As US President Donald Trump continues his rampage against globalisation, trade between Hong Kong and the 10-member Association of Southeast Asian Nations (ASEAN) got a boost earlier this week with the implementation of the ASEAN-Hong Kong Free Trade Agreement (AHKFTA).
Although in the works well before Trump began his anti-trade tirade, the agreement will go some small way in countering the fallout from the escalating US-China trade war. ASEAN was Hong Kong’s second largest trading partner in 2018 after China and all ASEAN exports enter Hong Kong at zero tariff.
Five years in the making, the AHKFTA kicked off on 11 June with reductions and eliminations of customs duties in Lao PDR, Myanmar, Singapore, Thailand and Vietnam for Hong Kong imports. Bilateral investment agreements with the five countries will come into effect on Monday as part of the ASEAN-Hong Kong Investment Agreement (AHKIA).
Similar FTAs and investment agreements with the remaining five ASEAN member states – Brunei, Cambodia, Indonesia, the Philippines and Malaysia – will be announced at a later date as the countries are still ratifying the agreements.
The Agreements, encompass trade in goods, trade in services, investment, economic and technical co-operation, dispute settlement mechanism and other related areas.
As Hong Kong has very few locally made products, the impact of trade in goods commitments may not be significant. But as the Hong Kong Trade Development Council (HKTDC) notes, Hong Kong exporters will still be able to benefit from the reduction of trade restrictiveness and will further support growth in bilateral trade and investment flows, which have seen significant growth in the past years.
According to the latest available data, Hong Kong was the fourth largest source of foreign direct investment (FDI) in ASEAN, trailing Singapore, US and Japan. FDI from Hong Kong amounted to USD 9.9 billion in 2016, or 10 per cent of the total FDI in ASEAN, an increase of 218 per cent compared with 2011.
In recent years, Hong Kong’s FDI in ASEAN have been concentrated in sectors spanning finance, electricity, manufacturing and real estate, according to the Hong Kong Trade Development Council.
Speaking to Hong Kong media earlier this week, the region’s Secretary for Commerce and Economic Development, Edward Yau Tang-wah, said that the AHKFTA will help Hong Kong expand into new markets and provide an alternative for companies that depend on traditional markets such as the US and European Union.
As far as tariff reductions go, Singapore will eliminate all its customs duties as part of the AHKFTA while Thailand and Vietnam have each promised to eliminate customs duties on about 85 per cent and 75 per cent of their tariff lines within 10 years.
Lao PDR and Myanmar will eliminate customs duties of about 65 per cent of their tariff lines within 15 years – with Lao PDR, Myanmar, Thailand and Vietnam committing to further reductions in customs duties over the next 14-20 years.
Meanwhile, the US-China trade war continues to intensify with the latest development seeing the US President threatening to enforce 25 per cent tariffs on US$300 billion worth of Chinese goods after he meets his Chinese counterpart, President Xi Jinping, at the G20 Summit in at the end of this month.
As it is, the US has already set levies on US$250 billion worth of Chinese products while China has set tariffs on US$110 worth of US goods – forcing companies to scramble to look for alternative suppliers to avoid paying onerous duties.
Hong Kong is feeling the pressure from the US-China trade war, particularly given its preeminent roles as a key gateway to and from China.
Hong Kong is also an important entrepôt for trade between China and ASEAN, with some USD 33 billion of Chinese imports of ASEAN’s goods were rerouted through Hong Kong 2017 – with ASEAN imports heading to China via Hong Kong exceeding USD 25.61 billion in 2017.
ASEAN was the second largest market for Hong Kong’s goods after China in 2017, and total bilateral trade between Hong Kong and ASEAN stood at USD 119 billion during the year according to Hong Kong’s Trade and Industry Department – the figure representing 11.4 per cent of Hong Kong’s global merchandise trade for the year.
Exports from ASEAN made up USD 83 billion of that sum, with imports totalling USD 1.0 billion and re-exports accounting for USD 35 billion.
Hong Kong’s major domestic exports to ASEAN in 2017 were tobacco and tobacco products, metalliferous ores, metal scrap, jewellery and other articles of precious or semi-precious materials while Hong Kong’s major imports from ASEAN included electrical machinery and parts, office machines and telecommunications equipment.