WORLD TRADE  
ORGANIZATION  WT/REG162/5 
20 May 2005 
 (05-2043) 
Committee on Regional Trade Agreements Original:   English 
  
 
CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT 
BETWEEN CHINA AND HONG KONG, CHINA 
 
Questions and Replies
 
 
The following communication, dated 2 May 2005, 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  
What is the timeframe for negotiation of future CEPA agreements, and eventual duty 
free access for all goods and coverage of all services? 
For trade in goods, Hong Kong1 has agreed to continue to apply zero tariff to all imported 
goods of Mainland2 origin.  No later than 1 January 2006, the Mainland shall apply zero tariff to all 
imported goods of Hong Kong origin so long as th ey satisfy the origin rules under CEPA and go 
through the process required by CEPA establishing thei r origin.  For trade in services, there is no a 
priori exclusion of any sector or modes of supply under CEPA.  The two sides will continue the 
discussion with a view to further liberalisation of trade in services. 
Regarding Article 2.5 in the CEPA, we would appreciate further explanation and 
clarification from the Parties of the phrase “to take progressive action, dealing with the easier 
subjects before the more difficult ones.” 
It is one of the principles guiding the c onclusion, implementation and amendment of the 
CEPA.  In accordance with this principle, the two sides agreed to progressively achieve liberalization 
of trade in goods and services through continued consultations, and promote trade and investment 
facilitation.   
                                                      
1 In the CEPA, "Hong Kong" refers to the Hong Ko ng 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/REG162/5 
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 II. TRADE PROVISIONS 
1. Import Restrictions
 
What percentage of bilateral trade is currently covered by CEPA?  What percentage of 
tariff lines is covered by the Agreement? 
All Mainland exports to Hong Kong, in terms of value and tariff lines, are covered by CEPA.  
Hong Kong’s domestic exports to the Mainland, in value terms, was 95% tariff-free since the full 
implementation of CEPA.  No later than 1 January  2006, the Mainland shall apply zero tariff to all 
imported goods of Hong Kong origin so long as th ey satisfy the origin rules under CEPA and go 
through the process required by CEPA establishing their origin. 
At the meeting on February 17-18, the Chinese delegation stated that, in the China-
Hong Kong FTA, zero tariff is applied to 110 8 products which approximately account for one 
seventh of the whole tariff lines of China.  We would like the Parties to indicate under which HS 
Chapters (2-digit HS code basis) these 1108 products fall. 
No later than 1 January 2006, the Mainland sh all apply zero tariff to all imported goods of 
Hong Kong origin so long as they satisfy the origin rules under CEPA and go through the process 
required by CEPA establishing their origin.  A list of 1108 items of goods of Hong Kong origin that 
enjoy zero tariff is available on the followi ng websites:  www.mofcom.gov.cn, www.tid.gov.hk. 
Given the lack of trade data provided in the communication, it is not altogether clear 
whether the free trade coverage of the CEPA sa tisfies the requirement of “substantially all the 
trade” as set out in Article 24.8 of the GATT 1994.  On this particular point, the data published 
on the website of the Trade and Industry De partment of Hong Kong relating to the 
“Preliminary Assessment on its Economic Impact” of the first phase of CEPA is revealing.  
According to the said data, the total value of ex ports of Hong Kong origin to other countries 
amounted to 126 billion Hong Kong Dollars in 2004, of which 37.9 billion Hong Kong Dollars 
were destined for China.  However, the pref erential treatment provided under that CEPA 
reached a value of only 1.15 billion, which covers only 3.03% of their total intra-trade.  We 
wonder whether the statistics indicate a depart ure from the “substantially all the trade” 
requirement. 
All Mainland exports to Hong Kong, in terms of value and tariff lines, are covered by CEPA.  
Hong Kong’s domestic exports to the Mainland, in value terms, was 95% tariff-free since the full 
implementation of CEPA.  No later than 1 January  2006, the Mainland shall apply zero tariff to all 
imported goods of Hong Kong origin so long as th ey satisfy the origin rules under CEPA and go 
through the process required by CEPA establishing their origin. 
Can the Parties explain the mechanism of how new products can be included in the 
coverage of the agreement? 
The detailed implementation procedures are stipul ated in Article 5 of Annex 1 to the CEPA 
text signed on 29 September 2003 and in Article 3( 1) of the Supplement to the CEPA signed on 
27 October 2004.  It is essentially a rolling mechan ism which involves an annual application process 
by Hong Kong enterprises and consultation on the rul es of origin by the two sides for the additional 
products. 
  WT/REG162/5 
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 What proportion of trade does agriculture and fisheries represent? What percentage of 
this is covered by CEPA? 
No later than 1 January 2006, the Mainland sh all apply zero tariff to all imported goods of 
Hong Kong origin so long as they satisfy the origin rules under CEPA and go through the process 
required by CEPA establishing their origin, including agriculture and fisheries products. 
Is further liberalisation of agricultural trad e expected? Is there a timeframe for this? 
According to CEPA, no later than 1 January 200 6, all Hong Kong’s imports into the Mainland 
would enjoy zero tariffs as long as they go through the process required  by CEPA and satisfy the rules 
of origin.  The detailed implementation procedures are stipulated in Article 5 of Annex 1 to the CEPA 
text signed on 29 September 2003 and in Article 3( 1) of the Supplement to the CEPA signed on 
27 October 2004. 
5. Safeguards  
Have any safeguard measures been invoked? 
No. 
What are the significant differences between the safeguard provisions in the agreement 
and the WTO Safeguards Agreement? 
In the meeting on February 17-18, the Hong Kong delegation stated that there are no 
provisions that deal with global safeguards in the Agreement and that they have not taken global safeguard measures in the past.  Is it correct to understand that there is no provision 
related to global safeguard measures because China and Hong Kong will not take any global 
safeguard measures in the future? 
Concerning the application of global safeguard measure, could the Parties to the CEPA 
confirm whether the Parties would exempt each  other from such measure in the future? 
Article 9 of CEPA contains the provisions for safe guards.  As stipulated in this Article, if the 
implementation of the “CEPA” causes sharp increas e in the import of a product included in Annex 1 
originating from the other side which has caused or threatened to cause serious injury to the affected 
side’s domestic industry that produces like or directly competitive products, the affected side may, 
after giving written notice, temporarily suspend concessions on the import of the concerned product 
from the other side, and shall, at the request of the other side, promptly commence consultations under 
Article 19 of the “CEPA” in order to reach an agreement. 
These requirements are aimed at ensuring a successful implementation of CEPA, which is in 
line with the rights and obligations of th e Mainland or Hong Kong under WTO.   
III. GENERAL PROVISIONS OF THE ARRANGEMENT  
4. Relations With Other Trade Agreements
 
As far as we understood from the provisions of CEPA, it seems there is no article which 
deals with the relationship between CEPA and other FTAs.  We would like to know how the CEPA will affect other FTAs which China or Hong Kong has concluded with other countries. WT/REG162/5 
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 Article 20.1 of CEPA stipulates that unless pr ovided otherwise under CEPA, any action taken 
under CEPA shall not affect or nullify the rights an d obligations of either side under other existing 
agreements to which it is a contacting party. 
IV. OTHER 
1. Trade And Investment Facilitation
 
What steps have been taken to further trade and investment facilitation? 
Under CEPA’s framework of trade and invest ment facilitation, the Mainland and Hong Kong 
will promote co-operation in the following seven areas:   trade and investment promotion;  customs 
clearance;  transparency in law and regulations;  quarantine and inspection of commodities, quality 
assurance and food safety;  electronic commerce;  small and medium-sized enterprises;  and Chinese 
medicine and medical products.  Since the implemen tation of CEPA, relevant authorities of the two 
sides have been discussing and pursuing trade and in vestment facilitation measu res in the above areas 
on an on-going basis, through existing or  where necessary newly established forums. 
SERVICES ASPECTS  
I. BACKGROUND INFORMATION ON THE ARRANGEMENT 
3. Scope  
Are services commitments based on a positive or negative list? 
The list of services commitments made under the CEPA adopts a positive list approach.   
The Standard Format (Section 2) refers to the progressive liberalisation of trade in 
services? Can the Parties provide their liberalisation plan for these sectors? 
The CEPA is an open platform.  The two sides will continue the discussion with a view to 
further liberalisation of trade in services. 
While it appears often that mode 3 (establis hment) is covered, the other modes of supply 
are not clearly defined.  Does the agreement cover all modes of supply?  If that is not the case, 
could the Parties identify how would the CEPA  meet the requirements set by Article V of 
GATS? 
There is no a priori exclusion of any modes of supply under the CEPA, and it covers all the 
four modes of supply.   
It appears that several sectors are not covered in the agreement (basic 
telecommunications, postal services, environmen tal services, health services, education services, 
several business services).  What is the volume of  trade affected by the exclusion of those 
sectors?  
The list of services commitments made under the CEPA adopts a positive list approach.  It 
should be noted that no sector has been a priori excluded from the scope of the CEPA.  WT/REG162/5 
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 As the commitments undertaken in the CEPA ar e GATS-plus, the two sides’ commitments in 
both the CEPA and the WTO should be read in conjunction. 
Could the Parties identify how would the CEPA  meet the requirements set by Article V 
of GATS? 
How will the CEPA eliminate the substantia lly all discriminatory measures in service 
sectors where specific commitments are undertaken?  Is there any transitional period to be set 
up for the implementation?  How many sectors,  volume of trade and modes of supply are 
covered by the CEPA?  On what basis can the trade volume be identified? 
There is no a priori exclusion of any sector or modes of supply under the CEPA.  Pursuant to 
Article 1.2 of the CEPA, one of objectives of the A rrangement is to achieve progressive liberalization 
of trade in services through reduction or eliminati on of substantially all discriminatory measures 
between the Mainland and Hong Kong.  The two si des will continue the discussions under the CEPA 
framework with a view to further expanding the sectoral coverage of services in the future.  It is completely consistent with the requirements of Article V of GATS. 
II. PROVISIONS AFFECTING TRADE IN SERVICES 
1. Provisions Of The Arrangement Relating To Th e Elimination Of Article XVII Inconsistent 
Measures  
Article 11 of CEPA is different from Article 16.2 of the GATS in the sense that CEPA 
does not have any exhaustive listing of the meas ures restricting market access.  Can we take it 
that Article 11 of CEPA applies to all restrictive market access measures? 
Principles and commitments with regard to services  set out in CEPA are consistent with that 
in the GATS.  Article 11 of CEPA serves as a gr ound on which either side  will progressively reduce 
or eliminate existing restrictive measures against se rvices and service suppliers of the other side in 
accordance with the content and timetable set out in Annex 4 of CEPA. 
In the insurance sector, “Hong Kong residents are permitted to practice in the Mainland 
after obtaining the Mainland’s insurance qualificat ions”.  Which professionals are covered?  
Does it include brokers and agents?  What is preferential compared to WTO commitments?  Is 
the ceiling on shareholding in Mainland’s insurance companies raised from 10% to 15%, or is it 
abolished?  To what extent does it represent a WTO-plus commitment, as, for instance, there is 
no ceiling in non-life insura nce in WTO commitments? 
Under the terms of CEPA in respect of the insurance sector, Hong Kong residents who are 
insurance agents, insurance brokers  and loss adjustors are permitted to practice in the Mainland after 
obtaining the Mainland’s insurance qualifica tions.  The Mainland has not undertaken any 
commitments on these professions under the GATS.   
On the issue of the ceiling on shareholding in Mainland’s insurance companies, the maximum 
limit of capital participation by a Hong Kong insu rance company in a Mainland insurance company is 
24.9%.  This concession is in addition to  the Mainland’s WTO commitments.   
As regards banking services, under which conditions will Hong Kong financial 
institutions be allowed to conduct of fshore Renminbi business in Hong Kong? 
Renminbi business in Hong Kong is not covered in CEPA.   WT/REG162/5 
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 In the field of securities, “Hong Kong professionals are permitted to apply to practice in 
the Mainland according to relevant procedures”.  Which professionals are covered?  What is preferential compared to WTO commitments?  Will Qualified Domestic Institutional Investors 
be included in the first phase of CEPA? 
Under the terms of Annex 4 to the CEPA in re spect of the securities sector, the Hong Kong 
Exchanges and Clearing Limited are allowed to set up a representative office in Beijing, the relevant 
procedures for Hong Kong professionals
3 applying in the Mainland fo r securities and futures industry 
qualifications are simplified, Hong Kong professi onals applying to obtain securities and futures 
industry qualifications of the Mainland need onl y to undertake training and pass examination on 
Mainland laws and regulations, and examination on professional know ledge is not required.  The 
above is not covered in Mainland’s WTO commitment for securities services. 
“Qualified Domestic Institutional In vestors” is not covered in CEPA. 
2. Rules of Origin  
Could the Parties clarify the rules of origin?  For instance, in the banking sector, would 
affiliates of foreign banks in Hong Kong be eligible to the benefit of the CEPA? 
Generally speaking, “juridical persons” (inc luding companies, partnerships and sole 
proprietorships) as well as “natural persons” of H ong Kong will be able to  enjoy CEPA benefits 
provided that they fulfill the conditions of Hong Kong service suppliers stipulated in Annex 5 to the 
CEPA. 
“Affiliates” of foreign banks in Hong Kong which meet the same criteria will be eligible to 
enjoy the benefit of CEPA.   
At the 39th meeting of the CRTA, the Hong Kong delegate stated that service suppliers 
of the third countries should be treated equally  when they fulfill the same conditions as the 
service suppliers of the Parties.  Related to this po int we are especially interested if Article 13 of 
CEPA will affect the foreign banks which operate in Hong Kong.  Can we take it that if the 
foreign banks which operate in Hong Kong fu lfill the same conditions as the banks of the 
Parties, they will have the same treatment that is provided in Article 13?  
Article 13 of the CEPA is on financial c ooperation between the Mainland and Hong Kong, 
e.g. supporting the full utilization of financial intermediaries in Hong Kong and supporting Mainland 
companies in listing in Hong Kong. 
CEPA imposes no extra restrictions on foreign ba nk operators.  All relative bank operators are 
entitled to preferential treatments under Annex 4 to  the CEPA if they can meet the requirements 
stipulated in Annex 5.   
In order to provide services/establish in the Mainland a Hong Kong company shall 
already carry out the same busine ss in Hong Kong.  Could the Pa rties indicate the reasons for 
imposing this condition? 
To be entitled to the treatment granted under the CEPA, a Hong Kong service supplier 
providing services in the form of juridical person sh ould, inter alia, engage in substantive business 
operation in Hong Kong.  The criteria used for de termining whether an enterprise has engaged in 
                                                      
3 In this sector, professionals refer to Hong Kong permanent residents who have been licensed by the 
Securities and Futures Commission of Hong Kong.  WT/REG162/5 
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 substantive business operation include the nature and scope of business, as well as the years of 
operation.  Specifically, the services provided by a service supplier in Hong Kong should encompass 
the nature and scope of the services that it intends  to provide in the Mainland and it should have 
engaged in substantive business operati ons in Hong Kong for 3 years or more4 under these two 
criteria.  Given the very liberal regime on the est ablishment of juridical person in Hong Kong, these 
requirements are aimed at ensuring that a Hong Kong service supplier is one that is genuinely 
engaged in “substantive busin ess operation” in Hong Kong. 
7. Sector-Specific Provisions  
At the 39th meeting of the CRTA, the Hong Kong delegate stated that regarding Article 
14 of CEPA “the residents in Guangdong Provi nce who are allowed to visit Hong Kong 
individually” are mainly tourists.  If they are “mainly” tourists, is there any possibility that the 
persons engaging in business activities are also allo wed to visit Hong Kong through this scheme?  
We would also like to have an explanation regar ding the relationship between the coverage of 
the concept of “residents in Guangdong Pr ovince” and the CEPA’s scope of “person”. 
As stipulated in Article 14 of CEPA, this article is about the cooperation between the 
Mainland and Hong Kong in tourism field.  It aims at the facilitation of tourists from the Mainland to 
visit Hong Kong individually for tourism purposes. 
This measure has been implemented firstly in Dongguan, Zhongshan and Jiangmen since 
28 July 2003.  It has now covered the area of Beijing, Shanghai, Tianjin, Chongqing, the entire Guangdong province and nine cities of Fujia n, Jiangsu and Zhejiang province.   
The two sides will continue the discussion with a vi ew to further liberalisation in this field. 
 
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4 For services suppliers providing construction and related engineering services, banking and other 
financial services (excluding insurance and securities), insurance and related servi ces, and air transport ground 
services, the required years of substantive operation for which would be 5 years or more.