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HK, China agree on free-trade pact

"I believe this will greatly help Hong Kong's recovery and give Hong Kong new economic momentum. This is something that many countries or regional economies in the world dream about, and Hong Kong will have it very soon."

Tung Chee-hwa, Hong Kong's chief executive

Hong Kong and China will sign a free-trade pact on June 30, Chief Executive Tung Chee-hwa (董建華) said yesterday, in a rare piece of good news for the city's stricken economy.

Tung said he expects the pact, confirmed after meetings earlier in the day with officials of neighboring Guangdong Province, will benefit a wide array of industries.

"I believe this will greatly help Hong Kong's recovery and give Hong Kong new economic momentum," Tung said. "This is something that many countries or regional economies in the world dream about, and Hong Kong will have it very soon."

Many here hope the long-expected deal will help boost Hong Kong's moribund economy. The recent SARS outbreak devastated tourism, hitting service industries hard. The jobless rate, already at a record high 7.8 percent, is expected to reach 8.3 percent when it is announced today.

The territory reverted to Chi-nese rule in 1997 but Beijing and Hong Kong are treated as separate customs territories, preventing local businesses from taking full advantage of their close trade and commercial ties with China.

Talks on a trade deal began in January last year. Negotiations appear to have accelerated recently, as officials on both sides scrambled for ways to boost Hong Kong's confidence amid the SARS crisis.

"A trade agreement usually takes many, many years to work out," said Vicky Davies, director-general of the Federation of Hong Kong Industries.

"So, we are lucky to have it happen so quickly," Davies said.

Details of the deal were not available, but officials say that like free trade agreements between countries, the Mainland/Hong Kong Closer Economic Partnership Arrangement will cover trade in both goods and services and will facilitate customs cooperation and e-commerce.

At the same time, they stressed that the deal will comply with WTO rules, which discourage different treatment for domestic and foreign companies.

Thousands of Hong Kong companies have operations in China and have been lobbying for the lower tariffs and other benefits a free trade pact would bring.

Davies said she expected the 20,000 factories in Hong Kong, employing 200,000 workers, to reap a windfall. Textile and jewelry makers, who face relatively high tariffs, would benefit most, she said.

Tung said Hong Kong service industries -- accounting, advertising, construction, insurance, real estate, transport, among many others -- would also profit.

Hong Kong and Chinese officials said earlier that they expected a deal to be reached by the end of this month.

The signing ceremony will be on the eve of the sixth anniversary of Hong Kong's return to Chinese rule. Tung said he had invited top Beijing officials to attend, but it was unclear who would come.

Hong Kong has been struggling since the Asian financial crisis hit in 1997. China's economy has charged ahead, growing at enviable rates of 7 percent plus, while Hong Kong's 6.8 million has remained in the doldrums.

Some here hope the agreement will give Hong Kong an advantage over Singapore in trade with China. But others question how much of an impact the arrangement will have.

"It's a move in the right direction, but Hong Kong businesses will need land, labor supply and tax and other incentives, besides zero tariffs," said Ben Kwong, director of stock brokerage KGI Asia.

"It won't make a difference in the short term," he said.
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