Search Wednesday July 2, 2003

Hong Kong and China: Trade pact opens door to cronyism
By Philip Bowring/IHT (IHT)
Tuesday, June 24, 2003

HONG KONG: On June 30, to coincide with the sixth anniversary of Hong Kong's handover to China, the territory's government will officially unveil a Closer Economic Partnership Arrangement with China. This free-trade agreement is being presented as an administrative triumph that holds the promise of more trade with the mainland. But the pact, known as CEPA, is a metaphor for the misgovernance of Hong Kong by a leadership more concerned with protecting its political interests in Beijing - and the commercial interests of a few Hong Kong business groups - than with spurring the local economy.

Hong Kong's chief executive, Tung Chee-hwa, has hailed CEPA as a way out of Hong Kong's difficulties and a step to restore confidence. Another official described it as a "candy store." But at best it is a public relations exercise largely devoid of content, intended to make the public believe the unpopular government is taking meaningful steps to counter the territory's economic difficulties. At worst it will it undermine Hong Kong's position as a separate trading entity. In either case, the haste with which it has been assembled will sully Hong Kong's reputation for treating trade negotiations with the utmost seriousness.

There is nothing intrinsically wrong with bilateral free trade agreements. But the content and the motive of what is being rushed into being are suspect. Foreign chambers of commerce have always been wary of CEPA as at best a political stunt and possibly the thin end of a wedge against foreign business in Hong Kong. The way this is now presented will not relieve these suspicions, whatever made be said publicly.

There is little significance in free trade in manufactured goods. Most Hong Kong manufacturing has migrated across the border already. What matters to Hong Kong is export of services and access to service industries in China. The promise is that CEPA will give Hong Kong earlier access than others to services to be liberalized in China under the rules governing China's accession to the World Trade Organization. At first glance that sounds good for Hong Kong. But the reality is different.

First, the details of which industries will be affected and when seem likely to be vague and entirely determined by China. Second, it seems likely that China will decide on the criteria for giving preferential treatment to Hong Kong companies. This would probably introduce an ethnic or national element into the definition of a Hong Kong company - a dangerous precedent for an economy that thrives on internationalism and a level playing field.

The arbitrary and discretionary nature of CEPA access would also open up new avenues for corruption, from which Hong Kong is relatively immune, and enlarge the scope for the favoritism and protection of oligarchies of which the Hong Kong government is now often accused.

Lastly, China's favoritism toward Hong Kong will undermine Hong Kong's reputation at the WTO, where it is a champion of multilateralism, and tempt other countries to extend any restrictions on Chinese products and services to those from Hong Kong.

Politically, CEPA enables Beijing to present itself as helping Hong Kong in its hour of need, and for Tung to present the relationship with the motherland as more beneficial than the public generally believes. Tung doubtless hopes that it will help offset the resentment at new security laws which many view as a serious threat to free speech and to Hong Kong's internal autonomy. These are currently being bulldozed through a compliant and unrepresentative legislature in the face of widespread opposition from foreign governments as well as from local business, church and professional groups and most directly elected politicians.

It does not seem to occur to Tung that for a still very rich Hong Kong to be looking for economic favors from a still poor mainland is both demeaning for Hong Kong and a threat to the "one country, two systems" concept, which is supposed to protect Hong Kong's separate status.

CEPA is another example of an administration wanting to prove itself more patriotic than even Beijing expects, and to subject business to patriotic tests that can only undermine foreign interest in the territory and enhance cronyism. CEPA is a Trojan horse.