For anyone within range of government offices or the headquarters of Rex International Development when the court settlement between the two was announced yesterday, the sighs of relief must have been almost audible. What the implications are for the SAR is less clear. If the case had continued, some highly sensitive and possibly embarrassing information might have emerged. From the evidence heard, it seems clear that the Executive Council had good grounds for ordering the company to halt trading at the end of June. The allegations that Rex International supplied 'warfare' materials, including the means to manufacture chemical weapons, to nations accused of promoting terrorism were not tested in court. Instead, an agreement has been reached between the Government and the company, which will allow it to re-register in order to go into liquidation. Under the original ruling, the firm would have been required to surrender its assets. The settlement means that it need only advertise its intention to liquidate in the newspapers. There will then be nothing to stop those involved in the company resuming their activities under a new name. Whether Hong Kong's security and reputation has been damaged by the company's activities remains an open question after a case which posed many questions and answered none. The proceedings were reportedly being watched closely in the United States as a test of Hong Kong's judicial independence and the SAR's commitment to internationally agreed controls designed to stop the spread of nuclear, chemical and biological weapons. Yesterday's outcome sheds no light on either question. The security aspects of the case were deemed so profound that even the judge was not allowed to see the documents. Thus the public are unlikely ever to know precisely what was really at issue. Nor is it likely to become known why the ship in question was allowed to pass through Hong Kong bound for Iran without being intercepted despite a tip-off that it was carrying high grade seamless steel pipes suitable for use in chemical weapon manufacture. Seven local companies were de-registered in 1995 for involvement in the illegal arms trade, but the change of sovereignty means that Hong Kong's previous stance on weapons sales no longer applies. China is not a signatory to all agreements signed by the former administration, and does not share Western views about arms trading. But, if the SAR became a conduit for arms shipments that went against international accords, this would certainly alter the international perception of Hong Kong.