WORLD TRADE  
ORGANIZATION  WT/REG163/6 
20 March 2006 
 
 (06-1216) 
Committee on Regional Trade Agreements Original:   English 
  
CLOSER
 ECONOMIC  PARTNERSHIP  ARRANGEMENT 
BETWEEN CHINA AND MACAO, CHINA 
 
Questions and Replies  
  
 The following communication, dated 17 March 2006, is being circulated at the request of the 
Delegations of China and Macao, 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/REG163/3 
for the goods aspects of the Agreement, and WT/R EG163/4 for the services aspects of the Agreement. 
 
_______________ 
  
GOODS ASPECTS
 
 
I. BACKGROUND INFORMATION ON THE ARRANGEMENT 
 
3. Scope 
 
1. The CEPA and the Parties’ answers to previo us questions indicate that all products 
from Macao to Mainland China that satisfy or igin rules under the CEPA will be duty free no 
later than 1 January 2006.  Has that goal been re ached?  Are all tariffs on goods imported into 
Mainland China from Macao zero for all goods, provided they meet the CEPA rules of origin? 
 Pursuant to Article 5 of CEPA, the Mainland agrees to apply zero tariff to all imported goods 
of Macao origin from 1 January 2006, so long as they satisfy the origin rules under CEPA and go 
through the process required by CEPA establishing their origin. 
 
2. 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 exists, that is covered for each party und er the CEPA following the conclusion of 
Supplement II of the CEPA? 
 
 - 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? WT/REG163/6 
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 The products covered in CEPA  represented 94.2% of Macao’s total exports to the Mainland 
in 2004.  Pursuant to Article 5 of CEPA, Macao agrees to apply zero tariff to all imported goods of 
Mainland origin.  
 Pursuant to Article 5 of CEPA, the Mainland agrees to apply zero tariff to all imported goods 
of Macao origin from 1 January 2006, so long as they satisfy the origin rules under CEPA and go 
through the process required by CEPA establishing thei r origin.  And in accordance with Article 1 of 
the Supplement II to 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 
implementation of internationa l treaties, and special products committed by the Mainland in 
international agreements.  On the other hand, Article  5 of CEPA stipulates that Macao agrees to apply 
zero tariff to all imported goods  of Mainland origin.   
  Macao’s agricultural imports from the Main land amounted to USD119, 602,229 in 2004 and 
took a share of 7.7% of total imports from the Mainland.  Whereas, Macao only exports a small 
amount of agricultural products to the Mainland b ecause Macao is not a major exporter of agricultural 
products.  
4. Trade Data 
 
3. To clarify information on trade coverage of the FTA, we would appreciate additional 
trade data from the Parties on their bilateral trade. 
(a) What was the total value of imports into Mainland China from Macao in 2004? 
(b) What was the total value of duty-free im ports into Mainland China from Macao 
in 2004? 
(c) What was the total value of imports of  agricultural products into Mainland 
China from Macao in 2004? 
(d) What was the total value of duty-free imports of agricultural products into 
Mainland China from Macao in 2004? 
(e) What was the total value of imports of fisheries products into Mainland China 
from Macao in 2004? 
(f) What was the total value of duty-free imports of fisheries products into 
Mainland China from Macao in 2004?  
 The first phase of tariff liberalization under CEPA has been implemented since 
1 January  2004.  In 2004, Macao's domestic e xports to the Mainland am ounted to USD19.8 million 
and about USD18.65 million worth of its domestic exports 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 M acao 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 2. 
 
 
 
   WT/REG163/6 
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II. TRADE PROVISIONS 
 
3. Rules Of Origin 
 
4. The product specific rules of origin appear quite burdensome. 
 -  Could the parties please explain the operation of the rules of origin system? 
 
 - What percentage of applications meet the requirements?  
 - For what percentage of tariff lines in th e HS system have ROOs been developed? 
  - What percentage of trade do those ROOs cover?   
 Paragraph 2 of Article 1 of the Supplement II to CEPA has stipulated the detailed criteria to 
determine the rules of origin.  
 
 In 2004 and 2005, all applications were accepted. 
  A total of 601 tariff lines (under Mainland 2006 harmonized system codes) have been 
developed the rules of origin. 
  The products covered in CEPA  represented 94.2% of Macao’s total exports to the Mainland 
in 2004. 
 
5. In section 3 of the Standard Format for G oods (WT/REG163/3), 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 
29 October 2004 and Annex 1 to Supplement II to CEPA signed on 21 October 2005).  For products 
in respect of which the rules of origin have not been drawn up, Macao manufacturers may apply to the 
authorities of Macao who, together with their Mainla nd 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. 
 
6. As for the mechanism to include new products  into the coverage of the Arrangement, 
were there applications made from Macao enterpri ses?  In that case, could the Parties explain 
the numbers of the total applications, the accep ted applications, and outstanding applications 
and what kinds of products were newly include d into the coverage of the Arrangement under 
this mechanism?  
 Beginning 1 January 2004, Macao manufacturer s were entitled to, in accordance with the 
relevant rules of CEPA, submit applications for goods subject to zero tariff.  While, effective 1 
January 2006, the Mainland has applied zero tariff to all imported goods of Macao origin, so long as 
they satisfy the origin rules under CEPA.  Macao manufacturers may apply the list of goods subject to 
zero tariff for establishing their origin rules.  
 WT/REG163/6 
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 In 2004, a list of 273 products (under Mainla nd 2001 tariff codes) of Macao origin were 
eligible for zero tariff rate under CEPA.  In 2005,  an addition of 190 prod ucts (under Mainland 2004 
tariff codes), including foodstuffs, chemicals, photographic and developing products, textiles and 
clothing, building stone and articles of stone, article s of metal, electrical, machinery and electronic 
products were included in the Supplement to CEPA.  In 2006, the number of products included in the 
Supplement II to CEPA were 91 (under Mainla nd 2005 tariff codes), comprising foodstuffs, 
chemicals, pharmaceutical products, plastic articles,  textiles and clothing, machinery and mechanical 
appliances, optical parts and accessories. 
 Under the consultation mechanism, Macao manuf acturers have timely submitted their lists of 
products to the Macao Economic Services.  In 2004  and 2005, the number of applications received 
were 18 and 17, respectively. All applications we re accepted, none of which had been outstanding. 
 
7. Annex 2 to the Agreement contains the list of  products for which China and Macao have 
drawn up specific rules of origin. 
(a) How does China treat a product imported from Macao that is not on that list? 
(b) Would the general principles set out in paragraph 2 of Annex 2 apply to 
determine whether the product was of Macao origin?  
Paragraph 5 of Annex 1 of CEPA, as modified  by Article 1(1) of Supplement II to CEPA 
signed on 21 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, Macao 
manufacturers may apply to the authorities of Macao who, together with thei r Mainland counterparts, 
will jointly work out the rules of origin for the pr oducts concerned.  The gene ral principles set out in 
paragraph 2 of Annex 2 to CEPA h as been and will continue to appl y to determining the CEPA rules 
of origin.  
 
8. 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 1 January 2006?  Will the 
process change?  
 According to Article 1 of the Supplement II to CEPA signed on 21 October 2005, Macao 
manufacturers can submit their applications for zer o tariff to the Macao Economic Services.  The 
Macao Economic Services shall undertake verificat ion and certification proceedings and submit the 
proposed product coverage , prior to 1 March and 1 September respectively each year to the 
Mainland’s Ministry of Commerce.  Having had consulta tion with regard to the rules of origin or the 
products concerned, the implementation of zero ta riff treatment will accordingly take effect on the 
following 1 July and 1 January respectively.  Due consideration has been paid to Macao’s production 
capacity and the need on exporting to the Mainland. 
  WT/REG163/6 
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   The process normally takes four months. 
 In 2004 and 2005, all appl ications of Macao manufacturers have been accepted. 
 
 Pursuant to Article 5 of CEPA, the Mainland agrees to apply zero tariff to all imported goods 
of Macao origin from 1 January 2006, so long as they satisfy the origin rules under CEPA and go 
through the process required by CEPA establishing their origin.  Article 1 of the Supplement II to 
CEPA signed on 21 October 2005 has stipulated the detailed procedures for including new products in 
the coverage of CEPA.  
5. Safeguards 
 
9. Thank the parties for the answers on safeguards  provided in May 2005 .  Since then have 
any safeguard measures been invoked? 
 The safeguards provision (Article 9 of the CEPA) appears to derogate considerably 
from the WTO Safeguards Agreement.  A safegu ard mechanism 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 safeguards 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 Macao under the WTO.  Since the inception of CEPA, no safeguard measures have 
been invoked between the Parties.  In case a safe guard measure is invoked, the Party imposing the 
measures shall, at the request of the other Part y, 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 
 
10. 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?  
 Under CEPA’s framework of the trade and i nvestment facilitation, the Mainland and Macao 
have taken various initiatives to promote mutual cooperation.  Different progress has been achieved 
and working groups have been established to work on the following seven areas: WT/REG163/6 
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 Regarding trade and investment promotion, various promotion activities have been held, 
namely bilateral meetings among government o fficials and business community, exhibitions and 
public forums.  In respect to customs clearance f acilitation, cooperation agreement has been signed by 
the customs authorities of the two sides to streamlin e customs procedures.  On commodity inspection, 
inspection and quarantine of animals and plants, food safety, sanitary quarantine, certification, 
accreditation and standardization management, an ag reement has been signed to strengthen mutual 
cooperation in notification mechanism, product safety, standardization and accreditation and professional training, etc.  As regards electronic business, series of meetings have been held to facilitate mutual cooperation by means of different activities, such as professional training and visits.  
Turning to transparency in laws and regulations, bilateral meetings and pubic forums have been 
organized.  On cooperation of small and medium en terprises, steps have been taken to coordinate 
SME activities.  Concerning industrial cooperation, in itiatives have been taken in industrialization of 
Chinese medicine.  Despite the progress made, the two sides will continue working on these seven 
areas in order to achieve greater progress in the future.  
 
SERVICES ASPECTS
 
 
 
I. BACKGROUND  INFORMATION  ON THE  ARRANGEMENT 
 
3. Scope 
 11. 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?   
 
 In essence, the service sectors covered by CEPA includes Legal Services, Accounting 
Services, Architectural Services, Medical and Dental Services, Real Estate Services, Advertising Services, Management Consulting Services, Co nvention and Exhibition Services, Value-added 
Telecommunication Services, Audiovisual Services, Construction and Related Engineering Services, 
Distribution Services, Insurance Services, Banking Services, Securities Serv ices, Tourism Services, 
Transport Services, Logistic Services, Airport Op eration Services, Information Technology Services, 
Professionals and technicians qualification examina tions, Cultural Entertainment Services, Trademark 
Agency Services, Patent Agency Services, Job Referral Agency Services and Job Intermediary 
Services. 
 
 There is no a priori  exclusion of any sector or modes of supply under CEPA.  The two sides 
will continue the discussions under CEPA framework with a view to further expanding the sectoral 
coverage of services in the future. 
   WT/REG163/6 
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   In the initial phase of CEPA, the Mainland h as conferred preferential treatment to Macao 
service suppliers in 18 service sectors, while in th e Supplement to CEPA, the Mainland has rolled out 
further liberalization in respect of 11 of them and introduced new liberalization in 8 areas.  Under Supplement II to CEPA, the Mainland has further re laxed measures in 10 of the service sectors.   
Pursuant to paragraph 5 of A nnex 4, Macao will not impose any new discriminatory measure on 
Mainland’s services and service suppliers in the areas of services covered in Annex 4. 
 
 There is no specific timeframe for full liberalization of the service sectors.  The two sides will, through consultations, formulate and implemen t further liberalization in respect of trade in 
services. 
 
12. Services are an essential part of the Macao economy, representing 90% of GDP.  
Consequently, the services aspects of this FTA are more important to the economy than the 
goods aspects.  The parties’ an swers to question 3 in WT/REG163/5 shed little light on the 
planned liberalization of the services trade.  Co uld the parties provide any information, beyond 
plans to “continue the discussion” on planned liberalization of the services sectors?  Could the 
parties please provide additional information about their plans to liberalize trade in services 
between them, and additional evidence that  the agreement meets the requirements of 
GATS Art. V.  
 Most of Macao’s service sectors have already li beralized and there is no a priori exclusion of 
any sector or modes of supply under CEPA.  CEPA covers a total of 26 service sectors, which include 
management consulting, conventi on and exhibition, advertising, accounting, legal, medical and 
dental, logistics, freight forwarding agency, storag e and warehouse, distribution, transport, tourism, 
construction, audiovisual, telecommunication, banki ng, insurance, securities, patent, trademark, 
airport operation, culture and recreation, informatio n technology, job referral, job intermediary and 
professionals qualification examinations and so on.  The conclusion of the Supplement to CEPA and 
the Supplement II to CEPA has dem onstrated the parties’ commitment to further liberalize service 
sectors by including more service sectors and furthe r relaxing market access conditions.  In addition, 
the two sides will continue the discussion with a view to further liberalization of trade in services.  
Thus, CEPA is compliant with the re quirements set by Article V of GATS. 
 
13. Is any further liberalization under the CEPA envisaged ?  If so, when would this be 
expected to occur ?  Is there a timetable fo r 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 Macao.  Since the incepti on 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, both Parties will continue to discuss on further liberalization under 
the existing framework of CEPA to progressively e liminate 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.  
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