HK should join CAFTA body as soon as pos­si­ble

Eddy Li points out city risks be­ing marginal­ized if it re­mains out­side the um­brella group while the B&R moves ahead

China Daily (Hong Kong) - - COMMENT -

Chief Ex­ec­u­tive Carrie Lam Cheng Yuet-ngor has just fin­ished her first over­seas trip in the role — vis­it­ing Sin­ga­pore and Thailand. Her visit to the two ma­jor As­so­ci­a­tion of South­east Asian Na­tions (ASEAN) coun­tries, from my point of view, is a pur­pose­ful move to lay a foun­da­tion for Hong Kong’s join­ing the CAFTA (China-ASEAN Free Trade Area) within this year.

The Hong Kong busi­ness sec­tor has paid close at­ten­tion to the free trade agree­ment be­ing ne­go­ti­ated with ASEAN, since it’s a 10-na­tion (Sin­ga­pore, Thailand, Malaysia, In­done­sia, the Philip­pines, Laos, Myan­mar, Viet­nam, Cam­bo­dia and Brunei) bloc with a pop­u­la­tion of 600 mil­lion. This is a po­ten­tial mar­ket with abun­dant re­sources. The CAFTA is the third-largest free trade zone in the world af­ter the Euro­pean Union and the North Amer­i­can Free Trade Area, and if Hong Kong can se­cure a mem­ber­ship, the city’s eco­nomic de­vel­op­ment in fu­ture will be much more promis­ing, es­pe­cially as the Euro­pean and US mar­kets are rel­a­tively un­sta­ble now.

From the in­ter­ac­tions be­tween the CE and the lead­ers of the two coun­tries, I be­lieve it’s safe to say the des­ig­nated goal is achieved. Sin­ga­pore’s Prime Min­is­ter Lee Hsien Loong also posted on Face­book: “Glad that Hong Kong Chief Ex­ec­u­tive Carrie Lam made Sin­ga­pore her first over­seas des­ti­na­tion since be­com­ing Chief Ex­ec­u­tive. We had a good dis­cus­sion on SG-HK co­op­er­a­tion in trade and in­vest­ment, and the Belt and Road Ini­tia­tive. We also wel­comed the re­cently con­cluded ASEAN-HK FTA and looked for­ward to its early im­ple­men­ta­tion.”

As for the Thai gov­ern­ment, its Prime Min­is­ter Prayut Chan-o-cha not only sup­ported Hong Kong’s be­com­ing a CAFTA mem­ber but also in­vited the spe­cial ad­min­is­tra­tive re­gion to open a trade of­fice in his coun­try to fa­cil­i­tate the co­op­er­a­tion in trade and in­vest­ment be­tween Hong Kong and Thailand. Lam re­sponded ac­tively to­ward his sug­ges­tion, hop­ing the Com­merce and Eco­nomic De­vel­op­ment Bureau could con­duct fea­si­bil­ity re­search af­ter the CAFTA agree­ment is of­fi­cially The au­thor is pres­i­dent of the Chi­nese Man­u­fac­tur­ers’ As­so­ci­a­tion of Hong Kong. signed. If suc­cess­fully es­tab­lished, this will be Hong Kong’s third trade of­fice in ASEAN coun­tries, fol­low­ing those in Sin­ga­pore and In­done­sia.

It might rarely be known by peo­ple that the CAFTA ne­go­ti­a­tions are by no means easy — the 10 ASEAN coun­tries all have their unique po­lit­i­cal con­di­tions and eco­nomic features. There­fore, there are twists and turns to gain con­sen­sus in ev­ery sin­gle ar­ti­cle in the agree­ment. What’s more Hong Kong, in it­self, is al­ready a free port, which lets any coun­try im­port and ex­port (law­ful) goods with­out pay­ing taxes. But in the 10 na­tions, only Sin­ga­pore im­ple­ments a zero-tar­iff pol­icy; cus­toms du­ties in the other nine economies vary from 2.9 per­cent to 10.3 per­cent. In other words, Hong Kong doesn’t have lever­age in ne­go­ti­a­tions, since it has noth­ing fur­ther to of­fer ASEAN. That’s prob­a­bly why the ne­go­ti­a­tions which be­gan in July 2014 have not yet come to con­clu­sion.

Some would ques­tion the im­por­tance of Hong Kong join­ing the CAFTA. Other than pro­vid­ing a po­ten­tial new mar­ket for Hong Kong prod­ucts, it is also sig­nif­i­cant for Hong Kong’s fu­ture role in the Belt and Road (B&R) Ini­tia­tive. In the B&R, which is reck­oned to be a new en­gine for the world’s fu­ture eco­nomic growth, the South­east Asian coun­tries are es­pe­cially im­por­tant in the 21st Cen­tury Mar­itime Silk Road. Ge­o­graph­i­cally speak­ing, play­ing an im­por­tant role in the “Silk Road” route is to Hong Kong’s ad­van­tage.

How­ever, the “unim­peded trade” in the “five ar­eas of con­nec­tiv­ity” pro­posed in the B&R Ini­tia­tive re­quires dif­fer­ent economies to sign FTAs to re­move trade bar­ri­ers and pur­sue equal ben­e­fits. It is known that the Chi­nese main­land es­tab­lished free trade ar­eas with ASEAN in 2010. As the B&R Ini­tia­tive evolves, the trade vol­ume be­tween the main­land and ASEAN will def­i­nitely in­crease rapidly and sub­stan­tially. Hong Kong would be marginal­ized if it could not join the CAFTA as early as pos­si­ble. And it would be point­less to talk about Hong Kong’s role as a “su­per-con­nec­tor”.

Once a CAFTA mem­ber, Hong Kong’s sit­u­a­tion would be en­tirely dif­fer­ent. On one hand, we can at­tract ASEAN com­pa­nies to set up their re­gional head­quar­ters here, which is a great chance for th­ese firms to tap the main­land mar­ket; Hong Kong’s fi­nan­cial and pro­fes­sional sec­tors will be fur­ther de­vel­oped and our po­si­tion as an in­ter­na­tional cen­ter of trade, lo­gis­tics and ship­ping will be strength­ened. On the other hand, Hong Kong com­pa­nies can take ad­van­tage of the lower la­bor costs in some ASEAN re­gions for man­u­fac­tur­ing and re­al­lo­ca­tion of re­sources, so as to strengthen their over­all com­pet­i­tive­ness.

It is also noted that ASEAN is the re­gion with the dens­est pop­u­la­tion of over­seas Chi­nese. There are cur­rently more than 32 mil­lion eth­nic Chi­nese liv­ing in those 10 coun­tries, ac­count­ing for 5 per­cent of the pop­u­la­tion. The per­cent­age might not seem so high but their eco­nomic power is in­con­testable. This is also a strong point for Hong Kong busi­ness­men to seek co­op­er­a­tion in ASEAN coun­tries.

As the B&R Ini­tia­tive evolves, the trade vol­ume be­tween the main­land and ASEAN will def­i­nitely in­crease rapidly and sub­stan­tially. Hong Kong would be marginal­ized if it could not join the CAFTA as early as pos­si­ble. And it would be point­less to talk about Hong Kong’s role as a “su­per-con­nec­tor”.

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