Legislative Council

LC Paper No. CB(1) 1093/98-99
(These minutes have been seen
by the Administration)

Ref: CB1/PL/TI/1

Panel on Trade and Industry

Minutes of meeting held on Monday, 1 February 1999, at 2:30 pm in the Chamber of the Legislative Council Building Members present :

Hon CHAN Kam-lam (Chairman)
Hon Kenneth TING Woo-shou, JP
Hon James TIEN Pei-chun, JP
Hon Cyd HO Sau-lan
Hon NG Leung-sing
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon MA Fung-kwok
Hon CHEUNG Man-kwong
Hon HUI Cheung-ching
Hon CHAN Kwok-keung
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon SIN Chung-kai
Dr Hon Philip WONG Yu-hong

Members absent :

Dr Hon LUI Ming-wah, JP (Deputy Chairman)
Hon David CHU Yu-lin
Prof Hon NG Ching-fai

Public officers attending:

For Item IV

Miss CHEUNG Siu-hing,
Deputy Secretary for Trade and Industry

Miss Annie TANG,
Director-General of Industry (Acting)

Ms Annie CHOI,
Assistant Director-General of Industry (Technology Development)

Mr Sidney CHAN,
Assistant Director-General of Industry (Development Support)

For item V

Miss CHEUNG Siu-hing,
Deputy Secretary for Trade and Industry

Assistant Director of Intellectual Property (Acting)
Attendance by invitation:
For item V

The Federation of Hong Kong Hotel Owners Limited

Ms Paddy LUI
Mr Clarence SHUN WAH
Mr Michael LI
Mr George TO
Mr Lambert YUNG
Ms CHAN Shuk-fong

Composers and Authors Society of Hong Kong Ltd.

Mr Malcolm BARNETT,

Mr Leslie CHING,
General Manager

Mr Timothy YUEN,
Licensing Manager

International Federation of the Phonographic Industry

Mr GIOUW Jui-chian,
Regional Director, Asia

Mr Sean MOK Kwong-fai,
Deputy Director

Ms Pat TSANG Pak-lin,
General Manager
Clerk in attendance :
Ms LEUNG Siu-kum,
Chief Assistant Secretary (1)2
Staff in attendance :
Miss Becky YU,
Senior Assistant Secretary (1)3
I Confirmation of minutes of previous meeting
(LC Paper No. CB(1) 790/98-99)

The minutes of the meeting held on 14 December 1998 were confirmed.

II Information paper issued since last meeting
(LC Paper No. CB(1) 776/98-99)

2. Members took note of the information paper on survey findings on bank charges and facilities provided by the Small and Medium Enterprises Committee of the Hong Kong General Chamber of Commerce.

III Date of next meeting and items for discussion

3. The next meeting would be held on Monday, 1 March 1999, at 2:30 pm to discuss the subject on "Combating copyright piracy: Possible additional legal tools". Members of the Panel on Security would be invited to join in the discussion.

4. Members agreed that future meetings of the Panel for the remaining legislative session would be held on 12 April, 3 May, 7 June and 5 July 1999, at 2:30 pm.

(Post-meeting note: The meeting on 12 April 1999 was subsequently re-scheduled to Tuesday, 13 April 1999, at 10:45 am.)

IV Existing funding schemes for manufacturing and service industries
(LC Paper No. CB(1) 814/98-99)

5. At the invitation of the Chairman, the Deputy Secretary for Trade and Industry (DSTI) highlighted the salient points in the information paper. At present, there were three funding schemes administered by the Industry Department (ID) to support the development of local manufacturing and service industries. These included the Applied Research Fund (ARF), the Industrial Support Fund (ISF) and the Service Support Fund (SSF). Each of these schemes had a specific mission, namely ARF encouraged technology ventures; ISF supported projects to upgrade the competitiveness or technological development of Hong Kong's manufacturing industry; and SSF financed projects of benefit to the service sector. The Administration had also accepted the recommendation of the Chief Executive's Commission on Innovation and Technology to set up an Innovation and Technology Fund (ITF) to finance ad hoc projects that contributed to innovation or technology upgrading. In working out the details of ITF and its various programmes, the Administration's preliminary view was that ISF and SSF should be subsumed under ITF to avoid a proliferation of funding schemes. DSTI added that the Administration would consult members in due course when the modus operandus of ITF was finalized.

Applied Research Fund

6. As to whether the Administration would consider combining ARF with ITF, DSTI said that she was not in a position to comment on this as the details for ITF had yet to be worked out. In the meantime, the Administration had appointed three venture capital firms in the private sector to manage ARF with a view to maximizing the effectiveness of the Fund.

Industrial Support Fund

7. Mrs Selina CHOW pointed out that the application form for ISF was so complicated that some applicants had to employ external specialists to complete the form. She cautioned that this might deter the interest of potential applicants. While acknowledging Mrs CHOW's concern, the Director-General of Industry (Acting) (DGI (Ag)) advised that a detailed application form was necessary to capture the essential data that would be used for the effective assessment and monitoring of the projects; if this first step was not done properly, the potential for misallocation of funds could be serious. She added that applicants could team up with universities or industry support bodies such as the Hong Kong Productivity Council where assistance in respect of application procedure and actual research and development (R&D) work was readily available. Mrs Sophie LEUNG asked if the Administration would consider contracting out ISF to venture capital firms in the private sector as in the case of ARF to enhance project identification on the one hand and to avoid complicated application procedure on the other. DSTI replied that this would be considered in the context of deliberations on the interface between ISF/SSF and ITF. She also took note of Mr SIN Chung-kai's suggestion of uploading information on successful ISF applications onto the Internet for reference of prospective applicants.

8. On the breakdown of ISF projects, the Assistant Director-General of Industry (Technology Development) (ADGI(T)) advised that by December 1998, there were 373 projects supported by ISF. Of these, 157 were conducted by higher education institutions; 118 by industry support bodies; 49 by trade and industry associations; 30 by professional bodies and research institutes; 18 by ID; and 1 by local company. She added that the small number of projects from individual companies did not mean that private enterprises were not interested in ISF. She advised that consequent upon the review of ISF in 1998, project teams were required to get one or more local companies to put forward sponsorship in cash or in kind. Mere support letters would no longer suffice. This requirement aimed to ensure that ISF projects were market-driven and were relevant to the needs of industry.

9. Mr SIN expressed concern about the division of labour in R&D work between ISF and universities since the latter also received funding from the University Grants Committee to undertake research. DSTI considered that there should not be any overlapping in R&D work as universities focused mainly on fundamental and upstream research while ISF on market-related R&D. Since 157 out of the 373 ISF projects were conducted by universities, Mr James TIEN expressed worries that these projects were too academic oriented and might not be relevant to the needs of the industry. He cautioned that it would defeat the purpose of ISF if the project results concerned had no prospect for commercialization. Mr TIEN then enquired about the number of ISF projects which had been successfully commercialized. ADGI(T) advised that 82 out of the 373 projects under ISF had been completed. Of these 82 projects, the deliverables of 67 projects had been adopted by the private sector. Examples included the development of advanced fermentation process and flavour analysis techniques for the food industry and the development of electroforming technologies for the jewellery industry etc. At members' request, the Administration undertook to provide further details of the 373 projects and the number of projects which had been successfully commercialized or adopted by the private sector.

(Post-meeting note: The Administration's response was circulated vide LC Paper No. CB(1) 921/98-99.)

10. Mrs CHOW noted that ISF project teams were required to make available the project results to companies within the relevant sector. She expressed concern that such a requirement might discourage potential applications from interested companies as they might not be willing to share the project results. To overcome the problem, Mrs CHOW considered that the Administration should devise incentives such as setting a specified period within which project teams could have exclusive rights to use the respective project results before these were disseminated to the relevant industrial sector. In response, DGI (Ag) said that ISF was established to provide funding support to projects which might contribute to the competitiveness or technological development of the local manufacturing industry as a whole or a specific sector within it. It was therefore not unreasonable to require project teams to make available their project results to companies within the relevant sector. Nevertheless, DGI (Ag) confirmed that ISF funding guidelines made clear that intellectual property rights of the funded projects under ISF belonged to the initiator of the projects and not the Government; sponsoring companies could be given the priority right to use the project results.

11. As to how the Administration could assess the effectiveness of ISF projects, DGI (Ag) explained that in assessing project applications, priority in approval was given to projects which had secured private sector sponsors. Preliminary screening of applications was carried out by ID, to be followed by detailed vetting by the seven respective committees of the Industry and Technology Development Council (ITDC). An overview would then be provided by the Project Vetting Committee chaired by DGI in consultation with the Chairmen of the seven committees, and the results of the deliberations would be submitted for final endorsement by ITDC. In view of the diverse nature of ISF projects which ranged from providing communal infrastructural facilities, developing new technologies or products and introducing new manufacturing techniques to improving production processes and carrying out promotional activities for individual sectors, DGI (Ag) considered it difficult to use one set of yardsticks to quantify the actual effectiveness of the different projects. Similarly, the exact amount of investment in a new production process spawned by an ISF project might not be easy to establish given the sensitive commercial information involved and the spin-off effects. As a member of ITDC, Mr Kenneth TING confirmed that ITDC constantly monitored the progress of each ISF project. The requirement for project teams to publicize project results to companies in the relevant industry was indeed a post-project evaluation to enable ITDC to gauge the views of these companies on whether the deliverables were relevant to the needs of the industry. Mrs LEUNG who was a vetting member of one of ITDC industry committees also agreed that ISF was able to achieve its objective of upgrading the competitiveness and technological development of local manufacturing industry.

12. While acknowledging the Administration's explanation, some members insisted that certain evaluation criteria, such as the issue of post-project questionnaires to participants of training-related projects and promotional activities should be adopted to assess the effectiveness of ISF projects to ensure the proper use of public funding resources. This was particularly important with the impending injection of $5 billion into ITF. DGI (Ag) took note of members' concern and advised that such questionnaires and a range of other yardsticks were already in place to assess the effectiveness of ISF projects. An information paper on these measures would be provided to members later.

(Post-meeting note: The Administration's response was circulated vide LC Paper No. CB(1) 921/98-99.)

Innovation and Technology Fund

13. Mr CHEUNG Man-kwong expressed worries that applications which were not related to technology upgrading would not be accepted once ISF and SSF were subsumed under ITF. He considered that the Administration should earmark a certain percentage of ITF for these companies. DSTI undertook to consider Mr CHEUNG's view.Admin

V.Fee for the use of copyright works

Meeting with the Federation of Hong Kong Hotel Owners Limited
(LC Paper No. CB(1) 814/98-99(02))

14. On behalf of the Federation of Hong Kong Owners Limited (the Federation), Mr Michael LI expressed grave concern on the lack of provisions under the Copyright Ordinance (the Ordinance) governing the charging of copyright royalties by collecting societies. He pointed out that unlike places such as the New York State of the United States (US) where copyright licence fees were regulated by legislation, royalty payments in Hong Kong were determined entirely at the discretion of collecting societies. Moreover, as individual collecting societies had their own tariff systems, user institutions such as hotels were vulnerable to double charging of royalty payments. By way of illustration, royalty charges on hotels in Hong Kong were higher than those in US and Singapore. According to information, royalty charges payable by Hong Kong hotels with live music only and those with background music, live music and discotheque were 61% and 131% higher than that by their counterparts in US respectively. To facilitate members' understanding, Mr LI tabled a supplementary information paper on a comparison of copyright licence fees charged by the Composers and Authors Society of Hong Kong Limited (CASH) and the International Federation of the Phonographic Industry (IFPI) with those by the Broadcast Music Incorporation and the American Society of Composers, Authors and Publishers in US. Mr LI added that the licence agreements entered between the Federation and collecting societies did not provide for regular review of tariffs. He also expressed dissatisfaction with the composition of the Copyright Tribunal as it comprised mainly members directly or indirectly related to collecting societies without any representative from user institutions. Mr LI therefore recommended that the Administration should review the Ordinance and introduce amendments where appropriate.

16. In response to Mrs CHOW's question, Mr LI confirmed that the Federation had never sought adjudication from the Copyright Tribunal on royalty disputes since they did not have confidence in the Tribunal. The possible cost incurred was another cause of concern. As the Chairman of the former Bills Committee on Copyright Bill, Mrs CHOW remarked that the Bills Committee had considered views of the hotel industry and was in support of the establishment of the Copyright Tribunal. She added that the original legislative intent for such a quasi-judicial Tribunal was to provide an alternative and more economical means than the courts for those aggrieved to seek redress on copyright disputes. She considered it unjust for the Federation to criticize the Tribunal before it had ever approached the Tribunal for arbitrating royalty disputes.

Meeting with the Composer and Authors Society of Hong Kong Limited
(LC Paper No. CB(1) 814/98-99(03))

17. Mr Leslie CHING took the opportunity to clarify some points made by the Federation. Mr CHING considered a direct comparison between the royalty tariff systems in Hong Kong and US inappropriate because of their different circumstances. He pointed out that the collecting societies in the United Kingdom charged higher royalties than those in Hong Kong. Mr CHING stressed that royalty charges in Hong Kong were determined by negotiation between collecting societies and user institutions. Any disputes over these charges should be brought before the Copyright Tribunal for adjudication. He added that although some members of the Tribunal were related to collecting societies, the rest were independent members, including a Legislative Councillor. Furthermore, the Chairman of the Tribunal was empowered to appoint different Tribunal members as adjudicators for different cases to avoid conflict of interest. Meeting with the International Federation of the Phonographic Industry
(LC Paper No. CB(1) 814/98-99(04)

18. Ms Pat TSANG Pak-lin was of the view that the existing copyright protection regime had provided a level playing field for all relevant parties. She stressed that as copyright licensing was a commercial matter between copyright owners and users, the rate of royalty charges should be determined by negotiation between the two parties concerned rather than by legislation as suggested by the Federation. It was worth noted that IFPI had been able to reach amiable agreements with user institutions on licence fees in the past. The latest negotiation with the Federation on licence fees for karaoke in hotels was held in February 1997 but later withheld by the Federation. Nevertheless, IFPI was prepared to re-open the negotiation upon request of the Federation. Mr GIOUW Jui-chian added that hotels which did not wish to pay licence fees to IFPI could choose other alternatives such as using sound recordings not belonging to members of IFPI or offering live performances.

Meeting with the Administration
(LC Paper No. CB(1) 814/98-99(05))

19. Members expressed concern that the appeal mechanism under the Ordinance would become futile if parties concerned were reluctant to bring their cases to the Copyright Tribunal for arbitration. They asked how the Administration could address the Federation's grievance on the composition of the Tribunal. DSTI replied that as the Tribunal was a quasi-judicial body established under the Ordinance and formed part of the judicial system in Hong Kong, the Administration had been very cautious in the appointment of its membership. The Chairman and Vice Chairman of the Tribunal were highly-qualified persons eligible for appointment as district court judges. The seven members of the Tribunal had been appointed from a wide spectrum of the society to ensure the interests of various sectors were represented. These included representatives from the accounting profession, academics, composers, the retailing sector and also a member of the Consumer Council. DSTI emphasized that the inclusion of members related to collecting societies in the Tribunal was on account of their expertise on copyright protection. As a member of the Tribunal, Mr MA Fung-kwok confirmed that only a few members of the Tribunal were related to collecting societies. To avoid conflict of interest, the appointment of an adjudicator to a case had to be agreed by the two concerned parties in dispute.

20. As to whether the Administration would consider including representatives from user institutions to the Tribunal to ensure impartiality, DSTI stressed that the credibility of the Tribunal with its present composition was beyond any doubt. She nevertheless undertook to examine the feasibility of enlarging the membership of the Tribunal to include representatives from the user institutions in due course.Admin

VI Any other business

21. There being no other business, the meeting ended at 4:30 pm.

Legislative Council Secretariat
9 April 1999