Plans are afoot to make 2001 the "Year of the Clink," that is if those with an eye on making the territory a regional wine trading and distribution hub have their way.

Even Financial Secretary Donald Tsang, during his August visit to Australia, was beating the drum and selling Aussies on the idea that Asia is where it's happening and Hong Kong is at the heart of it.

Wine distributors here are also toasting the proposal. "I think it is a fantastic idea," said Antonio Koo (left), managing director of Ponti Trading Ltd., one of Hong Kong's largest wine importers. "I think with the growing wine consumption in the whole of Asia, there is tremendous potential to expand Hong Kong's role as a wine distribution centre, particularly within the greater China area."

At present, there is no dominant wine distribution centre in Asia, which results in wine distribution and trading in the region being fragmented and inefficient.

By acting as the funnel through which wine to the rest of Asia and China flows, Hong Kong could act as the cellarmaster to an industry that is predicted to grow by as much as 20 per cent annually over the next six years to reach a value of US$2.2 billion.

Growth potential
Hong Kong clinked its way through US$58 million worth of wine in 1999, and that figure is expected to reach US$156 million by 2006, according to a study conducted by Arthur D Little Asia Pacific, Inc.

Re-exports from Hong Kong are expected to grow from US$43 million in 1999 to US$128 million in 2006, and the total Hong Kong share of the wine market is expected to grow from US$101 million in 1999 to US$284 million in 2006.

But while imports are projected to rise steadily, the study pointed out that consumption remains low compared to traditional wine markets elsewhere in the world. Per capita consumption in the region averages 0.06 litres per year, compared with 7 litres in the USA, 18 litres in Australia and 60 litres in France.

Wine destined for the mainland will contribute significantly to the numbers once China starts slashing import duty on liquor from the current 65 per cent to 20 per cent by 2004 to comply with its WTO agreement.

Speaking at a seminar entitled, "Developing HK Into A Regional Distribution Centre for Wine," held earlier this year, Deputy Secretary for Trade and Industry Yvonne Choi said that the government has outlined a number of initiatives for developing Hong Kong as a regional distribution centre for wine. These include establishing an open-bonded warehousing system to remove hurdles and reduce operating costs for traders, simplifying documentation through the use of electronic data exchange, and improving wine storage facilities.

The Chief Geotechnical Engineer at the Civil Engineering Department, Peter Whiteside, suggested there was potential for underground storage of wine in Hong Kong in disused wartime air-raid tunnels, in underground bunkers and in new, purpose-built caverns.

These storage areas would also be at the heart of distributing wine orders taken through the Internet, as part of the proposed wine trading e-commerce initiative.

The Chairman of the Liquor & Provision Industries Association (LPIA) Claes Rydberg (right) said that he welcomes anything the government does to support and make business better for the industry, but the government's vagueness in explaining exactly what it means by a wine trading and distribution hub has raised some questions.

"What does it actually mean, and what is the intention? As the LPIA we still have a bit of a question mark as to how it will work and what are the actual benefits," he said.

Mr Rydberg said one of the key issues about the proposal is that it does not take into account the real role of an importer in a market -- producers need representation on the ground in a market in order to promote and build their brands.

"Producers need in-market presence. This is not something which can be done from a central point like Hong Kong," he said. "Of course, some wines are 'traded' like commodities -- top French wines et cetera -- but for the bulk of the wine business this is not applicable and this is where we have the biggest question mark."

Given that over half of the wine imported to Hong Kong is re-exported to the mainland, once China enters the WTO it would seem logical for producers to ship their wine directly to market, rather than re-routing it through Hong Kong.

"Also, why would any producer prefer to have their stocks sitting in Hong Kong for the markets of Taiwan or Thailand, for example? Why don't they want to go straight there?" Mr Rydberg asks. "If you talk about producers stocking their wines in Hong Kong, who is going to finance warehousing those stocks? Also, is it cheaper to store them here than at the origin, for example in France? The whole idea behind the hub is that you put it regionally and it will be more efficient."

But even if stocking their wines in Hong Kong helps producers shave 1-2 per cent off shipping and operation costs, that figure is minuscule when they face 60 per cent taxes on value if they are forced to sell their wines on the Hong Kong market.

"Improvements in an open-bond system, import duty clearance, processing of documents, those are areas where we certainly welcome all the initiatives. All of that we welcome with open arms, excellent, good news. But the biggest issue is the ad valorem tax, which dampens wines development and the opportunity to run a profitable business," Mr Rydberg said.

Mr Koo also feels the 60 per cent duty is a major obstacle for promoting Hong Kong as a regional wine trade centre.

"There have been arguments where people said if Hong Kong had wonderful bonded facilities duty would not be an issue, because wine would be re-exported. However, if a wine merchant were not able to sell the goods -- to re-export it -- his only means of selling it would be to sell it in Hong Kong. Given the high tax, it would be a big impediment to bring in higher value, quality wines," he said.

Nurturing a wine culture
To play a leading role in wine distribution within the region, you also need to become the leader in terms of wine consumption, appreciation and understanding, Mr Koo said. You also have to develop that sophistication of enjoying wine. Having a tax rate of 60 per cent does little to encourage the general population to appreciation higher quality wines. A regional wine centre must have a balance of medium and high priced wines to build up wine appreciation and experts, he added.

Mr Rydberg echoed Mr Koo's concerns: "High operating costs and an ad valorem tax system is attracting lower priced wines and therefore lower quality products."

Besides dampening demand for better quality wines, high duty is also encouraging some merchants to under-invoice their goods, resulting in a substantial quantity of wines coming into Hong Kong that are paying a lower duty.

It is common knowledge that some wine connoisseurs in Hong Kong bring in a few more bottles -- or occasionally a case or two -- of high quality wines and do not declare them, or declare a lower value. But what is not that commonly known is that some wine producers are sympathetic to the high duty rate in Hong Kong and offer to under-invoice buyers.

"Traditionally, what you hear people talk about is they declare to the customs on their invoice a lower value of wine, and pay another portion of invoice to the wine producer. So in effect the customs levy a smaller value on the same quantity of goods," said one wine importer who asked not to be identified.

"A lower tax rate would discourage under-invoicing, and also make Hong Kong much more likely to become a wine hub," he added.