UNITED KINGDOM

• As the UK is a member of the European Union (EU), its trade relations with Hong Kong/the Chinese mainland are affected by EU's common external trade policy and measures.
• As a result of the EU-China agreement reached in June 2005, the EU imposes safeguard quotas on 10 categories of Chinese textile products for the period of 2005-2007, with a provision for a smooth transition to full liberalisation of the textile trade during 2008.
• The EUs new scheme on generalised system of preferences ("GSP") will enter into effect on 1 January 2009, and remain in force until 31 December 2011. While the Chinese mainland remains a beneficiary, certain products, including toys, textiles and textile articles, footwear, furniture, jewellery, electrical equipment and watches and clocks, will be excluded from preferential treatment.
• A number of Chinese mainland-origin products are subject to EU's anti-dumping duties, including certain leather footwear, which is of interest to Hong Kong exporters.
• Hong Kong's total exports to the UK increased by 3% to US$7.1 billion in the first nine months of 2008, while its imports from the UK soared by 33% to US$3.7 billion.
• The total stock of UK's direct investment in Hong Kong amounted to HK$105.6 billion as at the end of 2006.
• The UK's economy is estimated to grow by 1% in 2008, but is forecast to contract by 1% next year. Under the twin bite of the credit crunch and a worsening property market, consumer and business spending will continue to slacken, while exports are also expected to perform less well, amid a feeble demand from overseas markets.

Current Economic Situation

The UK's economic performance has deteriorated severely as the financial crisis spread and property prices plummeted, with GDP decreasing by 0.5% in the third quarter of 2008, after levelling off in the second quarter. Sliding business and consumer sentiment, rising unemployment and declining service industries are pointing the UK to an economic recession. Although the rescue package has helped remove a collapse in UK's banking sector, banks will face further hits ahead as the economic recession raises the risk of defaults. The sustained credit squeeze not only exerts a dampening effect on consumption but also business investment, which in turn further dampens the employment market and consumer confidence. Externally, despite a weaker sterling, exports have moderated, as external demand stays uninspiring, while falling consumption curbs UK's import bill. Against this background, the growth of the British economy is expected to slow to 1% for 2008 as a whole.

Looking ahead into 2009, the prospects of the British economy seem to be less promising. Under the twin bite of the credit crunch and a worsening property market, consumer and business spending will continue to slacken, while exports are also expected to perform less well, amid a feeble demand from overseas markets. All in all, the UK economy is forecast to deteriorate further in 2009, with GDP contracting by 1%.

Trade Policy

As a member of the EU, the UK follows EU's common external trade policy and measures.

Textiles and Clothing

Hong Kong's textiles and clothing exports to the EU were previously subject to the World Trade Organisation (WTO) Agreement on Textiles and Clothing (ATC), under which quantitative restrictions on textiles and clothing were eliminated completely on 1 January 2005.

Likewise, the previous quotas imposed by the EU on textiles and clothing products originating from the Chinese mainland were removed on 1 January 2005. However, as a result of the EU-China agreement reached in June 2005, the EU imposes safeguard quotas on 10 categories of Chinese textile products for the period of 2005-2007. Upon the expiry of the quotas by the end of 2007, a joint system with China has been established to monitor EU imports of Chinese textiles and apparel. This system, which will operate for one year, covers 8 out of the 10 previously restricted categories.

Non-textile Manufacturing Products

Previously, the EU also imposed Union-wide quotas on three categories of non-textile products originating from the Chinese mainland, including certain footwear, porcelain and ceramic tableware/kitchenware. But these quotas were liberalised on 1 January 2005.

Scheme of Generalised Tariff Preferences

The EU's new scheme on generalised system of preferences ("GSP") will enter into effect on 1 January 2009, and remain in force until 31 December 2011. The scheme classifies products into two categories, namely sensitive products that enjoy the benefits of reduced tariff rates by 3.5 percentage points, and non-sensitive products that enjoy total tariff suspension. Under the new GSP scheme, the Chinese mainland remains a beneficiary. But certain products, including toys, textiles and textile articles, footwear, furniture, jewellery, electrical equipment and watches and clocks, will be excluded from preferential treatment. Regarding Hong Kong, the territory has been fully excluded from the EU's GSP scheme since 1 May 1998.

Anti-dumping Measures

The EU has initiated anti-dumping proceedings against certain mainland-origin products. Currently, there are a number of mainland-origin items subject to EU's anti-dumping measures, including certain leather footwear (definitive duty at 16.5%), which is among the affected products of interest to Hong Kong.

Other Measures

To combat the spread of the Asian longhorn beetle, the EU introduced in July 1999 emergency controls on wooden packaging material originating in the Chinese mainland. Wood covered by the measures must be stripped of its bark and free of insect bore holes greater than 3mm across, or have been kiln-dried to below 20% moisture content.

For health reasons, the EU has adopted a Directive on the control of the use of nickel in objects intended to be in contact with the skin, such as watches and jewellery. Following the emergency ban adopted in December 1999, the EU has adopted a Directive to ban the use of some phthalates in certain PVC toys and childcare articles on a permanent basis, which will come into effect from 16 January 2007. In addition, the EU has adopted a Directive to prohibit from September 2003 the trading of clothing, footwear and other textile and leather articles which contain azo-dyes, from which aromatic amines may be derived.

On the other hand, the EU has adopted a number of Directives for environmental protection, which may have an impact on the sales of a wide range of consumer goods and consumer electronics. Notable examples include the Directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the Directive on Restriction of Hazardous Substances (RoHS) implemented in July 2006.

On the heels of the WEEE Directive and RoHS Directive, the EU's new Directive on the eco-design of Energy-using Products (EuP) is now in place. This EuP Directive does not directly introduce binding requirements for specific products, but does define conditions and criteria for setting via subsequent measures.

Moreover, REACH, a EU Regulation, which stands for Registration, Evaluation, Authorisation and Restriction of Chemicals, entered into force in June 2007. Among others, it requires EU manufacturers and importers of chemical substances (whether on their own, in preparations or in certain articles) to gather comprehensive information on properties of their substances produced or imported in volumes of 1 tonne or more per year, and to register such substances prior to manufacturing in or import into the EU.

Hong Kong's Trade with the UK ^

The UK is Hong Kong's 5th largest export market. Hong Kong's total exports to the UK increased by 3% to US$7.1 billion in the first nine months of 2008, after growing by 2% to US$9.6 billion in 2007. Major export items included articles of apparel, of textile fabrics (16% of total), telecommunications equipment & parts (12%), women's or girl's wear of textile fabrics, not knitted (8%), toys, games & sporting goods (8%), jewellery (4%) and printed matter (4%).

On the other hand, Hong Kong's imports from the UK soared by 33% to US$3.7 billion in the first nine months of 2008, after decreasing by 4% to US$3.9 billion in 2007. Major import items included engines & motors, non-electric, & parts (24% of total), telecommunications equipment & parts (9%), passenger motor cars (6%), plastic waste, parings and scrap (4%), pearls, precious & semi-precious stones (4%), and semiconductors, electronic valves & tubes (3%).