Legislative Council Panel on Trade and Industry

Control over trade in strategic commodities
Purpose

This paper briefs members on Hong Kong's system of control over trade in strategic commodities.

Introduction

2. As an active and responsible player in the global economy, the Hong Kong Special Administrative Region Government is fully committed to adopting the highest international standard of strategic trade control. We are at the forefront of maintaining an effective control system over such trade in this region.

3. Hong Kong has tremendous incentive to maintain good control over strategic trade. Hong Kong needs to maintain its trading partners' faith in the integrity of its trading system so as to have continued access to high-tech products essential to its role as an international business and trade centre.

The System

4. Hong Kong's system of control over trade strategic commodities is law-based, transparent, backed by stringent licensing controls, vigorous enforcement and close international co-operation. Our system has the following unique features/safeguards :

1. we implement both import and export licensing. The transit of more sensitive items is also to subject to licensing requirement. This comprehensive system of control enables us to keep track of the movement of goods into and out of our territory;

2. we have built into our system unique features to guard against illicit transfer of licensed sensitive items to a third party after their importation. For import of all sensitive items, we require the importers to declare the end use and end user before the goods can be imported into Hong Kong. Hong Kong Customs conducts disposal checks on import of strategic commodities for local use. They also carry out enduse checks on sensitive commodities. If the products are not used as declared, the importer is in breach of the licensing conditions and would be prosecuted;

3. we operate an export licensing system that complements those run by exporting countries. For sensitive items, we would not issue export licence until the Hong Kong exporter has produced to us explicit license endorsement or approval from the originating exporting countries for the goods to be re-exported to a specific destination. This system would ensure that we would not undercut the control imposed by originating countries; and

4. we impose a legal responsibility on our carriers to ensure licensing compliance of strategic commodities importing into/exporting from Hong Kong.

5. The legal basis of our system is the Hong Kong Import and Export Ordinance and its Strategic Commodities Regulations. The scope of items subject to licensing is laid down in the Schedules to the Import and Export (Strategic Commodities) Regulations which follow the control lists of all international non-proliferation regimes and conventions. The scope of our control is therefore objective and follows the highest prevailing international standard.

6. In addition to the control over import and export activities, Hong Kong is one of the pioneers in introducing legislation to prohibit services knowingly provided to assist in the development of weapons of mass destruction (WMD). The Weapons of Mass Destruction (Control of Provision of Services) Ordinance makes activities such as financing WMD programmes illegal and subject to prosecution. As in the case of unlicensed import and export of strategic commodities, the maximum penalty for providing services to assist the development of WMD is an unlimited fine and imprisonment for seven years.

7. Our system operates on a level playing field. All individuals and companies regardless of their background are subject to the same laws and control. This is fully demonstrated by the track record of enforcement action taken by Hong Kong Customs both before and after the reunification.

Hong Kong's Autonomy in Controlling Strategic Commodities and International Recognition

8. Under the "one country, two system" principle as enshrined in the Basic Law, Hong Kong remains a separate trading entity and a separate customs territory. We have full autonomy in regulating the import and export of goods, including strategic commodities, and are maintaining a separate and autonomous import and export control system.

9. Hong Kong's system of strategic trade control is highly regarded by our trading partners. Overseas authorities have commended our determination to uphold the integrity of Hong Kong as a separate customs territory by taking action against companies which infringed the HKSAR's tight export control, our vigorous enforcement of a strict export control regime, and our ability and willingness to enforce such a stringent control regime.

10. Government delegations from the U.S., Europe, Australia and Japan have all visited our system since the reunification. They are impressed by the comprehensiveness and stringency of our system. Our overseas offices also keep regular contacts with overseas authorities and key political players to explain to them the good system we have in place. Major trading partners continue to share and exchange with Hong Kong bilaterally information regarding development of the international control regimes. In addition, Hong Kong Customs have been maintaining close co-operation with its overseas counterparts, and pursue cases actively through co-operation. Such co-operative efforts have led to successful prosecutions and convictions by Hong Kong courts.

Way forward

11. Hong Kong will continue to develop and maintain close contacts with our trading partners. We will also continue to keep up the effectiveness of our system and keep it transparent by explaining our system to overseas government agencies and legislators, organising visits for them to see how our system operates on the ground, and arranging for secondment of overseas experts to boost our technical expertise in this area.

June 1999
Trade and Industry Bureau

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