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Following is the speech "A Closer Economic Partnership Arrangement?" by the Secretary for Justice, Ms Elsie Leung, at the Conference on Free Trade Areas : Legal Perspectives held at the University of Hong Kong today (March 26):
Professor Chen, distinguished guests, ladies and gentlemen,
In the past 20 years, China has lifted more than 200 million people out of poverty. A lot more is being done to further raise the general living standard, particularly in the western regions. It has been more than 14 years since China applied for resumption of her membership of GATTS. With China's recent accession to the WTO, the long struggle is now over. The years ahead will certainly be marked by rapid growth, both in terms of trade volume and economic restructuring. The legal system will become more sophisticated and transparent.
The rule of law will be strengthened.
At this time, businessmen and investors around the world are developing strategies in order to enjoy the benefits that China's accession to the WTO offers. Businessmen and investors in Hong Kong are doing likewise. However, since they are operating within one country, many of them would like to be given some competitive edge over those from other countries.
This is where the principle of "one country, two systems" and Hong Kong's separate membership of the WTO must be fully respected. The fact that Hong Kong's economic and legal systems are separate and distinct from those of the Mainland are fundamental features of our new constitutional order. Hong Kong's separate membership of the WTO is a reflection of those separate and distinct systems. These arrangements have brought tremendous benefits to Hong Kong, both economically and politically. They are primary sources of international confidence in Hong Kong, and provide reassurance to international investors.
Now that the Mainland's economy is opening up, it is natural that Hong Kong people should want to share in the opportunities. But, in doing so, they must continue to respect the existence of two systems and two WTO memberships. That means that, as a general rule, they cannot be given treatment that is more favourable than the treatment given to other WTO members.
FTAs
I say "as a general rule" because there are exceptions. The particular exception that we are here to discuss is that relating to Free Trade Agreements ("FTAs").
The WTO agreements recognise that regional arrangements and closer economic integration can benefit the participating countries. They also recognize that, under some circumstances, regional trading arrangements could hurt the trading interests of other countries. Normally, setting up a customs union or free trade area would violate the WTO's requirement of equal treatment for all trading partners under the most-favoured-nation principle. However, Article 24 of the General Agreement on Tariffs and Trade (GATT) allows regional trading arrangements to be set up as a special exception, provided certain strict criteria are met. In particular, the arrangements should help trade to flow more freely among the countries in the group, without barriers being raised on trade with the outside world. In other words, regional integration should complement the multilateral trading system and not threaten it.
Article 24 of GATT provides that if a free trade area or customs union is created, duties and other trade barriers should be reduced or removed on substantially all sectors of trade in the group. Non-parties to the FTA should not find trade with the group any more restrictive than before the group was set up. Similarly, Article V of the General Agreement on Trade in Services (GATS) provides for economic integration agreements in respect of trade services.
A Free Trade Agreement (FTA) is an agreement between two or more separate customs territories to reduce or eliminate trade barriers that exist between them, but with each party maintaining its own external trade policy for non-member countries. Free trade areas tend to involve countries within a geographic region. The North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico is an example.
A customs union differs from a free trade area in that, in a customs union, the members apply substantially the same duties and other regulations of commerce towards non-members. The European Union is an example.
In February 1996, the WTO General Council established the Committee on Regional Trade Agreements. Its two principal duties are to examine the WTO-consistency of individual regional agreements and to consider the implications of the agreements for the multilateral trading system.
WTO members are bound to notify the FTAs in which they participate. Nearly all of the WTO's 140 members have notified participation in one or more FTAs. In the period 1948 - 1994, the GATT received 124 notifications of FTAs (relating to trade in goods). Since the creation of the WTO in 1995, over 100 additional arrangements covering trade in goods or services have been notified.
The Council for Trade in Services has been notified of 14 agreements made under Article V of the GATS. The FTAs come in a variety of formats. Most FTAs contain some very general and broad commitments relating to services. They provide a mechanism or framework in which the services sector can be liberalized in stages among Member States. The progress of such liberalization will be reviewed within a prescribed time frame. All FTAs contain certain specific commitments between the parties.
Possible CEPA with the Mainland
So much for the general principles and arrangements elsewhere. This Conference will explore many aspects of a possible Free Trade Area encompassing the Mainland and Hong Kong.
As I am sure you will know, the Hong Kong SAR Government is actively engaged in consultations with the Mainland on a Closer Economic Partnership Arrangement ("CEPA").
Today's Conference will explore many aspects of the proposed CEPA. I would like to focus on one aspect, namely the possible inclusion of legal services in the Arrangement.
Other FTAs covering legal services
Among the 14 FTAs made under Article V of the GATS and notified to the Council for Trade in Services, only two include specific commitments and reservations on the legal services sector. They are NAFTA, and the FTA between New Zealand and Singapore. The FTA recently made between Singapore and Japan also has specific commitments and reservations on legal services.
In addition, the FTA on the European Economic Area (EEA) contains certain provisions relating to lawyers from another Member State providing legal services. And the FTA between Canada and Chile contains some broad commitments in respect of services, including legal services.
One interesting development concerning legal services is the concept of Registered European Lawyers ("RELs"). This concept derives from the Treaty of Rome, which contains broad commitments by Member States to liberalize service sectors, and which is the basis of the European Union. I would add, however, that the EU is not a Free Trade Area but a Customs Union. The purpose of the relevant EU Directive relating to legal services was to enable lawyers who are qualified in one Member State to practice professionally in another Member State. The Directive further provides that after effectively and regularly pursuing in the host Member State an activity in the law of that State for a number of years, a lawyer may reasonably be assumed to have gained the aptitude necessary to become fully integrated into the legal profession. At the end of that period, a lawyer who can furnish evidence of his professional competence in the host Member State should be able to obtain the professional title of that Member State.
Legal services under the proposed CEPA
Although these precedents under other FTAs are of interest, we need to consider what arrangements for legal services would be appropriate for Hong Kong and the Mainland under the proposed CEPA.
Hong Kong's legal system is already very accessible by lawyers from other jurisdictions. Lawyers from any other jurisdiction, including the Mainland, are able to qualify as solicitors by passing the Overseas Lawyers Qualification Examination. A similar examination will soon be put in place to enable lawyers from other jurisdictions to qualify as local barristers.
Lawyers and law firms from other jurisdictions, including the Mainland, can also register to practise as foreign lawyers or foreign law firms. Those lawyers can collaborate with local lawyers in two ways. Firstly, registered foreign law firms can enter into an association with a Hong Kong law firm so as to share fees, profits, premises, management or employees. Secondly, subject to certain conditions, Hong Kong law firms can employ lawyers from other jurisdictions.
When exploring possible arrangements in respect of legal services under the proposed CEPA, one option would be to seek arrangements that would give to Hong Kong lawyers the same rights in respect of practice in the Mainland as Mainland lawyers enjoy in Hong Kong. This would mean, firstly, that Hong Kong lawyers could sit the National Lawyers Examination and qualify to practise as Mainland lawyers; secondly, that Hong Kong law firms could enter into associations in the Mainland with Mainland lawyers; and, thirdly, that Hong Kong lawyers could be employed by Mainland law firms.
I believe that such arrangements would be welcomed by our legal professional bodies. It would give lawyers in Hong Kong a tremendous advantage over lawyers in foreign jurisdictions. And, since China has not made any commitment to open up services relating to the practice of Mainland law, it would not have any obligation to provide or phase in similar opportunities for foreign lawyers.
I also believe that such arrangements would be beneficial to the development of the Mainland's legal services. Just as Hong Kong's legal profession has benefited over the years from the presence of many expert foreign lawyers, I believe that a closer association in the Mainland of Hong Kong and Mainland lawyers will help to develop legal services there.
Conclusion
Ladies and gentlemen, in the time allotted to me this afternoon, I have focused on the possible inclusion of legal services in the proposed CEPA. I have no doubt that this Conference will explore many other crucial issues, and will provide stimulating ideas for those who will be involved in the consultations.
But, as we consider these issues in detail, we must never lose sight of the big picture. China's modernisation and participation in the global economy are means to an end : their purpose is to improve the living standards of her vast population. China's accession to WTO is a watershed in that process, and the proposed CEPA may help to stimulate development even faster. As we consider the ways in which a Free Trade Area could be established, let us look beyond any narrow self interests and ask what arrangements are best for our nation. In that way, we are truly contributing to a historic and noble cause.
End/Tuesday, March 26, 2002
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