Mainland and Hong Kong Closer Economic Partnership Arrangement
On June 29, 2003, the People’s Republic of China and the Government of Hong Kong signed an economic agreement, known as CEPA [i]. Many amendments and addendums have been added to CEPA since its inception to help further strengthen the pact. This article will discuss CEPA, its origins, implications, and how you can use it to your advantage.
What is CEPA
CEPA is a free-trade agreement between Mainland China and Hong Kong [ii]. The agreement supplements the World Trade Organization’s GATT Articles for trading between countries and territories [iii]. The CEPA agreement contains a main text, annexes, and a schedule [iv]. The issues covered are trade issues as well as service and investment issues [v]. The most significant aspect of CEPA is the agreement that Hong Kong agreed to continue to provide zero import tariff regimes for goods from mainland China and vice-versa [vi].
The Chinese government committed to eliminating restrictions on businessmen provided by Hong Kong to mainland China and to promote investment [vii]. After China joined the WTO in 2001, it had to reassure businessmen and entrepreneurs in Hong Kong that they would not lose the preferential treatment they were used to receiving just because China entered the WTO [viii]. To Hong Kong, China recessed by joining the WTO, so China wanted to assure Hong Kong that joining the WTO would not negatively affect the business relationship between Hong Kong and mainland China.
Implications of the CEPA
The objective of the CEPA is to promote joint economic prosperity between Mainland China and Hong Kong. It is also to facilitate further economic development between the two sides [ix]. The main implication of the CEPA is that it continues the long-standing arrangement between China and Hong Kong regarding trade agreements and business arrangements. The purpose of CEPA was to supplement the concessions China made through WTO admittance. CEPA reestablished the status quo that already existed between Mainland China and Hong Kong regarding trading and business services. If anything, the CEPA affects Hong Kong investments. For US traders, investing in a Hong Kong firm right now might be your best bet into China as the CEPA enhances the ability for Hong Kong businesses to get into the Chinese market with greater ease than any other nation [x].
Legality of the CEPA
One problem with CEPA is that, arguably, a bilateral treaty cannot exist between China and Hong Kong [xi]. Technically, CEPA is unlawful because the contractual incapacity of the two countries [xii]. China wanted to support the economic stability of Hong Kong, so it implemented an agreement, which is arguably not even a free trade agreement [xiii]. This issue has not been challenged, but is worth noting.
CEPA is an interesting quasi-free trade agreement between mainland China and Hong Kong. Hong Kong has rights, under CEPA, that no other country has since China’s involvement in the WTO in 2001. CEPA gives investors a great opportunity to establish connections and agreements with Hong Kong partners, as it seems that Hong Kong is the most economical place to enter into Mainland China.
Note: There is a Chinese version of CEPA and an English translation. The Chinese version is the authority while the English translation is provided by the Hong Kong government as a courtesy because English is an official language of Hong Kong.
[i] Wei Wang, Regional Integration: Comparative Experiences: CEPA: A Lawful Free Trade Agreement Under “One Country, Two Customs Territories?, 10 LAW & BUS. REV. AM. 647 (2004);
see also Andrew Godwin, The Professional ‘Tug of War’: The Regulation of Foreign Lawyers in China, Business Scope Issues and some Suggestions for Reform, 33 MELBOURNE U. L.R. 132 (2009).
[ii] Jiaxiang Hu, Closer Integration, Controversial Rules: Issues Arising from the CEPA between Mainland China, Hong Kong, and Macao, 18 PACE INT’L L. REV. 389 (2006)
[iii] Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), P.R.C.-H.K. June 29, 2003 [hereinafter Hong Kong CEPA]
[iv] Hong Kong CEPA at art. 5(1).
[v] Id. at art. 5(2).
[vii] Id. At arts. 16, 17.
[viii] Hu, supra note iii at 395.
[ix] Wang, supra note i at 651.
[x] Eden Y. Woon, Wider Implications of CEPA, Hong Kong General Chamber of Commerce, available at http://www.chamber.org.hk/FileUpload/201007081554164963/Wider%20Implications%20of%20CEPA.pdf.
[xi] Id. at 663.