At the mercy of economic typhoons

PUBLISHED : Friday, 01 September, 2006, 12:00am
UPDATED : Wednesday, 28 September, 2016, 8:46am

We all remember the World Trade Organisation conference in December. Protesters from around the world, like the South Korean farmers, faced our police in the streets of Wan Chai. Roads were closed and traffic was diverted.

Thousands of reporters came to town. Hundreds of trade officials, representing 149 economies, including our own, attended tough meetings.

The HK$250 million budget that Hong Kong contributed to help the WTO make trade freer and fairer seemed well spent. The WTO's director-general, Pascal Lamy, said the Doha round had advanced in Hong Kong, from being 55 per cent to 60 per cent complete. In particular, the conference paved the way for better access for poorer countries to developed markets.

But what happened next? Our local media paid far less attention, in July, to the collapse of the whole current effort at trade liberalisation. The United States and Europe refused to reduce the subsidies and tariffs they use to protect their agricultural markets.

This policy pushes up food costs for American and European families. Far worse, it stops the world's poorer farmers from getting ahead in the global economy. Developing countries, meanwhile, refused to open their markets in services.

Hong Kong officials are among those trying to get the talks back on track, but the prospects do not look good. In theory, that shouldn't affect Hong Kong too much. Our existing trade should carry on much as before. But things could get worse.

With the WTO process halted, some countries will try to open markets on a regional, or one-to-one, basis. This shift from a multilateral to a unilateral approach is dangerous. While some countries may co-operate in setting up their own free-trade blocs, such areas might have high barriers around them to keep outsiders out.

Hong Kong is already wide open, so we have little bargaining power with such blocs.

When various countries or regions adopt their own trading rules, it makes life much harder for companies that act as go-betweens for customers, suppliers, manufacturers and shippers. They have to juggle many different tariff arrangements, each with its own documentation, technical standards and other details. Hong Kong is one of the world's centres for such companies.

All this would be a concern even if the world economy remained in good health. What if something bad happens, such as a continuing plunge in the American housing market? A serious slowdown in the US would spread to other countries. One leading economist thinks we could be in for a decline worse than the bursting of the dotcom bubble in 2000.

Falling demand overseas would hit growth here and on the mainland. Our own asset prices and consumer demand would probably fall, as well. That could mean a period of slow - or even no - growth for Hong Kong, maybe for one year, maybe for two. Who knows?

That sounds bad enough, though we have been through it all before and recovered. The really serious danger is that, with the WTO inactive and the world in recession, pressure in some economies for trade protectionism will increase significantly. The world trading system could become more fragmented, and more barriers could go up.

As a trading city, we are highly exposed to this threat. International markets have been opening in the past few decades, and Hong Kong has benefited immensely. But what happens if there is a trend in the other direction, back towards protectionism? What can we fall back on?

This worst-case scenario is not inevitable. Realistically, we can probably expect some bumps.

The main point is that there's very little Hong Kong can do about any of this. The collapse of the WTO Doha round, the formation of regional trade blocs and issues like the US housing market are totally out of our control.

The world has generally been good to us for many years, but there is no guarantee it will always be that way.

Bernard Chan is an executive councillor and a legislator representing the insurance functional constituency