H.K. businesses propose free-trade area with China

Asian Economic News, Jan 24, 2000

HONG KONG, Jan. 18 Kyodo

Hong Kong's business sector proposed Tuesday a free-trade agreement with China to maintain its edge on the mainland after China's expected entry into the World Trade Organization (WTO).

Hong Kong companies hope to gain easier access to China through a free-trade deal as the territory could lose its advantage as gateway and middleman for foreign firms entering the mainland after the country's liberalization under its WTO deals.

"Hong Kong is constrained by the fact that being part of China, it cannot realistically engage the mainland in bilateral negotiations," said Eden Woon, director of the Hong Kong General Chamber of Commerce.

"While there is agreement that outright preferential treatment for Hong Kong businesses as mainland companies is unwise, there is a strong belief that the mainland should be made aware of the desires of, and problems facing, Hong Kong companies," Woon added.

By making a free-trade deal in line with WTO rules similar to the North American Free Trade Agreement (NAFTA), Hong Kong firms would be able to take advantage of the economic integration between the territory and China, he said.

The benefits for Hong Kong under such an agreement could include better access to the Chinese market, expanded export and investment opportunities, reduction of tariffs and nontariff barriers, establishment of compatible standards for goods, and increased cross-border movement of goods and services.

At a news conference releasing a study by the chamber on the impact on Hong Kong of China's entry into the WTO, Woon said the Hong Kong government needs to be more proactive in ensuring the territory gets a fair share of the Chinese market in the future.

"Some members believe there will be several years of phase-in period before China would liberalize all categories listed in its accession list. Hong Kong should therefore make use of this period to negotiate a NAFTA type of agreement with China," Woon said.

China could use Hong Kong to test and gauge the effects of its trade and investment liberalization before implementation fully takes place, according to the chamber's proposal.

But the chamber added that it does not advocate preferential treatment for Hong Kong beyond China's WTO entry commitments.

Hong Kong is expected to face more competition from multinationals and mainland Chinese companies as China's market opens up.

The territory's gateway function will diminish as more foreign firms are likely to enter China directly given a more transparent trade regime in China, the chamber said.

Domestically, Hong Kong businesses, many of which are of small size, are struggling with high operating costs and a lack of staff with technological expertise and foreign-language skills, factors which are undermining the territory's competitiveness, the chamber said.

To survive and grasp opportunities to be brought by China's WTO accession, the chamber said, Hong Kong businesses must restructure, diversify and upgrade themselves.

It also urged Hong Kong companies to set up strategic partnerships with multinationals and Chinese enterprises to secure a stronger position in the Chinese market.