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Implications of China's WTO membership

by Joshua Law

Mr Joshua Chi-kong Law is Director-General of Trade and Industry. He started his career in the Urban Services Dept, Office of the Unofficial Members of Executive and Legislative Councils and City and New Territories Administration. He was posted to New York as Deputy Director of the Hong Kong Economic and Trade Officer in 1986-88. He completed the Master in Public Administration (MPA) programme at Harvard University Kennedy School of Government in July 1993-June 1994 and was then posted to the Civil Service Branch as Principal Asst Secretary responsible for
human resource management of the Administrative Service. He was Dep Secretary for Education and Manpower from Feb 1996 to April 1997. Following the establishment of the HK SAR, Mr Law served as first Private Secretary to Chief Executive C H Tung, until his appointment as DG of Trade in Aug 1999. He took over responsibilities for general industrial and SME support in July 2000 and became DG of Trade & Industry.

After 15 years of protracted negotiations, China has formally become a member of the WTO. In November 2001, I was present at the 4th WTO Ministerial Conference in Doha, witnessing the approval of China's accession to the WTO. It was a memorable and historic event, not only for China but also for the world. China's accession to the WTO marks the beginning of a new era of the global economy in the 21st century. There is no doubt that China's full integration into the multilateral trading system, with all its inherent rights and obligations, will significantly alter the global economic landscape.

The WTO membership will result in two irrevocable changes for the Mainland. First, there will be further opening up of the Mainland market. As a commitment for accession to the WTO, average tariff rate of industrial products will be reduced gradually from the present 14.8% to 8.9%. Non-tariff barriers to trade such as geographic and quantitative restrictions will also be removed by phases. In three years' time, foreign companies will be able to import most products into any part of China. The second irrevocable change is the progressive transformation of the Mainland economy into a transparent and rule-based market economy. The WTO system, which is rule-based, allows trade disputes among members to be solved fairly and objectively. Operating under this framework, the Mainland will have to comprehensively improve its investment environment. As a first step, foreign investment restrictions on many important sectors, such as distribution services, telecommunications, financial services and professional services, will be relaxed in the coming few years.

China is now the world's fifth largest trading entity. According to a World Bank estimate, following the accession to the WTO, China's share in world exports will almost double in five years: from 3.9% in 2000, to 6.3% by 2005. Economic reform and liberalisation will no doubt benefit the Mainland economy profoundly. The anticipated surge in trade flow and the improvement of investment environment in the Mainland will help boost Hong Kong's external trade and intermediary services. According to a preliminary estimate by our Government Economist, by 2010, Hong Kong's exports involving the Mainland will be raised by 15% (averaging 1.3% per annum), and our GDP by 5.5% (averaging 0.5% per annum).

Since China adopted the open door policy in 1978, Hong Kong has been its prime gateway. I am confident that we will remain an important gateway to the Mainland after the latter's accession to the WTO. Hong Kong's geographical and cultural advantages over other overseas competitors, together with our sound legal system, advanced telecommunications and infrastructure facilities, plus our strength as an experienced international financial centre with a freely convertible currency, should enable Hong Kong companies to reap trade and economic benefits arising from China's WTO accession.

The challenge now for Hog Kong companies is to move ahead of times to make the most of the thriving business prospects in the Mainland. The Trade and Industry Department, in cooperation with the Trade Development Council and major trade associations in Hong Kong, has been strengthening our services to assist the local business community to rise to the new challenge and to tap the business opportunities in the Mainland. We will enhance our liaison with relevant authorities in the Mainland to obtain information on latest market developments and disseminate important information to the business community swiftly. I believe that Hong Kong can and will play an important role in the continuous growth of China following her accession to the WTO, both as a major investor and as an indispensable partner to both overseas and Mainland companies.