By Daqin Zhang
The Closer Economic Partnership Arrangement (CEPA) is a free trade agreement between China and Hong Kong that grants easier access to Chinese markets for Hong Kong-made products and Hong Kong-based service companies. Examples of such privileges are summarized briefly below:
1. Duty-free exports to China for Hong Kong-made products:
90% of the products exported to the Chinese mainland since January 1, 2004, bearing the “Made in Hong Kong” tag, have been exempt from tariffs. For a foreign manufacturer’s goods to qualify as “Made in Hong Kong”, the manufacturers may partner with, license to, or outsource to a Hong Kong manufacturer to satisfy the Rules of Origin. Overseas manufacturers do not need a Hong Kong office to benefit from CEPA. In essence, their products must be "substantially transformed" in Hong Kong.
2. Easier market entry for Hong Kong-based service providers:
CEPA greatly reduces, and even in some cases removes, the geographical, financial and ownership restraints on the 18 service sectors in which it encompasses. CEPA assists Hong Kong service providers in four key areas: early market entry, the establishment of whole-owned companies in restricted industries, the attainment of lower capital thresholds for small players (capital and trading history requirements apply), and the recognition of qualifications. Any company meeting the following qualifications may apply for a CEPA certificate:
Foreign companies may be deemed a Hong Kong company after acquiring, through a merger or acquisition, the majority shares of a Hong Kong company after one year. A foreign service-provider can partner with, invest in, or buy-into a CEPA-qualified company to achieve easier access to the Chinese mainland.
For more information about CEPA, please contact Daqin Zhang at dzhang@kmclaw.com.