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Speech by SCI

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Following is the full text of a speech by the Secretary for Commerce and Industry, Mr CHAU Tak Hay, at the 41st Annual General Meeting and Members' Luncheon of Federation of Hong Kong Industries today (July 18):

The Management of Hong Kong's External Commercial Relations

At the beginning of this month, we celebrated the fourth anniversary of Hong Kong's return to our motherland under "One Country, Two Systems". I am sure that, as Hong Kong residents, all of you have first hand experience of how well "One Country, Two Systems" has worked. All of you also know how successful we have been in exercising the high degree of autonomy promised in the Basic Law.

The topic of my speech today covers one of the most important aspects of our high degree of autonomy. It is an area which intimately affects the members of the Federation. I am talking about the management of Hong Kong's external commercial relations.

This is an area that has been working so well in the past four years that it is, more often than not, taken for granted by Hong Kong people. And yet it is an area which, if not managed properly, could damage Hong Kong's economy.

Why ? Because if we are to maintain our separate membership of the World Trade Organisation (WTO) and our access to high technology products vital to Hong Kong's economic development, we need to demonstrate to our trading partners that we do in fact determine our own economic and trade policies and that we are doing so without interference from the Central People's Government. One of the ways in which our trading partners can measure our autonomy is by comparing what we did prior to 1997 with what we are doing after 1997.

At this point, I think it is necessary for me to backtrack a bit. As a British colony, Hong Kong had always been a separate customs territory and never a part of the United Kingdom. Because of our status as a separate customs territory, since the General Agreement on Tariffs and Trade, known for short as the GATT, came into being in 1948, Hong Kong, although not a member in name, had enjoyed the rights and assumed the obligations of GATT membership on a de facto basis.

But this did not mean that we possessed autonomy in the management of our external commercial relations. That had to be achieved over time, through a process of accretion and not without a bit of a struggle from time to time.

In 1959, when the British textile industry felt threatened by Hong Kong's growing exports of textiles to the United Kingdom, we had no choice but to agree to "voluntary" restrictions on such exports. In the late 1960's, when the United Kingdom, for its own reasons, was resisting the extension of the old Cotton Textiles Agreement under the GATT to cover man-made fibre products, we found out that we were not free to negotiate with other trading partners bilateral agreements covering men-made fibre products, even when it was in Hong Kong's interest to do so.

Only in 1973 were we given true autonomy in external commercial relations. In that year, the United Kingdom joined the then European Community (now known as the European Union), as a result of which the UK had to follow the Common Commercial Policy of the European Community and could no longer claim to be in a position to protect Hong Kong's commercial interests. It was from that date that Hong Kong started to possess full autonomy in formulating our external trade policies.

For more than a decade after 1973, Hong Kong continued to be a member of the GATT on a de facto basis but not in name, even though we were already able to fulfil the two conditions necessary for GATT membership, which are: our status as a separate customs territory and our autonomy in external commercial relations. Therefore, when I was Hong Kong's permanent representative to the GATT in the early 1980's, I frequently found myself in a peculiar position, speaking in GATT meetings as the "United Kingdom representative speaking on behalf of Hong Kong" and criticising or opposing the European Community, of which the United Kingdom was a member.

In 1986, our de facto membership of the GATT was formalised through an agreement between China and the United Kingdom and we became a member of the GATT in our own right. In 1995, we became a founding member of the WTO. Since reunification in 1997, we have, in accordance with the Basic Law, continued to be a separate member of the WTO under the name "Hong Kong, China."

In 1987, again on the basis of an agreement between China and Britain, Hong Kong became a member of the World Customs Organisation (known for short as the WCO) in its own right. Since reunification in 1997 and in accordance with the Basic Law, we have continued to maintain our separate membership. Again, the only change was in our name, which is now "Hong Kong, China."

Another important milestone in the development of Hong Kong's external trade relations was Hong Kong's entry into APEC - the Asia Pacific Economic Cooperation forum. This occurred in 1991, when China, Hong Kong and Chinese Taipei became members at the same time, on the understanding that in 1997 Hong Kong would change its name to "Hong Kong, China."

Our membership of these three bodies serves a very useful as well as important purpose. Through the exercise of our rights as a member, we are able to defend and promote Hong Kong's economic interests. Equally important is our ability as a member to influence, as well as participate in, the process through which decisions are made, especially since such decisions could have consequences for Hong Kong's economic well-being.

These three bodies also provide opportunities for us to demonstrate that Hong Kong is indeed a separate economic entity capable of defending our own interests as well as possessing the freedom to make our own policies and take positions purely on the basis of Hong Kong's own economic interests. And I am pleased to say that we have done so with much success.

Where the WTO is concerned, Hong Kong has for more than two decades played a constructive and important role. And we have been able to do so despite the small size of our economy and our lack of political clout. There are several reasons for this.

First, we are able to see issues from the point of view of both the developed and the developing countries because of our split personality - where trade in goods is concerned, our positions are often similar to those of the developing countries because, for more than four decades, Hong Kong has been at the receiving end of discriminatory trade restrictions imposed by the developed countries. However where services are concerned, because of our highly-developed services sector, Hong Kong's interests coincide more with those of the developed countries. We therefore have a useful role to play in the WTO in bridging the differences between the developing and developed countries on many issues.

Secondly, because Hong Kong is the world's purest practitioner of free trade and free and open markets, we are regarded as a model for others and we are often able to occupy the moral high ground on controversial issues. Another reason for our prominence is of course the ability and professionalism of our representatives.

Through the positions that we adopt and the things that we say and do, our trading partners know that, despite the change in our name to "Hong Kong, China" in 1997, we have not changed at all in terms of substance and attitude. This perception was reflected in a report on Hong Kong published last year by the US Department of State which stated: "We have seen no evidence of efforts by Chinese Central Government to limit Hong Kong's economic autonomy, and indeed Hong Kong and Beijing at times pursue different agendas in multilateral economic fora." A US Congressional Task Force on the Hong Kong Transition stated last year: "Hong Kong continued to operate independently in economic decision-making and to voice its own views in international fora, including the WTO and the APEC."

After China's entry to the WTO, which I expect to happen towards the end of 2001, the Hong Kong Special Administrative Region will continue to be a separate member of the WTO using the name "Hong Kong, China". As a result, the WTO rights and obligations between China and "Hong Kong, China" will be exactly the same as those between China and other WTO members. This means that, after it has joined the WTO, China will not be able to give any preferential treatment to Hong Kong which is not also made available to other WTO members.

Another resounding endorsement of our high degree of autonomy came in the form of the election in February this year of the Permanent Representative to the WTO of "Hong Kong, China" unanimously by the members of the WTO as the Chairman of the General Council, which is the WTO's highest decision-making body. This appointment, which was made on a personal basis, is of course a very favourable reflection on the personal ability and integrity of Stuart Harbinson, our Permanent Representative to the WTO.

But at the same time, this appointment also reflects favourably on Hong Kong's standing in the WTO. Against the backdrop of the imminent accession of China and Chinese Taipei to the WTO, this important and prestigious appointment serves as a unanimous vote of confidence by the 142 members of the WTO in the Hong Kong Special Administrative Region's ability to determine its economic and trade policies entirely on its own.

In the World Customs Organisation, of which China is already a member, Hong Kong's former Commissioner of Customs and Excise, John Tsang, was elected in July last year as a Vice-Chairman representing Asia and Australasia. John has recently returned from the WCO's headquarters in Brussels, where he was selected to serve as the Acting Chairman of an important session of the WCO's Policy Commission and Council. As expected, John did a very good job as Acting Chairman. I am told that if John had not been appointed as Secretary for Planning and Lands, he would have been elected two weeks ago as the WCO Council's Chairman for the year 2001-2002. Again, I believe it can be said that those appointments, while they reflect positively on John's personal ability and integrity, were possible also because of Hong Kong's high standing in the WCO as well as Hong Kong's ability to operate effectively as a separate customs territory.

Our APEC membership also provides us with a high-profile forum in which to demonstrate the successful implementation of "One Country, Two Systems". Because the seating arrangement in APEC meetings follows the alphabetical order of its 21 member economies, and no member has a name which comes between China and "Hong Kong, China", our representative has been sitting next to the representative of the Central People's Government since we joined APEC in 1991. Other members have become quite used to seeing the two delegations sitting side-by-side and yet sometimes adopting different or opposite position. In the past four years, they have had the opportunity to observe that there has been no change after 1997 in the "Hong Kong, China" delegation's positions and attitude.

The fourth example that I would like to touch on briefly is the trade in so-called strategic commodities, which to the layman means products which can be used for both civilian and military purposes or dual-use products for short. High technology products such as high-speed computers or super-computers are regarded as dual-use products. It should be perfectly clear to my audience today why it is vital to Hong Kongs' economic development that our access to such products is maintained. And to do so depends on Hong Kong's ability to convince our major trading partners, including the US, that we are able to operate a control system which is effective in preventing the diversion of such products through Hong Kong.

To illustrate our success in this area, let me again quote a couple of third-party endorsements. Last year's US State Department Report stated: "Hong Kong has enjoyed a high degree of autonomy as a separate customs territory. Customs border controls remain in place, and Hong Kong authorities continue to develop, implement, and enforce their own trade laws and regulations. Indeed, Hong Kong maintains its world-class technology trade controls regime." That Report also recognized Hong Kong as having "one of the world's finest export control regimes" which is "unusually transparent."

The point I am making is that "One Country, Two Systems" is alive and well and is a resounding success. Four years' experience in an area that is of vital importance to Hong Kong's economic well-being has demonstrated beyond any doubt that the Hong Kong Special Administrative Region has been able to exercise, to the fullest extent, the high degree of autonomy promised in the Basic Law and that the Central People's Government has faithfully abided by both the letter and the spirit of the Basic Law. Indeed, our experience in this vital area is a microcosm reflecting the wider reality of the successful implementation of "One Country, Two Systems" in Hong Kong as a whole.

This year marks the 41st Anniversary of the Federation of Hong Kong Industries. The Federation has been extremely successful in serving its members for the past 41 years. And the members of the Federation have, throughout these 41 years, contributed substantially to Hong Kong's economic success and our prosperity. It is my great pleasure and honour to pay tribute to the Federation and each and every one of its members and to wish all of you even greater success in the years to come.

In the AGM that you have just held, the Federation's Chairmanship was passed by my good friend Henry Tang to Victor Lo, who is also my good friend. In his six years as Chairman, Henry has provided wise and strong leadership and has made an outstanding contribution to the success of the Federation. On behalf of the Government, I would like to express our deep appreciation to Henry for his distinguished service as the Federation's helmsmen and to wish him well in all his future endeavours. To Victor goes my best wishes and congratulations. I am sure he will be a worthy successor to Henry.

Thank you very much.

End/Wednesday, July 18, 2001

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