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

Following is a speech by the Secretary for Trade and Industry, Mr Chau Tak Hay, at the Hong Kong Management Association Theme Year Luncheon Talk today (Monday) on "China and the WTO: Implications for Hong Kong":

Kennedy, Ladies and Gentlemen,

The progress of the negotiations on China's accession to the World Trade Organisation (WTO) has been a subject of intense international interest in recent months. Because of our geographical proximity and our close economic relations with China, both the Government and the private sector have been closely following recent developments. As the Chief Executive said in his Policy Address last Wednesday, our symbiotic relationship with our Motherland is our greatest advantage in developing Hong Kong into a world class city.

The Significance of China's Accession to the WTO

As the world's 11th largest trading entity with a population of 1.2 billion people, China is fast becoming a powerful force in the global economy. Its role in world trade as well as its huge market potential are something that the world has to reckon with. The accession of China to the WTO will also greatly enhance the universality of the World Trade Organisation. To put it simply, a world trade body which excludes the world's seventh largest economy is just not worthy of the "world" in its name. Without China, the mission of the WTO in promoting truly global trade liberalisation cannot be realised. Hong Kong therefore fully and strongly supports China's accession to the WTO, and this has been our position for many many years.

What does WTO membership mean for China? In simple terms, each WTO member is required to abide by the legally binding rules of the WTO while at the same time, each member is able to enjoy all the rights and privileges that are granted to every other WTO member. The most important of these rights is that China's accession will entitle her to receive "Most Favoured Nation (MFN)" treatment, the multilateral trading system's cardinal principle, by every other WTO member. This will allow China's trade with her trading partners to be conducted in a stable and equitable manner or environment. I need not explain the importance of this to you as we are all familiar with the uncertainties which accompany the annual debate in the United States over China's MFN status.

China as a WTO member will also be able to make use of the WTO's dispute settlement mechanism to resolve disputes with her trading partners or to seek redress for unilateral trade actions taken against China by other WTO members. This is of course not available to China at present for she is not yet a member of the WTO. China, once a member of the WTO, of course can also take part in multilateral trade negotiations which shape the future direction of trade liberalisation. As you may be aware, WTO members are likely to launch a new round of multilateral trade negotiations at the Third WTO Ministerial Conference, which will be held in late November and early December in Seattle, USA. Therefore, we are now all observing closely whether China can join the WTO in time for the launch of the new round of trade negotiations.

China's Accession to the WTO

We believe that China's WTO membership 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, 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 between China and the rest of the world but also to participate directly in the economic development of the Mainland as more and more sectors become open to foreign investment and 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.

There is an erroneous belief or impression that if China once becomes a member of the WTO, then China can trade directly with its trading partners, then Hong Kong will lose much of its importance as a middleman or an entreport. But that is far from the truth. The truth is that even at present before China has become a member of the WTO, China already trades directly with all its trading partners.

China has diplomatic relations with over 140 countries and China is able to trade and deal directly with each and every single one of them without having to go through Hong Kong. And yet in spite of that, Hong Kong's role as China's window on the world and a premier gateway to China is becoming increasingly important. What this means is that China's membership will not alter any of these existing facts and that Hong Kong's existing role as China's window to the world and the premier gateway to China will remain unchanged.

Other benefits from China's membership of the WTO will include the benefits resulting from Chinese enterprises having to face very keen competition from foreign firms. I say that will be a benefit because greater competition will inevitably result in greater efficiency within these Chinese enterprises and within the Chinese economy as a whole. What that means is that greater efficiency will lead to a much better development of China's economy. And if China's economy is to develop in a much more stable and gradual way, and that will also mean China's economy growing bigger and bigger. Each and every one of China's trading partners will be able to benefit and those will include Hong Kong of course.

And now let me say a few words 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 of the GATT 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 to 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 already 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 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

And now, if I may offer 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 still 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.

Timing

And now a word on the timing of China's entry into the WTO. It lastly unfortunately depends on the United States and also the political time-table of the US Congress. Why is this so? The reason is very simple. America offers the rest of the world the biggest market and it would be meaningless for China to become a member of the WTO without securing China's access to the US market on an MFN basis. The China/US Agreement on China's entry into the WTO when it eventually emerges will not need to be endorsed by the US Congress. The US administration has the authority already to conclude a bilateral agreement on China's entry into the WTO. There is something else which requires endorsement by the US Congress. And that is the grant of permanent MFN status.

At present, under US law, China's MFN status in the US is subject to annual renewal. If China were to enter the WTO, I'm sure China would not wish still to be subject to annual renewal. I think one of the prerequisites of China's membership in the WTO is permanent MFN status in the United States. And that is something which only the US Congress can grant and not the US administration. So this means that after the US administration has negotiated a bilateral agreement with China, it will still need to go to the US Congress to obtain their agreement to the grant of permanent MFN status to China. And of course at that time, the US Congress would want to study the bilateral agreement in detail before it would decide whether or not it would grant permanent MFN. Unfortunately, the US Congress is due to adjourn towards the end of this month. There is a chance that it might extend the present session by something like two weeks until the middle of November. But after that the US Congress will be in recess until the end of January next year. So if China is to get into the WTO before the Seattle Ministerial Conference at the end of November, the negotiation with the US will need to be concluded in the next two weeks or so at the most. Because after that the US administration will need to go to Congress with the agreement and ask for permanent MFN and it will take a great deal of lobby by the US administration. And therefore, one may say that time is running out.

And then of course China has not yet concluded all its bilateral negotiations. Another bilateral agreement which is self-standing is that between China and the European Union. You've all read in the newspapers the last day or two that the Chinese Minister of Foreign Trade and Economic Cooperation, Mr Shi Guangsheng, recently met his European Union counterpart in Berlin. They agreed that they should resume negotiations. So China also has to conclude this negotiation with the European Union. After all the bilateral negotiations have been concluded, China will need to go back to Geneva to the multi-lateral forum for an endorsement by the multi-lateral forum of China's accession. So time is extremely tight. If the negotiations between China and the US, China and the European Union cannot be concluded within the next few weeks, it would be rather difficult for anyone of us to try to predict when exactly China will be able to join the WTO because next year, the year 2 000, being an American election year, including the election of a new American President, will be a very sensitive year. On the basis of past experience, the US administration and the US President will probably be unwilling to put to the US Congress something which is very controversial and something which might affect the chances of vice president Al Gore who is running for the US presidency.

If next year is lost, the new administration will need to settle in in the first half of the year 2001 before it will be in a position to resume negotiations with China. So we're talking about the next few weeks and if not the next few weeks then probably a longer time before China can become a member of the WTO. Even if that was to happen, it's not going to be the end of the world because China has been able to trade with the rest of the world so successfully in the past 15/20 years without being a member of the GATT or WTO and it would be just that situation continuing. And senior Chinese leaders have also made it clear recently that whether or not China becomes a member of the WTO, China will continue to open up its markets gradually. And China will continue to pursue economic reforms. As far as Hong Kong is concerned, that should not be a bad situation either because we've so successfully dealt with the situation for 20 years since China's opening-up with economic reforms of China outside the GATT and now the WTO.

End/Monday, October 11, 1999

NNNN

5

1