Supplement VIII to CEPA Signed in HK

Supplement VIII to the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA” or “Arrangement”), signed on December 13, 2011 in Hong Kong, will come into effect on April 1, 2012.

This supplement follows the August visit by China State Council Vice Premier Li Keqiang to Hong Kong, where he announced a series of measures from the Central Government to support economic and social development in Hong Kong and to broaden and deepen liberalization of trade in services for Hong Kong.

The Mainland and Hong Kong signed the main text of the CEPA on June 29, 2003 and its six annexes on September 29, 2003. To broaden and enrich the content of the Arrangement, the two sides signed seven Supplements to CEPA between October 2004 and May 2010 to further reciprocal liberalization.

Supplement VIII to CEPA provides for a total of 32 services liberalization and trade and investment facilitation measures, including 23 liberalization measures in 16 service sectors. In addition, the market access conditions will be further relaxed in 13 existing sectors, namely, legal; construction; technical testing, analysis and product testing; placement and supply services of personnel; distribution; insurance; banking; securities; hospital; tourism; road transport; qualification examinations for professionals and technicians; and individually owned stores.

Liberalization measures will also be introduced in three new sectors, namely, inter-disciplinary research and experimental development services; services incidental to manufacturing; and library, museum and other cultural services.

Inclusive of measures in Supplement VIII to CEPA, the two sides have so far announced 301 liberalization measures under 47 service sectors.

Under trade in goods, some Hong Kong products have to fulfill the “value-added content” requirement, i.e. the total value of raw materials, component parts, labor costs and product development costs exclusively incurred in Hong Kong being greater than or equal to 30 percent of the FOB value of the exporting goods, in order to benefit from the zero tariff arrangement under CEPA. Supplement VIII allows traders to include the value of raw materials and component parts originated from the Mainland when calculating the “value-added content.” The value allowed to be included into the calculation can be up to half of the “value-added content.”

Article 12 of the Arrangement provides that service suppliers of other WTO Members that are juridical persons established under the laws of one side will be entitled to preferential treatments granted by the other side under the CEPA, provided that they are engaged in “substantive business operations” in the area of the former side. Supplement VIII relaxes the criteria of “substantive business operations” under the definition of “Hong Kong Service Supplier.”

Under the revised definition, unless individual CEPA measures, or the laws, regulations as well as administrative regulations of the Mainland impose specific requirements on the nature and scope of business, the scope of CEPA preferential measures that Hong Kong service suppliers may apply is not restricted to the scope of their business in Hong Kong.

In terms of financial cooperation, Supplement VIII supports Mainland banks to make use of Hong Kong’s international financial platform to develop their international businesses on the premises of prudent operation. It also supports Hong Kong insurance companies to enter the market through setting up business institutions or capital participation.

The two sides agreed to strengthen cooperation in tourism, which includes measures to jointly improve the quality of tourism services in the Mainland and Hong Kong, and together strive for the healthy and orderly development of Mainland’s Hong Kong-bound tourism market.

To facilitate trade and investment, the two sides agreed to further strengthen cooperation in commodity inspection and quarantine, food safety, quality and standardization; and to strengthen cooperation between the two places in the area of innovation and technology, so as to support Hong Kong’s development in innovation and technology.

Some of the key measures in Supplement VIII to CEPA are as follows:

Legal

• To further develop closer cooperation between the legal professions of the Mainland and Hong Kong
• To explore ways of improving the mode of association of law firms of the two places
• To consider broadening the scope of businesses of Hong Kong residents who have acquired Mainland legal professional qualification and hold a Mainland lawyer’s practice certificate in acting as agents in civil litigation cases in the Mainland relating to Hong Kong residents and juridical persons

Hospital

• To allow Hong Kong service suppliers to set up wholly-owned hospitals in all municipalities directly under the Central Government and provincial capitals in the Mainland (in addition to Shanghai Municipality, Chongqing Municipality, Guangdong Province, Fujian Province and Hainan Province)

Banking

• To allow any Mainland-incorporated banking institution established by a Hong Kong bank to engage in the sale and distribution of mutual funds

Securities

• To continue to support qualified Mainland financial institutions engaged in securities activities to set up subsidiaries in Hong Kong and to operate businesses in accordance with law
• To deepen cooperation between the Mainland and Hong Kong in financial services and product development
• To allow investments in the Mainland securities market by means of the RMB Qualified Foreign Institutional Investor scheme.

The Supplement is available at the Trade and Industry Department’s (TID) CEPA website .

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