RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/173 
8 November 2006  
 
(06-5262) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
HONG KONG, CHINA 
 
  
 
This report, prepared for the fifth Trade 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 
Mr. Sergios Stamnas (tel:  022 739 5382). 
 
Document WT/TPR/G/173 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/173 
 Page iii 
 
 
CONTENTS 
 
  Page 
SUMMARY OBSERVATIONS vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) T RADE POLICY FRAMEWORK  viii 
 (3) T RADE AND TRADE -RELATED POLICY DEVELOPMENTS  viii 
 (4) S ECTORAL POLICY DEVELOPMENTS  x 
 (5) O UTLOOK  xi 
I. ECONOMIC ENVIRONMENT 1 
 (1) I NTRODUCTION  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  2 
 (i) Growth, incomes, and employment 2  (ii) Prices 6 
 (3) M
AIN MACROECONOMIC DEVELOPMENTS  7 
 (i) Monetary and exchange rate policy 7  (ii) Fiscal policy 9 
 (4) S
TRUCTURAL MEASURES  10 
 (i) Tax reforms 10  (ii) Labour markets 11 
 (iii) Governance 11 
 (iv) Competition 12 
 (5) B
ALANCE OF PAYMENTS DEVELOPMENTS  12 
 (6) D EVELOPMENTS IN MERCHANDISE TRADE  14 
 (7) T RENDS AND PATTERNS IN FOREIGN INVESTMENT  15 
 (8) O UTLOOK  18 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 20 
 (1) O VERVIEW  20 
 (2) G ENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK  20 
 (3) S TRUCTURE OF TRADE POLICY FORMULATION  21 
 (i) Government bureaux and departments 22 
 (ii) Advisory bodies 22 
 (4) T RADE POLICY OBJECTIVES  22 
 (5) T RADE LAWS AND REGULATIONS  23 
 (6) T RADE AGREEMENTS AND ARRANGEMENTS  23 
 (i) Multilateral agreements 23  (ii) Regional and bilateral arrangements 25 
 (iii) Preferential trade arrangements 28 
 (7) F
OREIGN INVESTMENT REGIME  28 WT/TPR/S/173 Trade Policy Review 
Page iv 
 
 
  Page 
III. TRADE POLICIES AND PRACTICES BY MEASURE 30 
 (1) O VERVIEW  30 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  31 
 (i) Registration and documentation requirements 31 
 (ii) Tariffs 33 
 (iii) Other charges affecting imports 34  (iv) Customs valuation and rules of origin 36 
 (v) Import prohibitions, licensing, and restrictions 37 
 (vi) State-trading 38  (vii) Government procurement 38 
 (viii) Local-content requirements 41 
 (ix) Contingency measures 41  (x) Standards and other technical requirements 42 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  46 
 (i) Registration and documentation 46  (ii) Export charges and levies 46 
 (iii) Export prohibitions, licensing, and restrictions 46 
 (iv) Export support 48 
 (v) Export finance, guarantees, and insurance 49 
 (vi) Export promotion and marketing assistance 49 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  50 
 (i) Incentives 50 
 (ii) Role of state-owned enterprises 54  (iii) Intellectual property rights 54 
 (iv) Competition and consumer protection policy 65 
 (v) Corporate governance 70  (vi) Environmental measures 72 
IV. TRADE POLICIES BY SECTOR 73 
 (1) O
VERVIEW  73 
 (2) A GRICULTURE AND FISHERIES  74 
 (i) Features 74 
 (3) E LECTRICITY  77 
 (4) M ANUFACTURING  79 
 (5) S ERVICES  81 
 (i) Features 81  (ii) Overall commitments under the GATS 81 
 (iii) Closer Economic Partnership Arrangement 82 
 (iv) Financial services 82 
 (v) Communications 89 
 (vi) Transport 92  (vii) Legal services 101 
 (viii) Healthcare 102 
REFERENCES   103 
APPENDIX TABLES  109 
 
 Hong Kong, China WT/TPR/S/173 
 Page v 
 
 
CHARTS 
  Page 
I. ECONOMIC ENVIRONMENT 
 I.1 Product composition of merchandise trade, 2001 and 2005 16 
I.2 Direction of merchandise trade, 2001 and 2005 17 
 IV. TRADE POLICIES BY SECTOR 
 
IV.1 Mark-up on Thai fragrant rice, 2002-05 76 IV.2 Hong Kong dollar interest rates and interest margins 87 
 
  
TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Selected macroeconomi c indicators, 2000-06 2 
I.2 Basic economic and soci al indicators, 2000-05 5 
I.3 Structure of government revenue, 2000-06 10 I.4 Balance of payments, 2000-05 13 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES  
 
II.1 Selected notifications by Hong Kong, China under WTO Agreements, September 2006 23 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Import declaration charges, 2006 32 
III.2 Share of fully and partially bound tariff lines, 2001 and 2006 34 
III.3a Excise duties, 2001-06 35 
III.3b Local production of excisable commodities, 2001-06 35 III.4 Government procurement, 2002-05 39
 
III.5 Contracts awarded by government entities under various tender procedures, 2001-05  41 III.6 Labelling requirements, 2006   45 III.7 Export declaration charges, 2006 47 
III.8 Companies with government involvement, 2006 54 
III.9 Intellectual property laws and regulations, 2006 56 
III.10 Enforcement of intellectual property rights, 2002-05  63 
 IV. TRADE POLICIES BY SECTOR 
 
IV.1 Structure and performance ratios of the banking sector, 2000-05 84 IV.2 Telecommunication services, 2000-05 91 
IV.3 Port traffic, 2000-05 94 
IV.4 Air transport, 2000-05 97  
 
  
 
  
 
 WT/TPR/S/173 Trade Policy Review 
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APPENDIX TABLES 
 
I. ECONOMIC ENVIRONMENT 
 AI.1 Foreign direct investment inflows/outflows by economic activity, 2000-05 111 
AI.2 Foreign direct investment inflows/outflows by country, 2000-05 112 
AI.3 Stock of foreign direct investment by economic activity, 2000-05 113 AI.4 Stock of foreign direct investment by country, 2000-05 114 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE  
AIII.1 Goods subject to import licensing, 2005 115 
AIII.2 Standards and/or technical regulations, July 2006  117 
 
IV. TRADE POLICIES BY SECTOR 
 AIV.1 Assistance to agriculture and fisheries, 2006 123 
 Hong Kong, China WT/TPR/S/173 
 Page vii 
 
 
SUMMARY OBSERVATIONS 
1. Since the last Review of the 
Hong Kong Special Administrative Region (HKSAR), in December 2002, growth has 
rebounded from under 2% to over 7% in 2005 
and a projected 4%-5% in 2006.  Underlying this performance is the openness of its economy to trade and foreign investment as well as the favourable external environment, 
judicious macroeconomic policies, structural 
reforms, strong growth in Mainland China, and the confidence-building effects of the Closer Economic Partnership Arrangement (CEPA) with China.  As a result of its growing integration with Mainland China through 
CEPA and its participation in the Pan-Pearl 
River Delta (PRD) initiative, the HKSAR's structural transformation from a manufacturing- to a services-based economy has continued. 
(1) E
CONOMIC ENVIRONMENT  
2. After a period of prolonged weakness 
in economic activity, persistent deflation, rising unemployment, and widening fiscal deficits, the economic performance and outlook for the HKSAR has greatly improved 
since mid-2003.  Annual growth in real GDP 
rose from 1.8% in 2002 to 3.2% in 2003 then jumped to 8.6% in 2004, before easing to 7.3% in 2005.  Following six consecutive years of deflation, which contributed to the 
improvement in the HKSAR's external 
competitiveness, prices rose by 1% in 2005 and are expected to edge up by 2% in 2006.  After peaking at 7.9% in 2003, the annual unemployment rate fell to 5.6% in 2005;  
efforts to deal with relatively high 
unemployment of low-skilled workers (previously employed in manufacturing that has migrated to the Mainland) and attract skilled workers are under way.  At the same time, real GDP per capita has risen steadily to 
an estimated US$30,032.8 (2005);  the HKSAR 
has also retained its high ranking in the UN human development index. 
3. The fiscal balance improved gradually 
from a deficit to surp luses (as from 2004) and sizeable fiscal reserves (equivalent to almost 
16 months of government expenditure), have been maintained;  these reserves are a key to the HKSAR's pure currency board system, 
which, with the exchange rate of Hong Kong 
dollar fixed against the U.S. dollar, oversees the domestic money supply.  Tax revenue as a percentage of GDP is only about 10.9% (the average for the period 2001/02-2004/05), one 
of the lowest ratios in the world.  The 
Government is thus s till heavily dependent on 
rather volatile non-tax income (notably sales of government-owned land and investment income) for revenue.  In order to broaden the tax base, the authorities are considering the 
introduction of a goods and services tax 
(GST).   
4. The HKSAR has also taken measures  
to further develop the supervisory framework for the prevention of money laundering, 
terrorist financing, and to combat corruption. 
5. As a result of its high level of saving in 
relation to gross domestic investment, the HKSAR's balance of payments has remained strong, characterized by a rising surpluses on the current account (except for 2004).  
Foreign exchange reserves attained 
US$126.6 billion at the end of June 2006, equivalent to 18.4 months  of retained imports.  
Under the fixed exchange rate system, which has been subject to refinements with a view to 
removing uncertainty about exchange rate 
movements and promoting smooth functioning foreign exchange and money markets, domestic product, factor, and asset markets have borne the brunt of economic adjustment. 
6. The HKSAR's economic rebound is 
due in large part to its continued openness to trade and foreign investment.  The HKSAR remains one of the most open economies in the world, with trade in goods and non-factor services continuing to rise, to 383% of GDP in 
2005.  The sole notable change in the 
HKSAR's trade and investment patterns is the rise of Mainland China's shares in its foreign trade as well as inbound and outbound investment.  Textiles and clothing remains the 
largest category of domestic exports, with WT/TPR/S/173 Trade Policy Review 
Page viii 
 
 
China the largest market.  At the same time, 
the rising importance of offshore trade is diminishing the role of the HKSAR as China's "entrepôt". 
(2) T
RADE POLICY FRAMEWORK  
7. In accordance with the principle of 
"one country, two systems", the Basic Law, the main constitutional document governing the HKSAR, grants the Territory a high degree of 
autonomy in the conduct of foreign trade 
relations.  The Territory's institutional and policy framework has remained largely unchanged during the period under review.  
8. There have been no significant 
changes in the HKSAR's broad trade policy 
objectives since 2002;  while upholding its 
commitment to the primacy of the multilateral trading system, the Territory now has a more open-minded approach to the pursuit of free-trade agreements (FTAs) with its trading 
partners.  As from 2004, a continuous bilateral 
trade liberalization process has been launched under the CEPA.  Furthermore, the Pan-PRD Initiative is expected to strengthen cooperation among nine Chinese provinces and the Special Administrative regions of Macao and Hong 
Kong in ten trade-related areas.  The HKSAR, 
which successfully hosted the Sixth Ministerial Conference in December 2005, continues to participate actively in WTO work, including the ongoing negotiations.  Its priorities in the 
Doha Development Agenda (DDA) include 
enhanced market access, particularly through reduced non-agricultural tariffs, and rules-related issues as regards trade in services. 
9. Attracting foreign investment is a 
priority of the Government.  Consequently, 
HKSAR remains receptive to foreign investment and does not discriminate between foreign and domestic investors.  The authorities continue to let open markets be the main determinant of the allocation of 
resources within the Territory. (3) T
RADE AND TRADE -RELATED POLICY 
DEVELOPMENTS  
10. In accordance with its Basic Law, 
Hong Kong, China remains a free port with 
few barriers to trade.  Since 2002, there have 
been only a few significant changes in its trade regime;  these include measures to facilitate 
trade, the phasing out of the Rice Control Scheme, and improved enforcement of 
intellectual property rights.   
11. All imports enter the Territory duty 
free, but the scope of tariff bindings remains low, at 42.8% of all tariff lines (or 56.5% of the total value of imports in 2005);  the HKSAR has indicated its willingness to 
negotiate the binding of more tariff lines in the 
context of the ongoing round of multilateral trade negotiations.  All bound tariffs are at zero rate.  Domestic taxes (in the form of excise duties) are levied on imports and 
domestic production of four categories of 
goods:  tobacco, hydrocarbon oil, and methyl alcohol are charged at specific rates;  and alcoholic beverages are subject to ad valorem rates according to alcohol strength.  However, these taxes and an ad valorem tax (escalating 
on a value basis) on the first registration of 
motor vehicles fall disproportionately on imports as there is little, if any, domestic production of the taxable goods.  Trade facilitation action during the period under 
review involved, inter alia, the introduction of 
electronic customs clearance and documentation procedures.  Although specific in nature, trade declaration charges escalate on a value basis. 
12. Non-tariff border measures are almost 
absent;  those in force (import and export licences and quotas) either stem from obligations under international undertakings or are applied for health, safety, security or environmental reasons.  The Rice Control 
Scheme, a quota system in place for food 
security reasons, was eliminated in 2003.    Hong Kong, China WT/TPR/S/173 
 Page ix 
 
 
As from January 2004, the control on the 
import, export or transhipment of 9 out of 31 categories of articles subject to licensing was relaxed or simplified.  To safeguard the 
HKSAR's role as a trading hub for diamonds 
in the region, since 2003 rough diamonds (previously banned) from countries subject to the Kimberly Process Certification Scheme have been subject to import licensing 
requirements.  Hong Kong, China has no legal 
instrument protecting domestic producers from perceived "unfair" foreign trading practices in the form of dumping or export subsidies.  There are no government controls on exports, except those related to UN sanctions, the WTO 
Agreement on Textiles and Clothing (until its 
expiry at the end of 2004) and textiles exports to "sensitive" and "non-sensitive" markets (as from 2005).  Licensing of textiles exports is, inter alia, aimed at avoiding circumvention, by 
means of illegal transhipment or false 
declaration of origin, of safeguard measures in certain markets specific to Mainland China.  Hong Kong, China, a signatory to the WTO Agreement on Government Procurement (GPA), treats all suppliers equally (i.e. no 
preferences on the basis of origin) and 
considers its procurement regime competitive;  in 2005, 21.9% of all contracts were awarded through restricted or single tendering and another 48.4% through selective tendering, 
which, according to the authorities, is based 
on open and transparent procedures. 
13. During the period under review, the 
main instruments used to assist production and trade have been, inter alia, tax incentives 
(including accelerated depreciation) and 
financing for R&D, design and innovation and technology upgrading.  Such assistance has been limited largely to the provision of public services and infrastructure that enable the private sector to develop within a business-
friendly environment.  The Government has 
attached priority to high-technology and information technology activities in allocating funds;  it has also increased funds for small and medium-sized enterprises (SMEs).  Steps 
were taken to reduce the Government's 
influence in the land market by making the Application List system more market-driven and by enhancing it s efficiency and 
transparency. 
14. Protection of intellectual property 
rights (IPRs) in the HKSAR was reinforced, 
inter alia, through improvements in the 
patents, trade marks, designs, and copyright legislation and the introduction of electronic registration services.  Cooperation with the relevant authorities in Mainland China has 
been a key component of the enforcement 
process.  The partnership between the HKSAR Customs and industry has also been strengthened. 
15. Regarding competition policy, the 
HKSAR authorities still prefer a sector-specific approach, involving measures such as licensing, codes of practice, and legislation, when these are felt to be necessary, rather 
than a comprehensive policy to address anti-
competitive practices.  To promote competition "proactively" and encourage self-regulation, a set of guidelines supplementing the existing Statement on Competition Policy was promulgated in September 2003.  In July 2006, 
the authorities were considering the 
recommendations of a Competition Policy Review Committee (CPRC), made up mostly of non-Government stakeholders (business, academic, consumer protection, and other 
sectors), for introducing a cross-sector 
competition law, targeting specific types of anti-competitive conduct.  Consumer protection cases have involved largely telecommunication services and related goods and services. 
16. Steps to bring corporate governance 
into line with international standards have involved, inter alia, updating relevant 
legislation and issuing a guide.   
17. With a view to addressing 
environmental problems, the HKSAR aims to submit all new major government policies to environmental protection scrutiny and to 
implement the "polluter pays" principle. WT/TPR/S/173 Trade Policy Review 
Page x 
 
 
(4) SECTORAL POLICY DEVELOPMENTS  
18. The liberal sectoral policies of 
Hong Kong, China have undergone little change, thus allowing the shift towards a 
services-based economy to continue, taking 
advantage in particular of opportunities arising from liberalization under the CEPA with China.  The HKSAR remains primarily a service-based economy, with services 
accounting for 87.5% of GDP in 2004.  The 
contribution of agriculture, fisheries, and mining to GDP (and employment) is negligible, and that of the manufacturing sector has declined progressively to 3.5%, from 4.2% in 2002.   
19. Government intervention in 
agricultural markets remains minimal with local production complementing rather than competing with other ma jor market suppliers.  
The HKSAR has fully liberalized rice trade, 
which has resulted, inter alia, in a rise in the 
number of importers and registered stockholders as well as in a drop in retail prices of this commodity.  Domestic support to agricultural activities has been available in the form of "Green Box" measures (not subject 
to reduction commitments).  Credit facilities to 
agriculture and fisheries, largely financed by non-governmental sources, have remained in place;  outlays under the two fisheries loan funds were first notified to the WTO 
Committee on Subsidies and Countervailing 
Measures in 2006.   
20. Steps are under way to introduce 
competition in the duopolistic electricity market, where electricity is supplied by 
two "investor-owned" companies.  However, 
no major outcome is expected prior to 2008.  The HKSAR aims to meet 1%-2% of local power needs by renewable energy (RE) sources by 2012.   
21. The contraction of the manufacturing 
sector has continued as a result of investment 
opportunities arising under CEPA liberalization arrangements and the large labour-cost difference between the HKSAR and Mainland China, and possibly the fact that labour productivity in manufacturing is 
substantially less than in the rest of the economy.  Nevertheless, the authorities expect the industry to focus on high value-added 
brand-name production and tap the huge and 
fast-expanding Mainland China market. 
22. Hong Kong, China, a net exporter of 
services, has continued to place emphasis on strengthening its legislative and institutional 
framework in order to maintain a competitive 
climate in the services sector, the driving force behind economic growth.  Outward-oriented expansion of services activities is being driven by CEPA liberalization in 27 subsectors;  depending on the subsector, the CEPA 
provides earlier and wi der market access 
opportunities for HKSAR service suppliers than those contained in China's WTO commitments.  For example, CEPA reduced the requirements for HKSAR's banks to 
conduct Renminbi business and encouraged 
Mainland China's financial institutions to invest in the HKSAR, thus enhancing the latter's status as an international financial centre.  Mergers and acquisitions were very important in the HKSAR's banking sector 
during the period under review;  deregulation 
of interest rates seems to have encouraged more innovation and intensified competition in the banking sector, which, despite the large number of banks, maintains its quasi-
oligopolistic structure.  The local fixed 
telecommunications market was fully liberalized as of 1 January 2003.  A Telecommunications (Amendment) Ordinance 2003 provided a comprehensive and clear 
legislative framework for completed mergers 
and acquisitions.  Steps to maintain competitiveness in port services included the reduction in port fees and charges.  All foreign lawyers, from common law and non-common law jurisdictions are allowed to take specified 
examinations to become solicitors and 
barristers in the HKSAR, which has the largest 
cluster of international lawyers in Asia;  foreign law firms that wish to provide both foreign and domestic legal services may do so 
only by establishing associations with local 
law firms.  Although healthcare services remain heavily subsidized, there do not seem Hong Kong, China WT/TPR/S/173 
 Page xi 
 
 
to be any barriers to or discriminatory 
requirements on private or foreign investment in healthcare services. 
(5) O
UTLOOK  
23. Riding on developments in external 
trade, private consump tion, and investment, 
the HKSAR's economy is experiencing a balanced and solid expansion, enabling it to rise to various challenges from the external 
environment.  Given the economy's general 
openness to trade and investment and its strong links with Mainland China, the Territory's growth prospects will depend to a large extent on external conditions and developments on the Mainland, particularly 
the economy's ability to undertake the 
necessary restructuring associated with its further integration with Mainland China.    The outlook for 2006 appears bright as the 
economy is expected to gradually settle back to a more sustainable growth rate of 4-5%.  With sustained strong real growth and 
increasing integration with the Mainland, the 
HKSAR economy is expected to pursue its continuing structural shift towards higher value-added services and more knowledge-based activities.  Competitiveness will remain 
dependent on the HKSAR maintaining its 
traditional strengths and developing new sources of growth.  However, several factors pose potential risks to economic growth.  These factors include a steeper than expected rise in U.S. interest rates, a resulting sharper 
decline in global demand, and thus 
international trade, and an outbreak of protectionist measures against China, as well as higher world energy costs and the Territory's aging population.