Panel on Trade and Industry (Minutes) 12 Dec 97

Provisional Legislative Council

PLC Paper No. CB(1) 758
(These minutes have been seen
by the Administration)

Ref: CB1/PL/TI/1

Panel on Trade and Industry

Minutes of meeting held on Friday, 12 December 1997, at 10:30 am in Conference Room A of the Legislative Council Building

Members present :

Hon NGAI Shiu-kit, JP (Chairman)
Dr Hon Charles YEUNG Chun-kam (Deputy Chairman)
Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Prof Hon NG Ching-fai
Hon Mrs Selina CHOW, JP
Hon Henry WU
Hon Henry TANG Ying-yen, JP
Hon YUEN Mo
Hon MA Fung-kwok
Hon CHAN Kam-lam
Dr Hon LAW Cheung-kwok

Members absent :

Hon NG Leung-sing
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Dr Hon Philip WONG Yu-hong
Hon CHIM Pui-chung
Hon Paul CHENG Ming-fun, JP
Hon CHOY So-yuk

Public officers attending :

For all items

Miss Denise YUE, JP: Secretary for Trade and Industry

For item III

Mr Lawrence LI, JP: Commissioner of Customs and Excise
Mr Vincent POON: Assistant Commissioner of Customs and Excise
Mr Peter CHEUNG: Assistant Director of Intellectural Property
Miss Elizabeth TSE: Principal Assistant Secretary for Trade and Industry

For item IV

Miss Elizabeth TSE: Principal Assistant Secretary for Trade and Industry

For item V

Mr Francis HO: Director General of Industry
Miss Agnes WONG: Assistant Director for Industry
Mr Bobby CHENG: Principal Assistant Secretary for Trade and Industry

For item VI

Mr Francis HO: Director General of Industry
Mr Sydney CHAN: Assistant Director for Industry
Mr Bobby CHENG: Principal Assistant Secretary for Trade and Industry

Attendance by invitation :
For item IV

Consumer Council
Mrs CHAN WONG Shiu: Chief Executive
Mr Adrian Walker Smith: Principal Trade Practices Officer

Clerk in attendance :

Ms LEUNG Siu-kum: Chief Assistant Secretary (1)2

Staff in attendance :

Miss Becky YU: Senior Assistant Secretary (1)3

I Confirmation of minutes of previous meetings
(PLC Paper Nos. CB(1) 457 and 621)

The minutes of the meetings held on 13 October and 3 November 1997 were confirmed.

II Information paper issued since last meeting
(PLC Paper No. CB(1) 449)

2. Members took note of the press release published by the Consumer Council in response to the Administration's report on "Competition Policy for Hong Kong".

III Prevention of Copyright Piracy Bill
(PLC Paper No. CB(1) 622(01))

3. At the invitation of the Chairman, the Secretary for Trade and Industry (STI) explained the objectives of the Bill which were to prevent and control copyright piracy at source through the introduction of a licensing scheme for the manufacture of optical discs and the mandatory use of source identification coding on all optical discs produced in Hong Kong. Although the Bill might not be possible to eradicate copyright piracy completely, it represented a step forward in this direction. Concerted efforts with rights owners under the provisions of the Bill would enhance the effectiveness of enforcement actions.

Licences

4. A member sought clarification on how the licensing scheme could prevent the production of pirated optical discs by licensed manufacturers. The Commissioner of Customs and Excise (CCE) advised that under the Bill, enforcement agencies were empowered to inspect all licensed premises at all reasonable times without a warrant. Licensees who were found to produce optical discs that did not bear any manufacturer's code would be liable to prosecution. Moreover, as inspection staff could examine any book and document relating to the business, illicit production of optical discs in excess of the quantity required under respective production orders could be detected. CCE however admitted that it would be difficult to trace the source of pirated optical discs without manufacturers codes if these had been distributed in the retail market.

5. As to whether the Administration would consider stipulating in the Bill a specified period from the date of application within which applicants should be notified of the grounds for refusal to grant or renew their licences, STI advised that instead of stipulating such a period in the Bill, CCE could issue internal guidelines to ensure timely processing of licence applications.

6. Regarding licence fees, STI assured members that these would be set at the cost recovery level while expenses relating to enforcement would be excluded. The preliminary licence fee was estimated to be around a few thousand dollars for a validity period of three years. Subsequent changes to the particulars of licences would not incur any additional charge.

7. On identifying pirated works, Mr MA Fung-kwok suggested the establishment by the Administration of a central registration system for distributors of optical discs. STI welcomed a voluntary set up by the trade. As regards the effectiveness of the licensing requirement under the Bill, Mr MA expressed worries that the Administration would still encounter difficulties in inspecting unlicensed manufacturers.

Manufacturer's code

8. Addressing a member's concern about the forging of manufacturer's code, the Principal Assistant Secretary for Trade and Industry advised that consideration was being given to requiring manufacturers to engrave their identification codes in the moulds (which were more expensive and more difficult to replace or forge) rather than in the stampers. In addition, technological equipment could help to ascertain the authenticity of these codes.

9. Mr MA Fung-kwok enquired about the possibility for the Administration to liaise with the International Federation of Phonographic Industry (IFPI) to set aside some of its identification codes for local optical disc manufacturers as was the case with the Mainland and some European countries. STI explained that the rationale for not stipulating a particular type of code in the Bill was to allow flexibility for operators to choose their own identification codes. While agreeing with the need for flexibility, Mr MA remained of the view that IFPI codes would provide a common platform for identification purpose. Manufacturers who wished to include additional code on the discs for added protection would be able to do so.

10. As to whether the Administration would consider the mandatory use of manufacturer's codes on re-export optical discs, STI emphasized that the spirit of the Bill was to prevent Hong Kong from becoming a manufacturing centre of pirated optical discs. Piracy in relation to re-export trade would be dealt with by other legislation, such as the Copyright Ordinance. Mr MA cautioned that the interests of legitimate traders would be hampered if the import of optical discs was not properly regulated.

Offences

11. A member was of the view that the maximum penalty of fine of $500,000 and imprisonment for two years for offences relating to the manufacture of optical discs without a valid licence was insufficient and asked if the Administration would consider increasing the penalty, in particular for repeated offences. STI advised that as the Bill was part of a robust legal regime for the protection of intellectual property rights, a breach of the Bill might also be subject to prosecution under other related ordinances. The aggregated penalty as a result might be quite substantial. STI added that as the Copyright Ordinance had already provided for the confiscation of manufacturing equipment, similar provision was excluded from the Bill. Nevertheless, legal advice was being sought on the need to reinstate a confiscation clause in the Bill for the sake of clarity.

Public consultation

12. STI said that the Administration was still considering views received during the consultation exercise. It would seek to incorporate proposals such as the inclusion of a confiscation clause as appropriate into the revised draft Bill. At members request, STI undertook to compile a list of proposals received during consultation, indicating whether they were adopted or rejected by the Administration when the Bill was introduced into the Provisional Legislative Council.

Admin

IV Competition policy
(PLC Paper No. CB(1) 444)

Meeting with the Administration

13. Some members questioned the rationale for excluding non-government representatives from the Competition Policy Advisory Group (COMPAG). STI explained that COMPAG would be reviewing policy issues on the promotion of competition. It would be appropriate therefore to include government officials as the core members. However, relevant local or overseas experts would be invited to participate in the deliberations on a need basis. The Administration would review the need for non-government representatives in COMPAG after its operation for a certain period. As regards the implementation of measures outlined in the report entitled "Competition Policy for Hong Kong", STI advised that this would have no significant financial and staffing implications on the part of the Administration, but additional resources might be required for the Consumer Council (CC) to continue its work on the promotion of competition in Hong Kong.

14. A member asked if Members of the legislature could refer subjects for consideration of COMPAG as was the case with CC. STI said that she could not make comments on behalf of the Financial Secretary in his capacity as Chairman of COMPAG. She however affirmed the intent of the Administration to consider Members views on major policy issues.

15. As regards the recent acquisition of Pacific Link Limited by Hong Kong Telecom Limited, STI confirmed that this was not discussed by COMPAG but she trusted that the Office of the Telecommunications Authority had already taken into account the impact of the acquisition on the overall competition of the telecommunications industry when approving the application.

Meeting with the Consumer Council

16. While welcoming the establishment of COMPAG and the issue of a policy statement on the objectives of and guiding principles on promoting competition, the Chief Executive/CC (CE/CC) was disappointed at the Administration's rejection to introduce a comprehensive competition law. She urged the Administration to announce a time-frame to review the need for such a legislation. In the meantime, COMPAG should introduce measures to ensure the maximum effectiveness of the announced policy, such as promulgation of a clear procedure for handling complaints regarding anti-competitive practices in both the public and the private sector, establishment of a central database of complaints and publication of regular reports on deliberations of competition policy. Nevertheless, CE/CC appreciated STI's undertaking that additional resources would be allocated for CC to continue its efforts in promoting competition.

17. In response to a question regarding the compatibility of Hong Kong's competition policy with overseas economies such as the United States (US), CE/CC advised that unlike Hong Kong, many developed economies had enacted competition laws. Although the laws might be different among economies, the general principles were to prohibit horizontal and vertical collusive agreements and abuse of dominant position. In the case of US, trade practices such as the amalgamation of companies which had impact on the overall competition of market would be investigated by a dedicated competition authority. In response to the Chairman, STI considered a direct comparison inappropriate given the different history, structure and philosophies of individual economies. Notwithstanding its competition law, US had also adopted an anti-dumping law which imposed restrictions on mass import from its trading partners in order to protect its domestic market. She emphasized that although Hong Kong did not have a general competition law, it had been regarded as the most competitive economy in the world. Furthermore, the availability of a competition law did not seem to be directly proportionate to the competitiveness of the economy.

V Science Park
(PLC Paper No. CB(1) 620 and 622(02))

18. On the difference between the Science Park (SP) and other establishments such as industrial estates and Industrial Technology Centre (ITC) which shared the same objective of promoting the growth and development of the manufacturing sector, STI explained that the establishment of industrial estates was solely for providing land to industries which could not operate in ordinary multi-storey factory buildings whereas ITC was purpose-built to provide accommodation for high technology companies to facilitate technology transfer, and most importantly, to offer supportive services to start-up companies to administer incubator programmes in their critical initial years. SP on the other hand could be regarded as a furtherance of the ITC concept with a view to providing an environment conducive to the development of high technology through its linkages with the financial, industrial and business communities, the higher education sector and technology-based institutions from local, Mainland and other parts of the world. Services such as helping to secure access to venture funds and assistance in patent registration would also be available. SP would serve as a natural and logical ground for the development and commercialization of research and development activities.

19. As regards the relationship between SP and the high level committee announced in the Chief Executive's Policy Address 1997, STI advised that the former was one of the essential infrastructural vehicles to achieve the objective of the latter which was to make Hong Kong an innovation centre in the Asia-Pacific region. For members information, STI advised that Dr YANG Chen-ning had declined to chair the high level committee due to health reasons and the Administration would need to identify another suitable candidate for consideration by the Chief Executive in due course.

20. Dr LAW Cheung-kwok noted that the Planning Committee had recommended the removal of the requirements for a company to devote 25% of its employees to high technical functions and 15% of its profit to research and development from the admission criteria and questioned the rationale for such a proposal. The Director-General of Industry (DG of I) clarified that the guiding principles for staff deployment and capital injection remained unchanged. The removal of such requirements was only meant to provide greater flexibility for the future Science Park Corporation to determine the respective ratios. Mr Henry TANG agreed with the need for flexibility as overly restrictive admission criteria would reduce the interest of potential tenants.

21. Prof NG Ching-fai considered that the Planning Committee should make reference to other countries like Singapore and Japan and devise some parameters within which the Corporation could base to draw up an evaluation plan to measure the effectiveness of SP. While appreciating the member's suggestion, DG of I considered this unrealistic as SP would only commence operation by the second half of 2001, and a review would not be practical until the year 2003. Parameters drawn up at the present time might not be able to take account of the rapid development in the region over the period. Prof NG remained of the view that the setting up of parameters was important for future evaluation of the success of SP.

22. As regards supporting infrastructure for the Park, DG of I assured members that facilities such as accommodation and sewage treatment system would be ready by the time the Park became operational. In addition, the expansion of the nearby Shatin Sewage Treatment Works would help to alleviate the pressure on the sewage system of the Park.

VI Credit Guarantee Scheme
(PLC Paper No. CB(1) 622(03))

23. Having regard to the limited capital injection of $500 million, Dr LAW questioned the effectiveness of the Credit Guarantee Scheme (CGS) in helping small and medium enterprises (SMEs). STI explained that one of the major difficulties encountered by SMEs was the inability in obtaining finances from lending institutions. With the establishment of CGS to share the risk of non-repayment of loans, it was envisaged that lending institutions would lower the requirement for full collateral from SMEs, thereby making it easier and more expeditious for SMEs to obtain the necessary loans. As regards the adequacy of CGS, STI said that although the total amount of loans to be guaranteed at any one time by CGS was capped at the amount of the capital available in the Scheme, the period of guarantee would be relatively short, thereby enabling CGS to offer guaranteed coverage to more SMEs in need upon the repayment of loans under guarantee. Nevertheless, the question of adequacy would be considered in the context of a review on CGS after it had commenced operation for one year. While supporting CGS, a member urged for expeditious implementation and review of the Scheme in order to meet the demand of SMEs. This was particularly important after the recent financial turmoil within the Southeast Asian region.

24. A member enquired about the measures in place to guard against the abuse of CGS. STI clarified that it was the responsibility of lending institutions to ensure the credit-worthiness of applicants since they were the loan providers and would share the risk of non-repayment of loans.

25. As for the basis upon which the application fee of 0.75% of the guaranteed sum was arrived at, STI explained that this was set to recover the essential running cost of CGS and occasional defaults. The Small and Medium Enterprises Committee had been consulted and found the fee acceptable. As regards the insurance premium for the guaranteed sum, STI advised that this had regard to the existing premium charged by the Export Credit Insurance Corporation for its insurance policies. At members request, STI undertook to provide the calculation basis for the application fee.

Admin

VII Date of next meeting and items for discussion

26. The next meeting would be held on Monday, 12 January 1997, at 10:45 am to discuss the following items:

- Review of the Applied Research and Development Scheme and Cooperative Applied Research and Development Scheme; and

- Rice Control Scheme.

27. There being no other business, the meeting ended at 1:00 pm.

Provisional Legislative Council Secretariat
8 January 1998