Speeches and Articles by Former Consul General Richard A. Boucher

Hong Kong's Role in International Trade: The U.S. Perspective

Address to the Hong Kong Textile Council
by Richard A. Boucher

Consul General of the United States of America

May 22, 1997

(As Prepared for Delivery)

I want to thank Kenneth Fang for inviting me to speak to you today. I must admit that I accepted the invitation with some trepidation -- after our recent dispute on textile transshipments, I wondered if I were being invited into the lion's den. In all seriousness, I know this was a difficult period for many of you, and I hope and believe we are now on the road back to a more stable textiles trading relationship.

In recent months, I have found myself giving a lot of speeches on Hong Kong's reversion to Chinese sovereignty, and answering a lot of questions about why the U.S. is so interested in the transition. That is not the subject of my talk today, but I do want to make one brief point: Our interests are really no different than those of the people of Hong Kong and of China. We want the transition to succeed. We want the approach of "one country, two systems" to succeed. We want Hong Kong to remain a prosperous and open society.

Hong Kong's support for free and open international trade, and its practice of free trade at home are essential elements of the international economy. That's what I'd like to talk about today: how we in the U.S. see Hong Kong's role in the international trade arena. Let me begin, if I can steal a phrase from Professor Michael Enright, by saying a few words about "the Hong Kong advantage."

Over the last several months, we have all listened to a fascinating and I think useful debate about Hong Kong's competitiveness, and about whether the government needs to play a more active role in the economy, particularly in promoting industry. This is a matter for the people of Hong Kong to decide, but I would like to throw out a few thoughts from the U.S. perspective.

With or without a substantial industrial base within its boundaries, Hong Kong has been and will continue to be much more than just an entrepot for China trade. The people and companies of Hong Kong add significant value to almost every transaction between China -- particularly southern China -- and the rest of the world. Sometimes the relationship is direct, such as when Hong Kong companies manufacture across the border, or when Hong Kong toy companies transport their products through the container port here. Other times it is indirect, such as when a Hong Kong bank finances construction of a factory in Shenzhen, or when Hong Kong-based management consultants help an American firm break into the China market. What makes Hong Kong unique is the ability to combine entrepreneurial genius, precision marketing, flexible manufacturing, and international finance and technology to produce everything from dolls to shirts to power plants and roads.

I have no doubt that, through direct trade in goods, trade-related services, and as a partner for other companies entering China, Hong Kong will continue to play a major role in regional trade. The type of services might change. For example, some predict that the Hong Kong economy will become less dependent on manufacturing-related services such as transportation and more dependent on telecommunications and financial services, such as fund management. I do not foresee any change, however, in the fundamental equation that is the "Hong Kong advantage" -- great location, pro-business environment, rule of law, perfect mix of foreign and local, large and small companies, and a dynamic and adaptable entrepreneurial class. The low tax rates and the low level of government involvement have provided the essential basis for Hong Kong's advantage to take root here.

Hong Kong is also important to the U.S. as a bilateral trade partner. Hong Kong is the 11th largest market for U.S. exports, just after France and ahead of Brazil and China, and the 7th largest importer of U.S. agricultural products. If, on a per capita basis, Japan bought as many agricultural products from the U.S. as Hong Kong does, we wouldn't have a trade deficit with Japan. The U.S. is Hong Kong's second largest export market, and Hong Kong ranks as the 15th largest exporter to the U.S. market. For some sectors, such as toys and textiles, the U.S. is Hong Kong's largest export market. This bilateral trade relationship is important, beneficial and, I believe, certain to continue.

Hong Kong has another, more formal, role in international trade. It is -- and will remain -- an independent player in multilateral trade organizations, particularly the Asia Pacific Economic Cooperation forum and the World Trade Organization. This is critically important. From the U.S. perspective, we need Hong Kong to continue to support and push for trade liberalization. Hong Kong is one of the most forceful and articulate advocates of free trade in both APEC and the WTO -- it is a powerful and positive force in international trade. Even when we disagree on specific issues, we know that we share the same goals: to bring to all the prosperity we have enjoyed from opening our markets.

We will continue to give strong support and encouragement to Hong Kong's status in APEC and the WTO. This is part of our broader support for Hong Kong's status as a separate customs territory after July 1. We have demonstrated this support by negotiating bilateral stand-alone agreements with Hong Kong on key issues, including civil aviation. We will continue to treat Hong Kong as a separate customs territory for statistical purposes and for export controls. In other words, we will export certain technologies to Hong Kong that our law does not allow us to export to the rest of China.

As Hong Kong officials and business leaders recognize, with this autonomy comes considerable responsibility. First and foremost, Hong Kong must continually exercise its autonomy -- this means being an active and vocal participant in WTO and APEC meetings, and negotiating and implementing bilateral agreements. It also means policing its own trade problems.

Let me be specific. Customs autonomy also means continuing to police illegal textile transshipments. We can disagree about how extensive the problem is, but we all know it is a problem. I have to say that we were very impressed with the Hong Kong Government's decisive action to address this problem, beginning late last year. The action enabled us to lift the single-entry bond requirements, which we know hurt legitimate as well as illegitimate exporters. It is important that the government -- again with the assistance of the business community -- continue its strong efforts in this area. We all want the "Made in Hong Kong" label to really mean made in Hong Kong.

Hong Kong also has an intellectual property protection problem. The laws are generally good, and everyone recognizes the government's increased efforts to combat piracy. Still, the problem persists, particularly the widespread and blatant retail sale of pirated goods. Take the MTR out to Sham Shui Po. Stroll around the shopping centers there full of stores openly selling pirated software, video CDs, and sound recordings. You don't even have to go that far. Right down the street, at 298 Hennessy Road, you can buy thousands of dollars worth of software for a pittance -- it's pirated, and it probably contains viruses that will ruin your computer; but it's cheap! Nowhere else in Asia can you find retail piracy centers operating so openly. This problem is hurting U.S. companies and Hong Kong companies, but it is also a black spot on Hong Kong's otherwise sterling reputation in the international business community. For those of you who think the government should try to attract high-tech industry, the best first step would be to wipe out these pirates who discourage investment in intellectual property.

I think the government here recognizes the problem and is trying to address it. The copyright bill now in front of LegCo should be very helpful in this regard, but the government -- and the business community -- will need to make the anti-piracy campaign a top priority for some time to come.

Let me now circle back to where I began, "the Hong Kong advantage." The textiles industry, I think, is an excellent example of this advantage. As you all know, Hong Kong was for many years a low-cost, labor-intensive location for textile manufacturing. As costs rose and China opened up, many of you moved your manufacturing to the Pearl River Delta.

Some see this shift as a negative, a sign of the de-industrialization or "hollowing out" of Hong Kong. I disagree. The shift made economic sense, and allowed you to remain internationally competitive. Even those textiles and garments that are no longer made in Hong Kong are still made by Hong Kong, in the words of the recent MIT study. Hong Kong still adds tremendous value to the textile and garment industry and trade. Just think about your own companies. Even for products that you now manufacture across the border or in far away places in Asia, Africa or the Americas, I'll bet much of your design, marketing, accounting, technology and administrative work is still done in Hong Kong. Probably, you rely on Hong Kong companies for finance, shipping, insurance, auditing, and on Hong Kong telecommunications companies for daily dealings with your factory managers as well as calls to clients in New York and Paris. You probably fly Hong Kong airlines around the region.

Let me mention another angle here. I see textiles, and particularly garments, as a great example of U.S.-Hong Kong-China business cooperation. Whether it is U.S. importers going through Hong Kong companies to buy Chinese-made garments (most likely made in a Hong Kong-owned factory), or U.S. companies licensing Hong Kong companies to design and manufacture products in China, Hong Kong plays a key role in this international business. To borrow once again from Michael Enright, Hong Kong is not a "gateway" into China, but a "gatekeeper" and a "packager" of people, companies, and products.

I'd like to conclude with one final point, and that concerns Hong Kong's unique relationship with China. China, as we all know, wants to accede to the World Trade Organization. We support China's accession on commercially viable terms, and our negotiators have been working non-stop, with some success, to put together an acceptable accession package. As China struggles with the difficult decisions it must make to deepen its economic reforms and open its markets as part of its accession bid, Hong Kong has an important role to play. Hong Kong is, if you will, a symbol of the benefits of open markets and free trade policies. Your very success should encourage Chinese officials to believe that the trade liberalization required to enter the WTO, while sometimes painful in the short term, will lead to greater success and prosperity.

So as we look forward beyond the handover, we see an expanding role for Hong Kong. Hong Kong business helps our business, helps China develop and reform, helps expand the patterns of trade in Asia and the world. For our part we will be here in Hong Kong's future as a full partner.

Thank you very much.