Download (2) Trade Policy Framework

WORLD TRADE
WT/TPR/S/173/Rev.1
13 March 2007
ORGANIZATION
(07-1038)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
HONG KONG, CHINA
Revision
This report, prepared for the fifth Trade Policy Review of Hong Kong, China,
has been drawn up by the WTO Secretariat on its own responsibility. The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from Hong Kong, China on its
trade policies and practices.
Any technical questions arising from this report may be addressed to
Mr. Sergios Stamnas (tel: 022 739 5382).
Document WT/TPR/G/173 contains the policy statement submitted by
Hong Kong, China.
Note:
This report is subject to restricted circulation and press embargo until the end of the
first session of the meeting of the Trade Policy Review Body on Hong Kong, China.
Hong Kong, China
WT/TPR/S/173/Rev.1
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS
I.
II.
vii
(1)
ECONOMIC ENVIRONMENT
vii
(2)
TRADE POLICY FRAMEWORK
viii
(3)
TRADE AND TRADE-RELATED POLICY DEVELOPMENTS
viii
(4)
SECTORAL POLICY DEVELOPMENTS
x
(5)
OUTLOOK
xi
ECONOMIC ENVIRONMENT
1
(1)
INTRODUCTION
1
(2)
RECENT ECONOMIC DEVELOPMENTS
(i)
Growth, incomes, and employment
(ii)
Prices
2
2
6
(3)
MAIN MACROECONOMIC DEVELOPMENTS
(i)
Monetary and exchange rate policy
(ii)
Fiscal policy
7
7
9
(4)
STRUCTURAL MEASURES
(i)
Tax reforms
(ii)
Labour markets
(iii)
Governance
(iv)
Competition
10
10
11
11
12
(5)
BALANCE-OF-PAYMENTS DEVELOPMENTS
12
(6)
DEVELOPMENTS IN MERCHANDISE TRADE
14
(7)
TRENDS AND PATTERNS IN FOREIGN INVESTMENT
15
(8)
OUTLOOK
18
TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
19
(1)
OVERVIEW
19
(2)
GENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK
19
(3)
STRUCTURE OF TRADE POLICY FORMULATION
(i)
Government bureaux and departments
(ii)
Advisory bodies
20
21
21
(4)
TRADE POLICY OBJECTIVES
21
(5)
TRADE LAWS AND REGULATIONS
22
(6)
TRADE AGREEMENTS AND ARRANGEMENTS
(i)
Multilateral agreements
(ii)
Regional and bilateral arrangements
(iii)
Preferential trade arrangements
22
22
24
27
(7)
FOREIGN INVESTMENT REGIME
27
WT/TPR/S/173/Rev.1
Page iv
Trade Policy Review
Page
III.
IV.
TRADE POLICIES AND PRACTICES BY MEASURE
29
(1)
OVERVIEW
29
(2)
MEASURES DIRECTLY AFFECTING IMPORTS
(i)
Registration and documentation requirements
(ii)
Tariffs
(iii)
Other charges affecting imports
(iv)
Customs valuation and rules of origin
(v)
Import prohibitions, licensing, and restrictions
(vi)
State trading
(vii)
Government procurement
(viii)
Local-content requirements
(ix)
Contingency measures
(x)
Standards and other technical requirements
30
30
32
33
35
36
37
37
40
40
40
(3)
MEASURES DIRECTLY AFFECTING EXPORTS
(i)
Registration and documentation
(ii)
Export charges and levies
(iii)
Export prohibitions, licensing, and restrictions
(iv)
Export support
(v)
Export finance, guarantees, and insurance
(vi)
Export promotion and marketing assistance
44
44
45
45
47
47
48
(4)
MEASURES AFFECTING PRODUCTION AND TRADE
(i)
Incentives
(ii)
Role of state-owned enterprises
(iii)
Intellectual property rights
(iv)
Competition and consumer protection policy
(v)
Corporate governance
(vi)
Environmental measures
48
48
53
53
63
68
70
TRADE POLICIES BY SECTOR
71
(1)
OVERVIEW
71
(2)
AGRICULTURE AND FISHERIES
72
(3)
ELECTRICITY
75
(4)
MANUFACTURING
77
(5)
SERVICES
(i)
Features
(ii)
Overall commitments under the GATS
(iii)
Closer Economic Partnership Arrangement
(iv)
Financial services
(v)
Communications
(vi)
Transport
(vii)
Legal services
(viii)
Healthcare
79
79
79
80
80
87
90
99
100
REFERENCES
101
APPENDIX TABLES
107
Hong Kong, China
WT/TPR/S/173/Rev.1
Page v
CHARTS
Page
I.
ECONOMIC ENVIRONMENT
I.1
I.2
Product composition of merchandise trade, 2001 and 2005
Direction of merchandise trade, 2001 and 2005
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
Mark-up on Thai fragrant rice, 2002-05
Hong Kong dollar interest rates and interest margins
16
17
74
85
TABLES
I.
ECONOMIC ENVIRONMENT
I.1
I.2
I.3
I.4
Selected macroeconomic indicators, 2000-06
Basic economic and social indicators, 2000-06
Structure of government revenue, 2000-06
Balance of payments, 2000-05
II.
TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1
Selected notifications by Hong Kong, China under WTO Agreements, September 2006
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
III.3a
III.3b
III.4
III.5
III.6
III.7
III.8
III.9
III.10
Import declaration charges, 2006
Share of fully and partially bound tariff lines, 2001 and 2006
Excise duties, 2001 and 2006
Local production of excisable commodities, 2001-06
Government procurement, 2001-05
Contracts awarded by government entities under various tender procedures, 2001-05
Labelling requirements, 2006
Export declaration charges, 2006
Companies with government involvement, 2006
Intellectual property laws and regulations, 2006
Enforcement of intellectual property rights, 2002-05
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
IV.3
IV.4
Structure and performance ratios of the banking sector, 2000-05
Telecommunication services, 2000-05
Port traffic, 2000-05
Air transport, 2000-05
2
5
10
13
22
31
33
34
34
38
40
44
45
53
54
62
82
89
91
95
WT/TPR/S/173/Rev.1
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Trade Policy Review
APPENDIX TABLES
Page
I.
ECONOMIC ENVIRONMENT
AI.1
AI.2
AI.3
AI.4
Foreign direct investment inflows/outflows by economic activity, 2000-04
Foreign direct investment inflows/outflows by country, 2000-04
Stock of foreign direct investment by economic activity, 2000-05
Stock of foreign direct investment by country, 2000-05
III.
TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1
AIII.2
Goods subject to import licensing, 2005
Standards and/or technical regulations, July 2006
IV.
TRADE POLICIES BY SECTOR
AIV.1
Assistance to agriculture and fisheries, 2006
109
110
111
112
113
115
121
Hong Kong, China
SUMMARY OBSERVATIONS
1.
Since the last Review of the
Hong Kong Special Administrative Region
(HKSAR), in December 2002, growth has
rebounded from under 2% to over 7% in 2005
and a projected 4%-5% in 2006. Underlying
this performance is the openness of its
economy to trade and foreign investment as
well as the favourable external environment,
judicious macroeconomic policies, structural
reforms, strong growth in Mainland China,
and the confidence-building effects of the
Closer Economic Partnership Arrangement
(CEPA) with China. As a result of its growing
integration with Mainland China through
CEPA and its participation in the Pan-Pearl
River Delta (PRD) initiative, the HKSAR's
structural
transformation
from
a
manufacturing- to a services-based economy
has continued.
(1)
WT/TPR/S/173/Rev.1
Page vii
sizeable fiscal reserves (equivalent to almost
16 months of government expenditure), have
been maintained; these reserves are a key to
the HKSAR's pure currency board system,
which, with the exchange rate of Hong Kong
dollar fixed against the U.S. dollar, oversees
the domestic money supply. Tax revenue as a
percentage of GDP is only about 10.9% (the
average for the period 2001/02-2005/06), one
of the lowest ratios in the world. The
Government is thus still heavily dependent on
rather volatile non-tax income (notably sales
of government-owned land and investment
income) for revenue. In order to broaden the
tax base, the authorities are considering the
introduction of a goods and services tax
(GST).
4.
The HKSAR has also taken measures
to further develop the supervisory framework
for the prevention of money laundering,
terrorist financing, and to combat corruption.
ECONOMIC ENVIRONMENT
2.
After a period of prolonged weakness
in economic activity, persistent deflation,
rising unemployment, and widening fiscal
deficits, the economic performance and
outlook for the HKSAR has greatly improved
since mid-2003. Annual growth in real GDP
rose from 1.8% in 2002 to 3.2% in 2003 then
jumped to 8.6% in 2004, before easing to 7.3%
in 2005. Following six consecutive years of
deflation,
which
contributed
to
the
improvement in the HKSAR's external
competitiveness, prices rose by 1% in 2005
and are expected to edge up by 2% in 2006.
After peaking at 7.9% in 2003, the annual
unemployment rate fell to 5.6% in 2005;
efforts to deal with relatively high
unemployment
of
low-skilled
workers
(previously employed in manufacturing that
has migrated to the Mainland) and attract
skilled workers are under way. At the same
time, real GDP per capita has risen steadily to
an estimated US$30,032.8 (2005); the HKSAR
has also retained its high ranking in the
UN human development index.
3.
The fiscal balance improved gradually
from a deficit to surpluses (as from 2004) and
5.
As a result of its high level of saving in
relation to gross domestic investment, the
HKSAR's balance of payments has remained
strong, characterized by a rising surpluses on
the current account (except for 2004).
Foreign
exchange
reserves
attained
US$126.6 billion at the end of June 2006,
equivalent to 18.4 months of retained imports.
Under the fixed exchange rate system, which
has been subject to refinements with a view to
removing uncertainty about exchange rate
movements and promoting smooth functioning
foreign exchange and money markets,
domestic product, factor, and asset markets
have borne the brunt of economic adjustment.
6.
The HKSAR's economic rebound is
due in large part to its continued openness to
trade and foreign investment. The HKSAR
remains one of the most open economies in the
world, with trade in goods and non-factor
services continuing to rise, to 383% of GDP in
2005.
The sole notable change in the
HKSAR's trade and investment patterns is the
rise of Mainland China's shares in its foreign
trade as well as inbound and outbound
investment. Textiles and clothing remains the
largest category of domestic exports, with
WT/TPR/S/173/Rev.1
Page viii
China the largest market. At the same time,
the rising importance of offshore trade is
diminishing the role of the HKSAR as China's
"entrepôt".
(2)
TRADE POLICY FRAMEWORK
7.
In accordance with the principle of
"one country, two systems", the Basic Law, the
main constitutional document governing the
HKSAR, grants the Territory a high degree of
autonomy in the conduct of foreign trade
relations. The Territory's institutional and
policy framework has remained largely
unchanged during the period under review.
8.
There have been no significant
changes in the HKSAR's broad trade policy
objectives since 2002; while upholding its
commitment to the primacy of the multilateral
trading system, the Territory now has a more
open-minded approach to the pursuit of freetrade agreements (FTAs) with its trading
partners. As from 2004, a continuous bilateral
trade liberalization process has been launched
under the CEPA. Furthermore, the Pan-PRD
Initiative is expected to strengthen cooperation
among nine Chinese provinces and the Special
Administrative regions of Macao and Hong
Kong in ten trade-related areas. The HKSAR,
which successfully hosted the Sixth Ministerial
Conference in December 2005, continues to
participate actively in WTO work, including
the ongoing negotiations. Its priorities in the
Doha Development Agenda (DDA) include
enhanced market access, particularly through
reduced non-agricultural tariffs, and rulesrelated issues as regards trade in services.
9.
Attracting foreign investment is a
priority of the Government. Consequently,
HKSAR remains receptive to foreign
investment and does not discriminate between
foreign and domestic investors.
The
authorities continue to let open markets be the
main determinant of the allocation of
resources within the Territory.
Trade Policy Review
(3)
TRADE AND TRADE-RELATED POLICY
DEVELOPMENTS
10.
In accordance with its Basic Law,
Hong Kong, China remains a free port with
few barriers to trade. Since 2002, there have
been only a few significant changes in its trade
regime; these include measures to facilitate
trade, the phasing out of the Rice Control
Scheme, and improved enforcement of
intellectual property rights.
11.
All imports enter the Territory duty
free, but the scope of tariff bindings remains
low, at 42.8% of all tariff lines (or 56.9% of
the total value of imports in 2005); the
HKSAR has indicated its willingness to
negotiate the binding of more tariff lines in the
context of the ongoing round of multilateral
trade negotiations. All bound tariffs are at
zero rate. Domestic taxes (in the form of
excise duties) are levied on imports and
domestic production of four categories of
goods: tobacco, hydrocarbon oil, and methyl
alcohol are charged at specific rates; and
alcoholic beverages are subject to ad valorem
rates according to alcohol strength. However,
these taxes and an ad valorem tax (escalating
on a value basis) on the first registration of
motor vehicles fall mostly on imports as there
is little, if any, domestic production of the
taxable goods.
Trade facilitation action
during the period under review involved, inter
alia, the introduction of electronic customs
clearance and documentation procedures.
Although specific in nature, trade declaration
charges escalate on a value basis.
12.
Non-tariff border measures are almost
absent; those in force (import and export
licences and quotas) either stem from
obligations under international undertakings
or are applied for health, safety, security or
environmental reasons. The Rice Control
Scheme, a quota system in place for food
security reasons, was eliminated in 2003.
Hong Kong, China
As from January 2004, the control on the
import, export or transhipment of 9 out of
31 categories of articles subject to licensing
was relaxed or simplified. To safeguard the
HKSAR's role as a trading hub for diamonds
in the region, since 2003 rough diamonds
(previously banned) from countries subject to
the Kimberly Process Certification Scheme
have been subject to import licensing
requirements. Hong Kong, China has no legal
instrument protecting domestic producers from
perceived "unfair" foreign trading practices in
the form of dumping or export subsidies.
There are no government controls on exports,
except those related to UN sanctions, the WTO
Agreement on Textiles and Clothing (until its
expiry at the end of 2004) and textiles exports
to "sensitive" and "non-sensitive" markets (as
from 2005). Licensing of textiles exports is,
inter alia, aimed at avoiding circumvention, by
means of illegal transhipment or false
declaration of origin, of safeguard measures
in certain markets specific to Mainland China.
Hong Kong, China, a signatory to the WTO
Agreement on Government Procurement
(GPA), treats all suppliers equally (i.e. no
preferences on the basis of origin) and
considers its procurement regime competitive;
in 2005, 21.9% of all contracts were awarded
through restricted or single tendering and
another 48.4% through selective tendering,
which, according to the authorities, is based
on open and transparent procedures.
13.
During the period under review, the
main instruments used to assist production and
trade have been, inter alia, tax incentives
(including accelerated depreciation) and
financing for R&D, design and innovation and
technology upgrading. Such assistance has
been limited largely to the provision of public
services and infrastructure that enable the
private sector to develop within a businessfriendly environment. The Government has
attached priority to high-technology and
information technology activities in allocating
funds; it has also increased funds for small
and medium-sized enterprises (SMEs). Steps
were taken to reduce the Government's
influence in the land market by making the
Application List system more market-driven
WT/TPR/S/173/Rev.1
Page ix
and by enhancing
transparency.
its
efficiency
and
14.
Protection of intellectual property
rights (IPRs) in the HKSAR was reinforced,
inter alia, through improvements in the
patents, trade marks, designs, and copyright
legislation and the introduction of electronic
registration services. Cooperation with the
relevant authorities in Mainland China has
been a key component of the enforcement
process. The partnership between the HKSAR
Customs and industry has also been
strengthened.
15.
Regarding competition policy, the
HKSAR authorities still prefer a sectorspecific approach, involving measures such as
licensing, codes of practice, and legislation,
when these are felt to be necessary, rather
than a comprehensive policy to address anticompetitive practices. To promote competition
"proactively" and encourage self-regulation, a
set of guidelines supplementing the existing
Statement on Competition Policy was
promulgated in September 2003. In July 2006,
the authorities were considering the
recommendations of a Competition Policy
Review Committee (CPRC), made up mostly of
non-Government
stakeholders
(business,
academic, consumer protection, and other
sectors), for introducing a cross-sector
competition law, targeting specific types of
anti-competitive
conduct.
Consumer
protection cases have involved largely
telecommunication services and related goods
and services.
16.
Steps to bring corporate governance
into line with international standards have
involved, inter alia, updating relevant
legislation and issuing a guide.
17.
With
a
view
to
addressing
environmental problems, the HKSAR aims to
submit all new major government policies to
environmental protection scrutiny and to
implement the "polluter pays" principle.
WT/TPR/S/173/Rev.1
Page x
(4)
SECTORAL POLICY DEVELOPMENTS
18.
The liberal sectoral policies of
Hong Kong, China have undergone little
change, thus allowing the shift towards a
services-based economy to continue, taking
advantage in particular of opportunities
arising from liberalization under the CEPA
with China. The HKSAR remains primarily a
service-based
economy,
with
services
accounting for 87.5% of GDP in 2004. The
contribution of agriculture, fisheries, and
mining to GDP (and employment) is
negligible, and that of the manufacturing
sector has declined progressively to 3.5%,
from 4.2% in 2002.
19.
Government
intervention
in
agricultural markets remains minimal with
local production complementing rather than
competing with other major market suppliers.
The HKSAR has significantly liberalized rice
trade, which has resulted, inter alia, in a rise
in the number of importers and registered
stockholders as well as in a drop in retail
prices of this commodity. Domestic support to
agricultural activities has been available in
the form of "Green Box" measures (not subject
to reduction commitments). Credit facilities to
agriculture and fisheries, largely financed by
non-governmental sources, have remained in
place; outlays under the two fisheries loan
funds were first notified to the WTO
Committee on Subsidies and Countervailing
Measures in 2006.
20.
Steps are under way to introduce
competition in the duopolistic electricity
market, where electricity is supplied by
two "investor-owned" companies. However,
no major outcome is expected prior to 2008.
The HKSAR aims to meet 1%-2% of local
power needs by renewable energy (RE)
sources by 2012.
21.
The contraction of the manufacturing
sector has continued as a result of investment
opportunities
arising
under
CEPA
liberalization arrangements and the large
labour-cost difference between the HKSAR
and Mainland China, and possibly the fact that
Trade Policy Review
labour productivity in manufacturing is
substantially less than in the rest of the
economy. Nevertheless, the authorities expect
the industry to focus on high value-added
brand-name production and tap the huge and
fast-expanding Mainland China market.
22.
Hong Kong, China, a net exporter of
services, has continued to place emphasis on
strengthening its legislative and institutional
framework in order to maintain a competitive
climate in the services sector, the driving force
behind economic growth. Outward-oriented
expansion of services activities is being driven
by CEPA liberalization in 27 subsectors;
depending on the subsector, the CEPA
provides earlier and wider market access
opportunities for HKSAR service suppliers
than those contained in China's WTO
commitments. For example, CEPA reduced
the requirements for HKSAR's banks to
conduct Renminbi business and encouraged
Mainland China's financial institutions to
invest in the HKSAR, thus enhancing the
latter's status as an international financial
centre. Mergers and acquisitions were very
important in the HKSAR's banking sector
during the period under review; deregulation
of interest rates seems to have encouraged
more innovation and intensified competition in
the banking sector, which, despite the large
number of banks, maintains its quasioligopolistic structure.
The local fixed
telecommunications
market
was
fully
liberalized as of 1 January 2003.
A
Telecommunications (Amendment) Ordinance
2003 provided a comprehensive and clear
legislative framework for completed mergers
and acquisitions.
Steps to maintain
competitiveness in port services included the
reduction in port fees and charges. All foreign
lawyers, from common law and non-common
law jurisdictions are allowed to take specified
examinations to become solicitors and
barristers in the HKSAR, which has the largest
cluster of international lawyers in Asia;
foreign law firms that wish to provide both
foreign and domestic legal services may do so
only by establishing associations with local
law firms.
Although healthcare services
remain heavily subsidized, there do not seem
Hong Kong, China
to be any barriers to or discriminatory
requirements on private or foreign investment
in healthcare services.
(5)
OUTLOOK
23.
Riding on developments in external
trade, private consumption, and investment,
the HKSAR's economy is experiencing a
balanced and solid expansion, enabling it to
rise to various challenges from the external
environment. Given the economy's general
openness to trade and investment and its
strong links with Mainland China, the
Territory's growth prospects will depend to a
large extent on external conditions and
developments on the Mainland, particularly
the economy's ability to undertake the
necessary restructuring associated with its
further integration with Mainland China.
WT/TPR/S/173/Rev.1
Page xi
The outlook for 2006 appears bright as the
economy is expected to gradually settle back
to a more sustainable growth rate of 4-5%.
With sustained strong real growth and
increasing integration with the Mainland, the
HKSAR economy is expected to pursue its
continuing structural shift towards higher
value-added services and more knowledgebased activities. Competitiveness will remain
dependent on the HKSAR maintaining its
traditional strengths and developing new
sources of growth. However, several factors
pose potential risks to economic growth.
These factors include a steeper than expected
rise in U.S. interest rates, a resulting sharper
decline in global demand, and thus
international trade, and an outbreak of
protectionist measures against China, as well
as higher world energy costs and the
Territory's aging population.