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Speech by SCIT at Federation of Hong Kong Industries luncheon


Following is a speech by the Secretary for Commerce, Industry and Technology, Mr John Tsang, at the Christmas luncheon of the Federation of Hong Kong Industries today (December 16): (English only)

Andrew, ladies and gentlemen:

It gives me great pleasure to join the Annual Luncheon of the Federation of Hong Kong Industries (FHKI). I understand that this is a long-held tradition of the federation. So let me first of all wish everyone an early Merry Christmas and Prosperous New Year.

FHKI and the manufacturing industries it represents hold a very special place in my heart, particularly during festive seasons. Products made by your members, from toys and apparel to watches and jewellery make excellent gifts. I would like to thank the manufacturers for making these attractive and high quality but reasonably priced products for us to choose. I just can't imagine having no other choice, but to buy services, such as bankers', lawyers' or accountants' time, and give them to my family as Christmas presents. That would not only be expensive, but difficult to wrap. But give this some thought if you have run out of ideas.

In just 15 days, 273 Hong Kong manufactured products will enjoy zero tariffs when exported to the Mainland. This is unprecedented. And for other Hong Kong manufactured products, including those not yet in production, the Mainland will, upon application by our manufacturers, apply zero tariffs at the latest by January 1, 2006. The magnitude of the zero-tariff preference may best be understood by comparing it with the 10% or so average tariff regime that will continue to prevail in the Mainland even after full implementation of China's WTO commitments on trade in goods. Even without counting the effect of trade creation, the projected magnitude of tariff savings for Hong Kong goods is in the order of HK$750 million per year.

Seasoned manufacturers and exporters in Hong Kong, not least those who make textiles and clothing products for the US market, would need no reminder of the critical importance of how the origin of goods is to be determined. Thanks to your wise and attentive counsel throughout the consultations, the origin rules now devised and agreed under CEPA are open and liberal, and above all, suit the practical circumstances of Hong Kong. They compare favourably with preferential origin rules of other free trade agreements.

For most products, the CEPA origin rules will be process-based, as many of you have advocated in the consultations, and similar to those that have long been in use in Hong Kong. With respect to the minority of products where a value-added percentage threshold is necessary, the percentage is set at an enviable 30 per cent - the least onerous among all the FTAs signed so far. In addition, product development costs incurred in Hong Kong may also be counted in the calculation. That last aspect is extremely beneficial to the raising of the quality of our products.

The signing of CEPA has re-energised our industrial sector. With tariff-free treatment, it is much more attractive now for manufacturers of brand named products, or high value-added products or those with substantial intellectual property input, to expand existing, or start new, production operations in Hong Kong. This process will help promote the restructuring and diversification of industries in Hong Kong towards the direction of high value-added goods. The Government and the community at large can also look forward to CEPA's positive effect on local employment as the new initiatives take shape.

Since the conclusion of CEPA, the Science Park and the Industrial Estates have been receiving lots of tenancy enquiries, most of which are from high value-added industries. Several large manufacturers are moving their plants back to Hong Kong, including a large Chinese medicine manufacturer that will soon move into the Tai Po Industrial Estate. Many others are in the pipeline. I am pleased to see that the recently opened Innovation Centre and Photonics Centre at the Science Park are already enjoying a 94 per cent tenancy rate, and the overall occupation rate at the Science Park would be around 70 per cent by the end of the year, and rising.

To facilitate the restructuring of manufacturing industries in Hong Kong and in light of the implementation of CEPA, the Government will continue and, where appropriate, strengthen its supportive measures to local manufacturing industries. In addition to the infrastructure support offered by the Science Park, our supportive measures include the provision of a full range of consultancy services through the Hong Kong Productivity Council; standards and conformity assessment services through the Innovation and Technology Commission; comprehensive SME funding schemes; and advisory and information services through the Support and Consultation Centre for Small and Medium Enterprises (SUCCESS) of the Trade and Industry Department.

On the services side of CEPA, the Mainland will provide earlier access for Hong Kong services suppliers to the Mainland market, ahead of China's WTO timetable by two to five years. In some sectors, like audiovisual services, banking, construction and related services, distribution, legal, logistics and transport services, many of the preferential market access opportunities go beyond China's WTO commitments. These WTO-plus liberalisation measures offer Hong Kong enterprises a "first mover" advantage in the vast and rapid growing Mainland services market. With CEPA, Hong Kong will reinforce its already strong and irreplaceable role as the gateway to the Mainland.

I would like to add that objective and transparent criteria have been laid down under CEPA on how a company can qualify as a Hong Kong service supplier, and hence a potential beneficiary of CEPA. Regardless of the origin of its capital, a service supplier incorporated or established under the laws of the HKSAR and which has substantive business operations here can enjoy the full CEPA treatment. These liberal criteria give full recognition to Hong Kong's role as a world city in Asia and reinforce our status as a centre for international business and investment.

In the run-up to 2004, we place high priority on two fronts of CEPA: implementation and promotion. On the former, front-line departments such as the Trade and Industry Department (TID) and Customs are working round the clock to get themselves fully prepared and ready. They also maintain close liaison with their counterparts in the Mainland, particularly those in Guangdong in ensuring that all essential aspects would be properly monitored and facilitated. Preparatory work for issuing CEPA Certificates of Origin has been completed. On certification of Hong Kong Service Suppliers, TID has set up a designated CEPA Branch to provide one-stop certification services for all the 18 service sectors. As a rough indication of the keen interest from the trade, the total number of enquiries received by Trade and Industry Department topped 5,000, and hits to the CEPA website have reached 400,000 since September 29.

The Government places particular emphasis on introducing and promoting CEPA to potential beneficiaries and investors in and outside of Hong Kong. We also make sure that this is done in a concerted way by all parties concerned. In this connection, I am grateful to FHKI and other trade and business organisations for their active interest and support. In my recent visits to Australia and Korea, the business communities that I briefed invariably expressed keen interest in CEPA. They appreciated its huge potential in bringing out and consolidating Hong Kong's many existing competitive advantages.

Ladies and gentlemen, CEPA will come into force in two weeks' time. It is not the end. Far from it. It is the beginning of an even closer economic relationship between the Mainland and Hong Kong. Adopting a building block approach, CEPA provides a mechanism for the inclusion of further market opening and liberalisation measures to be agreed between the two sides. Tomorrow, we will be joining Vice Minister An Min in Beijing for the First Steering Committee meeting under CEPA. In our further discussions with Mainland authorities, the Government will continue to consult all the stakeholders, with a view to securing even more market access opportunities in the Mainland. I look forward to FHKI's continuous support.

Once again, happy holidays.

Thank you.

Ends/Tuesday, December 16, 2003


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