Despite its challenges, the European Union remains a key partner for Hong Kong

Vincent Piket outlines the key tasks for the union, 59 years after its birth, and says a reforming Europe will further cement its relations with Hong Kong – and wider China – in diverse fields of cooperation

PUBLISHED : Monday, 09 May, 2016, 1:03pm
UPDATED : Monday, 09 May, 2016, 1:03pm

On May 9, we celebrate Europe Day, the EU’s “national day”. We consider 1957, the year when our founding Treaty of Rome was signed, the European Union’s year of birth. So we are now 59. The past year was a tough one, with EU crisis summits almost every month. While we have booked considerable results, some major challenges remain for the coming year.

What are those challenges? First, our economy. Growth in gross domestic product is projected to be a very decent 1.6 per cent in both 2016 and 2017. Unemployment is down to 10.2 per cent, its lowest level since 2010, although still too high. Other macro indicators are likewise moving in the right direction, including budget deficits, and government debt levels. Investment in the real economy is picking up from abroad and from small and medium-sized enterprises.

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These good results are thanks to our structural reforms, fiscal discipline and financial sector measures over the past five years. We can be proud of this. Yet, we know that we benefitted from the economic tailwinds of low energy prices and the cheap euro. For 2016 and after, there will instead be headwinds coming from the slowing global economy, including China. More structural reforms are needed in our labour markets, pension systems and social safety nets. Furthermore, we need to complete the liberalisation of the EU’s internal market, especially in key sectors like energy and the digital economy.

Those are complex reforms. Hence, it is clear that our further economic rebound will be marked by more political bumps and potholes, but the reform progress achieved up to now should help sustain the momentum to overcome them.

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Our second key challenge is, without doubt, the refugee crisis. Let me first make it clear that the EU will stay true to its values and will give shelter to refugees whose lives are at risk in war-torn regions. But the massive flows of refugees last year and early this year overwhelmed our processing mechanisms, under which the country of first entry has to process the asylum requests. The agreement reached with Turkey shows that workable solutions can be found to ease the migrant pressures while giving shelter to those with a genuine need.

Europe will have to debate how to respond to the needs of its citizens

We now have to go further by reforming our asylum system to relieve member states on our external border when an excessive flow of refugees lands on their shores. And we need to find an equitable way to relocate refugees among member states. That debate will happen over the coming weeks.

The EU’s third key challenge is not climate action; we are on track to cutting carbon dioxide emissions by 40 per cent by 2030 compared to 1990. Nor is it external trade; the EU remained the world’s largest and most open trading bloc despite our economic slowdown. Instead, the EU’s challenge is to reconnect with its 508 million citizens. Support for the EU among its citizens is low, ranging from 30-60 per cent depending on the country, and eurosceptic parties have been voted into the parliaments of many member states. The UK’s EU referendum is a case in itself. Europe will have to debate how to respond to the needs of its citizens, about what the EU’s responsibilities are and how these should be accomplished.

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What does this mean for relations with Hong Kong? A lot. Because a dynamic EU is a vital partner for Hong Kong. Naturally, the economic crisis caused a dip in our bilateral trade, with lower EU imports. But we have overcome that, and 2015 bilateral trade between Hong Kong and the EU increased to the all-time high of 71 billion (HK$629 billion), covering both goods and services. We remained Hong Kong’s second largest trade partner, after only mainland China, and Hong Kong ranks 15th on the EU’s trade partners list, ahead of much larger economies. In 2015, the number of EU firms in Hong Kong rose to a new high of 2,030, a quarter of the total of mainland and foreign firms based here. This is testimony to Hong Kong’s continuing appeal as a business hub in Asia. The number of EU temporary residents in Hong Kong continues to rise.

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Hong Kong firms and citizens have a myriad of interests in Europe: for business, education or leisure. At the government-to-government level, we are working on a dynamic agenda of trade facilitation, financial services, customs cooperation, tax cooperation, intellectual property rights, research and innovation, and the environment. Moreover, we will explore the scope for launching negotiations for a bilateral investment agreement, similar to the one being negotiated between the EU and mainland China.

The relations between EU and Hong Kong are wide-ranging and diverse, and they are based on interconnectedness and interdependence. They are embedded in the EU’s overall relations with China, which saw their 40th anniversary last year. But within EU-China relations, EU-Hong Kong ties have a distinct identity, thanks to the unique “one country, two systems” principle. In our recent report on Hong Kong, we commented on the functioning of “one country, two systems” in 2015. The report notes that last year had challenges, on account of the failed electoral reform and of the case of the five booksellers who disappeared. But aside from these two aspects, we note that Hong Kong continued its strong record on judicial independence, the rule of law, high anti-corruption standards and freedom of speech.

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The EU is confident about its relations with Hong Kong. We are confident we can resolve the challenges that face the EU and that our relations can continue to rest on the “one country, two systems” principle.

As is true for the EU, Hong Kong’s assets and strengths need to be nurtured, protected and developed, through cooperation and compromise among all stakeholders. Having lived and worked in Hong Kong for four years now, I am convinced that the common interest exists to make that task a success.

Vincent Piket is head of the European Union Office to Hong Kong and Macau