The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) Agreement on Trade in Goods (The Agreement) Exporting Goods Originating in Hong Kong to the Mainland

24-hour hotline : 23 922 922

e-mail address : enquiry@tid.gov.hk

Ref: FRCP 1327/1/4

14 December 2018

Dear Sirs,

This circular outlines the rules of origin, document requirements, record keeping requirements and other relevant issues for exporting goods originating in Hong Kong to the Mainland under the Agreement on Trade in Goods (the Agreement) of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).

2.The Mainland and Hong Kong signed the CEPA in 2003 and have since broadened and enriched the content of CEPA, signing ten Supplements and a number of subsidiary agreements. The two sides have signed the Agreement on 14 December 2018, consolidating and updating the commitments on liberalization and facilitation of trade in goods under CEPA. The Agreement will be implemented on 1 January 2019. The full text and other details of the CEPA and the Agreement are available from the webpage of the Trade and Industry Department (TID) at: https://www.tid.gov.hk/our_work/cepa.html.

3. The Agreement reaffirms that under CEPA, all goods of Hong Kong origin can enjoy zero tariff preference when importing into the Mainland¹. The Agreement enhances the arrangements for CEPA Rules of Origin (ROOs), with a view to fully implement zero tariff on all imported goods of Hong Kong origin instantly.

4.The ROOs for the purpose of zero tariff treatment under the Agreement are set out in Chapter 4 (Rules of Origin and Implementation Procedures) and its Annex. The Chapter stipulates that a good will qualify as an originating good if it meets other applicable provisions (including those provided for in paragraphs 5 to 27 below), as well as:

1. the good is wholly obtained or produced in one side, in accordance with paragraph 5 below;
2. the good is produced in one side exclusively from originating materials; or
3. the good is produced using non-originating materials in one side, and
   1. the good falls within the scope of the Annex ("Product Specific Rules of Origin", where details can be found in TID's webpage at: https://www.tid.gov.hk/en/our_work/cepa/files/product_specific_rules_of_origin.pdf), and complies with the corresponding change in tariff classification, regional value content (RVC), manufacturing or processing operations or other requirements;
   2. the good does not fall within the scope of the Annex ("Product Specific Rules of Origin"), but complies with the requirement that the RVC is greater than or equal to 30% when calculated by the build-up method, or the RVC is greater than or equal to 40% when calculated by the build-down method ("General Rule").

5.Under the Agreement, the following goods shall be considered as wholly obtained or produced in one side:

1. live animals born and raised in one side;
2. goods obtained from live animals in one side, including milk, eggs, natural honey, hair, wool, semen or manure;
3. plants or plant products grown, and harvested, picked or gathered in one side;
4. goods obtained from hunting, trapping, fishing, aquaculture, gathering or capturing conducted in one side;
5. minerals and other naturally occurring substances extracted or taken from the soil, waters, seabed or subsoil beneath the seabed of one side and not included in subparagraphs (i) to (iv) above;
6. goods extracted or taken from the waters, seabed or subsoil beneath the seabed outside one side, provided that one side has the right to exploit such waters, seabed or subsoil beneath the seabed in accordance with the provisions of relevant international agreements to which that side has forged or joined;
7. fish and other marine products obtained by fishing conducted in the sea outside the waters of one side by vessels registered with one side or holding a licence issued by one side and flying the national flag (for Mainland vessels) or the regional flag of the Hong Kong Special Administrative Region of the People's Republic of China (for Hong Kong Special Administrative Region vessels);
8. goods processed or manufactured on board factory ships registered with one side or holding a licence issued by one side and flying the national flag (for Mainland vessels) or the regional flag of the Hong Kong Special Administrative Region of the People's Republic of China (for Hong Kong Special Administrative Region vessels), exclusively from goods referred to in subparagraph (vii) above;
9. waste and scrap derived from processing operation in one side and are fit only for the recovery of raw materials;
10. waste and scrap articles consumed and collected in one side and are fit only for the recovery of raw materials;
11. goods produced in one side exclusively from goods referred to in subparagraphs (i) to (x) above.

6.The calculation of RVC shall be consistent with generally accepted accounting principles², and calculated in accordance with the following formula:

1. Build-up method

   RVC

   =

   value of originating materials³

   +

   labour costs

   +

   product development costs

   /

   FOB⁴ value 

   x

   100%

   The value of originating materials shall include the value of originating raw materials and component parts.
    
   Or
2. Build-down method

   RVC

   =

   FOB value

   -

   value of non-originating materials⁵

   /

   FOB⁴ value

   x

   100%

7.For the build-up method, product development refers to product development carried out in one side for the purposes of producing or processing the exporting goods. Expenses incurred in product development shall 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 one side for undertaking the development of these rights, and fees payable for purchasing these rights owned by a natural or legal person in one side. The expenses incurred shall be identifiable under generally accepted accounting principles.

8.For the build-down method, the value of non-originating materials shall be determined according to one of the following circumstances:

1. in case of the imported non-originating materials, the value of non-originating materials shall be the CIF⁶ value of the materials at the time of importation;
2. in case of the non-originating materials obtained in one side, the value of non-originating materials shall be the earliest ascertainable price paid or payable in one side. The value of such non-originating materials shall not include freight, insurance, packing costs and any other costs incurred in transporting the material from the supplier's warehouse to the manufacturer's location.

9.According to the Agreement, a good that does not meet the change in tariff classification requirement in the Product Specific Rules of Origin shall be regarded as an originating good if the value of non-originating materials used in the good which do not undergo the required change in tariff classification does not exceed 10% of the FOB value of the good. The value of the said non-originating materials shall be determined in accordance with paragraph 8 above.

10.Under the Agreement, where originating goods or originating materials of one side are incorporated into a good in the other side, such goods or materials shall be considered as originating in the latter side. In other words, raw materials originating in the Mainland will be considered to originate in Hong Kong if they are incorporated into goods manufactured in Hong Kong and for export to the Mainland under the Agreement.

11.Nonetheless, where the good of Hong Kong is subject to the RVC criterion, the RVC without counting the value of originating goods or originating materials of the Mainland shall be greater than or equal to 15% (build-up method) or 20% (build-down method) in accordance with the respective formulae.

12.A product shall not be considered as originating, if it has only undergone one or more of the following operations under the Agreement:

1. preservation operations to ensure the good remains in good condition during transport and storage;
2. simple assembly of parts of articles to constitute a complete article, or simple disassembly of products into parts;
3. packing, unpacking or repacking operations, etc. for purposes of sale or presentation;
4. slaughtering of animals;
5. washing, cleaning, removal of dust, oxide, oil, paint, or other coverings;
6. ironing or pressing of textiles;
7. simple painting and polishing operations;
8. husking, partial or total bleaching, polishing, and glazing of cereals and rice;
9. operations to colour sugar or form sugar lumps;
10. peeling, stoning and shelling of fruits, nuts and vegetables;
11. sharpening, simple grinding, or simple cutting;
12. sifting, screening, sorting, classifying, grading, matching (including the making-up of sets of articles), cutting, slitting, bending, coiling, or uncoiling;
13. simple placing in bottles, cans, bags, cases, boxes, fixing on cards or boards, and other similar packaging operations;
14. affixing or printing marks, labels, logos or other like distinguishing signs on products or their packaging;
15. simple mixing of goods, whether or not of different kinds;
16. mere dilution with water or another substance that does not materially alter the characteristics of the goods;
17. operations whose sole purpose is to facilitate port handling;
18. a combination of two or more operations specified in subparagraphs (i) to (xvii) above.

13.All operations in the production of a given good carried out in one side shall be taken into account when determining whether the working or processing undergone by that good is considered as minimal operations or processes.

14.Where fungible materials⁷ are used in the production of a good, the following methods shall be adopted in determining whether the materials used qualify as originating:

1. physical separation of the materials;
2. an inventory management method recognised in the generally accepted accounting principles of the exporting side. Such inventory management method should have been used continuously for at least 12 months from the date of commencement.

15.In accordance with the Agreement, in determining whether a good is an originating good, the origin of the following neutral elements⁸ shall be disregarded:

1. fuel, energy, catalysts and solvents;
2. equipment, devices and supplies used for testing or inspecting the goods;
3. gloves, glasses, footwear, clothing, safety equipment and supplies;
4. tools, dies and moulds;
5. spare parts and materials used in the maintenance of equipment and buildings;
6. lubricants, greases, compounding materials and other materials used in production or used to operate equipment and buildings;
7. any other goods that are not incorporated into the good but whose use in the production of the good can reasonably be demonstrated to be a part of that production.

16.In determining the origin of a good, traders shall not take into account containers and packaging materials used for the transport of the good.

17.Where a good is subject to the change in tariff classification criterion in the Product Specific Rules of Origin, the origin of the packaging materials and containers in which the good is packaged for retail sale shall be disregarded in determining the origin of the good, provided that the packaging materials and containers are classified with the good. However, where a good is subject to the RVC requirement, the value of the packaging materials and containers used for retail sale shall be taken into account as originating materials or non-originating materials, as the case may be, in calculating the RVC of the good.

18.Accessories, spare parts or tools presented and classified with a good shall be considered as part of the good, provided that:

1. they are invoiced together with the good;
2. their quantities and values are commercially customary for the good.

19.Where a good is subject to the change in tariff classification criterion in the Product Specific Rules of Origin, accessories, spare parts or tools described in paragraph 18 above shall be disregarded when determining the origin of the good.

20.Where a good is subject to an RVC criterion, the value of the accessories, spare parts or tools described in paragraph 18 above shall be taken into account as originating materials or non-originating materials, as the case may be, in calculating the RVC of the good.

21.Under the Agreement, sets, as defined in General Rule 3 of the Harmonised System, shall be regarded as originating in one side when all component goods are originating in that side.

22.If part of the component goods is not originating in one side, the set as a whole shall be regarded as originating in that side, provided that the value of the non-originating goods as determined in accordance with paragraphs 6 to 8 above does not exceed 15% of the FOB price of the set. In other words, the set as a whole shall be regarded as originating in Hong Kong, so long as that the value of the non-originating goods does not exceed 15% of the FOB price of the set.

23.Zero tariff treatment under the Agreement shall only apply to goods which are transported directly between the two sides.

24.If a good can be considered as originating, traders can apply a certificate of Hong Kong origin - CEPA ("CO(CEPA)") before shipment, in order to enjoy zero tariff treatment under CEPA upon importation into the Mainland. Nevertheless, manufacturers must be registered with TID for Factory Registration ("FR") before they are eligible to apply for CO(CEPA). Further details on the procedures concerning the applications for CO(CEPA) s and other relevant matters will be announced in a separate circular to be issued by TID at a later stage.

25.For goods applying for CEPA zero tariff treatment, the Mainland Customs may request the originating goods claimed to have fulfilled the requirements of the Agreement from Hong Kong to declare origin information upon importation. Importers shall take the initiative to declare that the goods are eligible for zero tariff and to declare relevant origin information in accordance with requirements of the importing customs; and to submit supporting documents relating to importation of the goods. In the event that the origin information cannot be verified through interconnection network when an import declaration is made, the importing customs may, on the request of the importer, release the goods upon payment of a deposit.

26.If the importer fails to inform the importing customs at the port of clearance upon importation that the imported goods are eligible for zero tariff, the paid tariff or deposit will not be refunded even if the importer applies to the customs for zero tariff and declare origin information afterwards.

27.Traders should note that under the Agreement, manufacturers, exporters and importers are required to retain in print or electronically the documents that prove the originating status of the goods for at least three years or any period of time according to the respective laws and regulations. If traders receive requests for additional information from customs, they should respond to the requests promptly and reply within 90 days from the date of receipt. If no reply is received within the deadline, or if the reply does not contain the information necessary to determine the authenticity of the relevant documents or the originating status of the goods in question, the Mainland Customs may deny zero tariff treatment to the goods in question.

28.If the good or CO(CEPA) does not meet the provisions of Chapter 4 of the Agreement; the importer, exporter or manufacturer fails to comply with the provisions of Chapter 4 of the Agreement; or in the case stipulated in paragraph 27 above, the Mainland may deny claim for zero tariff treatment.

29.For enquires on the content of this circular, please contact us through the following channels -

Address:	Factory Registration and Origin Certification Branch 14/F, Trade and Industry Tower 3 Concorde Road, Kowloon City Hong Kong
Telephone No.:	3403 6432
Fax No.:	2787 6048
E-mail Address:	cepaco@tid.gov.hk

Yours faithfully,

(Ms. Esther CHEUNG)
for Director-General of Trade and Industry

¹ Imported goods do not include those prohibited by the Mainland's rules and regulations and those prohibited as a result of the implementation of international treaties by the Mainland, as well as products that the Mainland has made special commitments in relevant international agreements.
² Generally accepted accounting principles means the recognised accounting standards of one side with respect to the recording of revenues, expenses, costs, assets and liabilities, the disclosure of information and the preparation of financial statements. Those standards may encompass broad guidelines of general applications as well as detailed standards, practices and procedures.
³ Originating material means material that qualifies as originating in accordance with the provisions of Chapter 4 of the Agreement.
⁴ FOB means the free-on-board value of the good, inclusive of the cost of transport to the port or site of final shipment abroad.
⁵ Non-originating material means material that does not qualify as originating in accordance with the provisions of Chapter 4 of the Agreement, and material of undetermined origin.
⁶ CIF means the value of the good imported, inclusive of the cost of insurance and freight up to the port or place of entry into the importing side.
⁷ Fungible materials mean materials which are interchangeable for commercial purposes, whose properties are essentially identical, and between which it is impractical to differentiate by a mere visual examination.
⁸ Neutral element means a good used in the production, testing or inspection of another good but not incorporated into that good.