Hong Kong and China Finalise Free Trade Agreement

by Mary Swire, Tax-News.com, Hong Kong

13 June 2003

Hong Kong's Trade Minister, Henry Tang Ying-yeng revealed this week that the territory will shortly sign a free trade agreement with China that is expected to eliminate tariffs on Hong Kong's exports and attract fresh foreign investment.

According to the Hong Kong Secretary for Commerce, Industry and Technology, the talks on the closer economic partnership arrangement are now complete, and all that remains is for differences to be ironed out on the definition of Hong Kong companies and goods. Both sides are now making final preparations for the official signing ceremony later in the month, the South China Morning Post revealed.

As well as scrapping tariffs on Hong Kong's exports to the mainland, the agreement will provide greater access to the mainland's service industries for HK businesses, and will generally help to increase the flow of cross border trade. Tang explained that the territory will derive much benefit from the pact as multinational companies hoping to exploit the vast Chinese market will very likely set up their Chinese headquarters in Hong Kong. In addition, Chinese firms are expected to establish offices in the city to take advantage of investment opportunities, he observed.

Commenting on the agreement, Tang told the SCMP: "This is the first [bilateral] free-trade agreement for Hong Kong and the mainland," continuing: "This will open a whole new candy store for us."

Whilst acknowledging that Hong Kong stands to gain more from the free trade pact than China, Mr Tang refuted suggestions from some in China that the benefits will be purely be one way traffic.

"I understand that the attitudes of some people on the mainland have changed, and that they consider Hong Kong would not be as prosperous without support from the motherland. But the contribution from Hong Kong to the mainland's economic reform over the past 25 years is significant and concrete," the Minister observed, continuing: "We are benefiting a lot more than China. However, when the state leaders say they are going to give Hong Kong strong support, they have considered other factors." Tang also pointed out the China will benefit greatly through increased levels of direct foreign investment as a result of the agreement.

He told the SCMP that the deal will now be submitted to the WTO (World Trade Organisation) for scrutiny. The agreement is also reportedly in line with China's obligations under the WTO.

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