Questions Over China/Hong Kong Free Trade Area

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

10 December 2001

Confusion reigns in Hong Kong over whether China is ready to discuss the formation of a free trade area with the SAR. Last week, Long Yongtu, China's top trade negotiator, said Beijing was favourably considering such a proposal from Tung Chee-hwa, Hong Kong's chief executive.

But on Friday at a two-day meeting of a joint commission between Hong Kong and the mainland on commerce and trade the idea was not mentioned, and Vice-Minister for Foreign Trade An Min said he knew nothing about it. Asked to comment, Mr An said he did not know what Mr Long had said and did not understand the idea: 'I have not heard of this. We did not discuss this during the meeting and have not researched it. We have much to do after joining the WTO,' he said. Such as learning about free trade areas!

Still, Mr An is learning quickly. Asked whether Beijing could extend privileges to Hong Kong to help it through the economic slump, he said that China would become a WTO member on Tuesday and could act only according to WTO rules. 'We can co-operate with each other in many ways,' he said, 'Our entry into WTO will strengthen Hong Kong's role as a port and trans-shipment centre and provide more opportunities, with consumers in the mainland richer and able to buy more goods from Hong Kong.'

He said Hong Kong was going through difficult times and would overcome them, and that such ups and downs were part of the economic cycle.

Historically Hong Kong has strongly supported the multilateral trade system, and has avoided regional trade agreements. But the recent rush to join such groupings on the part of other Asian territories has begun to chip away at Hong Kong's convictions. Business has been lobbying government strongly on the issue, and there is some suggestion that the government may doubt its own claims that Hong Kong will enjoy a bonanza after China joins the World Trade Organisation on Tuesday, although booming figures for new international company offices in the SAR seem reassuring.

China too has its doubts about bilateral trade ties with Hong Kong: recent sweetheart deals made between Hong Kong and some Chinese regions seem to have been blocked in Beijing. "Beijing believes that is a trend that should stop," says Eden Woon, director of the Hong Kong General Chamber of Commerce.

In fact, it is hard to see how a free trade agreement would operate in reality. Normally, all companies established inside a free trade area can take advantage of its provisions. It is exceptionally easy to incorporate in Hong Kong, and many western companies use it as their regional headquarters. Why would Beijing accept an agreement that allowed a flood of foreign companies to use Hong Kong as a backdoor way of gaining better access to China's market than is allowed by its WTO accession agreement?

It's also likely that major Western countries which negotiated hard for limited access to China for their financial industries would step in to prevent Hong Kong from gaining a march on them. But then again, they all have offices there. It hard to disentangle who the winners and losers would be.

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