• Tue
  • Dec 23, 2014
  • Updated: 5:28pm

Parallel trading

The influx of parallel traders who buy their stock tax-free in Hong Kong to resell it in mainland China at a profit is causing growing unrest. Residents of Sheung Shui, a town close to China's border, say the increase in parallel importers has pushed up retail prices and causes a general nuisance. Importers argue that their trade benefits the Hong Kong economy.

NewsHong Kong
CONSUMER AFFAIRS

Cross-border limit on baby milk may breach trade rules

Legal expert warns that planned two-can limit on cross-border business could breach the World Trade Organisation's rules

PUBLISHED : Thursday, 14 February, 2013, 12:00am
UPDATED : Thursday, 14 February, 2013, 8:58am
 

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14 Feb 2013
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A cap on the amount of milk formula travellers can take out of Hong Kong could breach World Trade Organisation rules.

The government announced this month it planned to limit the number of cans people can take across the border to two.

The move was aimed at preventing parallel traders from buying formula in the city and reselling it in Shenzhen at higher prices, creating a shortage.

They can escape mainland tax by claiming the formula is for their own use and costs less than 5,000 yuan (HK$6,159) in total.

Eugene Lim, a Hong Kong tax partner of international law firm Baker & McKenzie, said the two-can quota could contravene the General Agreement on Tariffs and Trade (GATT). The agreement prohibits any quantitative import or export restrictions between WTO members.

But Lim, co-head of the firm's Asia Pacific Regional Customs and International Trade Steering Committee, said: "The quota appears to be aimed at preventing hand-carried exports for parallel trading and the limitation to two [cans] is to ensure it is limited to personal use."

He said that in practical terms, there was little chance the measure would be challenged as China was unlikely to invoke WTO dispute proceedings against Hong Kong. Other countries were unlikely to have sufficient interest to do so, Lim added.

Chinese University law professor Bryan Mercurio said the GATT legislation was not expressly limited solely to commercial shipments, but that was implicit in the entire agreement.

He said: "Despite the fact the individuals crossing the border with the goods are doing so for the purposes of trading, they are not engaging in the export or import of goods within the meaning of the GATT - they are merely individuals crossing a border."

His first impression was that the proposed change - being a limit on a specific item that individuals could take across the border for personal use - would not violate WTO rules.

But he said a grey area that could emerge was what would happen if the parallel traders offered to pay import tax to the mainland authorities.

If they made known their "commercial" intent, setting a limit on the number of cans that could be taken out of the city could be problematic.

The WTO said it could act to determine whether legislation passed by a member complied with its rules only after another member complained.

The Food and Health Bureau is working out details of the proposed amendment to the Import and Export Ordinance in consultation with the Trade and Industry Department.

A department spokesman said: "The government will ensure the compliance of the proposal with World Trade Organisation requirements."

Meanwhile, free-market opponents of the proposal say a limit on milk formula is wrong for another reason - that people are being criminalised for the simple act of trading that made Hong Kong great.

 

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This article is now closed to comments

maryting
It will be very interesting if the HK Government puts a cap on the travellers for the milk formula. There are other ways to solve this issue instead of doing this.
SpeakFreely
Once the local parents are secured with govnment hotlines there is no need to limit the trade. Basically it is the suppliers playing games with governments. No brainer.
RobinDeCaro
The government hotline satisfies the need of local mothers,while the parallel traders satisfy the need of mainlanders who believe foreign daily personal necessities are better.There are numerous shops in Gongdong selling goods originated from parallel traders.
jonathanmcw
Mainlanders should buy their baby formula in mainland.
Purchased milk products from local retails are meant for personal use. Retailers should not become wholesalers by supplying to demands way further than its regional limit.
Although, yes, in strict business sense, whoever pays the top dollar are supposed to ensure their deals. But hey, this is baby forumla – rice for Chinese, baby formula for babies; Not rice for babies. Food! Those are food for babies. Secure food supply is some sort of fundamental rights that the government must protect to create a family "friendly" environment for our future generation.
Questions:
- How come carrying personal "belongings" across train border – something meant for travelers and tourists – has become a form of country-wide export, like traders would do in containers and ships?
- Was WTO regulation built for legal loophole like this? Was the regulation built for a country whose reputation has bankrupted within their own land, forcing its people to employ exploitative measure to secure resources for themselves, by sacrificing lives of the others who do not want be part of their games?
- The origin of the products is not Hong Kong and I wonder if the "tariff" across the train border is really applicable?
Either the mainlanders buy our imported baby formula in cargos, and make them available in their local retails; or bear with the limits. We should not bear the cost for other's unreliability.
agnesccm
bring more pressure to bear on the milk powder importers.
RobinDeCaro
Well,free market with proper duties as revenue makes HK great;loss of revenue from duties charge makes HK small.
HK government runs by coffers,parallel syndicates are parasitic.
HK-Explorer
What else was the government going to do? I don't think it would look good to anyone if parents had to travel 1 hour to get milk formula or worse still to use alternatives such as rice to feed their babies! It is also just a short term item to allow formula makers to come up with a solution.
I think formula makers need to step up and start supplying milk formula by the truck load in new territories. This is not like housing that requires a 4 year waiting period. Milk formula companies can set up a shop at the boarder and stock it full of Milk formula for Chinese consumers. They can sell 10,000 cans a day. Then the profit gain of parallel importers will be gone. There will be ample supply.
pgrath1
Hong Kong became a great city because it allowed people to import, export, buy and sell milk-powder and a million other goods where and when they pleased.
The fact that this ridiculous issue has become a priority for Government bureaucrats and the public shows that Hong Kong is now on the statist path of micro-managing individuals and economics for political and PR reasons. That doesn't bode well at all for Hong Kong's future.
davster78
Aye, I totally agree. What saddens me most is that I was hoping that China would become more like HK, unfortunately, it's taking the opposite path, with HK embracing the communist motherland and it's tight regulations. Now we just wait for rebirth of corruption in HK and more controls and regulations. What is even worse, is that the people seem to enjoy and ask for more restrictions - like that could really solve their problems.

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