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

Following is the full text of the speech by the Secretary for Trade and Industry, Mr CHAU Tak Hay, at the luncheon of "Services 2000" Regional Conference today (Thursday):

Ladies and Gentlemen,

The theme of this Conference, "Services 2000", is most timely and appropriate. In a few months' time, we will be entering a new century and a new millennium. Apart from the Y2K problem, there is yet another issue that is of great economic importance to many economies and that needs to be tackled before the end of this century. I am referring to the launching of a new round of comprehensive multilateral trade negotiations under the auspices of the World Trade Organisation. The scope, duration, and structure of this new round will be decided at the WTO's Third Ministerial Conference to be held at the end of November this year in Seattle. Naturally, negotiations on trade in services will be one of the priority areas of the new round.

Importance of Trade in Services

As an economy develops and matures, the service industries take up an increasing share of its economic activities. Whilst about 40-50% of the workforce in developing economies are engaged in services, the percentage increases to 70%-80% in some developed countries. Hong Kong is perhaps one of the most service-oriented economies in the world - over 85% of our workforce are engaged in service industries and the same percentage of our GDP comes from services. According to statistics published by the WTO, Hong Kong was the world's 10th largest exporter of commercial services in 1998, and is the second largest in Asia after Japan.

Our service industries, comprising such important sectors as financial, communications, distribution, tourism and transportation services, are the engine of growth of Hong Kong's economy. Since the 1980s, our service exports have been growing at an average rate of 13% per annum. We have the world's second busiest container port and the busiest airport in terms of international cargo. We have one of the largest representation of international banks in the world - over 80 of the world's top 100 banks have a presence here. We lead the region in terms of penetration of telephone lines, mobile phones and fax machines. Services are important not only in their own right but also form an integral component of trade in goods. In particular, Hong Kong's well-established and efficient trade supporting services such as distribution, financial, communication and transportation services have contributed significantly to supporting our manufacturing industries, including those whose labour-intensive processes take place north of the Hong Kong Special Administrative Region's boundary with the Mainland of China.

Benefits of the Uruguay Round of Services Negotiations to Hong Kong

The growth of global trade in services owes much to the multilateral efforts made in the Uruguay Round of multilateral trade negotiations. The General Agreement on Trade in Services (GATS), the first multilateral, legally enforceable agreement governing trade in services, was one of the most important achievements of the Uruguay Round negotiations. The GATS and other Uruguay Round agreements together provide an open, equitable and rule-based multilateral trading system for regulating international trade in goods and services. It also enables producers and services suppliers to conduct business under a stable and predictable trading environment. This multilateral trading system has contributed enormously to the growth of world trade and economic development. During the four-year period following the conclusion of the Uruguay Round in 1994, exports of world merchandise trade and commercial services increased by 28% and 17% respectively.

The pursuit of services liberalisation did not stop with conclusion of the Uruguay Round. Since the establishment of the WTO in 1995, we have seen the successful conclusion of the negotiations on basic telecommunications and financial services in February and December 1997 respectively. The two agreements have brought about substantial business opportunities to our services suppliers. The basic telecoms agreement has opened up a global telecom market estimated at US $600 billion per annum; while the commitments in financial services cover 95% of the world's trade in financial services. The opening up of markets have led to greater competition, which have in turn benefited consumers through the availability of more choices, better quality and lower prices.

Hong Kong's Objectives and Priorities in Services 2000 Negotiations

To keep up the momentum of trade liberalisation, the GATS mandates that the WTO should enter into successive rounds of services negotiations with a view to achieving a progressively higher level of liberalisation in services. The first round of such negotiations will start in the year 2000.

From Hong Kong's perspective, given the importance of the services sector to Hong Kong's economy, and our own free and open services regime, we would like to secure further liberalisation throughout the services sector. We would also wish to ensure that the trade rules remain relevant and responsive to the needs of a modern business world. We firmly believe that continued liberalisation and strengthening of trade rules can help keep markets open and underpin recovery in the economies affected by the Asian financial crisis.

Our top priority for the next round of services negotiations is thus to broaden and deepen the legally binding liberalisation commitments made by WTO members and to remove as far as possible any discriminatory measures maintained by them. In addition, we are concerned that the value of liberalisation commitments may be undermined by the over-restrictive and burdensome domestic regulations imposed by individual WTO members. To this end, we see development of multilateral rules which help ensure that discretion in domestic regulations is not abused for trade protectionist purpose an important focus of the negotiations and hence will vigorously tackle issues in this area. We will also seek to develop pro-competition principles for certain service sectors, particularly those that are prone to anti-competitive behaviour, and to minimize any disguised barriers to trade.

To sustain the confidence of the business community in the work of the WTO, the negotiations must produce meaningful outcomes in a timely fashion. Whilst the issue of timeframe has not been thoroughly debated in the WTO, there does not seem to be any strong objection to setting a three-year deadline for the completion of the service negotiations. This is in line with our own thinking, and will tie in with the proposed duration of the new round of multilateral trade negotiations.

Electronic Commerce

The rules of the WTO must be kept up-to-date so as to meet the needs of an increasingly globalised and technology-driven world economy. In recent years, electronic commerce has emerged as a new mode for commercial transactions. International trade in many services sectors can now be conducted without the establishment of a commercial presence overseas. As compared to the traditional means of cross border delivery, E-commerce is very often a more efficient and cost-effective means of communication. By enhancing efficiency and reducing costs of operation, E-commerce is particularly beneficial to small and medium-sized enterprises (SMEs), which constitute 98% of the business operations in Hong Kong. To enhance the competitiveness of their industries, governments worldwide, including ours, are actively promoting the use of E-commerce in trade in both goods and services.

Not only does E-commerce bring about new business opportunities, it also gives rise to new questions and issues. The WTO is studying the trade-related issues relating to E-commerce to assess the extent to which the existing WTO rules are applicable to this new mode for commercial transactions. To minimize legal uncertainty, we hope the study could confirm that the WTO rules are technologically neutral and thus applicable to both physical and electronic delivery of goods and services.

Preparation for the Services Negotiations in the WTO

Although the exact scope and modality of the next round of services negotiations have not yet been agreed among WTO members, we are glad to note that there is emerging support for the coverage to be comprehensive and the need to minimize the trade-distorting effects of domestic regulation and anti-competitive behaviour.

As we see it, the challenge ahead is to reconcile the different views of WTO members on the scope of, and the approach to, the services negotiations. There are also different emphases among WTO members on the sectors for negotiations. On the one hand, the developed economies would like to see further liberalisation in all sectors especially those that they consider have insufficient commitments (e.g. distribution, environmental services). The developing countries, on the other hand, are concerned about the risk of further opening up their service markets, particularly against the background of the financial crisis.

We do not think these differences are irreconcilable. However, in order to bring the developing economies on board, the developed economies must make genuine efforts to accommodate the interests and concerns of the former in the new round of negotiations. In this regard, the GATS specifically mandates the need to facilitate the increasing participation of developing economies in world trade through liberalisation of services sectors which are of export interest to them. We will continue to urge the developed economies to make more commercially meaningful commitments in areas of interest to the developing economies.

China's Accession to the WTO

I would like to turn now to a related subject which I trust many of you must be following with a great deal of interest. I refer, of course, to China's accession to the WTO. The HKSAR Government strongly supports the early accession of China. We believe that the World Trade Organisation cannot be a truly global organisation as long as one of the world's major trading nations continues to be an outsider.

We also believe that China's entry into the WTO will bring trade and economic benefits to Hong Kong. The further opening up of the Mainland market will present enormous business opportunities to Hong Kong's investors and service suppliers. Because of Hong Kong's proximity to the Mainland market, because of our entrepreneurs' knowledge of the Mainland market and their experience in operating in the Mainland, because of our cultural ties with the Mainland, because of our world-class business and financial services and our excellent infrastructure, Hong Kong businessmen will have many more opportunities not only to serve as a middleman but also to participate directly in the economic development of the Mainland as more and more sectors become open to foreign participation. Nonetheless, we also expect that Hong Kong businesses will have to face very keen competition from businesses from other WTO members. Our businessmen must therefore get themselves prepared for both the opportunities and the challenges.

And now a word on Hong Kong's status in the WTO. By virtue of our status as a separate customs territory and our autonomy in the conduct of our external commercial relations, Hong Kong had enjoyed, on a de facto basis, all the rights and assumed all the obligations of a member of the GATT since its establishment in 1947. In 1986, our de facto membership was formalised through an agreement between China and Britain and we became a member of the GATT in our own right. In 1995 we became a founding member of the WTO. Since China's resumption of sovereignty over Hong Kong in 1997, we have continued to be a separate member of the WTO under the name "Hong Kong, China".

China's accession to the WTO will not affect Hong Kong's membership. This is because our separate membership is guaranteed by the Basic Law of the Hong Kong Special Administrative Region and by our continuing status as a separate customs territory which possesses autonomy in the conduct of our external economic and trade relations. This means that China and "Hong Kong, China" will be separate members of the WTO and that the Mainland of China and the Hong Kong Special Administrative Region will have to accord each other the same rights and privileges as each offers to other members of the WTO.

Another way of putting it is that although Hong Kong is an integral part of China, it will not be able to enjoy or seek rights and privileges in the Mainland's markets which the Mainland does not offer to other WTO members. This is a very important point in our trade and economic relationship with the Mainland after China's entry into the WTO. It is one which is often overlooked by Hong Kong business sectors who from time to time might ask the Hong Kong Government to seek a privileged status for them in the Mainland's markets, including especially the Mainland's markets for services.

One Country Two Systems

Finally, a personal and philosophical view. I believe that even if China does not become a member of the WTO in the foreseeable future, Hong Kong should not seek special commercial privileges in the markets of the Mainland that the Mainland's other trading partners do not enjoy. The reason is very simple. We cannot have our cake and eat it. We should not even try. If "one country two systems" is to work, then we must not, on the one hand, insist on enjoying all the benefits of maintaining a system separate and different from that in the Mainland while arguing, on the other hand, that, because we are now one country, we should enjoy all the rights and privileges available to our compatriots in the Mainland without assuming any of the obligations of Chinese citizenship.

Preparations on the Domestic Front

Although the WTO is an inter-governmental organisation, it does not negotiate in a vacuum. All member governments need to carry and be supported by their domestic constituencies in the negotiations. The support of the business sector for the service negotiations is of particular importance as the negotiations involve a so-called request-and-offer process. We need to know our business' interest in terms of sectors and markets in order to enable us to arrive at an informed view on what concessions we would like to obtain from our trading partners. In view of the technical nature of WTO negotiations, it is important to engage the interest and awareness of the trade in the WTO and GATS issues. The Conference today is an important step in this direction. We are also planning another conference focussing on the new round in early 2000.

Before I conclude I would like to thank the Hong Kong Coalition of Service Industries and the Hong Kong General Chamber of Commerce for co-organising this meaningful Conference and for conducting a "Services 2000" project which aims to compile a private sector "wishlist" for submission to the Government to help formulate Hong Kong's requests to our trading partners in the services negotiations. We look forward to discussing with the HKCSI and its members the results of the survey. In addition, the Government will consult individual trade associations and professional bodies when we have a clearer idea about the scope and modality of the services negotiations.

Thank you very much.

End/Thursday, August 26, 1999

NNNN