Speaking after attending the historic signing ceremony, Chinese Premier Wen Jiabao, who arrived in Hong Kong Sunday for a three-day visit, said the Closer Economic Partnership Arrangement (CEPA) will cover three areas: trade in services, trade in goods and trade facilitation.

It will come into effect on January 1, 2004, giving firms and professionals in the former British colony, which reverted to Chinese rule in 1997, a crucial headstart over other foreign countries in the race to establish a footing in the huge and potentially lucrative Chinese market.

Under the terms of the agreement, "goods of Hong Kong origin under 273 tariff items would enjoy zero tariffs treatment when coming into the mainland and zero tariffs will apply to other goods of Hong Kong origin no later than January 1, 2006", said Wen.

On trade in services, "restrictions on equity ratio will be lifted and thresholds on registered capital and technical qualifications lowered", to effectively grant professionals easier access to the mainland market.

On trade and investment facilitation, China committed itself to simplifying procedures in seven areas including trade and investment promotion, customs clearance and transparency of laws and regulations.

Although Hong Kong reverted to Chinese rule in 1997, it is treated as a seperate customs territory.

The landmark deal will be consistent with China's obligations as a member of the 144-member World Trade Organization.

"I hope that this arrangement will bring more opportunities to Hong Kong's business communities and provide some practical help to Hong Kong's economic recovery and growth," he added.

The trade pact is part of Beijing's pledge to support Hong Kong's economic recovery after the devastating SARS outbreak in March forced it to halve its 2003 GDP forecast to 1.5 per cent from the previous 3.0 per cent.

Hong Kong is expected to benefit substantially from the agreement, with many overseas companies wishing to enter the mainland China market, electing to set up their China headquarters in the former British Colony.

Business leaders in Hong Kong welcomed the move.

"It is the most significant development since China's accession to the WTO and opens up new dimensions in the mainland for Hong Kong-based companies of all nationalities," Peter Woo, chairman of the Hong Kong Trade Development Council told the official Chinese Xinhua news agency.

"CEPA, with its focus on the liberalization of trade in goods and services, anchors on our world-leading position as a global platform for China business." However, mainland Chinese businessmen have criticised the deal as being too one-sided with Chinese firms gaining little from the deal.