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Speeches

Speech by Director-General of Trade and Industry (Thursday, March 10, 2005)

Following is the speech delivered by the Director-General of Trade and Industry, Mr Raymond Young at the WTO & Greater China Economic Area Law Conference today (March 10): (English only)

Professor Malanczuk, ladies and gentlemen,

It gives me great pleasure to join you this morning at the Conference on "WTO & Greater China Economic Area".

I commend the City University of Hong Kong for organizing today’s conference as it provides a timely opportunity to explore the interesting and sometimes controversial relationship between multilateralism and regionalism in trade, and to reflect on the implications of China’s rapid emergence as a major player in the global trading community.

HKC's Stance on RTA

There has no doubt been a proliferation of regional trade agreements, or RTAs in short, in recent years, and the trend is showing no sign of slowing down. The Secretariat of the WTO estimates that over 240 RTAs are in force at present and that the number could well approach 300 by the end of 2005. RTAs are commonly acknowledged as a fact of life these days, as evidenced by the finding of the World Bank Economic Prospects 2005 that one-third of global trade takes place between countries that have concluded some form of RTAs. But what do we make of this trend? The concept of RTA tends to elicit very polarized views: its proponents maintain that RTAs are building blocks to global trade liberalization, while its critics describe the present situation as a confusing 'spaghetti bowl', a vehicle for governments to pursue non-trade objectives, and risks making the non-discriminatory MFN principle an exceptional treatment. 

While the jury is still out on this question, Hong Kong's stance is quite clear, and it is largely the stance of a pragmatist free trader. As a small and open economy, multilateralism has all along been the cornerstone of Hong Kong’s economic and trade policy. Our unfailing support for the multilateral trading system is strongly demonstrated by our offer to host the Sixth WTO Ministerial Conference. In the meantime, we recognise that high-standard and WTO-consistent RTAs do contribute to global trade liberalization by providing better market access and creating a more favourable business environment among the parties.

Highlights on the CEPA

It was with these considerations in mind and in response to the requests of our business community that we concluded our first ever RTA with our largest trading partner, the Mainland of China, in June 2003 after 18 months of intensive consultations. I would not labour on the details of the Closer Economic Partnership Arrangement (CEPA) on this occasion, but I believe it would be useful for me to highlight a few salient points that reflect the progress of liberalization achieved by the CEPA at this juncture:

  • the CEPA now offers zero import tariff for a total of 1,108 Hong Kong goods under the Mainland 2005 tariff codes, and provides preferential market access to services and service suppliers of Hong Kong in a total of 26 service areas;

  • HKSAR in return agreed to continue to apply zero tariff to all goods of Mainland origin, and not to impose any new discriminatory measures on Mainland’s service suppliers in the areas covered by CEPA; and

  • both sides have also put in place co-operative measures for trade and investment facilitation between the two places in seven specific areas of interest.

We see these progressive trade liberalization and facilitation measures as an encouraging start of a new phase of economic relationship between Hong Kong and the Mainland. Some of these measures go far beyond China's own multilateral commitments at the WTO and provide Hong Kong manufacturers and services suppliers a clear advantage over competitors from elsewhere as far as the Mainland market is concerned. I must also stress that this is not the end - CEPA will continue to be broadened and deepened in subsequent phases to include further liberalization measures between the two places.

To ensure that the real benefits of the CEPA could be effectively captured by our business sector, the Trade and Industry Department has put in place various measures to ensure its smooth and efficient implementation. So far, we have issued 3,880 CEPA Certificate of Origin covering products of more than HK$1,400 million in value, and we have certified 720 companies as Hong Kong Service Suppliers to facilitate their application for provision of services in the Mainland.

Economic Benefits of CEPA

Fourteen months after CEPA was first implemented, we are optimistic about the outlook for CEPA and believe that it is a win-win arrangement for both the Mainland and Hong Kong. At the risk of stating the obvious: 

the tariff preference under CEPA increases the competitiveness of Hong Kong-made products in the Mainland consumer market, and benefits consumers in the Mainland;

  • the opening up of the service sectors in the Mainland to Hong Kong gives our service suppliers a "first mover" advantage and wider access to the Mainland market, which in turn attracts more investment and talents from Hong Kong into the Mainland. In the longer run, this will nurture the growth of the Mainland’s service industries and accelerate their integration into the global economy; and

  • the closer cooperation and integration between the two places will strengthen Hong Kong's unique role as a platform to attract foreign investments to Hong Kong and the Mainland.

CEPA from the Multilateral Perspective

Just a few words on CEPA from the multilateral perspective. I mentioned earlier that RTAs that are fully consistent with WTO rules could contribute to global trade liberalization. During the consultation process, both Hong Kong, China and the Mainland took extra care to ensure that the CEPA would be fully consistent with the WTO requirements on RTAs. Specifically, Article 2 of the CEPA stipulates that the conclusion, implementation and amendment of the CEPA shall be consistent with WTO rules. The first examination exercise of the CEPA by WTO Members has just been concluded last month in Geneva, and we will continue to fully cooperate with the WTO Members in the remaining examination process of CEPA. 

Our experience in developing the CEPA is actually an example to show that RTAs may also work to help improve multilateral trade rules, and enhance the certainty and predictability in international trade. For instance, the WTO General Agreement on Trade in Services (GATS) provides that services liberalization measures in an RTA must be made applicable to service suppliers of any other Members that engage in "substantive business operations" in the territory of the parties to ensure non-discrimination. However, GATS does not provide a clear definition for what constitutes "substantive business operations". In drawing up the CEPA, we have unprecedentedly developed a set of objective criteria, such as years of operation, payment of tax, ownership or rental of premises, and engagement of employees to give flesh to the skeleton of this rather ambiguous provision. I believe these criteria should provide useful references for the WTO in its current efforts in improving the RTA-related disciplines. 

HKC's Commitment to the WTO

Whilst we are happy to have CEPA, I must emphasise that RTAs will remain at best a supplement to the benefits that Hong Kong can gain from a truly open multilateral trading system. For a place like Hong Kong where trade accounts for almost three times our GDP, we certainly have a strong interest in liberalizing the global trade, and I do not see any other vehicle which can work as efficiently as the WTO in the promotion and protection of our trade interests. In the WTO we are an equal among the major economic powers in voicing our trade concerns and putting forward suggestions on how these concerns should be addressed. WTO also provides a level field for us to guard our trade interests against arbitrary and discriminatory trade actions by our trading partners.

In return, we try our best to contribute to the work of the WTO by being the bridge between different camps; by putting forward honest and practical recommendations that stand a chance of being accepted by all Members; and above all, by pledging our full support to the WTO by offering to host the Sixth WTO Ministerial Conference in Hong Kong in December this year.

In conclusion, ladies and gentlemen, the multilateral trading system has entered a very critical stage indeed. WTO Members badly need to attain substantial outcomes at the Hong Kong Ministerial Conference if they are to achieve the objective of a timely and successful conclusion of the negotiations under the Doha Development Agenda by 2006. It is heartening to note that WTO Members are striving hard in this direction. An early and successful conclusion of the Doha Round will certainly help restore confidence in the multilateral trading system. 

I hope today's Conference will provide a valuable opportunity for you all to examine more deeply how RTAs work in the context of the WTO, and I wish you all a very fruitful exchange.

Thank you.