U.S. and Hong Kong (1985-1997)

A REPORT TO CONGRESS
ON CONDITIONS IN HONG KONG
AS OF MARCH 31, 1995

AS REQUIRED BY SECTION 301 OF
THE UNITED STATES - HONG KONG POLICY ACT OF 1992

Section 301 Reporting Requirement

Not later than March 31, 1993, March 31, 1995, March 31, 1997, March 31, 1998, March 31, 1999, and March 31, 2000, the Secretary of State shall transmit to the Speaker of the House of Representatives and the Chairman of the Committee on Foreign Relations of the Senate a report on conditions in Hong Kong of interest to the United States.

Hong Kong's status after the territory's reversion to Chinese sovereignty on July 1, 1997 is defined in two important documents: the Sino - British Joint Declaration and China's Basic Law for post - 1997 Hong Kong. Signed on December 19, 1984, the Joint Declaration provides that the post - 1997 Hong Kong Special Administrative Region (HKSAR) will be directly under the authority of China's Central People's Government and, unlike any other region of China, will have a high degree of autonomy except in matters relating to foreign affairs and defense. The social and economic systems, foreign affairs and defense. The social and economic systems, life - style, and rights and freedoms currently enjoyed by the Hong Kong people will remain unchanged for at least 50 years, according to the Declaration.

Adopted on April 4, 1990 by the Seventh National People's Congress of the People's Republic of China, the Basic Law of the HKSAR provides the fundamental governing framework for implementing China's "one country, two systems: principle in Hong Kong consistent with PRC commitments in the Joint Declaration. It says that the PRC socialist system and policies will not be extended to the territory. The Basic Law reiterates the Sino -British agreement to allow the HKSAR to exercise a high degree of autonomy and enjoy executive, legislative, and independent judicial power.

I. SIGNIFICANT DEVELOPMENTS

Significant developments in United States relations with Hong Kong, including a description of agreements that have entered into force between the United States and Hong Kong.

(A) Economic and Commercial

Hong Kong is the thirteenth - largest trading partner of the United States. In 1994, two-way merchandise trade surpassed $21 billion. U.S. exports exceeded $11 billion, while imports of Hong Kong-produced goods totalled $9 billion. (This amount excludes Hong Kong re-exports of PRC-made goods, which provides substantial indirect income to the territory.) Major United States' exports include computers, telecommunications equipment, and food stuffs. Principal Hong Kong exports to the United States include clothing and apparel, office machines and electrical machinery, photographic apparatus, watches and clocks.

Hong Kong has one of the most liberal trade and investment regimes in the world. There are no import tariffs; Hong Kong levies taxes on alcohol, autos, fuel and some luxury goods, but otherwise does not tax consumption. U.S. and foreign firms are free to invest and establish businesses with minimal government interference. At the end of 1993, U.S. direct investment in Hong Kong on a historical cost basis was $10.5 billion, concentrated in wholesale trade, banking and finance, and manufacturing.

While there are no non-tariff barriers, restrictions to entry exist in certain professional service sectors, such as medicine and the law, and in the aviation sector. In addition, while Hong Kong justifiably prides itself on supporting competition, the absence of anti-trust laws has led to domination of some businesses by major local companies, called "hongs." In certain sectors, the hongs have acted to restrict competition from foreign, including U.S., firms.

American companies have not had much success in winning contracts for design and construction of Hong Kong's $21 billion Chek Lap Kok (CLK) airport and associated projects. U.S. companies' strengths in services and high technology equipment, however, should serve bidders well as construction proceeds toward the airport's scheduled 1997 completion date and awards begin to be made for ground handling services and related franchises. Raytheon last year was awarded the largest air traffic control equipment contract at CLK airport, with a total value of $48 million. U.S. companies also are competitive, individually or in consortia, for tenders on catering, automated data systems, fuel supply, air cargo, surface movement radar, ramp handling services, passenger boarding bridges, master systems integration, and engineering consulting for the railway expansion.

Hong Kong is the commercial gateway to China. Almost 45 percent of all trade with China passes through the territory. Over 1800 foreign companies maintain regional headquarters or offices in Hong Kong, including some 370 American firms. The American Chamber of Commerce has over 1200 U.S. and non-U.S. members, the largest business organization of its kind overseas. U.S. firms have flocked to Hong Kong because of excellent telecommunications and port infrastructure, the sanctity of contracts and respect for rule of law, high quality of life for executives' families, the use of English in commerce and government, and because Hong Kong entrepreneurs offer unsurpassed expertise in accessing the mainland market.

U.S. companies overall view Hong Kong's business environment positively. The Hong Kong American Chamber of Commerce's fifth annual business confidence survey (conducted early in 1994) showed that most of the 446 respondents planned either to maintain or expand their investments. Only 9 percent indicated they planned gradually to reduce their Hong Kong activities, while 2 percent indicated plans to leave. However, rising costs were singled out as the area where U.S. firms were least satisfied with the business environment, and the proportion of U.S. firms viewing performance prospects for their Hong Kong operations over the next three years as "good" declined from 72 percent in 1993 to 56 percent, reversing an upward trend evident since 1990.

The two key multilateral developments since 1993 in U.S.-Hong Kong economic relations are the establishment of the World Trade Organization and the commitment by Asia Pacific Economic Cooperation (APEC) leaders to establish an APEC free trade area by 2010/2020. Hong Kong is an active member in each organization. As a small, dependent entity, Hong Kong policy makers have placed special emphasis on multilateral institutions, believing they are Hong Kong's best means of protecting its economic and commercial rights and interests in the world.

In a positive move domestically, Hong Kong officials are moving to combat the local upsurge in pirated software and music discs flowing in from China by increasing penalties for copyright infringement and adding manpower to the Customs Service. Also, telecom authorities have made several pro-competition decisions recently that have conferred direct advantages on U.S. firms.

Several important U.S.-Hong Kong commercial initiatives have not fared as well. Negotiations on a stand-alone civil aviation agreement and a bilateral investment agreement are stalled, as is the development of Container Terminal 9. These issues are discussed in further detail in Section I(D).

(B) High-Level Visits

High-level Americans continue to visit Hong Kong. Since the last report in March 1993, government officials visiting Hong Kong have included a Supreme Court Justice, the Director for the Office of National Drug Control Policy, the Director for the Office of Science and Technology Policy, the Secretary of Commerce, the Secretary of Energy, the Secretary of Agriculture, the Chairman of the Nuclear Regulatory Commission, the Chairman of the EXIM Bank, the State Department's Under Secretary for Political Affairs, Assistant Secretary for East Asian and Pacific Affairs, and Assistant Secretary for Democracy, Human Rights and Labor, as well as other senior officials from the Federal Reserve, USTR, State, Commerce and Treasury Departments. In addition, during the same period, at least 25 Congressional delegations visited the territory for meetings with senior officials and key political and business figures. Non-governmental delegations have been numerous as well, including the Council on Foreign Relations, Council on Strategic International Studies, the Atlantic Council, the National Committee on U.S.-China Relations, the AFL-CIO, and many trade organizations.

( C) Law Enforcement Cooperation

United States law enforcement agencies enjoy excellent cooperation with their Hong Kong counterparts. The United States Government is broadening this cooperative liaison and operational relationship with Hong Kong Government agencies, particularly in combatting international drug trafficking, Asian organized crime, violations of intellectual property rights (IPR), and other law enforcement concerns of great importance to the United States. The U.S. is expanding its law enforcement presence at the American Consulate General in Hong Kong with the expected addition of another FBI representative an the opening of an office of the U.S. Secret Service. Other U.S. agencies present with law enforcement responsibilities include the Department of State, U.S. Customs, Drug Enforcement Administration, and Immigration and Naturalization Service.

U.S. law enforcement efforts in Hong Kong are important since Hong Kong is a significant transit point for drug trafficking and for money laundering of drug proceeds. Most trafficking and heroin brought from the Golden Triangle region of Southeast Asia by trawlers and other vessels from Thailand or overland through southern China. As one of Asia's most important financial centers, the territory is used by regional and local drug traffickers to launder their proceeds. The transshipment of pirated software and other products under the protection of international IPR agreements also occurs from Hong Kong.

Bilateral cooperation continues to be strong in combatting credit card fraud, U.S. currently counterfeiting, narcotics and money laundering. Since 1984, 115 individuals have been extradited from or through Hong Kong to the United States. Thirty extraditions from Hong Kong took place since April 1, 1993, with approximately 70 percent being drug-related. Hong Kong authorities, however, have increased evidentiary requirements, making it more difficult to obtain extraditions, especially in non-drug cases.

Under a bilateral agreement which came into effecxt in January 1991, Hong Kong and the United States "grant to each other assistance in the freezing, restraining, seizure, forfeiture and confiscation of the proceeds and instumentatlities of drug trafficking." More than $79 million in drug-related assets have been seized in both the United States and Hong Kong under this agreement, with approximately $5 million seized over the last year. There are at least five cases in various stages of adjudication in Hong Kong courts involving at least (U.S.) $34 million in assets. The United States Government expects to share these forfeited assets when each case is finally adjudicated. We have asked Hong Kong to expedite the sharing of assets seized in several cases and has requested Hong Kong lower its $1.2 million threshold for seized assets which is required before sharing of seized assets is considered.

Hong Kong government authorities, in particular the immigration and police departments, have worked closely with the United Staes Immigration and Naturalization Service to counter attmpts to smuggle Chinese aliens to the United States. Several joint U.S.-Hong Kong government investigations into alien smuggling were completed in 1994 including one operation in which a Hong Kong Immigration Department officer acted in an undercover role to reveal the hierarchy of a Hong Kong and New York-based operation. In that case, three ring leaders were arrested in Hong Kong along with eight others in New York. The U.S. Immigration and Naturalization Service, through close liaison wtih Hong Kong government authorities, intercepted over 250 illegal Chinese aliens at Kai Tak International Airport enroute to the U.S. and returned them to China during 1994.

(D) Agreements

The continuation of Hong Kong's promised high degree of autonomy after 1997 will be a key factor in allowing U.S.-Hong Kong agreemetns to remain in force. There are more than a dozen principal U.S. bilateral agreements which currently apply to Hong Kong. Most of these are agreements with the United Kingdom that extend to the territory. Others are concluded directly with Hong Kong under "entrustment" from the U.K. Under international law, the U.K.-U.S. agreements lapse with repsect to Hong Kong in 1997 unless special arrangements can be made with either Hong Kong or the PRC for their continuation in force. The U.S. is negotiating or discussing with Hong Kong various agreements to replace those of interest to both sides.

In July 1994, the U.S. and Hong Kong initialed a new extradition agreement to apply to the HKSAR in the period following 1997. This agreement awaits final PRC approval in the Sino-British Joint Liaison Group (JLG). The agreement will then be submitted to the U.S. Senate for ratification. In December 1994, the JLG approved a model text for Hong Kong to use in negotiating bilateral mutual legal assistance (MLA) agreements and its approval for MLA negotiations between Hong Kong and the United States is expected in the near future.

With JLG authorization, the Hong Kong Government has been negotiating with the United States on air services and bilateral investment agreements. Progress in these negotiations has been slow. Some progress was made during two rounds of talks on civil aviation in 1994, but no agreement was reached and no new talks are yet scheduled. Talks on bilateral investment remain stymied over questions of format and substance (Hong Kong preferring to work from its JLG-approved model text, while the U.S. prefers to work from a draft embodying language used in similar U.S. agreements). No formal negotiations on bilateral investment have taken place since November 1991.

II. OTHER DEVELOPMENTS

Other matters, including developments related to the change in the exercise of sovereignty over Hong Kong, affecting United States interests in Hong Kong or United States relations with Hong Kong. (Section VII, which deals with development of democratic institutions in Hong Kong, discusses electoral law changes, political party development, concerns over the legal system, and freedom of expression issues.)

(A) U.S. Interests in Hong Kong

U.S. interests in Hong Kong include: continued stability and prosperity; continuing development of open, accountable and democratic institutions; the protection of civil liberties and preservation of the legal system; maintaining our close, cooperative law enforcement relationships; encouraging U.S. exports and helping U.S. investors to compete effectively for contracts; protecting and promoting the interests of more than 1,000 U.S. businesses (including 370 U.S. company regional offices) and more than 31,000 resident Americans; and access to Hong Kong as a routine port of call for U.S. Navy ships.

Maintenance of these interests requires efforts in a number of areas. The U.S. must continue to work closely with and communicate our views to both the present sovereign, the U.K., and the future sovereign, the PRC, as well as to the people of Hong Kong. We should continue to lend our support to private efforts and programs designed to achieve these goals. And we should work with the future HKSAR as it builds its international contacts and agreements and implements its promised high degree of autonomy as a region of the PRC.

(B) Developments Affecting U.S. Interests in and Relations with Hong Kong

Hong Kong continues to be a dynamic, prosperous, and stable territory, friendly to international business, interaction with foreigners, and American interests. With an economy continuing to grow at over 5 percent a year, a highly educated and skilled work force, and efficient services operating in a predictable legal climate, Hong Kong has remained an attractive place for Americans to live, work, and visit. In the course of the last two years, however, there have been some developments that have fostered anxiety over aspects of the change in sovereignty.

China has repeatedly declared since 1989 that it will not tolerate Hong Kong becoming a "base of subversion." These warnings became sharper since 1992 when Hong Kong Governor Patten put forward his proposals for modest reforms of Hong Kong's three tiers of governmental bodies (the Legislative Council, district boards and municipal councils). After 17 rounds of unsuccessful negotiations with China, the Hong Kong Government proceeded to effect these proposals. When the Legislative Council approved the proposals in 1994, China announced that it will disband the Legislative Council elected in 1995. China has indicated it may establish a provisional legislature after reversion until new elections are held under unspecified rules.

While there has been only limited cooperation in the JLG, there have been some achievements. The JLG has approved extending beyond 1997 170 multilateral treaties currently applying to Hong Kong through the UK and Hong Kong's continued participation in 30 international organizations. The U.S. will have to review all such agreements to determine whether we also wish to recognize Hong Kong's continued independent status vis-a-vis the U.S. There also has been good progress on the approval of Hong Kong's bilateral agreements with other countries. As of March 1995, the Hong Kong Government has signed 20 bilateral agreements on air services, investment protection, and extradition. This enhances Hong Kong's international status and will help to bolster Hong Kong's high degree of autonomy after 1997. On defense arrangements, an agreement was reached on the disposition of British military lands and facilities. Finally, there is agreement in principle on the financing of the new airport and airport railway.

There has been less progress in other important areas. The PRC has been slow in responding to British proposals on the "adaptation" of current Hong Kong laws to the post-1997 period. Continued delay in cooperation could result in substantial gaps or uncertainties in the legal system after 1997. On travel documentation, progress has been slow on clarifying the modalities and privileges which will accrue to new passport holders, whether they hold British National Overseas (BNO) or HKSAR passports. Nor is there agreement on plans for HKSAR passport issuance or for beginning talks with other countries on visa reciprocity arrangements.

While agreement has been achieved on a number of Hong Kong infrastructure projects, the future of two major projects important to the territory's future economic development remains clouded. After over two and one-half years of JLG negotiations, both sides reached agreement last November on overall levels of debt and equity for the $21 billion Chek Lap Kok airport and related infrastructure projects. However, borrowing cannot commence until China and the U.K. reach agreement on separate financial support agreements for the statutory corporations responsible for the airport and connecting railway. Negotiations are continuing. In the meantime, construction on the airport is proceeding at full pace with a planned opening in the 1997-98 time frame.

More directly related to U.S. interests, construction on Container Terminal 9, a much-needed expansion to Hong Kong's overburdened port, remains on hold. The PRC wants the project tendered on an open, competitive bid basis. The Hong Kong Government had awarded the project through a directed tender, a procedure used to diversify the number of providers of port services in the territory. It is widely believed, however, that Beijing's opposition to the participation of British company Jardine Matheson in the consortium is the true cause of the delay. A major U.S. company, Sea-Land, has a large stake in this container terminal project.

Hong Kong's professional and efficient civil service will be a key force in ensuring a smooth transition and stability beyond 1997. The civil service is under increasing stress with the approach of 1997. Some Legislative Council members and public interest groups have criticized the Hong Kong Government's "localization" program (placing Hong Kong Chinese in jobs traditionally held by expatriates) as coming too late. Furthermore, disgruntled outgoing expatriates are continuing to resist the localization process and are suing the government for discrimination. According to Hong Kong Government statistics, as of October 1994, local officers held 69 percent of directorate-level posts, 79 percent of administrative officer grade posts, and 80 percent of senior management/professional posts.

China's public demands for personnel records on senior civil servants have hurt morale among senior officials. Some fear retribution for supporting or being closely identified with HKG/British policies anathema to China. A substantial number of senior civil servants are eligible to retire in 1996, and it will be important for the Hong Kong Government to avoid large numbers of destabilizing retirements before the transition. The modalities of sharing of civil service personnel records and information with the PRC continues to be discussed in JLG channels.

III. UNITED STATES - HONG KONG EXCHANGES

The nature and extent of United States - Hong Kong cultural, education, scientific and academic exchanges, both official and unofficial.

Exchanges between Hong Kong and the United States are numerous in virtually every area identified in the Act. The United States, largely through United States Information Agency (USIA) programs, has successfully encouraged and institutionalized a wide spectrum of cultural, education, scientific and academic exchanges. Major programs are highlighted below:

(A) Hong Kong-America Center

The Hong Kong America Center has been in operation since April 1993 with support from three Hong Kong Universities: Chinese University of Hong Kong, Baptist University and Hong Kong University. The Center seeks to increase mutual understanding between Hong Kong and the United States through workshops, seminars and conferences on issues dealing with the United States and Hong Kong. USIA provided a start-up grant to the Center but no longer provides direct funding. The Center focuses fund-raising efforts on potential local and American sponsors. Developing an endowment adequate to guarantee programming through the year 2000 is an urgent priority.

The Center includes an American Studies library based on a donation of 7,000 books by USIA and is gradually developing a focus on American Studies and issues related to Hong Kong-U.S. relations. It will support American Studies in the immediate area (Hong Kong, South China) and to a lesser extent over the whole of Southeast Asia. Each year the Center will host a number of scholars in residence from the U.S. and provide facilities for fellows from the PRC to pursue work in the field of American Studies. USIA has agreed to provide a Fulbright Scholar each year to serve as co-director of the Center and has provided support for its programs and activities. The Center's Board of Governors is made up of prominent American and Hong Kong leaders from the business and academic communities.

(B) Advisory Services for Study in the U.S.

The Center holds the office of the Institute of International Education (IIE), which provides educational advisory services to thousands of Hong Kong students wishing to pursue studies in the U.S. The IIE organizes academic fairs and briefs American educators on opportunities in Hong Kong. Substantial funds are generated for American educational institutions from business endowments, alumni groups in Hong Kong and the large number of Hong Kong students enrolling in U.S. schools each year. IIE's operations are supported by an annual grant from USIA.

( C) The Fulbright Program

The relatively small Hong Kong Fulbright Academic Exchange program has separate status from that of the U.K. program. It brings three professors and 6-8 students each year from the U.S. to Hong Kong. No Hong Kong scholars are currently participating in the program for lack of local funding from private or government sources. The Hong Kong Government, however, shows interest in funding Hong Kong scholars' participation through the Hong Kong-American Center beginning in 1995. Hong Kong Government funding would be a significant boost to the program without increasing U.S. Government costs.

(D) Artistic and Intellectual Exchanges

To strengthen official American links to the cultural and artistic community prior to 1997, USIA sponsored the residency of two American performing artists in 1994 for separate programs with Hong Kong institutions under the Cultural Specialists program. In 1995, another American artist worked with the Hong Kong Performing Arts Academy. USIA also supported presentations of artists and lecturers from the United States in 1994 and 1995 to foster links between American and local cultural institutions. In 1994, an exchange of museum curators between the Hong Kong Museum of Art and the Peabody Museum was sponsored under the International Partnership Among Museums program. Exchanges of exhibitions are to take place in 1996 and 1997. A similar exchange is being considered between the Hong Kong Museum of Science and a counterpart institution in the United States.

(E) Support for Democracy and Freedom of the Press

As further discussed in Section VII, self-censorship in Hong Kong's media is reported to be a growing problem. In 1994, USIA together with the non-governmental Hong Kong Journalists Association supported a week-long seminar on freedom of information in Hong Kong through a U.S. speaker/consultant. In the same year, eight Hong Kong Legislative Council members and staff traveled to the U.S. to participate in a three-week program with the United States Congress and the Wisconsin State Legislature to better understand the U.S. democratic process with a view toward strengthening Hong Kong's legislature. This program was sponsored by the National Committee for U.S.-China Relations (NCUSCR) and USIA.

Through the USIA's International Visitors Program (IVP), representatives from Hong Kong's developing political parties have participated in programs aimed at developing understanding of American democratic institutions. (For further discussion of the mission's IVP, see Subsection (G) below.) U.S. non-governmental organizations in Hong Kon are also playing a constructive role in support of democracy and press freedom. The American Chamber of Commerce has sponsored a series on press freedom in a program open to the public. Freedom Forum, which established a regional office in Hong Kong in January 1994, conducts an active program of seminars, conferences and symposia examining issues facing journalists in Hong Kong as well as in the region. Freedom Forum has also sponsored Hong Kong journalists to speak overseas.

(F) Promoting American Studies in Hong Kong

In 1992-93, American Studies were initiated as a course of study for the first time at Hong Kong University. This program is supported by United States Government contributions, a Fulbright scholar every year and a three-year (1994-97) USIA University Affiliations grant between HKU and the University of Kansas. In 1994, the College of William and Mary began an exchange program in American Studies with HKU through HK-America Center.

(G) International Visitor Exchanges

USIA's International Visitor Program supports a wide variety of professional exchanges for mission-sponsored candidates. In 1993, 1994, and 1995, this program sent ten or more individuals each year to the United States on the recommendation of Hong Kong-based State Department, USIA, U.S. Customs Service, Immigration Service, Drug Enforcement Agency and other agency representatives.

(H) Unofficial Academic Exchanges

Exchanges between Hong kong and American universitites have grown during the last ten years. There are exchanges in place between Hong Kong universities and Yale, Columbia, Johns Hopkins, UCLA, Princeton, the University of Alabama and many other large and small American colleges and universities. Five to six thousand Hong Kong students go to the U.S. every year for graduate and undergraduate study; there are about 14,000 Hong Kong students now studying in the U.S. and approximately 60,000 returned graduates of American institutions living and working in the territory. The United States Consulate General actively encourages this exchange through support for student counseling , arranging programs and appointments for visiting American university faculty and board memebers, support for educational fairs, and advice on U.S. visa requirements.

IV. APPLICATION OF UNITED STATES LAWS

The laws of the United States with repsect to which the application of section 201(a) has been suspended pursuant to section 202(a) or with respect to which such a suspension has been terminated pursuant to section 202(d), and the reasons for the suspension of termination, as the case may be.

This section does not apply until on or after July 1, 1997.

V. TREATIES AND OTHER INTERNATIONAL AGREEMENTS

Treaties and other international agreements with respect to which the President has made a determination described in the last sentence of section 201(b), and the reasons for each such determination.

This section does not apply until on or after July 1, 1997.

VI. SIGNIFICANT PROBLEMS IN BILATERAL COOPERATION ON EXPORT CONTROLS

Significant problems in cooperation between Hong Kong and the United States in the area of export controls.

Hong Kong cooperates closely with the United Staes to ensure strategic goods are not diverted illegally to proscribed destinations. Hong Kong's Trade Department requires a license for the import or export of weapons or military-related equipment, nuclear, chemical and dual use items. Trained personnel use computers to review all licenses to ascertain the relationship between the level of technology and the end use involved.

Hong Kong Customs carries out preventive controls, which include routine checks of cargo at entry/exit points and searches of vehicles and vessels to ensure that all strategic goods shipments have been approved by the Hong Kong Government. Random and targeted searches are conducted; cargo manifests are scrutinized. Hong Kong Customs officers also conduct pre- and post-shipment checks at various premises to verify that strategic goods are actually delivered to the proper destinations and used for the purposes described.

During 1992, the United States determined that Hong Kong's control regime was efficient enough to warrant the benefit of license-free export of most controlled high technology dual use goods under section 5(k) of the Export Control Act. Officials from the Hong Kong and United States governments have continued to exchange information, ranging from routine checks on items under munitions controls to more serious cases where diversion has been suspected. Cooperation has been exemplary and these vigorous enforcement efforts show Hong Kong's strong desire to remain a separate customs jurisdiction dedicated to the proper control of trade in strategic goods.

VII. THE DEVELOPMENT OF DEMOCRATIC INSTITUTIONS IN HONG KONG

Hong Kong is a free society with most individual freedoms and rights protected by law and custom. The people of Hong Kong do not have the right to choose their governor, although the number of district, municipal and legislative council seats open to direct election has been expanded since 1991, when the first direct elections were held. Hong Kong's constitutional arrangements are defined by the Letters Patent and Royal Instructions. The governor is appointed by the serves at the pleasure of the Crown. He is advised on policy by an Executive Council which he appoints. The governor has ultimate control of the administration of the territory but, by convention, rarely exercises his full powers. Although basic oversight responsibilities rest with the British Parliament, in practice, Hong Kong largely controls its own internal affairs and enjoys a high degree of autonomy in its relations with the rest of the world.

(A) Electoral Law Changes

Governor Patten in 1992 proposed modest measures to move toward a more accountable and democratic political system. Following 17 rounds of unsuccessful talks between the UK and the PRC in 1993, and over Beijing's strong objections, the Legislative Council (Legco) on June 29, 1994 approved proposals to lower the voting age from 21 to 18, open all district and municipal board seats to direct election, and significantly increase the number of voters selecting legislators in Legco for seats determined through indirect elections. The Hong Kong Government has implemented legislation abolishing all appointed Legco seats in the 1995 election. The 1994 and 1995 elections for district, municipal and legislative seats have been and will be conducted on the basis of Governor Patten's reform package.

These measures will not result in a fully representative, democratically elected government. Representative government employing universal franchise now exists at the local district board and municipal council levels, where members for the first time were elected in 1994 and 1995. However, of the Legislative Council's 60 members, only 20 will be elected by universal suffrage in the September 1995 election.

Due to disagreements over Governor Patten's reform proposals for elected bodies, China has threatened to dismantle those elected bodies when Hong Kong reverts to Chinese sovereignty on July 1, 1997. The U.S. Government has urged that all concerned work assiduously to forestall any such action which could arouse political uncertainties having a most deleterious impact upon confidence in Hong Kong. The U.S. strongly supports the continued development of democratic institutions in Hong Kong and the conduct of free and fair elections after July 1, 1997.

(B) Political Party Development

The opening of greater numbers of government board and council seats to direct election since 1991 has been a major impetus for political party formation. Three major parties -- the Democratic Party, the Democratic Alliance for the Betterment of Hong Kong, and the Liberal Party -- actively participate in the election process and have representatives elected or appointed to local boards and the Legislative Council. These major parties plan to participate in future Hong Kong elections -- both before and after 1997. A reported remark by a New China News Agency (NCNA) official in Hong Kong that NCNA supported inter-party coordination among pro-Beijing political groups and would liaise with pro-PRC parties stirred concerns over PRC interference in the election process.

Hong Kong political party leaders' meetings with visiting U.S. Congressional members, participation in the International Visitors Program, and contacts with NGOs such as the International Republican Institute provide international recognition of and support for local party development. The U.S. Consulate General in Hong Kong also maintains good relations with all major political groups.

( C) Concern Over the Legal System

Hong Kong's judiciary is an independent body operating according to the precepts of common law with certain variations. Legal protections and common law traditions provide substantial and effective legal protections against arbitrary arrest or detention. The right to a fair public trial is respected. The Sino-UK Joint Declaration and China's Basic Law make clear that this system is to continue.

Although China and the U.K. have agreed to establish a Court of Final Appeal (CFA) before 1997 to replace the British Privy Council, Beijing so far has not endorsed the Hong Kong Government's draft legislation designed to implement the 1991 agreement. There is widespread support for establishing the Court before 1997. However, the Hong Kong legal community is divided on whether the 1991 agreement goes far enough to ensure a functional and independent CFA. Legco members critical of the agreement also have promised to amend the implementing legislation when it is introduced. Also, as mentioned in Section II(B) above, the adaptation of current Hong Kong laws to the post-1997 period will be critical to the continuance of Hong Kong's legal system.

The continuance of Hong Kong laws and the legal system beyond 1997 will be a key factor in the territroy's ability to maintain its promised high degree of autonomy. Furthermore, as Hong Kong's transparent and predictable legal system and regulatory climate have been a major draw for international business, the establishment of a CFA before 1997 would be a crucial step in maintaining confidence in Hong Kong's ability to operate an effective legal system after the transition.

(D) Freedom of Expression

Hong Kong has a tradition of free speech and press. Political debate is dynamic and raucous, and a wide range of political opinion and commentary continues to be well represented in the media. However, with the approaching reversion to Chinese sovereignty, it is believed that some journalists have begun to consider the possible Chinese reaction to what they write. Self-censorship is thus a growing issue. Several incidents in 1994 had a sobering effect on Hong Kong's media and on the media's judgments of the future press environment after 1997. These included the admission by China's Ministry of Public Security that it has been gathering information in Hong Kong residents who are "against the Chinese Government," the PRC's secret trial and sentencing of Hong Kong reporter Xi Yang to 12 years' imprisonment for stealing "state financial secrets," and Chinese Government actions taken against Hong Kong businessman/publisher Jimmy Lai's commercial establishments in Beijing after Lai published an open letter critical of Chinese Premier Li Peng.

The following incidents are widely believed in Hong Kong to involve questions of freedom of the press. Asia Television (ATV) executives in June 1994 attempted to cancel a news program about the fifth anniversary of the June 4, 1989, Tiananmen Massacre. (After the resignation of newsroom staff in protest, the program was aired.) In April 1994, the Newscorp Satellite Broadcasting Station, STAR TV, terminated broadcast of BBC news from its northern beam, which covers China and Hong Kong. Many believe that Newscorp did so because of Chinese Government objections to the BBC's critical reporting on China. And in a move that drew public criticism, Televison Braodcast, Ltd. (TVB) management decided against airing two BBC documentaries on China which bought from the BBC in the latter half of 1993, including "Chairman Mao, The Last Emperor" which the PRC condemned.

A free press is especially important to Hong Kong, which relies on the free flow of information and ideas. It is essential to Hong Kong's future as a major center of international trade and finance. The United States Government has supported and will continue to support strongly press freedom for Hong Kong journalists, editors and publishers as it does for the media around the world.

VIII. PARTICIPATION IN MULTILATERAL FORUMS

The nature and extent of Hong Kong's participation in multilateral forums.

(A) International organizations in which Hong Kong's continued participation afer 1997 has been agreed to in the JLG:

Asian Development Bank (ADB)
Asian and Pacific Development Centre (APDC)
Asia-Pacific Postal Union (APPU)
Asia-Pacific Telecommunity (APT)
Customs Co-operation Council (CCC)
Economic and Social Commission for Asia and the Pacific (ESCAP)
Food and Agriculture Organization (FAO)
General Agreement on Tariffs and Trade (GATT)
Intergovernmental Typhoon Committee (ITC)
International Atomic Energy Agency (IAEA)
International Bank for Reconstruction and Development (IBRD)
International Criminal Poilice Organization (INTERPOL)
International Development Association (IDA)
International Finance Corportation (IFC)
International Hydrographic Organization (IHO)
International Labour Organization (ILO)
International Maritime Organization (IMO)
International Maritime Satellite Organization (INMARSAT)
International Monetary Fund (IMF)
International Telecommunications Satellite Organization (INTELSAT)
International Telecommunications Union (IMF)
Multilateral Investment Guarantee Agency (MIGA)
Network of Aquaculture Centres in Asia and the Pacific (NACA)
Statistical Institute for Asia and the Pacific (SIAP)
United Nations Commission on Narcotic Drugs (UNCND)
United Nations Conference on Trade and Development (UNCTAD)
Universal Postal Union (UPU)
World Health Organization (WHO)
World Intellectual Property Organizatoin (WIPO)
World Meteorological Organization (WMO)

(B) International organizations in which Hong Kong currently participates, but JLG approval for post-1997 participation remains pending:

Asian Productivity Organization (APO)
International Civil Aviation Organization

( C) Other organizations in which Hong Kong currently participates, and which JLG agreement is not required for Hong Kong's continued participation:

Asia Pacific Economic Forum
Asia-Pacific Metrology Program
International Association of Lighthouse Authorities
International Association of Ports and Harbours
International Oganization for Standardization
National Conference of Standards Laboratories
United Nations Development Program
United Nations Environment Program
United National Fund for Drug Abuse Control
United Nations Fund for Populations Activities