Hong Kong, China WT/TPR/S/109
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
(1) INTRODUCTION
1. Hong Kong, China's trade policy regime has remained largely unchanged since its previous
Trade Policy Review.  The former Trade and Industry Bureau and its subsidiary Departments were
reorganized in 2000 to assume expanded responsibilities, and new agencies under the Bureau were
established.
2. The Basic Law remains the principal consti tutional document governing the Hong Kong
Special Administrative Region (HKSAR) of the People's Republic of China.  The Law stipulates the
principle of "one country, two systems";  that is, while being a local administrative region, which
comes directly under the Central People's Government of the People's Republic of China, the HKSAR
enjoys a high degree of autonomy except in foreign affairs and defence, and has been authorized toconduct relevant external affairs, including foreign trade.  The previous market-based system and way
of life are to be maintained for at least 50 years after 1997, and the HKSAR's courts are endowed with
independent judicial power, including that of final adjudication.
1
(2) INSTITUTIONAL SETTING
3. The Government of the HKSAR is headed by th e Chief Executive, who is appointed by the
Central People's Government following selection by an Election Committee.2  The Chief Executive is
formally empowered to conduct external and other affairs on behalf of the HKSAR Government, as
authorized by the Central People's Government;  th is includes the power to conclude and implement
multilateral, regional, and bilateral trade agreements with foreign countries and regions and relevant
international organizations.  The Chief Executive is accountable to the Central People's Government
and the HKSAR in accordance with the provisions of the Basic Law.  The Chief Executive is advised
by an Executive Council in policy-making.  The Council currently consists of 19 Members.3
4. The Legislative Council (LegCo) is the HKSAR's legislature.  It consists of 60 elected
members.4  The current term of office of the LegCo is four years.  The President of the LegCo is
elected by, and from among, its members.  Members of the LegCo may introduce, individually or
jointly, Bills that do not relate to public expenditure or to the political structure or the operation of the
Government.  All Bills relating to government policies need the written consent of the Chief
                                                     
1 The power of interpretation of the Basic Law is vested in the Standing Committee of the National
People's Congress (Basic Law Article 158).
2 The term of office of the Chief Executive is five years, with a maximum of two terms.  The Election
Committee responsible for electing the second-term Chief Executive is composed of representatives from foursectors each with 200 members:  industrial, commercial,  and financial subsectors;  the professions; labour
groups, social and religious associations; and member s of the LegCo, representatives of district-based
organizations, Hong Kong deputies to the National People's Congress of the People's Republic of China, and
Hong Kong members of the National Committee of the Chinese People's Political Consultative Conference.The members of the Election Committee were returned  by elections, with the exception of the ex-officio
members (LegCo members and Hong Kong deputies to the NPC), and members from the religious subsector,who were returned by nomination.
3 Members of the Executive Council are appointed from among principal officials of the executive
authorities, Legislative Council members, and public figures;  their appointment or removal is decided by the
Chief Executive, who chairs the meetings of the Executive Council.
4 The composition of the LegCo is 30 members returned by functional constituencies, six members
returned by the Election Committee, and 24 members returned by geographical constituencies through directelections.WT/TPR/S/109 Trade Policy Review
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Executive before being introduced into the LegCo.5  Bills passed by the LegCo become laws
(ordinances) only after being signed and promulgated by the Chief Executive.  If the Chief Executive
considers that a Bill passed by the LegCo is not compatible with the overall interests of the HKSAR,
it may be returned to the LegCo within three months for reconsideration.6
5. The primary rules governing Hong Kong's trad e in goods are laid down in the Import and
Export Ordinance and its subsidiary legislation, together with other relevant ordinances applicable tothe specific commodity items.
(3) T
RADE POLICY FORMULATION AND IMPLEMENTATION
6. Under the Basic Law, the HKSAR is a separate customs territory;  it uses the name
"Hong Kong, China" and participate in the relevant international organizations and international trade
agreements, such as the WTO Agreements.  The Basic Law stipulates that the HKSAR may, on itsown, maintain and develop relations and conclude and implement agreements with foreign States and
regions and relevant international organizations in the appropriate fields.
7  The Basic Law also
stipulates that the HKSAR shall maintain the status of a free port, pursue a policy of free trade and
safeguard the free movement of goods, intangible assets, and capital, and that it may issue its own
certificates of origin for products in accordance with prevailing rules of origin.
(i) Government bureaux and departments
7. The three most senior officials in the executive branch of the Government, under the Chief
Executive, are the Chief Secretary for Administration, the Financial Secretary, and the Secretary of
Justice.
8. On 1 July 2002, a new system to appoint principal officials was introduced.  Under this
system, these three officials and all the Policy Secretaries are no longer civil servants.  They are
nominated by the Chief Executive and appointed by the Central People's Government;  their term inoffice may not exceed that of the Chief Executive.  These principal officials report directly to the
Chief Executive;  they are also appointed to the Executive Council, and are assisted by permanent
secretaries (who are civil servants) within the respective bureau.  At the same time, a reorganization
cut the number of policy bureaux from 16 to 11.  Accordingly, the Commerce and Industry Bureau,
the Trade and Industry Bureau until it was reorganized and renamed on 1 July 2000, was merged withthe Information Technology and Broadcasting Bureau to become the new Commerce, Industry and
Technology Bureau.
9. Under the Commerce, Industry and Technology Bureau, the Trade and Industry Department
is responsible for HKSAR's commercial relations with its trading partners, implementation of trade
policies and agreements, participation in international trade fora, the conduct of import and exportlicensing and origin certification, and providing general support services for the industrial sector and
small and medium-sized enterprises.
8  Within the Bureau, there is an Intellectual Property Department
                                                     
5 Article 74 of the Basic Law.  A LegCo member may introduce "private bills", which do not relate to
government policies;  a private bill provides primarily for the particular interest or benefit of an individual,association, or corporation rather than the interest or benefit of the public.  Since the 1998-99 legislative session,a total of nine member's bills have been introduced into the LegCo, of which six were government policies.
6 See Articles 49, 50, and 51 of the Basic Law for details.
7 Including the economic, trade, financial and monetary, shipping, communications, tourism, cultural,
and sports.
8 The Trade Department and the Industry Department were combined on 1 July 2000, to form the Trade
and Industry Department. The reorganization also entailed, inter alia,  the establishment of:  the Innovation andHong Kong, China WT/TPR/S/109
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for matters relating to IP protection, and the Customs and Excise Department covers trade-related
enforcement activities in intellectual property rights.
10. A number of statutory bodies are involved in promoting trade and industry at home and
abroad, including the Hong Kong Trade Devel opment Council (HKTDC), the Hong Kong Export
Credit Insurance Corporation (ECIC), the Hong Kong Productivity Council, and the Hong Kong
Science and Technology Parks Corporation (HKSTPC).  Their boards are normally composed ofgovernment officials and representatives of various private sectors, including manufacturing and
services industries, as well as academics and professionals.
(ii) Advisory and review bodies
11. Various bodies exist to advise the HKSAR Gove rnment in specific areas, including economic
matters, education, labour, housing, social welfare, transport, consumer rights, and the operation ofsecurities and futures markets.  The main advisory bodies within the purview of the Commerce and
Industry and Technology Bureau include the Trade and Industry Advisory Board, Textiles Advisory
Board, Rice Advisory Committee, and Small and Medium Enterprises Committee.
9
12. The Consumer Council is a government-financed autonomous body that prepares policy
submissions on a wide range of consumer-related issues.10  The authorities note that the HKSAR
Government consults various chambers of commerce in regard to commerce, trade, and industry,
whenever necessary.
(4) TRADE POLICY OBJECTIVES AND ARRANGEMENTS
13. Since its previous Trade Policy Review, there have been no changes in Hong Kong, China's
broad trade policy objectives, which are:  to promote a free, open, and stable multilateral trading
system;  to safeguard its rights and fulfil its obligations under multilateral, regional, and bilateral trade
and trade-related agreements and arrangements;  and to secure, maintain, and improve access for itsexports to foreign markets.
(i) Multilateral agreements
14. Hong Kong, China is an original Member of the WTO;  it is also a party to the WTO
Agreement on Government Procurement (GPA).  Hong Kong, China participates in the WTO
Working Groups on Transparency in Government Procurement, Interaction between Trade andCompetition Policy, and the Relationship between Trade and Investment.  In the context of
implementing its WTO commitments and in support of multilateral disciplines, Hong Kong, China
has made notifications under a number of WTO Agreements (Table II.1).
                                                                                                                                                                    
Technology Commission, within the Bureau, to deal with innovation and technology policy development,
coordination, and implementation;  and a department named Invest Hong Kong, which is in charge of the
HKSAR's policy to attract inward foreign direct investment.
9 Membership lists of these boards are available online at:  http://www.tid.gov.hk/english/aboutus/
advcommittee/tiab.html/;  /textab.html/;  /rac.html/;  and http://www.sme.gcn.gov.hk/smeop/english/comm.cfm.
10 The Council comprises a Chairman, a Vice-Chairman, and not more than 20 other members;  they
are all appointed by the Chief Executive.WT/TPR/S/109 Trade Policy Review
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15. Under the WTO Dispute Settlement Understanding, Hong Kong, China has participated in
various panel processes as a third party, involving cases against the United States, Turkey, and
Australia.11
Table II.1
Selected notifications by Hong Kong, China under WTO Agreements, as at October 2002
Agreement Document reference of most recent
notificationRequirement/Contents
Agriculture
Articles 10 and 18.2 G/AG/N/HKG/12, 8 February 2002 Export subsidies (outlays and quantities)
Article 18.2 G/AG/N/HKG/13, 8 February 2002 Domestic support
Import Licencing ProceduresArticle 7.3 G/LIC/N/3/HKG/5, 2 November 2001 Questionnaire;  rules and information concerning
import licensing procedures
Rules of Origin
Art. 5 and paragraph 4 of Annex II –ad hocG/RO/N/37, 3 June 2002 Preferential and non-preferentials rules of origin
Subsidies and Countervailing
Measures
Art. 25.1-GATT 1994 Art. XVI:1 G/SCM/N/71/HKG, 25 April 2001 Subsidies programmes
Art. 25.11-semi-annual G/SCM/N/75/Add.1, 17 October 2001 Countervailing actions taken
Technical Barriers to TradeArt. 10.6 G/TBT/N/HKG/12/Corr.1, 16 September 2002 Technical regulations, standards, and conformity
assessment procedures
Application of Sanitary andPhytosanitary Measures
Art. 7, Annex B and Annex B, 6 G/SPS/N/HKG/19, 15 May 2002
G/SPS/N/HKG/18, 29 January 2002Changes in sanitary and phytosanitary measures
and information on measures applied, including
emergency measures
TRIPS
Art. 63.2 P/N/1/HKG/series, 20 March 2000 Laws and regulations.
Article 67 IP/N/7/REV.2/Add.5, 19 June 2001 Contact point for technical cooperation
State TradingGATT 1994 Art. XVII: 4(a) and
Par. 1 of the Understanding on the
Interpretation of Art. XVII.G/STR/N/8/HKG, 26 June 2002 Activities of state trading enterprises.
Source: WTO Secretariat.
16. The authorities indicated that Hong Kong, Ch ina's priorities in the Doha Development
Agenda include market access enhancement, rules-related issues in services trade, and non-agricultural tariffs.
(ii) Regional cooperation initiatives
17. While the HKSAR does not belong to any customs unions, free-trade areas or other
preferential regional agreements, it does promote close regional cooperation in the Asia and Pacific
region and is a leading member of the Asia-Pacific Economic Cooperation forum (APEC).  In thiscontext, the authorities state that the HKSAR has, for example, contributed to the formulation and
implementation of the APEC Strategic Plan on Capaci ty Building, since 2000, with a view to assisting
developing APEC members in building their capacity to implement WTO Agreements.
                                                     
11 WTO document series:  WT/DS234/14;  217/6;  152/12;  58/18;  34/3;  and 21/6.Hong Kong, China WT/TPR/S/109
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18. Hong Kong, China has been a strong advocate of the primacy of multilateralism and is not
party to any free-trade agreements (FTAs) with any of its trading partners to date.  However, the
Government reviewed its policy stance in mid-2000 and concluded that, in order to safeguard the
HKSAR's economic interests, it should adopt a more open-minded approach in pursuing FTAs with
its trading partners, while upholding its commitment to the primacy of the multilateral trading system.
Accordingly, Hong Kong, China started its first FTA negotiation with New Zealand in May 2001.Hong Kong, China also proposed, in late 2001, to establish a free-trade area between Mainland China
and the HKSAR.
(iii) Bilateral agreements
19. The HKSAR is a party to a number of bilateral agreements with various countries.  These
include investment promotion and protection agr eements, avoidance of double-taxation agreements
12,
and air service agreements.
20. Certain exports from Hong Kong, China enjoy preferential treatment in Australia, Canada,
and Norway under GSP schemes.  The authorities estimate that, in 2001, Hong Kong, China exported
GSP-eligible goods worth HK$14.3 million to Canada, accounting for 0.46% of its domestic exports
to Canada, and HK$3.4 million to Norway, accounting for 4% of its domestic exports to Norway.13
(5) FOREIGN INVESTMENT REGIME
21. All businesses in the HKSAR must obtain a Business Registration Certificate from the Inland
Revenue Department (IRD) within one month of th e commencement of business. Foreign investors in
the HKSAR may use all available forms of business entities;  private limited companies and branches
of foreign companies are the most common.  There is no capitalization requirement for a private
company.
22. There are no restrictions on foreign exchange transactions, capital movement or repatriation
of funds, nor special approval or notification requirements for foreign investments in the HKSAR.
The authorities maintain that there is no sector/country-specific incentive on inward/outward FDI.
                                                     
12 Hong Kong, China has avoidance of double taxation agreements with the Netherlands, the United
Kingdom, and the United States (Department of Justice, 2002).
13 The authorities note that the figures were obtained from the relevant certificates of origin for GSP
claims issued by the HKSAR Government, the five go vernment approved certification organizations;  they
represent only goods eligible for GSP treatment, but not the amount of goods that have actually claimed GSPbenefits upon entry into the donor countries.