COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 23.04.1997 
COM(97) 171 final 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 
THE EUROPEAN UNION AND HONG KONG : BEYOND 1997 

COMMUNICATION FROM THE COMMISSION 
TO TEE COUNCIL 
THE EUROPEAN UNION AND HONG KONG : BEYOND 1997 
1. The Dublin European Council in December 1996 "reiterated the European 
Union's strong interest in the future peace and prosperity" of Hong Kong. This 
communication seeks to lay out what the transfer of sovereignty means for the 
European Union and its many interests in Hong Kong, and how EU-Hong Kong 
relations will develop in the years to come. 
2. On 1 July 1997, Hong Kong reverts to Chinese sovereignty. This peaceful 
transfer of sovereignty will be a unique event, and will create a unique entity, the Hong 
Kong Special Administrative Region of the People's Republic of China. Hong Kong 
has long stood as an example and a model for its neighbours throughout the region. It 
has always hsm an international crossroads: it is a trading centre, a magnet for 
investment, a media hub, a transit point for travellers worldwide. Hong Kong lives by 
its relations with the outside world, with its strong tradition of openness making it a 
home for the exchange of goods, finance, people and ideas. Hong Kong's future is 
therefore of profound importance for the international community. 
European interests in Hong Kong 
3. European interests in Hong Kong have many aspects: 
- a deep economic involvement. The importance of Hong Kong as a trading 
centre is well established: Hong Kong is the EC's tenth largest trading partner, 
and one with whom the EC maintains a healthy surplus. But economic ties go 
bsyond trade. There are over 100 European companies involved in banking, 
fisuranes, and the securities industry in Hong Kong. Some 250 European 
jaipimies have their regional headquarters in Hong Kong, and some 100 
European companies manufacture in Hong Kong. 115 European companies 
;i£ve baan Lr/oivsd in the 'construction of the new Hong Kong airport project, 
winning almas; 40% of the business. Although Hong Kong investment m 
Europe has bean nmch more slow to develop, investment in the services sector 
has slowly increased.. •«il* 
Two particular points ire worth noting about these extraordinarily diverse 
economic ties. First, all Member States are involved, with five Member States 
enjoying trade of over 2 billion ecu with Hong Kong. Second, recent years have 
seen an acceleration of economic links, with more trade and more companies 
settling in Hong Kong. This tends to confirm surveys indicating business' 
confidence in Hong Kong's future prosperity. 
1*, 
These economic ties have long been cemented through Hong Kong's 
autonomous participation in the world trading system. For example, 
arrangements for Hong Kong's textiles exports to the-EC have been settled 
bilaterally for many years, with a bilateral textiles agreement under the Multi-
Fibre Agreement now subsumed into the Agreement on Textiles and Clothing. 
- close personal ties. Over 50,000 EU citizens are in Hong Kong at any one time, 
with some 32,000 settled in Hong Kong. This means there are more Europeans 
in Hong Kong than in any other city in Asia. This is reflected in the number of 
cultural and educational contacts between the EU and Hong Kong, with over 60 
ongoing research and cooperation actions between European and Hong Kong 
universities. 
- These ties reflect the reality that in many respects, Europeans and Hong Kong 
people share many of the same values. Hong Kong is renowned for its 
openness, its willingness to look at new ideas and to debate. As such Hong 
Kong has always proved an important channel for exchange of all kinds between 
Europe and Asia. This is an important facet of Hong Kong, and one which will 
remain a defining characteristic of Hong Kong as an SAR. 
- continuing political interests. Although sovereignty over Hong Kong will pass 
from the United Kingdom, the Joint Declaration deposited as an international 
agreement at the United Nations will continue to regulate Hong Kong until 1 
July 2047. But the EU also has a broader continuing interest in Hong Kong, as a 
territory of strategic importance in the region, with a developing democracy and 
freedom of speech and expression. 
4. The breadth of these interests is the explanation of the wide range of current 
European links with Hong Kong, and gives every reason to believe that the ongoing 
development of relations in the future will be a key element in the EU's future relations 
with China. The implementation of the "one country, two systems" policy embodied in 
the Joint Declaration will be central for this continued development to become a 
reality: the conditions provided in the SAR will preserve the environment required for 
the successful evolution of European interests in Hong Kong. 
Bong Kong &s s Specie! Atimmktr&twz Region 
5. The United Kingdom and China agreed to the transfer of sovereignty of Hong 
Kong under the Sino-British Joint Declaration in 1984. China's policies on Hong Kong 
and the elaboration of those policies in the Joint Declaration were reflected in the Basic 
Law of the Hong Kong SAR, promulgated in 1990 and due to take effect on 1 July 
1997. The core principle behind Hong Kong's new status was to be "one country, two 
systems", the idea that Hong Kong would operate under a political, legal and 
economic system distinct from that of China. As such, Hong Kong will become a 
"Special Administrative Region" (SAR) of China. 
6. As an SAR, Hong Kong falls under Chinese sovereignty, and foreign and 
defence aiïairs will be regulated from Beijing. A garrison from the People's Liberation 
Army will be stationed in Hong Kong.. But in other areas, the "high degree of 
autonomy given to Hong Kong makes the SAR a unique experiment. The Hong 
Kong SAR will have a large degree of economic autonomy, remaining a separate 
customs territory with an independent currency and financial system. China will levy 
no taxes in Hong Kong. But the scope of SAR autonomy extends beyond the 
economic. The SAR will retain executive, legislative and judicial power. The 
Government will be run by Hong Kong people, laws will be made in the Legislative 
Council, and the final judicial Court of Appeal will be in Hong Kong. The SAR 
government will be responsible for maintaining public order. The Joint Declaration 
also explicitly enshrines rights and freedoms including freedom of speech, assembly, 
association and religion. A fuller summary appears in Annex 1. 
7. A central theme running through the Joint Declaration and the Basic Law is the 
importance of maintaining Hong Kong's international role. Hong Kong will continue 
to have a distinct voice as a separate member of numerous international organisations, 
including the World Trade Organisation, the World Customs Organisation, and APEC. 
Hong Kong will be able to sign international agreements as a separate party within the 
areas for which the SAR is responsible. There will also be a separate Hong Kong 
passport, and Hong Kong will remain host to official representations from across the 
world. 
8. Much of thé political debate about and within Hong Kong in recent years has 
centred on the interpretation of the SAR's autonomy, and how secure the provisions of 
the Joint Declaration would prove in practice. To some extent, uncertainty is 
inevitable when entering such uncharted waters. The European Commission pointed 
to the importance of implementing the principles of the Joint Declaration in its 1995 
Communication on China.1 The blueprint laid out in the Joint Declaration and the 
Basic Law is designed specifically to ensure that Hong Kong continues to thrive. Its 
effective implementation remains the best guarantee for Hong Kong in the future. This 
will also reinforce confidence in the transfer of sovereignty in Macau in 1999, and 
could provide some useful pointers to settling other disputes where the issues of 
practical autonomy and legal sovereignty need to be tackled. 
9. Most of the differences which have arisen between the United Kingdom and 
China in the run-up to the transfer of sovereignty have now been settled. A major 
exception is the issue of the Legislative Council Ç'LegCo"). China has not agreed to 
the concept of a "through train" for the LegCo elected under new electoral 
arrangements in 1995. In December 1996, the members of a "provisional Legislature" 
were selected. It is intended that this body will replace the existing LegCo on 1 July 
1997, and will itself be replaced after new elections within a year. There is a clear 
danger that the work of the provisional Legislature before the transfer of sovereignty 
will create confusion about responsibility for legislation, which would be damaging for 
the rule of law in Hong Kong. It is essential that the procedures adopted to enact new 
or amended laws to govern the SAR do not open those laws to lengthy legal challenge 
in the months and years to come. Early elections for a new LegCo, on a free and fair , 
basis, would be the best way to ensure that the LegCo can play its part in the 
governance of the SAR fully and effectively. 
i « A long term policy for China-Europe relations", Brussels 5.7.1995, COM(95) 279 final. 
10. The provisions of the Joint Declaration and the Basic Law confirming 
individual rights and liberties in Hong Kong are not only of importance to individual 
Hong Kong people. Respect of key freedoms such as free speech, the right of 
assembly, data protection and the right to form active political parties will be critical to 
confidence in the governance of Hong Kong as an SAR, and to the maintenance of the 
rule of law. Hong Kong's role as a regional hub would make any restrictions on the 
Press, news agencies or other information channels particularly damaging. 
Working to support European interests in Hong Kong 
11. Confidence in Hong Kong's future, both within Hong Kong and in the 
international community, is based on the conviction that the SAR model will preserve 
the features of Hong Kong government and society which lie behind its current 
success. Making the SAR a reality and a success is therefore critical. Primary 
responsibility for achieving this must lie with the Hong Kong government and with the 
Chinese authorities. The unique nature of the SAR makes this a challenging task, but 
all parties seem convinced that this goal is in their mutual interests. 
12. The international community also has a role to play in ensuring that the SAR 
lives up to its task and to the responsibilities it has been given under the Joint 
Declaration. Europe can play its part in helping the SAR government as an 
autonomous administration to operate as foreseen: 
- In areas within the responsibility of the SAR government, the EU should 
continue to deal directly with Hong Kong. These areas are clearly laid out in 
the Joint Declaration, and this will mean maintaining a dialogue With the SAR 
government in these areas, including direct liaison with Hong Kong in 
international organisations to which it is a separate party. The Commission 
established an Office in Hong Kong in 1993, which has proved an effective voice 
for European interests in Hong Kong. The Chinese authorities responsible for 
official representations in Hong Kong have agreed in principle that the Office 
may continue to liaise directly with the SAR government. The Commission is 
currently finalising with the Chinese authorities agreement on the privileges and 
immunities that the Office will enjoy after 30 June of this year. 
One of the areas of SAR government responsibility is trade policy. Hong Kong 
will continue to be a wholly separate entity for trade policy purposes. As a 
separate customs territory, it will continue to be treated in its own right in terms 
of origin, GSP and anti-dumping rules, and in respect of the remaining quotas on 
textiles as we move towards elimination in 2005. The few quantitative 
restrictions still maintained on exports from China will not apply to products 
manufactured in Hong Kong. Hong Kong will continue to be an important 
partner within the World Trade Organisation. 
- The SAR concept is not limited to trade and economic matters. Its provisions 
cementing an independent administration, a distinct legal system guaranteeing the 
rule of law, a separate elected legislature, a free Press, and a series of 
fundamental rights and privileges are all core elements in the package. All the 
different aspects of Hong Kong as an SAR are interrelated: the business 
community relies on the rule of law in Hong Kong; the financial markets need to 
be guaranteed accurate and free access to all types of information; maintaining 
Hong Kong's entrepreneurial dynamism means keeping open the free flow of 
ideas and debate. 
The Dublin European Council underlined the EU's continuing support for and 
commitment to the principle that all the rights granted to Hong Kong citizens 
under the SAR should be fully respected. The EU should ensure permanent 
vigilance and keep a watching brief on developments in Hong Kong. We 
welcome the recent announcement that China will sign, before the end of 1997, 
the UN Covenant on Economic, Social and Cultural Rights, and that China is 
considering also signing the Covenant on Civil and Political Rights. We hope 
that China will also soon accept the proposition that the maintenance of the two 
UN human rights covenants in Hong Kong implies that the reporting 
requirements under those covenants should also be maintained. The international 
community will in any case have other ways of monitoring the situation in 
Hong Kong. In the case of the EU, this should mean regular consideration of 
the situation in Hong Kong, and active use of the instruments - common 
positions, joint actions, political dialogue, cooperation - at the EU's disposal. As 
a basis for such discussions, the Commission intends to publish an annual report 
on EU-Hong Kong relations across the board, beginning in 1998. The issue will 
clearly figure in the EU's political dialogue with China, and Hong Kong could be 
included in any future initiatives to develop cooperation in the human dimension 
in the region. 
Both the Commission and the Member States should ensure that contact is in no 
way diminished after the handover: high level visits to Hong Kong should be a 
priority. Hong Kong depends on confidence, and alertness in the international 
community is an important guarantee to sustain this confidence. The interests of 
the international community in Hong Kong's future are very similar: the EU 
should work together with key international partners to pursue a common 
approach. 
Another important way in which the EU can recognise the autonomy of Hong 
Kong is to reaffirm clearly that, for the purposes of the common visa list, Hong 
Kong should be assessed after the handover as it is now, on it own merits. This 
would reflect our confidence in the arrangements Hong Kong is making to 
ensure that the new Hong Kong SAR passport is secure. The SAR will control 
temporary or permanent movement into its territory, whether from the rest of the 
PRC or elsewhere. Hong Kong SAR passports will be issued under SAR 
authority, and will incorporate the most up-to-date anti-forgery technology 
available. The decision about whether to grant visa-free access lies with each 
Member State. But the benefits which easy travel gives to developing economic 
and other contacts, and the importance of demonstrating confidence in Hong 
Kong's future, suggest that freer access to the EU would be in the interests of 
both the EU and of Hong Kong.. 
13. At the same time as helping to ensure that autonomy is a reality, the EC should 
do more to encourage the continued development of ties with Hong Kong. More 
formal and structured cooperation would be of benefit to both sides, for example in the 
area of customs cooperation and anti-fraud matters, where Council directives for the 
negotiation of an agreement already exist. The Commission will explore ways to put 
trade, investment and cooperation relations between the EC and the SAR on a more 
permanent footing, including through formal legal agreements in areas within SAR 
responsibility. Providing more systematic support to the development of such contacts 
would benefit both Europe and Hong Kong. 
14. There are many fields where tangible cooperation could be developed with a 
real mutual benefit. The autumn 1997 IMF/World Bank meeting in Hong Kong will 
serve as a useful reminder of Hong Kong's global financial importance, and Hong 
Kong is to take its place in the "G-6" of key financial players in the Pacific. Hong 
Kong's communications infrastructure has cemented its role as an Asian hub for 
Europeans. So Hong Kong's particular experience in the fields of services or the 
media would make these obvious starting points for further collaboration. 
Cooperation in the environmental field could also be to real mutual advantage, whilst 
the growing cooperation in areas such as business to business contact between small 
and medium sized enterprises, and research and technology, should be developed 
further. European universities increasingly see Hong Kong as a natural home for 
research collaboration in Asia. In all these areas, as well as in other sectors of 
cooperation, there is every reason to see Hong Kong continuing to act as a pivotal 
point of communication between Europe and Asia. 
15. For many Europeans, Hong Kong is the natural first point of contact with Asia. 
Hong Kong therefore has a particular role to play in the EU's rapidly developing 
policy towards Asia as a whole. Ever since the 1994 Asia strategy2, ties have been 
intensified with Asia both on a bilateral and plurilateral level, with the first-ever Asia-
Europe Meeting (ASEM) held at summit level in Bangkok in March 1996. Hong 
Kong is not an ASEM participant, and the political side of ASEM activity goes 
beyond the competence of the SAR government. But as a range of different activities 
emerges from the Asia strategy process, with Asia in general and with China in 
particular, Hong Kong can be expected to play an important part. In cooperation 
programmes with developing Asia, for example, Hong Kong could have a useful role 
in providing local knowledge and contacts from a developed and open perspective. 
Conclusion 
16. The depth and breadth of European interests in Hong Kong make it inevitable 
that Hong Kong will continue to be a key partner for the EU in Asia, playing a central 
part in our relations with China. The EU should look forward to a vigorous and 
effective engagement with the SAR government within its areas of responsibility. This 
should involve: 
- dealing directly with the Hong Kong government as an international partner, and 
maintaining regular and close contacts; 
'Towards a new Asia strategy", Brussels 13.7.1994, COM(94) 314 final. 
- continuing to treat Hong Kong as an independent entity for trade policy 
purposes, as an important partner within the WTO; 
- monitoring closely the situation in Hong Kong and the respect for the rights 
granted to Hong Kong citizens under the SAR, working together with the 
international community and bringing EU instruments into play if necessary; 
- acknowledging that the case for granting visa-free access for Hong Kong people 
should be treated on its own merits; 
- exploring ways to put trade, investment and cooperation relations between the 
EC and the SAR on a more permanent footing; 
- developing active cooperation with Hong Kong as an Asian hub. 
Far from being a time to downgrade links with Hong Kong, 1997 should mark another 
step forward in the progressive enhancement of ties between the European Union and 
Hong Kong. 
17. The Council is invited to note and to endorse the contents of this 
communication. 
ANNEX 1 Background to Hong Kong as a Special Administrative Region 
ANNEX 2 European economic interests in Hong Kong 
ANNEX I 
HONG KONG AS A SPECIAL ADMINISTRATIVE REGION 
Background 
In 1841, British forces seized Hong Kong island. Kowloon was ceded in 1860 and a 99 year "lease" on 
the New Territories and some 235 islands was signed in 1898. With the land covered by the lease 
amounting to some 92% of Hong Kong's total land area, it became clear that Hong Kong's future would 
have to be clarified well ahead of the 1997 termination of the lease. China had consistently claimed full 
sovereignty over the whole of Hong Kong, but had also stressed its wish for a peaceful settlement. In 
1982, negotiations between the United Kingdom and China began with the common aim of mamtaining 
the long-term stability and prosperity of Hong Kong. The result was the Sino-British Joint Declaration 
of 1984, an international agreement deposited in the United Nations. 
Hong Kong as a Special Administrative Region 
Hie underlying principle behind the Joint Declaration is the idea of "one country, two systems", which 
means that whilst Hong Kong will fall under Chinese sovereignty, it will retain its current social, 
administrative, legal and economic characteristics. The "one country, two systems" approach represents 
an explicit desire by China for Hong Kong to remain different from the rest of the PRC. As such, Hong 
Kong will become a Special Administrative Region (SAR) of the People's Republic of China (PRC) on 
1 July 1997, and this status will remain unchanged for at least 50 years. The Joint Declaration was 
transposed into Chinese law by the Basic Law of the Hong Kong Special Administrative Region (April 
1990). The National People's Congress retains the power to amend the Basic Law. 
A UK-Chin?. Joint Liaison Group (JLG) was set up to help implement the Joint Declaration and to flesh 
out the details. This will continue to meet until 2000. The JLG lias often been bedevilled by political 
friction and disagreements, on issues including the legislative system, infrastructure projects, and the 
civil service. But the number of outstanding issues is now relatively small. 
The SAR model grants Hong Kong a "high degree of autonomy", and "executive, legislative and 
independent judicial power". The only areas explicitly placed within the responsibility of Beijing are 
foreign and defence affairs. 
(i) Executive. The SAR will be headed by a Chief Executive, whose functions include signing 
legislation, making appointments to government and the judiciary, conducting external affairs 
for the SAR. granting pardons, and acting as a channel of communication to the Chinese 
government. The chief executive must be a permanent resident of Hong Kong, a Chinese citizen 
with no right of abode in a foreign country, and resident in Hong Kong for at least 20 years. 
The term of office is 5 years, renewable only once. The original method of selecting the Chief 
Executive is appointment by China after "selection by elections or through consultations heid 
locally", but the ultimate aim is selection by universal suffrage after nomination by a "broadly 
representative nominating committee in accordance with democratic procedures". 
The Chief Executive will appoint an Executive Council, made up of permanent Hong Kong 
residents, who are to be consulted about most major policy decisions. The Chief Executive is 
obliged to explain if he goes against the will of the majority in the Council. 
A Commission Against Corruption is a formal institution of the SAR. 
Principal officials of the Hong Kong SAR Government must be Hong Kong residents with no 
right of abode elsewhere, and should have been resident in Hong Kong for 15 years. The 
Government must act within the law, and be accountable to the Legislative Council (Legco). 
Civil servants above a certain rank must be permanent residents, and all swear an oath to 
uphold the Basic Law and the Special Administrative Region. English can continue, alongside 
Chinese, as an official language. 
(ii) Legislature. Under the terms of the Joint Declaration and the Basic Law, the Legislative 
Council will be responsible for lawmaking in Hong Kong. This includes the right to overrule a 
veto from the Chief Executive with a two-thirds majority: though the National People's 
Congress in Beijing also has the power to annul Legco laws it considers contrary to the Basic 
Law in areas of central government responsibility. Legco also approves budgets and taxation, 
ratifies senior judicial appointments, conducts debates on matters of public interest, and 
scrutinises the executive (including mandating a commission of enquiry if the Chief Executive is 
suspected of serious wrongdoing). 
Legco members again have to be permanent residents, though up to one-fifth of Legco members 
can have right of abode overseas or be non-Chinese citizens. The question of the method of 
choosing Legco members has been controversial, but the Basic Law includes some specific 
indications for the future. For example, in the SAR Legco's second term, 24 of the 60 members 
should be elected by geographical constituencies through direct elections, rising to 30 members 
for the third term. The ultimate aim is described as the election of all the members by universal 
suffrage. 
The Basic Law also provides for the election of deputies from the SAR to the National People's 
Congress. 
(iii) Legal System and Public Order. The Joint Declaration stated that the "laws currently in force in 
Hong Kong will remain basically unchanged". The judiciary will operate independently, the 
system of trial by jury will continue, and basic principles such as the right to a fair trial and 
presumption of innocence will be maintained. Hong Kong will have its own final Court of 
Appeal, and have jurisdiction over all cases except "acts of state such as defence and foreign 
affairs". 
The Joint Declaration lays out that the SAR government is responsible for public order, and the 
Chinese garrison to be stationed in Hong Kong "shall not interfere" in the local affairs of the 
region, and will abide by SAR law. The SAR is responsible for enacting laws against "any act 
of treason, secession, sedition, or subversion" against the PRC government, as well as against 
political activities by or links with foreign political organisations. 
(iv) Individual Rights. The Basic Law lays out the rights and duties of permanent and non-
permanent residents of Hong Kong, including "freedom of speech, of the press and of 
publication; freedom of association, of assembly, of procession and of demonstration,; and the 
right and freedom to form and join trade unions, and to strike." Also listed are freedom to vote 
and stand in elections for all permanent residents, freedom of the person, against arbitrary 
arrest, privacy of communications, freedom of movement, travel and emigration, freedom of 
conscience and religious belief, freedom to engage in academic research, and access to legal 
advice and to legal remedy. 
The provisions of the International Covenant on Civil and Political Rights, the International 
Covenant on Economic, Social and Cultural Rights, and international labour conventions 
applying to Hong Kong are to remain in force, although China has made clear that it does not 
consider itself obliged to continue reporting requirements in respect of Hong Kong under 
international instruments to which it is not a party. 
(v) The Economy. The Basic Law explains that "the socialist system ... shall not be practised" in 
the SAR, and that the "previous capitalist system" shall remain unchanged. Hong Kong's status 
as an international financial centre should be protected. The right to private property will be 
maintained, and land leases issued before the transfer of sovereignty respected.. 
9 
Public finances will be independent. No taxes raised in Hong Kong will be remitted to Beijing 
(even the costs for the Chinese garrison in Hong Kong will be met by Beijing). Public finances 
will pursue a policy of a balanced budget, with the current policy of low taxation as a point of 
reference. Budget growth should keep within GDP growth. 
Hong Kong will have autonomous economic, monetary, and financial policies, with a separate 
currency and reserve fund, and freedom of capital movements. Hong Kong will remain a free 
port with a free trade philosophy and free access for shipping. It will be a separate customs 
territory. Export quotas, tariff preferences and other arrangements obtained by the SAR will be 
used exclusively by the SAR. The SAR will issue its own certificates of origin. 
The SAR will participate in relevant international organisations and international trade 
agreements as an independent entity, such as the World Trade Organisation and the World 
Customs Organisation. 
(vj) External Relations. Though Beijing will be responsible for foreign affairs and defence, and will 
open a branch of the Chinese Ministry of Foreign Affairs in Hong Kong to conduct foreign 
relations, the SAR will conduct "relevant external relations" on its own, in areas such as the 
economy, trade, finance and monetary affairs, shipping, communications, tourism, culture and 
sport. SAR representatives can have a separate voice in PRC delegations to organisations 
reserved for states, identifying themselves as "Hong Kong, China". It can participate 
autonomously in organisations not limited to states. International agreements to which Hong 
Kong is a party and the PRC is not can continue in force in the SAR. 
The SAR has the authority to issue passports and other travel documents and to apply 
immigration controls. 
The SAR can maintain official or semi-official economic and trade missions in third countries. 
Consulates and other official missions established in Hong Kong by states which have 
diplomatic relations with China will be maintained. 
(vit) Other signs of autonomy. Chinese people will require permission to enter the SAR from other 
parts of the PRC. The Basic Law states that central and local government should not interfere 
in the running of the SAR, and need approval from both the SAR and Beijing to set up an office 
in Hong Kong. Hong Kong will have a regional flag and emblem. 
The Basic Law also emphasises the SAR's autonomy in other areas, such as education, health, 
science and technology, culture and copyright, professional qualifications, sport, social welfare, 
and labour law. Special mention is made of the continuing work of non-governmental 
organisations in these fields. 
sC*? 
ANNEX H 
EUROPEAN ECONOMIC INTERESTS IN HONG KONG 
Not only is Hong Kong a major trading partner of the EC (see statistics attached). The scale of 
European economic activity within Hong Kong is considerable. Of the 2,068 companies which have 
established regional headquarters or offices in Hong Kong, 597 (29%) have EU-based parent 
companies. This compares to 501 from Japan, and 344 from the United States. The EC's interests 
also range across many fields of economic activity: 
(i) Trading. Trading still represents the major European economic interest in Hong Kong, 
^reflecting its continued place at the heart of the Hong Kong economy (the trading and retail 
sector accounts for a quarter of the Hong Kong economy). Some 43% of the EU companies 
which have established regional headquarters or offices in Hong Kong are engaged in trade. 
(ii) Manufacturing. In spite of the shift in the Hong Kong economy away from manufacturing 
towards the services industries, there remain some 91 EU-invested industrial establishments in 
Hong Kong. The EU is the third largest investor in manufacturing in Hong Kong, responsible 
for investments totalling some HK$6.5 billion (0.65 billion ecu) at the end of 1994, with the 
United Kingdom, the Netherlands and Germany the main investors. 
(iii) Communications. Ten EU-based air carriers currently operate at Hong Kong international 
airport. As for shipping, major EU shipping interests are well established in Hong Kong. In 
addition, European brands have captured a significant share of the portable phone market in 
Hong Kong. 
(iv) Financial Services. With Hong Kong now established as one of the world's major financial 
centres, EU financial services institutions have a major stake in Hong Kong. Out of the 151 
licensed banks incorporated in Hong Kong in August 1996, 47 were incorporated in the EU, 
with another 57 EU banks maintaining representative offices in Hong Kong. Over the period 
1990-95, EU banks ranked third in Hong Kong in terms of both assets and lending, following 
local and Japanese banks. 
As for insurance, more EU insurance companies are established in Hong Kong than from any 
other part of the world: 82 of the 222 registered insurance companies in Hong Kong in August 
1996 were incorporated in the EU. EU-based companies also play an important part in 
securities and commodities trading, and in investment services. 
(v) Construction. EU companies have been major beneficiaries of the enormous construction works 
linked to the construction of the new Hong Kong airport. EU companies have been awarded 
around one-third of the contracts for the New Airport Programme, with some 41 contracts and 
147 consultancies totalling some HK$35 billion (3.5 billion ecu) by March 1996. Companies 
from the United Kingdom, the Netherlands, France, Belgium and Spain have been the major 
beneficiaries. 
SM 
TRADE TREND BETEWEEN THE EC AND HONG KONG 
Ecu Millions - Eur 12 
YEAR 
1980 
1984 
1985 
1986 
1987 
1988 
1989 
1990 
1991 
1992 
1993 
1994 
1995 IMPORTS 
3 674 
5 172 
4 819 
5 300 
5 507 
6 320 
6 431 
5 909 
6 404 
5 908 
6 428 
6 571 
6 675 EXPORTS 
2 166 
3 981 
4 551 
4 229 
4 777 
6 769 
7 022 
6 597 
7 409 
8 782 
11390 
13 170 
14 683 TOTAL TRADE 
5 840 
9 153 
9 370 
9 529 
10 284 
13 089 
13 453 
12 506 
13 813 
14 690 
17 818 
19 741 
21358 BALANCE 
-1 508 
- 1 191 
-268 
-1071 
-730 
449 
591 
688 
1005 
2 874 
4 962 
6 599 
8 008 
From 1980 until 1995, EC imports almost doubled, exports increased sevenfold, total 
trade increased more than three times and the EC balance of trade was transformed 
from a deficit of 1 508 mecu in 1980 to a surplus of 8 008 mecu in 1995. 
Source: EUROSTAT 
SZ 

ISSN 0254-1475 
COM(97) 171 final 
DOCUMENTS 
EN 11 
Catalogue number : CB-CO-97-172-EN-C 
ISBN 92-78-18992-8 
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