Hong Kong exporters say they benefit greatly from free trade agreements, but its government needs to up its game in negotiating deals with the biggest and most important economies.
A new report found that 90% of companies polled said that the trade agreements they use helped them to boost sales to the relevant market.
The most beneficial agreement Hong Kong has signed is the 2003 Closer Economic Partnership Arrangement (CEPA) with China, with 63% of all exporters that were quizzed saying they had used this deal.
However, others are not so successful. Just 12% of those polled said they had used the agreement with New Zealand, leaving the report’s editor to speculate that some agreements are signed for political reasons, rather than tangible economic gain.
“A lot of bilateral agreements weren’t really done for trade, more for political reasons. They’re not taking the exporters’ needs into account and are probably easier to do, the low hanging fruit,” David Line of the Economist Intelligence Unit, who authored the report, tells GTR.
Hong Kong has been a relatively marginal figure in free trade negotiations, probably due in large part to its relationship with China. While exporters would prefer the local government to negotiate deals with the world’s trading powers, the political situation means that this is unlikely to fly in Beijing.
Thus far, it has signed deals with China, Chile and the four-country European Free Trade Area (made up of Iceland, Liechtenstein, Norway and Switzerland). China aside, none of these could be considered economic powerhouses.
What’s more, Hong Kong has been left on the sidelines while the negotiations for the Trans Pacific Partnership have gathered speed. The deal would remove trade barriers between 12 Asia Pacific countries, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam.
China has been trying to advance its own agreements, namely the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia Pacific (FTAAP), but negotiations for these – in which Hong Kong is included – are more nascent than their US-backed counterpart.
While China has been invited to join TPP negotiations further down the line, it seems as though the battle lines of regional trade agreements have already been drawn.
“There are a lot of businesses in Hong Kong that would like to be involved in that [TPP] in some ways. You can get secondary access to that via other markets in Asia that are involved in it. There was the perception that TPP was not really involving China. It was seen as a choice between the US or China, and I don’t think HK has the political authority itself to directly get involved in TPP, even though it may make sense for exporters to do so,” Line says.
Hong Kong has long billed itself as a hub of free trade – in an area where economic and bureaucratic wrangling is commonplace. This explains the appetite for negotiating further agreements (around 80% of exporters are in favour of more comprehensive and robust deals) – even if this means sacrificing its own unique status as a free port.
“If every other city in the world had that status they would lose that comparative advantage,” Line admits, but the results of the survey show that exporters are keen to use their current advantage to make further inroads into global trade.