LegCo Panel on Trade and Industry

Attendance by invitation :

For item V

Clerk in attendance :

Miss Odelia LEUNG

Chief Assistant Secretary (1)1

Staff in attendance :

Mrs Mary TANG

Senior Assistant Secretary (1)2

I Confirmation of minutes of meetings
II Date of next meeting and items for discussion
III Information papers issued since last meeting
IV Briefing on Copyright Bill and protection against parallel imports
V US import measures on textile and clothing products
VI Helping Business Programme

I Confirmation of minutes of meetings

(LegCo Paper No. CB(1)464 and 479/96-97)

The minutes of meetings held on 29 October and 12 November 1996 were confirmed.

II Date of next meeting and items for discussion

(List of outstanding items for discussion (1996-97) tabled)

2. Members noted that the following items were proposed by the Administration for discussion at the next Panel meeting, scheduled for Tuesday, 14 January 1997:

1. Competition policy;
2. Briefing on Registered Designs Bill; and
3. Departmental business study in Trade Department.

3. Mrs Selina CHOW suggested that trade representatives should be invited to the next Panel meeting to express views on the draft Copyright Bill. This would facilitate the Administration to consider their views and make necessary amendments before finalizing the Blue Bill. Some members, however, were of the view that the Panel should only consider the policy implications and broad principles of the Bill. Since the Bill would be introduced into the Legislative Council in February 1997, the scrutiny of the Bill and the receiving of deputations should be left to the Bills Committee set up for the purpose.

III Information papers issued since last meeting

4. Members noted that no information paper had been issued since the last meeting.

IV Briefing on Copyright Bill and protection against parallel imports

(LegCo Paper Nos. CB(1)79, 315, 433, and 451/96-97)

5. The Deputy Secretary for Trade and Industry (DS for TI) informed members that the Administration had organized two public seminars in November 1996 to explain and clarify the provisions of the draft Copyright Bill. More than 100 participants from 56 organizations attended the seminars. The consultation period ended on 2 December 1996 and a total of 72 submissions had been received. These submissions were being carefully examined, and modifications to the draft Bill would be made where necessary.

6. According to DS for TI, the most contentious issue arising from the Copyright Bill was on parallel importation. The existing law provided for both criminal and civil sanctions against parallel imports which referred to those copyright products that were lawfully manufactured abroad with the consent of the copyright owner there, but were being imported without authorization from the copyright owner or the exclusive licensee in the place of importation. Whilst most developed countries had maintained some form of restrictions on parallel imports, some de-regulation or liberalization for the purposes of consumer welfare, competition and free trade had been observed. The Administration was of the view that total de-regulation would encourage free-riders to take unfair advantage over the substantial investment of copyright owners and licensees in importation, promotion and marketing in Hong Kong. After careful consideration, the Administration adopted the Law Reform Commission’s recommendation to decriminalize parallel importation but maintain civil sanctions. This would maintain private rights to restrict parallel importation and strike a balance between commercial and public interests.

7. Regarding the consultation process, the Principal Assistant Secretary for Trade and Industry (PAS (TI)) informed members that there had been wide consultation including inter alia copyright owners and users in the relevant sectors as well as those in the professional and academic fields. A lot of comments had been received, and some of which were very comprehensive. There had been general support for the Bill which was considered the right way forward. Most respondents supported the principle of protection of copyright and the need for more effective measures against pirated products. However, divided views were received on some provisions of the Bill. While copyright owners and producers were generally in favour of continuing restrictions on parallel imports, those engaged in retail business in sound recording and films held the view that existing restrictions distorted the market, artificially increased prices and reduced consumer choice.

8. PAS(TI) further explained that the provisions of the Copyright Bill would ensure that public interest would be accommodated so that genuine uses (such as private study, research, education and public administration) of copyright works without the authorization of copyright owners or business would not be regarded as infringements. As regards INTERNET and the digital environment, the Bill had included enhanced provisions for civil enforcement of traditional rights but had refrained from imposing criminal sanctions. INTERNET users would be permitted to download works and make transient copies directly required for the viewing of the work without infringing copyright. Long-term storage, re-transmission or printing of the works would require the author’s permission.

9. On decriminalization of parallel importation, DS for TI explained that restrictions on parallel importation were against consumer interests as these would reduce competition. In countries like Australia, Singapore and Malaysia, restrictions on parallel imports had been partially or totally lifted. It was considered unfair that criminal sanction should arise from contractual arrangements of two parties, especially when the terms of the contract were not known to the third party being penalized.

10. As to whether developed countries would tend to regulate parallel imports, DS for TI affirmed that this was generally the case. Developed countries exporting copyright articles would support protection of copyrights and uphold restrictions on parallel imports while developing countries were more inclined to take a lax attitude on parallel imports for the benefit of consumers. As for Hong Kong, a balanced view was taken that parallel imports should be regulated but criminal sanction should not apply.

11. Members raised concern about the influx of parallel imports, especially from China where copyright owners might have contractual arrangements with the Chinese licensees for the copyright articles to be manufactured for sale in China only. Due to the lower production cost, these goods were being imported to Hong Kong and sold at a bargain price. Members asked if such acts would amount to an infringement under the Bill. DS for TI explained that as long as there were contractual arrangements between the copyright owner and the licensee, the goods manufactured would not be regarded as infringing copies. Being copyright owners and exclusive licensees in the place of importation, they might take civil action against the importers of the parallel imports. The Director of Intellectual Property (D of IP) added that the provisions of the proposed Bill had carefully taken into consideration the interests of copyright owners and exclusive licensees. There were substantial economic interests in the protection of copyrights in Hong Kong, which was the second biggest exporter of cinema films.

12. As far as designs, patents and trademarks were concerned, D of IP stated that there were few restrictions on these types of parallel imports and that the restrictions were mainly intended to protect against inferior quality goods. There had been some concerns about parallel imports of pharmaceutical goods which were of inferior quality.

13. Some members considered it necessary to further discuss the principles and policies underlying the control over parallel imports before formulating the Blue Bill. They requested the Administration to make preparation to provide the following information in anticipation of the scrutiny of the Copyright Bill by the Bills Committee-

14. DS for TI stated that the principles and policies relating to the Copyright Bill had already been discussed by the Law Reform Commission.

15. Concluding the discussion, the Chairman said that members should deliberate on the provisions of the Copyright Bill when the Bills Committee was formed for the purpose.

V US import measures on textile and clothing products

(LegCo Paper No. CB(1)451/96-97(02))

16. The Secretary for Trade and Industry (Acting) (S for TI (Atg)) briefed members on the latest developments regarding the imposition of additional US import measures on certain garments from Hong Kong. As a result of a series of informal exchanges, the Hong Kong Customs had invited the US Customs to visit and observe Hong Kong’s control and enforcement systems in September 1996. A total of 139 factories which had given prior consent had been visited. Enforcement actions were undertaken by the Hong Kong Customs on their own and were separate from the joint visits. After a third round of consultation held in October 1996, the US authorities announced that it was maintaining most of the additional measures. Preparation was now in hand for another round of visits in January 1997 by the US Customs. The Administration would keep up with its on-going effort to enhance the textile control system and prevent illegal transhipment with a view to persuading the US authorities to terminate the additional import measures as soon as possible.

17. The Commissioner of Customs and Excise (C of C&E) explained the Production Notification System which was initiated in July 1996 as part of Hong Kong’s on-going efforts to enhance the textile export control system. Under the system, factories would submit a Production Notification (PN) to the Trade Department before the commencement of production of cut and sewn garments and Customs and Excise Department (C&ED) would conduct checks on a selective basis at the factories. Certificates of origin would be issuable against validated PNs. In November 1996, Factory Audit Checks (FAC) were introduced to supplement the other enforcement measures already in place. Factories subject to FAC were notified and given 14 days to make available their books and records of production for the past 6 months for inspection by C&ED. Where necessary factories were allowed an extra 10 days to get the documents ready.

18. The Deputy Director - General of Trade (DD-GT) supplemented that since June 1996, factory operators were made aware of the Production Notification System which was part of the on-going effort in enhancing the textile control system. It should also help maintain the reputation of Hong Kong as an international trading centre.

19. At the invitation of the Chairman, Mr YUE Chi-wah spoke on behalf of the Garment Manufacturers Right-Concern Association (the Association) expressing concern about the recent measures on textile control adopted by C&ED. He explained the difficulties encountered by the garment manufacturers in meeting the requirements of audit inspections, which were conducted within a short notice. A lot of documentation had to be prepared for the inspection, which was a time-consuming exercise in particular at the year end when workloads were normally heavy. Manufacturers therefore had a hard time in complying with the requirements set out by C&ED on the one hand and in meeting the tight orders placed by clients on the other. The Association put up the following requests:

1. that a minimum of 45 days’ notice be given for any audit checks so as to allow manufacturers sufficient time to prepare the documentation;
2. that the trade should be consulted on any new textile control measures to be adopted;
3. that the Trade Department should expedite the issue of production notifications and work out measures to facilitate the textile export trade;
4. that a working group comprising Customs staff and trade representatives be set up to work out more practicable procedures for audit checks as well as measures to facilitate the issue of export licences.

20. According to Mr YUE, the Association had met representatives of the textile trade and had obtained their support for the above requests.

21. Mr Henry TANG appreciated the difficulties faced by the trade in meeting the requirements of C&ED. He pointed out that while garment manufacturers were ready to cooperate, some might not have the resources to cope with the additional requirements which would need extra time and efforts. He called for mutual cooperation between the trade and the Customs in effecting better coordination in factory audit inspections. He stressed the need for the trade to protect the image of Hong Kong as a trading centre and refrain from illegal transhipment activities. This would help eliminate any scepticism which the US Customs might have and would benefit Hong Kong in the long run. He was aware that the US Customs had prejudice against certain manufacturers and asked if the Hong Kong Customs could assist in the matter.

22. In response to Mr TANG’s comments, C of C&E said that the Hong Kong Customs had kept the US Customs well informed of the situation. A trustful working relationship had been established and the US Customs had shown appreciation for the efforts made by the Hong Kong Customs in textile control. Prior approval from factories to be inspected at the next joint visit in January 1997 would be sought. Enforcement actions would be taken by Hong Kong Customs if signs of illegal practices were detected.

23. Referring to the Association’s requests, members asked if more flexibility could be exercised in audit inspections and whether the notification could be advanced to allow more time for the factories to prepare the documentation. In response, representatives of the Administration made the following points:

1. At the current Factory Audit Check (FAC) exercise, factories were required to get ready the books and records for the past 6 months for audit inspections by C&ED. Factories were given 2 weeks’ notice prior to inspection. Where they had genuine difficulties in presenting all the documentation for inspection, they were given an extension of 10 days.
2. It would not serve the purpose of regulatory control if excessive flexibility was allowed. Under the existing regulations, factories were required by law to keep their books ready for inspection at any time by Customs staff.

24. The S for TI (Atg) supplemented that the garment industry would need to demonstrate to the US authorities their willingness to comply with proper export procedures, with a view to persuading them to rescind the unilateral measures.. Any deviation from the proper practice or any indication of illegal transhipment activities would be detrimental to the trade and would lead to the continuation of restrictive measures applied to the entire industry. He stressed that the ultimate solution to the problem rested with the abolition of the quota system, enabling a total liberalization of bilateral trade.

25. As regards the recent revision of the Hong Kong origin rules for cut and sewn garments, DD-GT explained that the revision changed the origin rules from "cutting and sewing" to "assembly of parts into garments" and brought the system in line with the revised US origin rules and in closer alignment with the European market. The harmonization of origin rules with major trading partners would benefit the garment 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 take place outside Hong Kong where costs were lower, thereby enhancing the competitiveness of the local garment industry.

26. The Association enquired whether the Administration considered it advisable for the trade to accept new orders in anticipation of the outcome of the joint visit programme. The representatives of the Administration stated that the Administration was not in a position to provide assurance given that whether additional measures would be lifted was at the discretion of the US Customs. The DD-GT added that the two US Customs officials who were currently visiting Hong Kong had assured her that the US Customs had no plan or intention to introduce any new additional import measures or to extend the coverage of the current measures.

VI Helping Business Programme

(LegCo Paper No. CB(1)451/96-97 (03))

28. The Secretary for the Treasury (S for Tsy) reported the progress of the Helping Business Programme (the Programme) by highlighting the salient points of the information paper. He informed that the seven pilot studies had been completed at the end of November 1996. The recommendations and findings of these studies would be reported to the relevant LegCo Panels. The 300 most popular public forms would be made available on the INTERNET by February 1997 (access could be made through web site at www.info.gov.hk). An implementation plan had been developed for the "One-Stop Shop" Business Licence Information Centre and the necessary database and supporting system would be set up with the aim of launching the service before the end of 1997. Meanwhile, improvements in methods of payment and collection for business transactions would be implemented shortly.

29. On the time required in processing land exchanges and lease modifications, S for Tsy explained that the study had recommended that the processing time be shortened by 20% to 30%. Details of the study would be presented to the LegCo Panel on Planning, Lands and Works by the Secretary for Planning, Environment and Lands at the Panel meeting on 17 December 1996.

30. As regards the coordination amongst different government departments in facilitating business development, S for Tsy reckoned that this was an area where further improvements could be made. The matter would be further looked into in Phase II of the Programme with a view to working out better coordinating procedures within the Government.

31. As to the time frame for implementation of the Programme, S for Tsy stated that Phase I had been completed by the end of 1996. Phase II which was the gradual expansion of Phase I would be expected to start in early 1997 and would take 18 to 24 months to complete. Phase III would be for the continuous improvement and was intended as an on-going process. A working group involving business people would be set up to facilitate the exchange of ideas with the business community on further development of the Programme.

32. The Chairman expressed appreciation for the Administration’s initiatives in providing members with an update on the progress of the Programme. S for Tsy agreed to provide a further progress report with details of the Phase II activities in about three months’ time.

33. The meeting closed at 5:00 pm.

Legislative Council Secretariat
13 January 1997