Speak up for free trade, Hong Kong

SCMP May 30, 2005

In December, Hong Kong has a unique opportunity to underline its unique identity, its role not just as interface between China and the world but as an international city which, in commercial terms, is open to all and favours none.

Will the next administration recognise the opportunity and speak up for what is in Hong Kong's interests? Or will it content itself with playing efficient host and intermediary but avoid taking positions if its interests differ from those of Beijing?

I refer to the Ministerial Meeting of the World Trade Organisation, the make-or-break meeting for the Doha Round of trade negotiations. The outcome may well determine whether the liberalisation of global trade in goods and services continues. Or whether the system, which has brought such immense benefits, particularly to East Asia, over the past 50 years is headed for decay, as multilateralism gives way to a mix of protectionism and bilateral deals.

The Tung administration expended a huge amount of time and political capital in furthering 'one country', urging closer co-operation with the mainland and making exaggerated claims for the Closer Economic Partnership Arrangement.

Cepa may be harmless, in that it does little more than bring forward for Hong Kong liberalisation to which China is already committed under WTO rules. But it is also an example of the bilateral deals which have been proliferating. Dozens have either been concluded or are under negotiation: the US with Australia and Singapore; South Korea with Chile; China with the Association of Southeast Asian Nations, and maybe also with South Korea; Asean with India, and so on. These have been done nominally in the name of advancing free trade at a time when multilateral progress at the WTO has been bogged down.

In practice, these deals usually avoid awkward issues like agriculture, and are only useful if they bring harmonisation to new areas such as investment rules, which have not been touched by the WTO. More often than not, they have been political gestures. The US has viewed them as rewards for good international behaviour and China as a chance to seize the diplomatic initiative in Asia.

But they are not just harmless bits of political window dressing. Every new bilateral deal comes with its own preferences, tariff levels and rules of origin. The resulting 'spaghetti bowl' threatens to become a nightmare for complex manufacturing systems which rely on automated production to take best advantage of specialisation and the international division of labour. Hong Kong is a base for the logistics of these manufacturing and distribution systems, which are especially important in the garment, shoe and electronics industries.

It links Taiwan and the mainland, China with Bangladesh, South Korea with Thailand, Japan with Malaysia, and all with buyers from the US and Germany, Brazil and Spain. They need simple rules as much as they need low tariffs. Politicians who talk grandly of expanding through bilateral deals understand few of the business realities.

Hong Kong has a two-fold interest in December. First, to do its best to see that the talks are a success. That, in itself, would restore impetus to multilateralism. Second, it must make its voice heard as an apolitical region which recognises the dangers of bilateralism.

The issue for Hong Kong is not just to run a smooth meeting - it is to speak up as a WTO member in its own right. This might seem obvious. But the Tung administration did not seem to understand the importance of multilateralism.

Donald Tsang Yam-kuen has a great chance to be a leader: to stand up for Hong Kong's separate economic status, its commitment to non-discrimination, to rigorous multilateralism, and to the merits of competition at home and abroad.

 

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