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New Trade Deal Increases Hong Kong Competitiveness

Hong Kong and mainland Chinese officials have signed a trade agreement aimed at giving companies and professionals in Hong Kong a head-start over foreign competitors vying to establish a foothold in the huge and potentially lucrative Chinese market.

Chinese Vice Minister of Commerce An Min and Hong Kong's Financial Secretary Henry Tang signed the Closer Economic Partnership Arrangement, or CEPA, on Monday. The trade agreement, which will take effect on January 1, 2004, gives Hong Kong companies greater access and lower tariffs to China's markets than companies from other countries.

Speaking during the ceremony, Financial Secretary Tang described the deal as "open and continuous," but he declined to estimate the dollar value on the benefits of the deal.

He said it was up to the private sector to realize the potential benefits of the arrangement.

The deal's initial framework was put into motion in July but the so-called six annexes signed Monday detail what the accord covers and how it is to be implemented.

Under the terms of the deal, a total of more than 200 different goods amounting to more than 90 percent of Hong Kong's exports to China by value will enter the mainland without facing any import tariffs under CEPA.

The two sides agreed to further trade liberalization on Monday by including telecommunications companies to reap the benefits of CEPA.

Previously agreed upon sectors include banking, accounting, legal, and real estate.

Local officials here hope that the deal could help pull Hong Kong out of its economic slump.

Economic growth here saw sharp declines following the Asian financial crisis of 1997. In contrast China's economic growth has continued to accelerate expanding by about eight percent last year.

Even though Hong Kong was returned to Chinese sovereignty in 1997 after a 150 years of British rule, local companies are often treated like foreign firms when doing business in China.

However, China's recent accession to the World Trade Organization means that CEPA's benefits will be short term as Beijing is already opening its markets to foreign firms in phases.

Howard Gorges, who directs Wah Shing International, a Hong Kong company that manufacturers toys for American companies in China, said the deal might encourage some foreign firms to set up in Hong Kong with the hope gaining an early entry to the mainland.

"In cases where intellectual property is important foreign companies might set up in Hong Kong because of the protection of intellectual property here," he said. "But I don't think we're going to become a big manufacturing hub again."

However, Mr. Gorges says the largest beneficiaries of the deal will likely be niche service sector companies that provide business consulting, legal advice or medical services.