RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/241 
27 October 2010  
 
(10-5545) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
HONG KONG, CHINA 
 
  
 
This report, prepared for the sixth Tr ade Policy Review of Hong Kong, China, 
has been drawn up by the WTO Secretariat on its own responsibility.  The 
Secretariat has, as required by the Agreement establishing the Trade Policy 
Review Mechanism (Annex 3 of the Ma rrakesh Agreement Establishing the 
World Trade Organization), sought clarification from Hong Kong, China on its 
trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Thomas Friedheim (tel:  022 739 5083)  or Zheng Wang (tel:  022 739 5288). 
 
Document WT/TPR/G/241 contains the policy statement submitted by 
Hong Kong, China. 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trade Policy Review Body on Hong Kong, China. Hong Kong, China WT/TPR/S/241 
 Page iii 
 
 
CONTENTS 
 
  Page 
 SUMMARY vii 
I. ECONOMIC ENVIRONMENT 1 
 (1) O
VERVIEW OF RECENT ECONOMIC DEVELOPMENTS  1 
 (2) D EVELOPMENTS IN TRADE  8 
 (i) Composition of trade 10 
 (ii) Direction of trade 10  (iii) Foreign investment 13 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 14 
 (1) O
VERVIEW  14 
 (2) G ENERAL INSTITUTIONAL , LEGAL AND POLICY FRAMEWORK  14 
 (3) P ARTICIPATION IN THE WTO 15 
 (4) P REFERENTIAL TRADE AGREEMENTS AND ARRANGEMENTS  15 
 (i) Regional trade agreements 15 
 (ii) Other preferentia l trade agreements 19 
 (5) F OREIGN INVESTMENT REGIME  20 
III. TRADE POLICIES AND PRACTICES BY MEASURE 22 
 (1) O VERVIEW  22 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  23 
 (i) Customs procedures 23 
 (ii) Tariffs 24  (iii) Internal taxes collected at the border 25 
 (iv) Customs valuation 26 
 (v) Rules of origin 27  (vi) Contingency measures 27 
 (vii) Import prohibitions, restrictions, and licensing 27 
 (viii) State trading 28  (ix) Government procurement 28 
 (x) Standards and other technical requirements 31 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  37 
 (i) Customs procedures 37 
 (ii) Certificate of origin 37 
 (iii) Export charges and levies, and rebates 38  (iv) Export prohibitions, licensing, and restrictions 38 
 (v) Trade promotion and export credit insurance 39 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  40 
 (i) Taxation and tax incentives 40 
 (ii) Non-tax incentives 42  (iii) Price controls 46 
 (iv) State-owned enterprises 46 
 (v) Corporate governance 47  (vi) Competition and consumer protection policy 48 
 (vii) Intellectual property rights 50 WT/TPR/S/241 Trade Policy Review 
Page iv 
 
 
  Page 
IV. TRADE POLICIES BY SECTOR 55 
 (1) O VERVIEW  55 
 (2) A GRICULTURE AND FISHERIES  56 
 (i) Overview 56 
 (ii) Rice 57 
 (iii) Fisheries 58 
 (3) E NERGY   59 
 (i) Overview 59 
 (ii) Electricity 60 
 (4) M ANUFACTURING  61 
 (5) S ERVICES  62 
 (i) Main features 62  (ii) Financial services 63 
 (iii) Telecommunications 70 
 (iv) Transport 73  (v) Tourism 81 
 (vi) Development of new industries 84 
REFERENCES   89 
APPENDIX TABLES  91 
 
  Hong Kong, China WT/TPR/S/241 
 Page v 
 
 
  Page 
CHARTS 
 
I. ECONOMIC ENVIRONMENT  
I.1 Product composition of merchandise trade, 2006 and 2009 11 
I.2 Direction of merchandise trade, 2006 and 2009 12  
IV. TRADE POLICIES BY SECTOR 
 IV.1  Mark-up on Thai fragran t rice, January 2006-December 2009 58 
IV.2 Trade in services by  major subsectors, 2009 64 
IV.3 Trade in services by destination and origin, 2008 65 IV.4 External trade by mode of transport, 2009 75 
 
 
TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Selected macroeconomi c indicators, 2006-09 2 
I.2 Basic economic indicators, 2006-09 4 
I.3 Balance of payments, 2006-09 9 
 II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 
 
II.1 CEPA preference utili zation rates, 2004-10 17 
II.2 Additional business receipts obtained  by companies in Hong Kong, China 
 due to CEPA, 2004-09 19 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Import/export declaration charges, 2010 24 III.2 Number of lines and share of fully and partially bound tariff lines, 2006 and 2010 25 
III.3 Government procurement, 2006-09 29 
III.4 Contracts awarded by government entities under various tender procedures, 2006-09 30 III.5 Food standard and notifications, 2006-10 32 
III.6 Statutory import control measures fo r certain food, animal s, and plants, 2010 35 
III.7 Structure of government revenue, 2006-10 41 
III.8 Subsidies programmes, 2010 43 
III.9 Enterprises in which the Government has financial stakes, 2010  47 III.10 Framework protecting some intellectual property rights, 2010 52 
III.11 Enforcement of intellectual property rights, 2006-09 53 
 IV. TRADE POLICIES BY SECTOR 
 
IV.1 Voluntary surrender schemes in livestock production, 2010 57 IV.2 Trade in services, 2005-09 63 
IV.3  Structure and performance ratios of the banking sector, 2005-09 65 
IV.4 Insurance data, 2005-09 69 IV.5 Telecommunications services, 2005-09 71 
IV.6 Port traffic in Hong Kong, China, 2005-09 74 
IV.7 Air transport, 2006-09 78 IV.8 Tourism and hotel statistics, 2005-09 81 
 
 WT/TPR/S/241 Trade Policy Review 
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  Page 
APPENDIX TABLES 
 
I. ECONOMIC ENVIRONMENT  
AI.1 Foreign direct investment inflows/outflows by economic activity, 2005-08 93 
AI.2 Foreign direct investment inflows/outflows by country, 2005-08 94 AI.3 Stock of foreign direct investment by economic activity, 2005-08 95 
AI.4 Stock of foreign direct investment by country, 2005-08 96 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Excise duties, 2006 and 2010 97 AIII.2 First registration tax for automobiles, 2010 98 
AIII.3 Goods subject to import licensing, 2009 99 
AIII.4 Standards and/or technical regulations other than those for food, April 2010 103 AIII.5  Goods subject to export control, 2010 107 
AIII.6 Insured business by major market and product, 2008-09 109 
AIII.7 Intellectual property laws and regulations, 2010 110 
 
IV. TRADE POLICIES BY SECTOR  
AIV.1 Loans and emergency relief to farmers, fish  farmers, and capture fishermen, 2010  112 
  
 
  Hong Kong, China WT/TPR/S/241 
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SUMMARY 
 
1. Hong Kong, China remains one of the 
most market-oriented and open economies in 
the world (the ratio of trade in goods and non-
factor services to GDP was 380% in 2009).  It also has one of the world's most liberal and transparent foreign investment regimes.  
2. Although Hong Kong, China's 
economy suffered a sharp contraction in early 
2009 as a result of the global financial crisis, it has recovered fairly quickly owing mainly to its closer economic relationship with China and the latter's return to strong growth.  The economy's resilience to external shocks is also 
underpinned by the flexibility of its wages and 
prices, which is especially important as the Hong Kong dollar remains pegged to the U.S. dollar (which reduces Hong Kong, China's scope for exchange rate flexibility and 
an independent monetary policy).  Moreover, 
Hong Kong, China's prudent regulation of the financial markets has shielded it from the worst effects of the global financial crisis.  Hong Kong, China has not adopted any protectionist measures in response to the crisis.   
3. Hong Kong, China is facing a number 
of new challenges, as well as opportunities, as a result of the global financial crisis and the emergence of China as a major economic and trading power, as well as a competitor.  
Hong Kong, China's mainly services-oriented 
economy has traditionally been dominated by four pillar industries, i.e. financial services, trading and logistics, tourism, and professional services, which account for roughly 55% of 
GDP and almost half of employment.  As 
China is shifting its reliance from manufacturing to services, the challenge is to maintain these service industries and Hong Kong, China's position as a regional and global financial centre in the face of increased 
competition from such cities as Shanghai.  
Another major challenge is posed by improved cross-strait trade relations between China and Chinese Taipei, which reduces Hong Kong, China's intermediary role with regard to 
financial services, trade, and logistics. 4. While the Hong Kong, China 
Government remains committed to a free market philosophy, these new challenges have prompted a rethink of the role of government 
in promoting economic development.  As a 
result of the recommendations by a major Task Force on Economic Challenges, six new industries have been identified in which the economy is believed to have "competitive 
advantages" (testing and certification;  medical 
services;  innovation and technology;  cultural and creative industries;  environmental services, and education services).  Various new incentives are to be used to foster these 
new industries, including financial and 
regulatory incentives, access to land, as well as 
preferential access under the Closer Economic Partnership Arrangement with China (CEPA).  The question arises as to whether this marks a shift in favour of a more interventionist policy.   
5. Hong Kong, China's closer economic 
relationship with China under the CEPA offers an immense opportunity for it to exploit its comparative advantage.  The depth and coverage of liberalizing measures has been further extended in the area of goods (via 
increasingly comprehensive CEPA rules of 
origin), and services.  Preferential access to China's markets has been progressively extended to 44 service sectors (from January 2011).  These market opportunities are 
available to companies of any nationality 
based in Hong Kong, China.  Under CEPA's trade and investment facilitation agenda both sides have undertaken, inter alia , to improve 
the transparency of laws and regulations, and 
the protection of intellectual property rights.  
Therefore, CEPA may bring benefits to the broader WTO membership.   
6. Hong Kong, China remains a staunch 
supporter of the multilateral trading system, with an excellent record of providing 
notifications, and a commitment to free and 
open trade.  Nonetheless, the Hong Kong, China Government has adopted a more active approach in pursuing FTAs with its trading partners in order to advance its economic and 
trade interests.  A Closer Economic 
Partnership Agreement with New Zealand was WT/TPR/S/241 Trade Policy Review 
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concluded in 2010, wh ile FTA negotiations 
with EFTA are under way.    
7. One of the most significant 
developments in the direction of Hong Kong, 
China's trade policy is the shift towards 
cross-sectoral competition legislation, which Hong Kong, China had previously eschewed on the grounds of the high degree of openness of its economy.  The new Competition Bill, 
which was submitted to Hong Kong, China's 
legislature in July 2010, marks a major step forward.  Under the proposed law, an independent Competition Commission will be responsible for enforcing the law and developing competition guidelines;  and 
enforcement proceedings are to be adjudicated 
by a Competition Tribunal.  The Bill's proposed content to prevent anti-competitive practices is broadly in line with the coverage of competition laws of other jurisdictions, 
although comprehensive regulation of mergers 
and acquisitions has been postponed.  It remains to be seen what kind of agreements or conduct will be carved out from the law, and whether it will include statutory bodies, which play an important role in the economy. 
8. While all applied MFN tariffs are 
zero, only slightly more than one third of the non-agricultural tariffs are subject to WTO bindings (all agricultural tariffs are bound), which imparts a certain degree of 
unpredictability to Hong Kong, China's tariff.  
However, Hong Kong, China's "mini-constitution", the Basic Law, guarantees the territory's status as a free port. 
9. Hong Kong, China's customs 
procedures are simple owing to its duty-free 
tariff regime.  Almost all trade documents can be lodged electronically (e-customs).  Customs valuation, for purposes of levying excise duties, applies to only four products (liquor, tobacco, hydrocarbon oil, and methyl oil).  
Excise duties on wine have been eliminated to 
boost Hong Kong, China's ambitions of becoming a trading centre for fine wines.  
10. There are few import and export 
restrictions, which are generally imposed for health, safety, security or environmental 
reasons (under international agreements).  Imports and exports of textiles remain subject to special controls regarding their origin. 
11. While Hong Kong, China ranks highly 
in terms of well-known indicators of economic freedom, competitiveness, and ease of doing business, there has been a gradual move towards more regulation of markets for social, 
health, environmental, and prudential reasons.  
For example, like other WTO Members, Hong Kong, China has introduced a new regulation for nutrition labelling and nutrition claims (such as "fat-free").  It has also drawn up a minimum wage law, whose effect on 
employment and the economy's 
competitiveness will depend on the minimum wage level implemented.  
12. The regulatory framework for food 
safety and medicines has faced challenges 
following several incidents in and outside 
Hong Kong, China (such as the melamine incident).  A new Food Safety Bill, which is pending, contains registration and record-keeping requirements for operators to facilitate the traceability of (tainted) food.  
13. Public procurement in Hong Kong, 
China is relatively small (about 4% of GDP in 2009), reflecting the commitment to "big market, small government".  However, most contracts have been awarded through restricted 
and selective tendering procedures rather than 
more transparent open tenders.  Hong Kong, 
China is party to the plurilateral WTO Agreement on Government Procurement.   
14. Hong Kong, China is also a low-tax 
jurisdiction (with tax revenues accounting for 
about 13% of GDP in 2008-09) but the global financial crisis has exposed certain weaknesses of the tax structure.  These include the volatility of revenues from the sale and lease of land (land premiums, stamp duties), which 
is largely state-owned, and the lack of 
revenues from other sources, such as indirect taxes, which are relatively non-distorting and stable during the business cycle.  The proposal to broaden the tax base by introducing a goods Hong Kong, China WT/TPR/S/241 
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and services tax was dropped as a result of 
public opposition. 
15. Hong Kong, China has a relatively 
neutral direct tax system, but it is not entirely 
free of tax incentives, as there are tax 
allowances, for example, for environmental and intellectual property-related expenditures. Otherwise, the Government's limited assistance has mainly been in the form of 
grants, loans, or loan guarantees.  Increased 
assistance has been provided notably for small and medium-sized enterprises (in response to the global financial crisis) and some of the six "new industries".  Certain research and development is subsidized to foster an 
innovation and research culture, as 
Hong Kong, China spends less on R&D (relative to the size of the economy) than China or other advanced economies.  
16. In the area of intellectual property, 
Hong Kong, China has implemented the 
compulsory licensing scheme under Paragraph 6 of the Doha Declaration.  It has modernized the protection of intellectual property to align it with technological developments and international standards, and 
is reviewing its legislative framework for 
copyright protection in the digital environment.  Hong Kong, China has also taken steps to strengthen the enforcement of intellectual property rights. 
17. The financial services industry 
remains the most important pillar of the economy.  The Government has been keen to promote Hong Kong, China's role as a financial centre, notably through market access 
improvements in China for Hong Kong, China 
service suppliers (CEPA), and by broadening the opportunities for offshore business in renmimbi.  Major new developments in this regard include RMB bond issues in Hong Kong, China by China's financial 
institutions, and an RMB trade settlement pilot 
scheme (introduced in 2009), which offers Hong Kong, China new opportunities for financial intermediation between China and the rest of the world.  18. Both Hong Kong International Airport 
(HKIA) and Hong Kong Port are facing intense competition from neighbouring and other regional airports and seaports, such as 
Shenzhen in China.  The authorities have 
reached a number of new or more liberal air services agreements with aviation partners, with a view to strengthening HKIA's position as an air hub and opening new opportunities 
for Hong Kong, China's airlines.  Hong Kong, 
China has not pursued "open skies" (an exception to its otherwise liberal and open policies).  HKIA is the world's leading airport in terms of cargo turnover, and the planned opening of a fourth private-sector-operated air 
cargo terminal is aimed at further enhancing 
its competitiveness.  
19. To strengthen the airport and seaport's 
gateway position to China, Hong Kong, China has been developing its transport links to 
Mainland China.  A major publicly financed 
infrastructure project, a landmark bridge linking Hong Kong, China with China and Macao, China, is expected to strengthen the economic relationshi p with Hong Kong, 
China's industrial hinterland in the western 
part of the Pearl River Delta region.  There are 
also plans to build a new terminal for mega cruise ships, with a view to positioning Hong Kong, China as a regional cruise hub.  Travel arrangements for visitors from China have 
been further liberalized, greatly benefiting 
tourism in Hong Kong, China, another of its traditional pillar industries.  
20. Hong Kong, China has taken further 
steps in deregulating the highly competitive 
telecommunications market.  The regulatory 
intervention requiring mobile operators to pay fixed operators interconnection fees for traffic in both directions (the Mobile Party's Network Pays arrangement) was withdrawn to allow the market to determine the rates and the type of 
arrangements.  As a result of facility-based 
competition among operators, about 85% of the territory's population has a choice between several fixed and wireless broadband networks.  Telecommunications and 
broadcasting are the only sectors of the WT/TPR/S/241 Trade Policy Review 
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Hong Kong, China economy currently subject 
to competition rules. 
21. The electricity market remains 
dominated by two private-sector territorial 
monopolies, which are controlled through tight 
regulation.  The Government is currently undertaking preparatory work with a view to the possible liberalization of the electricity market, albeit not before 2018.  
22. Hong Kong, China's agricultural base 
is very small and virtuall y all food is imported.  
In response to public health (H5N1 avian influenza) and environmental concerns, the 
Government intervened with Green Box-type resource retirement schemes to encourage pig and poultry farmers to abandon production.  
The incentive payments have resulted in a 
substantial drop in livestock output.  For the staple food of rice, a number of control measures, including a reserve-stock scheme, remain in place.  Rice stocks are maintained 
mainly to allay public concerns in the event of 
tight supplies or shortages, for example, as a result of restrictions imposed by rice-exporting countries.