1. Trade in Goods (Annexes 1,2 and 3 of CEPA)

A. Import Tariffs (Annex 1)

The Mainland will apply zero import tariff from 1 January 2004 for exports from Hong Kong meeting CEPA origin rules in 273 Mainland product codes. As a result of the zero tariff concession under CEPA and China's commitments upon accession to the WTO, about 90% of the value of Hong Kong's domestic exports to the Mainland will enjoy zero tariff by 1 January 2004. These products include:

• electrical and electronics products
• plastic articles
• paper articles
• textiles and clothing
• chemical products
• pharmaceutical products
• chocks and watches
• jewellery
• cosmetics
• metal products

For other products, the Mainland will apply zero tariff latest by 1 January 2006 upon applications by local manufacturers and upon CEPA origin rules being agreed and met.

Before 1 October each year, both sides will confirm the product list and complete consultations on the origin rules. For products that are currently in production, tariff elimination will commence in the following year. For products that have not yet been manufactured in Hong Kong, zero tariff will be applied from 1 January of the following year after the products have come into production.

B. CEPA Rules of Origin (Annex 2)

In respect of the 273 Mainland product codes covered in the initial phase:

• 187 (68%) product codes will use the existing Hong Kong origin rules as CEPA origin rules. These include items such as textiles and clothing, jewellery, cosmetics, pharmaceutical products, and plastic and paper articles.
• 46 (17%) product codes will adopt the "Change in Tariff Heading" (CTH) rule as CEPA¡¡origin rules. These include items such as chemical products, metal products, some electronic products and electronic components.
• 40 (15%) product codes will adopt a 30% value-added requirement as CEPA origin rules. These include items such as some electronic and optical components, watches and clocks, and watch movements. The 30% value-added formula will include the cost of local raw materials and component parts, local labour cost, land the cost of product development incurred in Hong Kong.

For the remaining products not covered in the initial phase, upon applications by local manufacturers, the two sides will discuss and agree on the applicable origin rules in accordance with a specified timetable.

C. Procedures for Claiming Zero Tariff (Annex 3)

To claim zero import tariff under CEPA, products importing into the Mainland must be accompanied by a Certificate of Hong Kong Origin-CEPA (CO(CEPA)) issued by the Trade and Industry Department or one of the Government Approved Certification Organizations.  The application procedures for CO(CEPA) are largely the same as the existing arrangement for issuing the regular Certificates of Hong Kong Origin.

D. Customs Cooperation (Annex 3)

To ensure smooth implementation of the CEPA origin rules and prevent illegal circumvention, a computer link and an electronic data exchange mechanism have been established between the issuing and regulatory authorities of both sides so that information on CO(CEPA) issued in Hong Kong can be transmitted to the Mainland to facilitate verification at customs entry points. The two sides have also agreed on co-operation between the two Customs administrations to strengthen enforcement of the CEPA origin system.

2. Trade in Services (Annexes 4 and 5 of CEPA)

A. Liberalization of 18 Services Sectors (Annex 4)

The Mainland has agreed on 29 September 2003 to grant preferential treatment in one additional sector, i.e. the telecommunications services, taking the total number of sectors covered under CEPA to 18. These include:

• management consulting services
• convention and exhibition services;
• advertising services;
• accounting services;
• real estate and construction 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; and
• telecommunications services.

The Mainland will apply to service suppliers in Hong Kong the specific commitments set out in CEPA Annex 4 as from 1 October 2003 for the telecommunications sector and as from 1 January 2004 for the other 17 sectors.

B. Definition and Certification of "Hong Kong service Suppliers (HKSS)" (Annex 5)

Generally speaking, "juridical persons" including companies, partnerships, sole proprietorships, as well as "natural persons" of Hong Kong will be able to enjoy preferential treatment granted by the Mainland in CEPA Annex 4provided that they fulfill the definition and related requirements of Hong Kong service suppliers stipulated in CEPA Annex 5. Unless otherwise specified in CEPA, a "natural person" means a Hong Kong permanent resident whereas a "juridical person" means any legal entity duly constituted or otherwise organized under the applicable laws of Hong Kong and has engaged in substantive business operations in Hong Kong for three to five years.

On the certification procedures, Hong Kong service supplier as a juridical person should apply to the Trade and Industry Department (TID) for a Certificate of Hong Kong Service Supplier (HKSS) before it can apply to the relevant Mainland authorities for the provision of relevant services in the Mainland under CEPA. Applicant should submit to TID an application form, a copy of statutory declaration attested by an attesting officer recognized by the Mainland, as well as other relevant supporting documents.

With effect from 2 October 2003, service suppliers in the telecommunications sector may submit their applications for the Certificate of Hong Kong Service Supplier to the TID. Detailed application procedures can be found on the web site of TID. For the other 17 sectors, details of the application procedures for Certificate of Hong Kong Service Supplier will be promulgated in November 2003.
A Hong Kong service supplier who wants to obtain CEPA treatment as a natural person should provide to the relevant Mainland authorities identification of his or her Hong Kong permanent resident status. He or she should also provide his/her Hong Visit Permit or HKSAR passport if he or she is a Chinese citizen. Copies of the identification documents should be attested by an attesting officer recognized by the Mainland.

3. Trade and Investment Facilitation (Annex 6 of CEPA)

Both sides agree on enhancing co-operation in the following seven areas -

• trade and investment promotion
• customs clearance facilitation
• commodity inspection and quarantine, food safety, quality and standardization
• electronic business
• transparency in laws and regulations
• cooperation of small and medium enterprises
• cooperation in Chinese medicine industry

The two sides agreed on the contents and modalities of cooperation for each of the seven areas above, and that new areas of trade and investment facilitation might be added in future.

Editor: Catherine