COMMUNICATION FROM THE COMMISSION TO THE COUNCIL - THE EUROPEAN UNION AND HONG KONG: BEYOND 1997
Date: 1997-04-23
Institutions: European Commission
Subjects: Asia, Hong Kong, cooperation policy, economic relations, foreign policy

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 

The  Dublin  European  Council  in  December  1996  "reiterated  the  European 
1. 
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.. 

• « i l* 

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 
For  example, 
autonomous  participation  in  the  world  trading  system. 
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 

The United Kingdom and China agreed to the transfer of sovereignty of Hong 
5. 
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. 

Much of thé political  debate about  and within Hong Kong in recent years has 
8. 
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 
the  reporting 
UN  human  rights  covenants  in  Hong  Kong  implies  that 
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. 

The  Council  is  invited  to  note  and  to  endorse  the  contents  of  this 

17. 
communication. 

ANNEX  1 
ANNEX 2 

Background to Hong Kong as a Special Administrative Region 
European economic interests in Hong Kong 

ANNEX  I 
H O NG  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 

IMPORTS 

EXPORTS 

TOTAL  TRADE 

BALANCE 

1980 
1984 
1985 
1986 
1987 
1988 
1989 
1990 
1991 
1992 
1993 
1994 
1995 

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 

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 

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 

-1  508 
-  1 191 
- 2 68 
- 1 0 71 
- 7 30 
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 

Office  for Official  Publications of the European  Communities 

L-2985 Luxembourg