Hong Kong and ASEAN Signed A Free Trade Agreement

If you haven’t heard, Hong Kong and the Association of Southeast Asia Nations (ASEAN) signed a Free Trade Agreement (FTA) and its related Investment Agreement on November 12, 2017.

Ten ASEAN countries involved in this agreement, along with Hong Kong, aimed to boost the market access for Hong Kong’s goods and services, as well as to protect, promote, and facilitate the country’s investments.

Trading and Investment Allies: Hong Kong and ASEAN

Hong Kong is considered one of the world’s most open and liberal economy region.

In 2016, Hong Kong was the second largest partner of ASEAN in trading of merchandise, with a total merchandise trade amounted to HK$833 billion (US$106 billion).

In 2015, the country was also the trading partner of ASEAN in services, this time with a total services trade of HK$121 billion (US$15.4 billion). That is not it.

ASEAN was also ranked sixth for both Hong Kong’s destinations of outward direct investment and sources of inward direct investments—with stock values of HK$218 billion (US$27.8 billion) and HK$555 billion (US$70.77 billion) respectively.

Among the individual member states, ASEAN countries that have the strongest trade links with Hong Kong are Singapore, Thailand, and Vietnam. The respective total merchandise trade between Hong Kong and these three countries are 38.8%, 15.7%, and 15.2%.

Effective Date of the Agreement

The agreement was signed in Pasay City, the Philippines, where Mr. Edward Yau, the Secretary for Commerce and Economic Development, and the Economic Ministers of the ASEAN member states, expressed hopes of spurring development in the region.

It will take effect on January 1, 2019, and this is the sixth free trade agreement of ASEAN with other countries, following South Korea, Japan, China, Australia-New Zealand, and India.

Scope of the Agreement

The scope of the agreement is comprehensive, covering trade in goods and services, investments, dispute settlement mechanism, technical cooperation and other related areas. With this agreement, it will bring legal certainty, greater market access, lawful and fair treatment in trades and investments—thus creating substantial business opportunities, especially for small and medium enterprises, in Hong Kong and ASEAN.

In the agreement, Hong Kong has committed to assigning HK$25 million (US$3.2 million) to initiate a plan of economic collaboration in five stages, encompassing logistics, e-commerce, customs, and professional services.

How Hong Kong can Benefit

Although Hong Kong is famous for its free economy, the customs duties set out by ASEAN countries on Hong Kong’s trade put this country at a huge disadvantage.

However, this recently signed agreement is going to change the trading climate in the region to a vast extent. The following are some of the advantages for Hong Kong that come with this agreement:

Tax reduction for trade in goods

Goods originating from Hong Kong will have a reduced tariff or be exempted from it.

Reduced restrictions on trade in services

ASEAN countries will increase the cap on foreign ownership as service providers to more than 50%, across many sectors of individual ASEAN markets.

More lenient regulations on entry and stay in ASEAN countries

Entry business persons from Hong Kong in these member states are made easy, and they are permitted to stay up to 90 days.

Investment protection

Hong Kong investments will be protected with fair treatment against many non-commercial risks.

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