Financial Secretary John Tsang Chun-wah (second left) shares a light moment with the then Chilean president Sebastian Pinera (second right) before a free trade signing ceremony between the two economies during the 2012 APEC summit in Russia. With a distinguished financial sector, Hong Kong is able to serve as a sourcing center for its free trade partners. AFP

Deal will lift ASEAN-mainland trade and SAR's financial status

The Hong Kong government is hard at work to conclude talks with ASEAN countries on a free trade agreement (FTA) which is seen as crucial in strengthening the city's position as the region's premier financial and commercial center.

The 10 ASEAN nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam), with a combined GDP of $2.4 trillion and total trade of $2.5 trillion, make up the world's seventh-largest economic entity.

With a population of over 600 million (8 percent of the world's total), the 10 member states plan to establish, by next year, the ASEAN Economic Community which is modeled on the European Community.

As part of the grand scheme, ASEAN has also begun negotiating different trade pacts with other Asian economies to achieve greater regional economic integration.

In July, the Hong Kong government entered into the first round of negotiations with ASEAN on reaching a free trade agreement in five areas - logistics, finance, shipping, professional services and trade. It expects the scheduled six rounds of talks to be completed by 2016.

The ASEAN grouping is Hong Kong's second-largest merchandise trading partner after the mainland, and the fourth-largest for services. Total bilateral trade value between Hong Kong and ASEAN exceeded HK$751 billion ($96 billion) last year.

Reaching a free trade agreement with ASEAN is important as it can enhance the SAR's role as an intermediary in the much bigger trade flow between the mainland and ASEAN countries.

"A Hong Kong-ASEAN free trade agreement can help both Hong Kong and mainland enterprises venture into ASEAN markets," Secretary for Commerce and Economic Development Gregory So Kam-leung told a business summit earlier.

"ASEAN is in need of infrastructure investment and services industry professionalism to propel its economic connectivity and development. Hong Kong, with its strong expertise in financing and consultancy services, will be a solid platform to help ASEAN," he said.

An FTA can also enable Hong Kong to join a trade bloc that can "enlarge Hong Kong's economic interaction with other regional economies," So added.

Such a pact with ASEAN can also enable Hong Kong businesses to tap the vast domestic consumption market of the 10 member countries.

"The rising average incomes of consumers in ASEAN countries can create a huge demand for Hong Kong exports," said Stanley Lau Chin-ho, chairman of the Federation of Hong Kong Industries.

What's more, Hong Kong can further consolidate its status as the favorite choice of multinational companies in setting up their regional headquarters.

"Even if Hong Kong does not have much of a manufacturing base, it can serve as the sourcing center for ASEAN enterprises," said legislator Felix Chung Kwok-pan, who represents the textiles and garments sector.

Jonathan Choi Koon-shum, honorary chairman of the Hong Kong Chinese General Chamber of Commerce, said the city's efficient capital market, independent judiciary and low tax regime are advantages recognized by many ASEAN enterprises.

A free trade agreement would make it even more costly for those enterprises to utilize Hong Kong's wide range of financial services to enhance their competitiveness, he said.

For instance, many Hong Kong financial enterprises have shown an interest in bidding from businesses arising from the move by the Vietnamese government to privatize its various state-owned enterprises in the aviation, banking, insurance and telecommunication sectors, Choi said.

Hong Kong's stable economic infrastructure and its strong services sector are expected to garner support in the free trade talks from ASEAN business leaders, economists said.

As a free port, Hong Kong is widely seen to be in a weak position to negotiate with its trading partners.

But economists said Hong Kong can leverage on its services sector in trade talks. "Hong Kong has a unique position to play through leveraging its services sector. If we play it right, an ASEAN free trade agreement will become an interesting landmark for Hong Kong to get into a more integrated world," said Nicholas Kwan, director of research at the Hong Kong Trade Development Council.

oswald@chinadailyhk.com

(HK Edition 10/23/2014 page9)