HONG KONG supply, interest rates, and economic activity adjust to levels dictated by the exchange rate link. This is largely accomplished by market forces through currency or interest rate arbitrage. In On July 18, 1988 the Hong Kong government augmented its control over domestic interbank rates by requiring that the net clearing balance of the interbank clearing house be deposited with the government's exchange fund. This change gave the government the power to affect liquidity in the interbank market, but the power has been used sparingly. early June 1989, the authorities acted quickly to inject liquidity into the market following a run on the Bank of China group after the June 4 Tiananmen massacre. The injection was reversed a month later once market conditions had normalized. The most recent instance of use of the liquidity tool was in late May 1991 when the authorities tightened interbank liquidity to help fight inflationary pressures via higher interest rates. However, the resulting interest rate gap put considerable upward pressure on the exchange value of the Hong Kong dollar, forcing a reversal of the move only a few weeks later. In mid-July 1991, the authorities injected liquidity to forestall possible pressure caused by the failure of the Bank of Credit and Commerce Hong Kong operation. The government launched a so-called exchange fund bills program in March 1990. The short-term debt paper is issued on the account of the exchange fund itself and is meant primarily as an additional tool for influencing liquidity conditions. However, it has not been noticeably used for this purpose to date. 2. Exchange Rate Policies The Hong Kong dollar has been linked to the U.S. dollar at the rate of about HKD7.80 to US$1.00 since October 1983. The link is anchored by a note-issuing mechanism featuring this fixed rate of exchange and maintained by market forces in the foreign exchange market. There are no multiple rates of exchange and no foreign exchange controls. More than half the deposits in the domestic banking system are denominated in foreign currencies. The price competitiveness of U.S. exports is affected by the value of the U.S. dollar in relation to third country currencies. When the value of the U.S. dollar rises in the international market, U.S. exports are less competitive in Hong Kong and vice versa. As a practical matter, the bilateral merchandise trade deficit has steadily declined over the past few years. The Hong Kong government does not interfere in any way in the free market price-setting mechanism. There are no price controls or subsidies of any kind. Hong Kong is a GATT member and signatory to the GATT Government Procurement Code and conducts government procurements through a competitive international offer and bid basis. The biggest tenders are published in the U.S. Department of Commerce biweekly magazine Business America and provided to subscribers of the trade HONG KONG opportunity program. U.S. suppliers are always apprised of sizable procurements. Hong Kong has pursued a balanced budget strategy based on estimates of growth in the economy. Revenues are derived from a betting duty, an entertainment tax, an estate duty, a hotel accommodation tax, a stamp duty, a business registration fee, a property tax, a salaries and profits tax, and miscellaneous fees and charges. As Individuals are liable for tax on three sources of income: business profits, salaries and property. Profits tax is charged only on profits arising or derived from business carried on in Hong Kong. The government pursues a low-tax policy; profits and maximum personal income taxes currently stand at low levels of 1.5 and 15 percent, respectively. the direct tax base is narrow (salaries and profits tax account for nearly half of general revenue), the government intends to impose a sales tax at the wholesale level. The government's idea of creating this tax is for Hong Kong to develop a broad-based tax system through widening the indirect tax net in order to minimize the vulnerability of the existing narrow tax-revenue base to economic fluctuations. A working paper on the sales tax proposal was sent to the local business and professional groups for comments in May 1989. The consultative exercise for advice on the technical aspects of the proposed tax was completed in October 1989. To avoid any hasty decision, the government has announced no timetable for passage of the legislation. Hong Kong imposes virtually no controls on trade and industry other than to ensure sound business practices and to meet international obligations associated with health, safety and security. There are no laws or regulations which effectively encourage or discourage investment or determine its character. In line with its obligations to restrain exports of certain textiles and apparel under bilateral agreements, Hong Kong has an export control system administered by its trade department. Due to heavy reliance on sales to the U.S. Market and its trade surplus with the United States, the Hong Kong government encourages diversification of export markets and increased imports from the United States. The Hong Kong government carries no external public debt at present, having issued only one domestic debt instrument (a five-year bond in 1984 for HKD 10 billion) which was retired at the end of 1989. The exchange fund bills described earlier are not considered sovereign debt. The government plans to issue two-year debt on its own account by the end of 1991. With quarterly tranches of HKD 500 million, the total outstanding amount is expected to reach HKD 5 billion (US$641 million) within two years. According to a recent agreement with the People's Republic of China, outstanding government debt cannot exceed HKD 5 billion at the time of retrocession to Chinese sovereignty in 1997. 53-153 - 92 - A There is no general tariff on goods entering Hong Kong. Taxes are levied for revenue purposes only on six groups of commodities (see Section 1). Barriers to trade in services involve accreditation of foreign legal and medical practitioners. For the past three years, U.S. and other foreign law firms have sought permission to associate with local law firms to offer their clients more comprehensive legal coverage. The Hong Kong law society's position in 1989 was that foreign law firms should not be entitled to employ or take into partnership Hong Kong solicitors and thereby practice Hong Kong law. In mid-July 1991, the law society sent consultation papers to the Hong Kong government, local law firms and various chambers of commerce to invite comments on a proposal to allow associations between foreign and local law firms on a limited basis. The Law Society's proposal also includes an objective, nondiscriminatory and competency-based scheme to assess credentials of foreign lawyers for admission to practice Hong Kong law. However, the call for a specific ratio of foreign lawyers to local lawyers within an individual firm would tend to dilute the overall trade liberalizing effects. The Hong Kong Government, at least informally, seemed pleased to see proposals facilitating the practice of foreign lawyers in Hong Kong. The Law Society, after weighing the commentary, is expected to submit a final proposal in the first quarter of 1992. Legislation will be required. The Legislative Council (LEGCO) may consider the final proposal in Spring 1992. Basic telephone (wired-voice) and long distance services are controlled by government-sanctioned monopolies, as are air cargo and airport ground handling services. 6. Export Subsidies Policies Except for the quasi-governmental Hong Kong Trade Development Council which engages in export promotion activities, the Hong Kong government does not subsidize exports either directly or indirectly. The Council is financed by net proceeds of an ad valorem charge of 0.5 percent on all exports and on imports other than foodstuffs and by miscellaneous income from sources such as advertising fees and publication sales. 7. Protection of U.S. Intellectual Property Hong Kong has acceded to the Paris Convention for the Protection of Industrial Property, the Berne International Copyright Convention and the Geneva and Paris Universal Copyright Conventions. To meet its obligations under these conventions, Hong Kong has enacted laws covering trademarks, trade descriptions (includes counterfeiting) copyrights, industrial designs and patents. Hong Kong patent law is identical to United Kingdom patent law. A large proportion of patents are registered by HONG KONG U.S. firms. Protection extends for 20 years. Hong Kong provides full patent protection for chemical compounds and foodstuffs. There are no restrictions on the licensing of patents nor is licensing compulsory. All trademark registrations in Hong Kong, valid for seven years and renewable for 14-year periods, are original. Proprietors of trademarks registered elsewhere must apply anew and satisfy all requirements of Hong Kong law. When evidence of use is required, such use must have been in Hong Kong. Counterfeiting and trademark infringement carry maximum penalties of HKD 100,000 and imprisonment for two years on summary offenses, and HKD 500,000 and imprisonment for five years on indictable offenses. All goods seized are liable to forfeiture. Copyright protection in Hong Kong derives from U.K. law extended to Hong Kong and from the Hong Kong Copyright Ordinance. Foreign works are protected provided ownership is vested in a country which is a signatory to one of the international conventions. Protection under the Copyright Ordinance is automatic; no registration is necessary. Three-dimensional representations of two-dimensional works are protected as are registered designs. Copyright infringement carries a penalty of HKD 1,000 for each copy and imprisonment for one year. For possession of plates used, or intended to be used in counterfeiting of copyrighted materials, the maximum penalty is HKD 50,000 and imprisonment for two years. Following a detailed review of Hong Kong's intellectual property laws, the American Chamber of Commerce in Hong Kong concluded in 1988 that, by virtue of the rights created by law and the remedies available for enforcement, Hong Kong's intellectual property laws are among the strongest in the world. The Chamber further concluded that Hong Kong has no intellectual property laws or administrative practices which act to hinder trade. The right of association and the right of workers to establish and join organizations of their own choosing are guaranteed under local law. Unions are defined as corporate bodies and enjoy immunity from civil suits arising from breaking of contingent contracts or interference with trade by work stoppages on the part of their members. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively is guaranteed under local law. However, the latter is not widely practiced and there are no mechanisms to specifically encourage it. Instead, a dispute settlement system administered by the government is generally resorted to in the case of disagreements. In the case of a labor dispute, should initial conciliation efforts prove unsuccessful, the matter may be referred to arbitration with the consent of the parties or a board of inquiry may be established to investigate and make suitable recommendations. HONG KONG C. Prohibition of Forced or Compulsory Labor Compulsory labor is prohibited under existing legislation, and it does not appear to be practiced. d. Minimum Age of Employment of Children Under applicable regulations governing the minimum age for employment of children, minors are allowed to do limited part-time work beginning at age 13 and to engage in full-time work at age 15. Employment of females under age 18 in establishments subject to liquor regulations is prohibited. The labor inspectorate conducts workplace inspections to ensure that these regulations are being honored. During 1990, extensive inspection activities resulted in 63 convicted cases for engaging children in employment or during prohibited hours. There is no legislated minimum wage. Hours and conditions of work for women and young persons aged 15 to 19 in industry are subject to legislation. There are no restrictions on hours of work for men; overtime is restricted in the case of women and prohibited for all young persons under age 18. In extending basic protection to its workforce, the Hong Kong government has enacted industrial safety and compensation legislation. The Hong Kong Government labor department carries out inspections to enforce legislated standards and also carries out environmental testing and conducts medical examinations for complaints related to occupational hazards. f. Right in Sectors with U.S. Investment U.S. direct investment in manufacturing is concentrated in the electronics and electrical products industries. Working conditions do not differ materially from those in other sectors of the economy. Labor market tightness and high job turnover in the manufacturing sector have led to continuing improvements in working conditions as employers compete for available workers. |