New York Times | By Keith Bradsher | June 17, 2003
HONG KONG, June 16 - Top officials from mainland China and Hong Kong will sign a free trade agreement on June 30 that will eliminate all tariffs on many goods and remove restrictions on trade in many services, Hong Kong's leader announced this evening.
Tung Chee-hwa, Hong Kong's chief executive, said that in addition to wiping out many tariffs, Beijing would give Hong Kong companies greater access to mainland China's markets for management consulting, legal and accounting services, real estate services, wholesale distribution, construction engineering, medical services, transportation, logistics, tourism, banking, insurance and securities.
At a news conference here this evening, Mr. Tung said he had come "close to reaching a consensus" on the pact's details during meetings this morning with Chinese officials in Shenzhen, a nearby mainland city. But he declined to provide any details on the crucial question of how the agreement would identify which businesses qualify as Hong Kong companies.
He also refused to discuss the extent to which goods would qualify for duty-free treatment if they were produced elsewhere, received some extra processing in Hong Kong and then were shipped on to mainland China.
"These are issues that many are very concerned with," Mr. Tung said. "We have fully taken into account Hong Kong's position as an international city and the present circumstances, adopting rules that are both flexible and easy to monitor."
Foreign business executives say that unless the agreement excludes Hong Kong subsidiaries of multinational corporations, mainland China may not provide significantly greater access to its service industries than it promised upon joining the World Trade Organization in November 2001.
Hong Kong became a member of the trade organization before Britain returned the territory to China in 1997. It is now a special administrative region of China, but it remains a separate W.T.O. member with its own legal and economic system and separate trade regulations.
If the new free trade agreement were to provide broad new concessions and encompass the subsidiaries of multinationals, China would effectively be opening a huge back door to its market.
But China and Hong Kong cannot easily restrict the agreement, known as the Closer Economic Partnership Arrangement, to purely local companies without breaking the trade organization's rules. These rules discourage countries from discriminating among companies based on the nationality of their owners or the location of their headquarters, but the rules are not very detailed and are subject to some interpretation.
James Thompson, the chairman of the American Chamber of Commerce, said that his understanding was that Beijing ministries would set separate definitions for each industry to determine which entities would qualify as Hong Kong companies. He predicted that China would not provide much greater access for the multinational companies that dominate Hong Kong's financial sector and have much more experience than their potential Chinese rivals.
Mr. Tung conspicuously mentioned banking, securities and insurance at the end of his list of industries today, even though the financial sector here, like the logistics and shipping industry, is very important to the local economy. By contrast, manufacturing accounts for only 5 percent of Hong Kong's output, said Joan Zheng, the chief economist for greater China at J. P. Morgan.
Ms. Zheng said that she had seen a draft definition of a Hong Kong company from the negotiations and that it would include only those that are owned and controlled by permanent Hong Kong residents, have been doing business in Hong Kong for at least five years, derive a certain percentage of their revenue from Hong Kong and mainland China and pay Hong Kong taxes. Ms. Zheng cautioned that she did not know if the final agreement would use such a definition.
If it does, Western governments and foreign companies would be likely to complain. Henry Tang, Hong Kong's secretary of commerce, industry and technology, said on Friday that Hong Kong would abide by its commitments to the trade organization.
Hong Kong is already a free port that generally does not impose tariffs on any imported goods, nor does it put restrictions on foreign companies providing services. Mainland China still has many such restrictions, although it pledged in November 2001 to reduce some of them by the end of 2006 as part of its entry into the World Trade Organization.
Even at the end of 2006, however, China's tariffs on many goods will still be much higher than American tariffs, and it will still have many more restrictions on foreign access to its service industries.
Uncertainty about the new agreement's terms has made it hard to estimate how much it will help Hong Kong rebound from the devastating effects of this spring's outbreak of severe acute respiratory syndrome and a World Health Organization advisory against travel here that lasted nearly two months. The secrecy surrounding negotiations for the trade agreement all but guarantees that every large company with operations in China will have to reassess whether and how much it does business in Hong Kong.
Mr. Tung was optimistic, predicting that the pact "will bring substantial business opportunities for the various sectors here in our community - it will greatly help Hong Kong overcome its difficulties and achieve economic recovery as soon as possible."
But Eden Woon, the chief executive of the Hong Kong General Chamber of Commerce, warned in a statement tonight that the agreement "will not be a magical pill for all our ills, and we still need to work hard to rejuvenate our economy."New York Times:
