Pace International Law Review Volume 18 Issue 2 Fall 2006 Article 2 September 2006 Closer Integration, Controversial Rules: Issues Arising from the CEPA between Mainland China, Hong Kong, and Macao Jiaxiang Hu Follow this and additional works at: https://digitalcommons.pace.edu/pilr Recommended Citation Jiaxiang Hu, Closer Integration, Controversial Rules: Issues Arising from the CEPA between Mainland China, Hong Kong, and Macao, 18 Pace Int'l L. Rev. 389 (2006) Available at: https://digitalcommons.pace.edu/pilr/vol18/iss2/2 This Article is brought to you for free and open access by the School of Law at DigitalCommons@Pace. It has been accepted for inclusion in Pace International Law Review by an authorized administrator of DigitalCommons@Pace. For more information, please contact [email protected]. CLOSER INTEGRATION, CONTROVERSIAL RULES: ISSUES ARISING FROM THE CEPA BETWEEN MAINLAND CHINA, HONG KONG, AND MACAO Jiaxiang Hut I. Introduction ....................................... 389 II. A Retrospective View of the Trade Relations Between Mainland China, Hong Kong, and M acao ............................................. 390 III. Legal Status of the CEPA Agreements ............ 393 IV. Controversial Rules in the CEPA Agreements ..... 395 V. The Economic Analysis of a Regional Trade Arrangem ent ...................................... 400 VI. Conclusion ......................................... 406 I. INTRODUCTION On June 29, 2003, the central government of the People's Republic of China and the government of Hong Kong Special Administrative Region signed the Closer Economic Partnership Arrangement (CEPA).' Then, on October 17, 2003, with the same title and almost the same contents, the Chinese central t PhD (Edinburgh University, UK), Professor of Law, Shanghai Jiao Tong University. No. 800, Dong Chuan Road, Min Hang District, Shanghai, P. R. China, 200240. Email: [email protected]. I am deeply grateful to Professor Dar- ren Rosenblum of Pace University School of Law for his helpful recommendations and the previous Editor-in-Chief, Nikki Feit, of Pace International Law Review for her careful editing of this article. However, the responsibility for any possible er- rors is still mine. 1 Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), P.R.C.-H.K., June 29, 2003 translated at http://www.tid.gov.hk/english/ cepa/legaltext/fulltext.html [hereinafter Hong Kong CEPA]; Mainland and Macao Closer Economic Partnership Arrangement (CEPA), P.R.C.-Mac., Oct. 17, 2003 translated at http://www.economia.gov.mo/page/english/cepa-e.htm [hereinafter Macao CEPA]. Please note that there are no official English versions of these doc- uments. See http://www.zhuhai-trade.gov.cn/cepa/ (Chinese version). The titles are translated into English by the author. 1 PACE INT'L L. REV. [Vol. 18:389 government signed a similar agreement, Closer Economic Part- nership Arrangement (CEPA),2 with the government of Macao Special Administrative Region.3 Both arrangements have been in effect since January 1, 2004. These two documents indicate a substantial step to further integrate the economies of mainland China, Hong Kong, and Macao. After China entered the World Trade Organization (WTO) on December 11, 2001, 4 the two CEPA agreements have aroused much attention from both the academic and business circles, particularly regarding their ef- fects on economic development in these three areas. Further- more, the issue of whether the rules in the CEPA agreements are in conformity with the provisions of the WTO agreements also merits attention. In the following sections, the author ex- amines the CEPA agreements, particularly Articles 7 and 8, as they apply to the 1994 General Agreement on Tariffs and Trade (GATT), 5 the Anti-dumping Agreement, 6 and the Agreement on Subsidies and Countervailing Measures.7 II. A RETROSPECTIVE VIEW OF THE TRADE RELATIONS BETWEEN MAINLAND CHINA, HONG KONG, AND MACAO Since mainland China, Hong Kong, and Macao have all ob- tained full membership in the WTO, the current trade relations among them are regulated not only by bilateral agreements like CEPA, but also by the WTO agreements. The WTO has both 2 Macao CEPA, supra note 1. 3 Id. 4 See Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1995, 33 I.L.M. 1125, 1144, reprinted in THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS: THE LEGAL TEXTS 11 (Cambridge Univ. Press 1999) (hereinafter WTO Agreement). Hong Kong and Macao acceded to the WTO as original Members in 1994 under Article XI of the WTO Agreement. See id. 5 General Agreement on Tariffs and Trade, Oct. 30, 1947, 55 U.N.T.S. 194 [hereinafter GATT]. 6 Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, in Annex 1A of Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1995, reprinted in THE RESULTS OF THE URU- GUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS: THE LEGAL TEXTS 147 (Cam- bridge Univ. Press 1999) (hereinafter Anti-Dumping Agreement). 7 See Agreement on Subsidies and Countervailing Measures, in Annex 1A of Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1995, reprintedin THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGO- TIATIONS: THE LEGAL TEXTS 231 (Cambridge Univ. Press 1999) (hereinafter Agree- ment on Subsidies and Countervailing Measures). https://digitalcommons.pace.edu/pilr/vol18/iss2/2 2 20061 CLOSER INTEGRATION, CONTROVERSIAL RULES 391 sovereign States and separate customs territories as its Mem- bers, a fact which can be traced back to the GATT history. When the original General Agreement on Tariffs and Trade (GATT) was signed in 1947, there were only twenty-three signa- tories." Many countries, before they gained full independence, were the colonies of western powers. They became GATT con- tracting parties with the sponsorship of their suzerain States under Article XXXIII of GATT 1947, which states: A government not party to this Agreement, or a government act- ing on behalf of a separate customs territory possessing full au- tonomy in the conduct of its external commercial relations and of the other matters provided for in this Agreement, may accede to this Agreement, on its own behalf or on behalf of that territory, on terms to be agreed between such government and the CON- TRACTING PARTIES. Decisions of the CONTRACTING PAR- TIES under this paragraph shall be taken by a two-thirds 9 majority. Among this group of GATT "contracting parties" are Hong Kong and Macao. 10 According to the Sino-British Joint Declaration, 1 signed December 19, 1984, after the Chinese government resumed the exercise of sovereignty over Hong Kong on July 1, 1997, "[t]he Hong Kong Special Administrative Region will retain the status of a free port and a separate customs territory."12 The Declara- tion further states that "[ulsing the name of 'Hong Kong, China', the Hong Kong Special Administrative Region may on its own maintain and develop economic and cultural relations and conclude relevant agreements with States, regions and rel- evant international organizations."1 3 These principles are reaf- 8 See GATT, supra note 5. In his book, THE CREATION OF STATES IN INTERNA- TIONAL LAW, James Crawford made an estimate that shortly before World War II, there were only about seventy-five States on the earth. See JAMES CRAWFORD, THE CREATION OF STATES IN INTERNATIONAL LAW 1 (Oxford Univ. Press 1979). 9 See GATT, supra note 5, at art. XXXIII. 10 Hong Kong and Macao became GATT separate territories under the spon- sorship of United Kingdom and Portugal, their former suzerain States. 11 The Joint Declaration of the Government of the People's Republic of China and the Government of the United Kingdom of Great Britain and Northern Ireland on the Question of Hong Kong, Dec. 19, 1984, translatedat http://www.info.gov.hk- trans/jd/jd2.htm [hereinafter the Sino-British Joint Declaration]. 12 Id. at Point 3(6). 13 Id. at Point 3(10). 3 PACE INT'L L. REV. [Vol. 18:389 firmed in similar words in Article 116 of the Basic Law of the Hong Kong. 14 On April 13, 1987, the Chinese government and the Portu- guese government signed the Sino-Portuguese Joint Declara- tion. 15 Point 2(8) of the Declaration stipulates that after the Chinese government resumes the exercise of sovereignty over Macao on December 20, 1999, "[t]he Macao Special Administra- tive Region will remain a free port and a separate customs terri- tory in order to develop its economic activities."16 The Declaration further states that "[u]sing the name 'Macao, China', the Macao Special Administrative Region may, on its own, maintain and develop economic and cultural relations and in this context conclude agreements with States, regions and relevant international organizations."1 7 Similar wording can also be found in Article 112 of the Basic Law of the Macao.18 Before China became a full member of the WTO, trade reg- ulations between mainland China, Hong Kong, and Macao were different from trade relations between China and other coun- tries. In other words, Hong Kong and Macao received more preferential treatment than other countries under the Chinese domestic law. As China was "poised to finalize its WTO acces- sion process, some small and medium enterprises (SMEs) in Hong Kong feared that they would lose their competitive edge over foreign companies once China's market fully opened up."' 9 Therefore, the SME's pressed the Chinese central government and the governments of Hong Kong and Macao to maintain this special preferential treatment even after China entered the 14 The Basic Law of the Hong Kong Special Administrative Region of the Peo- ple's Republic of China, April 4, 1990, available at http://www.info.gov.hk/basic- law/fulltext/content0205.htm [hereinafter The Basic Law of Hong Kong]. 15 The Joint Declaration of the People's Republic of China and the Govern- ment of the Republic of Portugal on the Question of Macao, Apr.