U.S. Statement at the Trade Policy Review of Hong Kong, China

TPR logoStatement delivered by Ambassador Dennis Shea
Deputy U.S. Trade Representative and U.S. Permanent Representative to the World Trade Organization

World Trade Organization
Geneva, November 26, 2018 

Thank you, Mr. Chairman. We welcome Director-General Ms. Salina Yan, Ambassador Irene Young, and the entire delegation to the WTO’s eighth Trade Policy Review of Hong Kong, China.  We appreciate the efforts of both the government of Hong Kong Special Administrative Region of the People’s Republic of China and the Secretariat in producing the reports circulated prior to this meeting.  These reports provided comprehensive details on the developments in Hong Kong’s economic and trade policy since its previous review in 2014.  We thank Hong Kong for its responses to our written questions, which we will examine carefully.  Finally, we would like to thank the discussant, Ambassador Suescum, for his important insights and for facilitating these deliberations.

The United States commends the Hong Kong Government for its commitment over the years to an open and free market economy.  We also congratulate Hong Kong on its 24th consecutive first place ranking in The Heritage Foundation’s 2018 Index of Economic Freedom.  Going forward, we remain encouraged by the Hong Kong Government’s assertion that its strong rule of law, open and market-oriented trade policy, and level playing field for business remain the bedrock of Hong Kong’s prosperity, and we hope that Hong Kong, China will continue to pursue these policies, including with respect to emerging sectors such as information technology, e-commerce and media.  At the same time, we are concerned about developments that run counter to the “one country, two systems” principle and the implications of this trend for Hong Kong’s historic role as a center for open and free trade.

The United States has a strong trade and investment relationship with Hong Kong, China that is of great mutual benefit.  Hong Kong is currently our nineteenth largest goods trading partner, with US$47.3 billion in total two-way goods trade during 2017.  Total U.S. goods and services trade with Hong Kong totaled US$69 billion in 2017.  The stock of U.S. foreign direct investment (FDI) in Hong Kong, China was US$82.2 billion in 2017, a 17.8% increase from 2016,primarily concentrated in the finance/insurance, non-bank holding companies, and wholesale trade sectors. The stock of Hong Kong FDI in the United States was US$11 billion in 2016, down 1.7% from the previous year, mostly in the manufacturing, real estate, and wholesale trade sectors.

Nevertheless, there are improvements that Hong Kong, China could make to its trade and investment regime.  We recognize that Hong Kong generally maintains an effective IP enforcement capacity, which is supported by a judicial system that supports IPR enforcement efforts through deterrent fines and criminal sentences, as well as youth education programs that discourage IPR-infringing activities.  We have serious concerns, however, regarding digital piracy and IPR-infringing products transiting through Hong Kong.

First, Hong Kong’s lack of progress in modernizing its copyright legislation allows it to become vulnerable to digital piracy.  While we welcome increased enforcement efforts by Hong Kong in the absence of an updated copyright system, legislative changes in Hong Kong are necessary to counter the rapid growth of digital piracy and to provide copyright holders legal protections to stop the large-scale, Internet-based reproduction and dissemination of their works.

Second, while the Hong Kong Customs and Excise Department routinely seizes IPR-infringing products arriving from mainland China and elsewhere, the United States is concerned by reports of significant quantities of counterfeit pharmaceuticals, luxury goods, and other infringing products continuing to transit through Hong Kong to both the local market and markets outside of Hong Kong.  To address this serious problem, we have recommended that Hong Kong implement “Know Your Customer” rules that require freight forwarders to obtain detailed information on the credentials of their customers, to focus on the end user and the end use of the product, and to inquire about the facts surrounding a transaction if certain red flags appear.

Separately, we encourage the Hong Kong government to continue to make efforts to follow the best practices of administrative transparency in the conduct of its economic policy decision-making.  In one recent negative example, a sudden and non-transparent decision on tax rebate policies, made without significant consultation with industry, resulted in the decimation of Hong Kong’s emerging market for electric vehicles, even amid worsening local air pollution conditions.

In closing, I would like to emphasize that we continue to highly value our close work with the Hong Kong Government, both bilaterally and in the WTO.  We congratulate Hong Kong, China on its recent trade policy advances with partners in ASEAN and Australia, and we encourage Hong Kong to be a proactive voice in APEC, sharing its wisdom based on the success of its free market approach.  We thank the delegation of Hong Kong, China for its willingness to consider these points and offer good wishes to the Government of Hong Kong for a successful and productive Trade Policy Review.