USTR - 1996 National Trade Estimate-Hong Kong
Office of the United States Trade Representative

 

1996 National Trade Estimate-Hong Kong

In 1995, the United States trade surplus with Hong Kong was $3.9 billion, $2.2 billion greater than in 1994. U.S. merchandise exports to Hong Kong were $14.2 billion, $2.8 billion or 24 percent greater than in 1994. Hong Kong was the United States' eleventh largest export market in 1995, and the seventh largest importer of U.S. agricultural products. U.S. imports from Hong Kong totaled $10.3 billion in 1995, a six percent increase over those in 1994.

The stock of U.S. foreign direct investment in Hong Kong was $12 billion in 1994, an increase of nearly 18 percent over that in 1993. U.S. direct investment in Hong Kong is concentrated largely in wholesale, finance and manufacturing.

OVERVIEW

On July 1, 1997, the Peoples Republic of China (PRC) will regain sovereignty over Hong Kong from the United Kingdom. Hong Kong will become a special administrative region (SAR) of the PRC. China will assume the responsibility for Hong Kong's foreign affairs and defense. However, under China's policy of "one country, two systems" as guaranteed by the 1984 Sino-U.K. Joint Declaration and the 1990 PRC Basic Law, Hong Kong has been promised "a high degree of autonomy" from China in managing its trade, financial, social, legal, and other internal matters for fifty years.

This commitment means that Hong Kong will remain a separate customs territory with all of its current border arrangements, it will retain its independent membership in economic organizations such as the WTO, and it will retain control of its own economic and financial policies.

LACK OF INTELLECTUAL PROPERTY PROTECTION

Hong Kong's intellectual property laws are among the best in the world, but a massive increase in pirate compact disc production in China (music, video and software) over the past two years has swamped and weakened local enforcement efforts. Retailers of pirate software and music are operating so openly that their locations are listed in guidebooks. One large U.S. software company estimates that the pirating of three software programs alone accounts for $1.7 million lost in sales per month. The U.S. music industry estimates that twenty percent of the recorded music sold in Hong Kong is pirated. The International Intellectual Property Alliance estimated 1995 losses due to piracy at $130 million, and that is without calculating business software losses.

The United States has urged the Hong Kong government at the most senior levels to crack down on hawkers and retailers and the criminal syndicates that supply them. In 1995, Hong Kong responded by beefing up IPR enforcement manpower in the Customs Department and by significantly increasing the fines for copyright theft. More recently, the Government has asked the police to assist with investigations. To date, however, the judiciary has not significantly increased sentences or fines on IPR infringers, and thus there

is still no effective deterrent to IPR piracy. Several cases are working through the courts under the new copyright law and they may set helpful precedents.

The alarming trend of the problem can be seen in the increasing numbers of pirated goods seized. For example, industry sources report that the number of CD-ROMS containing infringing software jumped from 5,400 in 1994 to 177, 000 in the first nine month months of 1995, a staggering 44-fold increase. That this increase is possible despite Hong Kong's stepped-up enforcement efforts demonstrates that mainland China has yet to attack the manufacturers and importers who are at the root of the problem. Indeed, Hong Kong entrepreneurs and criminals play a central role in the production of infringing material on the mainland: Hong Kong businessmen are co-venturers in more than two-thirds of the pirate CD plants operating in mainland China. Vigorous action by Hong Kong authorities to stop the financing of pirate activities in China by individuals based in Hong Kong is an important and necessary step, but one which Hong Kong has yet to take.

As reversion to China moves ever closer, the challenge for Hong Kong will be to establish a fundamental respect for intellectual property rights which will endure beyond 1997.

 
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