Legislative Council Panel on Trade and Industry

Response to the Cox Report


This paper briefs Members on the Administration's position regarding the Cox Report.

The Cox Report

2. A US Congressional special committee chaired by Republican Congressman Christopher Cox published an investigation report commonly known as the Cox Report on 25 May 1999. Whilst the focus of the Report is on US-China relations concerning technology transfer, it makes a number of references to Hong Kong which cast doubts on the integrity of our strategic trade control system. Specifically, the Report

  1. mentions a number of cases of illegal import or export of strategic commodities involving companies in Hong Kong;

  2. alleges that Hong Kong is commonly used as a transshipment point for illicit transfer of technology;

  3. describes movements by Garrison vehicles across the Mainland/Hong Kong border as "unmonitored"; and

  4. recommends the US Administration to study and review the sufficiency of customs arrangements maintained by the Hong Kong Special Administrative Region (HKSAR) and the appropriateness of the US continuing to treat the HKSAR separately from the Mainland for US export controls.
3. Extracts of the Report with references to Hong Kong are at Annex A.

Position of the HKSAR Administration

4. The Administration does not agree to the views expressed in the Report. The allegations regarding the use of Hong Kong as a point of diversion are unfounded. We have the following responses to the points mentioned in paragraph 2 above.

A System that Works : Good Track Record of Successful Enforcement

5. Hong Kong has maintained a good track record in enforcing our laws on strategic trade control vigorously and objectively. It would be unfair and indeed counter-productive to treat successful enforcement actions as a cause for concern.

6. A summary of the action taken by Hong Kong Customs and Hong Kong courts on cases mentioned in the Report is at Annex B. With active investigation by Hong Kong Customs and Excise Department leading to prosecution actions and/or convictions by Hong Kong courts, these cases demonstrate the effectiveness and impartiality of our control system. In the case where an airline company was prosecuted for importing and retaining strategic commodities without licences, the goods were discovered by Hong Kong Customs officers during their own vigilant checking and the court could be asked to rule on the case because of the stringency of our licensing requirements - it is a unique feature of our system that even carriers have the legal responsibility to ensure that goods they handle are properly licensed. Other cases demonstrate also the good cooperation between Hong Kong and US Customs. In all of these cases, it is abundantly clear that Hong Kong enforcement agencies take action according to the strength of the evidence presented, without regard to the background or affiliation of the companies involved. The law is being applied on a level playing field.

7. Hong Kong related companies are mentioned in a few other places in the Report. We have no evidence that Hong Kong laws have been broken nor have we received information or reports that give rise to the need for investigations for these cases.

Safeguards in our System : High Risks in using Hong Kong for Diversion

8. The Report's claim that Hong Kong is used as a transshipment point for illegal transfer of technology pays no regard to stringent safeguards we have in place to guard against that. Hong Kong's system of control is law-based, transparent and follows the highest international standards. We have outlined the salient features of our system in a paper circulated to Members on 4 June 1999. We wish to stress that for import of all sensitive items, we require the importers to declare the end use and end user before the goods can be imported into Hong Kong. Hong Kong Customs conduct disposal and end use checks on import of strategic commodities for local use. If the products are not used as declared, the importer is in breach of the licensing conditions and would be prosecuted. Apart from import and export of such goods, we impose licensing control even for the transit of more sensitive items.

9. Hong Kong's major trading partners have repeatedly commended Hong Kong's law-based, transparent and vigorous system of control over trade in strategic commodities. Examples are :

  • - In its sixth report submitted on 27 May 1999, the US Congressional Hong Kong Transition Task Force chaired by Congressman Bereuter found "Hong Kong continues to vigorously enforce what is widely viewed as a highly regarded trade control regime. The US Government reports no evidence of Chinese interference in Hong Kong's export control decisions". The report also noted that "Hong Kong's trade control regime is uniquely strict in a number of its features, including the requirement for import licenses as well as the more common export licenses."

  • - In the 1999 State Department Report under the US-HK Policy Act released in April 1999, the US Government stated that "There are no significant problems between Hong Kong and the United States in export control cooperation. As called for in the Sino-UK Joint Declaration and the Basic Law, Hong Kong has remained a separate customs territory, has enjoyed a high degree of autonomy in the export controls area, and has maintained what is widely considered to be a world-class trade control regime. We have seen no evidence of Chinese central government involvement or interference in Hong Kong export control decisions."

  • - In its first six monthly Report on Hong Kong submitted to the Parliament in January 1998, the UK Government affirmed that the HKSAR authorities demonstrated their determination to uphold the integrity of Hong Kong as a separate customs territory by taking action against companies which infringed the HKSAR's tight export controls.

  • - Hong Kong's unique and comprehensive control system received good recognition and positive remarks by members of the international non-proliferation regimes during the regimes' outreach seminars held over the past two years.
10. The fact is we have strong self-interests in maintaining the effectiveness of such controls. The access to high-tech products is essential to our economic and industrial development. That is why we have been following the highest standard of controls as laid down in the international non-proliferation regimes and are one of the pioneers in enacting a law against the brokering of deals that assist the development of weapons of mass destruction.

The Garrison is law-abiding and subject to Customs Checks

11. Under the Basic Law, Hong Kong remains a separate customs territory which has full autonomy in regulating the import and export of goods, including strategic commodities. We maintain a separate physical border manned by Hong Kong's own enforcement agencies and an autonomous control system over trade in strategic commodities administered by the HKSAR Government backed up by HKSAR laws.

12. Under Article 14 of the Basic Law, members of the Garrison stationed in the HKSAR by the Central People's Government shall abide by the laws of the HKSAR. All Garrison personnel and vehicles must undergo customs checks at the control points when crossing the boundary. They are indeed subject to more stringent control than members of the public when entering or leaving Hong Kong. The procedure includes prior notification by designated liaison officers in the Garrison of the detailed information of the personnel and vehicles involved in the movement, verification of such information at the control points, checking of documentation and storage of data in the customs computer system. If any breaches of HKSAR laws are suspected, HKSAR customs officials will contact the Garrison Headquarters. A Garrison team will be sent to the scene to conduct search and inspection, in the presence of HKSAR customs officials. Any offences so revealed will be dealt with in accordance with the laws.

13. The Central People's Government has stated clearly that state organs in Hong Kong including the Garrison abide by the Basic Law and all Hong Kong laws and they have not conducted and would not conduct any activities that are in breach of HKSAR laws.

A Transparent System with Constant Cooperation with Overseas Authorities

14. Hong Kong operates a totally transparent system. We maintain close partnership with the US in our joint effort of ensuring effective export control. This partnership is strengthened through an Agreed Minute signed by the Secretary for Trade and Industry and the US Secretary of Commerce in October 1997. The Agreed Minute provides a framework of information sharing and mutual cooperation on strategic trade control issues. It also provides for bi-annual inter-agency visits between Hong Kong and Washington. So far three rounds of such visits have been held. During these meetings, the two sides kept each other abreast of developments of its own licensing and enforcement control system and exchanged views and experiences on technical issues. Such discussions also included updates on cases of enforcement cooperation. Cases discussed included some of those quoted in the Cox Report which in their own right are cases of successful cooperation. Both sides will next meet in Washington in early July 1999.

15. In addition, we have regular secondment arrangements with trading partners. An expert from the US Department of Commerce worked in the Hong Kong Trade Department for six months in 1997, followed by an expert from Australia.

16. We stand ready to enter into constructive dialogues with trading partners on this front. We will however oppose any attempts to impose restrictions on export of strategic commodities to Hong Kong. The existing US treatment of Hong Kong in this respect is based on the strengths of our system. Any retrogressive steps will dampen US-Hong Kong bilateral trade and economic interests. It will also send a totally wrong signal to the international community, in particular economies hoping to emulate Hong Kong's comprehensive system.

Action taken and to be taken by the Administration

17. The Administration has been making a lot of efforts in explaining the operation of the Hong Kong system to our trading partners before and after the reunification. These include -

  1. at international level, participate, in the capacity of a separate customs territory, in workshops or seminars organised by different international non-proliferation regimes to promote trading partners' understanding of Hong Kong's control system;

  2. locally, maintain close contacts with local Consul-Generals to update them on our control system;

  3. on the US front, work closely with the US Administration under the Agreed Minute and organise visits for Congressmen and their staffers to gain a first hand knowledge of our control system. Our Economic and Trade Office in Washington regularly call on US Administration officials, Congressmen and their staffers, and the US business sector, to present Hong Kong's control system, explain why Hong Kong deserves a liberal treatment in US export controls and whenever necessary, to discourage any legislative attempts in the Congress which seek to restrict exports of strategic commodities to Hong Kong; and

  4. take the opportunity of senior officials' overseas visit to present the Hong Kong case in strategic trade controls.
18. We are continuing the above efforts. The Chief Secretary will take the opportunity of her meetings with the US Administration officials and Congressmen, including Congressman Cox, in her coming visit to the US to present the Hong Kong case.

Trade and Industry Bureau
11 June 1999


Annex B

I. Hong Kong Dragon Airlines Limited

(Investigation by Hong Kong Customs leading to successful conviction)

1. Hong Kong Customs Air Cargo Division conducted a cargo inspection at the Hong Kong International Airport on 24 May 1996 and found that a consignment of 5 crates of bomb-liked objects imported into Hong Kong from Beijing on board a plane of HK Dragon Airlines Limited for re-exports. They were manifested as "dummy stores". A classification expert later identified that the crates contained two inert bombs, two cylinders and fin assemblies for the bomb units and a missile launcher. The shipper of the goods was China National Aero-Technology Import & Export Corporation in Beijing.

2. It was confirmed that the strategic goods were unlicensed. The airline company was prosecuted on 4 September 1996 for importing strategic goods without a licence and failing to retain possession of prohibited articles before a valid licence was produced. The company was fined a total of $80,000 and the goods worth $335,000 were confiscated for Hong Kong Police and Hong Kong Customs training purposes.

II. Ansyn Company ("Bin Wu" case)

(Investigation by Hong Kong Customs leading to successful conviction)

1. In October 1992, US Customs intercepted and seized two consignments of Image Intensifier Tubes (IIT) for export to Hong Kong.

2. Hong Kong Customs investigated a Hong Kong company called Ansyn and revealed that it had entered into contract with Ansyn (Shijiazhuang) Computer Technology Company in the Mainland for the supplying 150 pieces of image intensifier tubes to the latter at $19,500 each. The company ordered the goods from Mr Wu Bin in the US. However, no licence was taken out to cover the importation and exportation of the tubes.

3. Hong Kong Customs prosecuted the manager of the company for 3 counts of importing and 3 counts of exporting strategic commodities without a licence; and 6 counts of lodging inaccurate trade declaration. He pleaded guilty and was fined a total of $320,500.

III. Bentrico Trading (New World Transtechnology)

(Investigation by Hong Kong Customs leading to successful conviction)

1. Acting on information, Hong Kong Customs conducted an investigation into Bentrico Trading and found that it had imported 3 consignments of personal computer products from a US company, New World Transtechnology, without import licences on 12.9.92 and 24.4.93 through a forwarder Express Border Ltd, a shipping company Maersk Hong Kong Ltd and an aircraft owner UPS Parcel Delivery Service Ltd.

2. It was found that the manager of the company had personally hand-carried 4 consignments of personal computer products with a total value of $182,977 to Mainland China on 4.7.92, 31.8.92, 6.10.92 and 29.4.93 by train without export licences. The manager was prosecuted for 7 counts of importing/exporting of strategic commodities without a licence and was fined a total of $37,000. Express Border Ltd was prosecuted for 1 count of importing strategic commodities without a licence and was fined $5,000. Maersk Hong Kong Ltd was prosecuted for 1 count of failing to retain possession of strategic commodities after import and was fined $5,000. UPS Parcel Delivery Service Ltd was prosecuted for 1 count of failing to retain possession of strategic commodities after import and was fined $5,000.

IV. Automated System (HK) Limited (Changsha Case)

(Investigation by Hong Kong Customs leading to prosecution)

1. Acting on information, Hong Kong Customs conducted an investigation and found that a Hong Kong company, Automated Systems (HK) Limited, had imported high-speed computers into Hong Kong and then exported them without the required licences from the Trade Department.

2. Automated was prosecuted on four counts of unlicensed import and export.

3. The case was heard in the Shatin Magistracy on 14 April 1999. The solicitor representing Automated entered plea of not guilty to all summonses. The case was adjourned to 6 July 1999.