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WTO Issues Favourable Report On Hong Kong

by Mike Godfrey, for, Washington

20 December 2006

In a report on Hong Kong's Trade Policy and Practices, the WTO says that the SAR's economic performance and its outlook have greatly improved since 2003, largely as a result of its continued openness to trade and foreign investment as well as a solid services sector.

The report says that since 2002, growth has rebounded from under 2% to over 7% in 2005 and a projected 4%-5% in 2006, noting in particular the favourable impact of the Closer Economic Partnership Arrangement (CEPA) with China. Real GDP per capita has risen steadily to an estimated US$30,032.8 in 2005 and the SAR has also retained its high ranking in the UN human development index.

Noting that tax revenue as a percentage of GDP is only about 10.9%, one of the lowest ratios in the world, the WTO says that the government is thus still heavily dependent on rather volatile non-tax income (notably sales of government-owned land and investment income) for revenue.

The report attributes Hong Kong's economic rebound in large part to its continued openness to trade and foreign investment, saying that the SAR 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. Hong Kong remains a free port with few barriers to trade.

The WTO notes that, although all imports enter the territory duty free, the scope of tariff bindings remains low, at 42.8% of all tariff lines (or 56.5% of the total value of imports in 2005). Hong Kong 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 disproportionately 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.

The report says that protection of intellectual property rights has been 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 outlook for 2006 appears bright,' concludes the report, '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 knowledge-based 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.'

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