CEPA shows that the government is serious about opening its legal market to Hong Kong firms, but the liberalisation progress has been regarded as 'too slow and too little' by many. ALB China investigates whether better alternatives exist and if the CEPA framework for the legal sector is now redundant
Six years in the making, the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) has undoubtedly contributed to the closer economic cooperation and integration between the two sides of the Lo Wu Border. It has granted preferential market access spanning across over 20 service sectors to Hong Kong businesses, banking and finance, retail, manufacture and logistics being among the main beneficiaries.
Hong Kong and mainland law firms, however, seem reluctant to take advantage of CEPA. Since Hong Kong firms were first allowed to operate in association with their mainland counterparts six years ago, only a small number of them have tested the new preferential measures and even fewer have achieved meaningful collaboration and commercial success.
Chongqing-headquartered Zhonghao Law Firm and Hong Kong's So Keung Yip & Sin were among the first to take the plunge - they entered into a formal association under CEPA in 2004. Although the two parties have maintained a close business relationship, they are considering a possible termination of the association as no real benefits have been forthcoming.
"The cooperation under the CEPA association arrangement has no real difference from other forms of cooperation - such as a strategic alliance or referral agreement," said Robin Yuan, the managing partner of Zhonghao. "A lack of follow-on measures and rules to support and allow further meaningful collaboration and integration between the associated firms has led to a decreased interest and very low motivation for firms to apply for an association.
"In addition, our clients have developed a stronger risk-aware culture, so the association has added more potential liabilities to both firms. Negligible advantages together with added risk have regrettably resulted in the possibility to terminate the association," said Yuan.
When CEPA was first launched, firms like Zhonghao embraced it with great enthusiasm and hoped they would be allowed to transform the association into a joint venture or even a merger - similar to the case of accounting firms. But the reality has turned out to be far from the expectation.
"We saw the opportunities offered by CEPA as a lucrative cake. But after we had a slice of the cake, we found there was hardly anything tangible on the inside," said Yuan. Aiming to ride the wave of Hong Kong and foreign investment into Western China, Zhonghao is now contemplating opening its own branch office in Hong Kong.
Associations between Hong Kong and mainland firms under CEPA
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Fred Kan & Co and Tianjin JD HANDS
香港简家骢律师行与天津嘉德恒时律师事务所联营
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David YY Fung & Co and Guangdong Zhong Yuan
香港冯元钺律师行与广东中元律师事务所联营
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Philip K H Wong, Kennedy Y H Wong & Co and Beijing W&H
香港黄乾亨律师事务所与北京市炜衡律师事务所联营
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香港胡关李罗律师事务与国浩律师集团联营
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So Keung Yip & Sin and Zhonghao
香港苏姜叶冼律师行与中豪律师事务所联营
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香港鸿鹄律师事务所与翔鲲律师事务所联营
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Who can operate in association under CEPA?
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- In order to operate in association with mainland law firms, Hong Kong firms must have:
1. their own names, premises and articles of association
2. assets of RMB100,000 or more
3. three or more partners
4. a partnership agreement in writing
- A Hong Kong law firm that has set up a representative office on the Chinese mainland is allowed to operate in association with one mainland law firm, without being subject to geographical restriction.
- For mainland firms to operation in association with Hong Kong law firms, CEPA requires they must have been established for at least three years. There's no requirement on the number of full-time lawyers employed by the mainland law firms.
- From October 2009, a Hong Kong law firm that has set up a mainland representative office can operate in association with one mainland law firm in Guandgong that has been established for one year or more; at least one of the persons who established the firm must have been in legal practice for five years or more.
Note: for a full list of liberalization measures for the legal services sector under CEPA, please visit the website of the Trade and Industry Department of Hong Kong (http://www.tid.gov.hk/english/cepa/tradeservices/leg_liberalization.html)
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