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A New Free Trade Relationship Between Hong Kong and The People’s Republic of China

April-1-2004

Area Asia Practice

Summary


The Closer Economic Partnership Arrangement (CEPA) was signed by the People’s Republic of China and the Hong Kong Special Administrative Region of the People’s Republic of China on June 29, 2003.   CEPA is a regional free trade agreement (FTA) between Hong Kong and the Mainland that reflects the unique “one country, two systems” arrangement between the two jurisdictions.  The effective date of CEPA is January 1, 2004.

The creative idea of a FTA type arrangement between China and Hong Kong  was first raised by the Hong Kong General Chamber of Commerce in early 2000 in light of the impact of China’s anticipated entry into the World Trade Organization (WTO) in November, 2001.  It was recognized that Hong Kong could lose its competitive advantage in dealing with China to other WTO members.  Moreover, Hong Kong was enduring an economic slump and a growing unemployment problem at the time.  It became clear that something needed to be done, and the Hong Kong Chamber of Commerce determined that a free trade arrangement between the Mainland and Hong Kong could prove a useful tool to help the Hong Kong economy.  Ultimately, Hong Kong achieved what it was looking for in the form of the CEPA: a favourable arrangement, with liberalization concessions from the Mainland that go beyond its WTO commitments.  Moreover, the CEPA will permit Hong Kong to maintain its role as a gateway for access to China.

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