The Mainland (China) and Hong Kong Special Administrative Region Closer Economic Partnership Arrangement (hereinafter CEPA)is the first Free Trade Agreement (hereinafter FTA) between the Mainland China and one of its separate customs territories, the Hong Kong Special Administrative Region (hereinafter HKSAR), and also the first regional trade agreement between two customs territories of one country under the framework of the World Trade Organization (hereinafter WTO).The conclusion of the CEPA raises new issues for both international law and Chinese domestic law.This article focuses on the legal status of the CEPA, i.e. whether the CEPA is a lawful agreement from international law and domestic law perspectives.

Unlike other closer economic partnership agreements,the CEPA does not directly use the word of agreement or treaty, but arrangement.Although the designation given to an agreement is legal irrelevant per se,and the term arrangement may also be used as the term of treaty,it may be meaningful under certain circumstance. More significantly, another free trade agreement which is under negotiations between Hong Kong and New Zealand is entitled Closer Economic Partnership Agreement,not Closer Economic Partnership Arrangement.Is there any reason for the special wording of the CEPA?Is the difference of the wording intentional?

From the negotiating history of the CEPA, the term arrangement was the result of an understanding of the Mainland and HKSAR negotiators that most FTAs in the world are preferential agreements among states, while the negotiated trade agreement between the Mainland and the HKSAR was under one country, i.e. China.Therefore, based on the principle of the one country, two systems,the agreement was entitled arrangement. So the term arrangement, instead of agreement, is intentional, which leads to another question: Does it imply a different legal status of the CEPA?From international law standpoint, states cannot avoid an instrument being a treaty merely by giving it a title suggesting otherwise,so it is a little hasty to make a conclusion that the CEPA is not an international agreement just because of its special title.In order to know the legal status of the CEPA, it is necessary to look at two sides.One side is the place of the CEPA under international law.The other side is the place of the CEPA under PRC domestic law and HKSAR domestic law, especially those laws authorizing the conclusion of treaties, which are called constitutional requirements for the validity of treaties.Nevertheless, the precondition to identify the legal status of the CEPA is to clarify its nature.

I． Nature of the CEPA

There is not such a term as free trade agreement or free trade area in the main body of the CEPA and its six annexes, which may raise the question of whether the CEPA is a FTA.In some Chinese scholars view, the CEPA is not a FTA, but a new type of regional trade agreement under the WTO framework, a so-called creation. In my view, although there is no wording of FTA, the nature of the CEPA is still a free trade agreement.#p#分页标题#e#

Firstly, from perspective of content, the CEPA provides that the Mainland and Hong Kong will apply zero tariff to imported goods from each other,which complies with the main characteristic of a FTA.Secondly, from perspective of form, the CEPA was notified to the WTO in the name of a FTA.On 27 December 2003, China and Hong Kong notified the CEPA to the WTO (Committee on Regional Trade Agreements and the Council for Trade in Services) based on Article XXIV:7(a) of the GATT 1994 and Article V:7(a) of the General Agreement on Trade in Services (GATS), and requested that it should be circulated to the WTO Members.The notification clearly states that the purpose of the CEPA is to establish a free trade area within the meaning of GATT Article XXIV and GATS Article V.On the same day, China and Macao gave a similar notice to the WTO about the CEPA between China and Macao, also including the wording of a free trade area. Thirdly, in an official document made by the General Office of the PRC State Council, the CEPA is deemed as an agreement to establish a free trade area. Fourthly, in the WTO practice, the CEPA has been regarded as a FTA also.For example, in a meeting of the Council for Trade in Goods of the WTO held in January 2004, the two CEPAs (one with Hong Kong, the other with Macao) were deemed to be regional trade agreements and treated together with two other FTAs. Both the Mainland China and Hong Kong have not indicated any intention to create a new type of regional trade agreement.In fact, the CEPA neither breaks through the scope of GATT Article XXIV, nor creates a new type of regional trade agreement, which is inconsistent with the WTO.On all accounts, the CEPA is a FTA in nature.

II． Position of the CEPA under International Law

According to the 1969 Vienna Convention on the Law of Treaties (hereinafter the Vienna Convention), a treaty is an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation. Although the Vienna Convention does not preclude non-state subjects from concluding a treaty,it is generally acknowledged that the subjects of concluding treaties are states and international organizations. So far, there has been no international rule allowing two regions under one state to conclude treaties.

It seems that the CEPA, under the Vienna Convention accepted by both the PRC and the HKSAR,is not a treaty because it is not concluded between States.One side, the Mainland (neidi), is the main body (zhuti) of the PRC.Another side, the HKSAR, is a Special Administrative Region of the PRC, with a high degree of autonomy. Historically, the PRC resumed its sovereignty over Hong Kong on 1 July 1997 according to the Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Peoples Republic of China on the Question of Hong Kong (hereinafter Sino-British Joint Declaration) concluded on 19 December 1984,which is a treaty between the PRC and the United Kingdom. The legal status of Hong Kong was announced in the Sino-British Joint Declaration as being directly under the authority of the Central Peoples Government of the Peoples Republic of China,and this status is further confirmed in the constitutional document of Hong Kong, i.e. the HKSAR Basic Law (Jibenfa). #p#分页标题#e#

The economic foundation of establishing a FTA between the Mainland China and the HKSAR is that each side has a different customs system.Hong Kongs status of a separate customs territory has long been affirmed by the GATT/WTO.Unlike the United Nations whose members should be states,WTO is composed of both states and separate customs territories. Jackson pointed out, full nation-state ‘sovereignty is not a condition of [GATT/WTO] membership. Hong Kong, as a separate customs territory, became a contracting party of the GATT on 23 April 1986 after the United Kingdom declared Hong Kong to possess full autonomy respecting to external commercial relations and to be a contracting party of the GATT according to GATT Article XXVI:5(c). Macao became a contracting party of the GATT, as a separate customs territory also, on 11 January 1991 after a similar declaration to GATT by the government of Portugal. Since 1 January 1995, Hong Kong and Macao has been WTO Members in the name of Hong Kong, China and Macao, China. After their handover to China,Hong Kong and Macao remain the status of separate customs territories under Chinas sovereignty and the membership in the WTO.

Under the WTO, a free trade area can be established between two or more customs territories. According to Article XXIV of the GATT 1994, a customs territory means any territory with respect to which separate tariffs or other regulations of commerce are maintained for a substantial part of the trade of such territory with other territories. The Mainland China and the HKSAR have two different customs systems, so they are two customs territories under the WTO.Accordingly, the two contracting parties of the CEPA, as two different customs territories in one sovereign state,could establish a free trade area.However, the possibility of concluding a FTA between two customs territories under the WTO does not mean the FTA is definitely an international agreement under international law.Because the two parties (also two customs territories) of the CEPA are under one state, the CEPA is different from a typical international agreement.Indeed, it is highly difficult, if not impossible, to find international law basis of giving the CEPA the status of a treaty. Nevertheless, is it possible to find any domestic law basis of giving the CEPA the status of a treaty, or an international agreement?

III． Position of the CEPA under PRC Domestic Law

According to the PRC Constitution (Xianfa),the Standing Committee of the National Peoples Congress (NPC) shall ratify treaties and important agreements concluded with foreign states. Treaties and important agreements refer to:

(1)treaties of friendship and cooperation, treaties of peace and similar

treaties of a political nature;

(2)treaties and agreements relating to territory and delimitation of#p#分页标题#e#

boundary lines;

(3)treaties and agreements relating to judicial assistance and

extradition;

(4)treaties and agreements which contain stipulations inconsistent with

the laws of the PRC;

(5)treaties and agreements which are subject to ratification as agreed by

contracting parties; and

(6)other treaties and agreements subject to ratification.

It is evident that the CEPA, if it is a treaty or important agreement, does not belong to category (1) to (5).Moreover, CEPA Article 23 provides that the CEPA shall come into effect on the day of signature, which is different from Chinas WTO accession agreement authorized by the NPC Standing Committee before the conclusion of the accession protocol. The CEPA, as a free trade agreement, is also different from the first free trade agreement that China signed with the ASEAN countries, i.e., the ACFTA Framework Agreement.The latter requires the internal ratification procedures for its entry into force. From the wording of CEPA Article 23, it is unnecessary to get ratification from the NPC or its Standing Committee, because the CEPA took effect on the day of the signature. More significantly, the CEPA did not get prior or post authorization from the NPC or its Standing Committee, and after the conclusion of the CEPA, the NPC or its Standing Committee did not raise an objection to it, or ask to review it.This acquiescence implies that the CEPA does not belong to category (6) of the treaties and important agreements that are subject to ratification. Therefore, the CEPA is the not a treaty or an important agreement under Chinas legal system. However, is the CEPA an unimportant international agreement?

In China, the law regulating conclusion of treaties is the Law of the PRC on the Procedure of the Conclusion of Treaties. Article 2 of the Law provides: This Law shall be applicable to bilateral or multilateral treaties and agreements and other instruments of the nature of a treaty or agreement concluded between the Peoples Republic of China and foreign states. (Emphases added) Beyond all doubts, Hong Kong, as a Special Administrative Region, is part of China, not a foreign state, which excludes the application of the Law of the PRC on the Procedure of the Conclusion of Treaties.

The only Chinese law directly related to the conclusion of free trade agreements or other regional trade agreements is the Foreign Trade Law (2004 amended). Article 5 of the Foreign Trade Law provides: The Peoples Republic of China shall, based on the principle of equality and mutual benefit, promote and develop trading relations with other states and regions, conclude or join customs union agreements, free trade agreements or other regional economic and trade agreements, join regional trade organization. (emphases added) It seems that the PRC may conclude FTAs not only with states, but also with regions.Do the regions include Special Administrative Regions like Hong Kong and Macao?The Foreign Trade Law does not define the concept of regions, however, Article 69 of the Foreign Trade Law expressly provides that the law does not apply to Hong Kong or Macao. Therefore, the Foreign Trade Law cannot be the legal foundation for the conclusion of the CEPA though it is the only direct legal source for China to conclude regional trade agreements.#p#分页标题#e#

On the face, the CEPA is an agency-to-agency agreement.The HKSAR government agency responsible for signing the CEPA is the Department of Finance of the HKSAR. The corresponding PRC government agency is the Ministry of Commerce (hereinafter MOFCOM), which had obtained the authorization from the State Council. Meanwhile, the MOFCOM has the function of CEPA negotiations and implementation. This function also comes from the authorization of the State Council. Therefore, the CEPA could be regarded as an agreement between the PRC central government and the HKSAR government.According to Article 3 of Organization Law of the State Council of the PRC (Zhonghua Renmin Gongheguo Guowuyuan Zuzhifa), the State Council shall perform functions and powers authorized by the PRC Constitution.However, the PRC Constitution does not empower the State Council to conclude treaties or agreements with a Special Administrative Region.Thus, the State Council has no power to authorize the MOFCOM to conclude agreements with the HKSAR. Strictly speaking, the conclusion of the CEPA is an act of ultra vires made by the State Council.In deed, there is no legal position of the CEPA under current Chinese domestic law, in other words, the CEPA exists in a legal vacuum without Constitutional basis.Thus, it seems appropriate to say that the CEPA is de jure invalid, although it is de facto effective.

IV. Position of the CEPA under HKSAR Domestic Law

The HKSAR has the capacity to conclude certain treaties and international agreements in the name of Hong Kong, China.This capacity is first guaranteed by paragraph 3(10) of the Sino-British Joint Declaration, which states: The HKSAR may on its own, using the name ‘Hong Kong, China, maintain and develop economic and cultural relations, and conclude relevant agreements with states, regions and relevant international organizations . . . . (Emphases added)The Annex 1 of the Sino-British Joint Declaration further explains Chinas basic policy for Hong Kong, which once again acknowledges Hong Kongs power to conclude agreements relating to economic, trading, financial, shipping, communication, tourism, cultural, sporting or other areas with states, regions and relevant international organizations. Besides, Hong Kongs capacity to conclude agreements was further confirmed in Hong Kong domestic law.Article 151 of the HKSAR Basic Lawreads as follows:

The Hong Kong Special Administrative Region may on its own, using the name Hong Kong, China, maintain and develop relations and conclude and implement agreements with foreign states and regions and relevant international organizations in the appropriate fields, including the economic, trade, financial and monetary, shipping, communications, tourism, cultural and sports fields.

All above legal documents allow the HKSAR to conclude certain kinds of agreements with states and regions, but the problem is that none have defined the domain of states or regions.It is out of question that the HKSAR has the full capacity to conclude trade agreements with states such as France, Germany or the United Kingdom, but is the HKSAR able to conclude trade agreements with the Mainland China? If so, is the Mainland China regarded as a state or a region in the agreement?What is the legal status of such agreement under the HKSAR legal framework?There is not a clear answer from current Hong Kong laws.In accordance with Article 18 of the HKSAR Basic Law, the laws applicable to Hong Kong include three parts, i.e., the HKSAR Basic Law, the laws previously in force in Hong Kong before the enactment of the HKSAR Basic Law,and the laws enacted by the legislature of the HKSAR, all of which fail to provide any legal basis upon which an agreement between the Mainland and the HKSAR can be established.Moreover, it is noteworthy that both the Sino-British Joint Declaration and the HKSAR Basic Law provide that HKSAR may use the name of Hong Kong, China to conclude agreements with states, regions and international organizations.However, in the CEPA, the HKSAR uses the name HKSAR as a contracting party, instead of Hong Kong, China.This subtle difference in languages further increases the distance between the CEPA and the HKSAR Basic Law. #p#分页标题#e#

V．Suggestions for a Lawful CEPA

The prevailing academic view is that there cannot be bilateral treaties between China and the HKSAR. It is evident, after excluding the possibility of an international agreement between the Mainland and Hong Kong, the CEPA is merely an interregional agreement in one country.Even so, no legal basis exists for the conclusion of interregional agreements between the Mainland and its Special Administrative Regions.Although Chinese scholars generally take the view that the CEPA is not an international agreement,few raise doubts about its legal validity.On the contrary, the CEPA is highly acclaimed as a creation (chuangju) in China,but unfortunately, such a creation is not likely to create legal validity for itself.

It seems that the issue of concluding agreements between the HKSAR and the Mainland China was beyond the considerations of Chinese and British negotiators when they negotiated conditions for the handover of Hong Kong from the United Kingdom to China, and it was also outside the thoughts of the draftsmen of the HKSAR Basic Law.The HKSAR Basic Law does not provide domestic law origin to satisfy the constitutional requirements of the validity of agreements between the Mainland and the HKSAR.Moreover, although the HKSAR Basic Law is only applicable to the territory of Hong Kong, it is also well known in the Mainland because it is the Mainland that enacted it.Therefore, the lack of interregional-agreement-making capacity for both the Mainland and the HKSAR is manifest to each other. In such case, because the conclusion of the CEPA is, internationally and domestically, unlawful, the CEPA has to be deemed to be an unlawful interregional FTA, except under the framework of the WTO which allows two separate customs territories to establish a FTA provided the FTA is consistent with GATT Article XXIV and GATS Article V.

If the conclusion of the CEPA is unlawful due to contractual incapacity of the two sides of the agreement, then another question arises: What is the legal basis of applying the CEPA in the Mainland and the HKSAR under the principle of the one country, two systems?On the one hand, since the CEPA is not an international agreement, it is not Chinas international law duty to implement it.On the other hand, because the CEPA cannot be conferred legal status under existing domestic law of the PRC and the HKSAR, it is not the legal duty of the PRC or the HKSAR to implement the arrangement.The realistic basis of implementing the CEPA in Mainland China and Hong Kong seems to be from the wills of the political leaders, especially from the PRC central governments strong determination to support the economic stability and prosperity of the HKSAR.Nevertheless, an overemphasis on political purpose without regard to legal feasibility is a departure from Chinas newly-established rule of law (fazhi).

For the purpose of legalizing the CEPA and future agreements between the Mainland China and the HKSAR, this article brings forward following options. #p#分页标题#e#

The first option is to amend the PRC Constitution.As discussed in the previous section, the NPC Standing Committee merely ratifies treaties and important agreements with foreign states. The CEPA, as a FTA in nature, concerns Chinas fundamental foreign trade policy, and the commitments in the CEPA are deeper and broader than Chinas commitments in the WTO.Accordingly, the CEPA will have a great impact on Chinas existing laws, although not as much as what the WTO has.In the notice issued by the General Office of the State Council, entitled the Notice on Relevant Works for Implementing the CEPA,the State Council requires that the existing policy and rules should be adjusted and revised according to the CEPA,which clearly indicates the importance of the CEPA.Therefore, the PRC Constitution may include free trade agreements in important agreements, and broaden the agreement-making subjects so as to contain Special Administrative Regions, as well as foreign states.One potential issue of this option is that it may weaken the authority of the NPC or the principle of the One Country, Two Systems because it may bring the HKSAR and the Mainland on an equal footing.A stand-by option is that free trade agreements are regarded as ordinary agreements, which are subject to the approval of the State Council.This stand-by option also needs the amendment to the PRC Constitution in order to include agreements with Special Administrative Regions.

The second option is to make amendment to the HKSAR Basic Law.The existing Article 151 of the HKSAR Basic Law merely provides that the HKSAR may conclude some agreements with states, regions and relevant international organizations in the name of China, Hong Kong.My suggestion is to add one paragraph to Article 151: The HKSAR may also conclude relevant interregional agreements with other Special Administrative Regions or the Mainland, in the name of ‘HKSAR, and the conclusion and implementation affairs of the interregional agreements shall be regulated in a special law enacted by the National Peoples Congress (or the NPC Standing Committee).With respect to the HKSAR Basic Law, another possible way to smooth conclusion of agreements between the two sides is to interpret Article 151 of the HKSAR Basic Law so that the Mainland China may be included in the concept of regions.

The third option is to revise the PRC Foreign Trade Law.The revised Foreign Trade Law introduces the term of FTA in the Chinese legal system for the first time, thereby providing a legal basis for negotiating and signing FTAs with foreign states and regions.However, the Foreign Trade Law does not apply to the separate customs territories of the PRC, which limits the effect of the Foreign Trade Law in respect of regional integration, cuts the link between the CEPA and the Foreign Trade Law, loses a good opportunity to offset the negative effect caused by the Constitutional lacuna of no legal basis for concluding agreements between the Mainland and the HKSAR.In my view, the application of the Foreign Trade Law to the relations with the HKSAR is feasible.The PRC has been placing the trade relations with the HKSAR under the framework of foreign trade for many years.For example, the MOFTEC, the government agency dealing with PRCs foreign economic and trade affairs, as provided by the Foreign Trade Law, was originally responsible for negotiations of the CEPA with the HKSAR.From March 2003, after the adjustment of functions of the MOFTEC, its name was changed to the MOFCOM,but its functions relating to foreign trade, including organizing the CEPA negotiations and implementation, remain.Furthermore, the negotiation and signature process of the CEPA is consistent with Article 48 of the Foreign Trade Law, which provides that the department in charge of foreign trade, i.e. the MOFCOM, shall carry out multilateral and bilateral foreign trade consultations, negotiations and dispute settlement. In addition, because the main aim of the revisions of the 1994 Foreign Trade Law was to implement Chinas WTO commitments and to transfer WTO rules into Chinese domestic law,if the Foreign Trade Law does not apply to the HKSAR, how can the PRC implement its WTO commitments and WTO obligations when dealing with Hong Kong and Macao, both of which are also WTO members?The non-applicability of the Foreign Trade Law to the HKSAR will inevitably result in discrimination in applying the PRC Foreign Trade Law to WTO members, no matter who will be accorded more-favoured-treatment, Hong Kong, or other WTO members, which is apparently inconsistent with the most-favoured-nation treatment.Lastly, in my view, if the PRC tries to apply the Foreign Trade Law to its relations with the HKSAR, it should be borne in mind that the Foreign Trade Law does not apply to the HKSAR territory, but to the trade relations between the PRC and the HKSAR which occur within the Mainland China territory.Such consideration comes from the due respect to the HKSAR Basic Law and the high degree of autonomy of the HKSAR. #p#分页标题#e#

The fourth option is to have a special law providing negotiation, conclusion, ratification, implementation, termination and interpretation of interregional agreements between the Mainland and Special Administrative Regions, or between one Special Administrative Regions and another.This special law is not exclusive, but may be coexisted with other options.

In sum, the CEPA has no legal basis in the existing PRC and HKSAR domestic law.It is necessary, under the framework of the One Country, Two Systems, to legalize agreements between the Mainland China and the HKSAR, no matter whatever their names may be, e.g., quasi-international agreements or interregional agreements, by conferring the CEPA or other interregional agreements legal validity, providing their implementation legal effect (rather than administrative effect from administrative notifications).More significantly, through legalization of the CEPA, one of the oldest principles of international law, i.e. pacta sunt servanda, could be borrowed as a legal obligation binding on two separate customs territories under One Country.From this point of view, to the extent of One Country, the interregional agreement is to be internationalized.