In 1995, the United States trade surplus with Hong Kong was $3.9 billion,
$2.2 billion greater than in 1994. U.S. merchandise exports to Hong Kong were
$14.2 billion, $2.8 billion or 24 percent greater than in 1994. Hong Kong was
the United States' eleventh largest export market in 1995, and the seventh
largest importer of U.S. agricultural products. U.S. imports from Hong Kong
totaled $10.3 billion in 1995, a six percent increase over those in 1994.
The stock of U.S. foreign direct investment in Hong Kong was $12 billion in
1994, an increase of nearly 18 percent over that in 1993. U.S. direct investment
in Hong Kong is concentrated largely in wholesale, finance and
On July 1, 1997, the Peoples Republic of China (PRC) will regain sovereignty
over Hong Kong from the United Kingdom. Hong Kong will become a special
administrative region (SAR) of the PRC. China will assume the responsibility for
Hong Kong's foreign affairs and defense. However, under China's policy of "one
country, two systems" as guaranteed by the 1984 Sino-U.K. Joint Declaration and
the 1990 PRC Basic Law, Hong Kong has been promised "a high degree of autonomy"
from China in managing its trade, financial, social, legal, and other internal
matters for fifty years.
This commitment means that Hong Kong will remain a separate customs territory
with all of its current border arrangements, it will retain its independent
membership in economic organizations such as the WTO, and it will retain control
of its own economic and financial policies.
LACK OF INTELLECTUAL PROPERTY PROTECTION
Hong Kong's intellectual property laws are among the best in the world, but a
massive increase in pirate compact disc production in China (music, video and
software) over the past two years has swamped and weakened local enforcement
efforts. Retailers of pirate software and music are operating so openly that
their locations are listed in guidebooks. One large U.S. software company
estimates that the pirating of three software programs alone accounts for $1.7
million lost in sales per month. The U.S. music industry estimates that twenty
percent of the recorded music sold in Hong Kong is pirated. The International
Intellectual Property Alliance estimated 1995 losses due to piracy at $130
million, and that is without calculating business software losses.
The United States has urged the Hong Kong government at the most senior
levels to crack down on hawkers and retailers and the criminal syndicates that
supply them. In 1995, Hong Kong responded by beefing up IPR enforcement manpower
in the Customs Department and by significantly increasing the fines for
copyright theft. More recently, the Government has asked the police to assist
with investigations. To date, however, the judiciary has not significantly
increased sentences or fines on IPR infringers, and thus there
is still no effective deterrent to IPR piracy. Several cases are working
through the courts under the new copyright law and they may set helpful
The alarming trend of the problem can be seen in the increasing numbers of
pirated goods seized. For example, industry sources report that the number of
CD-ROMS containing infringing software jumped from 5,400 in 1994 to 177, 000 in
the first nine month months of 1995, a staggering 44-fold increase. That this
increase is possible despite Hong Kong's stepped-up enforcement efforts
demonstrates that mainland China has yet to attack the manufacturers and
importers who are at the root of the problem. Indeed, Hong Kong entrepreneurs
and criminals play a central role in the production of infringing material on
the mainland: Hong Kong businessmen are co-venturers in more than two-thirds of
the pirate CD plants operating in mainland China. Vigorous action by Hong Kong
authorities to stop the financing of pirate activities in China by individuals
based in Hong Kong is an important and necessary step, but one which Hong Kong
has yet to take.
As reversion to China moves ever closer, the challenge for Hong Kong will be
to establish a fundamental respect for intellectual property rights which will
endure beyond 1997.