Fears of trading breach on first day of milk curbs

Limit on formula also affects genuine operators, academic says, which is an illegal restraint

PUBLISHED : Saturday, 02 March, 2013, 12:00am
UPDATED : Saturday, 02 March, 2013, 5:16am

A law professor has added his voice to fears that the government risks breaching world trade laws by curbing the amount of baby milk formula that people can take with them when leaving Hong Kong, as the measure took effect yesterday.

Legal experts say the crux of the potential breach of the World Trade Organisation law lies in whether the policy - limiting formula exports to two cans per person - blocks commercial exports. In theory, the government could be challenged if immigration officers impose the limit on people who say the export is part of their business.

The most likely breach would stem from a general rule the WTO adopted - Article XI:1 of the General Agreement on Tariffs and Trade (GATT). It bans prohibitions or restrictions - other than duties, taxes or other charges - whether made effective through quotas, import or export licences or other measures.

Bryan Mercurio, professor of law at Chinese University, says a breach of this rule could arise if people carrying a third tin are barred from doing so at the border "even if they declared the goods as commercial".

Mercurio said earlier he was not sure whether the policy would conflict with international trade law. But after reading the government's draft law, he says he is more certain that a conflict would arise. "As drafted, the objective of the amendment is to prohibit exports. This violates Article XI:1 [of GATT]," he said.

"Its objective is to prohibit exports - so it applies to legal traders. That is an illegal export restraint."

Its objective is to prohibit exports - so it applies to legal traders. That is an illegal export restraint

Mercurio says the measure in no way "fits in with Hong Kong's well-deserved reputation as a liberal haven where the free market flourishes".

In practical terms, there is little chance the measure would be challenged as the mainland is unlikely to invoke WTO dispute proceedings against Hong Kong. Other countries are unlikely to have sufficient interest to do so.

The two-tin limit was enacted to curb a shortage of baby formula in the city, widely blamed on large-scale re-exports to the mainland.

That parallel trade was facilitated by mainland customs officers' indifferent enforcement of regulations. Parallel traders profited by reselling the formula on the mainland, where much heavier taxes are levied on imports of legitimate baby formula - even though domestic mainland brands are widely mistrusted.

Under Hong Kong's new gazetted law, would-be exporters of baby milk formula must apply for an export licence from the Trade and Industry Department.

"The government is satisfied that the export control system is in compliance with the World Trade Organisation requirements having regard to … exceptions provided for under the relevant agreements," a department statement said.

"GATT expressly allows [the] application of temporary export prohibitions and restrictions to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting member."

The policy would be reviewed from time to time, it said.

Eugene Lim, of law firm Baker & McKenzie, agreed that the new law breached certain WTO requirements, saying the main objective of the licensing regime "appears to be to facilitate importers of milk formula products re-exporting these products".

"Whether this could have an adverse impact on businesses which do not import milk formula products, but wish to engage in the export of such products, remains to be seen."

But Civic Party lawmaker Kenneth Chan Ka-lok said: "The government said it would issue permits to larger traders, so I don't see the current ban as a form of trade protectionism."