June 30, 2003	Monday	Rabi-us-Sani 29,1424

HONG KONG, June 29: China on Sunday signed with Hong Kong its first free trade pact since joining the WTO, which the territory hopes will attract overseas investors and drive an economic recovery.

Speaking after attending the historic signing ceremony, Chinese Premier Wen Jiabao, who arrived in Hong Kong Sunday for a three-day visit, said the Closer Economic Partnership Arrangement (CEPA) will cover three areas: trade in services, trade in goods and trade facilitation.

It will come into effect on January 1, 2004, giving firms and professionals in the former British colony, which reverted to Chinese rule in 1997, a crucial headstart over other foreign countries in the race to establish a footing in the huge and potentially lucrative Chinese market.

Under the terms of the agreement, “goods of Hong Kong origin under 273 tariff items would enjoy zero tariffs treatment when coming into the mainland and zero tariffs will apply to other goods of Hong Kong origin no later than January 1, 2006”, said Wen.

On trade in services, “restrictions on equity ratio will be lifted and thresholds on registered capital and technical qualifications lowered”, to effectively grant professionals easier access to the mainland market.

On trade and investment facilitation, China committed itself to simplifying procedures in seven areas including trade and investment promotion, customs clearance and transparency of laws and regulations.

Although Hong Kong reverted to Chinese rule in 1997, it is treated as a separate customs territory. The landmark deal will be consistent with China’s obligations as a member of the 144-member World Trade Organization.

“I hope that this arrangement will bring more opportunities to Hong Kong’s business communities and provide some practical help to Hong Kong’s economic recovery and growth,” he added.

The trade pact is part of Beijing’s pledge to support Hong Kong’s economic recovery after the devastating SARS outbreak in March forced it to halve its 2003 GDP forecast to 1.5 percent from the previous 3.0 percent.

Hong Kong is expected to benefit substantially from the agreement, with many overseas companies wishing to enter the mainland China market, electing to set up their China headquarters in the former British Colony.

Business leaders in Hong Kong welcomed the move.

“It is the most significant development since China’s accession to the WTO and opens up new dimensions in the mainland for Hong Kong-based companies of all nationalities,” Peter Woo, chairman of the Hong Kong Trade Development Council told the official Chinese Xinhua news agency.

“CEPA, with its focus on the liberalization of trade in goods and services, anchors on our world-leading position as a global platform for China business.” However, mainland Chinese businessmen have criticised the deal as being too one-sided with Chinese firms gaining little from the deal.

Some foreign chambers of commerce have also raised concerns that only Hong Kong firms stand to benefit from the agreement.

However, Financial Secretary Antony Leung said the benefits were available to all firms provided they met the specified qualification criteria.

“It does not contain any requirement on nationality so for companies and the criteria to qualify under the arrangement is very definitive — whether they are registered in Hong Kong, how many years they have operated here, whether they are paying taxes ... so these are objective criteria that can apply to companies of any origin or owned by any nationality,” said Leung.

However, he admitted it was difficult to quantify the exact benefit in terms of the number of jobs and amount of GDP that could be generated by CEPA as that “depends on the actual investment and the effort of businessmen and professionals”.

Director-general of the Federation of Hong Kong Industries, Vicky Davies, said being the first region in the world to formulate such a trade arrangement with China “will give us a competitive edge”.

“China is Hong Kong’s second largest market behind the US, but with CEPA, China will easily become the biggest market within five years,” she added.

Official statistics showed that trade volume between Hong Kong and China stood at 1.3 trillion dollars (166 billion US) in 2002, or 42 percent of Hong Kong’s total trade while Hong Kong direct investment in China totalled 1.6 trillion dollars (205 billion US).—AFP