Trade facilitation in hongkong

1 CHAPTER 1: THEORITICAL REVIEW 1.1 Definition For over the last 60 years, tariffs and some major nontariff barriers to trade, namely import quotas, have been reduced in significance Numerous countries and regions have focused on trade facilitation to maximize the benefits that can be obtained through international trade Trade facilitation is considered as the key to unlocking further gains The term ‘trade facilitation’ has been repeating and using continuously in nation gatherings Until recently, there is no global and official definition of the trade facilitation around the world Many international organizations and agencies have concentrated on different aspects of trade facilitation to announce and generalize the most proper idea about this term However, all emphasize the need for coordination, the transparent, systematic and efficient implementation of trade rules and regulations that affect the movement of goods between buyers and sellers along the entire international supply chain Therefore, in general, trade facilitation is defined to include policies and processes that reduce the cost, time, and uncertainty associated with engaging in international trade but excludes traditional trade instruments such as tariffs, import quotas, and other similar nontariff barriers The main objective of trade facilitation is to simplify the process and minimize transaction costs in international trade, while maintaining effective levels of government controls With the implementation of trade facilitation, all three parties involved in trade activities would earn benefits: - Governments would earn higher revenues from reduced frauds; - Enterprises would be more efficient and lift their profit levels; - Consumers would be able to experience cheaper goods and services => Trade facilitation would encourage trade flows and sustainable growth, lower unnecessary costs and improve business climate 1.2 Basic Principles Trade facilitation principles is based on “The Four Pillars” including Transparency, Simplification, Harmonization and Standardization To understand carefully, it is necessary to go into details about each dimension of “The Four Pillars” To begin with, transparency, in trade facilitation, means promoting openness and accountability of a government's and administration's actions The information should be published in a way that the mass audience can readily access, understand and use The mentioned information would include laws, regulations and administrative decisions of general application, budgets, procurement decisions and meetings It is important that there would be no extra or hidden process or budget without public prior notification Furthermore, relevant stakeholders and the general public should be invited to participate in the legislative process, by providing their views and perspectives on proposed laws prior to enactment Next, simplification is to eliminate all unnecessary elements and duplications in trade formalities, processes and procedures Harmonization is the alignment of national procedures, operations and documents with international conventions, standards and practices It can come from adopting and implementing the same standards as partner countries, either as part of a regional integration process or as a result of business decisions Lastly, standardization is the process of developing formats for practices and procedures, documents and information internationally agreed by various parties Standards are then used to align and, eventually, harmonize practices and methods To achieve the maximum efficiency of these principles, full cooperation between government authorities and the business community is essential CHAPTER 2: LEGAL FRAMEWORK 2.1 Overview of situation in Hong Kong 2.1.1 Market Overview Hong Kong, China is undisputedly one of the world’s leading financial and logistics hubs An economic policy of free enterprise and free trade, rule of law, and an emphasis on and investment in education and commercial infrastructure have all been key contributing factors to its success Hong Kong as a Special Administrative Region of the People’s Republic of China (PRC) since its reversion in 1997, has proven in past economic crises to be exceptionally resilient Dominant and sustained drivers of economic growth include private consumption (retail), logistics and business services, financial services, real estate development (bolstered by ongoing public infrastructure works), and tourism Hong Kong has benefited from continued economic integration with mainland China’s growing economy Hong Kong is a free port that does not levy any customs tariff and has limited excise duties Its strong rule of law and respect for property rights make it a strategic platform for companies and businesses from around the world Hong Kong enjoys a high degree of autonomy, except in foreign affairs and defense It has its own common law legal system (as distinct from the PRC), currency, and customs jurisdiction There are numerous business opportunities given Hong Kong's expertise in finance and marketing, sophisticated infrastructure, and access to mainland China’s manufacturing base As a special administrative region of China, Hong Kong enjoys growing preferential access to the mainland The Closer Economic Partnership Arrangement (CEPA) offers Hong Kong's products and firms preferential access to the mainland's market CEPA goes beyond China's World Trade Organization (WTO) commitments, eliminating tariffs and allowing earlier or preferential access to some services sector, of which overseas companies can also take advantage To sum up, the key characteristics of Hong Kong’s economic environment can be described as follows: ● world-class infrastructure; ● free flow of information; ● no restrictions on inward or outward investment; ● no foreign exchange controls; ● no nationality restrictions on corporate or sectoral ownership; ● simple, low-tax regime; ● and world financial hub 2.1.2 International Trade in Hong Kong Hong Kong's economy is considered a model of capitalism due to its commitment to free trade, with foreign trade representing 375.1% of its GDP (World Bank) Top exports include: ● integrated circuits, ● gold, ● radio-telephony transmission tools, ● electrical apparatus for line telephony, ● and meat Main imports include (WTO): ● integrated circuits ● and telephones Export destinations include China, the U.S., India, Japan and Thailand while imports come from China, Singapore and Japan (UNCTAD) Hong Kong is among the world's top nine exporters and top seven importers In 2017, the total value of exported goods and services reached 188% of GDP while imports of goods and services closed at 187.1% of GDP The trade balance, including services, was positive in 2017 at USD 3.092 billion (World Bank) Foreign trade continued to enjoy sustained growth in recent years and has been driven by the expansion of the Chinese economy Hong Kong has no tariffs on imported goods It levies excise duties on only four commodities, be they imported or produced locally: hard alcohol, tobacco, hydrocarbon oil and methyl alcohol There are no quotas or dumping laws Foreign Trade 2013 2014 2015 2016 2017 621,417 600,613 559,427 547,336 589,908 535,187 524,065 510,596 516,734 550,272 Indicators Imports of Goods (million USD) Exports of Goods (million USD) Imports of Services 75,046 73,797 73,909 74,461 77,069 104,656 106,566 104,152 98,432 103,601 1.0 -1.8 0.9 6.3 1.0 -1.4 0.7 5.5 (million USD) Exports of Services (million USD) Imports of Goods and 8.3 Services (Annual % Change) Exports of Goods and 7.8 Services (Annual % Change) Imports of 221.0 212.9 193.5 184.7 187.1 221.6 213.1 195.9 187.0 188.0 Balance -27,921 -32,359 -16,704 -23,972 Balance 1,659 7,350 3,092 Goods and Services (in % of GDP) Exports of Goods and Services (in % of GDP) Trade -22,870 (million USD) Trade 599 7,393 (Including Service) (million USD) Foreign Trade 442.6 426.0 389.4 371.7 375.1 (in % of GDP) Figure 2.1 Hong Kong’s foreign trade indicators Source: WTO – World Trade Organization; World Bank However, Hong Kong's open economy left it exposed to the global economic situation Its continued reliance on foreign trade and investment makes it vulnerable to renewed global financial market volatility or a slowdown in the global economy Growth will remain strong in 2019; but will decelerate slightly owing to external headwinds The slowdown in the Chinese economy and the global trade war will weaken trade growth (Coface) Figure 2.2 Merchandise and Services Trade Growth Source: GovHK Political Instabilities and the Impact on International Trade 10 The fact is that Hong Kong in 2019 has begun to enter a technical recession with the signs of sluggish growth due to lack of innovation across sectors, rising housing unaffordability and income inequality, the proposal of the Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation (Amendment) Bill 2019 threatened the status of Hong Kong as a global trading hub Protests exploded as Hong Kong citizens feared for the freedom and led to widespread unrest Although the government has announced its formal withdrawal on October 23, protests are still occurring, questioning the ability of Hong Kong’s government to protect its freedom from Mainland China’s political power Protests could reinforce existing worries that the gradual erosion of autonomy from China will damage its appeal as a financial hub 2.2 Trade Facilitation in Hong Kong Hong Kong is ranked in high position in many terms and fields: ● the first in terms of economic freedom (2019 Index of Economic Freedom, Heritage Foundation) ● The third in terms of its business environment (The Economist - Business Environment Rankings 2014-2018) ● Hong Kong’s top rankings are the results of the government’s effort to provide a business-friendly environment and serve to secure Hong Kong’s well-earned reputation as the world’s freest trading hub Hong Kong is very open to global trade and investment as suggested by the aforementioned statistics ● The combined value of exports and imports is equal to 375.1 percent of GDP 17 The transshipment cargoes, if being selected for inspection, will normally be inspected once either at the point of entry or exit Time is saved by reducing repeated inspection which will expedite the flow of transshipment cargoes 18 CHAPTER 3: EVALUATION 3.1 Evaluating basing on principles Based on the three principles of trade facilitation, the Trade procedures and documents in Hong Kong will be evaluated as follows: Figure 3.1 Principles in Trade Facilitation Simplification: Hong Kong has successfully simplified the trade procedure so as to significantly reduce the time and efforts putting on custom clearance and import/export formation Some programs can be listed here as a good example of 19 technology appliance as well as removal of unnecessary documents: Trade Single Window, Electronic Cargo Clearance Platforms, Intermodal Transhipment Facilitation Scheme, etc The number of days necessary to complete trade procedures is strongly correlated with the number of documents needed In Hong Kong, about - documents are required by government authorities for traders to meet regulatory requirements for imports and exports The same pattern can be seen while documents for export are being prepared Generally, the average time spent for customs clearance and technical control is about four times less than the time necessary for document preparation Harmonization: As an active member of many international organizations such as United Nations, Asia-Pacific Economic Cooperation, World Trade Organization,etc Hong Kong has aligned their national procedures, operation and documents with international conventions, standards and practices In practices, Hong Kong Customs allows the importer to declare the value on the basis of the invoice value which mirrors the WTO Agreements Hong Kong maintains a Hong Kong Imports and Exports Classification List (Harmonized System) and it is amended annually to take into account the international requirements and significant changes in trade patterns and technology Trade Single Window is a notable example that Hong Kong has successfully implemented The establishment of this trade facilitation program is championed by the United Nations, World Customs Organization, World Trade Organization and the AsiaPacific Economic Cooperation The document Recommendation and Guidelines on Establishing a Single Window (UN/ CEFACT Recommendation 33) presents and discusses: - Different technological and organizational models of a Single Window, Benefits to both traders and public administration, Possible services of a Single Window 20 Standardization: In many trade facilitation programs that related to trade procedures and documents in Hong Kong, the standardization of the information contained in the data flows was considered an important step in the overall development An outstanding example is the eTradeConnect, a blockchain-based trade finance platform that enables digitizing trade documents and automating trade finance processes The system will digitize paper documents and automate processes for stakeholders involved in the trade process Government involvement at the start of the platform should help establish uniform rules and standards All relevant regulatory requirements will be clearly explained through a single centralized database to avoid any misunderstanding or misconception of both sides In addition, with information required for the processing of trade documents standardized, data can be reused more conveniently, thus minimizing data input effort 3.2 Impacts on trading partners 3.2.1 - To Traders Lower costs and reduced delays: With the aid of new technology, documents can be saved and proceeded online in a centralized platform, which saves a lot of additional costs such as printing, transporting among different departments, fixing errors in paper documents… In addition, the time delay is shortened significantly as the traditional procedures was replaced by the modernized one without time lag - Faster customs clearance and release through predictable official intervention: As everything is standardized and harmonized, the traders can prepare all necessary documents beforehand, which later can reduce the time for customs procedures In particular, time to export reduced from 13 days to days from 2006 to 2013, while time for import dropped from 17 days to days in the same period Hong Kong is currently among the top countries that offer shortest time for custom procedures This days already includes: 21 o Documents preparation; o Customs clearance and technical control; o Ports and terminal handling; o and Inland transportation and handling - Simpler commercial framework for doing both domestic and international trade: The simplification in trade procedures and documents of Hong Kong not only boosts the domestic commerce but also to align with international framework The traders will not worry about any conflict between national and foreign trade regulation anymore - Enhanced competitiveness: Inefficient trade-related procedures and processes can delay the delivery of products to overseas markets Such inefficiencies can affect the ability of manufacturers and exporters to meet the “just-in-time” needs of their overseas customers For that reason, the modernization of the procedures to put them into online platform can help indirectly enhance the competitiveness of traders from and to Hong Kong 3.2.2 ● To Hong Kong Increased effectiveness of control methods: With the automatic data storage and system update, the government authorities can easily check and review the necessary information online In addition, paperless documents also help the control of the process more smoothly and effectively The data, once being saved online, can be reused anytime in the future ● More efficient deployment of resources: The simplification as well as modernization of procedures and documents in Hong Kong can save manual work Less staff needed for a position, hence the deployment of resources will be more efficient When the Trade 22 Single Window is launched in Hong Kong, its has an estimated saving of $860 million to $1,500 million per annum in administrative costs ● Correct revenue yields: Corruption was popular in traditional administrative procedures This was not only a degradation in the professional ethics of officer, but also causing the loss of people's property and create a bad image of the government activity However, when everything is submitted and processed online, there will be no room for corruption, and revenue for the country can be yielded correctly ● Improved trader compliance: The trader will be encouraged to follow the rules and regulations if those rules are simplified, standardized and harmonized so that they will not causing any problems or mistakes during the process ● Encouragement of foreign investment: Foreign direct investors will pay attention to a country’s ease and cost effectiveness of importing and exporting goods and services before making an investment decision According to the 2019 World Investment Report released by UNCTAD, Hong Kong received USD 115 billion in FDI in 2018, 4% more than in 2017, stays the 3rd largest flow recipient One of the most important reasons for this development in FDI is the facilitation methods that Hong Kong government has done to improve trade procedures and documents 23 CHAPTER 4: RECOMMENDATION FOR VIETNAM Vietnam has undertaken a range of initiatives to facilitate trade The reform process has been driven by the government and not from outside donors The policy changes have been secured at a strategic level through international commitments The WTO accession with its obligations has accelerated the reforms, in particular the modifications of laws Moreover, the reforms have been supported by several donors such as the World Bank, the EU and the US Even though the Vietnamese government has strongly promoted trade facilitation, there are a number of severe problems that constrain the trade development, and the success in trade facilitation implementation in Hong Kong would set a great example for Vietnam to follow 4.1 Single Window Implementation Vietnam has been to promote one stop inspections by launching National Single Window (NSW) since November 2014 with the involvement of nine ministries, including the Customs Administration under the Ministry of Finance The NSW has successfully launched the testing system to receive messages of cargo, passenger and connecting the NSW system with Airlines systems As a successful practice in Single Window implementation by using Digital Trade and Transportation Network (DTTN), the lesson Vietnam NSW can learnt is expressed through the following critical success factors: a Commitment at the Highest Level To develop and implement the NSW system successfully, the government must ensure the commitment at the highest level for change, for computerization and to facilitate trade b Establishment Committees to take care of specific tasks 24 The Steering committee will consider policy issues and set the direction for the sub-committees to work out the procedures and implement the system This will ensure private sector support for and use of the new system when it is developed The steering committee should set up a series of sub-committees comprising of representatives from both the public and private sectors to look into following tasks: - Simplification of Documentation and Procedures - Development of a Community System - Data Administration c Choose Technical Service Providers carefully To provide for competition, the government may select a number of service providers to develop software to run the system The software developers shall sell their software and services to the business community based on their marketing and merit They shall also provide the training and technical support to their customers to operate the system efficiently d Clear-cut phased Implementation To ensure success, the government should consider a phased implementation of the NSW system Strong cooperation between all institutions and parties involved in implementing an integrated system of limited scale or scope, followed by a full scale or scope implementation e Establishment of Document Service Centres The setting up of document service centres is critical to the acceptance and success of the new system There may be a large number of SMEs that not have the daily volume to justify buying a computer system to prepare and submit their trade and 25 Customs documents For such enterprises, the government should encourage the use of document service centres 4.2 Overall recommendation The customs administration in Vietnam is still slow, unpredictable and exposed to corruption It focuses on control of all shipments instead of a system that facilitates trade and promotes private sector development Companies are still struggling with complicated administrative procedures, corrupt behaviour by customs officials as well as lengthy processes to complete import and export procedures There is an urgent need for a programme to reform, standardize, harmonize and simplify administrative procedures in terms of import and export, in accordance with international standards, towards implementing the Trade Facilitation Agreement (TFA) of the World Trade Organisation In 2019, United States Agency for International Development (USAID) has funded a five-year trade facilitation programme worth over 21.7 million USD to assist Vietnam in reducing the time and cost to trade The program will work with the General Department of Vietnam Customs (GDVC), under the Ministry of Finance, to strengthen the role and capacity of Vietnam's National Trade Facilitation Committee (NTFC) and their associated working groups to improve the efficiency of specialized inspections and customs-to-business partnerships It will also support the standardization of policies and procedures for export and import, strengthen national and provincial coordination, and build the capacity of provincial customs officers Further, clear rules are necessary to facilitate the flow of goods, and further education and involvement of customs officials in the reform process could limit corrupt behaviour The customs administration also needs to reorganise its work, from control of almost all shipments to a system that facilitates trade Lack of implementation and inconsistent application of laws put constraints on companies 26 Furthermore, the creation of a simpler import process would be highly appreciated by the companies and will result in more integration into international supply chains Finally, the poor transportation infrastructure in Vietnam is negatively influencing companies To make use of an efficient customs service it has to be complemented with a system of transport infrastructure and regulation The transport network in Vietnam needs to be upgraded; increasingly congested ports have negative impact on Vietnams’ further integration into the world economy The availability of a well-functioning supporting infrastructure, for example transportation network and communication facilities, is important for companies to be able to increase their exports 27 CONCLUSION It is important to understand the manner in which Hong Kong has maintained the consistency of free market policy in its economy The country’s goal of free trade influences all entities related to Customs, transportation, logistics, and infrastructure As the case of Hong Kong clearly illustrates, governmental willingness is the most influential factor in expediting each trade facilitation provision In order for Vietnam to maximize the benefits it reaps from trade facilitation efforts, it was found that Vietnam should focus on simplifying and reforming its administrative procedures and improving their efficiency with the foundation of improved infrastructure Using Hong Kong’s dedication to immediate implementation of all provisions of the WTO TFA as a prime example, Vietnam needs to bridge the gap between policy and actual practice in all governmental organizations in terms of trade facilitation By improving its implementation of trade facilitation measures and increasing trade capacity, Vietnam will have the fullest potential of growth and strength in the global market 28 REFERENCES Anh Minh (2019) US launches program to help Vietnam improve trade facilitation [online] HaNoi Times Available at: http://hanoitimes.vn/uslaunches-program-to-help-vietnam-improve-trade-facilitation-46550.html [Accessed Dec 2019] Fung, D (2019) Economic and Trade Information on Hong Kong [online] Hong Kong Economy Research Available at: 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Evaluating basing on principles Based on the three principles of trade facilitation, the Trade procedures and documents in Hong Kong will be evaluated as follows: Figure 3.1 Principles in Trade Facilitation. .. 4.1 Single Window Implementation Vietnam has been to promote one stop inspections by launching National Single Window (NSW) since November 2014 with the involvement of nine ministries, including... models of a Single Window, Benefits to both traders and public administration, Possible services of a Single Window 20 Standardization: In many trade facilitation programs that related to trade procedures