MOREPRESS RELEASE
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17:00  GMT 21 MARCH 2001
PRESS/TPRB/1601
19 March 2001
(01-1335)
BUSINESS AS USUAL IN MACAU-CHINA'S HIGHLY OPEN ECONOMY
Macau, China's trade and investment regime remains among the most open in the world;  it
was virtually unaffected by the Asian crisis, and the Territory's reversion to China and its designation
as the Macau Special Administrative Region (MSAR).  The Government's approach has long been to
let free and open markets be the main determinant of the allocation of resources within the MSAR and
thus its economic development, says the report.  It would appear that this approach to economicpolicy will continue in the foreseeable future; under the Territory's Basic Law that provides for "one
country, two systems", the MSAR will enjoy a high degree of autonomy for 50 years in the
administration of all its affairs except defence and foreign policy, according to a WTO report on the
trade policies and practices of Macau, China.
The WTO Secretariat report, along with the policy statement by the Government of Macau,
China, will serve as a basis for the second trade policy review of Macau, China by the Trade Policy
Review Body of the WTO on 19 and 21 of March 2001.
The report notes that economic crisis in Thailand in July 1997 and its spread to other
countries in (and beyond) South-East Asia seriously impaired the Territory's economic performance,
which had already started to deteriorate in 1996;  real GDP contracted in four successive years (1996-99), with largest negative growth, of 4.6%, in 1998.
Trade is critical to the economy, the report stresses, with exports and imports (of goods and
services) equivalent to roughly 80% and 50% of GDP, respectively, in 1999.  Although the Territory's
merchandise trade account has been in deficit, this has been more than offset by a large surplus in
services trade, mainly involving touris m and related activities such as gambling.
                                                     
1 This Press Release replaces the earlier one on Macau, China, Trade Policy Review. Attached are the
Summary Observations by the Secretariat and the Government's Report. In English onlyPRESS/TPRB/160
Page 2
MOREThe report says that the pegging of the pataca to the Hong Kong dollar severely limits the
authorities' scope for controlling the money supply.  The outcome is relatively high real interest rates.
The peg to the Hong Kong dollar and thus indirectly to  the U.S. dollar has also resulted in an effective
appreciation of the pataca, particularly in relation to the devalued currencies of countries in the region.
The authorities believe that the advantages of the peg outweigh its disadvantages.
The high degree of openness of the economy for trade in goods is indicated by the duty-free
entry of all imports into Macau, China.  While only 23% of tariff lines have been bound, all bound
tariffs are zero;  moreover, the status of Macau, China as a free port under the Basic Law appears to
preclude increases in applied rates for those tariff lines that are unbound.
The report also points out that Macau, China introduced new laws with respect to intellectual
property rights in 1999, aimed, in particular, at ensuring compliance with the TRIPS Agreement.
These new laws established a comprehensive legal framework for protecting intellectual property
rights.
Macau, China is largely a services-based economy:  services accounted for 90% of GDP and
69% of employment in 1998.  The share of services in the economy has been growing and the
authorities expect this trend to continue owing to investment in infrastructure (i.e. the new
international airport and improved port facilities), which has facilitated access to Macau, China, and
continuing efforts to improve the quality and diversity of services related to tourism, the mainstay ofthe economy.  Community and social services alone, including gambling and casino activities
accounted for nearly 47% of GDP (and over 28% of employment).  By contrast, the industrial sector
(manufacturing and construction) accounts for some 13% of GDP and provides about 31% of all jobs,
suggesting that labour productivity in this sector is relatively low.  The contribution of agriculture and
fisheries to GDP and employment is negligible.
The openness of the Macau, China economy to trade in agricultural and, particularly,
manufactured products has undoubtedly contributed to competition in domestic goods markets, in the
absence of an over-arching competition law.  While there are few formal barriers to foreign direct
investment (FDI) to impede the establishment of  foreign firms providing services, competition in
several services markets could nonetheless be improved.  Key services, such as electricity, water,telecommunications, and transport, are currently provided by private companies with exclusive rights
under government concessions.  Gambling services, another major subsector, has remained a private
monopoly since 1961, although this particular concession is scheduled to expire in 2001.
The Government forecasts growth of 2.4% for 2000, which is considerably lower than that of
Macau's neighbours, including Mainland China and Hong Kong, China.  But there are some otherpositive signs of economic recovery, particularly in tourism, where the number of visitors between
January and September 2000 increased by 24.3% compared with the same period of the previous year;
and in exports, which increased by about 17% in the first eight months of 2000.  In the first quarter of
2000, however, the real estate subsector was still weak.  In order to alleviate high unemployment, the
Government has, inter alia, been encouraging more public infrastructure projects, reducing the amount
of quotas on foreign workers, and providing additional employment training and re-training courses.
Note to Editors
Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member
countries’ trade and related policies are examined and evaluated at regular intervals. Significant
developments which may have an impact on the global trading system are also monitored. For each
review, two documents are prepared: a policy stat ement by the government of the member under
review, and a detailed report written independently by the WTO Secretariat. These two documents arePRESS/TPRB/160
Page 3
MOREthen discussed by the WTO’s full membership in the Trade Policy Review Body (TPRB). These
documents and the proceedings of the TPRB’s meet ings are published shortly afterwards. Since 1995,
when the WTO came into force, services and trade- related aspects of intellectual property rights have
also been covered.
For this review, the WTO’s Secretariat report, together with a policy statement prepared by
the Government of Macau, China will be discussed by the Trade Policy Review Body on 19 and 21 of
March 2001. The Secretariat report covers the development of all aspects of Macau, China trade
policies, including domestic laws and regulations, the institutional framework, trade policies by
measure and by sector.
Attached to this press release is a summary of the observations in the Secretariat report and
parts of the government policy statement. The Secretariat report and the government's policystatement are available for the press in the newsroom of the WTO internet site (www.wto.org). These
two documents and the minutes of the TPRB’s disc ussion and the Chairman’s summing up, will be
published in hardback in due course and will be available from the Secretariat, Centre William
Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following reports have been completed: Argentina (1992 and
1999), Australia (1989, 1994 and 1998), Austria (19 92), Bahrain (2000) Bangladesh (1992 and 2000),
Benin (1997), Bolivia (1993 and 1999), Botswana  (1998), Brazil (1992, 1996 and 2000), Burkina
Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996, 1998 and 2000), Chile (1991 and1997), Colombia (1990 and 1996), Costa Rica (1995), Côte d’Ivoire (1995), Cyprus (1997), the Czech
Republic (1996), the Dominican Republic (1996), E gypt (1992 and 1999), El Salvador (1996), the
European Communities (1991, 1993, 1995, 1997 and 2000), Fiji (1997), Finland (1992), Ghana (1992
and 2001), Guinea (1999), Hong Kong (1990, 19 94 and 1998), Hungary (1991 and 1998), Iceland
(1994 and 2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999),
Jamaica (1998), Japan (1990, 1992, 1995,1998 and 2000), Kenya (1993 and 2000), Korea, Rep. of
(1992, 1996 and 2000), Lesotho (1998), Macau (1994 a nd 2001), Madagascar (2001), Malaysia (1993
and 1997), Mali (1998), Mauritius (1995), Mexico (1993 and 1997), Morocco (1989 and 1996),
Mozambique (2001), New Zealand (1990 and 1996) , Namibia (1998), Nicaragua (1999), Nigeria
(1991 and 1998), Norway (1991, 1996 and 2000), Pa kistan (1995), Papua New Guinea (1999),
Paraguay (1997), Peru (1994 and 2000), the Philippines (1993 and 1999), Poland (1993 and 2000),
Romania (1992 and 1999), Senegal (1994), Si ngapore (1992, 1996 and 2000), Slovak Republic
(1995), the Solomon Islands (1998), South Africa (1993 and 1998), Sri Lanka(1995), Swaziland
(1998), Sweden (1990 and 1994), Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein),
Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia
(1994), Turkey (1994 and 1998), the United States (1989, 1992, 1994, 1996 and 1999), Uganda
(1995), Uruguay (1992 and 1998), Venezuela (1 996), Zambia (1996) and Zimbabwe (1994).PRESS/TPRB/160
Page 4
MORETRADE POLICY REVIEW BODY
MACAU-CHINA
Report by the Secretariat – Summary Observations
The period since the previous Review of Macau, China in late 1994 has been marked by two
main events.  The most important of these was Macau's reversion to the People's Republic of China
(PRC), on 20 December 1999, and its designation as a Special Administrative Region (SAR).  Under
the Basic Law of the Macau Special Administrati ve Region (MSAR) of the People's Republic of
China (Basic Law), which provides for "one coun try, two systems", the MSAR has a high degree of
autonomy for 50 years in the administration of all its affairs, except defence and foreign policy.  TheMSAR has retained its status as a free port and is exempt from all taxes imposed by the central
government of the PRC.  Thus, the Territory's reversion to the PRC appears to have had little, if any,
effect on its trade and trade-related policies.  On the other hand, since the reversion the authorities
have succeeded in sharply reducing crime, much to th e benefit of tourism;  they have also taken steps
to build a more robust civil society, with local pe ople seemingly participating more in public life than
previously.
Macau's reversion to China took place subsequent to the other main event during the review
period, namely the outbreak of the economic crisis in Thailand in July 1997 and its spread to other
countries in (and beyond) South-East Asia.  This crisis seriously impaired the Territory's economic
performance, which had already started to deteriorate in 1996;  real GDP contracted in four successiveyears (1996-99), with largest negative growth, of  4.6%, in 1998.  Concurrently, the unemployment
rate has more than doubled since 1997 (reaching 7.1% in the second quarter of 2000).  At the same
time, the MSAR has experienced mild deflation since 1998.
Trade is critical to the economy, with exports and imports (of goods and services) equivalent
to roughly 80% and 50% of GDP, respectively, in 1999.  Although the Territory's merchandise trade
account has been in deficit, this has been more than offset by a large surplus in services trade, mainly
involving tourism and related activities such as gambling.
Macroeconomic policies
The autonomy of Macau, China in formulating its monetary policy is stipulated by the Basic
Law;  the Law further stipulates that neither foreign exchange nor capital controls can be used.  The
objective of monetary policy is to maintain the stability of both the currency and the financial system.
Accordingly, the Basic Law requires that the MSAR's  currency, the Macau pataca, be fully backed by
a reserve fund.  The exchange rate is pegged at 1.03 to the Hong Kong dollar, and hence indirectly to
the U.S. dollar, under a currency-board type of arrangement.
The pegging of the pataca to the Hong Kong dollar severely limits the authorities' scope for
controlling the money supply.  The outcome is relatively high real interest rates.  The peg to the HongKong dollar and thus indirectly to the U.S. dollar has also resulted in an effective appreciation of the
pataca, particularly in relation to the devalued curr encies of countries in the region.  The authorities
believe that the advantages of the peg outweigh its disadvantages.  One possible major disadvantage is
that the effective appreciation of the pataca and high real interest rates may hamper both the
Territory's economic recovery and the Government's efforts to diversify the economy.  On the otherhand, the authorities consider that maintenance of the peg of the pataca to the Hong Kong dollar
imparts a high degree of stability to the financial system and the economy as a whole.PRESS/TPRB/160
Page 5
MOREMacau, China has no exchange controls, other than the obligation imposed on merchandise exporters
to convert 40% of their export proceeds in foreign currency into patacas.  There are no other controls
on the use of payments or invisible receipts, nor are there any restrictions on capital flows.
The Basic Law requires the MSAR Government to strive to achieve fiscal balance, which
accords with the Territory's traditional practice of prudent fiscal policy.  There has been a fiscal
surplus, albeit declining, since 1994;  the surplus in 1999 was P 306 million (0.6% of GDP), aboutone fifth of that in 1994.  The share of public expenditure in GDP, including by autonomous bodies,
has been increasing since 1994.  It is estimated to have been about 20% in 2000, although data are not
always readily available;  transparency with respect to expenditure, especially in the area of
government procurement, could be improved.  Taxes on gambling and other exclusive concessions
accounted for about 31% of government revenue in 1998.  As about 95% of the land in the MSAR is
owned by its Government, the leasing of land is another major source of government revenue.
Trade and Trade-Related Policies and Measures
Neither the Asian crisis, nor Macau's reversion to China in December 1999 has materially
altered the Territory's trade and investment regime, which remains among the most open in the world.
The Government's approach has long been to let fr ee and open markets be the main determinant of the
allocation of resources within the MSAR and thus  its economic development.  Since its Review in
1994, there have been few major trade policy-related changes in Macau, China, other than those
related to commitments made in the Uruguay Round.  One of the main developments in this regard
has been the strengthening of protection accorded to intellectual property rights.
The high degree of openness of the economy for trade in goods is indicated by the duty-free
entry of all imports into Macau, China.  While only 23% of tariff lines have been bound, all boundtariffs are zero;  moreover, the status of Macau, China as a free port under the Basic Law appears to
preclude increases in applied rates for those tariff lines that are unbound.  Although the consumption
tax is levied on domestically manufactured and imported goods alike, it falls disproportionately on
imports because there is little, if any, local production of the goods subject to the tax.  Non-tariff
barriers to trade (NTBs) are few;  by and large, they involve measures aimed at ensuring security aswell as protecting public health and the environment (including endangered species).  The recent
inclusion of equipment and material used for the ma nufacture of optical discs in the list of imports
requiring prior authorization is one of several measures intended to curtail the infringement of
intellectual property rights.  Macau, China has no legal instrument protecting domestic producers
from perceived unfair foreign trading practices in the form of dumping or export subsidies.
Besides export licensing, there are virtually no government controls on exports except those
maintained in accordance with UN sanctions and international conventions.  Pursuant to the long-
standing quota system maintained under the WTO Agreement on Textiles and Clothing, the MSAR
restrains its exports of textiles and clothing in certain markets.  The authorities' allocation of export
entitlements tends to favour entrenched interests.  The MSAR does not grant any assistance to exports
other than tax incentives, which are not specific to any sector.
Although Macau, China also maintains an open foreign investment regime, with few
restrictions on inbound or outbound investment, bo th domestic and foreign investments are, in
practice, prevented in some key services owing to  the Government's granting of exclusive rights to
certain companies in the form of concessions.
While Macau, China has not made any significant changes to its legislation on government
procurement since 1994, it has taken steps to simplify procedures and enhance transparency in orderPRESS/TPRB/160
Page 6
MOREto attract a larger number of bids.  Purchases of foreign goods and services exceeding a certain
threshold are approved only if there is no local supplier.  At the same time, employment of local
labour is encouraged in all procurement activities.  Macau, China is not a party to the Government
Procurement Agreement, but it does plan to become more involved in the Working Group on
Transparency in Public Procurement.
Macau, China introduced new laws with respect to intellectual property rights in 1999, aimed,
in particular, at ensuring compliance with the TRIPS Agreement.  These new laws established a
comprehensive legal framework for protecting intellectual property rights.  Furthermore, the
authorities have shown their determination to improve enforcement of these laws.  Nevertheless, gaps
do appear to remain;  for example, there is some doubt as to whether the penalties actually imposed
are sufficient to constitute an effective deterrent.
The internal tax system of the MSAR is characterized by a low overall level of taxation
relative to GDP (13%) and relatively heavy reliance  on direct taxes, especially those derived from
gambling.  Most direct taxes, notably those on profits and employment income, are levied at low
rates, which contributes to the Territory's attractiveness for domestic and foreign investors.  At the
same time, however, the tax system is used as the main instrument of industrial policy, with various
tax incentives being offered to projects that, inter alia, promote industrial diversification, encourage
exports to new markets, contribute to technological progress, raise value added, and createemployment.  Refundable and non-refundable grants as well as interest rate subsidies are also
provided.  In addition, as 95% of all land in the MSAR is owned by the Government, the seemingly
complex (and possibly discretionary) system for leasing government-owned land constitutes a
potential instrument of economic policy.
Confident of the disciplinary effects of an open market environment, Macau, China has no
competition law as such;  nonetheless, the 1999 Commercial Code establishes some general principles
regarding competition policy in order to safeguard economic freedom and combat business practices
that impair competition.  While the openness of the Macau, China economy to trade has undoubtedly
fostered competition as far as goods are concerned, competition appears to be somewhat lacking in
several service activities.
Sectoral Issues
Macau, China is largely a services-based economy:  services accounted for 90% of GDP and
69% of employment in 1998.  The share of services in the economy has been growing and the
authorities expect this trend to continue owing to investment in infrastructure (i.e. the newinternational airport and improved port facilities), which has facilitated access to Macau, China, and
continuing efforts to improve the quality and diversity of services related to tourism, the mainstay of
the economy.  Community and social services alone, including gambling and casino activities
accounted for nearly 47% of GDP (and over 28% of employment).  By contrast, the industrial sector
(manufacturing and construction) accounts for some 13% of GDP and provides about 31% of all jobs,
suggesting that labour productivity in this sector is relatively low.  The contribution of agriculture and
fisheries to GDP and employment is negligible.
The openness of the Macau, China economy to trade in agricultural and, particularly,
manufactured products has undoubtedly contributed to competition in domestic goods markets, in the
absence of an over-arching competition law.  Though there are few formal barriers to inbound foreign
direct investment (FDI) per se that would impede the establishment of foreign firms providing
services, competition in several services markets could nonetheless be improved.  Key services, suchas electricity, water, telecommunications, and trans port, are currently provided by private companies
with exclusive rights under government concessions.  Gambling services, another major subsector,
has remained a private monopoly since 1961, although this particular concession is scheduled toPRESS/TPRB/160
Page 7
MOREexpire in 2001.  The resulting restraint on competition in these and other services enables suppliers to
charge higher prices not just to consumers, but to firms for which services such as energy,
telecommunications and transportation, for example, are important business inputs.  The unduly high
cost of such inputs would tend to impair such firms' competitiveness and discourage them from doing
business in Macau, China, thereby hampering the Territory's economic development.  The authorities
note that initiatives are under way with a view to improving competition in certain services, notablytelecommunications and gambling.
With the MSAR's current commitments under the GATS confined mainly to financial
services, further commitments in other services could also foster economic development in Macau,
China by reinforcing the Government's efforts to diversify the economy, especially away from
gambling into other services.  While the Government has announced plans to liberalize unilaterally
some telecommunications activities, the making of additional commitments under the GATS in these
and other fields would tend to enhance the transparency and predictability of the Territory's trade andinvestment regime and move the liberalization process forward in the services sector, much to the
benefit of the MSAR economy as a whole.
Outlook
The Government forecasts growth of 2.4% for 2000, which is considerably lower than that of
Macau's neighbours, including Mainland China and Hong Kong, China.  But there are some other
positive signs of economic recovery, particularly in tourism, where the number of visitors between
January and September 2000 increased by 24.3% compared with the same period of the previous year;
and in exports, which increased by about 17% in the first eight months of 2000.  In the first quarter of
2000, however, the real estate subsector was still weak.  In order to alleviate high unemployment, theGovernment has, inter alia, been encouraging more public infrastructure projects, reducing the amount
of quotas on foreign workers, and providing additional employment training and re-training courses.
The continued recovery of several South-East Asian economies, the source of the majority of
tourists to Macau, China, and recent growth in the United States and the European Union, where most
of the MSAR's clothing exports are directed, also augurs well for economic recovery.  Thesedevelopments complement the gradual rebound in consumer spending and corporate activity in the
MSAR.  On the other hand, it remains to be seen wh ether the high real interest rates prevailing in
Macau, China and the related high level of the real effective exchange rate hinder that recovery.PRESS/TPRB/160
Page 8
MORETRADE POLICY REVIEW BODY
MACAU-CHINA
Report by the Government of Macau, China  (Part IV)
Trade Environment
The fact that Macau, China is one of the smallest separate customs territories in the WTO,
with a geographical size of only 23.8 km² and a population of around 450,000, imposes limitations on
the government as well as economic operators.  Therefore, the adoption of a laissez-faire ,
market-driven economic and trade policy has been demonstrated to be the only way in which
Macau, China can achieve its economic development objectives.
In essence, the MSAR's primary concerns have been to provide a regulatory framework,
which facilitates business for economic operators, but at the same time which meets the MSAR's
international commitments and maintains a high level of credibility for the MSAR in the international
community.  Therefore, with a relatively small public administration, the MSAR has attempted to
keep regulation to the minimum necessary, whilst at the same time providing legal certainty to
facilitate business for economic operators.
Macau's merchandise trade is traditionally dependent on the export of manufactured goods, in
particular clothing and textiles.  The exports of these products accounted for approximately 85% ofthe total exported goods.  Non-textile exports, na mely footwear, toys, electronics, and other goods
accounted for 7.3% of total sales abroad in 1999.  The MSAR's main exporting markets are the
United States and the European Union, accounting respectively to 46.9% and 30.2% of the total
exported goods in 1999.  Hong Kong SAR and the P RC are also destinations to MSAR's exports and
accounted respectively for 6.8% and 9.2% of total exports in the same year.  Re-exports, which are apart of exports, and represented 14.4% of the total exports in 1999, rose significantly in that year
mainly to the PRC and Hong Kong SAR representing  more than four-fifths of total re-exports.  The
major merchandise items were textiles and related products.
Since the major export items in Macau are textile and clothing products, the biggest group of
imported merchandise is raw materials and semi-manufactures, accounting for around 48% of totalimported goods in 1999.  The remaining imported commodities are machinery and transport
equipment, agricultural and consumer goods.  The majority of imports are acquired predominantly
from neighbouring Asian and Pacific economies.  The PRC retained and bolstered its position as the
biggest imports partner with a share of 35.6% (+3%), while the share of Hong Kong SAR fell
remarkably by 5.6% points to 18.1% in 1999.
Given the importance of trade in goods to Macau's economy, the Government has – in the
period under review – taken a number of practical measures to facilitate trade.  Apart from productssubject to licensing, imports and exports can be customs-cleared by means of a simple import-export
declaration form.  The Macau Marine Police and Customs (MMPC) is in the process of computerizing
customs clearance procedures for all border entries to facilitate the flow of goods.  The Government
has also decided to implement electronic data interchange (EDI) system.  This will allow licence
applications and approvals to be handled electronically, thereby improving the efficiency andeffectiveness of customs procedures and the accuracy of import data.  The EDI project was initiated in
September 1998.  After the system is fully implemented, all documentation involved in foreign trade
will be processed through EDI.  Export licences for products subject to textile quota have beenPRESS/TPRB/160
Page 9
processed  through EDI since September 2000.  Finally, it is significant to note that 2001 will see the
establishment of a customs services in the MSAR, the Commissioner for which has already been
appointed.
With regard to invisible trade, the MSAR's export of services registered an annual average
decline of 0.3% in the last six years, as a result of the fall in tourism related receipts.  Imports of
services posted an annual average growth rate of 7.8% in view of increased residents' consumption
abroad and foreign services paid by the local airline.  However, despite the performance of this sector,
the service trade balance surplus has been sustained and reached MOP 16,054 million in 1999.
Investment Environment
In the first year of the MSAR's establishment, the Government has made great efforts to
maintain a free, fair and open investment environment, in order to speed up economic recovery.  The
positive impact has been apparent even in the first half of 2000, when there has been a remarkablegrowth in exports and in the number of visitors ente ring the MSAR.  In order to achieve the objectives
set by the Government on becoming a regional services centre and a gateway to China, several
measures have been adopted by the MSAR Government to improve the business environment and to
encourage industrial and export diversification.  Such measures include incentives to investments,
various tax exemptions, interest subsidies on MOP bank loans for the purchase or leasing of new
equipment, as well as for the purchase, construction or  leasing of industrial buildings.  The concession
of government-owned land is also deemed as a potential instrument for projects, which would benefit
the environment and stimulate economic growth a nd diversification.  Further, the governmental
agency – Macau Trade and Investment Promotion Institute (IPIM) – has been set up in order to
provide assistance (for example the "One stop service") to both local and foreign investors inimplementing their investment projects.
END