The Chinese mainland and Macao are set to sign an expanded agreement of the Closer Economic Partnership Arrangement (CEPA), according to a senior official.

"The two sides are negotiating over the deal, and we are going to sign the agreement very soon," said Ma Xiuhong, vice-minister of commerce, without giving a specific timetable.

The deal, widely called as CEPA Phase II, will be similar to what the central government has signed with Hong Kong Special Administrative Region (HKSAR) late in August, Ma told a seminar yesterday at the Eighth China International Fair of Investment and Trade, which opened in Xiamen of east China's Fujian Province.

The second phase of CEPA will offer Hong Kong and Macao new benefits from the free-trade pact beginning next year.

The first phase of CEPA was implemented on January 1, 2004.

Under the second phase, tariffs will be eliminated on 529 goods currently being produced by Hong Kong manufacturers. Another 184 products currently not made here will be included, so that interested companies might discover their potential and start making them.

At present, 374 products are under the zero-tariff.

Hong Kong businesspeople will face more opportunities as the mainland agrees to grant preferential treatment to Hong Kong companies in eight more industries, including patent and trademark agencies, airport services, entertainment, information technology, job agencies and certification.

Moreover, greater access into 11 out of 18 mainland service sectors, already subject to preferential treatment under the first phase of CEPA, will be made available to Hong Kong investors.

They include accounting, medical and legal services.

The green light has also been given for Hong Kong companies to sell books, newspapers, magazines, medicine, and agricultural chemicals in the mainland. Hong Kong companies will be allowed to build and operate cinemas to screen movies on the mainland. Hong Kong business people will be able to set up their own companies to sell oil products, both retail and wholesale.

When the new CEPA is in place, small and medium-sized enterprises in Hong Kong and Macao are expected to get more benefits. They are the target beneficiaries of CEPA but have not enjoyed the free-trade deal very much, said Hua Xiaohong, a leading scholar of regional economy at the University of International Business and Economics in Beijing.

The second phase of CEPA comes as the grace period of China's accession to the World Trade Organization (WTO) draws to a close in November, which means that restrictions for foreign investment in most sectors will be lifted and import duties will continue to be lessened.

It is against this backdrop that the central government is considering granting Hong Kong and Macao more preferential policies.

Commenting on the effect of the CEPA, Philip Yung, deputy secretary of the Commerce, Industry and Technology Bureau of Hong Kong, said the pact contributed in part to Hong Kong's economic growth of the first half of the year.

"Hong Kong's gross domestic product jumped 6.8 percent and 12.1 percent in the first and second quarters respectively," Yung said. "CEPA plays a big role."

From January to May, a total of US$42.3 million worth of Hong Kong duty free goods entered the mainland, according to official data.

Up to August, the mainland has approved 446 Service Suppliers Certificates to Hong Kong and Macao investors.

The certification is given to qualified Hong Kong and Macao companies which are eligible to enjoy favourable treatment under the CEPA.

A number of Hong Kong and Macao investors have increased their presence on the mainland markets as the CEPA has given them a priority in setting up wholly-owned enterprises in a few sectors.

(China Daily September 9, 2004)