*********************************************************
Following is the speech by the Chief Executive, Mr Donald Tsang, titled "Strengthening global free trade and investment: What should the key priorities be?" at the APEC CEO Summit 2008 in Lima, Peru today (November 22, Peru time):
Distinguished Guests, Ladies and Gentlemen,
Good morning,
I am delighted to join you today to discuss a subject that is central to the interests of all APEC member economies, and especially to us in Hong Kong.
First, allow me to establish our credentials in the area of free trade and investment, which is not just a key strategy for Hong Kong, it is also an economic tradition - and a constitutional obligation.
Hong Kong is one of the world's most open and externally-oriented economies, with a trade-to-GDP ratio of 404%. We have been continuously rated as the world's freest economy for over many years.
This reflects our commitment to minimum government intervention and the free play of market forces. Our policy is to maintain open and liberal service and investment regimes. Generally, there are no laws or regulations that limit foreign investment in Hong Kong. There are no restrictions on capital flows - local currency or foreign exchange. No restrictions on repatriation of capital. No restrictions on trade in gold, silver or stocks.
It is also worth mentioning our low tax system, which is simple and predictable. In Hong Kong, people pay no more than 15% salaries tax, and companies pay no more than 16.5% corporate profits tax.
We believe the best way to encourage people to work, and to improve productivity, is to let people and business keep most of what they earn. The more money that remains in private hands, the more money can be spent and invested in the local economy. We only tax income sourced in Hong Kong. And we don't have capital gains tax, we have no sales tax, and we have no estate duties.
Although we are a small economy with a population of just 7 million, the value of our trade in services accounted for 2.4% of the world's total trade last year. Our total foreign direct investment (FDI) inflows accounted for over 3% of the world's total in 2007. We were the second largest FDI recipient in Asia last year, with inflows of almost US$60 billion. And, at the end of September our stock market was ranked 7th in the world and 3rd in Asia with market capitalisation of more than US$1.6 trillion.
Our prime location, combined with our open market credential and low tax system, have attracted more than 4,000 international and Mainland Chinese firms to establish regional operations in Hong Kong - that's 50% more than what we had a decade ago.
And, since 1970, our per capita GDP had grown four-fold to about US$30,000.
I mention all this because it shows just how much we have benefited from open trade. Our famous skyline is a bar chart of our economic prosperity, which has been built in our commitment to open trade and investment. And, it is a commitment that gets stronger by the day as globalisation continues to bring us all closer together.
We have also benefited greatly from the opening up and reform process in our country over the past three decades. In China, millions of people have been lifted out of poverty, and our country's cityscape have been transformed and modernised. Our country's growth accelerated after its markets were further opened up under the World Trade Organisation (WTO) discipline. Hong Kong, too, has gained much more from this process - as a provider of capital and services, as an entrepot for the trade in goods, and as our country's only international financial centre. So, openness to trade and investment is mutually beneficial to all participating trading partners, regardless of their stage in economic development.
The cornerstone of our external trade policy rests upon the multilateral trading system. Hong Kong was one of the founding members of the World Trade Organisation (WTO) in 1995 and, before that, we were an active member in the GATT.
The WTO provides predictability, transparency, and stability in international trade, and the protection that we need in pursuing and safeguarding our trade interests.
Successive rounds of negotiations under the WTO framework have helped sustain global trade liberalisation and economic growth. The current round - the Doha Development Agenda (DDA) - covers a broad and balanced agenda. It aims to liberalise trade of agricultural products, industrial goods and services. It also aims to clarify or improve trade rules and new rule-making. It also addresses the concerns of developing countries.
Since the launch of the DDA in 2001, Hong Kong has participated actively and constructively in the negotiations. Bringing the Doha Round to a successful conclusion has always been a priority for us - especially in 2005 when we hosted the WTO Ministerial Conference in Hong Kong.
The WTO Ministerial Meeting in July this year - in which we also participated - failed to resolve the key issues needed to advance the negotiations. This was disappointing. However, we recognise that much progress was made during those meetings. And we hope that the achievements attained so far can be preserved.
A World Bank study in 2005 estimated that between US$290 billion and US$460 billion could be gained from global trade liberalisation annually by the year 2015, lifting more than 100 million people out of poverty. Again, I use these figures to highlight the real and tangible benefits to be had from a successful Doha Round - benefits that will be felt by developed and developing economies alike.
As the global community is now struggling with the challenges of an economic downturn and protectionist sentiment, a successful conclusion to the Doha Round is more important than ever. I am encouraged by the strong commitment from Leaders of the G-20 Summit to call for reaching agreement on modalities within this year, which is crucial to a successful outcome of the Doha Round. Hong Kong is ready to engage early at the Ministerial level. I appeal to all APEC economies to show the greatest political determination and to work collectively to achieve this goal.
In tandem with the multilateral trading system, regional trade agreements (RTAs) are becoming more prevalent. RTAs that are of high-standard and consistent with WTO disciplines and provisions can play a useful role by expanding trade and investment, providing better market access, and creating a more favourable business environment among RTA parties. But, we see these as building blocks for the multi-lateral system - not as a replacement of that system.
I am encouraged by APEC's work to strengthen economic integration in the region, which includes the long-term prospect of a Free Trade Area of the Asia-Pacific. Clearly, such work should be WTO-consistent and complement APEC's Bogor Goals. Strengthening economic integration in the Asia-Pacific region is not an alternative to, but an important ingredient in the multilateral trading system.
We know that trade increases when barriers are reduced or removed altogether. Tariffs are just one type of barrier. Other barriers include government red tape, inadequate transport and communications infrastructure, or stifling compliance procedures.
Hong Kong is committed to making every effort to remove such barriers. Repeated international assessments have confirmed the strength of the open, transparent and welcoming trading infrastructure of Hong Kong.
There is, as always, no room for complacency. We will, for example, continue to invest in cross-boundary infrastructure to ensure maximum efficiency in transport and communications between Hong Kong and the Mainland of China, and with the rest of the world.
We will also continue our policy of facilitating free trade and investment while ensuring an efficient Customs administration and an appropriate degree of Government regulation to provide a level playing field for business, and a fair environment for investors.
Finally, I would like to talk about the Bogor Goals and Hong Kong's contributions towards achieving these goals.
The Bogor Goals - set out by APEC in Indonesia in 1994 call for free and open trade and investment in the Asia-Pacific region by 2010 for industrialised economies and by year 2020 for developing economies. They remain as relevant today as they were 14 years ago.
Member economies must deliver on these Goals if we are to showcase APEC's relevance and success to the rest of the world. This is especially important today given the slow progress in concluding the Doha Development Agenda under the WTO, and in the face of the current financial crisis.
Hong Kong has been active in playing a role in supporting APEC's work on open trade and investment. This work includes strengthening Regional Economic Integration, implementing the Second Trade Facilitation Action Plan, and developing the Investment Facilitation Action Plan for 2008-2010.
I commend APEC on the good progress made in the area of Regional Economic Integration this year, and I'm confident Leaders will soon agree on a detailed plan on the way forward for year 2009 and beyond.
While we remain strongly committed to the multilateral trading system and the Doha Round, we are also ready to work closely with our APEC colleagues to further strengthen APEC's work on Regional Economic Integration.
Ladies and gentlemen, the impact of the current global financial crisis is far reaching and its scale is unprecedented. Today, economies around the world are facing huge and mounting uncertainties, as well as tough choices. Many advanced economies face the risk of recession, and higher unemployment.
During such troubling times, some economies may be tempted to resort to protectionist measures to shield domestic producers from external competition. Hong Kong would strongly urge Member Economies not to go down that road, and to remain true to the ideals of the WTO and APEC.
APEC economies have gained much from each other since our economic caucus was launched in 1989. Our success has come from being more open to one another, rather than closing our doors. International trade promotes efficiency in resource allocation, enhances economies of scale, increases the choice of goods and services, and stimulates skills and technology transfer. More important, it helps increase global prosperity.
Open trade and investment lubricates global economic growth and promotes better distribution of welfare across economies in the long run. Protectionism is self-defeating and jeopardises growth and development.
I would also appeal to APEC economies not to curtail their public spending at this crucial juncture. APEC economies combined account for very roughly over US$8 trillion in national public spending every year. We should not underestimate the positive effects of public spending has on cross-border trade and investment - nor underestimate the negative effects of a sudden and severe curtailment in this regard. At a time when private spending and investment is being trimmed, and banks are deleveraging and becoming more cautious about lending, Governments do have a role to play in keeping the wheels of the global economy turning. Such spending not only helps the domestic economies, it also encourages trade with the procurement of goods, services and raw materials. If Governments were to curtail spending at this time then it would, in my view, only hasten the looming economic downturn and plunge the world into a recessionary vortex. None of us want to see that happen.
In stressful economic times such as these, many of us will be looking to the lessons learned from previous financial crises. If there is one lesson, one lesson we have taken on board in Hong Kong, it is that open trade and investment benefits us all - even if we do hit a rough patch every now and then.
Thank you very much.
Ends/Sunday, November 23, 2008
Issued at HKT 01:19
NNNN
