2. In response to a member's question on when the Administration would be ready to discuss the subject of parallel imports, Miss Denise YUE said that parallel imports would be one of the issues addressed in the Copyright Bill. The Administration would issue the draft Bill for public consultation in early November 1996 with a view to introducing it into the Legislative Council by February 1997. Members were assured that the Administration recognised the need to address the different concerns of various parties on the issue.

II. Information papers issued since last meeting

(LegCo Paper Nos. CB(1)174 and 190/96-97)

3. Members noted that the following papers had been issued since the last Panel meeting held on 11 October 1996 -

Intellectual Property Protection in Hong Kong; and
Hong Kong Export Credit Insurance Corporation: Merging of Marketing and Underwriting Functions.

III. Business Plan of Tradelink

(LegCo Paper No. CB(1)67/96-97)

4. Miss Denise YUE reported on the latest development of the Community Electronic Trading Service (CETS) since Government's provision of a convertible loan of $425 million to Tradelink. She said that after successful joint testing with Government, CETS became operational in September 1996 and about 50 textiles companies had started to use CETS to apply for Restricted Textiles Export Licences (RTEL). Based on their feedback, Tradelink and Government would fine-tune the systems before full commercial launch of the RTEL service in January 1997. Testing for Trade Declarations (TDEC) had also started and the current plan was to launch a commercial TDEC service in April 1997. It was Government's intention to close all its receipt counters for RTEL by December 1998 and TDEC by March 2000. From these dates onwards, application for RTEL and lodgement of TDEC would all be processed through CETS. The Administration had already consulted the Trade Advisory Board and the Textiles Advisory Board on the proposed prices for the above electronic services as set out in paragraph 7 of its paper. Both advisory boards considered the prices agreeable.

The proposed prices

5. In reply to members' questions and comments on the proposed prices for the exclusive services to be provided under CETS, Miss YUE and Mr Justine YUE explained that the prices for RTEL and TDEC were proposed on the basis of a number of assumptions including the viability of CETS, its annual take-up rate, inflation, fluctuations in the interest rate on Tradelink's $425 million borrowings from Government, and the gradual diminution of RTEL applications in the light of the abolition of the quota system by the end of 2004 under an agreement of the World Trade Organisation. At members' request, the Administration would provide the Panel with more detailed information on the above assumptions.

6. Responding to a member's questions on the reasons for introducing the one-off registration fee and the annual subscription fee, Mr YUE provided the following explanations -

Admin

The one-off registration fee would cover costs for processing registration documents and customer direct debit authorisations, setting up CETS customer profiles, customer billing accounts and mail boxes, and issuing CETS customer identity codes and security keys.
The annual subscription fee would cover costs for providing services including customer enquiry hotlines, renewal of security keys upon expiry, update of CETS customer profiles and helpdesk service, etc.

Incentives to use CETS

7. Miss YUE reported that to promote the use of CETS for application for RTEL and lodgement of TDEC, the Administration would take the following measures -

For RTEL, the current licence fee payable to Government was $202 under the User Pays Principle. In order to encourage the use of CETS for application of RTEL prior to the closure of receipt counters by December 1998, Government would introduce a new licence fee for RTEL applied through CETS. This new licence fee would be set in such a way that the combined Government and Tradelink charges for electronic RTEL would not exceed the current paper licence fee payable to Government.
As an incentive to encourage participating companies to use CETS during the introductory period from September to December 1996, Government had agreed to reduce the fees for RTELs submitted through CETS to $132, although this level of fees could hardly cover the costs. At the same time, Tradelink was providing its service free of charge for RTELs submitted by these participating companies. When the commercial services were launched, charges as approved by Government would be payable for Tradelink's service.
TDEC was a revenue raising item for Government. The current charge was $5 where the value of the article or the aggregate value of the article specified in the declaration did not exceed $10,000. Should the value exceed this amount, a charge calculated at the rate of $5 in respect of the first $10,000 and 50 cents for each additional $1,000 or part thereof was payable. Government was still working on ways to encourage the use of CETS for lodgement of TDEC prior to the closure of receipt counters by March 2000. As in the case of RTEL, it was Government's intention that the combined Government and Tradelink charges for electronic TDEC would not exceed the current paper declaration charges payable to Government.

8. Miss YUE noted members' comment that should the RTEL licence fees be charged at the current level, the total charges for applying for RTEL through CETS would be much higher than the present fee and this would be a disincentive to continue the use of CETS. The Administration would examine with the Finance Branch on whether to reinstate the RTEL licence fees to the current level after CETS was in full operation.

Increase in charges

9. Members noted that if the proposed prices were approved by the Executive Council, Tradelink's projected internal rate of return over its 7-year franchise period would be in the region of 10% to 14%. Depending on the validity of those assumptions mentioned in paragraph 5 above , these charges might be revised upwards or downwards in order to achieve this projected internal rate of return. Members were concerned about the upward adjustment of charges in future.

10. Miss YUE and Mr YUE made the following points -

The initial thinking was that Tradelink would review its business plan annually to assess if any price adjustment was necessary. Government's plan to make the use of electronic data interchange (EDI) compulsory by stages for RTEL and TDEC would help to generate business for Tradelink. The Administration did not envisage any need to introduce drastic increases in charges. Moreover, since all fees charged under CETS had to be approved by the Executive Council, it would take into consideration public views collected during consultation. Notwithstanding, the Administration considered it fair that Tradelink, being a commercial setup, should aim at a reasonable rate of return.

Revision of charges for RTEL would be effected by means of subsidiary legislation subject to the negative approval by the Legislative Council. For TDEC, it had to be approved by resolution of the Legislative Council. In deciding Tradelink's proposed prices, the Administration had already taken account of the projected inflation rate and suggested that the prices for lodgement of TDEC through CETS should remain unchanged for the first three years. This would help to promote the use of CETS.

Operational details

11. Members asked for information on operational details. They were concerned in particular about the problems that might arise during the transitional period from paper to electronic processing of RTEL and TDEC. Miss YUE and Mr YUE made the following points -

Irrespective of whether companies lodged TDEC through receipt counters or through CETS, Government could easily check if they had observed the 14-day time limit for lodgement of TDEC because the computer system of Tradelink was linked up with those of the Customs and Excise Department and of the Census and Statistics Department.
The pace of counter closure would be monitored closely but in any case all Trade Department counters for receiving RTEL would be closed two years after the introduction of EDI and all Customs & Excise Department counters for receiving TDEC would be closed after three years. These time-tables were worked out after thorough consultation with the relevant parties. Tradelink would do its best to promote the use of CETS. Should the progress be satisfactory, the closure of counters would be expedited to save operation costs.
Upon registration with Tradelink, each customer would be provided with a free set of basic software for RTEL application and TDEC lodgement through CETS. Should a customer wish to have EDI end-user software with more functions or features, they could purchase them in the market as Tradelink's exclusive service did not include the supply of such software. However, as a measure to protect consumers, suppliers of these softwares would be invited to seek software certification from Tradelink to ensure compatibility. The certification charge would be $50,000 in 1997 and Tradelink had entered into an agreement with the Hong Kong Productivity Council for the Council to carry out the tests required.

IV. Rent policy for market stalls

(LegCo Paper Nos. CB(1)169 and 207/96-97, and paper tabled at the meeting and circulated to members not present vide LegCo Paper No. CB(1)216/96-97)

12. The Chairman regretted that the two Municipal Councils (MCs) had not sent any member to attend this meeting to exchange views with the Panel. Other members also expressed disappointment at the non-attendance of members of the MCs.

Revision of rents

13. Mr Eugene CHU briefed members on the Urban Council's (UC) rent policy for market stalls. Members noted that market stalls in UC public markets were normally rented out initially for a term of three years. The tenancies were renewable subject to review and revision of rents every three years. The UC adopted a two-fold market rental policy under which either the Consumer Price Index (A) (CPI(A)) or the Fair Market Rent (FMR) assessed by the Rating and Valuation Department (RVD) was used as the basis for revising stall rents. The lesser amount derived from these two calculation methods would be taken as the new stall rents. This would mean that a ceiling would be set on the maximum percentage of annual rental increases at a rate equivalent to CPI(A) or CPI(A) plus an upward adjustment of 5% to 10% depending on the percentage difference between the Current Market Rent (CMR) and the FMR.

14. On a member's comment that it was unfair to adopt CPI(A) as the basis for revising stall rents because the profit growth of the retail business was lower than CPI(A), Mr CHU explained that the adoption of CPI(A) as the basis for revising rents was a new measure introduced at the request of stall lessees.

15. Members opined that as the FMR was assessed by RVD, there was a need to enhance the transparency of RVD's assessment procedures. In response, Mr CHU and Mr LAI Kwok-tung explained that in assessing the FMR for individual stalls, RVD would take into consideration the economic viability of the relevant market and stall including the distribution of trades, the supply of different commodities, the size, characteristics and distribution of population, population changes due to the completion or demolition of buildings in the vicinity, the number of customers from other districts, the overall design, facilities and management of the relevant market, and the location, layout and size of the stall. Mr LAI further explained that RVD had been entrusted with the assessment work because of its independence and neutrality. These qualities could not be guaranteed if the assessment was done by private surveyors.

16. Some members opined that illegal hawking outside a market posed the greatest threat to the business of a licensed stall. They called on the Administration to either step up enforcement action to contain the problem or take this factor into consideration in revising the rental. If illegal hawking was not properly handled, licensed hawkers in the markets might revert to street hawkers, hence defeating the purpose of resiting exercises.

17. In response, Mr CHU stated that it had been UC's policy to assign Hawker Control Teams to the vicinities of markets to tackle illegal hawking. The situation was generally under control. In certain cases, there were also licensed street hawkers trading in the vicinities of markets. Mr LAI said that illegal hawking in Regional Council (RC) areas was largely under control. There were only 1,500 illegal hawkers in the whole New Territories. District staff of the department held regular meetings with stall lessees of the respective markets to monitor the general management of the market as well as the illegal hawking situations outside. Enforcement would be stepped up whenever the problem of illegal hawking deteriorated. Illegal hawking was therefore not a significant factor in considering revision of rents for RC market stalls. Nevertheless, the Administration noted members' concern on the need for consultation before rental revision and to take illegal hawking into consideration in adjusting rents. At members' request, the Urban Services Department (USD) would provide written information on consultation prior to the determination of new market rental policy.

Different levels of rents for similar stalls

18. Some members were gravely concerned that rents for similar stalls in the same market varied greatly. The rents for stalls let out by restricted auctions were substantially lower than those by open auctions. Revision of rents upon renewal of tenancies could not rectify the discrepancy because of the uneven basis for calculating the increases.

USD

19. In response, Mr CHU emphasised that to improve environmental hygiene, there was a need to provide incentives to itinerant hawkers to move into markets, hence the different levels of rents. The policy intention of UC was to bring the different levels of rents for similar stalls on a par when the tenancies of stalls let out by restricted auctions were renewed subsequently every three years.

20. Mr LAI acknowledged that resited hawkers were paying concessionary rents. He, however, pointed out that this was necessary to assist them in adapting to the new business environment. To make the full use of resources, stalls left over from resiting exercises of hawkers would be let out. Mr LAI considered it fair that rental for these stalls should be decided by market forces through open auctions. Under the current RC policy, if a stall failed to attract any bidders for two consecutive open tenders, the upset price would be adjusted downwards. Stalls in unpopular markets would be let at a very low upset price at any time. There was already a sufficient degree of flexibility in RC's market rental policy.

21. Mr LAI further advised that to narrow the rental gap, resited hawkers in RC markets would be required to pay 100% CMR over a period of six to nine years. To smoothen out the increase to CMR upon expiry of the initial three-year tenancies, the new rents payable by these hawkers would be determined according to the percentage difference between the existing rent and the target rent (i.e. re-assessed CMR), on the basis of the following formula -

For stalls with an existing rent not less than 50% of the new CMR, the annual rent increase would be the difference between the existing rent and the new CMR divided by three, so as to achieve 100% of the CMR by the third year of the new contract.
For stalls with an existing rent at 25% to 49.99% of the new CMR, the annual rent increase would be the difference between the existing rent and 75% of the new CMR divided by three, so as to achieve 75% of the CMR by the third year of the new contract.
For stalls with an existing rent below 25% of the new CMR, the annual rent increase would be the difference between the existing rent and 50% of the new CMR divided by three, so as to achieve 50% of the CMR by the third year of the new contract.

Vacancy rate

22. As regards the vacancy rate of market stalls, Mr CHU said that around 16% of UC market stalls were vacant due to market redevelopment or ongoing improvement works. There was also a need to reserve some stalls for the Itinerant Hawker Licence holders under the existing policy. Mr LAI said that with the exception of markets on the outlying islands and in Sai Kung, more than 90% of the stalls in RC markets were let out. Where necessary unpopular markets would be demolished or relocated. At members' request, USD would provide written information on the turnover rate of UC market stall lessees due to high rentals.

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Appeal mechanism

23. Some members opined that a fair appeal mechanism should be established to allow lessees to engage independent surveyors in an approved list to assess the rental of stalls. In response, Mr LAI advised that RC market stall lessees were given three months to consider the new rents upon tenancy renewal. They could supplement any additional information or lodge an appeal if they considered the rental unreasonable. There were many successful appeal cases. As RC had to review the rental of many stalls in a year, it might not be cost-effective to engage the service of private estate surveyors. At present RC paid RVD around $10,000 annually for rental assessment of market stalls. Mr CHU said that UC market stall lessees were given two months to consider the new rents. He would provide the Panel with information on UC's existing appeal mechanism and the number of successful cases in the past.

USD

24. Concluding the discussion, the Chairman said that the Administration should consult the relevant parties and take all relevant factors into consideration in determining market rental, in particular the following factors -

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the vacancy rates of stalls;
the possible hardships to resited hawkers brought by rental increase and its potential adverse effects on resiting exercises; and
the effectiveness of market management, especially the control of illegal hawkers.

25. The meeting ended at 10:35 a.m.

Legislative Council Secretariat
5 December 1996

Last Updated on 21 August 1998