce Transparency in law and regulations Small and medium-sized enterprises Chinese medicine and medical products


CEPA provisions:Which companies can benefit: CEPA provisions: Which companies can benefit Principle: open, inclusive, nationality-blind except when non-qualified foreign company buys CEPA-qualified company: one-year wait required Criteria Incorporated in HKSAR Substantive business Same business in HK and Mainland Pay profits tax in the HKSAR Length of operations (3 years) Owns or rents premises Employment in HKSAR (50%) Certification required Certification of “HK service supplier”


CEPA provisions:Continuing liberalisation: CEPA provisions: Continuing liberalisation CEPA does not stand still; it can be further improved CEPA II & III Further implementation of zero tariff in trade in goods Minor improvements in trade in services CEPA IV & V: further liberalisation of trade in services


CEPA provisions: CEPA IV: CEPA provisions: CEPA IV Tourism: Hong Kong travel agents allowed to operate outbound tours to Hong Kong and Macau, under a pilot scheme in Guangdong Legal services: HK lawyers allowed to appear in court (though not as legal practitioners) Air transport: wholly-owned sales agencies allowed Trade and investment facilitation: intellectual property protection to be strengthened.


CEPA provisions: CEPA V: CEPA provisions: CEPA V Travel agents: outbound tours expanded beyond Guangdong Province Exhibition services: “outbound” services allowed for Mainland clients; commercial presence not required if exhibitions are held in Guangdong and Shanghai Banks: “green lane” for establishing bank branches New sectors in public utilities, performing arts, elderly care, sports, environmental services


CEPA implications (1) Public-Private Partnership: CEPA implications (1) Public-Private Partnership CEPA obstacles Misunderstanding (“preferential treatments not allowed under WTO”) Vested interests (“preferential treatments for HK are all right”) Lack of political will (“Hong Kong always a multilateralist”) CEPA success factor Private sector lobbying Government support and commitment


CEPA implications (2) Rule of law: CEPA implications (2) Rule of law Institutional arrangement Joint Steering Committee Liaison mechanism Economic integration put in a more rationalised and institutionalised footing From relationship-based to rule-based


CEPA implications (3) Mutual benefits: CEPA implications (3) Mutual benefits Benefits for HK: liberalisation and market access HK: 36,000 jobs and additional HK$5.1 billion in capital investment Benefits for Mainland: FDI in services Mainland: 16,000 new jobs and additional HK$9.2 billion FDI


CEPA implications (4)Capacity building: CEPA implications (4) Capacity building CEPA allows the Mainland to adjust to the challenges of WTO implementation Pilot-testing market openings Gaining regulatory experience Exposing domestic enterprises to outside competition and building up the capacity of China’s own industry in preparation for foreign competition.


CEPA implications (5) Adopting best practices in trade policy: CEPA implications (5) Adopting best practices in trade policy WTO-compliance Substantial sectoral coverage Does not discriminate against foreign-originated companies in HK Consultation and transparency Progressive liberalisation (“easy-first”) Continuous improvement


CEPA implications (6)Facilitating trade negotiations: CEPA implications (6) Facilitating trade negotiations Doha Round: To use HK to pilot-test possible further concessions for the Doha Round of negotiations. Agenda setting: CEPA sends a message to other WTO’s members that China is ready to open itself up to another trading partner which is willing to be as open to China as Hong Kong is, whether multilaterally or through bilateral FTA negotiations. Future FTAs: CEPA helps China position itself in negotiations over other regional trade agreements, e.g. with ASEAN countries.


CEPA implications (7): Market opening (Gradual and orderly progress): CEPA implications (7): Market opening (Gradual and orderly progress) CEPA contains both WTO-equivalent (with time-advantage) and WTO-plus provisions In December 2006, most WTO commitments came into effect. Thereafter, there would be no further time-advantage for WTO-equivalent provisions. China-ASEAN FTA, January 2007: all provisions are WTO-plus CEPA IV and CEPA V: all provisions are WTO-plus, most are significantly ASEAN-plus


CEPA implications (8)More than the economy: CEPA implications (8) More than the economy Stronger economic inter-dependence Inter-jurisdictional commercial presence Greater movement of consumers and producers E.g. the Free Traveller’s scheme Fostering social interaction and social integration Reinforcing cross-cultural impacts National and civic education “know the Country”, “know Hong Kong”


CEPA implications (9) Geo-political development: CEPA implications (9) Geo-political development Economic integration of the Pearl River Delta: Guangdong Province and Hong Kong CEPA with Macau Free Trade Agreement with ASEAN Possible FTA with Japan and Korea Implications for Taiwan A pan-Asia FTA?


CEPA implications (10) One-Country-Two-Systems: CEPA implications (10) One-Country-Two-Systems CEPA = an FTA between two WTO members of the same country Ideological shift: “the richest city of China” vs “gift from the nation” vs “equal partners in negotiations” A historic achievement in exemplifying the “One Country Two Systems” concept, integrating the Mainland and the SAR further while at the same time maintaining Hong Kong’s high degree of autonomy


Slide32: Thank you