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Luncheon with the New America Foundation in Washington DC, USA

29 September 2000

Hong Kong - A Separate Customs Territory: A Myth or Reality?

Ladies and Gentlemen

    Good afternoon.

    I am pleased to have the opportunity to speak on a subject which, from the sound of it, seems to fall squarely on my plate. I am even more delighted that this luncheon is co-organized by The New America Foundation, an institution which carries the mission to develop forward looking solutions to overcome existing policy gridlocks. The solutions that have been employed to deal with Hong Kong's reunification with the People's Republic of China is, indeed, forward looking, and it is most fitting that this subject is being discussed here in this forum.

    It has been three years since the Royal Yacht Britannia sailed away from Victoria Harbour in the small hours of the rainy evening on 1 July 1997, and I can tell you, without a doubt, that Hong Kong is operating well as a Special Administrative Region of China according to the blue prints set out in our constitution, the Basic Law.

Basic Law

    The Basic Law of Hong Kong was promulgated by the National People's Congress on 4 April 1990 and put into effect on 1 July 1997. It is stated clearly in the preamble that the socialist system and policies will not be practised in Hong Kong. We will continue with the previous capitalist system, and the way of life will remain for the next 50 years.

    The people of Hong Kong will operationalize the concept of "one country, two systems" under which we will exercise a high degree of autonomy and enjoy independent executive, legislative and judicial powers, including that of final adjudication. In fact, we are able to manage everything for ourselves except for matters concerning foreign affairs and national defence which are the responsibilities of the Central People's Government.

    Under Article 116 of the Basic Law, it is prescribed that "The Hong Kong Special Administrative region shall be a separate customs territory." We will continue to maintain a distinct physical boundary with the Mainland policed by our own enforcement agencies; we will continue to employ a set of well established laws couched in the common law tradition; we will continue to work with our enforcement counterparts in different countries in controlling illicit trade; and we will continue to take part in relevant international organizations such as the World Trade Organization, the Asia-Pacific Economic Cooperation and the World Customs Organization.

Myth and Reality

    From all indications, it is an absolute reality that Hong Kong has continued to operate effectively and efficiently as a separate customs territory. This view is supported by many international opinion formers, including Congressman Doug Bereuter who reported earlier this year that the picture of Hong Kong after reversion to Chinese sovereignty is largely positive and it remains a bastion of free market capitalism. He goes on to say that Hong Kong continues to operate independently in economic decision making.

    Despite these facts, there have still been wild stories flying around in the international media that Hong Kong's economic autonomy has been greatly eroded, that the Beijing Government is interfering in Hong Kong's administration, that Hong Kong is the base of diversion for the People's Liberation Army to smuggle controlled items into China and that Chinese owned firms in Hong Kong escape prosecution for gross criminal acts. These are myths, absolutely ridiculous fabrications, created out of ignorance of the reality and misconception of the actual situation in Hong Kong.

    There is no better reality check than a brief visit to Hong Kong to see for yourselves how we are faring. Like others, who have spent some time with us, you will find in Hong Kong a vibrant society, full of life, full of hope and full of prosperity. I will leave you to make your own judgement but I think you would be interested to know at least from my limited customs perspective how we have managed to maintain Hong Kong's well being. I will briefly set out for you how Customs have played our role in maintaining Hong Kong's status as a separate customs territory in three areas, namely boundary enforcement, control of strategic commodities and participation in international organizations.

Boundary Enforcement

Hong Kong is well known for its free port, but that is often misunderstood. The term does not mean free of control. It simply describes our tariff free position. We have a renowned import/export regulatory regime with good control over passengers and cargoes entering and leaving Hong Kong. We are doing a great deal of work now to facilitate the movement of people and goods, but we will not be doing that at the expense of enforcement. We are employing a risk management approach to make it easy for the flow of all the legitimate trade, and focus instead our resources on the very small proportion of illicit business.

    We are an active and responsible player in the global economy. We will continue to operate a law-based, transparent and stringent control system over all our trade. Our licensing requirement for the controlled items are comprehensive and we follow the highest international standard. All cargoes, mail and parcels, passengers and carriers entering or leaving Hong Kong by air, sea or land routes are subject to Customs inspection and clearance. All companies or individuals, regardless of their background, ownership or affiliation, must abide by our laws and are subject to the same treatment under these laws.

    Our enforcement system is best described as "legally colour blind and politically tone deaf". Customs is a professional law enforcement agency which carries out independently its responsibility, such as interception, inspection, investigation, prosecution and confiscation. To do our job properly we maintain close cooperation with our overseas counterparts and other law enforcement agencies, and I will be taking the opportunity of my visit to reacquaint myself with my friends in the various enforcement agencies here in Washington.

    Given our proximity to the Mainland, a good part of our enforcement effort is geared towards the China trade. We have excellent cooperation from our counterparts across the boundary, and in my short tenure as the head of Hong Kong Customs, we have successfully mounted a large number of covert and overt operations which have netted tremendous results for both administrations. Other than the usual seizures of dangerous drugs, duty not paid cigarettes and counterfeit handbags, we have also seized exotic items such as faked Pokemon cards, terrapins and fossilized dinosaur eggs. 

    At present, we deploy about 3,000 customs officers around the clock at different checkpoints at the land boundary, the airport and at sea. Our officers are supported by a host of hi-tech equipment, such as ion-scanners, x-ray systems and thermal image maritime surveillance systems as well as a team of dedicated canines which specialize in sniffing out different types of narcotics.

    Indeed, we are maintaining a distinctly separate physical boundary which is clearly demarcated and properly managed. We are maintaining a totally separate customs territory run by our own enforcement resources and we are doing all we can to upkeep its integrity and reputation.

Control of Strategic Commodities

Following our reunification with the Mainland, a great deal of attention is focused on the autonomy and integrity of our systems of control, particularly in relation to the control of strategic commodities. The reality is that we continue to operate a world class system of control which has been commended by all the key players of strategic export control regimes, including your own administration.

    The totality of our control system on strategic commodities focuses not just on the entry and exit points, but in fact also on the monitoring of sensitive goods in transit, the disposal of strategic commodities after importation and re-export of goods which are required to be supported by authorization from source countries. Our stringent system, coupled with our diligent boundary enforcement regime, makes Hong Kong the least desirable place for the smuggling of strategic commodities.

    We have a clear policy commitment to maintain vigilant control over trade in strategic commodities. We are conscious that only by maintaining an effective control system, can we continue to gain full access to higher technologies and technological products, particularly the so-called "dual use goods", which are essential to our economic, trade and financial developments. We have strong economic self interests to continue to do so.

    The Central People's Government of China is totally supportive of Hong Kong's special status and has stated clearly that all state organs in Hong Kong, including the People's Liberation Army garrison, must abide by the Basic Law and all Hong Kong laws. They will not be exempted from complying with our legal requirements. And so far, all of them have conducted their activities meticulously and in an exemplary manner.

    There were allegations contained in the report by Congressman Chris Cox last year concerning the transshipment of technology by the People's Liberation Army stationed in Hong Kong. This is totally groundless, and the actual situation has been accurately portrayed in the 7th Report of the US Congressional Task Force on the Hong Kong Transition earlier this year that "A recent visit to Hong Kong by staff members of the House International Relations Committee found that there is no evidence to suggest that the People's Liberation Army is smuggling controlled items into China."

    It is abundantly clear that we have been exercising our responsibility with integrity in this area of heightened sensitivity, and we are working to reinforce further Hong Kong's success as a separate customs territory.

Participation in International Organizations

Hong Kong is a founding member of the World Trade Organization serving under the name of "Hong Kong, China", having been a member of the GATT for some years. This position will not change even with the entry of China into the world body. We will continue to operate as we have always done so, autonomously and in a way that would protect our interest. It is quite possible that we will not be able to agree on every issue given the differences in our economic development, but we will not hesitate to set out these differences and attempt to find a solution which would meet our needs.

    The same applies to the Asia-Pacific Economic Cooperation (APEC). You will recall that China, Chinese Taipei and Hong Kong all joined at the same time in 1993, and we have been operating as individual members ever since. We take part on an equal footing in all the APEC activities from Senior Officials' Meetings to various ministerials, and even the Leaders' Meetings where we are represented by our Chief Executive.

    We are also a member of the World Customs Organization for many years, and this year we have been elected to be the Vice Chairman responsible for the coordination of activities in our region which includes China. This is another good example that we are operating as a separate customs entity, marching to our own beat and taking into consideration our own needs.


The principles of the "one country, two systems" concept has successfully provided Hong Kong with the high degree of autonomy that has enabled the continuation of our status as an independent customs territory. Over the past three years, this concept of has been faithfully implemented across the board. There is no evidence of any interference in our administration. 

    The concept of "one country, two systems" was developed by China, and it is clearly in the fundamental national interest of China to ensure that this concept will be successfully implemented. By preserving and enhancing the separateness of Hong Kong's status, our success can actually contribute towards the continued modernization of China. The strength lies in the diversity of our systems. 

    As the Commissioner of the Hong Kong Customs, I can assure you that we are continuing to operate as an independent customs territory. We will continue to strive to uphold Hong Kong's trading integrity and safeguard the faithful implementation of the "one country, two systems" concept.

    In short, the answer to the question posed by the title of my speech is that the status of Hong Kong as a separate customs territory is a myth that has been turned into reality. 

    Thank you.

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