INTRODUCTION

An Agreement was signed on 21 November 2019 between the Hong Kong Special Administrative Region Government (HKSARG) and the Ministry of Commerce under the framework of CEPA to amend the CEPA Agreement on Trade in Services (the Services Agreement) in order to further open up the services market, thereby giving Hong Kong enterprises and professional sectors more preferential treatment to tap into business opportunities in the Mainland market.

DETAILS

Background

2. The Services Agreement was signed in November 2015 and implemented since June 2016. It covers the Mainland's liberalisation commitments for Hong Kong services industry provided under CEPA, and adds new liberalisation measures, thus basically achieving liberalisation of trade in services between the Mainland and Hong Kong. Under the Services Agreement, the Mainland has fully or partially opened up 153 sectors to Hong Kong services industry, accounting for 96% of all the 160 services sectors.
3. Since the implementation of the Services Agreement, the HKSARG has from time to time followed up with the trade regarding the implementation of the liberalisation measures, and their proposals for further services liberalisation. Since early 2019, the HKSARG has started a new round of discussion on services liberalisation under the framework of CEPA with the Ministry of Commerce and other relevant ministries.

Mainland's New Liberalisation Measures

4. The Mainland has positively responded to proposals of the trade in Hong Kong for lowering market access thresholds or expanding the scope of business operation in various sectors in the Mainland. The amendment to the Services Agreement (the Amendment Agreement) introduces new liberalisation measures in a number of important services sectors including removing or relaxing restrictions on equity shareholding, capital requirement and business scope in the establishment of enterprises, relaxing qualification requirement, etc., thus making it easier for Hong Kong service suppliers and professionals to set up enterprises and develop business in the Mainland.
5. Liberalisation measures applicable to the Guangdong-Hong Kong-Macao Greater Bay Area (the Greater Bay Area) were announced after the meeting of the Leading Group for the Development of the Guangdong-Hong Kong-Macao Greater Bay Area held on 6 November 2019. Liberalisation measures relating to the film industry were announced earlier on 16 April 2019. Since these measures provide Hong Kong service suppliers with more preferential market access treatment than other external investors, they are included under CEPA so as to comply with the requirement of the World Trade Organisation (the WTO). Details of the new liberalisation measures under the Amendment Agreement are set out in the Annex, and specific examples are as follows:

Testing and Certification Services

1. To expand the scope of testing of products under the China Compulsory Certification (CCC) System that can be undertaken by qualified testing organisations in Hong Kong in cooperation with designated Mainland organisations from products processed or manufactured in the Mainland or processed in Hong Kong to CCC products processed or manufactured in any place. The measure will assist testing organisations in Hong Kong to provide quality testing service for the huge Mainland consumer goods market (including products imported from other places).
2. To expand the geographical scope of CCC factory inspection that can be undertaken by qualified certification bodies in Hong Kong in cooperation with designated Mainland organisations from the CCC product manufacturers located in the China (Guangdong) Pilot Free Trade Zone to the CCC product manufacturers in the whole Mainland; and to add new task that can be undertaken by qualified certification bodies in Hong Kong, i.e. the selection of post-certification test samples at factories manufacturing CCC products in the whole Mainland. The measures will expand the service scope of certification bodies in Hong Kong and bring more business opportunities to the trade.

Television Services

3. To remove the restriction on the quantity of Hong Kong produced television dramas and animation television programmes imported by television stations, audiovisual websites and cable television networks in the Mainland. Restrictions such as those on the quantity and time of the broadcast of imported dramas and animation television programmes produced by Hong Kong will also be relaxed. The measures will facilitate the entry of Hong Kong-produced television dramas and animation television programmes into the Mainland market.
4. To relax restrictions such as those on the percentage of principal creative personnel, Mainland-related content and investment proportion of television dramas co-produced by the Mainland and Hong Kong, and to shorten the time required for approval of synopses for any proposal of television dramas to be co-produced by the Mainland and Hong Kong. The measures will help increase the flexibility in co-production of television dramas, promoting cooperation between the television industries of the two places.

Film Services

5. For motion pictures co-produced by Hong Kong and the Mainland, there will be no restriction on the percentage of Hong Kong principal creative personnel and artistes as well as the Mainland-related content. The restriction on the number of Hong Kong people participating in Mainland film productions will also be removed. The measures will help enhance the flexibility of producing co-productions, and promote the cooperation between film industries in the two places.
6. To waive the fees for establishing the Mainland and Hong Kong co-production motion pictures projects. The measure will help reduce relevant production costs, encourage Hong Kong film industry to proactively participate in the production and promotion of co-productions, and further the development of film industries in the two places.

Printing Services

7. To raise the ceiling of shareholding proportion of Hong Kong service suppliers in an equity joint venture enterprise in the Mainland engaging in the printing of publications and other printed matters except packaging materials¹ to 70%. The measure will be applicable to the whole Mainland and Hong Kong investors, as controlling shareholders, can achieve the targets set for business management and development more effectively.

Tourism Services

8. To optimise the "144-hour visa-exemption transit" policy for foreign group tours entering the Pearl River Delta Area and Shantou from Hong Kong through increasing the number of inbound control points and expanding the area allowed to stay. The measure will facilitate Hong Kong's tourism trade to develop more multi-destination products targeting foreign visitors, which can attract more overseas travellers to visit Hong Kong and the Mainland via Hong Kong. This can further support Hong Kong's development into an international tourism hub and a multi-destination tourism platform, benefiting the tourism sectors of Hong Kong and the Greater Bay Area.

Financial Services

9. To reaffirm a number of policy directions to support the development of Hong Kong banking industry and financial institutions in the Mainland, and introduce a number of amendments, in line with the direction and pace of the central government to further open up the financial industry.
10. To support Mainland insurance companies issuing catastrophe bonds in the Hong Kong market and relax relevant requirements. The measure will be applicable to the whole Mainland, and can promote the development of the insurance and bond markets in Hong Kong.

Legal Services

11. To remove the restriction on the minimum capital input ratio² of the Hong Kong law firms for partnership associations set up by Hong Kong and Mainland law firms. The measure will be applicable to the whole Mainland and beneficial to small and medium-sized law firms to enter the Mainland legal services market by way of partnership associations.
12. To allow Hong Kong legal practitioners³ to be employed as legal consultants by not more than 3 Mainland law firms in the whole Mainland simultaneously, and to replace the relevant approval requirements with filing procedures. Annual registration will not be required. Hong Kong legal practitioners will be allowed to obtain practice qualification in the Greater Bay Area by passing the special examination and to engage in matters on specific areas of Mainland law. The measures will enhance the opportunities for Hong Kong legal professionals to participate in the Mainland market, and simplify the relevant requirements.

Construction and Related Engineering Services

13. To renew the expired agreements for mutual recognition of professional qualifications, including agreements of structural engineers, planners, building surveyors and architects. The locations in the Mainland where Hong Kong professionals of the construction and related engineering services sectors who have obtained Mainland's related qualifications either through mutual recognition or examination are allowed to register and practise, will be extended from Guangdong, Guangxi and Fujian to the whole Mainland, providing Hong Kong professionals with more room for development.
14. To allow professionals who have obtained the qualification of General Practice Surveyors in Hong Kong to directly register for practice in Qianhai of Shenzhen, Hengqin of Zhuhai and Nansha of Guangzhou and enable them to provide property valuation services.

6. The above-mentioned measures will allow Hong Kong enterprises and professionals to enjoy more preferential treatment than other external investors when providing services to the Mainland market. At the same time, since the implementation of the Services Agreement, the Mainland has introduced a number of new liberalisation measures which are applicable to all external investors (including investors from Hong Kong) under the ongoing policy of opening up to external investment. The Mainland agrees to take this opportunity to include the measures in the Amendment Agreement, in order to maintain CEPA as the most liberal free trade agreement of the Mainland and provide Hong Kong service suppliers with clearer legal certainty when entering the Mainland market.
7. In addition, the Amendment Agreement includes descriptions of policy support in respect of some key services sectors so as to affirm Mainland's objective and direction of further liberalisation, thereby laying the foundation for cooperation in trade in services between the two sides in future. For instance, in the securities services sector, the Mainland undertakes to actively study the feasibility of enhancing the Mainland-Hong Kong mutual recognition of funds arrangement to promote the development of the fund markets in both places; enhance the variety of products under the Mainland-Hong Kong Stock Connect and allow companies with weighted voting rights structure as listed in Hong Kong to be included as eligible securities under Stock Connect upon fulfilment of certain criteria; and consider extending the scope of eligible products under the mutual market access programme by including ETFs (i.e. exchange-traded funds).

Hong Kong's Liberalisation Measures

8. Following the past practice, Hong Kong will not impose any new discriminatory measures on Mainland's services and service suppliers in the areas of services covered in the Amendment Agreement.

CONCLUSION

9. The Mainland has been Hong Kong's top services trading partner for many years. With the implementation of CEPA from 2004 to 2017, the total services trade between Hong Kong and the Mainland recorded an annual average growth rate of about 5%. In 2017, the total services trade with the Mainland amounted to HKD538.3 billion (39% of Hong Kong's total services trade). The continuous economic development of the Mainland leads to an increase in the demand for quality services. The liberalisation measures under CEPA have facilitated our trade to explore the huge potential of the services market of the Mainland and further deepened the economic and trade cooperation between the two places. As at end October 2019, 1,897 enterprises were approved to be Hong Kong service suppliers under CEPA, with 3,289 certificates of Hong Kong service suppliers issued. The most popular sectors in terms of certificates issued are transport and logistics, distribution, air transport, placement and supply services of personnel, and advertising services.
10. The Amendment Agreement creates more favourable conditions and opens up more channels for Hong Kong service suppliers to thrive in the Mainland market against the uncertain prospects of the global economy and rising trade protectionism. The Amendment Agreement lowers the market access thresholds, helping sustain the first-mover advantage of our trade in establishing foothold in the Mainland market. It also ensures that Hong Kong service suppliers and their services will continue to enjoy the most preferential treatment and most favourable conditions for development in the Mainland, thus enabling them to reach broader and deeper into the Mainland market at a lower cost for participation in the development of the Mainland, and to contribute to the development of the Greater Bay Area.

IMPLEMENTATION OF THE AMENDMENT AGREEMENT

11. The Amendment Agreement will be implemented on 1 June 2020.

IMPLEMENTATION OF CEPA

12. The HKSARG attaches great importance to the effective implementation of CEPA. We have been working closely with the Mainland authorities at central, provincial and municipal levels, and have made use of the established mechanisms with the Ministry of Commerce to actively address and follow up problems encountered by our trade in using the liberalisation measures under CEPA in the Mainland. The Mainland authorities have responded to issues reflected by our trade in recent years, with examples as follows:
    1. confirming that Hong Kong airlines may sell air tickets and hotel packages in their offices in the Mainland or through their official websites without the need to apply for a change in their scope of business, facilitating the trade's business expansion;
    2. allowing Hong Kong fishery industry to invest in offshore fishing in the Mainland, bringing about increased opportunities to the trade; and
    3. relaxing the scope of projects that may be undertaken by Hong Kong construction enterprises in the Mainland pilot free trade zones, allowing them to participate in engineering projects invested by the Mainland. This is a positive response to Hong Kong trade's request to participate in more Mainland construction and related engineering projects.

BACKGROUND

13. The Mainland and Hong Kong signed CEPA in 2003. Thereafter, pursuant to Article 3 of CEPA, the two sides have progressively broadened and enriched the content of CEPA to meet the aspirations of Hong Kong service providers in exploring the Mainland market and to deepen the economic and trade cooperation with the Mainland. CEPA has now become a comprehensive and modern free trade agreement underpinned by four agreements, namely the Agreement on Trade in Goods, the Services Agreement, the Investment Agreement, and the Agreement on Economic and Technical Cooperation, covering all facets of our economic and trade relationship with the Mainland and promoting further liberalisation and facilitation of trade and investment between the two places.
14. The Mainland's commitments on liberalisation of trade in services for Hong Kong under the Amendment Agreement are set out in the forms of "negative list" and "positive list". The liberalisation commitments are classified according to the four modes of supply for trade in services adopted by the WTO, including:
    1. Cross-border supply: service supplier in Hong Kong supplies services to consumers located in the Mainland, such as supplying consultancy services through electronic means;
    2. Consumption abroad: service supplier in Hong Kong supplies services to Mainland consumers located in Hong Kong, such as hotel services;
    3. Commercial presence: Hong Kong service supplier supplies services through establishment of enterprises in the Mainland, such as establishment of printing enterprises; and
    4. Movement of natural persons: Hong Kong service supplier supplies services by himself or his employees in the Mainland, such as architect.
15. Commercial presence is the most popular mode of services adopted by Hong Kong service suppliers. Under the Amendment Agreement, the "negative list" sets out the restrictive measures (such as setting the maximum limit of equity shareholding ratio, and prohibiting the operation of certain businesses) for specific sectors by the Mainland in respect of this mode of services. Except for the specified restrictive measures, there are no additional restrictions in respective sectors, i.e. "permitted if not forbidden".
16. Cross-border supply, consumption abroad and movement of natural persons are collectively known as "cross-border services". The "positive list" sets out the liberalisation measures (such as the permitted scope of services) for specific sectors by the Mainland for Hong Kong service suppliers in respect of the modes of "cross-border services".
17. The legal text of the Amendment Agreement is available at Trade and Industry Department (TID)'s website.

ENQUIRIES

18. For enquiries on issues related to CEPA, please contact the relevant sections in the TID.