22 January, 2020
The Agreement on Trade in Services of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is a free trade agreement concluded between the Mainland and Hong Kong. Under the CEPA framework, there are four agreements, namely, the Agreement on Trade in Services, the Investment Agreement, the Agreement on Economic and Technical Cooperation,and the Agreement on Trade in Goods. The Amendments to the Agreement on Trade in Services of CEPA (Amendment) was signed on 21 November 2019, and will come into force on 1 June 2020.
The Mainland’s liberalisation commitment to Hong Kong in trade in services is made by means of the negative list and the positive list under the Agreement on Trade in Services of CEPA. That is to say, Mainland’s reserved restrictive measures to commercial presence (as defined below) are listed in the form of the negative list, and, except for restrictions listed therein, there are no extra restrictions in the field of commercial presence; while, cross-border services (as defined below) are liberalised by using the positive list. Commercial presence here means, any type of business or professional institutions of a party, through the establishment, acquisition or operation of a legal person in the territory of the other party to provide services, or otherwise setting up or operating a branch or a representative office therein. The cross-border services under the trade in services mean,
(i) the supply of a service from the territory of one party to the territory of the other party;
(ii) the supply of a service in the territory of one party to the service consumer of the other party;
(iii) the supply of a service by a service supplier of one party, through the presence of natural persons in the territory of the other party.
The Amendment deleted the chapters regarding telecommunication services and cultural services in the main text of the Agreement on Trade in Services of CEPA, and deleted the original provisions that commercial presence and cross-border services do not include commercial presence and cross-border services under the telecommunication services and cultural services.
The revisions under the Amendment are mainly made to Annex 1 of the Agreement on Trade in Services of CEPA:
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the Mainland’s Specific Commitments on Liberalisation of Trade in Services for Hong Kong, including, shortening and amending its Table 1 – (Reserved Restrictive Measures under Commercial Presence (Negative List));
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adding new liberalisation measures to Table 2 – (Liberalisation Measures under Cross-border Services (Positive List)); and
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reorganising the original Table 3 – (Liberalisation Measures under Telecommunications (Positive List)) and Table 4 – (Liberalisation Measures under Cultural Services (Positive List)) as commercial presence and cross-border services and consolidating them into Table 1 and Table 2 of Annex 1.
The Amendmentadded altogether 26 liberalisation measures in the positive list with a total of 34 further liberalised items. The new liberalisation measures cover multiple important industries in Hong Kong, such as law, inspection and certification, telecommunication, culture and entertainment, finance, tourism, etc. The liberalisation measures include the cancellation or relaxation of the restrictions on equity ratio, capital requirements, business scope and the relaxation of the qualification requirements for the establishment of enterprises. Specific examples of the Mainland’s newly-added liberalisation measures on trade in services under the Amendmentare set out below:
A. Legal services
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In respect of Hong Kong-Mainland law firms forming association in the form of partnership, the minimum ratio (currently 30%) of capital contribution for Hong Kong partner firms has been removed.
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The scope of practice for the Hong Kong-Mainland law firms in association in the form of partnership in Guangdong province has been expanded, and restrictions on employment and requirements on secondment are relaxed. Specifically, Mainland lawyers can accept and undertake administrative litigation affairs governed by Mainland laws; partnership law firm can directly employ Mainland and Hong Kong lawyers in the name of the firm; and suitably reduce the number of lawyers seconded to the partnership law firm.
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Allow Hong Kong legal practitioners to be concurrently engaged as legal consultants by not more than 3 Mainland law firms, and cancel the relevant approval requirements and replace it with the record management, and without the need for annual registration.
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Relax restrictions on legal practice. Hong Kong legal practitioners are allowed to obtain practice qualification in the nine cities in the Pearl River Delta of the Guangdong-Hong Kong-Macao Greater Bay Area by passing a special examination and to engage in legal matters on specific areas related to the Mainland.
B. Inspection and certification services
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In the field of China Compulsory Certification (CCC) System, the present scope of inspection undertaken by qualified Hong Kong testing organisations in cooperation with Mainland designated organisations on CCC products processed or manufactured in the Mainland or processed in Hong Kong is expanded to CCC products processed or manufactured in any region.
- In the field of CCC, qualified Hong Kong certification organisations can cooperate with the Mainland CCC certification bodies on CCC factory inspection with the scope expanded to cover factories manufacturing CCC products in the whole of Mainland, and further allowed to cooperate to select post-certification test samples at factories manufacturing CCC products in the whole of Mainland.
C. Telecommunication services
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Allow Hong Kong service suppliers to distribute fixed/mobile telephone service cards which can only be used in Hong Kong in the whole of Mainland (no longer limited to Guangdong Province as originally stipulated).
- Allow Hong Kong residents who meet relevant regulations to take the professional and technical communication qualification exam.
D. Cultural services
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The shareholding proportion restriction of Hong Kong service suppliers engaging in the printing of publications and other printed matters (excluding packaging and decoration printed materials), has been relaxed from not more than 49% to not more than 70%.
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Remove the restrictions on the number of Hong Kong produced television dramas and television animations imported by Mainland television stations, audiovisual websites and cable television networks, and relax the restrictions on the number and time of broadcast.
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Relax the restrictions on the percentage of principal creative personnel, Mainland-related contents, and investment proportion etc., for television dramas co-produced by Hong Kong and the Mainland; and shorten the time limit for approval of proposed synopses of co-produced television drama.
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For films jointly-produced by Hong Kong and the Mainland, there is no restriction on the percentage of principal creative personnel, actors and Mainland-related contents. Restrictions on the number of Hong Kong people participating in Mainland film production are removed. The declaration administrative fees for establishing the Mainland and Hong Kong co-production films project are abolished.
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For other cultural fields, a series of liberalisation measures has been newly added.
E. Financial services
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Allow Hong Kong-funded banks to take capital guarantee deposits of Mainland insurance companies. Allow Hong Kong service suppliers, subject to approval, to invest in trust companies, financial asset management companies, corporate group finance companies, financial leasing companies, automobile finance companies, money brokerage companies and consumer finance companies.
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Reduce the threshold for Hong Kong insurance companies to enter the Mainland insurance market. Relax requirements on capital and experience. Cancel restrictions on shareholding proportion for Hong Kong insurance companies holding shares in Mainland insurance companies. Support Mainland insurance companies to issue catastrophe bonds in the Hong Kong market.
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Beside the aforesaid, in aspect of financial services, the newly added liberalisation measures include but not limited to, proactively implementing and exploring ways to promote the Mainland-Hong Kong Mutual Recognition of Funds, enhancing the variety of products under the Mainland-Hong Kong mutual market access programme, allowing companies with weighted voting rights structure as listed in Hong Kong to be included as eligible investment targets under Mainland-Hong Kong mutual market access programme upon fulfilment of certain criteria, and exploring ways to expand the scope of eligible products under the mutual market access programme, including ETFs (Exchange-Traded Funds).
F. Tourism services
Optimise the 144-hour visa-exemption transit policy for foreign tour groups entering the Pearl River Delta Area and Shantou city from Hong Kong, increase the number of inbound control points and expand the area they are allowed to stay in.
Conclusion
The Amendment gradually reduces or removes the discriminatory measures between the Mainland and Hong Kong on trade in services. Compared with other foreign investment management measures, the Amendment gives Hong Kong service suppliers more preferential treatments than other foreign investors, and further consolidates the advantages to the “forerunners” of Hong Kong’s service industry. At the same time, the Amendmentalso has some pilot liberalisation measures that are tried out for the first time in the nine cities of the Pearl River Delta of the Guangdong-Hong Kong-Macao Greater Bay Area, which would be conducive to the construction and development of the Greater Bay Area.
For further information, please contact:
Myles Seto, Partner, Deacons
myles.seto@deacons.com.hk
