Report from the Commission to the Council and the European Parliament - Macao Special Administrative Region: Second Annual Report 2001
Date: 2002-07-31
Institutions: European Commission
Subjects: EU relations, Macao, economic situation, international relations, international trade

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 31.07.2002
COM(2002) 445 final

REPORT FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Macao Special Administrative Region: Second Annual Report 2001

REPORT FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Macao Special Administrative Region: Second Annual Report 2001

1.

2.

3.

4.

5.

6.

7.

Introduction.................................................................................................................. 3

Implementation of the “one country, two systems” principle...................................... 3

Institutional development............................................................................................. 4

The Economic Situation............................................................................................... 5

The Macao SAR as an international partner ................................................................ 6

EU-Macao Relations .................................................................................................... 7

Conclusion ................................................................................................................... 8

2

1.

INTRODUCTION

The European Union attaches great importance to the effective and full implementation of the
Basic Law and the “one country, two systems” principle in the Macao Special Administrative
Region of the People’s Republic of China, and has therefore closely followed the evolution of
the Macao SAR with friendly interest. As in the Commission’s first annual report, this report
aims to assess the development of the Macao SAR and to comment on EU-Macao relations.

2.

IMPLEMENTATION OF THE “ONE COUNTRY, TWO SYSTEMS” PRINCIPLE.

Two years after the hand-over of Macao to China, it is reassuring to note that both the Central
Government in Beijing and the Macao SAR Government continue to attach great importance
to the “one country, two systems” principle. In his report to the National People’s Congress
on  5  March,  Prime  Minister  Zhu  Ronghi  declared:  “We  will  continue  to  adhere  to  the
principle  of  “one  country,  two  systems”  and  the  Basic  Laws  of  Hong  Kong  and  Macao
Special  Administrative  Regions.  We  will  render  full  support  to  the  Chief  Executives  and
governments  of  Hong Kong  and Macao  in  their  efforts  to  govern  the  regions  in  accordance
with the law, and defend the long term prosperity and stability of Hong Kong and Macao”.

The Macao  Government  continues  to administer the Special  Administrative  Region both  on
the internal and international levels  in an autonomous  way  as  prescribed  by  the  Basic  Law.
An important and interesting concrete example is the gambling industry. In the framework of
liberalisation  of  this  sector,  the  central  government  of  Beijing  reiterated  several  times  that
companies  with  mainland  capital  are  strictly  forbidden  to  participate  in  the  tender  for
gambling licenses.

– 

Article 23 of the Basic Law1.

During  a  ceremony  commemorating  the  eighth  anniversary  of  the  publication  of  the  Macao
Basic Law, Mr Qiao Xiao Yang, the deputy chairman of the Legal Affairs Committee of the
National  People’s  Congress,  reminded  the  Macao  SAR  authorities  that  they  needed  to
introduce, according  to Article 23  of  the  Basic  Law,  anti-sedition  legislation  but  added  that
the timing for this was a decision for the Macao SAR authorities to take.

– 

Notification system between the Mainland and Macao.

In  Beijing  on  6  June,  the  Mainland  and  Macao  authorities  signed  an  “Arrangement  on  a
mutual  notification  system  between  public  security  organisations  and  the  Macao  Security
Bureau”.  The  notification  system  applies  to  criminal  and  customs  infringement  issues,  and
became operational on 1 September.

1

Article 23: The Macao Special Administrative Region shall enact laws, on its own, to prohibit any act of
treason, secession, sedition, subversion against the Central People's Government, or theft of state secrets, to
prohibit foreign political organizations or bodies from conducting political activities in the Region, and to
prohibit  political  organizations  or  bodies  of  the  Region  from  establishing  ties  with  foreign  political
organisations or bodies.

3

                                                
3.

INSTITUTIONAL DEVELOPMENT.

The second year of the Macao SAR's existence saw a consolidation of the various institutions
established  in  2000.  The  first  legislative  elections  confirmed  the  progressive  evolution
towards  more  democracy.  The  government  completed  its  organisation  by  merging  some
branches within the police and within the customs administration. In order to improve quality
and  efficiency,  the  government  set  up  a  programme  to  train  senior  and  mid-ranking  civil
servants. The government also plans to train more lawyers to improve law-drafting capacity
and to provide more qualified judges for the courts.

– 

Election of the Legislative Assembly.

The first legislative elections after the hand-over were held smoothly on 23 September, with a
respectable turnout of 52.33 %. In conformity with the Basic Law, the number of legislators
elected  both  by  direct  universal  suffrage  and  indirect  suffrage  by  functional  constituencies
were each increased from eight to ten seats.

There were a total of 15 lists for the election of the ten legislators elected by direct universal
suffrage, including  one  from  the  Portuguese  community  in  Macao.  Ten  legislators  from  the
four functional constituencies were automatically elected in the absence of any competing list.
The  Chief  Executive  appointed  seven  more  legislators  on  10  October  as  prescribed  by  the
Basic Law. The two-seat increase in seats elected by direct universal suffrage in 2001 is the
first  step  in  the  process  of  progressive  democratisation,  and  the  number  will  be  further
increased by two in the next legislative elections in 2005.

– 

Reorganisation of certain branches of the administration.

To  improve  co-ordination  between  public  security  policy  and  the  judicial  police,  the
government  unified  command  of  the  police  under  the  control  of  the  Secretary  for  Security.
This will improve police efficiency and thus improve the security situation in Macao.

Up  to  the  end  of  October  2001,  customs  functions  were  carried  out  by  several  government
departments,  namely  the  marine  police  and  customs,  the  Macao  Economic  Services,  the
Macao Post Office, and the Statistics and Census offices. The Legislative Assembly adopted
on 15 May a bill establishing a unified Customs service incorporating all customs functions in
a  single  administrative  department  led  by  the  Commissioner  for  Customs.  The  new
department became operational on 1 November last year.

The  Macao  SAR  Government  organised  training  sessions  for  senior  and  mid-ranking
administration officials to improve the efficiency and quality of civil servants and the services
provided  to  the  general  public.  The  insufficient  number  of  experienced  lawyers  needed  to
allow  it  to  implement  legal  reforms  during  2002  particularly  concerns  the  government.  The
signing of a financing agreement on the legal co-operation project between the EU and Macao
is particularly welcome in this respect.

– 

Abolishment of two provisional municipal governments.

Following  a  government  proposal,  the  Legislative  Assembly  adopted  in  December  a  bill
creating a General Office of Civil Affairs from 1 January 2002. This office will take over the
tasks  previous  carried  out  by  the  two  provisional  municipal  governments,  which  have  now
been abolished.

4

4.

THE ECONOMIC SITUATION

Following a moderate recovery in 2000, Macao's economy recorded a slower pace in 2001 in
tandem with the global downturn. Real GDP growth slowed to 2.1% for 2001 from 4.6% in
the previous year. The slowdown was mainly caused by a contraction of external demand for
merchandise exports in major overseas markets. Yet, thanks to a buoyant tourism sector, the
economy still managed to achieve a mild growth in 2001. But unemployment continued to be
an issue of concern (see below).

The liberalisation of the gambling industry was regarded as the most important development
of Macao in 2001. The casino monopoly that granted to Sociedade de Turismo e Diversoes de
Macau  (STDM)  in  1962  expired  on  31  December  2001,  but  was  extended  for  3  months
pending the decision for granting new licences. The Macao Legislative Assembly adopted a
new  gambling  industry  regime  in  September,  abolishing  the  monopoly  system  and
introducing  three new licences  to be issued by public  tender.  Local,  Hong  Kong  and  multi-
national  corporations  submitted  a  total  of  22  bids,  reflecting  the  attractiveness  of  Macao's
gambling  industry.  The  new  system  is  generally  well  regarded,  and  an  anti-competitive
behaviour mechanism is built-in. STDM had to apply for a new licence in line with the new
procedures.

The Macao SAR Government depends heavily on gambling taxes as its fiscal income. In the
first eleven months of 2001, direct tax from gambling amounted to 5.96 billion patacas2 (828
million  euro),  accounting  for  about  60%  of  fiscal  revenues.  By  liberalising  the  gambling
regime,  the  Government  hopes  that  overall  industry  competitiveness  will  be  enhanced,  and
more foreign investment will be generated, boosting public revenue and economic growth.

The tourism industry performed favourably in 2001 with the total number of visitors hitting a
record level of over 10 million, an increase of more than 12% from 2000. Over 90%  of the
visitors were from the Greater China region - about half of these from Hong Kong, over one
quarter  from  Mainland  China  and  the  rest  from  Taiwan.  Last  year's  growth  was  mainly
underpinned by the growth of Mainland Chinese visitors and, to a lesser extent, visitors from
Taiwan.

Unemployment  remained  high  at  6.4%  in  the  three  months  to  December  2001  -  slightly
improved  from  6.8%  in  2000.  The  unemployment  situation  was  particularly  acute  in  the
manufacturing  and construction sectors. The number of non-resident workers  fell slightly to
25,925 in 2001 from 27,221 in 2000.

Another  issue  of  concern  was  the  planned  phasing  out  of  the  textile  quota  by  2005.  The
textiles and clothing sectors account for over 80% of Macao's exports, and employ over 22%
of the total working population. The industry has been lobbying for a well-defined policy to
deal with the situation, and this has not yet appeared.

In his third Policy Address released in November 2001, the Chief Executive outlined a series
of relief measures to help the needy and businesses to cope with the economic downturn. The
package included generous tax cuts, financial aid and spending on infrastructure development
that would create 6,000 jobs. The budget also allocated 400 million patacas for retraining of
4,000 unemployed persons to upgrade their skills.

2

Average RoE for 2001: 1 Euro = 7.1962 Patacas.

5

                                                
Merchandise exports fell by 9.4% in 2001 to 18,473 million patacas as a result of a slackening
global demand.  On the other  hand, imports increased by 5.9% to  19,170  million  patacas.  A
trade deficit of 697 million patacas was recorded.

In 2001, bilateral trade between the EU and Macao declined slightly by 3.7% to €996 million.
The EU was Macao's second largest export market, taking up 26.6% of the total exports. The
EU was also the third largest import supplier to Macao, contributing 12.6% of total imports.

5.

THE MACAO SAR AS AN INTERNATIONAL PARTNER

As  provided  for  under  the  Basic  Law,  the  Macao  SAR  conducts  its  own  trade  policy  for
which  it  has  full  competence  as  a  separate  customs  territory.  Macao  is  an  independent
member of the WTO and of a number of international organisations.

The  four-yearly  WTO  Trade  Policy  Review  of  Macao,  held  in  Geneva  in  March
2001,discussed Macao's trade and economic policies extensively on the basis of reports from
the  Macao  SAR  Government  and  the  WTO  Secretariat.  The  Secretary  for  Economy  and
Finance,  Mr  Francis  P  Y  Tam,  led  the  Macao  delegation,  and  the  European  Community
participated actively in the discussions. The positive outcome recognised  Macao's free trade
and open market policies.

Macao  participated  in,  and  expressed  satisfaction  with  the  outcome  of,  the  landmark
Ministerial Conference at Doha in November.

The  accession  of  the  People’s  Republic  of  China  to  the  WTO,  agreed  at  the  Ministerial
Conference  in  Doha,  was  a  milestone  in  the  history  of  the  multilateral  trading  system.  The
Macao  SAR  and  the  EU  expressed  their  satisfaction  at  the  completion  of  the  negotiating
process leading to accession.

Macao is also a member of the World Customs Organisation.

-

Financial Action Task Force

Macao had been an observer of the Asia Pacific Group of Money Laundering of the Financial
Action Task Force (FATF) since 1999 and became a full member in 2001. The FATF was set
up by the G7 in 1989 and, at present, it has 29 members and 2 observers. Its main purpose is
to promote policies to combat money laundering. Macao has endeavoured to  combat money
laundering by improving co-ordination of the different bodies and agencies active in that area.
The Macao SAR Government announced in August 2001 that an anti-money laundering task
force would be set up at the end of the year.

During  2001,  Macao  concluded  two  further  air  services  agreements  with  third  jurisdictions,
bringing  the  total  number  of  concluded  agreements  to  33,  and  initialled  three  others.  These
agreements are intended to promote air transport and the use of Macao International Airport.
The Macao SAR Government reported at the end of the year that both cargo volume and the
number of passengers using Macao International Airport had grown substantially during  the
year.

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6.

– 

EU-MACAO RELATIONS

Exchange of visits.

2001 was an intense year in EU-Macao relations, highlighted by the visit of Chief Executive
Ho  Hau  Wah  to  the  European  Commission  and  by  the  European  Union  granting  visa  free
access  to  Macao  passport  holders  to  the  territory  of  the  EU  (except,  for  the  moment,  the
United Kingdom and the Republic of Ireland).

The  Chief  Executive  of  the  Macao  SAR,  Mr  Ho  Hau  Wah,  paid  an  official  visit  to  the
European Union on 19 and 20 June 2001. He led a high-ranking delegation that included the
the  Secretary  for
President  of  the  Legislative  Assembly,  Mrs  Susana  Chou,  and 
Administration and Justice, Mrs Florinda Chan. The Chief Executive met the President of the
Commission,  Mr  Romano  Prodi,  and  Commissioners  Patten  and  Vitorino.  The  transition  of
Macao and the political and economic situation were discussed and views were exchanged on
how  to  promote  further  links  and  co-operation  between  the  EU  and  Macao.  Commission
President  Prodi  congratulated  the  Chief  Executive  on  the  good  start  made  by  the  Macao
Special  Administrative  Region.  The  Macao  delegation  also  visited  the  European  Parliament
and met Vice President Mr Colom i Naval.

In  December  2001,  European  Central  Bank  Executive  Board  Member  Mr  Domingo  Solans
paid a visit to Macao where he was received by the Chief Executive.

– 

Visa free access to the EU

On  15  March  2001,  the  Council  of  Ministers  of  the  European  Union  adopted  a  regulation
establishing  the  list  of  third  countries  or  territories  whose  citizens  must  or  must  not  be  in
possession  of  visas  when  entering  EU  territory.  This  regulation  granted  visa  free  access  to
passport holders of the two Chinese SARs, Macao and Hong Kong, with the exception of the
territory of the United Kingdom and the Republic of Ireland3. The regulation came into force
on  10  April  and  has  since  been  implemented  without  any  difficulties.  The  Commission  is
pleased to note that the Council accepted the Commission proposal and adopted it in a very
short period.

In  addition  to  those  of  the  EU,  fourteen  other  countries  granted  visa  free  access  to  Macao
SAR passport holders in the course of 2001.

– 

Readmission agreement

Delegations from the Macao SAR Government and the Commission held talks in October to
negotiate a readmission agreement. Considerable progress was made  at  the  negotiations  and
further work is expected in the course of 2002 to finalise an agreement.

– 

Joint Committee

The  eighth  meeting  of  the  Joint  Committee  established  under  the  EU-Macao  Co-operation
Agreement was held in Macao on 22 October 2001. The meeting enabled both sides to review

3

It is worth noting that, in the meantime (as of May 2002), the UK and Ireland followed suit and, by means
of autonomus decisions taken under their respective national immigration legislation, also lifted their visa
requirements for Macao SAR passport holders.

7

                                                
developments  over  the  past  year  and  to  consider  the  Commission’s  first  Annual  Report  on
Macao.  Co-operation  activities  including  the  implementation  of  the  current  projects  were
discussed.  The  launching  of  a  new  co-operation  project  dealing  with  legal  co-operation  is
expected to take place in the first part of 2002.

– 

Asia-Enterprise

With the financial support of the European Commission through its Asia-Invest programme, a
business-to-business metal sector meeting  was held in Macao in September 2001.  Over 100
companies from the EU and from China participated in the meeting.

– 

Intellectual Property Rights

The Commission continued to monitor developments on intellectual property rights protection
in Macao. The WTO TRIPS Council in Geneva examined Macao's legislation on Intellectual
Property Rights , and found that, in general terms, Macao's legislation was consistent with its
WTO  obligations.  The  setting  up  of  a  unified  Customs  Service  is  a  welcome  development,
which  should  continue  to  improve  intellectual  property  rights  enforcement  in  the  SAR.  A
seminar  on  intellectual  property  rights  bringing  together  the  intellectual  property  agencies
including  enforcement  bodies  from  Mainland  China  and  the  Macao  and  Hong  Kong  SARs
was held in Macao in December 2001. The EU welcomes this co-operation which will  help
contribute to better IPR enforcement.

Macao was recently removed from the US Special 301 Watch List (the list of countries and
economies with serious intellectual property rights problems), which indicates that Macao has
made  substantial  progress  its  IPR  legislation.  Nevertheless,  like  elsewhere  in  the  region,
copyright  piracy  and  trademark  counterfeiting  remain  key  concerns  for  EU  industry.  The
Macao SAR should sustain its efforts to enforce intellectual property rights.

7.

CONCLUSION

The Macao SAR has pursued its good start in consolidating the institutions established since
its  creation.  The  free  Legislative  Assembly  elections  held  in  September  showed  the
commitment  of  Macao  citizens  to  the  exercise  of  their  basic  political  rights.  The  increased
number of legislators elected through direct universal suffrage marked progress towards more
democracy. The participation of the Portuguese community in the direct legislative elections
reflected their confidence in the Macao SAR.

Two years after the hand-over, the Macao SAR is shaping up reasonably well for the future,
despite the economic downturn. The Commission will endeavour to work and co-operate with
the Macao authorities to help the SAR's stable development, in line with the 'one country, two
systems' principle.

8