LegCo Paper No. CB(1)2051/95-96
Ref : CB1/PL/TI/1 (These minutes have been seen by the Administration)

LegCo Panel on Trade and Industry

Minutes of Meeting
held on Tuesday, 4 June 1996 at 10:45 a.m.
in Conference Room B of the Legislative Council

Members Present :

    Hon NGAI Shiu-kit, OBE, JP (Chairman)
    Hon CHIM Pui-chung (Deputy Chairman)
    Hon Henry TANG Ying-yen, JP
    Hon James TIEN Pei-chun, OBE, JP
    Hon CHAN Kam-lam
    Hon LAU Hon-chuen, JP
    Hon SIN Chung-kai

Members Absent :

    Hon Martin LEE Chu-ming, QC, JP
    Dr Hon HUANG Chen-ya, MBE
    Dr Hon Philip WONG Yu-hong
    Hon Christine LOH Kung-wai
    Hon Paul CHENG Ming-fun
    Dr Hon LAW Cheung-kwok

Member Attending :

    Hon LI Wah-ming

Public Officers Attending :

Mr Francis HO
Acting Secretary for Trade and Industry
Mrs Rebecca LAI
Acting Director-General of Trade

Staff in Attendance :

Miss Odelia LEUNG
CAS(1)1
Mrs Mary TANG
SAS(1)2

Review on Rice Control Scheme

(Appendix I to LegCo Paper No. CB(1)1492/95-96)

At the invitation of the Chairman, Mr Francis HO briefed members on the review of the Rice Control Scheme (the Scheme) which was conducted in consultation with the Rice Advisory Committee and the Consumers’ Council. The aim of the review was to enhance competition in the rice trade without jeopardizing the certainty and stability of supply. He sought members’ views on the proposed changes to the Scheme which could be summarized as follows :

    (a) Reserve Stock

    It was recommended that the level of reserve stock be calculated on the basis of the number of days of rice consumption in Hong Kong instead of a fixed number of tonnes as at present.

    (b) Increasing the number of stockholders

    New stockholders would be invited initially to join the scheme. After this increase in the overall number of stockholders, the number would be reviewed regularly. The performance of existing stockholders should be subject to review upon renewal of registration.

    (c) Registration criteria for new stockholders and wholesalers

    In order to ensure a sound financial basis for operation, the financial requirements for registration as stockholders and wholesalers should be adjusted upwards. The present requirements of experience in the rice trade would be removed to enhance competition.

    (d) Introduction of an optional quota system

    An optional import quota system should be introduced about nine to twelve months after new stockholders had been registered.

2. A member expressed dissatisfaction over the slow pace in introducing the optional quota system. He also questioned the need to cap the maximum total amount of optional quota at 20% to 30% of the original quarterly import quota. In response, Mr HO explained that the proposed arrangement was to avoid the situation getting out of control upon opening up competition in the trade, and that a reasonable timeframe would allow the newcomers to settle in the business. Nevertheless, the Administration would consider the feasibility of stepping up the pace of liberalisation of the rice trade having regard to the wish of members.

3. As regards the capping of the optional quota, this was considered necessary to prevent existing major stockholders from monopolising the rice market. Mr HO clarified that the percentage of capping of the optional quota would be applied to the total quarterly quota rather than individual quotas. This would ensure fair competition amongst different rice stockholders irrespective of the amount of quotas previously held. Where necessary, the Administration would be prepared to consider other methods of allocating the optional quota, which might include drawing of lots. The system would be reviewed regularly to see whether the percentage set aside for optional quota should be further adjusted.

4. On the timeframe for fully liberalising the rice trade, Mr HO affirmed that Hong Kong would honour its commitment to the World Trade Organization and Asia Pacific Economic Co-operation by fully liberalising its trade and investments by the year 2010. In liberalising the rice trade, there would be a need to consider how competition could be enhanced without jeopardizing public confidence in the certainty and stability of rice supply. The Administration would proceed with the liberalisation in a cautious and stepwise manner, commencing with the introduction of the optional quota system in 1997, to be followed by a full review of the system in 1998.

5. Another member queried the need for the Rice Control Scheme. He did not see the need for maintaining a reserve stock of 45 days’ consumption given that improvements in transportation had resulted in quicker replenishment of rice supply. In response, Mr HO said that there was a need to maintain public confidence by keeping a reserve rice stock which would be adequate for consumption for a specified period of time. The reserve stock played a vital role in maintaining and assuring the public of a stable supply of rice to meet the requirements of the public at times of unexpected shortage. The important consideration was that the certainty and stability of rice supply should not be jeopardized, and lowering of the reserve stock from 45 days’ consumption to 30 days’ would not make much difference.

6. Responding to members’ concern on the transfer of quotas amongst rice traders, Mr HO clarified that the Reserve Commodities Ordinance had prohibited the transfer of quotas in the rice import trade. Mrs Rebecca LAI added that the Customs and Excise Department had been monitoring closely the amount of reserve rice stock. In addition, the Trade Department had been examining the operating accounts and performance of stockholders upon renewal of licences to ensure that the stockholders were actively engaged in rice trading. There had not been any cancellation of licences due to inactivity so far. Quotas which were released from existing stockholders would be re-allocated to new stockholders. To follow-up on members’ concern, the Administration would investigate into the alleged illegal transfer of rice import quotas.

7. A member asked if consideration could be given to introducing flexibility in the rice import quota system, allowing stockholders the freedom to trade off a limited number of quotas if they were unable to use up the quota in a particular year. This practice was commonly adopted in the textile quota system. In response, Mrs LAI said that the textile quota system was quite different in principle from the rice quota system in that the former was imposed upon Hong Kong by importing countries. It was government’s policy to maximise its export position by fully utilizing the textile quotas allocated. Transfer of textile quotas was hence permitted and even encouraged to ensure that the none of the quotas were wasted. On the other hand, the rice import quota system was imposed by the government to regulate and control the rice trade, and to ensure certainty and stability of rice supply. Mrs LAI added that the introduction of the optional quota system would allow for some flexibility in the rice market.

8. As regards the re-allotment of the 40 units of quota released from the Kian Gwan Co. (China) Ltd, Mrs LAI advised that the method of allocation was still under consideration, and that this would depend on the number of applicants for the quotas.

9. On the registration criteria for new stockholders and wholesalers, Mr HO explained that there was a need to adjust upwards the financial requirements to ensure that those who joined the trade did have a sound financial basis in securing a stable supply of rice in Hong Kong. The existing requirements for stockholders and wholesalers to be experienced in the rice/food trade would be lifted to allow newcomers to join the rice trade, resulting in enhanced competition. As for the requirement for the beneficial ownership of persons or entities to be ordinarily resident in Hong Kong, Mr HO explained that this was to ensure that those involved in the trade would have a commitment to Hong Kong.

10. In concluding the discussion, the Chairman said he was supportive of measures proposed by the Administration for the gradual liberalisation of the rice trade. These measures would not only provide the needed flexibility to the existing system, but would also enhance competition. He stressed that in implementing changes to the rice control system, care should be taken in ensuring the certainty and stability of supply.

(The Chairman left the meeting at this juncture and the Deputy Chairman took over the chair.)

III. Progress Report on Most Favoured Nation (MFN) Status Lobbying; and Sino-US Trade Relations and their Implications on Hong Kong

(Appendices II and III to LegCo Paper No. CB(1)1492/95-96)

11. Mr Francis HO reported on the latest developments on the renewal of the MFN Trading Status for China. He informed that on 31 May 1996, President Clinton had formally submitted his decision to Congress to renew China’s MFN status unconditionally for another year. The MFN debate would not be over until the end of September 1996 because of constitutional veto procedures. Much would depend on whether or not the dispute between China and USA over Intellectual Property Rights (IPR) could be resolved by 17 June 1996.

12. Instead of lobbying for an annual renewal of MFN status, members asked the Government to set its target on a more permanent MFN status. In response, Mr HO said that there had been support from some members of Congress as well as representatives from the American commercial sectors for the granting of a permanent MFN status through legislation. He undertook to channel members’ views to the Chief Secretary who was then on business visit in the USA.

13. A member opined that while there was little that Hong Kong could contribute in the MFN debate, it had much to offer in resolving the IPR dispute. He urged Government to take more effective measures in combating piracy activities, in particular, the sale of pirated cassette discs in tourist areas. In response, Mr HO stated that much effort had been taken by the Customs and Excise Department to combat piracy activities, the Police Force had also been active in suppressing these activities. Legislation for the protection of intellectual property rights had been introduced and would come into effect shortly. In addition, close liaison was being maintained with the Chinese authorities in the exchange of information. Mr HO added that the U.S. Government had urged the Chinese authorities to step up its control over piracy activities and to further open up the Chinese market.

14. A member asked the Administration to consider the feasibility of a proposal by American businessmen for tracking down on manufacturers of pirated products in China by setting up co-operative partnership with these manufacturers in an attempt to legalise and run the business together. Mr HO replied that both the U.S. and the Hong Kong Government were aware of this proposal. Instead of wiping out these manufacturers in China, some form of cooperation was considered beneficial in opening up the Chinese market. However, these business relations should best be left to the parties concerned and there was not much that Hong Kong could contribute.

15. As to the possible impact of the proposed sanctions and counter retaliatory measures of IPR dispute on the economy of Hong Kong, Mr HO advised that there would be considerable losses in terms of export trade and gross domestic product growth, as well as the loss of about 11,500 jobs in Hong Kong. Mr HO agreed to convey to the Chief Secretary members’ concern on the adverse impact of the IPR dispute.

IV. Any other business

Origin rules for cut and sewn garments

16. Mrs Rebecca LAI briefed members on the revision of Hong Kong’s origin rules for cut and sewn garments which would be implemented on 1 July 1996. The revision would change the existing origin rules from "cutting and sewing" to "assembly of parts into garments" and would bring the system in closer alignment with the revised US origin rules and the origin criterion adopted by the European market. The harmonisation of origin rules with major trading partners would benefit the garment trade and industry as a whole. The revision would also facilitate the industry in making better use of the Outward Processing Arrangement whereby cutting and minor sub-assembly processes could be taken in places outside Hong Kong where costs were lower. Furthermore, it would eliminate the need to invest in different modes of manufacturing to cater to the requirements of different markets, thus enhancing the competitiveness of the local garment industry.

17. Mrs LAI stated that the Government was aware of the possible impact on the labour front as some workers engaged in the cutting process might be displaced as a result of the change of origin rules. The Government would make every effort to provide suitable retraining for these displaced workers.

18. Members welcomed the revision of origin rules since a broadly harmonised criterion with major trading partners would reduce restrictive effects, enhance competitiveness and provide a better trading and investment environment. They opined that the displacement of "cutting" workers would be offsetted by the corresponding increase in the number of sewing and transportation workers required as a result of the change of origin rules. The Deputy Chairman urged the Administration to arrange for the retraining of displaced workers.

There being no other business, the meeting closed at 12:00 noon.

LegCo Secretariat
10 September 1996

Last Updated on 21 Aug, 1998