Hong Kong SAR projected to see significant effects from China’s WTO accession

• Pages: 207-208

Page 207

The possible implications of the People’s Republic of China’s accession to the World Trade Organization (WTO) have been much discussed. But in projecting the impact on the Mainland, the effects on Hong Kong SAR’s economy have generally attracted little attention. A new IMF study by Peter Breuer (a chapter in People’s Republic of China—Hong Kong Special Administrative Region: Selected Issues and Statistical Appendix) suggests that, by mid-decade, the economy of Hong Kong SAR can expect to see significant effects from the Mainland’s WTO accession. The impact will chiefly be felt through the Mainland’s liberalization of trade and services, anticipated sharp increases in textile and apparel exports, and accelerating structural reforms. These changes seem likely to affect Hong Kong SAR’s economy and its financial and economic relationship with the Mainland.

WTO and the Mainland

Although the last few bilateral negotiations are still going on, China could enter the WTO later this year. The final terms of accession will be defined in part by the remaining negotiations, but the broad outlines of the impact on the Mainland economy are evident in the already-concluded accession agreements with the United States and the European Union.

The U.S.-China agreement calls for reduced tariffs on nonagricultural products by 2005, lower tariffs on agricultural products by 2004, an elimination of quotas and nontariff restrictions on industrial products by 2005, the introduction of a tariff rate quota system in agriculture, and the provision of full trading and distribution rights to foreign firms. Market access would also be significantly expanded in the services sector (notably in the areas of telecommunications, life insurance, securities, and banking). The United States, in return, would eliminate its import quotas under the Multifiber Agreement on Mainland textiles by 2005 and extend to the Mainland Permanent Normal Trade Relations.

IMF staff analysis of the agreement’s potential impact suggests that WTO accession will initially stimulate some of the Mainland’s imports, such as agricultural goods, automobiles, and petrochemicals. However, it will have little impact on the imports related to the processing trade, since these industries are located largely in free trade zones and are already exempt from tariffs. The Mainland’s external current account...