CEPA Upgrade Paves Way for Full Liberalisation of Services Trade
30 December 2014
The Mainland's Closer Economic Partnership Arrangement (CEPA) with Hong Kong and Macau has just had another upgrade. After 11 supplementary agreements, the full economic integration of Hong Kong and Macau with Guangdong will soon become a reality following the latest breakthroughs in trade in services.
The Agreement between the Mainland and Hong Kong on Achieving Basic Liberalisation of Trade in Services in Guangdong and the Agreement between the Mainland and Macau on Achieving Basic Liberalisation of Trade in Services in Guangdong have recently been signed. The two agreements will officially take effect on 1 March 2015.
It is worthy to note that these two documents are China's first free trade agreements to include pre-establishment national treatment and the negative list management system. Through this arrangement, Guangdong, Hong Kong and Macau will see full liberalisation of trade in goods and trade in services next year.
Guangdong's biggest selling point in its application to set up a free trade zone is cooperation with Hong Kong. The main selling point of Shenzhen's Qianhai is also cooperation in the services industry between Shenzhen and Hong Kong. Due to all kinds of constraints, implementation has not been very satisfactory these past years.
The State Council made clear its plan to set up three free trade zones in Guangdong, Tianjin and Fujian in its recent executive meeting. The CEPA upgrade effectively sets the framework of the Guangdong-Hong Kong-Macau free trade zone.
The latest CEPA upgrade represents the simultaneous advance of market opening and the deepening of reforms. In order to effectively promote liberalisation, the mainland authorities concerned have explored with Guangdong about the establishment of various supporting systems that are in keeping with the negative list approach to provide the necessary institutional guarantee for achieving basic liberalisation in trade in services between Guangdong and Hong Kong.
The bright spot of this upgrade is that it is the first time China signs a free trade agreement that combines pre-establishment national treatment with the negative list.
Guangdong's distinctive feature lies in the size of its manufacturing sector and its traditional position as a major importer and exporter. Its volume of imports and exports always ranks among the top three spots in the country. There is also a considerable gap in the development of the northern and southern parts of Guangdong. This is one of the reasons why the province has been able to attract a lot of investment in high-end manufacturing and producer services after implementing the free trade zone strategy.
The text of the agreements lays down the principles for scope and definition, national treatment, reserved restrictive measures, prudential principle on financial services, special chapters on telecommunications and cultural services, cross-border services, most-favoured treatment, general exceptions and security exceptions, government procurement, safeguard measures, and investment facilitation.
The annexes of the agreements include two parts: First, restrictive measures reserved in the form of a negative list under commercial presence. Specific commitments are made for each sector based on the WTO's sectoral classification list, which divides trade in services into some 160 sub-sectors. Except for the specific restrictive measures, Hong Kong service suppliers will enjoy the same treatment as their mainland counterparts. Second, new liberalisation measures for cross-border services and the sectors of telecommunications and cultural services are positively listed. More liberalisations are offered to small individually-owned stores to support Hong Kong citizens wishing to go north to start business ventures.
The mainland signed the main text of CEPA with Hong Kong and Macau in 2003. This was a free trade agreement concluded between the mainland and the two separate customs territories of Hong Kong and Macau, as well as China's first fully implemented free trade agreement.
Since then, Supplements have been signed each year to give substance to the provisions within the CEPA framework. At the beginning, they just specified the goods that are entitled to zero tariffs, then more types of goods were added. Subsequently, the individual visit scheme was introduced in a limited number of mainland cities, and liberalisation measures were offered to individually-owned stores. Now, trade in services is set for full liberalisation in the Guangdong-Hong Kong-Macau region.
Prior to this, the mainland has regarded Hong Kong and Macau companies as foreign companies, but there are thresholds for foreign investment in the services industry. The signing of these two agreements completely removes the entry thresholds for Hong Kong and Macau service suppliers in Guangdong.
- Mainland China
- Mainland China