Report from the Commission to the Council and the European Parliament - Macao special administrative region: annual report 2007
Date: 2008-04-02
Institutions: European Commission
Subjects: EU relations, Macao, activity report, cooperation policy, economic policy, economic situation, political situation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 2.4.2008 
COM(2008) 167 final 

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

Macao Special Administrative Region: 
Annual Report 2007 

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REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

Macao Special Administrative Region: 
Annual Report 2007 

Executive Summary 

Eight years after the handover, implementation of the ‘one country/two systems’ concept for 
Macao continues to be satisfactory, upholding Macao’s unique society, its way of life, the rule 
of law and fundamental freedoms. In 2007, fostered by a pragmatic approach on both sides, 
cooperation with the EU continued to deepen and make good progress. After stagnating in the 
late  1990’s,  Macao’s  economy  has  revived  remarkably  since  2002,  essentially  thanks  to  the 
liberalisation  and  resulting  boom  in  the  casino sector  -  with  China  providing  a  boost  to  the 
casino  and  local  tourism  industry  (through  the  Mainland  Visitors  Scheme)  and  to  the  wider 
economy by giving Macao privileged access to the mainland’s markets. However, the lack of 
institutional  and  administrative  reforms  that  would  ensure  greater  transparency  and  more 
direct accountability is a cause of concern. The Macao government recognises and intends to 
address the challenges in the social, environmental and administrative sectors resulting from 
Macao's extraordinarily rapid economic growth. 

Introduction 

2007  marked  the  eighth  anniversary  of  the  handover  of  Macao  to  China  in  1999.  The 
handover  established  the  territory  as  a  Special  Administrative  Region  of  the  People’s 
Republic of China. The reunification of Macao with the mainland is based on the ‘one country 
/  two  systems’  concept  and  the  Basic  Law  of  Macao  adopted  by  the  National  People’s 
Congress of the People’s Republic of China. The Basic Law guarantees that Macao’s previous 
system  and  way  of  life  shall  remain  unchanged  for  50  years.  Preservation  of  the  business 
environment, the rule of law and fundamental rights in the territory was, and continues to be, 
the  objective  of  the  EU’s  support  of  China’s  ‘one  country  /  two  systems’  concept,  and  this 
principle has generally worked well. 

1. 

EU-Macao cooperation in 2007 

In 2007, Macao continued to be a significant partner for the EU, sharing values and interests 
in the economic, regulatory, social, educational and cultural domains. Two Joint Cooperation 
Committee  meetings  were  held  between  the  European  Commission  and  the  Macao  SAR 
government in 2007 – the 12th EC-Macao Joint Committee (JC) in Macao on 6 February and 
the  13th  EC-Macao  Joint  Committee  in  Brussels  on  10  December  2007.  Both  meetings 
addressed ongoing EC-Macao cooperation and explored future orientations as a follow-up to 
the  Commission's  2006  Communication  entitled  "The  European  Union,  Hong  Kong  and 
Macao:  possibilities  for  co-operation  2007-2013".1  The  legal  basis  for  this  EU-Macao 
dialogue  and  cooperation  is  the  Trade  and  Cooperation  Agreement  signed  in  1992  between 

1 

"The  European  Union,  Hong  Kong  and  Macao:  possibilities  for  co-operation  2007-2013". 
Communication  from  the  Commission  to  the  Council  and  the  European  Parliament.  COM(2006)  648 
final of 26.10.2006.  

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the EEC and Macao. The next EC-Macao JC meeting is scheduled for the second half of 2008 
in Macao. 

The  successful  EC-Macao  Legal  Cooperation  programme  concluded  in  early  2007  with  a 
major conference in Macao on the theme "One Country, Two Systems, Three Legal Orders – 
Perspectives  for  Evolution"  5-7  February  2007,  which  was  attended  by  many  leading 
constitutional  law  experts  from  Macao,  Hong  Kong  and  mainland  China,  as  well  as  from 
many Member States of the European Union.  

immigration  cooperation  progressed  during  2007  with 

EU-Macao 
implementation  of 
MIGRAMACAO training programme for Macao immigration officers.  

the  EU-Macao  Re-Admission  Agreement  and 

the  effective 
the  successful 

Macao-EU trade  and economic  cooperation was reinforced in 2007 through several  specific 
European  events  in  the  framework  of  the  Macao  International  Trade  Fair  on  18-21  October 
2007.  

The European Commission welcomed the significant efforts by the Macao SAR Government 
during 2007 to prevent and combat money laundering and financing of terrorism. Following 
the  indictment  of  Banco  Delta  Asia  (BDA)  by  the  U.S.  Treasury  Department  for  money 
laundering, the Macao Monetary Authorities took management control of BDA, introducing a 
number of reforms before returning it to its original shareholders in September 2007.  

The  European  Commission  notes  the  enhancement  of  procedures  for  public  procurement  to 
improve transparency and to strengthen the regulatory framework in order to ensure fair and 
open competition, and encourages Macao to pursue and develop this policy of administrative 
reform and prevention of corruption. 

Lastly,  the  European  Commission  started  exploratory  talks  with  Macao  with  a  view  to 
promoting the introduction of measures equivalent to the EC Directive on taxation of savings. 
The objective of the EU Savings Taxation Directive is to enable Member States, through an 
exchange  of  information,  to  exercise  effectively  their  rights  to  tax  interest  received  by  EU 
resident individuals on savings income earned outside the country of residence. The Directive 
does  not  interfere  with  domestic  tax  legislation  and  does  not  impose  on  any  country  the 
compulsory introduction of withholding taxes.  

EU-Macao  bilateral  trade  in  goods  continued  to  shrink  as  a  result  of  dwindling  imports  of 
clothing from Macao following the phasing out of the Agreement on Textiles and Clothing. 
For the first nine months of 2007, imports from Macao fell by about 12% to €366 million. EU 
exports to Macao, on the other hand, recorded a sharp growth of 28% to €146 million due to 
the  strong  demand  for  capital  goods  and  fine  consumer  products,  in  tandem  with  Macao's 
rapid economic growth.  

On the external front, Macao continued to play a role as a platform for China's international 
relations  with  the  Portuguese-speaking  world  through  mechanisms  managed  in  co-operation 
with the Central Government of the People's Republic of China’s. 

2. 

Political and economic developments 

During  2007  the  Commission  continued  to  monitor  institutional,  economic  and  societal 
developments  in  Macao,  based  on  its  formal  commitment  entered  into  in  1999  to  "closely 

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monitor and promote the implementation of the 'one country, two systems' principle in order 
fully to support Macao's political, economic and cultural autonomy."2  

The  relations  between  the  S.A.R.  and  the  mainland  are  relatively  serene.  Even  before  the 
resumption of China’s exercise of sovereignty, the influence of the Chinese government and 
some of its agencies, such as the Public Security Bureau, was felt in Macao. Crime linked to 
the  gambling  industry  (money  laundering,  gang  warfare,  corruption  etc.)  is  a  cause  for 
concern and Macao is under pressure from the mainland as well as from others, such as the 
US, to align its legislation and law enforcement with international practices. 

The  National  People’s  Congress  has  so  far  not  been  asked  to  interpret  Macao’s  Basic  Law, 
and Macao’s judicial independence has not been questioned. Progress towards democracy is 
not a big issue as, unlike Hong Kong’s Basic Law, the Basic Law of Macao does not state that 
the  introduction  of  universal  suffrage  is  the  ultimate  goal  of  constitutional  development, 
although  it  does  provide  for  the  possibility  of  amending  the  method  of  selecting  the  Chief 
Executive and the Legislators. 

In his 2008 Policy Address on 13 November 2007, Chief Executive, Edmund Ho, said that it 
would not be possible to introduce direct elections in 2009 or immediately after 2009 and that 
the  matter  should  first  be  carefully  studied.  The  European  Commission  takes  note  of  this 
announcement and looks forward to the launch of a democracy development plan. Mr Ho also 
announced that he intended to complete the legal procedures in his term - i.e. by 2009 - for 
legislation  regarding  Article  23  of  the  Macao  Basic  Law,  which  states  that  Macao  should 
enact laws that "prohibit any act of treason, secession, sedition (and) subversion against the 
Central  People's  Government,  or  theft  of  state  secrets,  to  prohibit  foreign  political 
organisations or bodies from conducting political activities in the Region, …".  

The judiciary and law enforcement services in Macao continue to have a good track record. 
The  effective  protection  of  freedoms  and  fundamental  rights  through  competent  and 
independent law courts is an essential backbone of Macao's way of life. The trial in the Macao 
courts  of  the  former  Macao  government  Secretary  for  Transport  and  Public  Works,  Mr.  Ao 
Man-long, one of Macao's top government officials accused of bribery and money laundering, 
captured public attention during 2007. 

Reflecting  public  opinion,  Macao’s  press  criticised  Macao’s  public  administration  for 
overspending by municipal councils, alleged collusion between government and business over 
land sales and labour import, and generally for increasing social disparity. 

Several  public  demonstrations  took  place  during  2007  (on  1  May,  1  October  and  20 
December) expressing the concerns of small - but very vocal - sections of Macao society. The 
side-effects of Macao’s remarkable economic success since 2002 are declining real incomes 
for some poorer people or those on fixed incomes, and the inevitable stresses, environmental 
and  physical  externalities  and  costs  resulting from  rapid  urbanisation,  congestion,  economic 
development and social change. 

During  2007  the  Macao  government  began  to  acknowledge  and  address  these  economic, 
environmental  and  social  pressures.  Chief  Executive,  Edmund  Ho,  announced  measures  to 
meet and alleviate these concerns: income tax cuts for the lower paid; lower property taxes for 

2 

Communication  from  the  Commission  to  the  Council  and  the  European  Parliament  "The  EU  and 
Macao: Beyond 2000" Brussels, 12.11.1999, COM (1999) 484 final. 

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the  less  expensive  properties;  pay  increases  for  civil  servants;  19 000  new  public  housing 
units  to  be  built;  more  powers  for  the  Commission  Against  Corruption  and  various  other 
subsidy and assistance initiatives in the social and cultural spheres. 

The  economic  growth  of  Macao  in  2007  continued  its  remarkable  course.  When  the  casino 
monopoly was liberalised in 2002, the number of casino licence holders increased to six, and 
gaming revenue more than tripled in five years, taking the leading position over Las Vegas. 
The pillars of Macao's economy were tourism and gaming, underpinned by an expanding pool 
of  enthusiastic  visitors  from  mainland  China  and  from  around  the  world.  Huge  foreign 
investment  projects  have  changed  the  city’s  landscape,  putting  Macao  firmly  in  the 
international  spotlight  for  tourism  and  investment.  Following  double-digit  growth  in  2006, 
real GDP growth accelerated to nearly 30% for the first three quarters of 2007. Fiscal revenue 
rose  by  about  50%  in  2007,  generating  a  substantial  surplus  for  the  government.  Macao’s 
GDP per capita has now overtaken Hong Kong’s. 

3. 

Prospects for the future 

The  Commission  recognises  that,  in  general,  the  “one  country,  two  systems”  principle  has 
been  respected  and  is  working  well  for  the  people  of  Macao.  It  is  important  that  the  SAR 
government continues to enjoy a high degree of autonomy in economic, trade, fiscal, financial 
and regulatory matters, and that the people of Macao continue to have their own legal system, 
an independent judiciary, individual property rights, freedom of speech and market economy 
system. 

Macao also faces a whole range of challenges concerning the quality of its environment, most 
notably in maintaining and managing the architectural and cultural heritage, air quality, water 
quality, energy efficiency, waste treatment and low emission standards for vehicles.  

In this context, Macao will need closer links and cooperation with the mainland, in particular 
Guangdong province, Shenzhen, Zhuhai, and with Hong Kong. Such cooperation is essential 
to deal with trade and immigration flows as well as for law enforcement, for administrative 
strengthening and for tackling environmental challenges. The potential for relevant input from 
sciences through the collaborative opportunities on offer in the EU’s 7th Research Framework 
Programme  should  be  also  considered.  The  Commission  believes  that  the  EU  can,  and  is 
willing to make a relevant contribution by offering experience. 

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