RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/REG162/M/2 
7 February 2006 
 
 (06-0517) 
Committee on Regional Trade Agreements 
Forty-First Session  
 
 
EXAMINATION OF THE CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT 
BETWEEN CHINA AND HONG KONG , CHINA, GOODS AND SERVICES 
 
Note on the Meeting of 24 January 2006  
 
Chairman:  Mr. A. Egger (Switzerland) 
 
1. The meeting was convened in document WTO/AIR/2734. 
2. Under Agenda Item C.VII of its 41st Session, the Committee on Regional Trade Agreements 
(hereinafter CRTA or the Committee) took up the second round of examination of the Closer 
Economic Partnership Arrangement (CEPA) betw een China and Hong Kong, China, Goods and 
Services. 
3. The Chairman noted that the proceedings of th e first round of examination of both the Goods 
and Services Aspects of this Agreement, which took place in the 39th Session of the Committee in 
February 2005, could be found in document WT/REG 162/M/1.  Since then, the Parties had provided 
replies to questions put by dele gations which had been circulated  in document WT/REG162/5 and had 
also submitted Supplement II to the CEPA, which had been circulated in document 
WT/REG162/1/Add.2.   
4. The following items were discussed: 
 A. Item C.VII-A – Goods Aspects 
 B. Item  C.VII-B – Services Aspects 
 
5. The Chairman  invited the Parties to give any general comments on the Agreement, 
considering both the goods and services aspects. 
6. The representative of China  observed that the Parties had signed the CEPA and its 
Supplement I in 2003 and had implemented it since 1 January 2004, and recalled that these had been 
reviewed at the CRTA meeting on 18 February 20 05, with the usual exchange of questions and 
answers, also in writing.  The Parties had si gned Supplement II on 18 October 2005, to promote 
further economic and trade cooperation between  them, and had submitted the corresponding 
notification on 11 January 2006, as contained in doc ument WT/REG162/1/Add.2.  He explained that, 
according to Supplement II, Mainland China would apply a zero tariff on goods imported from, and 
originating in, Hong Kong, China, as set out therein, from 1 January 2006.  With regard to trade in 
services, China had further reduced or eliminated restrictions in sectors covered by the CEPA and 
Supplement I.  He also emphasized that the CEPA was an open and ever-developing platform for the 
economic and trade cooperation between the Parties.  Both Parties had been and would continue to be 
committed to broadening and enriching its content thr ough concerted efforts to further liberalize trade.  
At the same time, China, as a Me mber of the WTO, would keep on supporting the multilateral trading 
system by fulfilling its obligations and commitm ents, as well as through its involvement in the 
multilateral trade negotiations.  He also stated his delegation's readiness to cooperate with Hong 
Kong, China and other Members for an efficient review of the CEPA. WT/REG162/M/2 
Page 2  
 
  A. G
OODS ASPECTS  
7. Given that the Committee had already had a round of discussion under each of the headings 
of the Standard Format, document WT/REG162/3, the Chairman  proposed to open the floor for 
comments and questions by broad Section. 
8. The representative of Australia  thanked the Parties for the responses given to the questions 
posed in February 2005.  In view of the Sec ond Amendment signed to the CEPA, he requested, under 
Section I ("Background Information of the Agreement" ), information in relation to the coverage of 
goods.  In particular, he asked the Parties if they could indicate the percentage of bilateral trade and 
tariff lines covered for each Party under the CEPA , and whether these had changed since 1 January 
2006.  He also asked if there were any products ex cluded from liberalization and if the Parties could 
clarify the percentage of agricultural trade covered by  the Agreement, both in terms of trade and tariff 
lines.  In addition, he enquired if there was a ti metable for complete liberalization under the CEPA.  
The representative of the United States  reiterated the questions asked by the representative of 
Australia and further asked whether the intention of  eliminating all tariffs for goods entering China 
from Hong Kong, China as of 1 January 2006 had b een achieved; she added that other questions 
would be submitted in writing.  The representative of Japan  requested confirmation from the Parties 
that they were considering covera ge in terms of trade volume and not  tariff lines.  The representative 
of Hong Kong, China  answered that all Mainland China goods  entering Hong Kong, China had been 
enjoying zero tariff for some time already wher eas their products enteri ng Mainland China began 
enjoying zero tariff since 1 January 2006.  As long as the products complied with the rules of origin, the CEPA covered all merchandise trade, both in te rms of trade volume and tariff lines, except those 
products which were prohibited from import into  the Mainland, disrespect of the origin. 
9. The representative of Australia
 asked whether zero tariff was applied for the entire 
Harmonized System (HS) or only for those products that were currently produced; noting that rules of origin were burdensome, he also requested an expl anation on how the rules of origin system worked 
and the percentage of applications that met the re quirements of these rules.  In the same line, the 
representative of the United States
 asked whether there was a different rule of origin for every HS 
tariff line or only for those products currently traded between the Parties, and what would be the treatment given to a product for which there was no rule of origin foreseen.  The representative of 
Hong Kong, China
 said that in terms of tariff line coverage , the short answer was that the Agreement 
did cover the entire HS.  As for the rules of orig in, he explained that these existed for products 
currently manufactured in Hong Kong, China; in  the case of new products, the manufacturers could 
put forward an application to the Hong Kong, Ch ina authorities, who would, in consultation with 
Mainland's authorities, work out the rule of origin for that product so that it could enjoy zero duty.  The representative of the United States
 enquired whether the Parties had the intention of working out 
the rules of origin for products that were not ye t manufactured in the expectation that with the free 
trade between the two Parties there would be ne w opportunities for manufacturers.  The representative 
of Hong Kong, China  answered that in view of their limited  resources, dealing with the applications 
as they came in was a more practical way to proceed. 
10. The representative of Japan  understood that the mechanism to include new products in the 
coverage of the Agreement was based on an appl ication by Hong Kong, China's enterprises; she 
wondered whether those applications were actually be ing made and if they were being accepted by the 
authorities.  The representative of Hong Kong, China  replied that the mechanis m existed:  enterprises 
interested in producing a good that was not manufactu red at the time could submit an application so 
that the authorities consider drawing rules of orig in for that product; once the rules of origin were 
agreed upon, the product would enjoy zero tariff.  He informed that up to date, most applications had 
been successful, although there were some outstanding ones.  The representative of Japan  requested 
the Parties if they could provide the number of outstanding applications.  The representative of Hong  WT/REG162/M/2 
 Page 3 
 
 
  Kong, China  did not have a precise number but said that there were very few outstanding cases for 
which consultations were still ongoing. 
11. Under Section II ("Trade Provisions"), the representative of Australia  thanked the Parties for 
the answers to the questions on safeguards put fo rward in May 2005 and asked whether there had 
been any measures undertaken since that date.  He had additional requests of information on Article 9 
(Safeguards) of the Agreement, which his dele gation deemed to be a derogation from the WTO 
Agreement on Safeguards.  In the interest of ensuring that the provided for mechanism did not 
become unnecessarily trade restricting, he asked the Parties to clarify the time limit for the application 
of a safeguard (i.e. could it be imposed until the di spute was settled?) and to provide a definition of 
what was considered a "sharp" increase.  He also  asked whether any provisional safeguard measures 
were foreseen and how was the level of the safegua rd determined.  The representative of Hong Kong, 
China  said that this particular Article had not been invoked in the two years of implementation of the 
CEPA.  The Parties view Article 9 as essential to ensure a successful implementation of the CEPA, and as fully in line with their obligations and rights under the WTO.  He recalled that the CEPA also 
prescribed the establishment of a Steering Committe e (Article 19), which had the responsibility of 
making sure the smooth and effective implementati on of CEPA.  In the circumstances described in 
Article 9, whereby safeguard actions could be undertaken, these would be handled by the Steering 
Committee; if one Party considered that the impor t of a certain product from the other Party had 
caused or might cause serious injury, it would draw  the attention of the Steering Committee to the 
case, which would then discuss whether or not Article 9 could be used in resolving that particular 
case. 
12. Under Section IV ("Other, Trade and Investment  Facilitation"), the representative of Australia
 
asked the Parties if they could provide some exam ples of specific trade and investment facilitation 
measures or activities that had occurred since the ente ring into force of the CEPA.  The representative 
of Hong Kong, China  replied that the Parties had been taki ng the work forward on all the seven areas 
of cooperation foreseen under Article 17 of the CE PA.  He then went on citing various examples of 
trade and investment facilitation measures.  Firs tly, thanks to a streamlining of Mainland China's 
procedures improving the conditions under which Ma inland enterprises could set up their operations 
in Hong Kong, China, had led to a greater number of those enterprises coming to Hong Kong, China.  
Secondly, in order to promote their very dyna mic economic prospects, both Parties had been 
cooperating at the city level in joint promotion activities, including joint promotion trips to many of their major trading partners (e.g., the United States,  Canada and the United Kingdom).  Thirdly, there 
had been customs clearance facilitation for the cer tificates of origin, which under the CEPA could 
now be forwarded electronically; this saved time for the manufacturers or exporters concerned while 
improving the efficiency of the customs clearance  process (this was particularly noteworthy as the 
Parties' main borders were effectively among the busi est in the world).  He added, as a forth example, 
the closer work of both Parties' health author ities in stepping up commodity inspection, quarantine 
and food safety; this cooperation had become a very im portant area of work in view of the upsurge of 
epidemic diseases in various parts of the world in recent years.  He concluded that they had been 
working on all seven areas of cooperation in trade a nd investment facilitation and they looked forward 
to build on this firm foundation. 
13. The Chairman
 said that the second round of examin ation had allowed the Committee to 
clarify a number of issues, but that some outst anding questions remained.  He proposed that any 
additional questions be submitted to the Secretaria t by 17 February and that the Parties respond in 
writing by 10 March, so that a further round of examination could be scheduled for a forthcoming 
meeting.  It was so agreed . 
14. The Committee took note  of the comments made. WT/REG162/M/2 
Page 4  
 
  B. S
ERVICES ASPECTS  
15. Given that the Committee had already had a round of discussion under each of the headings 
of the Standard Format, document WT/REG162/4, the Chairman  proposed to open the floor for 
comments and questions by broad Section. 
16. The representative of the United States  said that they would provide some questions in 
writing under Section I ("Background Information on the Agreement").  The representative of the 
European Communities  asked whether new liberalization commitments or measures had been 
undertaken or adopted since the last round of exam ination of the Agreemen t, and enquired whether 
new agreements on mutual recognition of professional  qualifications had been concluded since then.  
The representative of Australia  also requested an update on new liberalization in the services area and 
asked the Parties to provide the total list of servi ces sectors currently covered by, and excluded from, 
the CEPA, as well as any indication on the timeframe for full liberalization of the services sector.  The representative of Hong Kong, China
 informed that since the last mee ting in February 2005, the Parties 
had undertook further liberalization measures on trade in  services, the details of  which were contained 
in Supplement II to the CEPA (document WT/REG 162/1/Add.2); in particular, as from 1 January 
2006, China had further relaxed market access conditi ons in legal services, accounting, audiovisual, 
construction, distribution, banking, tourism a nd transport.  His dele gation would provide a 
consolidated list of the services sectors now covere d by the Agreement.  As for the timeframe, he 
noted that the CEPA was an open platform, an ongoi ng exercise and, thus, both Parties would engage 
in further discussions as to how trade in services could be further liberalized in light of the economic development of the two economies and in light of th e rules of their respective business communities.  
With regards to mutual recognition of professional qualifications, a number of major professions in 
China and Hong Kong, China had concluded or were discussing how to recognize reciprocally the respective qualifications; since the last meeting,  there had been a mutual recognition agreement on 
professional pending qualifi cations, and another one for quantity surveyors. 
17. The representative of Singapore
 congratulated the Parties for the coming into force of 
Supplement II on 1 January 2006, an agreement whic h he deemed would have a very positive impact 
on the trade between the Parties.  Under Section II ("Provisions Affecting Trade in Services"), he sought clarification on two aspects of the CEPA.  Th e first related to the definition of "substantive 
business operations" in the Agreement.  Secondly , he asked whether the Parties envisaged any 
exceptions to the five mandatory criteria that were  used to determine what constituted "substantive 
business operations" under the Agreement; his delega tion saw that the economic results spoken of 
earlier might be even further enhanced if such ex ceptions were allowed.  The representative of Hong 
Kong, China  answered that the definition of "substan tive business operations" was given in Annex 5 
to the CEPA, and it included five criteria, as pointed out.  The Parties did not see any scope for exceptions to these five criteria, which had been applied to every applying services' supplier in the 
most fair manner.  He added that the source of investment was not an issue and that as long as the 
applicants fulfilled the eligibility criteria for Hong Kong, China's services' suppliers, they would be 
given the same treatment under CEPA.  The representative of Singapore
 clarified that his question 
was not related to whether exceptions were made be tween the Parties but it was more related to the 
application of the criteria, that is whether all five had to be fulfilled or whether four out of five was 
good enough.  Did the Parties envisage to allow the authorities concerned to review the case if an 
enterprise was unable to fulfil one or two of those cr iteria, and allow that enterprise to take advantage 
of the benefits under the Agreement?  The representative of Hong Kong, China  answered that there 
were no exceptions to any of the five criteria. 
18. The representative of Singapore  asked whether the laws and regulations in China relating to 
permanent residence had to be amended as a result of  the CEPA in order to allow permanent residents 
from Hong Kong, China to take advant age of the benefits under the Agre ement.  He announced that in 
any event, his delegation would submit these questions  in writing at a later date so that full answers  WT/REG162/M/2 
 Page 5 
 
 
  could be provided.  The representative of China  said that they did not have any new provisions on that 
question and referred Members to the definition given in response to questions during the last review 
as well as to the Agreement itself. 
19. Under Section IV ("Other"), the representative of the European Communities  requested 
confirmation from the Parties that the telecommunica tions sector was not covered by the Agreement.  
If that were to be the case, he would have two fo llow-up questions related to  the treatment granted by 
China to telecommunication companies from Hong Kong,  China, as there were a few examples in 
which Hong Kong, China companies had been grante d the right to own 100 per cent of Chinese local 
operators.  The questions, especially addressed to the re presentative of China, were (i) to what extent 
such a treatment given to Hong Kong, China's co mpanies was compatible with the MFN principle 
under the GATS rule, and (ii) should the sector not be covered by the Agreement, whether it was 
China's intention to extend the possibility to own 1 00 per cent of Chinese-based operators to all other 
Members of the WTO.  The representative of China  replied that some telecommunications sub-sectors 
were actually covered by the Agreement, althou gh no basic telecommunications sector was included 
yet.  With regard to the other questions, he sai d that his delegation would respond in writing.  The 
representative of Hong Kong, China  added that there were some provisions about telecommunications 
under CEPA, which could be found in Annex 4. 
20. The Chairman  said that the second round of examin ation had allowed the Committee to 
clarify a number of issues, but that some outst anding questions remained.  He proposed that any 
additional questions be submitted to the Secretaria t by 17 February and that the Parties respond in 
writing by 10 March, so that a further round of examination could be scheduled for a forthcoming 
meeting.  It was so agreed . 
21. The Committee took note  of the comments made. 
__________