Supplement II to the Mainland and Hong Kong Closer Economic
further enhance the level of economic and trade exchanges and cooperation
between the Mainland
and the Hong Kong Special Administrative Region (hereinafter referred to as
¡§Hong Kong¡¨), and pursuant to:
the Mainland and
Hong Kong Closer Economic Partnership Arrangement (hereinafter referred to as
¡§CEPA¡¨) signed on 29 June 2003 and its Annexes signed on 29 September
the Supplement to
the Mainland and Hong Kong Closer Economic Partnership Arrangement (hereinafter
referred to as ¡§Supplement to CEPA¡¨) signed on 27 October 2004;
the two sides agreed to sign this Supplement II on further
liberalization of trade in goods and trade in services in the Mainland for Hong
Kong, and on financial cooperation between both sides.
Trade in Goods
(1) From 1 January
2006, the Mainland shall fully implement zero tariff on imported goods of Hong
Imported goods subject to zero tariff must fulfill the rules of origin
confirmed after consultation by both sides.
The rules of origin for goods of Hong Kong origin for which consultations
were completed by both sides in 2005 are listed in Annex 1 of this Supplement
II. Annex 1 of this Supplement II
is a supplement to Table 1 of Annex 2 of ¡§CEPA¡¨ ¡V ¡§Schedule on Rules of
Origin of Hong Kong Goods Subject to Tariff Preference for Trade in Goods¡¨.
Both sides agreed to amend the detailed implementation procedures in
Article 5 of Annex 1 of ¡§CEPA¡¨ ¡V ¡§Arrangements for Implementation of
Zero Tariff on Trade in Goods¡¨ as follows:
1. From 1 January 2006, Hong Kong manufacturers may submit lists of
goods subject to zero tariff to the Hong Kong Trade and Industry
2. The Hong Kong Trade and Industry Department shall, prior to 1 March
and 1 September each year respectively, submit the list of goods verified and
certified in accordance with relevant rules of the Hong Kong Special
Administrative Region Government to the Ministry of Commerce.
The Ministry of
Commerce shall confirm and then pass the list of goods to the Customs General
Administration. The Customs General
Administration and the Hong Kong Trade and Industry Department shall enter into
consultation on the rules of origin for the relevant goods.
The two sides shall complete the consultations on the rules of origin
before 1 June and 1 December each year respectively, add the rules of
origin of the relevant goods to Table 1 of Annex 2 of ¡§CEPA¡¨, and promulgate them.
The Mainland shall,
no later than 1 July of the same year and 1 January of the following year
respectively, release the relevant imports on zero tariff basis in line with
¡§CEPA¡¨ upon presentation of the certificates of origin issued by the
Hong Kong issuing authorities.¡¨
Article 5 of Annex 2 of ¡§CEPA¡¨ ¡V ¡§Rules of Origin for Trade in
Goods¡¨ is amended as follows:
On the criteria for
transformation¡¦ set out in Article 2 (2) of this Annex, the two sides agree on
the criteria for determining ¡¥substantial transformation¡¦ may include
¡¥manufacturing or processing operations¡¦, ¡¥change in tariff heading¡¦,
¡¥value-added content¡¦, ¡¥other criteria¡¦ or ¡¥mixed criteria¡¦;
¡¥manufacturing or processing operations¡¦ refers to the principal
manufacturing or processing operations carried out in the area of one side which
confer essential characteristics to the goods derived after the operations;
2. ¡¥change in tariff heading¡¦ refers to the processing and
manufacturing operations of non-originating materials carried out in the area of
one side and resulting in a product of a different four-digit tariff heading
under the ¡¥Product Description and Harmonized System Codes¡¦. Moreover, no production, processing or manufacturing
operations will be carried out in countries or territories other than that side
which will result in a change in the four-digit tariff heading;
¡¥value-added content¡¦ refers to the total value of raw
materials, component parts, labour costs and product development costs
exclusively incurred in one side being greater than or equal to 30% of the FOB
value of the exporting goods, and that the final manufacturing or processing
operations should be completed in the area of that side.
The formula for calculation is as follows:
value of raw
materials + value of component parts +
labour costs +
product development costs
x 100% ≥ 30%
FOB value of the
(i) ¡¥product development¡¦ refers to product development carried out
in the area of one side for the purposes of producing or processing the
exporting goods. Development
expenses incurred should be related to the exporting goods.
These expenses include fees payable for the development of designs,
patents, patented technologies, trademarks or copyrights (collectively ¡¥these rights¡¦) carried out by the
manufacturer himself, fees payable to a natural or legal person in the area of
one side for undertaking development of these rights, and fees payable for
purchasing these rights owned by a natural or legal person in the area of one
side. The fees payable should be
clearly identifiable under generally accepted accounting principles and the
requirements of ¡¥Agreement on Implementation of Article VII of the General
Agreement on Tariffs and Trade 1994¡¦;
(ii) calculation of the above ¡¥value-added content¡¦ will be consistent
with generally accepted accounting principles and the ¡¥Agreement on
Implementation of Article VII of the General Agreement on Tariffs and Trade
¡¥other criteria¡¦ refers to methods agreed by both sides in
transformation¡¦, other than ¡¥manufacturing or processing operations¡¦,
¡¥change in tariff heading¡¦ and ¡¥value-added content¡¦ as set out above.
¡¥mixed criteria¡¦ refers to the use of two or more of the above
criteria in determining origin.
other additional conditions. If
the ¡¥substantial transformation¡¦ criteria set out in paragraph (1) above are
not adequate for determining origin, additional conditions can be used (such as
brand requirement, etc) upon agreement by both sides.¡¨
Trade in Services
(1) From 1 January
2006, the Mainland shall further relax the market access conditions in the areas
of legal, accounting, audiovisual, construction, distribution, banking, tourism,
transport and individually owned stores on the basis of the commitments on
liberalization of trade in services under ¡§CEPA¡¨ and ¡§Supplement to CEPA¡¨.
The specific contents are detailed
in Annex 2 of this Supplement II.
(2) Annex 2 of this
Supplement II is a supplement and amendment to Table 1 of Annex 4 of ¡§CEPA¡¨
¡V ¡§The Mainland¡¦s Specific Commitments on Liberalization of Trade in
Services for Hong Kong¡¨ and Annex 3 of ¡§Supplement to CEPA¡¨ ¡V
¡§Supplements and Amendments to the Mainland¡¦s Specific Commitments on
Liberalization of Trade in Services for Hong Kong¡¨. In
the event of conflict with the provisions of the other two instruments, the
provisions of Annex 2 of this Supplement II shall prevail.
suppliers¡¨ as referred to in Annex 2 of this Supplement II shall meet the
relevant requirements of Annex 5 of ¡§CEPA¡¨ ¡V ¡§Definition of ¡§Service
Supplier¡¨ and Related Requirements¡¨.
(1) The Mainland
shall allow qualified Mainland securities companies which belong to the pilot
innovation type to set up subsidiaries in Hong Kong in accordance with the
(2) The Mainland
shall allow qualified Mainland futures companies to operate futures business in
Hong Kong, including the setting up of subsidiaries.
this Supplement II form
an integral part of this Supplement II.
This Supplement II shall come into effect on the day of signature by the
representatives of the two sides.
Signed in duplicate in Hong
Kong, this 18th day of October, 2005 in the Chinese language.
Vice Minister of Commerce
People¡¦s Republic of China
Hong Kong Special
Administrative Region of the People¡¦s Republic of China