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Rolling Out CEPA -- A Status Report

On the morning of January 7, a truck little different from thousands of others, rolled across the boundary at Huanggang. This might not have been noticed except for the fact that the truck carried the first goods entering the Mainland of China under the Closer Economic Partnership Arrangement's (CEPA) zero-tariff provisions. It just so happens that the Certificate of Origin for this historic shipment was issued by the Hong Kong General Chamber of Commerce a couple of days before.

The road for getting these particular goods (they happened to be compact discs) through customs began back in late 1999 when your Chamber started thinking about how China's entry to the World Trade Organisation (WTO) could be leveraged to the benefit of Hong Kong companies and proposed the Free Trade Agreement with China idea that evolved into CEPA. After four years of consideration, deliberation, decision, and negotiation, it took just two days for the Hong Kong-based compact disc manufacturer to apply for, and receive, permission to ship his products duty free under CEPA.

Back in November, the Trade and Industry Department put in place application procedures and conditions for issuing the Certificate of Hong Kong Origin-CEPA (CEPA COs). And the process is working. In the first six weeks of this year, your Chamber and other CEPA documentation-issuing organisations received more than 200 applications for zero tariff access to Mainland markets.

Real benefits . . .

From the beginning, CEPA contributed to an improved flow of goods across the boundary. The Huanggang automated customs checking and clearance system, for example, reduced the time required for trucks to cross into Shenzhen. Not just trucks carrying merchandise classified as eligible for zero tariff under the agreement, but all goods carrying trucks.

Among the products already moving across the boundary duty free are pharmaceuticals (45 percent of all approved products, at this writing), dye stuff (nearly 20 percent), textiles and clothing (more than 15 percent), as well as chemicals, plastics and electrical and electronic products. While it may be too early to determine exactly where the most advantageous opportunities lie, Hong Kong entrepreneurs are certainly not slow out of the starting gate.

Other benefits are also beginning to be felt. Prior to the Chinese New Year holiday, the governments of Hong Kong and Guangdong province established hyperlinks between trade and investment Web sites, linking the Trade and Industry Department with some 40 Guangdong trade and investment Web sites. This virtual "one-stop shop" will facilitate Hong Kong companies' efforts to get current information on business opportunities in neighbouring areas.

On the services side, three Hong Kong banks received permission from the Shenzhen government already to set up branches in that city, under the CEPA accords. Those applications then need to be submitted to the China Banking Regulatory Commission for final approval.

. . . And more to come

As we reported earlier, some 56 percent of companies responding to our annual Business Prospects Survey last year said that they expected real benefits from CEPA. If they are representative of the membership as a whole, more than 1,100 Chamber members are in the process of examining the best prospects for their companies to market to China duty free. Further afield, a recent survey by the French Chamber showed about 10 percent of their members are already moving forward to take advantage of CEPA.

We're also hearing about other companies' future plans. Japanese researchers visiting your Chamber last month explained that the companies they surveyed view China as the top business prospect for this year. Many of their questions centered on how foreign companies' operations in Hong Kong might utilise CEPA.   U.S. companies have been very enthusiastic about their ability to utilise CEPA.

Many service companies are doing research on the various markets in China, studying the regulations that apply once they use CEPA to get in, finding partners to work with, and applying for "Hong Kong Service Supplier" status to be eligible for the 18 services sector liberalisations provided by CEPA.  Yes they are finding obstacles, since doing business in China is not easy, but they are also finding a Central Government and a SAR Government eager for success stories in CEPA and regional authorities eager to attract international level service providers in Hong Kong into their city or province.

The government has already established procedures for Hong Kong manufacturers to make requests for items to be included in the next phase of zero tariffs, post-2005. Members will recall that the initial list of products may be expanded to include any product made in Hong Kong, once the local content terms are defined. Some 26 applications have been received thus far, and I urge those of you who didn't find your own products on the introductory list to look into the procedures for applying for zero tariff status.

CEPA is quietly working. It is now up to us to step up our efforts, seize the immediate opportunities and ensure that the next step moves forward on the strength of strong support for the first phase.

And I have not even touched on the fact that the Mainland individual travellers scheme is a part of CEPA, and everyone knows how that has boosted the Hong Kong economy . . .

Anthony Nightingale
Chairman
HKGCC