Recently, the Chinese Ministry of Commerce signed Phase
2 of the Closer Economic Partnership Arrangement (CEPA)
with the Hong Kong Government. Despite its impact, the
whole concept of CEPA is still up in the air; some even
think that CEPA is just an earlier implementation of
China's commitment to WTO. In fact, CEPA's concessions
are far beyond China's commitment to WTO. Many texts
of agreement of Phase 2 are designed to help small and
medium sized enterprises by offering them opportunities
in accessing the Mainland market.
CEPA aims at simplifying cross border flows of capital,
information and labor between Mainland China and Hong
Kong SAR. With the advantage of Hong Kong's sophisticated
service sectors, and the introduction of foreign investment,
the Chinese economy will soon reach its maturity, and
be taken to the next level.
CEPA is a well-balanced framework with visionary goals.
Eventually, it will revitalize Hong Kong once again
as a gateway for international investors who wish to
access the Mainland China market.
Most of the trade promotion organizations, such as
Hong Kong Trade Development Council, Hong Kong Chamber
of Commerce and Hong Kong Industrial Federation conducted
thorough researches on the impact of CEPA. In a nutshell,
CEPA would benefit the local economy in three different
ways. Firstly, CEPA would eliminate all tariffs on Hong
Kong goods exported to Mainland China. Also, CEPA would
liberalize trades in services and allow Hong Kong service
providers to access the Mainland market. CEPA also encourages
the mutual recognition of professional qualifications,
thus allow local residents to practice in the Mainland
and expand their market potential enormously.
The concessions of CEPA extend far beyond China's WTO
commitment, in a sense that China has never committed
zero tariff treatment to any foreign trade partners
even after WTO. The key issue is that unless the products
are 'made in Hong Kong', satisfying the rules of origin,
they are not subjected to tariff free treatment even
under WTO. By 2006, all exports from Hong Kong meeting
the rules of origin will be exempt from tariff. Undoubtedly,
Hong Kong brand name that are famous in Mainland will
benefit from the arrangement, other international manufacturers
can also enjoy instantly a similar access to the Mainland
China market by partnering with Hong Kong companies
under CEPA.
Although Hong Kong is no longer a manufacturing center,
it is very likely that international manufacturers will
be attracted to relocate or outsource more high value
added manufacturing activities to enable their product
to enjoy tariff free treatment under CEPA. Some concessions
even go beyond WTO, such as the liberalization of convention
& exhibition, construction and logistics services; there
are no commitments from China under WTO. In other words,
to qualify for the concession, a foreign company must
partner with or establish local operation to become
a Hong Kong service provider. As foreign investment
pours into Hong Kong to capitalize on the advantage
of early access to the Mainland China market under CEPA,
it would be stimulate local supporting and servicing
sectors.
Right now, the services industry accounts for nearly
90% of Hong Kong Domestic GDP. Starting from 2005, a
total of 26 service sectors will be entitled to market
access benefits under CEPA provisions, many among which
are Hong Kong's most competitive players.
Moreover, Hong Kong permanent residents with China
citizenship are formally permitted to engage in retail
activities.
Even under WTO protocol, the thresholds of entry to
the Mainland's service sector are still too high for
Hong Kong companies in most service industries. CEPA
lowers the bar by increasing the feasibility of Hong
Kong service providers to do business or practice on
the Mainland. Some of these service sectors such as
law, accounting, advertising, marketing and convention
services, are well developed in Hong Kong, they can
contribute to the Mainland economic development by facilitating
foreign investor operations in Mainland China.
China is a vast country. Without an adaptive and efficient
infrastructure, no one can deliver quality services
to their customers. In fact, service sectors are highly
intensive in intelligence and IT, which is why Hong
Kong servicing sectors are heavily leveraging on IT
investment. For instance, Logistics and exhibition are
serious players in the IT industry. IT deployment in
the future, as one may foresee, will become an essential
element in trading.
(Last updated: 22th September, 2004)
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