Legislative Council

LC Paper No. CB(1) 790/98-99
(These minutes have been seen
by the Administration)

Ref: CB1/PL/TI/1

Panel on Trade and Industry
Minutes of meeting held on Monday, 14 December 1998, at 8:30 am in Conference Room B of the Legislative Council Building

Members present :

Hon CHAN Kam-lam (Chairman)
Dr Hon LUI Ming-wah, JP (Deputy Chairman)
Hon James TIEN Pei-chun, JP
Hon NG Leung-sing
Prof Hon NG Ching-fai
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon CHEUNG Man-kwong
Hon HUI Cheung-ching
Hon SIN Chung-kai
Dr Hon Philip WONG Yu-hong

Members absent :

Hon Kenneth TING Woo-shou, JP
Hon David CHU Yu-lin
Hon Cyd HO Sau-lan
Hon MA Fung-kwok
Hon CHAN Kwok-keung
Hon Mrs Sophie LEUNG LAU Yau-fun, JP

Public officers attending:
For Item IV

Mr Francis HO,
Director-General of Industry

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

For Item V

Mr Stephen Selby,
Director of Intellectual Property

Mr Rayman J Perera,
Deputy Director of Intellectual Property

Miss CHEUNG Siu-hing,
Deputy Secretary for Trade and Industry
By invitation :
For Item VI

Business and Services Promotion Unit
Mr M J T Rowse, Director
Miss Leonia TAI, Assistant Director (Special Duties)
Mrs Brenda YIP, Principal Management Services Officer
Mrs Edith TONG, Chief Executive Officer (Services Promotion)
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) 564/98-99)

The minutes of the meeting held on 3 November 1998 were confirmed.

II Information paper issued since last meeting

2. Members noted that an information paper on "Prepayment for goods and services" was circulated vide LC Paper No. CB(1) 598/98-99 on 8 December 1998.

III Date of next meeting and items for discussion

3. Members agreed that future meetings of the Panel up to March 1999 would be held on 4 January, 1 February and 1 March 1999, at 2:30 pm.

4. For the meeting on 4 January 1999, members agreed to discuss the subjects on "Special Finance Scheme for small and medium enterprises" and "Pirated recording of movies in cinemas".

IV Special Finance Scheme for small and medium enterprises
(LC Paper No. CB(1) 605/98-99)

5. Members were disappointed that only a small amount of funding had been approved since the implementation of the Special Finance Scheme (SFS) in August 1998. They were of the view that the under-utilization of SFS was attributed to the stringent lending criteria viz. the availability of collateral rather than business prospect adopted by lending institutions in assessing applicants' credit worthiness. The significant discrepancy between the number of successful applications from the manufacturing sector and the wholesale and retail sector was a case in point as the latter usually had difficulties in providing sufficient capital assets as collateral. Mr James TIEN cautioned that such assessment criteria would defeat the original purpose of SFS to help those small and medium enterprises (SMEs) which had difficulties in obtaining adequate financing from lending institutions. He asked the Administration to consider the experience of some overseas countries where the Government set up a fund and acted as the sole lender whilst the banks only participated as the handling agent in processing applications and charged a certain amount of handling fees.

6. While acknowledging members' concern, the Director-General of Industry (DGI) advised that amidst the economic downturn, it was understandable that lending institutions would tend to be more cautious in approving loan applications to reduce risk. Thus, applicants in sectors with a better prospect for revival and who could provide evidence to substantiate their repaying ability, such as those in the manufacturing sector, would have an advantage over their counterparts in other sectors, including the wholesale and retail sector, in obtaining loans from lending institutions. On the suggestion of increasing the Government's risk sharing ratio of SFS, DGI stressed that this had to be considered carefully to avoid abuse. While agreeing that SFS applications should be assessed prudently as these involved public money, Dr LUI Ming-wah remained of the view that the establishment of a development bank was the most effective way to mobilize government funds to meet the business needs of enterprises.

7. Mr CHEUNG Man-kwong opined that apart from lending institutions, the Administration should consider entrusting part of SFS to venture capital firms in the private sector as was the case with the Applied Research Fund (ARF). This would ensure that SFS applications would be assessed on the basis of track record and business prospects rather than the availability of collateral. In reply, DGI considered a direct comparison between ARF and SFS inappropriate as the former was only confined to technology-based companies while the latter was open to a wide range of trades. It would not be possible to have Fund Managers capable of assessing the different development potential of all these trades. Furthermore, the relevant administrative costs would be very substantial in view of the quantity and complexity of applications involved. As regards the allegation that some lending institutions were using SFS to offset other loans accrued from the beneficiaries, DGI said that it would be difficult to substantiate such a claim, in particular for those who used properties as security for loans and in any case might face a cut in their credit line as a result of the fall in property prices. Moreover, as beneficiaries usually had different loan accounts, virement of fund among these accounts might be mistaken for the purpose of offsetting loans by using SFS funding.

8. As regards details of the review on SFS, DGI explained that this would be conducted in early 1999. The aim of the review was to assess whether SFS had met its objective of assisting SMEs to obtain financing, and whether and how improvements should be made. In the meantime, the Administration was conducting an opinion survey to collect views from the financial sector, various commercial chambers and organizations as well as SME practitioners. Taken into account the findings of the survey, a final report on the review was expected to be ready in mid-February 1999. Members however urged the Administration to include in the survey analysis of all the applications received by the banks, and not only those subsequently referred to the Government.

V Trade Marks Bill
(LC Paper No. CB(1) 605/98-99(02))

9. At the invitation of the Chairman, the Director of Intellectual Property (DIP) briefed members on the information paper setting out the main provisions of the draft Trade Marks Bill. The Deputy Secretary for Trade and Industry supplemented that in addition to seeking members' views, the Administration would consult the professional organizations on a revised draft Trade Marks Bill in December 1998. Subject to the outcome of the consultation, the Administration planned to introduce the finalized Trade Marks Bill into the Legislative Council within the current legislative year.

10. On registration of trade marks, DIP advised that upon receipt of an application for registration of a trade mark, the Registrar would check to ensure that the mark had not been registered in Hong Kong, and that it would not create confusion on the part of the public because of a similarity of the mark with an earlier registered trade mark. When such an application had been accepted, the Registrar would publish the mark in the Gazette. Any person might, within the prescribed period of time, gave notice of opposition to registration to the Registrar. If no objections had been received, the trade mark would be registered for an initial period of 14 years from the date of registration, subject to further renewal for an unlimited number of seven-year periods. The Administration was considering reducing the duration of protection to ten years with unlimited ten-year renewals. DIP however admitted that overseas trade mark holders might not be aware of conflicting trade marks being registered in Hong Kong since the circulation of the Gazette was only confined to Hong Kong.

11. Mr TIEN expressed concern that someone might register an overseas trade mark in Hong Kong with a view to selling it back to the original trade mark holder later when the latter opened business in Hong Kong. The Deputy Director of Intellectual Property (DDIP) explained that under the draft Bill, any application for registration of trade marks had to be made in good faith. In other words, if someone attempted to steal an overseas trade mark and have it registered in Hong Kong, the real trade mark holder could appeal to the Registrar on the ground that such a registration was not made in good faith. As regards the time required for opposition, DDIP advised that this would vary according to individual cases. In general, oppositions lodged during the vetting of applications for registration would only take months whereas those against trade marks which had already been registered would take longer time. Mr TIEN remarked that if the original trade mark holder wanted to open business in Hong Kong expeditiously, he might choose to buy back the trade mark in view of long lag time for opposition.

12. On cancellation of trade marks, DIP confirmed that under the existing Trade Marks Ordinance, any registered trade mark which had no bona fide use for a continuous period of five years could be subject to proceedings for cancellation. The Administration was considering whether such a period should be reduced to three years so that more attractive, unused trade marks could be made available to other interested parties. Dr LUI however considered that the Registrar was entrusted with excessive power to decide on the cancellation of a registered trade mark. He also enquired about the basis upon which the Registrar could determine whether a trade mark had no bona fide use. In response, DDIP clarified that a registered trade mark could only be cancelled on application by an aggrieved person to the Registrar. Upon receipt of the application, the Registrar would issue a notice, together with a statement of the grounds of cancellation to the trade mark holder who was allowed to submit a counter-statement. A copy of which would be sent to the person raising the application for cancellation. The Registrar would then hear the parties concerned and consider the evidence to decide whether the trade mark concerned should be cancelled. Both parties could be represented by lawyers of their own at the hearing if so required. DIP stressed that all decisions of the Registrar were subject to appeal to the Court.

13. On convention priority, Mr HUI Cheung-ching sought clarification on the order of priority in the event that two persons, one from China and the other from a Convention country of the Paris Convention, applied for registration of a trade mark in Hong Kong at the same time. DIP advised that prior to the handover in 1997, both the Chinese and the British Governments had agreed to the continued application of the Paris Convention in Hong Kong. Under the Trade Marks Ordinance, any person who had applied for registration of any trade mark in a Convention country would be accorded priority to register such a trade mark in Hong Kong within six months from the date of application for protection in the Convention country. However, such an arrangement was not applicable to China as Hong Kong was part of China and thus could not be regarded as a Convention country under such circumstances. To address this shortcoming, the Administration was considering to accord priority registration unilaterally to applicants who had made the trade mark registration in China. It was hoped that the same arrangement could be reciprocally made in China after it had finalized its relevant legislation on trade marks.

14. While acknowledging Mr HUI's concern on the registration of Hong Kong trade marks in China by people other than their registered proprietors, DIP advised that as China and Hong Kong were two separate legal entities under the Basic Law, it would not be possible for the Administration to interfere in this respect. To enhance protection of their trade marks in China, proprietors concerned were encouraged to register their trade marks in both China and Hong Kong.

15. On protection of well-known marks, Mr CHEUNG expressed worries that someone might be unnecessarily caught by the provision, in particular when some trade marks were well-known in other places but not in Hong Kong. To eliminate any possible grey area, Mr CHEUNG considered that there was a need for an explicit definition for "well-known marks". DDIP replied that there had been cases related to disputes over the use of identical or similar well-known trade marks in other countries, and these could provide guidance for future infringement cases. In determining whether a trade mark was well known, the court would take into account factors such as the sales, advertising conducted and reputation of the trade mark in Hong Kong. Nevertheless, the World Intellectual Property Organization was about to conclude its discussion on the definition of well-known marks in February 1999. The Administration would consider if Hong Kong would also adopt such a definition. While acknowledging the Administration's explanation, Mr CHEUNG remained of the view that the drafting of the provision should be refined to eliminate any grey area.

16. On the use of domain names, DIP advised that this fell outside the purview of the Trade Marks Ordinance. In fact, domain names were collectively administered by a firm in the United States. Nevertheless, DDIP pointed out that under the existing legislation, if anyone used a registered trade mark as a domain name, the original trade mark holder could apply to the court to stop this under the law of passing off. In reply to a related question, DDIP confirmed that at present, if someone sought registration of a domain name as a trade mark, the Registry would require them to disclaim use of non-distinctive abbreviations such as ".com", ".org" or ".hk".

VI The work of Business and Services Promotion Unit
(Legislative Council Brief (Ref. No. FSO/BSPU/4/1/1))

17. Before commencing discussion, the Director, Business and Services Unit (D,BSPU) briefed members on the proposal of upgrading the post of the Head of Helping Business Programme from the current rank of D1 to D2 level. The proposed change was to take account of the increased importance of the Helping Business Programme. This would also bring the post in line with that of the Head of Services Promotion Programme which was also at D2 level. In addition, a supernumerary D2 post had recently been created in the Unit for six months to undertake studies on corporatization of government departments. The post might be subject to extension for another two or three years if further investigation was considered necessary. The relevant proposals would be submitted for approval by the Establishment Subcommittee in due course. Mr TIEN however reiterated that Members of the Liberal Party had reservations at further expansion of the civil service. He requested that BSPU should provide a separate paper explaining the proposals in detail.BSPU

18. D,BSPU then highlighted the salient points in the information paper. He said that one of the most important factors in ensuring that Hong Kong was genuinely business friendly was to secure the right mindset among civil servants. To this end, BSPU had organized, as part of the Chief Secretary for Administration's regular Heads of Department meeting, a Helping Business Symposium in November 1997, followed by a seminar for senior directorate officers in September 1998. Another seminar would he held in March 1999 for officers of D2 rank. BSPU also submitted an article to the civil service newsletter with a view to instilling a helping business culture among civil servants. As regards services promotion, a series of studies would be conducted to see how well Hong Kong would be equipped for the next century. These included, inter alia, studies on the possible need for additional convention facilities, as well as the manpower and training needs of key service industries. In respect of the latter, the first study on the travel and tourism industry had just been completed and another one on the information technology industry would commence shortly.

19. As regards the effectiveness of BSPU in culturing the right mindset among civil servants, D,BSPU stressed that this was a long-term objective. At present, a series of departmental business studies had been arranged to see what improvements could be done to enhance business-friendly service to meet the needs of the business sector. The studies on the Trade Department and the Marine Department had been completed and the one on the Planning Department was underway. To ensure prompt implementation of improvement measures, heads of the departments concerned were required to draw up an implementation plan for submission to the Business Advisory Group (BAG) or its subgroups within three months after completion of the studies, and to follow it up by periodic progress reports. To make Hong Kong genuinely business friendly, Dr LUI opined that the Administration should revamp its current non-interventionist policy and take a more proactive role in helping enterprises to solve their problems. D,BSPU took note of Dr LUI's view and advised that the objective of the Financial Secretary to appoint prominent business figures to BAG and the Services Promotion Strategy Group was to ensure that prompt action could be taken by the Administration in response to concerns raised by the business sector.

20. In reply to Mr TIEN's question on the effectiveness of various improvement measures, D,BSPU confirmed that surveys had been conducted to collect feedback from the business sector. The feedback from authorized persons (APs) revealed that the new procedure to entrust developers to construct utilities connection and run-ins to completed developments had enabled earlier completion of building programmes by one to three months. Developers also welcomed the new lease modification and land exchange procedures which had speeded up the processing time by 30%. D,BSPU envisaged that as the work of BSPU became more widely known, more people would come forward to BSPU direct. To this end, efforts had been made to promote the work of BSPU through different means such as advertising in trade magazines and on the Internet. The Unit would also take part in the SME Exhibition organized by the Industry Department in February 1999 to cultivate a better understanding of the role of BSPU among SMEs.

21. Some members expressed grave concern about the current licensing system. They were dissatisfied that the Administration was using the provisional licence to make up for the long processing time for permanent licence. They pointed out that the long lag time had forced enterprises, in particular those in the restaurant trade, to operate illegally since they could not afford the high rents for the idle premises. Members urged the Administration to set up a one-stop shop for licence to cut down the processing time. In reply, D,BSPU admitted that licensing was a difficult area. To this end, a private consultant had been commissioned to examine the licensing procedures of various departments as a whole. As an interim measure, BSPU would introduce a new system whereby provisional licences could be issued within a short time. He assured members that building safety, health and hygiene etc would not be compromised under the proposed new system as enterprises would be required to employ APs and registered service contractors to ensure compliance with regulatory requirements. The full licence would be issued after completion of inspection by relevant departments. Members however considered that permanent licences should be issued in the first instance if applicants had satisfied the requirements.

22. Mrs Selina CHOW remarked that although regulation per se was not wrong, it would be meaningless if this became business unfriendly. She considered that BSPU should review the regulatory regime to ascertain the need for some of the regulations. D,BSPU agreed that bureaux and departments should not lose sight of the original objective of regulations, and that maximum flexibility should be given for people to achieve the policy objective rather than details for compliance. As regards cost of compliance, D,BSPU replied that a new regulatory impact assessment methodology had been devised to ascertain the cost and benefits of regulatory measures, including those borne by the Government and the business sector, with a view to minimizing the total cost incurred.

VII Any other business

23. There being no other business, the meeting ended at 11:00 am.

Legislative Council Secretariat
22 January 1999