RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/REG162/M/1 
21 March 2005 
 
 (05-1152) 
Committee on Regional Trade Agreements 
Thirty-Ninth Session  
 
 
 
EXAMINATION OF THE CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT 
BETWEEN CHINA AND HONG KONG, CHINA 
  
Note on the Meeting of 18 February 2005
 
 
Chairman: Mr. R. Saborío (Costa Rica) 
  
1. The meeting was convened in document WTO/AIR/2496. 
2. Under Agenda Item C.VIII of its Thirty-N inth Session, the Committee on Regional Trade 
Agreements (hereinafter CRTA or the Committee)  took up the examination of the goods and services 
aspects of the Closer Economic Partnership A rrangement (CEPA) between China and Hong Kong, 
China.  The following topics were discussed: 
 A. General Remarks 
Goods aspects
: 
 B. Background Information on the Agreement 
 C. Trade Provisions  D. Other  
 Services aspects
: 
 E. Background Information on the Agreement 
 F. Provisions Affecting Trade in Services  
3. The Chairman
 said that this was the first round of examination of the CEPA between China 
and Hong Kong, China.  The Agreement had been signed on 29 June 2003 and had entered into force 
on 1 January 2004.  It had been notified to the WTO on 12 January 2004 as document with double 
symbol WT/REG162/N/1 – S/C/N/264.  The text of  the Agreement and its Supplement could be 
found in document WT/REG162/1 and Addendum 1.  He proposed to organize the examination by 
first asking the Parties and other Members for general comments, and then to turn to the specifics of 
the Agreement looking first at the goods aspect s, followed by the services aspects, using the 
respective Standard Formats (WT/REG162/3) and (WT/REG162/4) to guide the debate. 
A. GENERAL REMARKS  
4. The representative of China , said that the CEPA between China and Hong Kong, China was 
the first free trade agreement (FTA) that China (als o referred to as the "Mainland") had signed with its 
trading partners.  CEPA and its six Annexes had been signed on 29 June  and 29 September 2003 
respectively in order to promote economic trad e cooperation between the Mainland and the Hong 
Kong Special Administrative Region. The implemen tation of the CEPA and its Annexes had begun on WT/REG162/M/1 
Page 2  
 
 1 January 2004. The Supplement to the CEPA had been signed on 27 October 2004 and had been 
implemented from 1 January 2005.  The CEPA was a free trade arrangement signed according to GATT Article XXIV and GATS Article V with the aim to build a free trade area between the Parties and gradually liberalize trade in goods and ser vices as well as promote trade and investment 
facilitation.  The CEPA covered trade in goods, trad e in services and trade and investment facilitation.  
It had six chapters, 23 articles. It's six Annexes were  an integral part of the CEPA:  Arrangements for 
Implementation of Zero Tariff on Trade in Goods;  Ru les of Origin for Trade in Goods;  Procedures 
for the Issuing and Verification of Certificates of  Origin;  Specific Commitments on Liberalization of 
Trade in Services;  Definition of Service S upplier and Related Requirements and Trade and 
Investment Facilitation.  The Supplement to the CEPA supplemented and am ended the Agreement.  
With regard to trade in goods, Hong Kong, China would continue to apply zero tariff to all imported 
goods of Mainland origin.  From 1 January 2004, the Mainland had app lied zero tariff to the import of 
goods originating in Hong Kong, China, which covered 273 items.  From 1 January 2005, the 
Mainland had begun to apply zero tariff to goods or iginating in Hong Kong, China, which covered 
713 items.  Based on Mainland 2005 tariff codes, a to tal of 1,108 items of goods of Hong Kong, 
China origin enjoyed zero tariff, covering basically  all the existing products and a number of products 
proposed to be produced in Hong Kong, China.  Concerning the CEPA rules of origin, goods wholly obtained in either of the Parties were regarded as originating.  Goods not wholly obtained needed 
substantial transformation.  The criteria for s ubstantial transformation included manufacturing or 
processing operations, change in tariff heading, va lue-added content and other criteria or mixed 
criteria.  Neither Party would apply non-tariff meas ures inconsistent with WTO rules.  The Mainland 
had eliminated tariff rate quotas on goods of Hong Kong, China origin.  The Parties would not use 
anti-dumping measures or countervailing measures, t hough safeguard measures could be used when 
the conditions were met.  They would enhance cooperation in areas such as commodity inspection and 
quarantine, food safety and quality and standardization.   
5. The representative of China continued, saying th at regarding trade in services, the CEPA and 
its Supplement set out the contents and timetable  for the mutual reduction or elimination of 
restrictions on trade in services and service suppliers.  There were 31 sectors included in the CEPA, covering almost all services sectors of both Parti es.  The Agreement also encouraged mutual 
recognition of professional qualifications and promot ed the exchange of professional talents between 
the Parties.  At present, the Parties had already signed mutual recognition ag reements and cooperation 
agreements in the sectors of construction, securities and futures, insurance a nd accounting.  For trade 
and investment facilitation, the Parties promoted trade and investment facilitation through customs 
clearance facilitation, standard conformity, enhanced  information exchange and other measures.  The 
Parties would enhance cooperation in seven areas: trade and investment promotion; customs clearance facilitation; commodity inspection and quarantine;  food safety and quality and standardization; 
electronic commerce; transparency in laws and re gulations; cooperation of  small and medium size 
enterprises and; cooperation in Chinese traditional me dicine. A Joint Steering Committee had been set 
up to supervise the implementation of the CEPA, in terpret its provisions, and resolve disputes that 
might arise during its implementation.  The Steering Committee would make decisions by consensus.  The Parties would resolve any problems arising from the interpretation or implementation of the 
CEPA through consultation in the spirit of friendshi p and cooperation.  In his concluding remarks, he 
emphasized that, as a Member of the WTO, China would continue to support the multilateral trading 
system by fulfilling its obligations and commitments.  One of China's basic principles in concluding 
RTAs with other WTO Members was to be consistent with the rules of WTO, and the CEPA was surely complementary to the multilateral trading syst em.  In that regard, his delegation was in the 
position to cooperate with Members and ready to an swer questions relating to the examination of 
CEPA. 
6. The representative of Hong Kong, China
, said that the CEPA was the first ever FTA 
concluded by Hong Kong, China a nd was indeed their only one so far.  Mainland China was their 
biggest trading partner and the CEPA had enhan ced the already close economic cooperation between  WT/REG162/M/1 
 Page 3 
 
 
 the two economies.  What also made the CEPA uniqu e was that it was an FTA concluded within the 
same country by two separate WTO Members.  In en tering into the CEPA, the Parties had taken their 
rights and obligations under the WTO Agreements seriously, particularly those pertaining to free-
trade areas and economic integration agreemen ts in GATT Article XXIV and GATS Article V, 
respectively.  They were fully confident that C EPA was supportive of the multilateral trading system 
and lived up to the purpose of facilitating trade betw een the Parties without raising barriers to trade 
with other WTO Members.  He emphasised that the CEPA was an open and ever-developing platform and the Parties were committed to broadening an d enriching its content through continuous and 
further reciprocal liberalization.  He reiterated that, as one of the founding Members of the WTO, 
Hong Kong, China had been actively working with  other Members in promoting the multilateral 
trading system, and noted that it had the honour of  hosting the next Ministerial Conference in 10 
months time.  He indicated that his delegation's strong support for the multilateral trading system, together with its long established free and open tr ade policy, would remain unchanged irrespective of 
FTA initiatives.  In concluding, he said that  like many WTO Members whose FTAs had been 
examined before, Hong Kong, China would coop erate fully with the CRTA with a view to 
contributing to an efficient and productive examin ation process.  He looked forward to a fruitful 
session and to answering questions from Members. 
7. The Chairman
, recalled that the terms of reference for the examination of the goods aspects 
had been adopted on 26 January 2004 by the Council  for Trade in Goods, as contained in document 
WT/REG162/2. 
B. BACKGROUND INFORMATION ON THE AGREEMENT  
8. The representative of the United States  was interested in knowing what the coverage of the 
Agreement on a tariff line basis was and asked the Pa rties if they could provide a summary in that 
respect.  She added that her dele gation would be submitting written questions since it had not yet 
reviewed the Agreement in detail.  The representative of Australia  was interested in knowing the 
percentage of tariff lines covered by the Agreement,  as well as the percentage of bilateral trade that 
was currently covered;  her understanding was th at 100 per cent of Hong Kong, China's trade was 
covered, but she was not sure what that figure was fo r China.  Furthermore, sh e asked the Parties what 
proportion of trade agriculture and fisheries repres ented and what percentage of that trade was 
covered by the CEPA.  Finally, she asked whethe r further liberalization of agricultural trade was 
expected and whether there was a timeframe for it.   The representative of the European Communities  
said that his delegation had not had time to look at the Agreement in detail but hoped that the replies 
to the questions posed by other delegations would provide them with fuller information on the scope 
of the Agreement.  He added that his delegati on would have welcomed such information in the 
Standard Format from the start. 
9. The representative of China , said that his delegation would be replying in writing to the 
questions by the United States representative, once received.  As a preliminary reply to the other 
questions, he said that, as indicated in the opening  statement, 1,108 tariff lines were covered under 
CEPA; this corresponded to approximately one-seventh  of the total Mainland 2005 HS tariff schedule.  
That, he said, constituted substantially all the tr ade between the Parties, excluding of course those 
products re-exported via Hong Kong, China by other WT O Members.  With regard to the percentage 
of bilateral trade covered, he referred delegations to the Annex in the Standard Format which 
contained relevant statistics for the years 2001 to 2004.  Turning to the specific question on 
agricultural and fisheries products, he said that according to his understanding these products were 
included in the 1,108 tariff lines, and invited his colleagues from Hong Kong, China to correct him 
should he be mistaken.  The representative of Hong Kong, China  confirmed that all Mainland imports 
into Hong Kong, China enjoyed tariff-free treatment.  As far as Hong Kong, China imports into the 
Mainland were concerned, taking into account th e liberalization phases of the CEPA and China's 
WTO commitments, about 95 per cent of this trade, in  value terms, enjoyed zero tariffs.  He said that WT/REG162/M/1 
Page 4  
 
 he would try to provide information on a tariff-lin e basis subsequently.  As regards Hong Kong, 
China, imports of agricultural and fisheries products  from the Mainland were subject to zero tariffs;  
exports of such products to the Mainland, were mini mal.  With respect to the timeframe, no later than 
1 January 2006 all Hong Kong, China imports into the Mainland would enjoy zero tariffs as long as 
they satisfied the rules of origin a nd the implementation procedures under CEPA. 
10. The representative of the United States
 sought clarification from the representative of China 
concerning his reference to the figure of one-seventh  tariff line coverage.  The representative of China  
confirmed that the 1,108 tariff lines covered under the CEPA corresponded to one seventh of China's 
total Mainland 2005 HS tariff schedule.   
C. GOODS ASPECTS – TRADE PROVISIONS  
11. The representative of Japan  recalled the reference made to one-seventh tariff line coverage, 
and asked the Parties whether that meant that Secti on II:1.1 of the Standard Format implied that after 
1 January 2006 CEPA would have 100 per cent product coverage, but onl y in terms of zero tariffs on 
the trade between the Parties, and not necessarily  on all tariff lines. The representative of China  
explained that his reference to 1,108 tariff lines as constituting one-seventh of China's 2005 HS tariff 
schedule represented the percentage of China's overa ll tariff lines for trade in goods which had been 
imported, to that date, from other Members.  He added that the 1,108 tariff lines covered under CEPA 
represented almost all the export trade of Hong Kong , China to China;  in other words, it covered 
almost all the products that Hong Kong, China could produce and export to China, in accordance with the Agreement's rules of origin.  He noted that th e situation was similar to the FTA being negotiated 
between China and Chile where although China coul d import on more than 7,000 tariff lines, Chile 
could only produce around 300 tariff lines of produc ts that could be exported to China. The 
representative of Hong Kong, China
 pointed out that the CEPA did not exclude any product category 
as far as trade in goods was concerned and reiterated that as a result of the two phases of the CEPA 
and China's WTO commitments, 95 per cent of Hong K ong, China's domestic exports into China had 
been covered by the Agreement. 
12. The representative of the United States , noting that the CEPA's tariff line coverage appeared 
to reflect the existing trade into Ch ina, was interested in knowing the Parties' views as to the role of 
trade liberalization in catalyzing additional trade in ta riff lines that did not currently have trade flows.  
Shifting the focus to Hong Kong, Chin a, the representative of Australia  noted that the CEPA appeared 
to cover 100 per cent of current trade into Hong Ko ng, China, and that in this case too, it would be 
interesting to know the percentage of tariff lines covered.  The representative of Hong Kong, China  
replied that Mainland imports had al ways enjoyed zero tariffs and that would continue to be the case 
under CEPA.  In terms of Hong Kong, China's tariff line coverage under the Agreement, he indicated 
that it was 100 per cent.  As for Hong Kong, China's imports into China, the ultimate objective was to have all imports at zero tariff by 1 January 2 006 as long as these products met the CEPA's rules of 
origin requirements.  On that point , the representative of the United States
 asked whether the objective 
of the Agreement was then to have zero tariffs on Hong Kong, China's current exports to China alone.  
The representative of Hong Kong, China  said that under the two phases of the CEPA there was a 
mechanism for extending the zero-ta riff treatment to products which were currently being produced in 
Hong Kong, China as well as to those that could be pr oduced there in the future .  In that respect, the 
representative of Chile  asked the Parties what the rationale was for not including all tariff lines from 
day one, if the Agreement provided in any case for a mechanism to include products not currently 
traded, but that could have a market in the fu ture.  The representative of Hong Kong, China  indicated 
that given the ambitious objective of the Agreem ent to have all of Hong Kong, China's domestic 
exports to China under zero-tariff treatment by 1 Janua ry 2006, the Parties had sought to prioritize the 
discussions on rules of origin by focusing on the set of goods that were currently being traded among 
them.  The representative of Switzerland  sought confirmation that the mechanism referred to earlier 
by the Parties was not an automatic one, rather th at it would have to be introduced each time a new  WT/REG162/M/1 
 Page 5 
 
 
 traded product was to be considered for zero- tariff treatment.  The representative of Hong Kong,  
China  confirmed that there was a mechanism to allow investors and enterprises to request inclusion of 
their products in the zero-tariff schedule.  He reitera ted that it was a practical arrangement in order to 
prioritize the very ambitious zero-tariff schedule under the CEPA. 
13. The representative of Switzerland  noted that the provision of the Agreement on rules of origin 
did not provide for cumulation between the Parties an d wondered what the rationa le was for that.  The 
representative of Hong Kong, China  said that that was the Parties' negotiated outcome in reaching 
agreement on the CEPA. 
14. The representative of Japan  asked the Parties whether the CEPA included provisions on 
global safeguards and should that be the case, wh ether such measures would be undertaken in a 
manner consistent with the WTO.  The representative of Australia  asked the Parties whether any 
safeguard measures had been invoked under the CEPA  and what the significant differences between 
the safeguard provisions in the Agreement a nd the WTO Safeguards Agreement were.  The 
representative of Hong Kong, China  indicated that there were no provisions on global safeguards 
under the Agreement and that since the implementa tion of the CEPA no safeguard measure had been 
invoked.  As to the differences between the CEPA 's safeguard provisions and the WTO Safeguards 
Agreement, he said that the Parties would reply in writing. 
15. The representative of the United States  was interested in knowing from the Parties whether 
the CEPA contained any provision on trade facilita tion.  The representative of Hong Kong, China  said 
that trade facilitation was included in Part Three of the CEPA dealing with trade and investment 
facilitation.  He indicated that the objective under that Chapter was to improve trade and investment 
promotion, customs clearance and other issues such  as transparency in rules and regulations.  He 
referred the representative of the United States to  Section IV:1 of the Standard Format which 
contained further information on these issues. 
D. OTHER  
16. The representative of Australia  asked the Parties what steps had been taken since the entry 
into force of the Agreement to further trade and i nvestment facilitation.  The representative of Hong 
Kong, China  said that the seven areas under trade and i nvestment facilitation in which the Parties 
wanted to foster greater co-operation had been outlined in the Standard Format, adding that good 
progress had been made in these seven areas since the implementation of the CEPA.  In many of the 
these, working groups had been set up.  He refe rred to custom clearance, for instance, where the 
Parties had worked out measures to streamline th e procedures required for custom clearance and to 
shorten processing times.  They had also formulated  programmes to work more closely on trade and 
investment promotion.  With respect to transparen cy in laws and regulations, he indicated that the 
Parties had had many exchanges about how they coul d work together to better explain to businessmen 
of either Party the laws and regulations related to trade and economic matters.  He stated that these 
seven areas of co-operation were also very important  in order to underpin the other two parts of the 
CEPA, namely trade in goods and services, and that there was certainly ample scope for the Parties to 
work even harder on them in order to achieve the overall objective of the CEPA. 
17. The Chairman  said that the first round of examination of the goods aspects of the Closer 
Economic Partnership Arrangement between Ch ina and Hong Kong, China had allowed the 
Committee to clarify a number of questions, but some others were pending.  He invited those delegations wishing to ask questions to forward th em in writing to the Secretariat by 11 March and 
Parties to submit replies  in writing by 22 April . 
18. The Committee took note
 of the comments made. WT/REG162/M/1 
Page 6  
 
 Services aspects 
 
19. The Chairman
 recalled that the decision to refer the CEPA for examination to the CRTA had 
been taken on 25 March 2004 by the Council for Tr ade in Services, as contained in document 
S/C/M/72. 
E. BACKGROUND INFORMATION ON THE AGREEMENT  
20. The representative of Australia  asked the Parties whether the services commitments were 
based on a positive or negative list.  Furthermore, sh e noted that the Standard Format referred to the 
progressive liberalisation of trade in services and wondered whether the Parties could provide their 
liberalisation plan for this sector.  The representative of Hong Kong, China  replied that the 
commitments under the CEPA were based on a positiv e list approach which, he indicated, was still 
the mainstream method for listing commitments in se rvices in the WTO, as we ll as the approach that 
had been taken in the majority of economic inte gration agreements.  He added that the Parties 
considered such an approach as appropriate as far as the CEPA was concerned.  He emphasised that 
the CEPA contained no a priori exclusion of an y services sector or mode of supply and that 
liberalization measures were being added constantly to  the CEPA.  In that respect, he indicated that 
within less than a year of the implementation of th e first phase of the CEPA, the Parties had been able 
to agree on further liberalization measures as was now the case in the second phase.  He reiterated that 
this was an ongoing exercise and that the Parties e xpected more liberalization measures to be included 
in the months ahead. 
21. The representative of Japan  noted that the CEPA appeared to have no provision dealing with 
relations with other RTAs.  In that regard, he asked the Parties whether the CEPA contained any 
provision relating to third party service suppliers.  In  particular, he was interested in knowing whether 
Article 13 of the Agreement would affect foreign banks which operated in Hong Kong, China.  The 
representative of Hong Kong, China  indicated that service suppliers of other WTO Members that were 
juridical persons established under the laws of one  Party would be entitled to the same treatment 
granted to its own service suppliers by the other Pa rty under the CEPA, provided that they engaged in 
substantive business operations.  In other words, as long as third party service suppliers met the 
criteria set out in the CEPA, they were entitled to th e same treatment as the Parties' service suppliers. 
F. PROVISIONS AFFECTING TRADE IN SERVICES  
22. The representative of Japan  noted that Article 11 of the Ag reement was different from Article 
XVI.2 of the GATS in the sense that the CEPA did not include an exhaustive listing of the measures 
restricting market access.  He asked the Parties wh ether this could be unde rstood to mean that the 
scope of Article 11 of CEPA a pplied to all restrictive market access measures unlike the way 
restrictive measures were treated under Art. XVI .2 of GATS.  The representative of Hong Kong, 
China  reiterated that the CEPA was an ongoing process and, subject to further consultation between 
the Parties, more liberalization measures could be included in the Agreement.  He pointed out that 
under the CEPA Hong Kong, China had committed not  to impose any new discriminatory measures 
on China's services and service suppliers in those sector s covered by the Agreement.  As for China, it 
had also provided national treatment for Hong Kong, China's service suppliers, for example by removing restrictions on foreign ownership and allowing Hong Kong, China's service suppliers to 
provide services in the form of wholly-owned operations  in a number of sectors.  He stated that the 
Parties would continue to reduce or eliminate existing restrictive measures on services and service 
suppliers of the other Party.  The representative of Japan
 did not think his question had been fully 
addressed and said that he would submit it in writing.  WT/REG162/M/1 
 Page 7 
 
 
 23. The representative of th e European Communities  informed the Parties that his delegation had 
a number of questions on the relationship betw een the CEPA and the GATS with respect to 
limitations in terms of rules of orig in that he would submit in writing. 
24. The representative of Japan  noting that Article 14 of the CEPA stipulated that the Mainland 
would allow the residents in Guangdong Province to visit Hong Kong, China individually, was 
interested in knowing to what extent people were  allowed to visit Hong Kong, China and whether 
persons engaged in business activities were also allo wed.  Furthermore, he asked the Parties for an 
explanation regarding the relationship between th e coverage of the concept of “residents in 
Guangdong Province” and the CEPA’s scope of “per son”.  The representative of Hong Kong, China  
said the Parties would provide a more detailed repl y in writing.  As a preliminary response, he 
indicated that Mainland businessmen could alwa ys come to Hong Kong, China to do business, 
provided that they went through the relevant app lication procedures and immi gration requirements.  
He added, however,  that Article 14 of the CEPA related more to tourism and sightseeing activities by 
residents from the Mainland. 
25. The Chairman  said that the first round of examination of the services aspects of the Closer 
Economic Partnership Arrangement between Ch ina and Hong Kong, China had allowed the 
Committee to clarify a number of questions, but others  were pending.  He in vited those delegations 
wishing to ask questions to forward them in writi ng to the Secretariat by 11 March and Parties to 
submit replies  in writing by 22 April. 
26. The Committee took note  of the comments made. 
__________