Legislative Council

LC Paper No. CB(1) 564/98-99
(These minutes have been seen
by the Administration)

Ref: CB1/PL/TI/1

Panel on Trade and Industry
Minutes of meeting held on Tuesday, 3 November 1998, at 2:30 pm in the Chamber of the Legislative Council Building

Members present :

Hon CHAN Kam-lam (Chairman)
Dr Hon LUI Ming-wah, JP (Deputy Chairman)
Hon Kenneth TING Woo-shou, JP
Hon James TIEN Pei-chun, JP
Hon Cyd HO Sau-lan
Hon David CHU Yu-lin
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

Member attending :

Hon Christine LOH

Members absent :

Prof Hon NG Ching-fai

Dr Hon Philip WONG Yu-hong

Public officers attending:

For item IV

Mr CHAU Tak Hay,

Secretary for Trade and Industry

Mr Andrew WONG,

Special Representative for Hong Kong Economic and Trade Affairs to the European Communities, Brussels

Mr Stuart Harbinson,

Permanent Representative of the Hong Kong Special Administrative Region of China to the World Trade Organization

Mr John TSANG,

Director-General, London

Mr Raymond FAN,

Director, Hong Kong Economic and Trade Affairs, New York

Mr Michael LEE,

Director, Hong Kong Economic and Trade Affairs, San Francisco

Mr Clement CHEUNG,

Director, Hong Kong Economic and Trade Affairs, Singapore

Mrs Jenny Wallis,

Director, Hong Kong Economic and Trade Affairs, Sydney

Mr Paul LEUNG,

Principal Hong Kong Economic and Trade Representative, Tokyo

Mr Donald TONG,

Director, Hong Kong Economic and Trade Affairs, Toronto

Mr Kenneth PANG,

Commissioner for Economic and Trade Affairs, USA

Mr Christopher Jackson,

Director-General, Hong Kong Economic and Trade Affairs, Washington

For item V

Mr CHAU Tak Hay,

Secretary for Trade and Industry

Miss CHEUNG Siu-hing,

Deputy Secretary for Trade and Industry

Mr Stephen Selby,

Director of Intellectual Property

Mr David TONG,

Acting Deputy Commissioner of Customs and Excise

For item VI

Miss CHEUNG Siu-hing,

Deputy Secretary for Trade and Industry

Mr Justin YUE,

Chief Executive of Tradelink

Mr Patrick CHUNG,

EDI Co-ordinator

By invitation :

For item V

HMV

Mr John FU Yiu-cheong
Miss Mavis KOK Wing-yin
Miss Matty CHOW So-ming

Movieland

Mr Colin Grant
Mr Adrian J Halkes

International Federation of the Phonographic Industry (IFPI)

Mr Sean MOK,

Deputy Director, IFPI Asian Regional Office

Mr Ricky FUNG,

Chief Executive Officer, IFPI (HK Group)

Motion Picture Association

Mr Jeffrey J Hardee,

Vice President, Asia/Pacific

Mr Sam HO

Director, Anti-Piracy Operations, Hong Kong Film & Video Security Ltd
Hong Kong Kowloon & New Territories Motion Picture Industry Association Ltd
(MPIA)
Mr Woody TSUNG
Mr Patrick TONG
Mr Peter LAM Yuk-wah
Mr Andrew LEUNG

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) 394/98-99)

The minutes of the meeting held on 10 October 1998 were confirmed.

II Information paper issued since last meeting

2. Members noted that no information paper had been issued since last meeting.

III Date of next meeting and items for discussion

3. The next meeting would be held on Monday, 7 December 1998, at 2:30 pm to discuss the following subjects:

- Outward Processing Arrangement;
- Trade Marks Bill; and
- The work of Business and Services Promotion Unit

(Post-meeting note : The meeting was subsequently rescheduled to Monday, 14 December 1998, at 8:30 am.)

IV Briefing by Heads of the Overseas Economic and Trade Office
(LC Paper No. CB(1) 395/98-99(01))

4. At the invitation of the Chairman, the Heads of the Overseas Economic and Trade Offices (ETOs) highlighted the salient points in the information paper setting out the work of their respective ETOs and the latest developments on various economic and trade matters in the countries concerned.

General policy

5. In reply to a member's question, the Secretary for Trade and Industry (STI) advised that owing to resource constraints, the Administration had no intention to set up new ETOs in South America at the present stage. He added that any additional resources if available, would be directed to strengthen the work in other areas in Hong Kong such as stepping up enforcement actions against copyright piracy.

6. As regards the roles of ETOs and offices of the Trade Development Council, STI explained that the former aimed to cultivate government-to-government relationship while the latter focused on promoting the export and import of goods and services.

Offices in the United States (US)

7. On the effectiveness of ETOs in promoting inward investments from US, STI said that the Administration did not compile comprehensive statistics on the overall US investments in Hong Kong. Nevertheless, he undertook to provide as much as possible information on the number of US firms which had invested in Hong Kong with the assistance of ETOs. As to how the Administration could attract foreign investments to Hong Kong, STI acknowledged that the high overhead costs before the financial crisis and the lack of tax concessions for investors had made Hong Kong less attractive than its competitors in Southeast Asia. To this end, the Administration had commissioned an internal study to see what improvements could be made in this respect. Members would be informed of the outcome in due course.

Admin

8. As regards overseas reaction on the new vision of making Hong Kong a centre of innovation and technology, STI advised that foreign investors were generally impressed by the Chief Executive (CE)'s determination and commitment to developing high technology and value-added industries in Hong Kong. They also welcomed the establishment of the Applied Science and Technology Research Institute. He added that the Director-General of Industry had visited some high technology firms in US on his way to attend a conference in Mexico. Some of these companies had revealed their interest in setting up their regional offices in Hong Kong in the light of the CE's recent commitment. A member noted that the US Administration intended to establish a network for the Silicon Valley. She urged ETOs in US to work closely with prominent technological talents in US, particularly those of Chinese ethnic, with a view to including Hong Kong as part of the network. This would be of great assistance to Hong Kong in the pursuit of innovation and high technology. STI welcomed the suggestion and assured the member that the role of ETOs in realizing the new vision would be covered in the internal study referred to in the preceding paragraph.

9 On the recent Government's incursion into the stock market, a member enquired if the Administration had given timely and sufficient information for ETOs to explain the action overseas. The Commissioner for Economic and Trade Affairs, USA confirmed that the Financial Secretary (FS) had briefed heads of ETOs immediately through video conferencing on the need for the incursion to maintain the HK-US currency link. The Director, Hong Kong Economic and Trade Affairs, New York added that with the availability of advanced communication technology, ETOs had been able to obtain first-hand information from Hong Kong for timely release to the media and the financial community in US. Representatives of the Hong Kong Monetary Authority in New York had also kept the financial community constantly informed of the latest progress of the issue. The recent visit of FS to US had gained much understanding of the US people about the circumstances leading to the incursion.

10. A member noted that the US Customs had repeatedly requested to send officials to Hong Kong to inspect textile shipments to US. He asked if this reflected that US Administration had no confidence in the commitment of the Hong Kong Government to uphold the World Trade Organization agreements after the handover. In reply, the Director-General, Hong Kong Economic and Trade Affairs, Washington said that the issue of joint inspection was emanated from the increased concern on illegal transshipment of textile goods to US rather than the change of sovereignty in Hong Kong. The US Administration was keen to ensure that all its trading partners would continue to abide by the rules of origin under the Agreement on Textiles and Clothing. The impression that Hong Kong was being picked on was mainly due to its close proximity to China which the US Administration believed was a particular source of transshipment of goods. The same happened to Macau as well. He nevertheless assured members that the ETO in Washington would continue to convince the US authorities that Hong Kong maintained its own effective customs regime and was committed to resolving the issue of illegal transshipment in collaboration with its local industries.

Tokyo office

11. As Japanese banks contributed a substantial part in the loan market of Hong Kong, the recent withdrawal of capital from Hong Kong to Japan by these banks had caused difficulties for some local enterprises. A member considered that ETO in Japan should alert the Japanese Government that the retrieval of Japanese banks at the present stage might have an adverse effect on their share in the loan market of Hong Kong in the long term. The Principal Hong Kong Economic and Trade Representative, Tokyo confirmed that ETO in Tokyo had been working closely with the Japanese Government and the baking sector on the issue. Ultimately, it was a matter of commercial decision and in light of the declining Japanese economy, management's decision in some cases to consolidate their operations was understandable. In reply to a related question, the Principal Hong Kong Economic and Trade Representative, Tokyo said that given the involvement of sensitive commercial information, the Administration might not be privy to all withdrawal plans of Japanese banks in advance.

Singapore office

12. A member asked if ETO in Singapore had encountered difficulties in seeking information and co-operation from the Singaporean Government since Singapore regarded Hong Kong as its major trading competitor. The Director, Hong Kong Economic and Trade Affairs, Singapore replied that while competition between Hong Kong and Singapore was inevitable given a similar economic base, their market orientations were different. Hong Kong had been focusing on the Mainland market while Singapore promoted its Southeast Asian market. Specifically, he pointed out that Singapore had much to offer in terms of its experience on the development of an innovative and technology-based economy. In addition, the close liaison between ETO and the Singaporean chambers of commerce was useful in promoting bilateral trading relationship.

V Parallel importation of copyright articles

Meeting with HMV
(LC Paper No. CB(1) 395/98-99(02)

13. At the invitation of the Chairman, Mr John FU highlighted the difficulties HMV encountered in product procurement after the enactment of the Copyright Ordinance. He said that the provision for criminal liability on parallel importation under the Ordinance had deterred HMV to source as many as 200 to 300 titles per month. Besides, HMV's business also suffered from the non-availability or inadequate supply of new titles by local distributors.

Meeting with the Movieland
(LC Paper No. CB(1) 395/98-99(03))

14. Mr Adrian J Halkes remarked that the restrictions on parallel import had hampered the image of Hong Kong as a free port and limited the public's access to genuine products. He remained of the view that the criminal sanction in relation to parallel imports should be lifted and rights owners should seek civil remedies against parallel importation of copyright articles.

Meeting with the International Federation of the Phonographic Industry (IFPI)
(LC Paper No. CB(1) 395/98-99(04))

15. Mr Ricky FUNG was of the view that the existing regulations on parallel import were essential to protect the exported local music products from flowing back to Hong Kong at lower prices and to maintain the incentive of the local music industry to continue investment in creating new products. Furthermore, section 36 of the Ordinance had already provided sufficient defences for infringement of copyright in the event of unconscionable acts on the part of rights owners or exclusive licensees.

Meeting with the Motion Picture Association (MPA)
(LC Paper No. CB(1) 424/98-99)

16. Mr Jeffrey J Hardee did not agree that the restrictions on parallel imports had affected the availability of products in Hong Kong. In fact, MPA member companies generally released videotapes in Hong Kong before they were released in the United Kingdom. Furthermore, the control against parallel imports in Hong Kong was in line with other countries. According to a survey conducted by MPA, of the top 50 markets for US filmed product, 37 provided protection against parallel imports, of which 32 provided criminal remedies. He also pointed out that the piracy rate in countries with protection against parallel imports was much lower than those which did not provide such protection.

Meeting with the Hong Kong Kowloon and New Territories Motion Picture Industry Association Limited (MPIA)
(LC Paper No. CB(1) 415/98-99)

17. Mr Woody TSUNG emphasized that the "windows system" for sequential release of films was not only crucial to distributors of foreign films but to local film industry since local film producers also relied on licensing film rights to distributors for different windows and formats to recoup their investment. A disruption to such windows by parallel imports could have a serious impact on local producers and might lead to the collapse of the local film industry. He also stressed that local distributors and exclusive licensees had been very co-operative in fulfilling retailers' orders as it would be against their own interests to withhold supplies. As regards pricing of products, Mr TSUNG pointed out that the wholesale prices for video products had generally dropped due to rampant piracy activities in Hong Kong.

Discussion session

18. On availability of products, a member sought clarification on the response of local distribution and exclusive licensees to retailers' requests. Mr FU/HMV advised that as a major sound recording chain retailers, HMV aimed to establish an indent system with the producers with a view to importing the products direct since the supply of products through licensees was generally slow. However, after the enactment of the Copyright Ordinance, tremendous time and resources had to be spent on identifying distributors or exclusive licensees before any products could be imported. The problem became more complicated if no one in Hong Kong had the exclusive licence for the titles such as the compact disc (CD) entitled "Now 40". Retailers had to go through the clearance process which would take months to complete. As timing was crucial to the sale of sound recording products, a retail opportunity might have been lost as a result the long lag time. Expressing similar concern, Mr Halkes also pointed out that HMV would be subject to criminal sanction if it parallelly imported the "Now 40".

19. Mr FUNG/IFPI however did not agree that availability was a problem since according to information, all the 1,000 hot titles worldwide were made available in Hong Kong either through local distributors or exclusive licensees. Retailers were allowed under the Ordinance to import niche products if no one in Hong Kong had licence for such products. He also considered the example of "Now 40" not appropriate as this was a compilation. Although individual IFPI members had the rights for individual songs, no one had the exclusive right for the CD as a whole. A member expressed worries that compilation would become a particular problem given the fact that a large number of desired CDs were compilations. Mr FUNG/IFPI clarified that the only problem with compilation was cross compilation produced by special marketing companies for sale in designated countries. However, in view of the small market share of such compilations, this should not be a cause of concern.

20. On enquiries from retailers, a member asked if local distributors and exclusive licensees would consider uploading their supply catalogues onto the INTERNET to facilitate enquiries. Mr FUNG/IFPI confirmed that IFPI had a readily accessible database which staffers could use to answer enquiries made by retailers and importers. Two of the major IFPI members had also made their international product database available for order by retailers since the enactment of the Ordinance in June 1997. Another IFPI member had developed an on-line ordering system for its worldwide stock. However, Mr FUNG/IFPI emphasized the need to resolve the problem of confidentiality of certain information before the entire database could be uploaded onto the INTERNET. In the meantime, IFPI would continue to uphold its pledge to respond to enquiries within three days or 10 days in the event that such enquiries had to be handled by IFPI members direct. Mr TSUNG/MPIA said that it would be technically difficult for MPIA members to upload the supply catalogues onto the INTERNET since most of them were exclusive licensees whose licences for products were subject to expiry after a certain period. Nevertheless, MPIA would liaise with retailers to find out the information necessary to facilitate their enquiries with a view to setting up a database on local licences within the next six to nine months. Mr Halkes/Movieland however considered that any product which was licensed for distribution in Hong Kong should become part of public record. It was therefore unreasonable to ask retailers to wait another nine months before an electronic database could be introduced, particularly when the 18-month criminal liability had already been in place to hinder parallel importation. A member also urged the film and the sound recording industries to acknowledge the aggravation of retailers on the lack of easily accessible information.

21. On copyright piracy, a member questioned if the current restrictions on parallel imports had in fact helped reduce the piracy rate in Hong Kong. Mr Hardee/MPA advised that according to overseas experience, the level of piracy in countries with control against parallel import was relatively low. For example, in Japan, Korea, Taiwan and Australia where restrictions on parallel imports were available, the piracy rate was 10% or lower.

Meeting with the Administration
(LC Paper No. CB(1) 395/98-99(05) and LegCo Paper No. CB(1) 1842/96-97)

22. Some members considered that the Administration should meet with the retailers, the film and the sound recording industries to find out what improvements could be made to narrow their disagreement on various issues, including the availability of products. The Deputy Secretary for Trade and Industry (DSTI) undertook to follow up on the members' suggestion to arrange one or two meetings between the two sides.

Admin

23. As to whether the Administration would require compulsory disclosure of certain information on licences by the film and the sound recording industries to facilitate enquiries from retailers, DSTI replied that it remained the Administration's intention to encourage voluntary establishment of database by the industries. Nevertheless, the Administration was in the process of commissioning a consultancy study on the feasibility of setting up a central database on copyright. She however stressed that even if the database was found to be feasible, it had to operate on a voluntary basis. The Director of Intellectual Property added that tender for the study would be called for within two months. A final report was expected to be ready in three to four months' time.

VI Tradelink
(LC Paper No. CB(1) 338/98-99 and 395/98-99(06))

24. In response to a member's question, DSTI advised that Tradelink had at present set up six service centres for the Electronic Trade Access Service (ETAS) to convert paper submissions into electronic ones for companies that might not be ready to start using the Community Electronic Trading Service (CETS) or might only need to make submissions occasionally. Tradelink would consider increasing the number of service centres as and when necessary.

25. Some members considered the proposed price of $91.5 per submission for ETAS too expensive. They were of the view that as the purpose of CETS was to improve efficiency and reduce cost, the prices for ETAS should not be higher than that of the paper-based methods. The Chief Executive of Tradelink (CE/Tradelink) clarified that the price referred to applied only to applications for Restrained Textile Export Licences (RETL) in the year 2003 and it would be equivalent to the charge for paper submissions. For Import and Export Declarations (TDEC), $30.5 per submission would be charged by the same year. He stressed that the levels of fees were set to only recoup the costs involved for setting up the service centres. Furthermore, Tradelink would not charge fully the approved prices for the years 1999 and 2000 in view of the difficult economic conditions that Hong Kong was experiencing.

26. As to whether the Administration would re-consider writing off the Tradelink's previous losses so that the current fees of CETS could be maintained at a low level, DSTI remarked that on the basis of the proposed prices set out in the information paper and the concessionary measures to be taken by Tradelink in the light of the economic downturn, Tradelink's projected internal rate of return upon the expiry of its exclusive right in December 2003 was in the region of 5% to 8% which was much lower than the maximum rate of 18% previously adopted as the reference point. She assured members that the Administration would take all factors such as the need to ensure Tradelink's commercial viability, the prevailing economic situation and the objective of promoting the use of electronic data interchange, into account in considering Tradelink's proposed prices.

27. A member sought clarification on the basis upon which the deposit of $2,400 was arrived at. He also asked if interests accrued from the deposits formed part of the internal rate of return for Tradelink. CE/Tradelink replied that Tradelink adopted a flexible charging system based on the volume of customers' usage of the service viz higher volume users could choose to pay more deposits while low volume users pay less. He added that as Tradelink had to pay the Government the next day after the transactions and bill the users concerned at the end of each month, the question of Tradelink earning interests from deposits did not exist.

28. While appreciating Tradelink's explanation, members noted that there were still misunderstandings on Tradelink's service charges and deposits within the business community. To alleviate their concern, members urged Tradelink to step up publicity in this regard in collaboration with the Administration. They also considered that Tradelink should provide necessary assistance to the business community and promote the use of computer, in particular among small and medium enterprises in order to ensure a smooth transition to CETS. CE/Tradelink agreed with the need to enhance a better understanding of CETS. To this end, Tradelink issued regular newsletters and pamphlets to the business community to explain the operation of CETS. Seminars jointly organized by Tradelink and the Administration were also well attended by participants. On the suggestion of promoting the use of computer, DSTI affirmed that this was not only essential for CETS, but for the widespread trend of information technology. The Administration was promoting an awareness of information technology through various means e.g. the Hong Kong Productivity Council and the work of the information Technology and Broadcasting Bureau. CE/Tradelink also confirmed that Tradelink would provide training for CETS users at cost upon request. As to whether the Administration would consider retaining the prevailing paper-based methods in view of the misunderstanding still remained in the business community, DSTI assured members that the paper-based methods would be phased out by stages to facilitate a smooth transition to CETS. Full-scale electronic submission for RTEL would be implemented in January 1999 while TDEC in April 2000.

29. A member noted that the Customs and Excise Department had refused to answer enquiries regarding applications for TDEC by means of CETS and had caused inconvenience to the business community. DSTI undertook to relay the member's concern to the department concerned for necessary follow-up action.

Admin

VII Any other business

Special Finance Scheme for Small and Medium Enterprises
(LC paper No. CB(1) 405/98-99)

30. DSTI briefed members on the latest position of the Scheme. As at 2 November 1998, 300 applications had been approved and the amount of guarantees and facilities involved were $229 and $458 million respectively.

31. There being no other business, the meeting ended at 5:10 pm.

Legislative Council Secretariat
3 December 1998