Regional Trade Agreements

Notwithstanding the Government's commitment to the primacy of the multilateral trading system under the WTO, it is accepted that free trade agreements (FTAs) may contribute to multilateral trade liberalisation if they are fully WTO-consistent. The Government is, therefore, prepared to consider negotiating FTAs with trading partners so long as these would be in Hong Kong's interests and contribute to multilateral trade liberalisation.

Closer Economic Partnership Arrangement with the Mainland

The HKSAR Government started consultations with the Central People's Government (CPG) on a Mainland/Hong Kong Closer Economic Partnership Arrangement (CEPA) in January 2002. The proposed CEPA covers three broad areas — trade in goods, trade in services, and trade and investment facilitation. The establishment of the CEPA under the framework of the WTO will further promote trade and investment flows, as well as exchanges of talent, capital and technology, between Hong Kong and the Mainland, which would be mutually beneficial and conducive to sustained economic growth.

    Two rounds of High Level Consultations, led by the Financial Secretary for the HKSAR Government and Vice Minister An Min of the Ministry of Foreign Trade and Economic Cooperation for the CPG, were held in 2002. There were also frequent exchanges at the working level to take forward the consultations. The two sides have achieved good progress on a number of issues, and are working actively together with a view to reaching an arrangement on the main parts by June 2003.

Hong Kong and New Zealand Closer Economic Partnership Agreement

In 2002, Hong Kong and New Zealand continued their negotiations on a free trade agreement. The negotiations encompassed a wide-ranging scope with emphasis on trade and investment liberalisation and facilitation. The two sides have achieved good progress on many issues and are committed to concluding the negotiations as soon as possible to achieve a high-quality agreement that is beneficial to both economies.

China's Accession to the WTO

China formally acceded to the WTO on December 11, 2001. It is generally expected that China's broad market-opening commitments for accession to the WTO, as well as the enhanced accessibility to overseas markets as provided for under the WTO agreements, will boost the Mainland's overall economic growth. The Mainland is Hong Kong's largest trading partner and there is a strong economic link between the two places. The Mainland's accelerated economic growth is expected to usher in enormous business opportunities for Hong Kong. The anticipated surge in trade flow and the improvement of the investment environment in the Mainland brought about by China's accession to the WTO should help boost Hong Kong's external trade and intermediary services. According to an estimate by the HKSAR's Government Economist, Hong Kong's exports involving the Mainland will be raised by 15 per cent (averaging 1.3 per cent per annum) and its GDP by 5.5 per cent (averaging 0.5 per cent per annum) by 2010. These have yet to take into account the wider impact of the expected boom in China's service sectors, which are committed to be open after the accession to the WTO.

    In 2002, the first year after China's accession to the WTO, the Mainland's GDP grew by 8 per cent in real terms, faster than the 7.3 per cent growth in 2001. The total trade volume of the Mainland reached US$620.8 billion in 2002, representing an increase of 21.8 per cent over 2001. At the same time, Hong Kong's bilateral trade with the Mainland increased by 8.3 per cent amidst an austere external environment. The total bilateral trade with the Mainland was valued at $1,330.3 billion, accounting for 41.8 per cent of the total external trade. Given its strategic geographical location, well-developed infrastructure and international communication network, Hong Kong will continue to be the most important gateway between the Mainland and the rest of the world in the coming years. The Mainland's economic development also gives rise to greater demand for services supply from Hong Kong. In 2001, Hong Kong's export of trade in services to the Mainland stood at $82 billion, recording a 12.9 per cent growth from 2000.

Liaison with the Mainland

The Government is committed to facilitating businessmen's efforts in tapping opportunities in the Mainland. It maintains close contact with the Mainland authorities at different levels through various government bureaux and departments, the Beijing Office of the HKSAR Government, as well as quasi-government bodies like the Hong Kong Trade Development Council (TDC). Regular high-level communication is also achieved through mechanisms such as the HK/Guangdong Cooperation Joint Conference and the Mainland/HKSAR Joint Commission on Commerce and Trade. In addition, the new Hong Kong Economic and Trade Office in Guangzhou will help to foster better economic cooperation with Guangdong Province.

    Established in 1999, the Mainland/HKSAR Joint Commission on Commerce and Trade (Joint Commission) is a useful forum for the HKSAR and Mainland authorities to discuss matters of concern to businessmen and investors. In 2002, one of the foci of the Joint Commission was the Mainland's policy and legislative changes arising from China's accession to the WTO. In this connection, the Joint Commission organised a number of seminars to facilitate direct dialogues between Hong Kong businessmen and Mainland officials in charge of commerce and trade on the Mainland's latest trade and investment measures. The Beijing Office of the HKSAR Government, the Hong Kong Economic and Trade Office in Guangdong, the Trade and Industry Department and the Trade Development Council all helped to disseminate to the business community trade and investment information gathered through the Joint Commission channel. In addition, the Joint Commission devoted much effort to promoting investment flows between the two places and encouraging Mainland companies to capitalise on Hong Kong's strengths as a major services hub in building up and expanding their businesses.

Hong Kong's Participation in the WTO

The HKSAR is a founding member of the WTO. Its separate membership reflects Hong Kong's autonomy in the conduct of its external commercial relations, which is guaranteed under the Basic Law.

    The WTO provides a fair, predictable and rules-based multilateral trading system for trade in goods, services and trade-related intellectual property rights. It promotes the liberalisation of international trade and serves as a forum for multilateral trade negotiations and dispute settlement among its members. Active participation in the WTO's multilateral trading system is the cornerstone of the HKSAR's external trade policy.

    As a small and totally open economy, the HKSAR's participation in the WTO is guided by two objectives: firstly, to sustain the momentum of trade liberalisation, especially in areas of interest to Hong Kong, such as tariffs and services; secondly, to strengthen and update the multilateral rule-based trading system so that it remains an effective framework to promote trade expansion and liberalisation, as well as to protect Hong Kong against any arbitrary and discriminatory actions taken by its trading partners.

    The HKSAR participates actively in the new Round of multilateral trade negotiations launched at the WTO's Fourth Ministerial Conference in Doha, Qatar, in November 2001. Hong Kong's business will benefit from the positive outcome of further multilateral trade negotiations. Its priority in this round of negotiations is to seek greater market access for its services sectors and industrial goods. While such benefits may not immediately come to light or materialise as the new Round of negotiations is scheduled for completion by January 1, 2005, the launch of a new Round serves as timely boost of confidence for the world economy.

    The WTO Trade Policy Review on Hong Kong was conducted in 2002. This is a regular exercise for all WTO members, with the objective of achieving greater transparency in, and understanding of, the trade policies and practices of members. Hong Kong is subject to the review once every four years.

Regional Economic Cooperation

As an integral part of the Asia-Pacific economy and an important services, financial and trading centre, the HKSAR continued to play an active role in enhancing regional economic cooperation. Its economic links with the region remained strong. In 2002, some 83 per cent of Hong Kong's total external trade was conducted with the other 20 member economies of APEC. Hong Kong participates as a full and separate member in APEC and PECC under the name Hong Kong, China.

    APEC is a regional forum set up in 1989 for high-level government-to-government dialogue and cooperation on trade and economic issues. Hong Kong joined the forum in 1991. In October, the Chief Executive represented the HKSAR at the 10th APEC Economic Leaders Meeting held in Los Cabos, Mexico. The meeting was preceded by the 14th APEC Ministerial Meeting, at which the Secretary for Commerce, Industry and Technology represented the HKSAR.

    APEC pursues its goal of free and open trade and investment by 2010 for industrialised economies and 2020 for developing economies through work in three areas — trade and investment liberalisation, trade and investment facilitation, and economic and technical cooperation. Hong Kong participates actively in all three. It has been a Vice-Chair of APEC's Committee on Trade and Investment (CTI) since 1996.

    Pursuant to the Economic Leaders' instruction, APEC developed in 2002 a Trade Facilitation Action Plan as the blueprint to implement the commitment of reducing transaction costs across the region by 5 per cent by 2006. Under the Action Plan, a list of concrete trade facilitation actions and measures was drawn up. APEC members would identify in the coming year actions and measures they would implement, and assess the benefits of the associated cost reductions. In addition, with a view to advancing trade facilitation, Hong Kong has developed two templates respectively for CTI sub-fora to highlight their progress in implementing the principles and for member economies to highlight their trade facilitation achievements.

    PECC, founded in 1980, is a non-governmental regional forum comprising government officials, business leaders and academics who work in their personal capacity on practical policy issues to enhance trade, investment and economic development in the Pacific region. Hong Kong joined this forum in May 1991. The Hong Kong Committee for Pacific Economic Cooperation, established in March 1990 to advise on and coordinate Hong Kong's participation in and input to the PECC process, continues to play an active role in PECC's various fora, task forces and project groups.

Observer Role in the OECD

The HKSAR is an observer on the Trade Committee and the Committee on Financial Markets of the Paris-based OECD, which are important fora for discussions on policy matters in respect of trade and financial services. Ideas introduced in these committees are often followed up in other international organisations such as the WTO and eventually translated into binding multilateral agreements or codes.

Trade in Textiles

Hong Kong's textiles exports to the European Union, Canada and the United States are subject to certain quantitative restrictions. In accordance with the WTO Agreement on Textiles and Clothing (ATC), these quantitative restrictions are being phased out over 10 years, in four stages from January of 1995, 1998, 2002 and 2005, respectively. All quantitative restrictions will have been eliminated from January 1, 2005. Hong Kong has been closely monitoring the implementation of the ATC and the operation of the Textiles Monitoring Body, the ATC's supervisory body. Through cooperation with the International Textiles and Clothing Bureau (of which Hong Kong, China was the Chairman from January 1999 until September 2002), Hong Kong and a group of developing country exporters of textiles have been working together to ensure that the liberalisation process under the ATC is on course and to explore possibilities for further liberalisation.

    Hong Kong continues to cooperate with its trading partners in combating illegal transhipment of textiles. Among other things, to promote understanding of Hong Kong's anti-transhipment efforts, Hong Kong Customs officers conduct joint factory observation visits in conjunction with US Customs representatives. Such visits are not acts of law enforcement. In 2002, two rounds of joint factory observation visits were conducted.

    To combat false declarations of origin and values of goods and illegal transhipment of textiles, the Customs and Excise Department in 2002 carried out 77 949 factory and consignment inspections and 1 725 investigations. It successfully prosecuted 1 185 offenders, resulting in the imposition of fines amounting to $14.32 million. The department also strengthened its intelligence collation concerning illegal transhipment of textiles and stepped up 'blitz' check operations on textile consignments at various import and export control points. It operates a monetary reward scheme to elicit information on textiles origin fraud.

Trade in Strategic Commodities

To ensure that Hong Kong has continued access to advanced products and technologies to sustain its economic development and that Hong Kong will not be used as a conduit for illicit diversion of strategic commodities, the Government maintains a comprehensive import and export control system to monitor the flows of strategic commodities through Hong Kong. The licensing control system for strategic commodities is administered by the Trade and Industry Department with the support of vigorous enforcement action by the Customs and Excise Department. Hong Kong maintains close cooperation with its trading partners to keep itself abreast of the developments in the international arena on strategic trade control matters, and to make sure that Hong Kong's control arrangement is complementary to those of its trading partners.

    A Chemical Weapons (Convention) Bill is being scrutinised by the Legislative Council. It will enable the Government to fully implement the Chemical Weapons Convention in Hong Kong, underlining Hong Kong's commitment to internationally agreed arrangements on the ban of chemical weapons and on the monitoring of activities involving sensitive chemicals. It will also help enhance Hong Kong's international reputation in the area of strategic trade control, and help ensure its continued access to a full range of chemicals needed for local industrial, medical, research and trading purposes.

    In 2002, the Customs and Excise Department investigated 223 cases of unlicensed import and export of strategic commodities and prosecuted 33 offenders, resulting in fines amounting to $1.34 million. Goods valued at $0.28 million were seized and confiscated.

Bilateral Investment Promotion and Protection Agreements

Hong Kong has bilateral investment promotion and protection agreements with 14 economies: Australia, Austria, Belgium/Luxembourg, Denmark, France, Germany, Italy, Japan, Republic of Korea, the Netherlands, New Zealand, Sweden, Switzerland and the United Kingdom. A primary objective of these agreements is to assure overseas investors of the stable investment environment in Hong Kong.

Container Security Initiative

The US Customs launched a Container Security Initiative (CSI) in early 2002 to address the perceived risks of terrorist attacks through ship-borne containers destined for the USA. Under the CSI, the customs authority of a participating foreign port will work with the US Customs officers stationed abroad to identify containers that carry a high risk of being exploited for terrorist attacks. The customs authority of the participating port will scan or inspect the identified containers before the containers depart the port for the United States. Following careful consideration and discussion with the local exporting and shipping communities, Hong Kong agreed to join the CSI, and the Hong Kong and US Customs signed a 'Declaration of Principles' on this in September 2002. Hong Kong's participation in the CSI would help ensure the smooth flow of US-bound cargo that originated from Hong Kong, and enhance the security of the global maritime trading system. Both are vital to Hong Kong as a major trading entity and as the world's busiest container port. A CSI pilot scheme will commence in Hong Kong in 2003.

Customs Cooperation

Hong Kong plays an active role in the work of the World Customs Organisation (WCO), which aims to enhance the effectiveness and efficiency of customs administrations and facilitate trade by achieving harmony and uniformity of customs procedures among its members. As at December, the WCO comprised a world-wide membership of 161 Customs administrations.

    In July 2001, under the name of Hong Kong, China, the Customs and Excise Department was re-elected the Vice-Chairman of the WCO representing the Asia Pacific Region for a term of one year.

    The department works closely with the WCO Chairman and members of its Policy Commission in formulating policies and strategies to achieve the missions of the WCO. As the WCO's Vice-Chairman representing the Asia Pacific Region, the department also assumes responsibility for coordinating regional efforts in promoting liaison and cooperation, compliance and facilitation, reform and modernisation, training, integrity and human resource development among the customs administrations of the region.

    The department, in collaboration with the regional members, devised guidelines to enhance customs mutual administrative assistance in the region. In April, the department successfully hosted the 9th WCO Regional Conference of Heads of Administrations for discussion of a wide range of customs regional strategic issues.

    The department also participated in the work of the Subcommittee on Customs Procedures (SCCP) of APEC. It was elected Chairman of the SCCP Trade Facilitation Working Group, which was tasked to improve members' communication and cooperation with the business sector. The department was also elected co-partner for a number of SCCP Collective Action Plans on trade facilitation within APEC.

    The department continued to offer strong support for customs cooperation in the Asia Pacific Region. Since January 1999, the department has seconded an officer to the Regional Intelligence Liaison Office in Tokyo to assist in its operation. The officer is mainly responsible for analysing regional drug trends and training officers of other customs administrations.