IN HIS final interview before leaving Hong Kong, 'spymaster' John Thorpe, the last head of the colonial Special Branch, made an unusually frank admission. Mr Thorpe, who normally avoided the press, confirmed that illicit arms trading was a problem and was a growing concern for the territory's security forces. While Hong Kong has little if any demand for arms itself, it has become a growing entrepot for legal and illegal shipments between countries elsewhere. 'The last things we [Special Branch] were covering were arms proliferation,' said Mr Thorpe, who had run the territory's counter-intelligence operations for 14 years. 'They are commodities and Hong Kong is a place where deals are done.' Since then, the 'branch' has been reborn in the form of the Security Wing. It is only now that the results of those concerns are coming to light. The 'new' branch, which had in fact been operating in the shadows since 1991, was already working behind the scenes gathering intelligence and tracking potential air and sea transshipments through Hong Kong. Those investigations, coupled with information exchanges with foreign agencies, notably British and American, and enforcement action by the Customs and Excise Department, have resulted in three significant illegal arms seizures so far this year. Israeli-manufactured dummy aircraft bombs, North Korean-manufactured versions of Russian field guns and suspected rocket fuel bound for Pakistan were among the mounting haul. The Government had previously seized other sophisticated items, like jet fighter spares and magnetrons - components used in guiding air-to-air missiles. 'We think proliferators are running an unusually high risk in using Hong Kong,' said a Government agent who asked not to be identified. 'We have very effective trade controls and a high degree of co-operation between government agencies. But there will always be people who need to use places where there is a variety of shipping, communications and finance.' Most of the illegal shipments are from China and North Korea bound for the Middle East, although some are Western-produced items obtained by fake front companies and shipped through Hong Kong. Comprehensive details of the seizures are unlikely ever to be released because of the shadowy nature of intelligence work and potential political embarrassment of Beijing with the handover less than 10 months away. But what is clear is that deals are done in Hong Kong, and some shipments are routed through the territory's bustling port and airport due to the reliability and efficiency of the operating system. However, this has a down side. 'You can't throw a complete water-tight security net around Hong Kong as it cuts off legitimate trade,' the agent said. 'It has to be a balance between having good effective controls and meeting the legitimate needs of importers and exporters.' As part of the Government's plan to control illegal shipments, experts from Security Wing, legal and trade departments and the Political Adviser's Office meet regularly under the guise of the secret Strategic Commodities Committee. High-up on the committee's priority list is North Korea. The Stalinist state has been a 'target country' for a number of years as it is being forced to sell or barter whatever weapons it can for hard cash or crucial food supplies. Syria is also a 'country of proliferation concern', the agent said, and added that goods coming from suspect nations are checked against an intelligence data base by the Trade Department. A list of companies believed to be involved in arms smuggling has also been compiled and is used for background checks. 'We are trying to stop anything that would poison our trade standards or the regard we are held in legitimate trade,' the agent said. 'This is why we are extremely active and treat as high priority that Hong Kong may be used for diversionary trade.' However, the one part of the deal that the Government is powerless to stop at the moment is broking. It is widely accepted that a lot of deals and other arrangements are ratified in Hong Kong, but as long as the goods do not enter the territory no local laws are broken.