Panel on Trade and Industry (Minutes) 7 Sept 98

Legislative Council

LC Paper No. CB(1) 297/98-99
(These minutes have been seen
by the Administration)

Ref: CB1/PL/TI/1

Panel on Trade and Industry

Minutes of meeting held on Monday, 7 September 1998, at 2:30 pm in the Chamber of the Legislative Council Building

Members present :

Hon CHAN Kam-lam (Chairman)
Dr Hon LUI Ming-wah, JP (Deputy Chairman)
Hon Kenneth TING Woo-shou, JP
Hon James TIEN Pei-chun, JP
Hon Cyd HO Sau-lan
Hon NG Leung-sing
Hon MA Fung-kwok
Hon CHEUNG Man-kwong
Hon HUI Cheung-ching
Hon CHAN Kwok-keung
Hon Mrs Sophie LEUNG LAU Yau-fun, JP

Members attending :

Hon LEE Cheuk-yan
Hon Fred LI Wah-ming
Hon Ronald ARCULLI, JP

Members absent :

Hon David CHU Yu-lin
Prof Hon NG Ching-fai
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon SIN Chung-kai
Dr Hon Philip WONG Yu-hong
Hon CHIM Pui-chung

Public officers attending:

For item IV
Mr TAM Wing-pong,: Acting Secretary for Trade and Industry
Miss CHEUNG Siu-hing,: Deputy Secretary for Trade and Industry
Mr Patrick CHUNG,: EDI Co-ordinator
For item V
Mr TAM Wing-pong,: Acting Secretary for Trade and Industry
Mr Alan LAI,: Director-General of Trade
Mr Edward YAU,: Assistant Director-General of Trade
For Item VI
Mr TAM Wing-pong,: Acting Secretary for Trade and Industry
Miss CHEUNG Siu-hing,: Deputy Secretary for Trade and Industry
Mr Vincent Y K POON,: Assistant Commissioner of Customs & Excise
Ms Ada LEUNG,: Acting Assistant Director of Intellectual Property

By invitation :

For item IV
Mr Justin YUE,: Chief Executive Officer, Tradelink

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 meeting
(LC Paper No. CB(1) 145/98-99)

The minutes of the last meeting held on 22 July 1998 were confirmed.

II Information paper issued since last meeting

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

III Date of next meeting and items for discussion

3. The next meeting would be held on Monday, 5 October 1998, at 2:30 pm to discuss the subject on parallel importation of copyright articles.
(Post-meeting note: The meeting was postponed to Saturday, 10 October 1998, at 9:30 am in order to include the briefing by the Secretary for Trade and Industry on the Chief Executive's Policy Address 1998.)

IV Tradelink
(LC Paper No. CB(1) 149/98-99(01) and (02))

4. Before commencing discussion, the Chairman reminded the Administration the need for timely submission of information papers to members before meetings.

5. The Chairman drew members' attention to a submission from the Diamond Importers Association Limited (CB(1)149/98-99(01)) referred to the Panel by Mr HUI Cheung-ching. He then invited Mr HUI to brief members on the submission. Mr HUI said that he personally supported the use of electronic data interchange to replace the paperwork involved in trading procedures. He however shared the Association's concern on the possible leak of commercially sensitive information by Tradelink, a semi-private company. Moreover, Tradelink's exclusive rights to provide the Government with the electronic gateway facilities necessary for the implementation of the Community Electronic Trading Service (CETS) would expire on 31 December 2003. The Association therefore expressed further worries about the change in Tradelink's shareholders at that time and the subsequent treatment of the sensitive information stored in Tradelink's system. To gain the confidence of customers in using CETS, Mr HUI was of the view that measures should be in place to safeguard against unauthorized use of information received by Tradelink. The Association also considered that the mandatory requirement for an annual subscription fee of $648 for each registered company would create additional financial burden on enterprises, in particular those operated under a number of different company names.

Security

6. In response, the Chief Executive Officer/Tradelink (CEO/Tradelink) clarified that in other countries such as Korea, Singapore and Taiwan, it was also common for private companies to provide electronic trading services for the Government. He assured members that Tradelink, like the Hong Kong Securities Clearing Company and many other similar organizations, recognized the importance of ensuring security of information stored in its system. To this end, the system was designed to enable direct interaction among computers to minimize manual involvement. Access to Tradelink's system would only be made under two different sets of circumstances. One was when the customer had made some mistakes in his application and had to call Tradelink hotline to find out how he might rectify the mistake. In that situation, the customer had to quote his registration number and the reference number of the application in question, and Tradelink's hotline representative would be allowed to access that part of his application in order to provide advice to the customer concerned. In the other circumstance, Tradelink's technical staff would be given access rights to relevant components of the Tradelink's system for servicing and maintenance purpose. In such cases, all access entries were logged and the logs were scrutinized by a separate Control and Quality Management Department to detect any attempts of unauthorized access and possible breaches of security. The same security measure also applied to vendors when conducting maintenance service for the computer system. He stressed that shareholders of Tradelink were not privy to electronic messages received, processed, delivered and archived by Tradelink except those for which they were the senders or the receivers. Mr HUI remained concerned that some enterprises might still be reluctant to disclose certain sensitive information such as the name of consignee and asked if Tradelink would consider excluding these details from the trade documents. CEO/Tradelink confirmed that applicants for export licences had the option of omitting information regarding the manufacturer to be provided to his consignee.

7. As regards the legislation applicable to Tradelink, the Deputy Secretary for Trade and Industry (DSTI) advised that the operation of Tradelink was governed by the Import and Export Ordinance (Cap. 60) and the Industrial Training (Clothing Industry) Ordinance (Cap. 318). In addition, all staff and shareholders of Tradelink were under the jurisdiction of both the Prevention of Bribery Ordinance (Cap. 201) and the Personal Data (Privacy) Ordinance (Cap. 456) to ensure the confidentiality of information received. Moreover, any person who obtained access to Tradelink's system with a dishonest intent to deceive would be subject to prosecution under the Crimes Ordinance (Cap. 200). A member was of the view that Tradelink should publish regular reports on measures taken to safeguard the information received. The Acting Secretary for Trade and Industry (Ag. STI) undertook to relay the member's view to Tradelink for consideration. To enhance better understanding of Tradelink's data protection measures, CEO/Tradelink said that individual trade associations were welcome to contact Tradelink for direct dialogue.

Admin

8. As to whether Tradelink would compile statistics on import and export using information collected from its system, CEO/Tradelink considered this inappropriate as the only role of Tradelink was to provide an electronic gateway between the trading community and the Government.

Fees and charges

9. As regards service charges and deposits, CEO/Tradelink advised that Tradelink adopted a flexible charging system based on the volume of customers' usage of the service. Detailed information on charges could be found in the brochure "Tradelink Service Pricing Guide 1998".

10. Members noted that Tradelink had set an internal rate of return on equity of 18%. They expressed worries that fees would be increased in order to meet this target. A member enquired about the basis upon which such a return rate was derived. In reply, DSTI explained that as substantial investment was required to launch the CETS project, and that Tradelink would have to return all the assets required for providing the services to the Government at zero cost upon expiry of the seven-year period of exclusive rights, it was not unusual for Tradelink's shareholders to expect a reasonable return rate. DSTI added that the 18% was an upper limit rather than a goal. The actual rate would depend on the performance of Tradelink which was invariably linked to the economy of Hong Kong as a whole. A member commented that according to past experience of other public transport companies, fee increase was inevitable if a return rate was fixed. Another member sought clarification on how the Administration could monitor a cost-effective operation of Tradelink to ensure that fee charges could be kept at a reasonable level. Ag. STI replied that the Administration oversaw the operation of Tradelink at both management and operation levels. On the management level, the Secretary for Trade and Industry had been Chairman of the Tradelink Board since February 1996. The Director-General of Trade and a representative from the Finance Bureau were also Board members. Recently, the Secretary for Information and Broadcasting had also joined the Tradelink Board as a director. They would ensure that Tradelink was operating on prudent financial principles. On the operation level, the Trade Department maintained a close liaison with Tradelink to ensure a smooth implementation of CETS. CEO/Tradelink supplemented that Tradelink was very cautious about cost control. By way of illustration, Tradelink had moved its headquarters from Causeway Bay to Kowloon Bay to reduce the overhead cost. DSTI assured members that in considering the level of fees for CETS, prior consultation would be carried out with the Trade Advisory Board, Textiles Advisory Board and this Panel before the final proposal was submitted to the Chief Executive in Council for approval.

11. A member remarked that unlike most overseas countries where Government application charges were kept low, Hong Kong adopted a user-pays system. Payment of these and CETS charges in turn increased their production cost and reduced their competitiveness in the international market. To remain competitive, she asked if the Administration would consider writing off the Tradelink's previous losses so that the current fees of CETS could be maintained at a low level. Ag. STI responded that as the previous loan was granted to Tradelink for developing CETS, this should be recovered using profits accrued from the operation of CETS.

12. In view of the good response in using CETS, a member opined that it might take Tradelink less than the specified period of seven years to repay the Government loan of $425 million. He urged Tradelink to consider reducing the fees after it had repaid the loan. Ag. STI took note of the member's concern but advised that it had been the objective of Tradelink to ensure that the fees of CETS would not be higher than that of the paper-based methods. Further reduction would be made possible with the advancement in technology. To ensure that Hong Kong would not fall behind its competitors, a member considered it necessary for Tradelink to make a pledge to control cost and to use the most updated technology in running CETS.

13. In reply to a member's question, DSTI confirmed that Tradelink accepted all companies without prejudice to access to its service since it was the only service provider for CETS.

Way forward

14. DSTI advised that the Administration had yet to decide on the arrangement upon the expiry of Tradelink's seven-year period of exclusive rights. As regards CETS, Tradelink was underway to provide services in respect of application for Certificates of Origin, Cargo Manifests and Dutiable Commodities Permits.

15. Members agreed to bring forth the discussion on enforcement against copyright activities.

V Enforcement against copyright piracy activities
(LC Paper No. CB(1) 149/98-99(05))

16. Given the fact that the sale of pirated optical discs was still rampant at notorious black spots, a member expressed doubts on the effectiveness of the enforcement actions taken by the Administration in combating copyright infringement. In response, Ag. STI stressed that it would not be possible to eradicate copyright piracy completely. Notwithstanding, the Administration had a multi-pronged approach to combat illegal activities. This approach comprised four basic elements, namely a comprehensive legal framework; vigorous and sustainable enforcement action; education and publicity efforts; and close liaison with the copyright industry and cross-border enforcement authorities. The approach had begun to yield results and gained positive international feedback. As a step forward, the Administration was considering further initiatives which included confiscating criminal proceeds, introducing closure orders for premises repeatedly used for piracy activities and imposing certain liability on end users.

Legislative framework

17. A member considered that the existing penalties for copyright infringement were insufficient to deter contravention. Ag. STI replied that there had been a noticeable increase in penalties for copyright offences imposed by courts since the enactment of the new Copyright Ordinance in June 1997. By way of illustration, the owner of an illegal optical disc factory in Cheung Sha Wan was sentenced to imprisonment and the relevant manufacturing machinery worth $5 million confiscated. DSTI added that the courts had only started hearing the first cases brought under the new Ordinance. The deterrent effect of court sentences should begin to be felt when more verdicts were handed down.

18. Some members also raised concern about pirated articles imported into the territory under the guise of parallel imports. They urged the Administration to review the relevant legislation.

19. As regards the identification code for local optical disc manufacturers, the Assistance Commissioner of Customs and Excise (AC of C&E) confirmed that in order to avoid possible abuse, no supplementary code would be allowed.

Enforcement action

20. AC of C&E advised that the Customs & Excise Department (C&ED) had stepped up enforcement actions against copyright piracy activities at the production level in order to tackle the problem at source. Coupled with the on-going raids of black spots at the distribution and the retail levels, over 30.5 million copies of suspected pirated optical discs and 53 production lines had been seized in the first seven months of 1998.

21. A member remarked that there was an increased trend of relocation of the sale of pirated optical discs to commercial premises of some large private residential estates as a result of a drop of rents in these premises. AC of C&E advised that C&ED was aware of the situation and had deployed manpower to perform raids at these sites in order to contain the growth of such a trend at the initial stage.

Co-operation with the copyright industry and other enforcement authorities

22. In reply to a member's question, AC of C&E agreed that the fight against copyright piracy would not be successful without the co-operation of rights owners. To this end, C&ED maintained regular dialogues with the copyright industry with a view to pooling the industry and government resources to make the fight against piracy more effective.

23. Since the initial funding of $1.2 million under the reward scheme had either been used or committed, a member asked if the Administration would consider using proceeds accrued from the sale of confiscated manufacturing machinery to sponsor the scheme, AC of C&E replied that as the issue would involve both accounting procedures and policy consideration, he would reflect it to the Administration to explore the feasibility. He nevertheless undertook to liaise with the copyright industry to see if additional funding could be made available for the scheme.

24. As regards co-operation with other enforcement authorities, AC of C&E advised that C&ED maintained close contact with its counterparts in the Mainland and other overseas countries. The recent seizure of 380,000 pirated optical discs was a result of the exchange of information among the various authorities.

Further initiatives

25. On closure orders, a member considered that if the application procedures for such orders were lengthy and cumbersome, they would not be effective since speed was the essence in the fight against piracy. DSTI acknowledged the member's concern but emphasized the need to safeguard private property rights. The Administration was seeking public opinions in this respect before determining whether to take the proposal forward.

26. On end-user liability, DSTI advised that the Administration had studied examples in foreign jurisdictions but none of these had a comprehensive legal regime for end-user liability. The main difficulty in imposing such a liability was the need to prove mens rea legally, despite there was anecdotal evidence that many customers were well aware that they were buying pirated goods because of the circumstances in which the transactions took place. The Administration would therefore need to consider if a practical way could be found to impose some form of end-user liability should circumstances warrant. In reply to a related question, AC of C&E advised that the Administration noted that there was an increased trend of catalogue shopping of infringing goods through INTERNET and was collating information from overseas countries.

VI Sale of textile quotas
(LC Paper No. CB(1) 149/98-99(03) and (04))

27. In view of time constraints, members agreed to defer discussion of the subject to the next meeting.

VII Any other business

28. There being no other business, the meeting ended at 4:30 pm.

Legislative Council Secretariat
9 October 1998