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Tuesday, August 30, 2016, 00:26

‘Change of mindset’ urged in free trade talks with ASEAN

By Iris Deng

HONG KONG - With a free trade agreement (FTA) between Hong Kong and the Association of Southeast Asian Nations (ASEAN) due to be concluded this year, business leaders and economists are skeptical about the real impact the accord would have on trade between the two regions. They argued that existing trading links are already direct, open and booming.

Given the SAR’s present status as a free trade zone and exports from the 10-nation bloc to Hong Kong being subject to zero tariff, experts have stressed the political and psychological significance of the deal more than the economic benefits.

Instead, they called for both regions to boost two-way investment, but admitted that it would take a change in mindset rather than an agreement to achieve it.

The eighth round of negotiations on the Hong Kong-ASEAN FTA ended in Kuala Lumpur last week with good progress made, according to Hong Kong’s Secretary for Commerce and Economic Development Gregory So Kam-leung, who spoke at the Hong Kong-ASEAN Summit 2016.

So said he expected all negotiations on the trade pact to be completed by the end of this year, while projecting more opportunities in the global market and stronger competitiveness for Hong Kong’s business community.

“I believe the completion of the FTA negotiations will enable goods, services and investments from Hong Kong to enter the ASEAN market on better terms, and put the SAR in a stronger position in the global supply chain,” he said.

The FTA, which covers the elimination or reduction of tariffs, liberalization of trade and investment and more elements, is seen as a booster for trade between Hong Kong and ASEAN members.

Currently, ASEAN is Hong Kong’s second-largest trading partner, while the SAR ranks eighth among ASEAN’s trading partners. Hong Kong’s exports to the group reached $5 billion last year, growing at an annual rate of 7.5 percent in the past decade.

As one of the world’s freest economies, Hong Kong imposes zero tariffs on imported goods, but is subject to zero to around 10 percent tariff on its exports to the ASEAN states, according to Hong Kong’s Trade and Industry Department.

However, given Hong Kong’s current status as a free trade zone, economists have cast doubts on how big an impact the FTA would have on trading activities in the region.

David Carbon, chief economist and managing director for economic and currency research at DBS Bank, said while the FTA will make trade easier to conduct, it won’t be the determining factor in boosting trade.

“Most of the increase in global trade is not due to getting rid of tariffs or FTAs, but simply comes from the growing size of the economy,” he explained.

Lee George Lam, president of the Hong Kong-ASEAN Economic Cooperation Foundation, argued that the trade pact will allow better communication in the region while deepening economic ties.

Saying the deal would make Hong Kong and the ASEAN community “psychologically and politically closer”, he believed that trust would be enhanced through the agreement, which will lay the foundation for deeper economic cooperation.

An ASEAN diplomat, who preferred to remain anonymous, said he expects a limited impact on trade from the ASEAN perspective, but hoped that it will allow more room for maneuver in areas like two-way investment and connectivity, which could be unlikely to achieve through the deal alone.

Statistics from ASEAN show that Hong Kong was the eighth-largest source of foreign direct investment in the group last year, valued at $3.6 billion. Hong Kong reported in 2014 that foreign direct investment in Hong Kong from ASEAN – its fifth-largest source – reached $5.6 billion.

Albert Oung, founding chairman of the Hong Kong Myanmar Chamber of Commerce, urged Hong Kong to “change its mindset’ to tap into the immense investment opportunities in the ASEAN market.

Hong Kong companies, he said, should bring real benefits to the local community with the latest innovation and technology, rather than transferring low-value added industries to the region.

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