Defying scepticism that a free-trade pact with the mainland will spur inward investment in manufacturing, a number of firms argue that such plans are in the works. Mainland firms needing high-quality, non-labour-intensive production might establish small-scale manufacturing bases in Hong Kong, said Boby Chan Yum-kit, chairman of Hong Kong-based fashion manufacturer and retailer Moiselle International. Such firms can take advantage of the zero-import tariff granted under the closer economic partnership arrangement (Cepa). From January 1, the mainland will apply zero tariffs on exports from Hong Kong meeting the Cepa rules of origin on 270 products. The Hong Kong and mainland governments will not finalise the origin rules until the end of the year but a major part of production must be made in Hong Kong. 'In the past, we did not buy high-quality materials from Europe as the import tariff of these materials [to the mainland] was higher than 20 per cent,' Mr Chan said. However, he said the zero-tariff would prompt the company to pursue China's high-margin fashion market. 'That will enhance our competitive edge,' he said. Mr Chan was speaking at a seminar organised by the Trade Development Council on the impact of Cepa yesterday. Group Sense (International) chairman Samson Tam Wai-ho said many foreign companies were still afraid of entering China but preferred to form partnerships with Hong Kong firms to jointly explore the mainland market. The zero tariff benefit would encourage more foreign companies to form alliances with Hong Kong manufacturers, Mr Tam said. However, silk apparel maker High Fashion International deputy managing director Yip Wing-kun said Cepa was unlikely to draw international and mainland firms to Hong Kong. 'Labour cost is a big problem,'' Mr Yip said.