Provisional Legislative Council

PLC Paper No. CB(1) 457

Ref: CB1/PL/TI

Panel on Trade and Industry

Minutes of meeting held on Monday, 13 October 1997, at 11:30 am in the Chamber of the Legislative Council Building

Briefing by the Administration on the Chief Executive's Policy Address 1997

Members present :

Hon NGAI Shiu-kit, JP (Chairman)
Dr Hon Charles YEUNG Chun-kam (Deputy Chairman)
Hon James TIEN Pei-chun, JP
Hon NG Leung-sing
Prof Hon NG Ching-fai
Hon Mrs Selina CHOW, JP
Hon Henry WU
Hon Henry TANG Ying-yen, JP
Hon CHAN Kam-lam
Hon CHIM Pui-chung
Dr Hon LAW Cheung-kwok

Members absent :

Hon HO Sai-chu, JP
Hon MA Fung-kwok
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Dr Hon Philip WONG Yu-hong
Hon Paul CHENG Ming-fun, JP
Hon CHOY So-yuk

Public officers :

Miss Denise YUE, JP,
Secretary for Trade and Industry attending

Mr Alan LAI,
Director-General of Trade

Mr Francis HO,
Director-General of Industry

Mr S F LI,
Commissioner of Customs and Excise

Mr R J Perera,
Acting Director of Intellectual Property

Clerk in attendance :

Ms LEUNG Siu-kum,
Chief Assistant Secretary (1)2

Staff in attendance :

Miss Pauline NG,
Assistant Secretary General 1

Miss Becky YU,
Senior Assistant Secretary (1)3

I.Briefing by the Secretary for Trade and Industry on the Chief Executive's Policy Address

At the invitation of the Chairman, the Secretary for Trade and Industry (S for TI) briefed members on the Government policy commitments in the programme areas of the Trade and Industry Bureau.

Advancement of external trade

2.On the subject of trade liberalization, S for TI responded to a member's question that Hong Kong had always been a staunch advocate of free trade. Any measures which enhanced liberalization of global trade, including the abolition of tariffs and quantitative restrictions on foreign goods would be considered beneficial to the overall economic interest of Hong Kong.

3.Addressing a member's concern on the effect of China's accession to the World Trade Organization (WTO) on Hong Kong, S for TI advised that more business opportunities would arise for entrepreneurs in Hong Kong when China moved towards a more open economy under WTO. Nevertheless, she explained that China was still conducting bilateral negotiations with some WTO members concerning China's application to join WTO. The WTO, as a whole, the exact time-table for China's accession had yet to be decide d by WTO membersChina's application.

4.On trade control system, S for TI advised that the Administration would increase resources to combat illegal transhipment of textile and clothing products as well as illicit trade in strategic commodities. In response to a member's question, she affirmed that the Administration was committed to protecting the legitimate trade of domestic businessmen on the one hand and discharging Hong Kong's international obligations on the other. Various control measures taken were in Hong Kong's own economic interests and by no means as a result of external pressure.

5.As regards trade support and facilitation, S for TI advised that in order to promote a business-friendly environment, the Business and Services Promotion Unit (BSPU) was working closely with the private sector to cut red tape, reduce costs of compliance and improve services provided by the Government. The recent setting up of a one-stop centre for business licence information was a step in this direction. The Director-General offor Trade (DG of T) supplemented that the Trade Department (TD) was implementing a total of 24 recommendations made by management consultants for the development of a pro-business culture and a business-friendly environment for trades.another 28 projects were currently undertaken by BSPU. Some of these were trade-related projects such as simplified re-arrangements of " cold quota " for allocation of " cold " categories of textiles quota and " on-line application " for non-textiles licences. Some members considered that the Administration should control the costs in its service provision and reduce service charges. S for TI noted members' concern and assured members that the Administration Trade Department (TD) and the Intellectual Property Department would consult respective advisory bodies in reviewing the fees for various licences and declarations. She added that a working group between TD and the Textiles Advisory Board had already been set up to study ways to further streamline the textile control system and to contain the level of fees payable by the effect of licensing costs on the textile industry.

6.Some members asked if the Administration would consider lowering the levy of certain items such as the import and export ad valorem levy so as to recover only the operating cost. S for TI explained that at present there were two types of levies: one was intended for cost recovery and the other for generating revenue to support other services. Fees for driving licence and the ad valorem levy referred to fell within the latter category.

Support for Manufacturing and Service Industries

7.In response to a question on Government's support for value-added and high technology industries, the Director-General of Industry (DG of I)T advised that both the Applied Research Fund (ARF) and the Industrial Support Fund were set up to encourage innovation and give support to the development of new technology industries. In respect of ARF, he pointed out He admitted that despite the immense number of applications received, only one-third of the existing $250 million allocatedstarting fund had so far been approved. He considered that pProblems such as sub-standard quality of applications and lack of manpower/expertise in TID to identify potential applicants proactively might have led to this situation. to the low utilization rate of these funds. Subject to a review on itsthe operationof these Funds, he advised that the Administration would take a final decision on whetherthe feasibility of allocating a further $500 million should be allocated to ARF.

8.Some members showed support for the allocation of the $500 and $50 million additional grants to ARF and the Services Support Fund respectively, but they were concerned that these might not be adequate to meet the Administration's objective of upgrading Hong Kong industry in terms of value and technology. S for TI responded that it would be difficult to quantify adequacy since in principle more resources would yield better results. She reiterated that the Administration was committed to creating the necessary physical and supporting infrastructure conducive to the development of high value-added and high technology industries. S for TI added thatAs to whether the Administration had no intention to link Government expenditure on applied research and development (R&D) towould consider allocating a certain percentage of the total value of Hong Kong's Gross Domestic Product as was adopted by some economies. She said that in economies where such linkage was made, the expenditure on R&D encompassed both Government and private sector expenditure. She further noted that merchandize trade or trade in services to fund research and development projects as was the case with the United States and Japan, S for TI advised that a direct comparison would be inappropriate since contributions from the private sector in the countries referred to were included in projecting the research and development expenditure. Furthermore, Hong Kong did not have a defence budget, which in the United States had spun off major basic and applied R&Dresearch and development programmes. In reply to a related question, S for TI reiterated that Hong Kong subscribed fully to free trade and market-led economy and therefore had no intention to sponsor a particular industry. Emphasis would be focused on the development of generic and enabling technologies such as micro-electronic and information technologies which were essential in enhancing the overall competitiveness of Hong Kong's economy.industry.

9.Referring to the need for integration between research work and market requirement, S for TI advised that a high-level committee consisting of on academics, industrialists, businessmen and officials would be set up to advise on measures to make Hong Kong an innovative centre and to turn innovation and technological development into commercial products. Efforts would be made to achieve greater synergy between the Mainland's technological and scientific strengths and commercial and trading skills in Hong Kong. S for TI further advised that Dr YANG Chen-ning had agreed to act as chairman of the committee, but operation details had yet to be decided.

10.On manufacturing industry, given the massive relocation of assembly-type production to Southern China, a member was not convinced that there was a shortage of labour in the textile and clothing industry. He said that the number of workers in this industry had decreased from 400,000 to 100,000 over the last decade as a result of the relocation. S for TI agreed that there had been a significant decrease in the number of workers in the textile and clothing industry, but she attributed this to automation, improvement of productivity and lack of new workers joining the ageing workforce. She advised that a joint working group of textile and clothing manufacturers, the training institutions, labour representatives and Government had been set up to assess the manpower requirements and training needs of the industry.

11.A member expressed concern that traditional manufacturing industries might find it difficult to escalate into higher technology and higher value-added production. She considered that measures such as admission to industrial estates should be introduced to assist future development of these industries. In response, S for TI clarified that industrial estates were designed for industries which could not be operated in ordinary multi-storey industrial buildings. She supplemented that the Administration would only aim at providing necessary infrastructure to enhance industrial development. Under the free market policy, it was inappropriate for the Administration to interfere or subsidize any particular industry. The survival of traditional manufacturing industries would rely on their own competitiveness in the international market. While agreeing that Hong Kong industry should move into high value-added and high technology production, the member emphasized the need for the Administration to consult industries concerned.

12.The member continued to ask if the Administration would consider encouraging those industries which had relocated their production lines to Southern China to move back to Hong Kong. She trusted that this would provide more employment opportunities to local workers, in particular those new immigrants from the Mainland whose chance of finding work in the high technology fields was slim. S for TI considered this proposal not feasible as low-value added and labour-intensive industries were no longer competitivemore economic viable in the changing circumstances in Hong Kong. She advised that in order to maintain competitiveness, emphasis should be focused on those higher value-added economic activities which had made Hong Kong one of the world's leading service centres.

13.As regards support for small and medium enterprises, Director-General of Industry (DG of I) advised that the Administration was considering allocating $500 million to a to the pilot Credit Guarantee Scheme to facilitate the small and medium enterprises which did not have sufficient collateral to back up their loan applications capital assets to prove their credit worthiness, to seek loans from commercial banks to finance their pre-shipment/pre-export expenses. DG of I said that this was consistent with the Administration's objective in promoting exports throughhelping business as the case with the Trade Development Council in facilitating market access and the Export Credit Insurance Corporation in providing insurance services for export credits.where financial assistance would be offered to facilitate access to new markets.

Science Park

14.A member sought clarification on how to ensure that the Science Park was not another form of industrial estate. DG of IT advised that unlike industrial estates which were designed to facilitate mass production, the Park aimed to provide an environment conducive to the development and transfer of high technology through its support services and linkages with the higher educational and research bodies, financial sector, industrial and business communities. Specialist services such as the provision of professional advice on business development risk management would be provided by the Science Park Corporation. Furthermore, financial assistance to companies such as the Industrial Support Fund and Seed Capital Fund ARF was available for research and development activities. The Silicon Valley in the United States would serve as a useful reference for the Park.

Protection of intellectual property rights

15.On the fight against copyright piracy, the Commissioner of Customs and Excise advised that 48 additional posts had been approved for the coming financial year to enable the Customs and Excise Department to continue its vigorous enforcement actions against infringing activities.

(Post-meeting note: The full-year provision for these 48 posts on top of the existing complement of 188 in the Intellectual Property Investigation Bureau amounted to $11.6 million.)

Promotion of competition

16.S for TI assured members that the Administration would respond shortly to the Consumer Council's report on the overall competition environment of Hong Kong.

II. Any other business

17.The Chairman reminded members that the next Panel meeting would be held on Monday, 3 November 1997, at 2:45 pm during which the Heads of Overseas Offices would brief the Panel on the work of their respective offices.

(Post-meeting note: At the request of the Administration, an additional discussion item on " Competition Policy " was included.)

18.There being no other business, the meeting ended at 12:50 pm.

Provisional Legislative Council Secretariat
31 October6 November 1997