WORLD TRADE  
ORGANIZATION  WT/REG163/1/Add.2 
16 January 2006 
 
 (06-0178) 
Committee on Regional Trade Agreements Original:   English 
  
 
CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT 
BETWEEN CHINA AND MACAO, CHINA 
 
Addendum
 
 
 
 The following communication, dated 13 January 2 006, is being circulated at the request of the 
Delegations of China and Macao, China. 
 
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SUPPLEMENT II TO THE MAINLAND AND MACAO CLOSER ECONOMIC PARTNERSHIP 
ARRANGEMENT∗ 
 
  To further enhance the level of economic a nd trade exchanges and cooperation between the 
Mainland
1 and the Macao Special Administrative Region (hereinafter referred to as “Macao”), and 
pursuant to:  
 - the Mainland and Macao Closer Economic Partnership Arrangement (hereinafter 
referred to as “CEPA”) and its Annexes signed on 17 October 2003; 
  - the Supplement to the Mainland and Macao Closer Economic Partnership 
Arrangement (hereinafter referred to  as “Supplement to CEPA”) signed on 
29 October 2004; 
 the two sides agreed to sign this Supplement II on fu rther liberalization of trade in goods and trade in 
services in the Mainland for Macao.   I. TRADE IN GOODS 
1. From 1 January 2006, the Mainland shall fu lly implement zero tariff on imported goods of 
Macao origin
2.  Imported goods subject to zero tariff must fulfill the rules of origin confirmed after 
consultation by both sides. 
                                                      
 ∗ The Annexes to this Supplement II have been submitted to the Secretariat for consultation by 
interested Members (office 1174).  They are also available at http://www.economia.gov.mo  and 
http://www.mofcom.gov.cn  . 
 1 In “CEPA”, the "Mainland" refers to the entire customs territory of China. 
 2 Imported goods do not include 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. 
 WT/REG163/1/Add.2 
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   The rules of origin for goods of Macao origin  for which consultations were completed by both 
sides in 2005 are listed in Annex 1 of this Suppl ement II. Annex 1 of this Supplement II is a 
supplement to Table 1 of Annex 2 of “CEPA” – “Schedule on Rules of Origin for Macao Goods 
Benefiting from Tariff Preference for Trade in Goods”.  
 Both sides agreed to amend the detailed implem entation procedures in Article 5 of Annex 1 of 
“CEPA” – “Arrangements for Implementation of Zero Tariff on Trade in Goods” as follows: 
  “(1) Submission  
  1. From 1 January 2006, Macao manufacturers may submit lists of goods 
 subject to zero tariff to the Macao Economic Services. 
   2. The Macao Economic Services shall, prior to 1 March and 1 September each 
 year respectively, submit the list of goods verified and certified in accordance 
 with relevant rules of the Macao Special Administrative Region Government 
 to the Ministry of Commerce. 
  (2) Consultation and Promulgation    The Ministry of Commerce shall confirm and then pass the list of goods to the 
Customs General Administration.  The Customs General Administration and the 
Macao Economic Services shall enter into consultation on the rules of origin for the relevant goods.  The two sides shall complete  the consultations on the rules of origin 
before 1 June and 1 December each year respectively, add the rules of origin of the relevant goods to Table 1 of Annex 2 of  “CEPA”, and promulgate them. 
 
 (3) Implementation    The Mainland shall, no later than 1 July of the same year and 1 January of the 
following year respectively,  release the re levant imports on zero tariff basis in line 
with “CEPA” upon presentation of the certifi cates of origin issued by the Macao 
Economic Services.” 
 2. Article 5 of Annex 2 of “CEPA” – “Rules of Origin for Trade in Goods” is amended as 
follows: 
 “5. On the criteria for ‘substantial transformati on’ set out in Article 2 (2) of this Annex, 
 the two sides agree on the following: 
  (1) the criteria for determining ‘substantia l transformation’ may include ‘manufacturing 
or processing operations’, ‘change in tariff heading’, ‘value-added content’, ‘other 
criteria’ or ‘mixed criteria’; 
 
  1. ‘manufacturing or processing ope rations’ refers to the principal 
 manufacturing or processing operations carried out in the area of one side  which confer essential characteristics to the goods derived after the  operations; 
 
  2. ‘change in tariff heading’ refers to the processing and manufacturing 
 operations of non-originating materials carried out in the area of one side and  resulting in a product of a different four-digit tariff heading under the  ‘Product Description and Harmonized System Codes’.  Moreover, no  WT/REG163/1/Add.2 
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   production, processing or manufacturing operations will be carried out in 
 countries or territories other than that si de which will result in a change in the 
 four-digit tariff heading; 
   3. ‘value-added content’ refers to th e total value of raw materials, component 
 parts, labour costs and product developm ent costs exclusively incurred in one 
 side being greater than or equal to 30% of the FOB value of the exporting  goods, and that the final manufacturing or processing operations should be  completed in the area of that side.  The formula for calculation is as follows: 
 
   value of raw materials + value of component parts +  
    labour costs + product development costs    ------------------------------------------------------ x 100% ≥ 30% 
   FOB value of the exporting goods 
 
  (i) ‘product development’ refers to  product development carried out in 
 the area of one side for the purposes of producing or processing the  exporting goods.  Development e xpenses incurred should be related 
 to the exporting goods.  These expens es include fees payable for the 
 development of designs, patents, patented technologies, trademarks 
 or copyrights (collectively ‘t hese rights’) carried out by the 
 manufacturer himself, fees payable to a natural or legal person in the 
 area of one side for undertaking de velopment of these rights, and fees 
 payable for purchasing these rights owned by a natural or legal  person in the area of one side.  The fees payable should be clearly 
 identifiable under generally accep ted accounting principles and the 
 requirements of ‘Agreement on Impl ementation of Article VII of the 
 General Agreement on Tariffs and Trade 1994’; 
   (ii) calculation of the above ‘value-a dded content’ will be consistent with 
 generally accepted accounting principles and the ‘Agreement on 
 Implementation of Article VII of  the General Agreement on Tariffs 
 and Trade 1994’; 
   4. ‘other criteria’ refers to methods agreed by both sides in determining  
 ‘substantial transformation’, other than ‘manufacturing or processing 
 operations’, ‘change in tariff heading’  and ‘value-added content’ as set out 
 above. 
   5. ‘mixed criteria’ refers to the use of two or more of the above criteria in  
   determining origin.  
 (2) other additional conditions. If the ‘subst antial transformation’ criteria set out in 
 paragraph (1) above are not adequate for determining origin, additional conditions 
 can be used (such as brand requirement, etc) upon agreement by both sides.” 
  II. TRADE IN SERVICES 
1. From 1 January 2006, the Mainland shall furt her relax the market access conditions in the 
areas of legal, accounting, audiovisual, constructio n, distribution, banking, tourism, transport and 
individually owned stores on the basis of the commitments on liberalization of trade in services under WT/REG163/1/Add.2 
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  “CEPA” and “Supplement to CEPA”. The specific contents are detailed in Annex 2 of this 
Supplement II. 
2. Annex 2 of this Supplement II is a supplement  and amendment to Table 1 of Annex 4 of 
“CEPA” – “The Mainland’s Specific Commitments on Liberalization of Trade in Services for Macao” 
and Annex 3 of “Supplement to CEPA” – “Supplemen ts and Amendments to the Mainland’s Specific 
Commitments on Liberalization of Trade in Services  for Macao”. In the event of conflict with the 
provisions of the other two instruments, the provisions of Annex 2 of this Supplement II shall prevail.  
3. “Service suppliers” as referred to in Annex 2 of  this Supplement II shall meet the relevant 
requirements of Annex 5 of “CEPA” – “Definition of  ‘Service Supplier’ and Related Requirements”. 
 
III. ANNEXES 
 The Annexes to this Supplement II form an  integral part of this Supplement II. 
  
IV. COMING INTO EFFECT 
 This Supplement II shall come into effect on th e day of signature by the representatives of the 
two sides.   Signed in duplicate in Macao, this 21st day of October, 2005 in the Chinese language. 
  
 
 Vice Minister of Commerce    Secretary for Economy and Finance 
  People’s Republic of China  Macao Special    Administrative Region of the  
  People’s Republic of China  
 
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