China is finally an official member of the World Trade Organisation (WTO). Now that the Hong Kong SAR Government has proposed to the Central Government the idea of a Hong Kong-Macau-China Free Trade Agreement, and given the positive reaction from the Central Government, we should concentrate on what this agreement could look like.

Given that China and Hong Kong are two separate members of the WTO, the discussions between the SAR Government and the Central Government should be guided by these principles: (1) The agreement must abide by WTO rules. (2) The agreement should be beneficial to the economies of both Hong Kong and the Mainland. (3) The agreement should be reached quickly -- preferably before the end of 2002. Its content should be simple and its implementation transparent. (4) The agreement should not bring additional difficulties to China in its implementation of WTO commitments and in its relationship with other WTO members.

Given these guiding principles, what should be explored? As proposed by the Chamber two years ago, an important element of any regional free trade agreement between Hong Kong SAR and China should be a time-advantage for Hong Kong companies. This means that while the market opening which China has committed to all WTO members will take effect three or five years after accession, Hong Kong companies may enjoy this opening earlier, say one year or 18 months from accession. Let us look at this in more detail.

The liberalisation will be implemented according to timetables for telecommuni-cation, banking, insurance, distribution, retail, consulting, advertising, tourism, legal services, etc. These timetables cover forms of investment, percentage of investment, number of branches, licenses, areas of operation and others, and usually range from two to five years after accession.

A FTA with China may, upon imple-mentation, enable Hong Kong companies to obtain these same liberalisation earlier, say one year after accession, which would be at the beginning of 2003.

For instance, according to China's WTO schedule for market access, by 2005, all restrictions on distribution auxiliary services -- warehousing, advertising, technical testing and analysis, and packing services -- will be phased out and wholly foreign-owned subsidiaries of freight forwarding companies will be permitted. By 2007, China will relax ownership limitations on foreign management consulting firms, and foreign retailers and chain store operators will no longer have equity limitations.

In many sectors, there are barriers to investment or operation which are not covered by the current China WTO accession document. An example is the exhibition services sector, where wholly foreign owned operations are not allowed. Government procurement is not covered at all in the accession document. Another example is that of the asset barrier of US$20 billion for setting up foreign bank branches. A FTA with Hong Kong could open up a wide range of opportunities by lowering some of these barriers or removing prohibitions for Hong Kong companies. Obviously, any such additional opening may become the subject of future requests by other WTO members, so the Central Government will have to look very carefully before granting these to Hong Kong. But since China will be involved in the new round of trade liberalisation anyway -- the new Doha Round which was successfully launched a month ago -- there will be room for additional, and previously not covered, liberalisation to be made available in the future. Even though these may eventually be enjoyed by all WTO members, Hong Kong will, again, gain a time advantage.

The benefits described above for service sectors may also be applicable to industrial tariffs, that is, there may be an opportunity to seek early reduction or further reduction of certain tariffs. This could help attract some high value-added manufacturing operations to Hong Kong, especially those with a high design content, or others where the original components would encounter a stiff tariff in China or where technology transfer rules prohibit these components from entering China unassembled.

On our part, we shall have to be prepared to offer some specific benefits for Mainland businesses and professionals to enable them to access Hong Kong's market more freely.

We hope that a successful FTA can be concluded quickly. We have not touched on Macau, but including Macau should be relatively simple. Including Taiwan would be a different story, and political problems are difficult to resolve in a short time. Let us work on a Hong Kong-Macau-China FTA first.