Amid the US-China trade war, Hong Kong should be selling the benefits of its special status to Washington
- Regina Ip says local officials should stress what the US gains by granting Hong Kong special status - like two decades of trade surpluses - rather than giving them ideas on how to end it
Ever since the United States fired its first salvo of punitive tariffs at China last March, speculation has been rife that Hong Kong might get caught in the cross-hairs. Trade experts know Hong Kong is too small to be of consequence. The subsequent arrest of Meng Wanzhou, a senior executive of China’s tech titan Huawei, and the deluge of charges against her clearly demonstrate that the eldest daughter of Huawei’s founder is a much more valuable pawn.
The US has been such an important trading and investment partner of Hong Kong that the Legislative Council held an adjournment debate in early December to discuss the economic implications of the US-China trade conflict. Much concern was expressed about Hong Kong possibly losing its “most favoured nation” trading status, yet few fully understood what that status means and the likelihood of losing it in the wake of the US-China trade spat.
“Most favoured nation” status, under the rules of the World Trade Organisation, requires that a member grants the best trading terms to a partner in a trade agreement to all other WTO members. As such, it guarantees non-discriminatory treatment of all WTO members.
Hong Kong earned this status through decades of hard work as one of the world’s largest trading economies, and through its energetic participation in the General Agreement on Tariffs and Trade (GATT) and its successor organisation the WTO. With support from both China and Britain, Hong Kong became a separate contracting party of GATT in 1986. It’s continuous robust participation in the Uruguay round of international trade negotiations enabled it to become a founding member of the WTO on its establishment in 1995, well ahead of China, Macau and Chinese Taipei.
Because Hong Kong’s reputation as a free-market economy and its status as a separate contracting party of GATT, and its successor organisation the WTO, Hong Kong never required special authorisations under US trade laws to enjoy “most favoured nation” status.
By comparison, by virtue of the Jackson-Vanik amendment of the US Trade Act of 1974, which tied renewal of the “most favoured nation” status of non-market economies to review of the freedom of emigration and the exercise of other human rights, China’s “most favoured nation” status in the US was subject to annual review until then-president Bill Clinton decided to grant it permanent normal trade relations in 2000. China’s “most favoured nation” status in the US ceased to be an issue after it joined the WTO in 2001.
Many in Hong Kong still remember vividly how earnestly Hong Kong took up the cudgels on China’s behalf in the 1990s, when China’s “most favoured nation” status in the US came under intense scrutiny and its renewal appeared in jeopardy. At that time, well before China had established any “influence mechanism” in the US (now much denigrated), the Hong Kong government, with strong support from the business community and the American Chamber of Commerce’s Hong Kong branch, sent high-level delegations to the US to advocate for renewal of China’s “most favoured nation” status. Rounds of calls were made on powerful Congressional leaders, influential think tanks and, on at least one occasion, even the White House.
At this critical juncture, with storm clouds gathering on the horizon, it is well worth revisiting the arguments the Hong Kong government deployed, after much careful deliberations. As then governor Chris Patten said in his policy address in October 1994, “Hong Kong believes that trade issues should be tackled strictly on their own merits and that there are other, more effective avenues to discuss issues such as human rights.”
The pro-trade arguments remain as compelling as ever. The US has run a trade surplus with Hong Kong from 1993 to 2017. In 2017, the US recorded the largest trade surplus worldwide with Hong Kong, at US$34.7 billion. Despite its small size, Hong Kong is the fourth-largest market for US consumer-oriented agricultural products. If the casus belli in its trade war with China is its ballooning trade deficit with China, there is no case whatsoever for trade sanctions against Hong Kong.
Any allegations of unfair or protective trade practices do not have a leg to stand on, given that Hong Kong is a free-market economy – recently rated by the Heritage Foundation as the world’s freest economy, as it has been every year since the index began in 1995.
Hong Kong is home to more than 1,350 US companies, including many which have regional headquarters or regional offices here. US companies based in Hong Kong stand to benefit from further market reform and opening measures designed to enhance Hong Kong’s participation in Greater Bay Area development.
Granted, the US-Hong Kong Policy Act 1992 establishes the US policy of treating Hong Kong differently from China in its domestic law, provided that Hong Kong maintains its high degree of autonomy under the “one country, two systems” framework. And there is no lack of politicians, whether in the US or Hong Kong, who are itching to put human rights issues at the centre of US policy towards Hong Kong. Yet all indications, based on interactions with US officials and Congressional contacts, are that bashing Hong Kong for alleged human rights breaches is far from the mainstream view.
It behooves Hong Kong’s leaders to continue to explain to their US counterparts the benefits of free trade to the people, using the US’ success with Hong Kong as a shining example. There is no advantage in drawing undue attention to political controversies that have arisen on account of Hong Kong’s obligation to defend the sovereignty, dignity and security of its sovereign country.
A legislator recently suggested that the US Congress had reached a consensus to abrogate Hong Kong’s special status if further political controversies occur and named five specific conditions. Indeed, if Hong Kong did lose its special status because of such persuasion, whoever took the lead to give the US Congress ideas would go down in Hong Kong’s history as one who rocked the boat.
Regina Ip Lau Suk-yee is a lawmaker and chairwoman of the New People’s Party