What Free Trade Agreements Can Hong Kong Businesses Capitalise On?

Hong Kong's position as a global financial hub is further bolstered by its extensive network of free trade agreements (FTAs). These agreements act as bridges, connecting Hong Kong businesses to lucrative markets worldwide and simplifying cross-border trade.  

Let's delve deeper into some key agreements and explore the specific benefits they offer to various industries.

A Closer Look at Key Trade Agreements

In this article, we will be focusing on the first five FTAs due to their greater economic significance.

China

The Mainland and Hong Kong Closer Economic and Partnership Arrangement (CEPA) is the first and potentially most important FTA signed by Hong Kong. The FTA covers four key areas:

• Trade in goods

• Trade in services

• Investment

• Economic and technical cooperation

One of the most significant benefits of CEPA is the elimination of tariffs on most goods manufactured in Hong Kong that meet the agreement's rules of origin. This translates to increased competitiveness for Hong Kong businesses, as they can now offer their products to mainland China customers without the burden of import duties.  

Additionally, CEPA simplifies customs procedures and reduces trade barriers, saving businesses time and money when shipping goods across the border.

Beyond facilitating the export of goods, CEPA opens doors for Hong Kong service providers in a wide range of industries. The agreement grants access to mainland China's service sector in areas like finance, legal services, and tourism. This allows Hong Kong businesses to tap into a vast and lucrative market, offering their expertise and services to a wider customer base.

CEPA opens a door to the vast Chinese market for a wide range of Hong Kong stakeholders. Manufacturers can export goods tariff-free if their products meet the agreement's rules of origin requirements.  

Service providers and professionals are among the most well-positioned as CEPA provides access to new sectors and smoother entry procedures, allowing them to tap into a massive customer base. Meanwhile, foreign investors can establish companies in Hong Kong to enjoy CEPA advantages for both goods and services trade.

It is worth highlighting that CEPA isn't just limited to Hong Kong companies. Companies incorporated in Hong Kong by investors from outside the region can also benefit from the agreement's provisions, opening doors for international businesses looking to access the Chinese market through a Hong Kong base.

🔑 Read More: How To Make HKD To RMB Payments From Hong Kong

European Free Trade Association States

In 2011, Hong Kong and the European Free Trade Association (EFTA) consisting of Iceland, Lichtenstein, Norway and Switzerland signed a landmark free trade agreement covering trade in services and goods, investment, protection of intellectual property and more – creating a significant boost for businesses on both sides.  

A key advantage lies in the expanded access for Hong Kong service providers. The agreement covers a wide range of industries, from finance and professional services to communication and tourism.  

With zero restrictions on foreign capital, the value of service transactions, number of persons employed, or joint venture requirements for various service sectors, Hong Kong businesses can establish a strong presence and compete effectively within the EFTA markets. Additionally, streamlined procedures for temporary entry of professionals and business visitors further facilitate the trade of services between Hong Kong and EFTA member states.

Another major benefit is duty-free access for goods. Hong Kong manufacturers can export most industrial goods and processed agricultural products tariff-free to Iceland, Liechtenstein, Norway, and Switzerland.  

Manufacturers and exporters will also be exempted from anti-dumping duties, which is determined by the difference between the goods’ export price and its local price in Hong Kong. The EFTA simplifies customs procedures which means Hong Kong businesses will face less administrative work and enjoy faster movement of goods across borders.  

ASEAN

While FPS may suit the needs of smaller businesses or merchants, it will not be sufficient for a larger business that makes frequent payments of either HKD or RMB,

The ASEAN-Hong Kong Free Trade Agreement (AHKFTA) presents a game-changer for Hong Kong businesses, particularly those dealing in goods and services. This agreement streamlines trade procedures, eliminates or reduces tariffs, and opens doors to new markets within all ASEAN member countries.

One of the most significant advantages of the AHKFTA is the substantial reduction or elimination of customs duties on traded goods. Hong Kong and Singapore committed to eliminate customs duties on all products upon the FTA coming into force, while Brunei, Malaysia, the Philippines, and Thailand adopted a phased approach, committing to eliminate 85% of all tariff lines within 10 years. Indonesia and Vietnam have pledged to remove 75% of all tariff lines in the same period.  

🔑 Read More: The Wallex Country Report: Vietnam

Customs administration is another feature of the AHKFTA. It seeks to ensure consistent and predictable procedures across borders, reducing red tape and expediting the movement of goods. Businesses no longer have to navigate a complex web of varying customs regulations depending on the specific ASEAN country they are trading with.  

Additionally, traders can obtain written advance rulings on issues like product classification and origin, which were previously inconsistent and highly dependent on the Customs offices or authorities in question. This initiative offers more certainty, predictability, reliability and consistency in exporting and importing goods between ASEAN and Hong Kong, allowing businesses to plan their logistics and pricing strategies more effectively.  

Chapter 8 of the AHKFTA aims to expand trade in services among member countries through the removal of restrictive measures affecting trade in services. Such steps are especially important to manufacturers and traders of goods who likely need to undertake services-related activities to support their international business.  

Specifically, these rules require all parties to treat local and foreign suppliers equally in similar circumstances, and provide access to foreign service suppliers. Examples for the latter include the removal or reduction of restrictions on foreign capital participation, the value of service transactions, or the number of persons employed.

Key ASEAN member state have made some significant commitments market access under AHKFTA. Here’s a few of them:

• Indonesia: Allows foreign equity participation not exceeding 51% (higher than the WTO’s 49%) for construction and related engineering services

• Malaysia: Opens urban planning and landscape architectural services and maritime freight forwarding services

• Philippines: Opens ship building services; allows foreign nationals in the financial leasing sector to own up to 50% of the voting stock  

• Thailand: Opens arbitration services allowing foreign arbitrators to provide services in Thailand under domestic laws and regulations

🔑 Read More: The Wallex Country Report: Indonesia

Australia

The Australia-Hong Kong Free Trade Agreement, along with the accompanying Investment Agreement, offers significant advantages for Hong Kong businesses. In particular, Hong Kong exporters are well-positioned to benefit from the FTA as it eliminates tariffs on a vast majority of goods entering the Australian market, effectively providing duty-free access for goods.

In the services sector, Australia has moved to liberalise the full range of arbitration, conciliation and mediation services and certain rail transport services. These are significant as Australia has not offered such commitments to its other FTA partners, except New Zealand. Australia has also made service commitments in sectors such as business, finance, and telecommunications, which are areas where Hong Kong has strengths for further development.

Professionals can travel freely between Hong Kong and Australia under the FTA, which allows businesses to deploy specialists for temporary on-site work on projects in Australia, such as engineers or financial consultants. Procedures for temporary entry and stay have been streamlined, allowing businesses to manage their workforce needs with greater ease.

Hong Kong investors in Australia will receive robust protections as well, with guarantees of non-discriminatory treatment for investments, fair and equitable treatment, and protection against expropriation. Investors can also freely transfer their investments and returns.

New Zealand

The New Zealand-Hong Kong Closer Economic Partnership Agreement (CEP Agreement) is very similar to the Australia-Hong Kong Free Trade Agreement. For instance, it eliminates tariffs on all originating products from Hong Kong that comply with the preferential rules of origin and relevant procedures.  

Provisions are also in place to minimise the use of trade remedies, promote competition, ensure effective protection of intellectual property rights, and facilitate access to each other's government procurement markets.  

Market access across a wide range of service sectors is enhanced under the FTA, allowing Hong Kong service providers to operate with much more freedom and flexibility. This includes  

• being treated no less favourably than their New Zealand counterparts in similar circumstances;  

• being exempted from restriction in the form of limitations on foreign capital, value of service transactions or number of persons employed;

• not being required to establish or maintain any form of enterprise, or to be resident, in New Zealand as a condition for the supply of cross-border trade in services

• automatically enjoying liberalisation measures that New Zealand undertakes in future FTAs with other trading partners

Service sectors of traditional importance to Hong Kong are covered under these commitments, which include:

• Education services

• Medical services

• Testing and certification services

• Maritime transport services

• Logistics and related services

• Audiovisual services

• Business services (accounting, auditing, bookkeeping, computer services, management consulting, services incidental to manufacturing)

The CEP Agreement also includes a set of robust disciplines on domestic regulation. It ensures that measures affecting trade in services are transparent, administered in a reasonable, objective and impartial manner, and do not become unnecessary barriers to trade.

🔑 Read More: Choosing the Best Multi-Currency Account for Businesses

Capitalise on Hong Kong’s FTAs with Wallex

As shown above, there are no shortage of ways to make payments of HKD to RMB. Still, each method has its own pros and cons and switching between different platforms to perform payments which give you the best fees or FX rates can get tedious quickly.

Wallex is designed to help businesses like yours to receive, hold, convert and pay with better speed, support and savings. Our fully digital platform makes payments to Hong Kong’s FTA partners fast and seamless, whether you’re converting HKD to CNH, HKD to PHP, HKD to EUR, or other currencies.  

Settlements take no more than one business day and with our global network of liquidity providers you’ll get the most competitive FX rates, zero hidden fees, and maximum savings.  

What truly makes Wallex the ideal partner for your cross-border needs is the support you’ll enjoy from your dedicated Account Manager. They will always be ready to support your business’s needs, assist to expedite urgent transactions, and address any issues you face.  

Are you ready to do business beyond Hong Kong? Speak to us today!