WORLD TRADE  
ORGANIZATION  WT/REG162/6 
13 March 2006 
 (06-1106) 
Committee on Regional Trade Agreements Original:   English 
  
 
CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT 
BETWEEN CHINA AND HONG KONG, CHINA 
 
Questions and Replies
 
 
The following communication, dated 6 March 2006, is being circulated at the request of the 
Delegations of China and Hong Kong, China. 
This document reproduces the questions addressed to the Parties and the responses submitted.  
The questions and replies set out below are or ganized in accordance with document WT/REG162/3 
for the goods aspects of the Agreement, and WT/R EG162/4 for the services aspects of the Agreement. 
_______________ 
 
GOODS ASPECTS  
 
 
I. BACKGROUND INFORMATION ON THE ARRANGEMENT 
3. Scope 
 
1. The EC would appreciate it if China could explain whether all goods have been 
effectively liberalized as stated in the Agreement.  
 In accordance with Article 5(3) of CEPA signed on 29 June 2003 and Article 1(1) of 
Supplement II to CEPA signed on 18 October 2005, trade in goods between Hong Kong1 and the 
Mainland2 has been fully liberalized since 1 January 2006.  The Mainland agrees to apply zero tariff 
to all imported goods of Hong Kong origin from 1 Ja nuary 2006, so long as they satisfy the origin 
rules under the CEPA and go through the process re quired by the CEPA establishing their origin.  
And in accordance with Article 1(1) of the Suppl ement II to the CEPA, the imported goods shall 
exclude goods prohibited from importing as stipulated  in the Mainland laws and regulations, those 
banned from importing due to the Mainland’s implem entation of international treaties, and special 
products committed by the Mainland in internationa l agreements.  Examples include used or waste 
electrical machinery and medical/surgical products, chemical residual, municipal waster, tiger bone 
and rhinoceros horn.  2. The CEPA and the Parties’ answers to previo us questions indicate that all products 
from Hong Kong to Mainland China that satisfy origin rules under the CEPA will be duty free no later than 1 January 2006. 
(a) Has that goal been reached? 
                                                     
 
1 In the CEPA, “Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s 
Republic of China. 
2 In the CEPA, “Mainland” refers to the entire cust oms territory of the People’s Republic of China. WT/REG162/6 
Page 2  
 
  (b) Have all tariffs on all goods imported into Mainland China from Hong Kong 
been eliminated, provided they meet the CEPA rules of origin (i.e., are of Hong Kong Origin)? 
 Please refer to the reply to Question 1. 
 3. Thank the parties for their an swers to the questions asked in February 2005 during the 
first round of examination.  We note that th e parties have now signed a second amendment to 
the CEPA and would be grateful for further clarification on a number of points. 
- Could the parties set out the percentage of bilateral trade and the percentage of 
tariff lines, across the entire Harmonized Scheme (HS) and for which a ROO 
currently exists, that is covered for each party under the CEPA?  Did this change 
on 1 January 2006? 
- Are any products excluded from liberalization? 
- Could the parties further clarify the percentage of agriculture trade (from each 
side) covered by the agreement? 
- What is the timetable for complete liberalization?   
 Under CEPA, Hong Kong has agreed to continue  to apply zero tariff to all imported goods of 
Mainland origin starting from 1 January 2004.  The Mainland has also applied zero tariff to all 
imported goods of Hong Kong origin as from 1 January 2006 so long as they satisfy the agreed CEPA rules of origin, including agriculture products.  Relevant provisions are set out in Article 5(1) of CEPA and Article 1(1) of Supplement II to CEPA. 
 
 Since the implementation of CEPA, the Main land and Hong Kong have agreed on the CEPA 
rules of origin for goods covered in 1,370 Main land 2006 tariff codes. Around 96% of Hong Kong’s 
domestic exports to the Mainland is now tariff free.  The list of goods and their CEPA rules of origin 
can be found in the following website: http://www.tid.gov.hk/english/cepa/files/mainland_2006.pdf
.  
For products in respect of which the rules of origin have not been drawn up, Hong Kong 
manufacturers may apply to the authorities of Hong Kong who, together with their Mainland counterparts, will jointly work out the rules of or igin for the products concerned in accordance with 
the provisions in CEPA.  New rules of origin will be added to Table 1 of Annex 2 to CEPA. 
  Under CEPA, imported goods eligible to th e zero tariff treatment shall exclude goods 
prohibited from importing as stipulated in the Mainland laws and regulations, those banned from 
importing due to the Mainland’s implementation of  international treaties, and special products 
committed by the Mainland in intern ational agreements.  Please see reply to Question 1 for examples 
of the prohibited products.  4. Trade Data 
 
4. To clarify (and update) information on trade coverage of the FTA, we would appreciate 
the following additional trade data from the Parties. 
(a) What was the total value of imports in to Mainland China from Hong Kong in 
2004? 
(b) What was the total value of duty-free imports into Mainland China from Hong 
Kong in 2004?  WT/REG162/6 
 Page 3 
 
 
  (c) What was the total value of imports of  agricultural products into Mainland 
China from Hong Kong in 2004?  
(d) What was the total value of duty-free imports of agricultural products into 
Mainland China from Hong Kong in 2004? 
(e) What was the total value of imports of fisheries products into Mainland China 
from Hong Kong in 2004? 
(f) What was the total value of duty-free imports of fisheries products into 
Mainland China from Hong Kong in 2004 ?   
 The first phase of tariff liberalization under CEPA has been implemented since 1 January 
2004.  In 2004, Hong Kong's domestic exports to  the Mainland amounted to US$4.86 billion and 
about US$4.65 billion worth of its domestic expor ts to the Mainland could enjoy tariff free access. 
With the implementation of the third phase of CEPA starting 1 January 2006, the Mainland now 
applies zero tariff to all imported goods of Hong K ong origin, including agricultural and fisheries 
products, so long as they satisfy the agreed CEPA rules of origin.  Imported goods eligible to zero 
tariff treatment do not include prohibite d products as detailed in Question 1. 
 
 
II. TRADE PROVISIONS 
3. Rules Of Origin 
 
5. The product specific rules of origin appear quite burdensome. 
- Could the parties please explain the operation of the rules of origin system? 
- For what percentage of tariff lines in the HS system have ROOs been developed? 
- What percentage of trade do those ROOs cover? 
- What percentage of applications meet the requirements? 
 The operation of the rules of origin system is set out in Annex 2 to CEPA, as modified by 
Article 1 of Supplement II to CEPA.  Specifically, the product specific rules of origin under CEPA 
were developed in accordance with the following prin ciples: (1) goods wholly obtained in Hong Kong 
are regarded as Hong Kong origin; and (2) goods not w holly obtained in Hong Kong are considered as 
originating in Hong Kong if they have undergone substantial transformation in Hong Kong.  The 
principles further governing “substantial transformati on” are set out below.  These principles are not 
dissimilar to those adopted by other free trade agreement : 
 
− Manufacturing or Processing Operations : the products concerned have undergone principal 
manufacturing or processing operations which are re garded as origin conferring in the area of 
Hong Kong. 
 
− Change in Tariff Heading : the products have been manufact ured to the extent that their 
classification in the Harmonized System falls in a different four-digit heading from the 
classification of the non-originating constituent materials used.  
 
− Value-added Content : the rule requires that local production cost has to reach at least 30% of 
the FOB value of the finished product. WT/REG162/6 
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− Other Criteria
: methods agreed by both sides in determining ‘substantial transformation’, 
other than ‘manufacturing or processing operati ons’, ‘change in tariff heading’ and ‘value-
added content’ as set out above. 
 
− Mixed Criteria : this refers to the use of two or more of the above criteria such as a 
requirement for both manufacturing or pro cessing operations and value-added content. 
 
− Other Additional Conditions : this refers to additional c onditions to be agreed if the 
‘substantial transformation’ criteria set out above  are not adequate for determining origin.  
For example, the use of “Hong Kong brand” as an alternative to the value-added content 
requirement for watches. 
 
 As long as a product satisfies its corresponding produ ct specific rules of origin, it is eligible 
for the Certificate of Hong Kong Origin – CEPA  [CO (CEPA)] and the tariff free treatment under 
CEPA.  Before applying for the CO (CEPA), ma nufacturers/operators are required to apply for 
Factory Registration with the Trade and Industry De partment of Hong Kong to demonstrate that their 
factories/manufacturing establishments possess suffi cient capacity to produce the goods for export.  
Most applications by Hong Kong manufacturers for in clusion of their products into the CEPA have 
been successful except for a few outstanding cases fo r which further deliberations are required.  
Please see reply to Question 3 for information on the rules of origin developed and their coverage. 
 
6. In section 3 of the Standard Format for G oods (WT/REG162/3), the Parties explain that 
“specific origin criterion has been drawn up for each product” 
(a) Does this statement mean that a rule of origin has been drawn up for each of the 
more than 7,000 lines in China’s tariff schedule?  
 CEPA rules of origin have been drawn up for products as specified in the updated Table 1 of 
Annex 2 to CEPA (incorporating those updates in  Annex 2 to Supplement of CEPA signed on 
27 October 2004 and Annex 1 to Supplement II to  CEPA signed on 18 October 2005).  For products 
in respect of which the rules of origin have not  been drawn up, Hong Kong manufacturers may apply 
to the authorities of Hong Kong who, together with  their Mainland counterparts, will jointly work out 
the rules of origin for the products concerned in accordance with the provisions in CEPA.  New rules 
of origin will be added to Table 1 of Annex 2 to CEPA.  7. As for the mechanism to include new products into the coverage of the Arrangement, at 
the meeting on January 23-24, the Parties stated that most of the applications by Hong Kong 
enterprises were accepted and some of them were  outstanding.  Could the Parties explain the 
numbers of the total applications, the accepted applications, and outstanding applications and 
what kinds of products were newly included into  the coverage of the Arrangement under this 
mechanism ?  
 Most applications by Hong Kong manufacturer s for inclusion of their products into CEPA 
have been successful except for a few outstanding cases for which further deliberations are required.  
Annex 2 to Supplement of CEPA signed on 27 Oc tober 2004 and Annex 1 to Supplement II of CEPA 
signed on 18 October 2005 set out the products in cluded into CEPA as applied by Hong Kong 
manufacturers. Examples of products for which CEPA  rules of origin have been lately determined 
include aquatic products, food and beverages, ch emical products, plastic products, textiles and 
clothing, metal products, mechanical and electrical products, and spectacles.  The list of products and 
their CEPA rules of origin can be  found in the following website : 
http://www.tid.gov.hk/english/cepa/files/mainland_2006.pdf
.  WT/REG162/6 
 Page 5 
 
 
   
8. Annex 2 to the Agreement contains the list of  products for which China and Hong Kong 
have drawn up specific rules of origin.  That list now includes 1,370 lines (presumably reflecting lines added by the 2005 Supplement to the CEPA). 
(a) How does China treat a product imported from Hong Kong that is not on the 
list? 
(b) Would the general principles set out in paragraph 2 of Annex 2 apply to 
determine whether the product was of Hong Kong origin?  
 Paragraph 5 of Annex 1 of CEPA, as modified by Article 1(1) of Supplement II to CEPA 
signed on 18 October 2005, stipulates the procedures for working out the CEPA rules of origin for 
products not covered under Table 1 of  Annex 2 to CEPA for the time being.  In gist, Hong Kong 
manufacturers may apply to the authorities of Hong Kong who, together with their Mainland counterparts, will jointly work out the rules of origin for the products concerned.  The general 
principles set out in paragraph 2 of Annex 2 to CEPA has been and will continue to apply to 
determining the CEPA rules of origin.  
 
9. The procedures for including additional products under the CEPA are described in 
Article 5 of Annex 1 of the CEPA. 
(a) Would the parties please describe the crit eria for accepting new products to the 
list. 
(b) How long does the process typically take? 
(c) What percentage of applications for additional products under the CEPA have 
been accepted? 
(d) Will products continue to be added to the list after January 1, 2006?  Will the 
process change?  
 Paragraph 5 of Annex 1 of CEPA, as modified by Article 1(1) of Supplement II to CEPA 
signed on 18 October 2005, sets out the detailed pro cedures and the timing for working out the CEPA 
rules of origin for products not covered under the updated Table 1 of Annex 2 to CEPA for the time 
being.  According to the stipulated procedures,  Hong Kong manufacturers may apply and request to 
include products in subsequent phases of the rules of origin discussions which will be held twice a 
year starting 2006.  The Parties shall complete the consultations before 1 J une and 1 December each 
year respectively and promulgate the agreed rules of  origin.  The Mainland shall, no later than 1 July 
of the same year and 1 January of the following y ear respectively, allow the entry of the relevant 
products tariff free in line with CEPA.  Most app lications by Hong Kong manufacturers for inclusion 
of their products into CEPA have been successful  except for a few outstanding cases for which further 
deliberations are required.  5. Safeguards 
 
10. Thank the parties for the answers on safeguards  provided in May 2005 .  Since then have 
any safeguard measures been invoked ? 
 WT/REG162/6 
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   The safeguard provision (Article 9 of the CEPA) appears to derogate considerably from 
the WTO Safeguards Agreement.  A safeguard mechan ism that is too easy to invoke is likely to 
become trade restricting which would seem to  contradict the spirit of the FTA. 
  We would be grateful if the parties could clarify the following points : 
 
- What is the time limit on application of a safeguard ?  Is it imposed until the 
dispute is settled ? 
- Could the Parties provide a definition of “sharp” increase ? 
- Are there any provisional safeguard measures ? 
- How is the level of safeguard determined ?   
 The safeguard provision of the Arrangement, set out under Article 9 of CEPA, aims at 
ensuring a smooth implementation of  CEPA and is in line with the rights and obligations of the 
Mainland and Hong Kong under the WTO.  Sin ce the inception of CEPA, no safeguard measures 
have been invoked between the Parties.  In case a safeguard measure is i nvoked, the Party imposing 
the measures shall, at the request of the other Pa rty, promptly commence consultations under Article 
19 of CEPA in order to reach an agreement. The implementation of CEPA, including all the 
liberalization measures and the safeguard provision unde r consideration, is supervised by the Joint 
Steering Committee established under Article 19 of CEPA.  In case the Parties consider necessary, 
they may request the Joint Steering Committee to inte rpret the provisions of CEPA and draft additions 
and amendments to its content.   
 
IV. OTHER 
1. Trade and Investment Facilitation 
 
11. Thank the parties for the information provide d on the seven areas identified for trade 
and investment cooperation.  Could the parties please provide examples of specific trade and 
investment facilitation measures/activities that have occurred in these areas since the inception 
of CEPA?  
 Since the inception of CEPA, facilitation measu res have been implemented in all the seven 
areas identified with the intention to enhance the flow  of trade and investment between the two places.  
In the area of trade and investment promotion, a working group and dedicated meetings have been set 
up between the Parties to explore possible fa cilitation measures for trade and investment.  
Specifically, the Trade and Industry Department of  Hong Kong has set up one-stop advisory services 
for the business on CEPA while the Mainland also offers one-stop unit services for the Hong Kong 
business.  A series of joint investment promotion activities on CEPA in both places and overseas have been also held. e.g. ten joint overseas pr omotion activities were organized in 2005. 
 
 On customs clearance facilitation, electronic exchange of Certificate of Hong Kong Origin –
 CEPA has commenced since 2004.  A unified road  import/export cargo manifest has been adopted by 
the customs of both sides to simplify procedures, and a Green Customs Seal has been adopted to 
facilitate cargo examination results to be mutua lly recognizable by the Customs on both sides since 
2005.  Close cooperation and exchanges have also  been maintained between the food safety and 
quarantine authorities of the two Parties. e.g. liaison/cooperation arrangeme nts have been signed 
between the relevant authorities in the Mainland an d Hong Kong to establish a closer notification and 
liaison mechanism for poultry supply to Hong Kong and food safety, and to strengthen cross border 
arrangement of food, food animals and poultry.  WT/REG162/6 
 Page 7 
 
 
   
 On cooperation of small and medium enterp rises, both sides participated in numerous 
conferences, seminars, study missions and visits to  exchange views on SME issues.  Both sides also 
promote exchange and co-operation between inte rmediaries providing services to SMEs as well as 
training organizations and tertiary institutes.  Exchange and collaboration activities on Chinese 
medicine industry and technology are also in pl ace. e.g. A seminar on standardization of Chinese 
medicines was jointly organized by academic institu tions in Hong Kong in 2005.  On e-commerce, for 
example, a joint workshop was held in 2004 for the government and enterprises to explore how best to 
deploy e-commerce to enhance e fficiency and to explore the opportunities in the Mainland and 
overseas markets.    
 
 To enhance transparency in laws and re gulations, a notification mechanism has been 
established under which the Mainland will notify Hong Kong of her newly promulgated trade and 
investment rules and regulations. Hyperlinks be tween their trade and CEPA webpages have been 
established and will con tinuously be updated. 
 
 
SERVICES ASPECTS  
  
I. BACKGROUND INFORMATION ON THE ARRANGEMENT 
 
3. Scope 
 
12. We note the Parties have advised that the CEPA has been negotiated on a positive list 
approach to Services commitments.  Coul d the Parties list the service sectors 
- Covered by the CEPA ? 
- Excluded from the CEPA ? 
 We note the Parties advised further liberalization would be discussed . 
 
- Has any further liberalization occurred ? 
- What is the timeframe for full liberalization of the services sectors of the Parties ?   
 There is no a priori exclusion of any services sector or any mode of supply under CEPA.  
Taking the three phases of CEPA together, liberalization measures in a total of 26 services sectors have been agreed between the Part ies.  These services sectors are accounting, advertising, airport, 
audiovisual, banking, cultural, c onvention and exhibition, distribution, freight forwarding agency, 
information technology, insurance, job referral agency , job intermediary, legal, logistics, management 
consulting, medical and dental, patent agency, prof essional qualification examinations, real estate and 
construction, storage and warehousing, securities a nd futures, telecommunications, tourism, trade 
mark agency, and transport.  The liberalizati on measures under these services sectors are set out in 
Annex 4 to the CEPA signed on 29 June 2003, Anne x 3 to Supplement to the CEPA signed on 27 
October 2004, and Annex 2 to Supplement II to the CEPA signed on 18 October 2005. 
  Under the third phase of CEPA, 23 liberalization measures spreading across ten services areas have become effective since 1 January 2006.  These services areas incl ude legal, accounting, 
audiovisual, construction, distribution, banking, secu rities, tourism, transport and individually owned 
stores. Details are set out in Annex 2 of Supplemen t II to CEPA. Both Parties will continue with the 
discussion with a view to further broadening and enriching the content of CEPA.   WT/REG162/6 
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13. Have new liberalization commitments or measures been undertaken or adopted since 
the last meeting of the CRTA ?  
 CEPA is an open platform and an ongoing exercise.  Since the meeting of the CRTA in 
March 2005, further liberalization measures spread ing across different services areas have been 
introduced under Supplement II to CEPA signed on 18 October 2005.  Please refer to Q12 for details 
on the services sectors covered.    
14. On the services agreement, Table I lists Chin a’s commitments in the services areas.  But 
Table 2, which should list Hong Kong’s commit ments, is blank, noting that Hong Kong’s 
commitments will be negotiated.  Could the Pa rties please describe Hong Kong’s plans to 
liberalize its services market to Chinese service providers.  
 CEPA is an ongoing process.  Hong Kong has committed not to impose any new 
discriminatory measures on the Mainland’s services and service suppliers in those sectors covered by 
the Arrangement.  The Parties will continue with  the discussion under the CEPA framework with a 
view to further liberalizing their trade in services. 
 
15. Regarding the different modes of supply servi ces, mode 3 (establishment) is covered, but 
the other modes are not clearly defined.  Could the Parties identify the modal coverage with 
regard to each sector covered by the agreement, including mode 4 ?  
 There is no a priori  exclusion of any services sector or mode of supply under CEPA. Both 
Parties will continue to pursue further liberaliza tion in the services trade taking into consideration 
their economic development and the interests of their respective business communities. The schedule 
of services commitments under CEPA should also be viewed in the light of the schedule of services commitments of the Parties under the WTO.  16. In the telecom sector in particular, this serv ice sector appears not to be covered by the 
CEPA.  At the same time, the Chinese authorities have allowed the two national mobile operators (China Mobile and Unicom Group) to  set up companies in Hong Kong to attract 
capital through the Hong Kong Stock Exchange.  These two Hong Kong companies in turn own 
100% of most of the subsidiaries in the Chinese re gions that operate local mobile networks of 
China Mobile and China Unicom.  In addition, China Unicom Hong Kong provides in China, 
through its 100%-owned subsidiary CUCL, intern ational and domestic long distance voice, 
data, internet and paging services (all services – except paging – based on fixed network access). 
Since telecoms are not among the sectors cov ered by CEPA, can China confirm that the 
possibility for a foreign company to own 100% of national telecom companies will apply to all foreign companies, on the basis of the GATS MFN principle?  According to China’s GATS 
commitments, capital participation of EC service providers is limited to 49% for basic telecom 
and 50% for value-added services.  When will the Chinese rules on foreign ownership in the 
telecom sector be revised to allow 100% forei gn ownership of any mobile operator, under the 
principle of MFN ?  
 CEPA, in the nature of being a free trad e arrangement signed by the Mainland and Hong 
Kong, its specific commitments can just apply to th e two subscriber parties. Any service supplier that 
was incorporated or established in Hong Kong co uld provide service in the Mainland according to 
relevant requirements of CEPA on condition that it is a legitimate  “Hong Kong Service Supplier” as 
defined in Annex 5 of CEPA.   
  WT/REG162/6 
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  17. We note that China has committed to allo wing foreign wholly-owned services firms to 
operate in a broad range of services sectors.  Will such allowances be made for other WTO 
Members ?   
 CEPA, in the nature of being a free trad e arrangement signed by the Mainland and Hong 
Kong, its specific commitments can just apply to the two subscriber parties. Any foreign owned 
service firm that was incorporated or established in Hong Kong could apply to the treatments as 
defined in CEPA on condition that it is a leg itimate “Hong Kong Service Supplier” as defined in 
Annex 5 of CEPA.  
 
18. Is any further liberalization under the CEPA envisaged ?  If so, when would this be 
expected to occur ?  Is there a timetable for discussion or a working groups process ? 
 CEPA is an open and on-going forum for trad e and investment liberalization and facilitation 
between the Mainland and Hong Kong.  Since the inception of CEPA, two rounds of further 
liberalization measures have been agreed upon and put into effect by the two Parties.  In line with the objective stipulated in Article 1 of CEPA, bot h Parties will continue to discuss on further 
liberalization under the existing framework of CEPA to progressively eliminate or reduce non-tariff 
measures in trade in goods, remove or cut down discriminatory measures in trade in services, and 
promote trade and investment facilitation.   
II. PROVISIONS AFFECTING TRADE IN SERVICES 
 
3. Standards/Recognition 
 
19. As regards mutual recognition of professional qualifications, could the parties inform 
whether new agreements in that field have been concluded since the last meeting of the CRTA ?   
 Since the meeting of the CRTA in March 2005, two mutual recognition agreements on 
professional qualifications have been reached betw een the Mainland and Hong Kong.  The first was 
signed between the China Engineering Cost Associat ion and the Hong Kong Institute of Surveyors for 
mutual recognition of quantity surveyors in H ong Kong and the Mainland.  The second was signed 
between the National Administration Board of Prof essional Planners System of the Ministry of 
Construction and the Hong Kong Ins titute of Planners for mutual recognition of professional planning 
qualifications between Hong Kong and the Mainland.  Both agreements were signed on 24 May 2005. 
 
 
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