preliminary-assessment-of-hong-kongs-initial-offer

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					                                                                   European Services Forum
                                                                                     Brussels, September 2004

                  PRELIMINARY ASSESSMENT OF HONG KONG’S INITIAL OFFER

I.         BACKGROUND

Hong Kong, more than any other country, is dominated by the services sector. In 2002, services
represented 87.1% of GDP. Widely renowned for being an open economy, Hong Kong made a
quality Schedule of Commitments in Services at the end of the Uruguay Round negotiations in
1994. In 1997, Hong Kong made a good set of commitments in the telecommunications
negotiations and signed the Reference Paper on Basic Telecommunications. The Commitments in
Financial Services in December 1997 are considered a good start, although much more remains to
be bound, especially considering that Hong Kong is an important financial centre serving the region
including Mainland China.
Hong Kong is an important trading partner to the EU 15 in terms of international trade in services.
With a total volume of 10.230 Bio € in 2002, Hong Kong is ranked at the 7th position, with a slight
negative balance for the EU of – 570 Mio €.
With global trade in services such an important part of Hong Kong‟s economy, it is surprising that
HK has not taken more, deeper commitments in the ongoing GATS negotiations. While we
welcome many of the offers tabled by HK, we expect more when revised offers are submitted.

II.        A SECTOR-BY-SECTOR ANALYSIS OF HONG KONG’S INITIAL OFFER
Overall, the European Services Forum considers this Initial offer as average. We even identified
some disappointments in some sectors like financial services and legal services, two sectors
where Hong Kong plays an active role but keeps relatively poor commitments.

A.         Horizontal Commitments: Disappointing offer
Hong Kong has made no Horizontal Commitments in Modes 1, 2 and 3. In Mode 4, HK has
agreed to the EC‟s request to incorporate Mode 4 commitments into the main body of the
schedule, rather than in an attachment, as before. Still, Mode 4 remains unbound, “except for
intra-corporate transfer of general managers, senior managers and specialists in sectors with
entries „Unbound except as indicated in Horizontal Commitments.‟” Hong Kong has ignored EC
requests to extend the initial length of stay for intra-corporate transfers from one year to two. HK
has not clarified what it means to be a “bona fide” business establishment with respect to intra-
corporate transfers. HK has also ignored the EC request that HK allow intra-corporate transferees
with university degrees or appropriate technical qualifications for the purpose of career
development or training in business techniques. Furthermore, we are disappointed that Hong
Kong did not make new Mode 4 commitments for Business visitors or Contractual service
suppliers.

B.         Sectoral Commitments

1) Professional Services
    Legal Services: Disappointing offer
Hong Kong still has not made any commitments in legal services, despite the EC‟s request that HK
make a minimum commitment on consultancy in public international law and law of jurisdiction
where the service supplier or its personnel are qualified lawyers.
    Accounting, Auditing and Bookkeeping Services: Disappointing offer
This sector is still not committed for the entire CPC (862) and Mode 1 remains unbound in NT and
MA; Mode 2 is unbound for NT. Mode 3 MA restrictions require auditing services to be carried out


      ESF Office: UNICE - ESF  Avenue de Cortenbergh, 168  B – 1000 - Brussels  Belgium  TVA BE 536.059.612
                    Email: esf@esf.be  Tel : +32-2-230 75 14  Fax : +32-2-230 61 68  www.esf.be
                                                                                                   2


by natural persons licensed as Certified Public Accountants (CPAs). The EC has requested that
HK remove these restrictions, allowing supply by juridicial persons employing CPAs .

    Taxation Services: Satisfactory offer
We welcome HK‟s taking full commitments in Modes 1,2 and 3 in taxation services, as per the EC‟s
request. We would like to see HK open all of CPC 863.

2) Business services
     Computer and Related Services: not enough
Hong Kong has only partially committed in this sector despite the EC‟s request that HK commit at
two-digit level CPC 84. Furthermore, Modes 1 and 2 NT remain unbound. This is rather
disappointing and we would like to see progress in this sector.

    Research and Development Services: no progress
Hong Kong has made no commitment in R&D services, despite the EC‟s request.

     Real Estate Services: Good offer
This is a good offer. Hong Kong has made full commitments in Real estate services involving own
or leased property (CPC 821) and On a fee or contract basis (CPC 822) in MA and NT in Modes 1,
2 and 3, as per the EC request.

     Rental and Leasing Services Without Operators: acceptable offer
On services relating to ships, Hong Kong has made MA and NT commitments on Modes 1, 2 and
3. However, Mode 3 NT includes the restriction that “income derived from international operation
of ships registered in the Hong Kong Shipping Register is exempted from Hong Kong‟s profits tax.”
Unfortunately, Hong Kong has made no new commitments in services relating to other transport
equipment and other machinery.

      Other Business Services: Good offer
In Advertising Services, Hong Kong has made NT commitments in Modes 1 and 2 and extended
sectoral coverage to all of CPC 871, as per the EC request. We welcome this move by Hong
Kong. Hong Kong has also expanded sectoral coverage in Market research and public opinion
polling to include all of CPC 864. However, Modes 1 and 4, and Mode 3 NT remain unbound.
Hong Kong has put forward a very good offer on Management consulting services, expanding
sectoral coverage to all of CPC 865 and making full commitments in Modes 1, 2 and 3.
Furthermore, HK has made new, full commitments in Modes 1, 2 and 3 in Services related to
management consulting, Technical testing and analysis services, Services incidental to
manufacturing, Placement and supply services of personnel, investigation services,
Security services and Printing, publishing services.

3) Postal and Courier Services: Not enough
We are disappointed that Hong Kong has made no new commitment in Courier Services. Modes 1
and 4 and Mode 2 NT remain Unbound. Furthermore, Hong Kong has not increased sectoral
coverage, having committed only to “provision of services on a fee or contract basis for the delivery
of documents and parcels, but excluding services reserved to the Post Office under the Post Office
Ordinance.” It is not clear which definition is used, and we would like to see at least CPC
classification reference.

4) Telecommunications: Pretty good offer
Hong Kong has included telex and telegraph services and is fully committed in Modes 1, 2 and 3
for local services. However, Mode 1 and 3 restrictions remain in international services. Public
external telephone service is not allowed, connection to the public-switched telephone network
may be restricted, and gateway station for mobile satellite traffic is not allowed. But Hong Kong
has added commitments in Modes 1, 2 and 3 for value added services. This is a very much
welcome addition to Hong Kong‟s initial offer.
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5) Construction and Related Engineering Services: limited offer
We are disappointed that Hong Kong‟s offer on Construction services remains very limited.
Although HK has opened up Mode 2 NT, their initial offer only includes sectors D and E (“Building
Completion and Finishing Work” and “Other”). We would like to see sub-sectors A, B and C
(“General Construction Work for Buildings,” “General Construction Work for Civil Engineering” and
“Installation and Assembly Work”) committed, too. For sake of transparency and mutual
understanding, the proper use of CPC classification would be appreciated.

6) Distribution Services: acceptable offer
Hong Kong did not make new commitments on sub-sector A, “Commission Agents Services”, but
we welcome HK‟s Mode 1,2 and 3 commitments in sub-sector B, “Wholesale Trade Services.”
However, wholesale trade specifically related to fishery products remain unbound for Modes 1, 3
and 4. Hong Kong has also opened Modes 1, 2 and 3 in Retailing Services, with the exception of
pharmaceutical, medical, surgical and orthopaedic products. Despite the EC‟s request, Hong Kong
has not committed on the Franchising Services sub-sector.

7) Environmental Services: Good start
We welcome Hong Kong‟s new commitments on Environmental Services, having opened major
sub sectors (sewage, refuse disposal, sanitation, and other services) in Modes 1, 2 and 3. This
sets a good example for other countries in the ongoing negotiations. We take note and regret that
Hong Kong did not take its commitments based on the EC proposal for the classification of
environmental services and look forward to a debate on this issue.

8) Financial Services: Very disappointing offer
It is extremely regrettable that Hong Kong has still not undertaken its Financial Services
commitments in accordance with the “Understanding on Commitments in Financial Services. With
Hong Kong being a strong Financial services centre and hub in the South East region, we would
like to see progress on this issue. Hong Kong cannot claim being an open and “international city”
when a large part of its economy is not submitted & committed to international standards.
Despite the EC‟s request, Hong Kong has not committed to allowing foreign services suppliers to
solicit business or conduct marketing in the Hong Kong Special Administrative Region of China.
    Insurance and Insurance Related Services
This is a very disappointing offer, as Hong Kong has made no new commitments in this sector.
Hong Kong‟s defensiveness is particularly puzzling since insurance is a very advanced sector in
Hong Kong‟s economy. In addition, MAT insurance was not included in the initial offer; which is
hard to understand with Hong Kong as a major transport hub in the region.
         Banking and Other Financial Services
Again, a very disappointing offer. No new sectoral commitments have been made. In order to
apply to become a fully licensed bank, a bank must have maintained a locally incorporated
restricted licensed bank for at least 3 continuous years. Overseas banks are prohibited from taking
deposits and undertaking banking business in general. Hong Kong has maintained Mode 3
residency restrictions on trading for own account or for account of customers, too.

9) Tourism and Travel-related Services: Good offer
Hong Kong has clarified and expanded its commitments on Hotel services, included full
commitments in Modes 1, 2 and 3. In addition, HK has made new commitments in “Other lodging
services”. This is a welcome although unexpected move.
As per the EC request, Hong Kong has also made new commitments in Travel Agencies and Tour
Operator Services, with full commitments in Modes 1, 2 and 3. However, these apply only to
travel/tours outside of Hong Kong, China. We would like to see these committed as well.

10)       Transport Services
                                                                                                4


     Maritime: New offer – Good Offer
Hong Kong has opened Modes 1, 2 and 3 on freight transport as per the EC‟s request, with the
exception of a Mode 3 NT restriction, which states “income derived from international operation of
ships registered in the Hong Kong Shipping Register is exempted from Hong Kong‟s profits tax.
Passenger and cabotage transport remain uncommitted. Furthermore, HK has made additional
commitments, as per the EC request, on access to ports facilities. We welcome the additional
commitments in freight forwarding and preshipment inspection services in the new offer. The use
of the CPC classification would be appreciated as to avoid any possible confusion.
    Air Transport: Disappointing offer
Hong Kong Airport being an important hub in the region, it is disappointing that no new
commitment at all have been taken despite the EC requests.

      Rail & Road transport: new good offer
We welcome the new offer, although it represents only little economic interests given the size of
the territory.
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