Pursuant to the Closer Economic Partnership Arrangement ("CEPA") signed between Mainland China and Hong Kong SAR on 29 June 2003, the Mainland have applied zero tariff on certain imported goods of Hong Kong origin commencing from 1 January 2004. The term "imported goods of Hong Kong origin" refers to those goods that are listed in Table 1 of Annex 1 of CEPA (now being updated and reclassified in Mainland 2004 tariff codes, product description and origin criteria) and fulfill the requirements stipulated in Annex 2. If these requirements are met, the relevant goods will be entitled to a Certificate of Origin ("CO") to confirm its "of Hong Kong origin" status. The Mainland will also be applying zero tariff to the import of goods of Hong Kong origin that are outside Table 1 of Annex 1 no later than 1 January 2006.
The authorities handling the application for CO and issuing the CO is the Hong Kong Trade and Industry Department ("HKTID") or one of the Government Approved Certification Organizations.
Rules of Hong Kong Origin
Goods directly exported from Hong Kong to the Mainland will have their origin in Hong Kong determined according to the following principles :-
goods wholly obtained from Hong Kong are regarded as originating in Hong Kong; or
goods not wholly obtained from Hong Kong are considered as originating in Hong Kong only if they have undergone substantial transformation in Hong Kong.
In this article, we will be discussing this second criteria only.
The criteria for determining "substantial transformation" include manufacturing or processing operations, change in tariff heading, value-added content, other criteria or mixed criteria. Each of these are defined as follows :-
1. Manufacturing or processing operations
refer to the principal manufacturing or processing operations carried out in Hong Kong which confer essential characteristics to the goods derived after the operations.
2. Change in tariff heading
refers to the processing and manufacturing operations of non-originating materials carried out in Hong Kong and resulting in a product of a different first four-digit tariff heading under the Mainland 2004 tariff codes.
3. Value–added content
refers to the total value of raw materials, component parts, labour costs and product development costs exclusively incurred in Hong Kong being greater than or equal to 30% of the FOB value of the goods being exported and that the final manufacturing or processing operations should be completed in Hong Kong.
4. Other criteria
refers to methods agreed by both sides in determining origin, other than "manufacturing or processing operations", "change in tariff heading" and "value-added content".
5. mixed criteria
refers to the use of two or more of the above criteria in determining origin.
Steps for Applications
Step 1- Factory registration
Manufacturers must first be registered with HKTID in respect of the products they produce for Factory Registration ("FR"). The FR is valid for a year and has to be renewed annually.
Step 2- Certificate of Origin ("CO")
Application for the CO should be submitted to HKTID via Electronic Data Interchange ("EDI") and supported by one corresponding Web Portal submission of Chinese supplementary information.
Provided all documents and information requested by HKTID are met, the target turnaround time for processing a CO application can be as short as 1.5 clear working days (excluding day of receipt, and with Saturday counted as half a working day).
Customs Administration on the Mainland
The exporter/manufacturer will have to submit the CO to the Customs Administration at the port of clearance when the goods arrive at the Mainland port. Customs will verify the information on the CO against the record transmitted by HKTID at the time of issuance of the CO. If the information is in order, the imported goods will be granted zero tariff and the goods will be released. In the event that the information cannot be verified, the Customs Administration at the port of clearance may collect a deposit of an amount equal to the tariff charged at the applicable non-CEPA import tariff rate pending the result of subsequent verification before releasing the goods. The Customs Administration at the port of clearance will, in accordance with the verification results, proceed either to return the deposit or convert the deposit to import tariff.
The above CEPA rules are very useful to manufacturers for reducing the cost of goods imported to Mainland China, especially for those which already have part of their manufacturing process in Hong Kong.
Lawyers in our China Practice department are experienced in advising clients on issues relating to CEPA and its application. Please do not hesitate to contact us if you need a copy of CEPA or have any question relating to China business or investment.
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