Mainland and Hong Kong Closer Economic Partnership Arrangement

Introduction

Under the framework of the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”), most Hong Kong service suppliers can expect to receive the same treatment as companies from the Mainland when they start businesses in Guangdong, according to the Agreement between the Mainland and Hong Kong on Achieving Basic Liberalization of Trade in Services in Guangdong (“Agreement”) signed on 18 December 2014.

The Agreement shall come into effect on the day of signing, and shall be implemented on 1 March 2015.

Three Main Concepts under the Agreement

1. National treatment
   
   Hong Kong service suppliers in services trade sub-sectors where national treatment applies will enjoy the same treatment as the Mainland enterprises.
2. Positive listing

   Liberalization measures are set out for Hong Kong by the Mainland, indicating what type of access and what type of treatment for each sector the Mainland is prepared to contractually offer to Hong Kong service suppliers.

3. Negative listing
   
   A negative list requires that discriminatory measures affecting all included sectors be liberalized unless specific measures are set out in the list of reservations.

   With the exception of the list of reservations etc., eligible Hong Kong service suppliers can expect to enjoy the same treatment as the Mainland enterprises in Guangdong in terms of market access requirement, i.e. “permitted if not forbidden”.

A Hybrid System of Negative and Positive Listings
The opening-up mode in the Agreement is innovative. Since 2003, liberalization measures under CEPA and its Supplements have been listed positively. The Agreement, however, adopts a hybrid system of negative and positive listings.

Besides the traditional positive listing, “reserved restrictive measures” have been set out in a negative list. Upon adoption of the negative list, except for those reserved restrictive measures etc., the Mainland will not impose any particular restrictions on eligible Hong Kong service suppliers in Guangdong in terms of market access requirement, i.e. they can receive national treatment and enjoy the same treatment as the Mainland enterprises.

Compared to positive listing, negative listing is a more transparent and comprehensive way of listing liberalization commitments.

The negative list is only adopted in the mode of “commercial presence”, i.e. to provide services by establishing legal entities in China.  The negative list in the mode of “commercial presence” is, therefore, primarily used to meet the most popular business mode adopted by Hong Kong industries, which will help them better tap into the Mainland market.

Concerning the mode of cross-border services, as well as sectors of telecommunications and cultural services, the Mainland’s additional liberalization measures for Hong Kong in Guangdong continue to be positively listed.

Features of the Agreement
The breadth and depth of liberalization achieved by the Agreement surpass the previous CEPA measures.
Key features are as follows:

1. The Mainland has opened up 153 services trade sub-sectors to the Hong Kong services industry, corresponding to 95.6 percent of the total 160 services trade sub-sectors in Guangdong.

   These 153 services trade sub-sectors span a number of sectors, including business services, communication services, construction and related engineering services, distribution services, education services, environmental services, financial services, health related and social services, tourism and travel related services, recreational, cultural and sporting services and transport services.

2. National treatment will apply to Hong Kong service suppliers in 58 services trade sub-sectors. Examples of such services trade sub-sectors are taxation services, computer and related services, rental/leasing services without operators, advertising services and management consulting services.
3. The negative list sets out 132 restrictive measures covering 134 services trade sub-sectors, such as architectural and design services, engineering services and travel agencies and tour operators services. Except for the restrictive measures etc., eligible Hong Kong service suppliers can enjoy the same treatment as the Mainland enterprises in Guangdong.
4. As for measures under the mode of cross-border services, as well as the sectors of telecommunications and cultural services, 27 additional liberalization measures are positively listed.
5. In order to encourage Hong Kong citizens to start business in the Mainland, Hong Kong permanent residents with Chinese citizenship are allowed to set up, in accordance with the relevant Mainland laws, regulations and administrative regulations, individually owned stores, excluding franchising operation, for a wide range of businesses in Guangdong without being subject to approval procedures applicable to foreign investments. 
6. All the liberalization measures and preferential treatments in the free trade agreements between the Mainland and other countries and regions that are superior to CEPA will be applicable to Hong Kong so that Hong Kong will continue to enjoy the most preferential liberalization measures offered by the Mainland.
7. The Agreement is a subsidiary agreement under CEPA instead of a supplement and that in case of conflict between CEPA and the Agreement, the Agreement shall prevail.

Hong Kong’s Liberalization Measures
Consistent with the past practice, Hong Kong will not impose any new discriminatory measures on Mainland services or service suppliers coming to Hong Kong in the areas of services covered by the Agreement.

Conclusion
For the first time, Hong Kong service suppliers can expect to receive national treatment in Guangdong, with exceptions on the negative list. The Agreement will further liberalization of trade in services and facilitate economic cooperation between Guangdong and Hong Kong. It will open up the Guangdong market in various service sectors to Hong Kong investors, consolidating Hong Kong’s position in international finance, trade and shipping, bringing new vitality to the economy of the Mainland and benefiting the integration of the economy of the Mainland and Hong Kong.

Investors interested in entering the Guangdong market should pay attention to the Agreement, as they may benefit from the liberalization measures offered by the Agreement and take advantage of the opening up of the Guangdong market.