Speech by DGTI at Hong Kong General Chamber of Commerce Roundtable Luncheon
Following is the speech entitled "Hong Kong-ASEAN FTA: The New Growth Engine" by the Director-General of Trade and Industry, Ms Salina Yan, at the Hong Kong General Chamber of Commerce (HKGCC) Roundtable Luncheon today (November 21):
Ladies and gentlemen,
Hong Kong signed a Free Trade Agreement (FTA) with 10 member economies of the Association of Southeast Asian Nations (ASEAN) on November 12, 2017. It is the sixth FTA Hong Kong has signed, following the ones we signed with the Mainland of China in 2003, New Zealand in 2010, the European Free Trade Association in 2011, Chile in 2012 and Macau in October 2017. Basic Law Article 151 provides that the Hong Kong Special Administrative Region may on its own, using the name "Hong Kong, China", maintain and develop relations and conclude and implement agreements with foreign states and regions and relevant international organisations in the appropriate fields, including economic, trade, financial and monetary, etc. The Basic Law has provided a strong backing for our expanding network of FTAs over the years.
The economic relationship between Hong Kong and ASEAN has grown tremendously over the past 20 years. In terms of trade in goods, ASEAN jumped from being Hong Kong's fifth largest trading partner in 1996 to the fourth place in 2006. In 2016, it became our second largest trading partner, with total value exceeding US$107 billion which accounted for 11 per cent of Hong Kong's total merchandise trade with the world. In terms of services trade, ASEAN was our fourth largest trading partner in 2015, with total value exceeding US$15.6 billion, and an average growth rate of 3.1 per cent from 2011 to 2015.
Among the 10 ASEAN member economies, four were amongst Hong Kong's top 10 trading partners in 2016, and seven had real GDP growth ranging from 4.2 per cent to 7 per cent, well above the world average. With an enterprising middle class among its 640 million population and a growing demand for modern infrastructure, ASEAN is a strong growth market for both trade and investment.
The interest is mutual. As an international financial and commercial centre with strong connection to the Mainland market and endowed with world-class professional services, Hong Kong also has a lot to offer to our ASEAN partners. We are particularly glad that we concluded and signed the Hong Kong, China - ASEAN Free Trade Agreement (HKAFTA) during the year of ASEAN's 50th anniversary. At a time when free and open trade and investment is not to be taken for granted, the Agreement sends a very timely and strong message to the world about our common aspiration to push forward the frontier of trade and investment in this part of the world.
Negotiations for the FTA started in July 2014. Discussions were intense but goodwill abounded. The professionalism of the ASEAN team was truly commendable and we owe them many sleep-deprived nights. The final FTA has 14 chapters covering the basic principles and negotiated outcomes for trade in goods, trade in services, rules of origin, customs procedures, economic and technical co-operation, dispute settlement and other institutional provisions. Coupled with the Investment Agreement signed alongside the FTA, the final outcome is comprehensive in scope and will bring legal certainty and better market access for trade and investment between Hong Kong and ASEAN.
Before I introduce to you the specific market access opportunities to be brought by the tariff reduction and services commitments of the parties to the Agreements, it is worth pointing out that the commitments made by the ASEAN member states (AMS) in goods and services not only apply to Hong Kong, they also apply to each of the AMS, thus increasing the complexity of the negotiations and at the same time, the value of the commitments.
A clear and progressive tariff reduction timetable is set out in the FTA. Enterprises seeking to export their products can benefit from the progressive reduction of duties, with lower operation cost and improved market competitiveness. Hong Kong and Singapore are committed to binding all customs duties at zero, with effect from the date on which the FTA enters into force for them. Amongst the six AMS which will cut the tariffs of 50 per cent to 65 per cent of their product lines to zero within three years, Brunei, Malaysia, the Philippines and Thailand will take a faster track.
Customs duties reduction commitments of the AMS cover different kinds of commodities of interest to Hong Kong enterprises, including watches and clocks, jewellery, articles of apparel and clothing accessories, toys, etc. For example:
- Thailand will eliminate all their customs duties on watches and clocks within three years. Malaysia and the Philippines will do the same for 94 per cent and 92 per cent of their watches and clocks tariff lines within three years;
- Within three years after the FTA enters into force, Brunei will provide duty free treatment to all Hong Kong originating apparel and clothing accessories products. Malaysia, and to a large extent Vietnam (98 per cent), will do so within 10 years;
- Laos will eliminate all their customs duties on precious metal and jewellery within eight years. Thailand and Malaysia will do so for 96 per cent and 93 per cent of their respective tariff lines within three years; and
- The Philippines will remove all its customs duties on toys, games and sport requisites within 10 years.
Rules of Origin
In order to enjoy the preferential tariff treatment under the agreement, goods have to satisfy the relevant rules of origin (ROOs). The two sides have formulated a set of preferential ROOs for the purpose of implementing the agreement.
In general, goods made with not less than 40 per cent of materials sourced or value added in Hong Kong or AMS or a combination of these places can be eligible for preferential tariff treatment (i.e. the general rule). Such costs may include material cost, direct labour cost, direct overhead cost such as utility expense directly attributable to the production of the goods, research, development, and design, etc.
In addition, goods which are wholly obtained or produced in Hong Kong or AMS, produced in Hong Kong or AMS exclusively from originating materials from Hong Kong and/or AMS, or comply with the rules as specified in the Annex on Product Specific Rules that cater for specific products including agricultural and food products, can be eligible for preferential tariff treatment.
In order to claim preferential tariff treatment under the FTA for goods exported to AMS, Hong Kong exporters will need to take out a certificate of origin (CO) from the Trade and Industry Department (TID) or from one of the Government Approved Certification Organisations, including the HKGCC. TID will issue trade circulars to announce the arrangements and application procedures for the new COs before the FTA enters into force.
Now, let me turn to services. The FTA covers a comprehensive range of service sectors such as professional services, business services, telecommunications services, construction and related engineering services, educational services, financial services, tourism and travel related services and transport services. It will provide better business opportunities in market access for services and service providers. At the same time, services and service providers can enjoy non-discriminatory treatment vis-à-vis local services and suppliers (i.e. national treatment), subject to listed specific exceptions. Being a government-to-government agreement, the commitments made under the FTA are binding on the authorities. That provides for legal certainty for enterprises in entering into and operating in the ASEAN markets and in Hong Kong.
Hong Kong has made commitments to AMS on a wide range of services sectors. AMS have also made commitments on certain sectors which they have not offered to open under the World Trade Organization (WTO), such as:
- Malaysia will open urban planning and landscape architectural services and maritime freight forwarding services;
- Thailand will open arbitration services and electronic mail services; and
- Indonesia will open restaurant services and certain analysis services for energy services.
We are also glad to see a number of liberalisation commitments in respect of local investment regimes. For example:
- Thailand is committed to lifting the foreign capital participation limit to 70 per cent for a number of sectors, including certain sub-sectors in computer and related services and telecommunications services;
- Similarly, the Philippines is committed to offering higher foreign equity participation ratio in financial leasing services up to 50 per cent;
- Vietnam allows for full ownership of a wide range of services, e.g. manufacturing related services and financial services;
- Indonesia will offer foreign participation up to 51 per cent for certain construction and related engineering services; and
- For Malaysia, screening thresholds for acquisition, mergers and takeovers will be increased to RM10 million and "private limited company" will be allowed in addition to "partnership" for taxation services.
The FTA will also facilitate the movement of persons in terms of temporary stay and entry for business purposes. Business visitors, intra-corporate transferees, contractual services suppliers and independent specialists/experts/professionals will be granted temporary entry in accordance with the commitments of the parties. For instance, there are in general commitments of stay of up to 90 days for Hong Kong business visitors, and two years (and extendable for another two years) for intra-corporate transferees.
Apart from the above commitments, the two sides have also agreed on other general obligations to facilitate trade in services. There are rules under the FTA which require all parties to maintain transparent and fair domestic regulations. The FTA also provides a regular review mechanism which paves the way for future negotiations of improvements to the commitments and progressive liberalisation.
The Investment Agreement complements the FTA by protecting investments and investors in each other's territory by granting to them fair and equitable treatment, physical protection and security of investments, free transfers of investments and returns, and non-discriminatory treatment in compensation for investment losses due to war, armed conflict or similar events.
In addition, the Investment Agreement provides for co-operation between ASEAN and Hong Kong on investment promotion and facilitation, e.g. business matching events, briefings and seminars, information exchange and dissemination, and simplifying procedures for investors.
Economic and Technical Co-operation
This FTA comprises a unique chapter called Economic and Technical Co-operation (ECOTECH), the first ever in an FTA signed by us. Five priority areas are identified under the ECOTECH Work Programme, namely customs co-operation, professional services, small and medium enterprises co-operation, trade facilitation/logistics and e-commerce co-operation. ECOTECH activities include capacity building or technical assistance programmes that take the form of experience sharing seminars, thematic symposiums, exhibitions, networking events, trade missions, etc. We will provide the necessary resources support and are keen to contribute positively.
To ensure that the parties duly implement the commitments under the FTA, the parties have agreed to establish a transparent mechanism for consultations and settlement of possible disputes. An independent arbitral tribunal may be established if consultations fail to resolve the disputes arising between the parties.
There will also be a Joint Committee consisting of representatives of the parties. Among other things, the Joint Committee will review the implementation and operation of the FTA and Investment Agreement and make recommendations to the parties on any amendment to the agreements. The Committee will meet alternately in AMS and Hong Kong. As mentioned earlier, for trade in services, the FTA provides for a regular review mechanism which paves the way for future negotiations of improvements to market access commitments and progressive liberalisation.
In closing, I would like to reiterate our support for a strong, rules-based multilateral trading system. Free trade is in Hong Kong's DNA and we shall continue to play an active role in the WTO to bring out the best of the multilateral trading system in driving global economic growth. The signing of high-quality FTAs consistent with WTO rules will help press forward the cause of free and open trade. It also augments Hong Kong's participation in the Belt and Road Initiative and achieves mutual benefits for all as we enter into strategic trade relationships with the Belt and Road economies.
The HKAFTA will take effect in January 2019 subject to domestic ratification procedures. Once again, I want to thank our ASEAN colleagues for making this monumental move possible. For further information on the FTA, you are invited to visit the TID dedicated website. The legal texts and all schedules of commitments have been uploaded. We have also set up dedicated enquiry contact points to answer your questions. Make use of the opportunities offered and, as always, we are at your service.
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