U.s. Hong Kong Trade Agreement

6The definition of “rules of origin” for products is defined in Schedule 2. Approximately 67% of the 273 products covered by the agreement (including jewellery, textiles, clothing, cosmetics, paper and plastics) are defined on a case-by-case basis according to the original criteria currently in force in Hong Kong, in accordance with Article VII of the GATT, which requires “substantial transformation”. In 17% of the categories, including chemicals and metals and certain electronic products, this “substantial transformation” must be significant enough to result in a change in tariff position, according to the four-digit international nomenclature. The agreement therefore provides for the fairly widespread definition of the change in the tariff position in terms of the origin of the product. Finally, for the remaining 16% of the categories (including watch components and optical components), production or processing costs in Hong Kong (including product development costs) must account for at least 30% of the fob (Free On Board) export price. Although Hong Kong had to make concessions on this percentage to the Chinese (their objective was to place this percentage at 25%), they nevertheless succeeded by incorporating development costs into the calculation. 11 In the first four months of the agreement, 869 certificates of origin were applied for under the EPA and 813 were approved, mainly in textiles and clothing (310 authorized) and natic pharmaceuticals (209). In the first quarter of 2004, the decline in exports of products from Hong Kong to China continued, but at a slower pace than in 2003 (-8.4% versus -11.9%), with no change attributable to the EPA. Between January 1 and May 21, 2004, the value of duty-free products was less than HK400 million (US$50 million). 21 It is striking, however, that the benefits of opening up the profession of lawyer and actuaries are reserved for Hong Kong residents, Chinese citizens (a condition necessary for Hong Kong nationality), which excludes residents of foreign origin, who are very numerous in these occupations.

Similarly, permission to open a retail store in Guangdong without any Chinese partners is reserved for Chinese citizens. With the exception of these exceptions, the agreed definition for “Hong Kong enterprises” is very open and does not discriminate 20/18. This open definition, which is one of the most important concessions of the PRC in this agreement, in accordance with Hong Kong`s appointment as an international services market. 3 This agreement is the result of an initiative by the business community, and in particular by the Hong Kong General Chamber of Commerce (HKGCC) in response to concerns about the future of the RAD as a “gateway” between China and the rest of the world, fuelled by the 2001 economic downturn. Despite its reservations, the Hong Kong government supported this initiative and reached an agreement in principle by the central government in December 2001. It took 18 months to complete the EPA. Kurt Tong, a former U.S. consul general in Hong Kong, told Reuters that the U.S. advance would not cover much of Hong Kong`s U.S. trade because the region is not a major production center and its economy is almost exclusively a service.

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