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What is CEPA?

The People’s Republic of China 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 markets for Hong Kong goods and services, enhancing the already close economic cooperation between the Mainland and Hong Kong.

It adopts a building block approach to introduce further liberalisation measures continually. The agreed liberalisation measures for various phases of CEPA are stipulated in the CEPA Legal Text.

CEPA provides a window of opportunity for Hong Kong businesses to gain greater access to the Mainland market. It also benefits the Mainland as Hong Kong serves as a springboard for Mainland enterprises to reach out to the global market and accelerating the China's integration with the world economy. Foreign investors are welcome to establish businesses in Hong Kong to leverage on CEPA benefits.

Implementation

CEPA covers four broad areas:

Trade in goods

All goods of Hong Kong origin can enjoy zero tariff preference upon importation into the Mainland, upon the CEPA rules of origin (ROOs) being met and each consignment of goods exported to the Mainland is accompanied by a Certificate of Origin - CEPA (CO(CEPA)). The Agreement on Trade in Goods has included four dedicated Chapters on "Customs Procedures and Trade Facilitation", "Sanitary and Phytosanitary Measures", "Technical Barriers to Trade" and "Trade Facilitation Measures in the Guangdong - Hong Kong - Macao Greater Bay Area".

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.

Investment

Hong Kong investors enjoy preferential treatment in non-services sectors in the Mainland. The Investment Agreement also promotes and protects investment, and provides for investment facilitation.

Economic and Technical Cooperation

Both sides agreed to enhance cooperation in 22 areas to cater for the trend and support the development and cooperation, as well as to facilitate and promote trade and investment between the two places.

How to benefit from CEPA

 Manufacturers in Hong Kong

All goods manufactured in Hong Kong that meet the CEPA ROO can enjoy zero tariff benefit upon importation into the Mainland.

Service suppliers in Hong Kong (enterprises and individuals)

Hong Kong service suppliers can make use of the liberalisation and facilitation measures to supply service in most sectors in the Mainland.

Professionals in Hong Kong

Hong Kong professionals may make use of measures such as opening up the Mainland professional qualification examinations, mutual recognition of professional qualifications, facilitating registration and practice, etc. to enter the Mainland market.

Investors from Hong Kong

Hong Kong investors can enjoy facilitation measures in investing in the Mainland and their investments are better protected, including the availability of a specified mechanism for settlement of investment disputes.

Investors from outside Hong Kong

CEPA does not impose restriction over the source of capital of beneficiaries. For trade in goods, investors from outside Hong Kong can set up production lines in Hong Kong to produce goods that meet the CEPA ROO so as to enjoy zero tariff benefit on importation into the Mainland. For trade in services, the companies incorporated and set up in Hong Kong by investors from outside Hong Kong can make use of the CEPA measures to start business in the Mainland, provided that they satisfy the eligibility criteria of Hong Kong Service Supplier stipulated under CEPA.

The business community of Hong Kong

The Mainland and Hong Kong have been strengthening cooperation in various trade and investment facilitation areas to enhance the competitiveness of the two places.  Cooperation in the economic and trade aspects of the “Belt and Road” Initiative and Sub-regional Cooperation also provide Hong Kong businesses with good opportunities for participation in the national development strategies.

Trade in Goods

Zero Tariff on Importation into the Mainland All goods of Hong Kong origin can enjoy zero tariff preference upon importation into the Mainland (Note 1).

To claim zero tariff benefits, every consignment of goods to the Mainland must be accompanied by a Certificate of Hong Kong Origin - CEPA (CO(CEPA)) issued by Trade and Industry Department (TID) or one of the Government Approved Certification Organisations (GACOs) (Note 2).  

For the purpose of applying for CO(CEPA)s, manufacturers should first apply to TID for a Factory Registration to demonstrate that their factories possess sufficient capacity to produce goods for export.

Agreement on Trade in Goods (as from 1 January 2019)

On 14 December 2018, the Mainland and Hong Kong signed the Agreement on Trade in Goods (the Agreement), consolidating and updating the commitments on liberalisation and facilitation of trade in goods under CEPA.  

Highlights of content are set out as below:

Rules of Origin
The Agreement enhances the provisions on rules of origin. Through the introduction of a new general rule of origin (General Rule) and the updating of the existing Product Specific Rules of Origin (PSRs), goods manufactured in Hong Kong can instantly enjoy zero tariff upon importation into the Mainland subject to the fulfilment of the relevant rules.  

Trade Facilitation
The Agreement has included three dedicated Chapters on “Customs Procedures and Trade Facilitation”, “Sanitary and Phytosanitary Measures” and “Technical Barriers to Trade” to stipulate commitments of the two sides in facilitating trade between the two places, simplifying customs procedures, enhancing transparency of related measures and strengthening cooperation, etc. in the relevant areas.  

The Agreement has included a dedicated Chapter on “Trade Facilitation Measures in the Guangdong - Hong Kong-Macao Greater Bay Area” agreeing that the nine Pearl River Delta municipalities (Note 3) and Hong Kong will implement trade facilitation measures to promote the convenient and efficient flow of factors of production in the Guangdong - Hong Kong-Macao Greater Bay Area. The measures include publishing periodically the overall customs clearance time for goods, and further shortening the overall customs clearance time for goods; and implementing facilitation measures for food processed in Hong Kong with materials originating from the Mainland, etc.

(Note 1)
Not including those prohibited by the Mainland’s rules and regulations and those prohibited as a result of the implementation of international treaties by the Mainland, as well as products that the Mainland has made special commitments in relevant international agreements.

(Note 2)  
Under the Protection of Non-Government Certificates of Origin Ordinance (Cap. 324), the Government Approved Certification Organisations (GACOs) are the Chinese Manufacturers' Association of Hong Kong; Federation of Hong Kong Industries; the Hong Kong General Chamber of Commerce; the Indian Chamber of Commerce, Hong Kong; and the Chinese General Chamber of Commerce.

(Note 3)
Namely the municipalities of Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing in Guangdong Province.

Trade in services

Under CEPA, Hong Kong service suppliers can enjoy preferential treatment in most service sectors, including tourism, construction, legal, medical, accounting, convention and exhibition, audiovisual, transport services etc., in accessing the Mainland market.

Hong Kong Service Supplier (HKSS)

Both "juridical persons" and "natural persons" of Hong Kong can enjoy preferential treatment offered by the Mainland if they fulfil the definition of HKSS under CEPA:  

• HKSS as a juridical person means any legal entity duly constituted or otherwise organised under applicable laws of Hong Kong. Service supplier as a juridical person should apply to the Trade and Industry Department for an HKSS Certificate (Note 1), and then apply to relevant Mainland authorities for providing services in the Mainland with CEPA treatment.  
• HKSS as a natural person means a Hong Kong permanent resident. Service supplier who wants to enjoy the CEPA treatment as a natural person is not required to apply for an HKSS Certificate.  

Agreement on Trade in Services (as from 1 June 2016)

The Agreement on Trade in Services was signed on 27 November 2015 between the Mainland and Hong Kong under the framework of CEPA to basically achieve liberalisation of trade in services between the two places.  The Agreement on Trade in Services adopts a hybrid of negative and positive listings of commitments. Subsequently, both sides have added new services liberalisation measures (legal, testing and certification services) for implementation from 1 March 2019.

“Negative list” sets out the restrictive measures for specific service sectors reserved by the Mainland. There are no other restrictions, i.e. “permitted if not forbidden”. The shorter the “negative list”, the higher is the degree of openness. “Positive list” sets out the liberalisation measures adopted by the Mainland. The longer the “positive list”, the higher is the degree of openness.

(Note 1)
In order to fulfil the requirements for application of an HKSS Certificate, the service supplier should:

• be incorporated / established in Hong Kong;
• engage in substantive business operation in Hong Kong for 3 or 5 years;
• pay profits tax in accordance with the laws in Hong Kong;
• own or rent business premises in Hong Kong;
• employ staff in Hong Kong with the majority of them being Hong Kong residents.

(Note 2)
The four modes of supply of services include cross-border supply, consumption abroad, commercial presence and movement of natural persons.

(Note 3)
The modes of cross-border supply, consumption abroad and movement of natural persons are collectively known as “cross-border services”.

Investment

On 28 June 2017, the Mainland and Hong Kong signed the Investment Agreement to enhance CEPA through expansion of market access commitments to non-services sectors and introduction of obligations on investment protection. The Investment Agreement ensures stability in the investment regimes of both sides, thereby upholding investors' confidence and promoting investment liberalisation and facilitation.

Hong Kong Investors

Under the Investment Agreement, the definition of Hong Kong investors includes both “enterprises” and “natural persons” of Hong Kong:

• A Hong Kong investor as an enterprise means an entity constituted or organised under the laws of Hong Kong, and a branch of such an entity. A Hong Kong enterprise applying to relevant Mainland authorities for setting up enterprises in the Mainland to enjoy the treatment under the Investment Agreement should apply to Trade and Industry Department for a Hong Kong Investor Certificate (Note 1).
• A Hong Kong investor as a natural person means a Hong Kong permanent resident.  Investor who wants to enjoy the treatment under Investment Agreement as a natural person is not required to apply for a Hong Kong Investor Certificate.

Investment Agreement

(Note 1)
In order to fulfil the requirements for application of a Hong Kong Investor Certificate, the enterprise should:

• be incorporated / established in Hong Kong;
• engage in substantive business operation in Hong Kong for more than three years
• ay profits tax in accordance with the laws in Hong Kong;
• own or rent business premises in Hong Kong;
• employ staff in Hong Kong with the majority of them being Hong Kong residents.

Economic and Technical Cooperation

The Agreement on Economic and Technical Cooperation (Ecotech Agreement) was signed on 28 June 2017 between the Mainland and Hong Kong to consolidate and update the economic and technical cooperation activities set out in CEPA and its Supplements to cater for the trend and needs for the development of Hong Kong and the Mainland.  It also strengthens the basis of and sets the direction for closer cooperation between the two places in future.

The Ecotech Agreement incorporates the cooperation in the economic and trade aspects of the “Belt and Road” Initiative, Guangdong-Hong Kong-Macao Greater Bay Area, Pan-Pearl River Delta Region, and the Mainland Pilot Free Trade Zones into the CEPA framework, thereby providing Hong Kong businesses with good opportunities for participation in the national development strategies.

Areas of Cooperation

Both sides have agreed to enhance cooperation in 22 areas to support the development and cooperation, as well as to facilitate and promote trade and investment between the two places.