Accord can work to HK's benefit

Song Sio-Chong, China Daily, Asia News Network, Beijing

China was an original contracting party to the General Agreement on Tariffs and Trade (GATT) created in 1947. China is also a signatory to the Results of the Uruguay Round of Multilateral Trade Negotiations. After 15 years of difficult negotiations to restore its position in GATT and become a member of the World Trade Organization (WTO), China finally entered the organization on Nov. 10, 2001. Taiwan, a separate customs territory (SCT) and an inalienable part of China, was granted membership at the same time.

In June 2003, both the Chinese mainland and the Hong Kong Special Administrative Region (SAR) signed the Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA).

Six annexes to the agreement were signed last month. The Mainland-Macao SAR CEPA was also signed last Friday.

Economic and trade cooperation among the customs territories of Southeast Asia has been stimulated by the CEPAs which are meant to promote joint economic prosperity and development.

Hong Kong and Macao are both SCTs of China as well as being special administrative regions.

Since China's SCTs are treated as members of the WTO, there are four members of the WTO within China including Taiwan.

In the WTO, it is extremely rare for any nation or state to have more than one membership. Any SCT of China will be able to take of this advantage by not only signing CEPAs with other SCTs of China but also by establishing various free trade agreements with other SCTs in the world.

Under the "one country, two systems" principle and the rules of the WTO, Hong Kong may establish inward CEPA relationships with other SCTs of China.

Pursuant to the rules of the WTO alone, Hong Kong may also engage in economic and trade relationships with the outside world.

Singapore provides an illuminating example. The Lion City, which has already had close economic and trade relations with its fellow members of the Association of Southeast Asian Nations (ASEAN), recently set up a free trade area with the United States after two years of negotiation.

Under such a two-way arrangement, U.S. manufacturers may be willing to invest in Singapore to produce competitive products to be exported to other ASEAN nations.

Concurrently, manufacturers of various nations of ASEAN will also be pleased to do the same with hopes of exporting their products at zero tariff to the United States.

Under this agreement Singapore will certainly attract foreign investment, increase its gross domestic product and reduce its unemployment rate at the same time.

Having its CEPA with the mainland, Hong Kong should not hesitate to discuss the possibility of establishing various free trade areas with other members of the WTO.

If Hong Kong can within two or three years succeed in setting up CEPAs with 10 per cent of the nearly 200 members of the WTO, it will bring nothing but benefits.

Before long, Hong Kong people will probably witness a renaissance of some manufacturing industries. With support from the central government, the mainland entrepreneurs will try to explore more business opportunities in Hong Kong if the reduction of tariffs offsets any increase in land or labour costs for products processed in the region. The more the production lines here, the lower the unemployment rate will be.

Through its CEPA with the mainland, Hong Kong may improve its economy to a certain extent. At present, 273 products of Hong Kong origin will enjoy zero tariffs when imported into the mainland. The list of preferential tariffs will be gradually broadened through the mechanism stipulated in the CEPA. It is believed that some Hong Kong manufacturers who have moved their factories into the Pearl River Delta will be encouraged to move some of their production lines back to Hong Kong.

We should not, however, be too optimistic. Compared with the mainland, the land and labour costs in Hong Kong are still very high. Such higher costs cancel out to varying extents the benefit of zero tariffs. Furthermore, China is still a developing country. To make all imported products tariff free would kill the weaker industries in the Chinese mainland. Even a free port like Hong Kong must impose tariffs on some imported products as a protective measure.

To solve Hong Kong's economic problems, particularly unemployment of blue collar workers, it is better for Hong Kong to follow the footsteps of Singapore by establishing both inward and outward CEPAs. Despite unknown difficulties to be overcome, any such initiative by the Hong Kong SAR government will be welcomed by all Hong Kong people.

The writer is a Hong Kong-based doctor of law.