************************************************************

Following is the speech (English only) delivered by the Chief Secretary for Administration, Mrs Anson Chan, at the US Chamber of Commerce in Washington, DC, on Monday, June 14 (US time):

Mr Donohue, ladies and gentlemen,

Firstly, let me thank you most sincerely for that warm welcome and for the gracious introduction. I should say from the outset that I feel very much at home being here with you today. I like to think there is a very special relationship between Hong Kong and the United States, and nowhere is this better exemplified than at the US Chamber of Commerce.

You were kind enough to offer C H Tung a platform for his first major address in the United States as Chief Executive of the Hong Kong Special Administrative Region when he visited Washington in September 1997. I was delighted and honored to meet and brief your Board of Directors just a year ago, and two weeks later to welcome Tom Donohue to Hong Kong as our guest. So the links between Hong Kong and your organisation, like the ties between Hong Kong and your country, are vibrant and strong. I believe we are all committed and determined to keeping them that way.

A number of issues have arisen in recent times which have led some to question whether Hong Kong's change of status since our reunification with China has somehow shifted the balance of that relationship. The short answer is 'no', but before explaining why, let us consider some of the issues at stake.

Firstly, our recent decision to ask the Standing Committee of the National People's Committee to interpret the Basic Law following a landmark Court of Final Appeal judgment on immigration from the Mainland has led to charges that we have undermined the rule of law, the very bedrock of Hong Kong's success and prosperity.

Secondly, the recent deterioration in Sino-US relationships triggered by the bombing of the Chinese Embassy in Belgrade and the serious allegations of nuclear espionage made in the Cox Report have prompted some of our friends to wonder whether Hong Kong will become a casualty of the collatoral damage - to use a current military euphemism.

I know businessmen like to go straight to the bottom line, so let me address both questions head on. I want to assure you - for I know this is a fundamental question on which you feel as strongly as I do - that the Hong Kong administration in which I serve remains as firmly committed as ever it did to the preservation and protection of the rule of law. The decision we took last month to seek interpretation of the Basic Law was fiercely debated in public and was, I can promise you, just as closely-argued and hard fought by those entrusted to take it.

Our Court of Final Appeal's judgments on the residential eligibility of Mainland children born of a Hong Kong parent opened the floodgates to a virtual tidal wave of people from China - an estimated 1.67 million over the next decade or so. Put in US terms, that is about 68 million people lining up at your borders for a Green Card between now and the year 2010. Clearly, we had to move quickly and decisively. As you would expect to see in most other countries facing a similar dilemma, we had to look for a speedy effective remedy in accordance with the law. There is no doubt that our decision was constitutionally rock solid and iron clad in law.

The key points to bear in mind are -

Firstly, it was a decision taken in Hong Kong by Hong Kong people. We had overwhelming public support and the backing of a clear majority of the legislature. It was not a decision imposed on us by Beijing, which would much rather had seen a settlement in Hong Kong, had that been legally or constitutionally possible, which it wasn't.

Secondly, I can not emphasize strongly enough that we sought an interpretation of the Basic Law, not an appeal against the Court of Final Appeal's judgments. Those judgments stand and the rights of the successful litigants and the 1,000 people or so they represented as a test case are fully protected.

Thirdly, the issue has crystalized the need for Hong Kong, and our friends around the world, to seek a deeper understanding of our new constitutional order, in which for the first time in our history we have a written constitution. This constitution by and large is a model for a tolerant, free, open and plural society protected by the rule of law. But, like all constitutions, it will be the subject from time to time of dispute and challenge. And while this process is familiar to Americans, we all need to take account of the fact that the Basic Law is not our constitution alone, but part of a greater whole. For myself, I am confident that so long as goodwill and understanding exists between the two parts of the whole - as was amply demonstrated in this case - and we remain faithful to the rule of law, we can find solutions which do not unravel the essential fabric.

Fourthly - and I consider this to be an important point - the passionate, informed and civilized argument which took place over this issue to me only goes to show that Hong Kong remains a free and vigilant society where decisions critical to the foundations of our civil society must be debated, discussed and dissected in an open and transparent manner. I fully accept that there can be no trifling with the rule of law. Nor would our community allow us to do so.

Finally, I invite you to look at what is happening on the ground, as it were, in Hong Kong. Prosecutors continue to prosecute, defence counsel continue to defend, the government continues to be sued, litigants take their cases to the courts expecting - and receiving - a fair hearing, juries continue to deliver verdicts on their peers on the weight of evidence honestly presented and vigorously contested, judges continue to adjudicate without fear or favour, uninhibited by any political consequences, real or imagined. Indeed, since the verdict on January 29 which created all of the fuss, the Court of Final appeal has heard another 7 cases and entertained applications for leave to appeal on 20 others. Not, I would submit - as the lawyers say - evidence of a stricken or hobbled legal system.

And what of the other issue on our minds at the moment - Sino-US relations and their fallout on Hong Kong? I have to preface my remarks on this subject by saying that Hong Kong's high degree of autonomy does not include responsibility for foreign affairs or defence. These belong to the Central Government. But that does not mean that we are immune from their consequences. The suspension of US warship visits to Hong Kong - and I hope the visits can resume shortly - is an example of that.

Let me start with the Cox Report, where there is a clear national interest and a very specific impact on our autonomy. I refer here to allegations in the report that Hong Kong is being used by some companies as a staging post, as it were, for the acquisition of sensitive technology for the Mainland. These allegations are totally unfounded. Indeed, an examination of the four cases detailed in the report simply serve to prove our point that Hong Kong operates a highly autonomous and very stringent system of control over strategic commodity trade.

We are a separate customs territory; and we maintain a separate physical boundary with the rest of China that is policed by our own enforcement agencies. Our system is legally color blind and politically tone deaf. We know that it would be economic and political suicide for it to be otherwise.

The common thread running through the four cases I mentioned is this: the successful teeth-and-lips co-operation between the Hong Kong and US Customs authorities in bringing the cases to light and the unswerving diligence of the SAR government in prosecuting them. Any suggestion that selling faster computers to Hong Kong is the same as selling it to the PLA is complete nonsense. Our control and enforcement system will stand comparison with the best anywhere, and its effectiveness was acknowledged in the recent report of the Congressional Task Force on Hong Kong.

No one should doubt our commitment to our vigilant control regime. Our system is highly transparent: for example, under a formal agreement, key government agencies from Hong Kong and the US exchange visits twice a year; there are no restrictions on US agencies conducting post-shipment checks in Hong Kong; and under our regular secondment arrangements with our trading partners, a US Commerce Department official worked in our Trade Department in 1997. We are deeply conscious that only by maintaining an effective control system and the closest possible cooperation with the US can we secure access to higher technologies and technological products which are essential to our economic and trade developments. We in Hong Kong have a mutual interest with US business in this trade and would like to work with you in conveying that interest and the efficacy of Hong Kong's control system to those in doubt here in Washington DC.

The whole area of innovation and technology is at the heart of our vision for Hong Kong's development as Asia's premier international city into the next century. It is a vision our Chief Executive brought with him into government and which has been fleshed out in a significant and exciting ways since the Handover. During that time Mr Tung has established a Commission on Innovation and Technology headed by Professor C L Tien, one of America's outstanding scientists and educators, who has just been appointed by President Clinton to the US National Science Board. Our loss is your gain, because Professor Tien has left us with an invaluable blueprint for providing the sharpest possible technological cutting edge which we can apply to both our industrial and services processes. There is much else besides. We are building a teleport to take advantage of the increasing use of satellite. We are developing Hong Kong as an Internet hub - we already have 130 providers.

We are moving ahead with a Cyberport to house a strategic cluster of major local and international information services companies to specialize in the development of services and multi-media content to support businesses and industries ranging from financial services, trading, advertising entertainment and communications. This joint venture with a Hong Kong company has already attracted the big players like IBM, Intel, Yahoo and others to sign up as anchor tenants. We are also developing a 54-acre Science Park which will accommodate the research and development programs of technology-based companies.

The Asian financial turmoil has been a real wake-up call to the region. In Hong Kong, you can be sure we have smelled the coffee. The crisis has given us the opportunity to reaffirm our fundamental strengths: commitment to free trade and open markets; a level playing field for business; the unfettered flow of information and ideas; a small, accountable, clean and business-friendly government; a low and simple tax regime - all supported by the rule of law and a robustly independently judiciary.

It has also provided a launching pad for strategic change and reform. For the economy to acquire new breadth and depth through the development of a more sophisticated technological base and away from over-dependence on property. For reforms in the civil service to make it more service-oriented and client-friendly. For structural changes in the government to allow us to more effectively address critical quality of life issues, especially as they concern the environment and the development of tourism, the arts, leisure and sport.

Property prices and rents have fallen dramatically in the residential and commercial sectors, sharpening our competitive edge. We will be selling a substantial minority stake in our mass transit railway system, one of the few in the world that turns a profit, and a good one at that.

We are spending US$30 billion over the next 5 years on expanding and upgrading our rail and roads network to bring better facilities to the ever-growing north-western part of the New Territories and which will enhance the integration of our communications with our dynamic neighbouring Guangdong Province.

We are embarking on further reforms in the banking and securities sectors; demutualising and merging our stock and futures exchanges and clearing houses and listing the product that emerges. This will mean a much-enhanced market and a significant addition to its listings. As part of this process, we are upgrading the technology in our markets to ensure that we stay ahead of the game in Internet trading and indeed the whole panoply of e-commerce.

Further, we expect to fully implement a Mandatory Provident Fund Scheme by the end of next year. It will serve very significant social objectives in the long term in providing retirement protection for our hard-working population. It will at the same time generate new opportunities for the financial services sector in Hong Kong. We estimate the initial annual MPF contributions will amount to about US$1.5 billion, quickly growing to US$4 billion, or about 3% of our GDP. The eventual size of MPF portfolios may reach 60-70% of our GDP. This will have a very positive impetus on the growth of our capital markets, especially the debt market. There will also be significant business opportunities for corporate trustees, banks, investment management houses, insurers and other financial institutions.

There is more, but I wanted to give you a taste of what is happening in Hong Kong to let you know that we have not been stopped in our tracks by the constitutional change that took place on July 1, 1997, or by the regional recession that was triggered by the collapse of the Thai Baht the following day. Hong Kong has taken a few knocks, but we are still on our feet and punching our weight. We are slowly but surely coming out of the phase of a contracting economy which has seen our GDP decline by 5.1% last year compared with 5.3% growth in 1997. And while we are not making any promises we can't keep, I think some of the measures I have outlined demonstrate that we will be ready to take advantage of the upturn of the regional economy.

This is one reason why we view the current state of relations between the US and China with such concern. It seems barely conceivable that in the wake of President Clinton's visit to China last year and Premier Zhu Rongji's visit to the US two months ago that the relationship should have reached such a pass. I appreciate the deeply-held feelings in Beijing and Washington about the issues bedevelling the relationship. But I know, too, that fair-minded men and women on both sides of the argument understand that long-term vision must prevail over short-term aggravation.

This is not to advocate sweeping problems under the carpet. They must be tackled frankly and sincerely, but within the undeniable context that a good Sino-US relationship built on mutual respect and trust is good not just for these two great nations, but for the whole world. It cannot make sense for the world's richest country with so much expertise to offer and the world's most populous country so rich in history and potential to be at odds with each other.

In the meantime, all of us suffer as we see new doubts emerge around important issues like China's accession to the WTO and the renewal of NTR so soon after we thought we had put this spectre behind us once and for all.

Frankly, while I am frustrated by such setbacks, I see them as a call to action for those involved, including all of us in this room today, to redouble our efforts to get the relationship back on a positive and firm footing. Surely some of the issues that trouble both governments will become easier to deal with if we see China taking its rightful place as a member of the WTO, so long as the entry fee is properly negotiated and agreed by both sides. And surely an atmosphere of trust will be better fostered if we don't any longer have to go through the debilitating NTR annual renewal process. We all know that it takes two to tango, but it's very difficult to stay in step if both partners are at opposite ends of the dance floor.

I am sorry to have taken up so much of your time. But the platform you so generously offered me was an irresistible opportunity to spell out to the world's largest business federation that Hong Kong remains a good friend and business partner to Americans; that we remain the same free, entrepreneurial and open society under the rule of law; that we have a new constitutional order which should be seen not as a threat, but as a living organism underpinning the institutions of the civil society which guarantees our way of life; and finally, to put your minds at rest over our commitment to strategic commodity control; and to seek your understanding and support for a better relationship between our two countries for the benefit of all.

Ladies and gentlemen, I thank you for your time and your patience.

End/Tuesday, June 15, 1999

NNNN