[Extensions of Remarks]
[Pages E89-E93]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

SEVENTH REPORT OF THE SPEAKER'S TASK FORCE ON THE HONG KONG TRANSITION

______

HON. DOUG BEREUTER

of nebraska

in the house of representatives

Tuesday, February 8, 2000

Mr. BEREUTER. Mr. Speaker, I rise today to submit the Sixth Report of
the Speaker's Task Force on the Hong Kong Transition. It has been
approximately two and half years since Hong Kong reverted to Chinese
sovereignty on July 1, 1997. Prior to that historic event, at the
request of Speaker Gingrich, this Member formed the House Task Force on
Hong Kong's Transition. In addition to myself as Chairman, the
bipartisan Task Force includes Representatives Howard Berman, Sherrod
Brown, Eni Faleomavaega, Alcee Hastings, Don Manzullo, and Matt Salmon.
To date, the Task Force has prepared six reports assessing how the
revision has affected Kong Kong. The seventh report, which I submit
today, covers the period of March 31, 1999, through December 31, 1999.
Mr. Speaker, I submit the following Task Force report to be printed in
full in the Congressional Record.

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Seventh Report--February 7, 2000

Presented by the Honorable Doug Bereuter, Chairman

This is the seventh report of the Task Force on the Hong
Kong Transition. It follows the first report dated October 1,
1997, the second report dated February 25, 1998, the third
report dated May 22, 1998, the fourth report dated July 23,
1998, the fifth report dated February 2, 1999, and the sixth
report dated May 27, 1999. This report focuses on events and
development relevant to United States interests in the Hong
Kong Special Administrative Region (HKSAR) between May 27,
1999, and December 31, 1999.
It has been over two years since Hong Kong reverted to
Chinese sovereignty on July 1, 1997. It remains a vibrant
economy that the Heritage Foundation and the Cato Institute
recently ranked as the freest in the world. During the past
six months, Hong Kong's economy showed signs of recovering
from the recession induced by the Asian regional financial
crisis, although economic indicators were mixed. China's
World Trade Organization (WTO) agreement with the U.S., and
agreement to build a major Disney theme park in Hong Kong
contributed to the mood of economic optimism and business
confidence. Hong Kong continued to operate independently in
economic decision-making and to voice its own views in
international fora, including the WTO and APEC.
In the six months covered by this report, concerns have
grown about the long term prospects for the independence of
Hong Kong's judiciary. These concerns were prompted by the
decision of the National People's Congress, (NPC) at the
request of the Hong Kong Government, to reinterpret the Basic
Law and reverse the Court of Final Appeal's (CFA) ``right of
abode'' decision for mainland Chinese. The NPC's
interpretation and the CFA's acknowledgement of the NPC's
authority over the matter drew considerable domestic and
international criticism, including that of the UN Human
Rights Committee (UNHRC). On November 5, the UNHRC released a
report critical of Hong Kong's post-transition record in a
number of human rights related areas. (In addition to the
question of judicial independence, the report expressed
concern about the abolition of municipal councils, phone
monitoring and freedom of association.) A recommendation by
the Hong Kong Law Reform Commission to establish an
independent ``privacy commission'' to monitor media excesses
also created concern because of the implications for media
freedoms. The Government initially remained neutral, but in
October the Chief Executive expressed the hope that the press
could regulate itself.
On May 21, 1999, following the mistaken bombing of the
Chinese Embassy in Belgrade, the PRC halted U.S. naval and
air visits to Hong Kong. At least seven military aircraft and
ten warships were denied permission to visit. After a two
month ban, the Chinese Government began granting permission
for plane visits on July 29, 1999, and a U.S. Navy destroyer
was permitted to visit in October. Since then, other visits
have taken place and a carrier task force and nuclear
submarine were granted permission to visit in February.
The reversion of Macau to Chinese administrative control on
December 20, 1999, went smoothly. Like Hong Kong, Macau will
become a Special Administrative Region within a ``One
Country, Two Systems'' formula under which the legislature
elected under colonial rule will remain in place. However
Macau faces a number of daunting economic and political
challenges. Macau's civil service is inexperienced compared
to Hong Kong. The judicial system is also poorly developed
and there are few trained or experienced judges. The economy
is heavily reliant on gambling and tourist related
industries. Crime, corruption and violence are serious
problems that have begun to affect the tourist/gaming
industry. For a variety of reasons, Macau's evolution under
the One Country, Two Systems model is likely to differ
considerably from Hong Kong's.

Economic Developments

Developments on the economic front in the past six months
have been positive. A survey by the Heritage Foundation and
the Wall Street Journal once again ranked Hong Kong as the
world's freest economy. In January 2000, the Cato Institute
came to a similar conclusion in its report. Hong Kong's
economy showed signs of recovering from the recession induced
by the Asian regional financial crisis, although economic
indicators were mixed. After four consecutive quarters of
negative economic growth, the recession in Hong Kong appears
to have bottomed out, with positive growth of 0.7% projected
for the second quarter. In September, The IMF forecast that
Hong Kong would have GDP growth of 1.2% this year and 3.6%
next year. The Government projected budget deficit for the
1999-2000 fiscal year that began April 1 was estimated at HK
$32 billion (US $4.1 billion), although overall foreign
exchange reserves remained high at over US $90 billion.
However, unemployment remained at historically high levels.
The figure for the August-October quarter was 6.2%, up from
6.1% the previous quarter. Underemployment remained steady at
3.1%. Weak demand and falling asset values brought about
continued significant deflation, with consumer prices falling
6.0% in September over a year earlier. Investment spending
remained sluggish. Exports, tourism and retail sales were up
in recent months. The stock market has more than doubled
since the government decided to intervene in August 1998,
although concern remains about Government intervention in the
economy.
Export performance improved considerably in recent months.
However, for the first ten months of 1999, the volume of re-
exports was down 0.7% and the volume of domestic exports was
down 12.2%. Imports for the first ten months of the year also
declined by 5.6%. The trend towards increased reliance on re-
exports and offshore trade makes the economy susceptible to
external factors beyond Hong Kong's control. The Government
sought to address this problem in part through its ambitious
``Cyberport'' project aimed at attracting world class
information technology companies. While this initiative was
widely welcomed, questions were raised by the
Tourism was another sector with mixed indicators. The Hong
Kong Tourist Association projected in August that total
arrivals would exceed 10 million, an increase of over 6% from
1998. However, although arrivals did increase 13% in the
first quarter, spending was actually down by 0.8%. This
reflected the changing nature of tourism in Hong Kong, with
lower spending arrivals from the mainland making up an
increasingly large percentage of total visitors.
Overall, Hong Kong's Government's massive intervention in
the currency and stock markets in August 1998 appears to have
been a success despite earlier concerns. The market rose to
over 15,000 in November 1999, compared to 6,660 in March 1998
before the intervention. Trading volume has also risen
sharply. The equities purchased by the Government have
increased greatly in value and the Government's unprecedented
ownership of significant amounts of equities, both in Hong
Kong-based companies and in PRC-related ``Red Chips'' has
raised questions about the potential to affect official
decision-making in ways contrary to Hong Kong's traditions of
free markets and transparency. To allay these fears,
authorities have placed the equities in the hands of an
independent appointed board and in November began the first
steps to liquidate its holdings by selling approximately 20%
to the public through an indexed tracking fund (``The Tracker
Fund'').
Positive developments included the U.S.-China agreement on
China's accession to the WTO. Most analysts believe that WTO
membership for China should be an economic boon for Hong
Kong, both in the short and long term. China's accession to
the WTO is expected to benefit Hong Kong's business by
allowing it to capture its portion of China's expanding trade
and investment. However, Hong Kong is also likely to face
increased competition from the mainland in several fields and
will have to find new ways to keep serving as a bridge
between China and its global partners. Another plus was the
HKSAR's agreement with the Disney Corp. to build a major
theme park. Although some questioned the terms of the deal
and the fact that most of the investment would come from the
Hong Kong Government, most observers felt that the
development would provide a positive economic stimulus,
particularly for the tourism sector.

Political Developments

Under the Basic Law that serves as Hong Kong's
Constitution, directly elected representatives to the
Legislative Council (Legco) from geographic constituencies
make up only 20 of the 60 members. That number will increase
to 24 in the year 2000 and 30 in 2004. The Basic Law allows
for (but does not mandate) the remaining 30 functional seats
to be converted to directly elected positions. It would also
permit the direct election of the Chief Executive in 2008.
Some elected members of Legco, as well as other political
activists, have been lobbying for some time for a faster
transition to a more democratic system. On January 3, 2000,
the three major political parties in Hong Kong, joined to
urge full democracy by 2008, arguing that the present system
is ``unsustainable.'' However, in his 1999 policy address in
October, Chief Executive Tung Chee-hwa said he would restrict
democratic development to that laid down by the Basic Law. He
was quoted as saying, ``We must allow time for further study
and for the present political system to mature.''
The current political system in Hong Kong is heavily
weighted towards concentrating

[[Page E91]]

The Government's decision to eliminate elected municipal
councils by the end of the year brought widespread criticism.
The UNCHR said that abolishing the councils, which are
largely elected, would diminish the opportunity for the
public to take part in public affairs. The report urged the
government to ``take all necessary measures to maintain and
strengthen democratic representation of SAR residents in
public affairs.'' In addition, Chief Executive Tung's
decision to appoint additional members to the 18 local level
councils was seen by some as undemocratic and regressive. The
Democratic Party and the pro-Beijing Democratic Alliance for
the Betterment of Hong Kong (DAB) were the biggest winners
with 86 and 83 seats respectively. The DAB's showing, in
particular, was markedly better than in the last District
Council elections.

Judicial Independence--right of Abode Decision Creates Concern

A fair and independent judicial system is a critical
element of international confidence in Hong Kong. However,
two incidents involving the ``Right of Abode'' judgment
raised concerns about whether the independence and authority
of Hong Kong's judiciary would be maintained. The Hong Kong
Government's request for a clarification of sections of the
judgment referring to the court's right of judicial review,
and the Hong Kong Government's request for interpretation by
the National People's Congress of the section of the Basic
Law affecting the ruling.
In January, the Court of Final Appeal issued rulings in
three cases, known collectively as the ``Right of Abode''
ruling. The ruling declared some Hong Kong immigration
regulations (discriminating against children born out of
wedlock) inconsistent with the International Covenant on
Civil and Political Rights subsumed in the Basic Law and
confirmed that all children of Hong Kong residents had right
of abode in Hong Kong. The ruling also asserted the Court's
right of judicial review over not only the Basic Law, but
also over acts of the National People's Congress as they
affected Hong Kong.
In February, in response to criticism from Chinese
officials, the Hong Kong Government requested an
unprecedented ``clarification'' of the ruling. The Court
responded with a statement stressing that it did not question
the power of China's NPC to interpret the Basic Law, but
reserved
In May, after releasing reports suggesting that the ruling
would result in an influx of 1.6 million new immigrants, the
Hong Kong Government asked the Standing Committee of the NPC
to interpret two sections of the Basic Law relevant to the
Right of Abode ruling. Hundreds of Hong Kong lawyers who
viewed the request as a post-judicial remedy which undermined
the authority and independence of Hong Kong's judiciary
marched in protest. Although the NPC interpretation issued in
June, did not affect the original litigants in the case, it
overturned the prescriptive effect of the CFA judgment and
reduced the number of people eligible for right of abode in
Hong Kong to 160,000. The UN Human Rights Committee expressed
concern that the interpretation could undermine the
independence of the Hong Kong courts and interfere with the
right to a fair trial. Legal scholars and activists said the
interpretation raised the question of ``how final is the
Court of Final Appeal?''
In a judgment on a separate appeal in December, the CFA
upheld the NPC interpretation saying it was ``valid and
binding'' on courts in Hong Kong. The decision provoked
street clashes between protestors and police and caused a
widespread outcry from opposition legislators academics and
newspaper editorials. Legco legal sector representative,
Margaret Ng, for example, said that the ruling means the NPC
Standing Committee can interpret any part of the Basic Law at
any time, and the interpretation has a binding effect on the
Hong Kong courts. The South China Morning Post in a December
4, 1999, editorial said, ``it has now become clear that the
Basic Law means only what the NPC Standing Committee wants it
to mean, even if the SAR judges disagree.
Another case that generated concern among some was the
CFA's December 15 decision that desecration of the national
and regional flags was indeed a criminal offense. While this
is the case in many countries, including Germany and Italy,
some critics viewed the decision as inconsistent with the
guarantee of freedom of expression and motivated by political
considerations.

Freedom of Expression and Individual Liberties

The people of Hong Kong continued to enjoy a tradition of
free speech and free press. Political debate is dynamic and
raucous. Thousands of demonstrations or petitions have been
filed or held since the reversion. A wide and diverse range
of opinions, including those critical of the Hong Kong and
PRC Governments, are routinely aired in the mass media and
public fora. Government owned, but independently operated,
Radio and Television Hong Kong (RTHK) is among the media that
has been routinely critical of the government. In August,
RTHK was criticized by a member of the NPC Standing Committee
for airing the views of Taiwan's unofficial representative in
Hong Kong to discuss Taiwan President Lee's ``state to
state'' theory of China-Taiwan relations. The NPC member
urged RTHK to exercise self-censorship on this issue and not
provide a channel for ``splittist views.'' The subsequent
reassignment of the widely respected, long time director of
broadcasting for RTHK, Cheung man-yee, in October was seen by
some as Government retribution for RTHK's independent
editorial policy. Democratic Party Chairman Martin Lee
labeled the ``exile'' of Cheung as a Government effort to
control the press. Cheung however, expressed continued
confidence in the editorial integrity and independence of
RHTK under her deputy and successor.
On August 20, 1999, a subcommittee of Hong Kong's Law
Commission issued a recommendation that proposed establishing
an independent ``privacy commission'' to deal with complaints
about media excesses. The commission would be empowered to
hear complaints about unwarranted or offensive media
intrusions into peoples' personal lives (acknowledged even by
the media to be a serious problem), to make decisions about
the merits of those complaints, and to award compensation to
complainants. The media and public, given until November 30,
1999, to comment on the proposal, gave the subcommittee an
earful. Ms. Margaret Ng, a Legco representative of the law
profession voiced the concern of many calling the proposed
privacy commission a measure to control the press, not
protect privacy. A Freedom Forum representative described the
proposal as ``dangerous to press freedom.'' The U.S. consul
general in Hong Kong also expressed concern about the
proposal in a widely quoted speech. Thus far, the Government
has not taken a position on the proposal and for the time
being at least, Hong Kong media remains vibrant, critical and
sometimes intrusive into the private lives of individuals.
Another area of concern has been the prosecution in China
of Hong Kong residents for crimes committed elsewhere. The
conviction and execution in China of two persons, one a Hong
Kong resident and the other a PRC national, who was wanted
for committing crimes in Hong Kong in December 1998, first
brought the issue to public attention. Most recently, the
arrest and rendition of a Hong Kong resident from Thailand to
China has created fears that Hong Kong residents can be
apprehended by PRC authorities while overseas.
The denial of visas for Hong Kong residents to visit China
and for Chinese dissidents to visit Hong Kong was another
issue of concern. In March 1999, a number of well known
exiled Chinese dissidents were denied Hong Kong visas to
attend an NGO organized conference on the future of democracy
in China, although several of the dissidents had visited Hong
Kong prior to reversion. In August, the Government refused a
visa to Chang King-yuk, a former senior Taiwan official, who
wished to attend an academic conference on unification at
Hong Kong University. However, a number of prominent Chinese
dissidents including Labor Rights activists Han Kongfang and
Information Center for Human Rights and Democracy Movements
in China Director Lu Siqing continue to operate freely in
Hong Kong.
In September, Legco legal representative Margaret Ng, who
led public protest against the Hong Kong Government's
decision to seek NPC interpretation in the Right of Abode
case, had her Chinese visa revoked to prevent her from
attending a legal conference on the PRC Constitution. Human
Rights activists fear that the action, and the Hong Kong
Government's failure to protest it, may have a ``chilling
effect'' on public discourse. The Hong Kong Government's
failure to include any representatives of the democratic
parties on its delegations to attend National Day in Beijing
or the Macau Handover Ceremony on December 20 was seen by
some as an effort to placate the PRC at the expense of
promoting pluralism in Hong Kong.
In May, the failure of the PRC, which has responsibility
for Hong Kong's defense and foreign affairs, to allow a visit
to Hong Kong by Pope John Paul II during his trip to Asia
last fall was also of concern to many. Many religious,
political and human rights leaders publicly expressed
disappointment that the visit was canceled.
Despite China's crackdown on the Falun Gong spiritual
organization, adherents continued to practice freely in Hong
Kong and held a continuing demonstration outside the office
of China's
Article 23 of the Basic Law provides that Hong Kong shall
enact laws on its own to prohibit subversion, secession,
treason and sedition against the Chinese Government. The
Government has moved cautiously and

[[Page E92]]

deliberately in this regard and has sought to conduct wide
public consultations; no such legislation appears to be on
the horizon. Xu Simin, a senior local adviser to the Chinese
Government said in August that such laws were not urgently
needed and that the time was not right to enact such
legislation.

U.S. Ship and Plane Visits

Following the accidental NATO bombing of the Chinese
Embassy in Belgrade last May, PRC authorities denied at least
ten U.S. warships and seven planes permission to stopover or
visit Hong Kong. After more than a two month ban, the Chinese
government began granting permission for plane visits on July
29, 1999, and a U.S. destroyer, the O'Brien, was given
permission to visit in October, 1999. In addition, a carrier
task force and a nuclear submarine were given permission to
visit in February 2000. No ship or plane visits have been
denied since September 1999, but the Chinese authorities
denied permission for several routine training flights by
long-range P-3 aircraft without offering any explanation.
However, Chinese authorities have not publicly stated that
visits will be routinely approved as had been the case
previously. It appears as though such visits are now being
considered on a ``case by case'' basis creating a degree of
unpredictability that may detract from Hong Kong's image of
autonomy and openness.

IPR Protection

The continued widespread availability of pirated movie,
audio software and trademark goods remains a serious issue.
An elite special task force of 185 Customs officers was
established this year to deal with this issue. The Task Force
is employed to keep pirate retailers off balance, while
Custom's Intellectual Property Investigation Bureau (IPIB) is
used to take down pirate factories and distribution networks.
In the first nine months of the year, IPIB and the Task Force
seized 12.3 million pirate discs, 61% of which were VCD or
DVD movies. United States industry representatives have
emphasized the need to extend the Task Force's mandate past
December to make it permanent. At the behest of United States
and local industry, the Task Force now has a permanent
mandate. Under the direction of the new Customs Commissioner,
John Tsang, there has been a marked improvement in IPR
enforcement, although local film and music retailers are
still losing millions of dollars to pirates. Hong Kong
Customs has also pledged early action on outstanding
legislation, including amendments to re-categorize piracy as
an organized and serious crime and to criminalize the abuse
of corporate licenses. Improvements in IPR enforcement led
the U.S. Trade Representative to remove Hong Kong from the
Special 301 Watch List after an out-of-
Another looming issue is the problem of internet piracy in
which local distributors of counterfeit discs use U.S. or
Hong Kong based web-sites to sell their products to overseas
customers. U.S. industry has identified numerous sites,
accessible through Hong Kong-based internet service providers
that offer downloads of pirate products. Hong Kong has
requested U.S. training in internet crime detection and
prosecution.

Money Laundering

To combat money laundering, the U.S. continues to urge the
Hong Kong Government to adopt mandatory financial transaction
and foreign exchange reporting requirements and to explore
options to discourage the illicit use of non-bank remittance
centers. The Hong Kong Government has begun the legislative
process to bring such centers under regulatory oversight. The
U.S. has also urged Hong Kong to establish mandatory minimum-
value currency entry and exit reporting requirements and
penalties for illicit cross-border currency movements and
bank deposits.

Export Controls

Hong Kong has one of the finest systems of export controls
in the world and the reversion to Chinese sovereignty appears
to have had no major impact on the exercise of export
controls. U.S. Government agencies report no evidence of
Chinese interference in Hong Kong's export control system.
Chinese officials have recognized that export control matters
fall within the trade, rather than foreign policy area,
thereby placing export controls within the Hong Kong
Government's exclusive purview. Hong Kong requires both
import as well as export licenses, enabling authorities to
track controlled commodities as they enter or leave the
HKSAR. Hong Kong also refuses to issue re-export licenses for
products unless it is sure that the original exporting
country would export the product to the ultimate end user.
The Hong Kong Government is exceptionally transparent
regarding export controls and cooperates closely with many
countries, including the United States, to ensure compliance
with multilateral and country specific export control
regimes. Hong Kong adheres fully to international control
regimes such as the Nuclear Non-proliferation Treaty, the
Missile Technology Control Regime, the Nuclear Suppliers
Group, the Australia Group and the Wassenauer Agreement.
United States Department of Commerce officials continue to
conduct regular pre-license and post-shipment inspections as
part of dual-use licensing process. United States Department
of State and Customs officials also carry out pre-license and
post-shipment checks of munitions items under the ``Blue
Lantern'' program. In all such cases, Hong Kong officials are
neither informed of such checks nor involved in making them.
Hong Kong has not imposed any limitations on pre- or post-
shipment verification by U.S. agencies and in some instances
U.S. investigators have conducted two and even three post-
shipment inspections to ensure that the end user remains in
compliance with its license. American and other countries'
officials have been directly seconded to work directly on
export control issues. In addition, Hong Kong officials
regularly receive training in the
Hong Kong's record of enforcement of its export control
regime is good. Examples in recent years include confiscation
of a PRC armored personnel carrier that a PRC supplier
attempted to return through Hong Kong after a show in
Thailand, and the ``Changsha'' case involving unlicensed
import and export of high speed computers to the PRC and
confiscation of approximately U.S. $800,000 of aluminum
percolate in 1996. A House Select Committee report issued in
May 1999, (the Cox report) expressed concern about the
transshipment of technology through Hong Kong, especially the
lack of customs inspection of Chinese People's Liberation
Army (PLA) vehicles when they cross the border between Hong
Kong and China. A recent visit to Hong Kong by staff members
of the House International Relations Committee found that
there is no evidence to suggest that the PLA is smuggling
controlled items into China. Hong Kong officials have assured
the U.S. that they have full authority to stop any truck they
believe is carrying contraband, but have had no intelligence
to suggest the need to inspect PLA trucks beyond reviewing
the manifest and making a visual inspection. Although no
stops have been made, an instructive case involves the
shipment of a PLA troop transporter back from a military show
in Thailand. Because the PLA did not have the proper
licenses, the Hong Kong authorities seized the transporter in
accordance with Hong Kong law, and the Hong Kong police are
currently using it.

Macau

Like Hong Kong before it, Macau reverted to Chinese
sovereignty on December 20, 1999, after 442 years as a
Portuguese colony and, like Hong Kong, Macau became a special
administrative region of China, under the ``One Nation, Two
Systems'' concept. Macau's Basic Law is also modeled upon the
Hong Kong law. The Legislative Assembly consists of 23
members, 16 indirectly elected from territorial and
functional constituencies and 7 appointed by the Chief
Executive. Unlike Hong Kong, the elected members of the
legislature remained in office following the reversion.
Moreover, there is no provision in the Macau Basic Law for
the eventual direct election of all members of the Assembly.
On May 15, 1999, Edmund Ho Hau-wah was elected Chief
Executive by a 199 member selection committee. He in turn
appointed five policy secretaries in August. Because Macau's
civil service was ``localized'' only very recently by the
Portuguese, Macau's bureaucracy is largely inexperienced.
Macau's judiciary is independent. After the handover,
Macau's legal system is governed by conventional law derived
from the Portuguese legal system and the Basic Law, Macau's
mini-constitution. Human rights and legal activists have
expressed concern that the shortage of experienced bilingual
judges, lawyers and law officers could stymie development of
the legal system.
Immediately prior to Macau's reversion to Chinese control,
authorities acted to bar entry to, or in some instances
deport, members of the Falun Gong spiritual movement. Shortly
after the handover, Macau authorities denied permission to
enter to Lui Yuk-lin, a member of the April 5 Movement, a
Hong Kong protest group. The Government later said the denial
was a mistake, the result of mistaken identity and said Ms.
Lui was welcome to visit Macau.
China has established a 900 person strong garrison in Macau
to ``safeguard sovereignty, unity and territorial integrity
and the stability and development of Macau,'' according to
Xinhua.'' Chinese officials have also said that, ``when
necessary, the Macau Government may ask the Central People's
Government to let the troops help maintain social order or
conduct rescue work in cases of disaster.'' However, at the
same time the officials have emphasized that the force
``would not interfere in the affairs of the territory.''
Crime, particularly organized crime syndicates (triads)
fighting for control of the gambling and vice trade, has been
a major problem in Macau. Many Macau residents welcomed the
PLA, hoping the garrison would have a positive influence on
Macau's serious triad (organized crime) problem. There have
been 34 murders in this year alone in the tiny territory
whose population is only about 500,000. Both Chief Executive
Ho and many Macau residents have welcomed the introduction of
Chinese troops in the hope that they will bring the crime
problem under control. Macau's economy remains heavily
dependent on revenues from gambling and tourism. Yet there is
understandable concern that the crime problem has hurt
Macau's international image and contributed to the economic
slowdown that has plagued Macau since the onset of the Asian
regional financial crisis.

[[Page E93]]

While U.S. trade with Macau is relatively small, 40% of
Macau's exports go to the U.S. Furthermore, 80% of Macau's
total exports consist of textiles, and the transshipment of
textiles produced elsewhere through Macau has long been a
major concern. The violations of Intellectual property rights
is very legitimately a major and continuing concern for the
U.S. There has been marked improvement in recent months in
the legislative framework for combating piracy of
intellectual property, including adoption of a new copyright
law. However, although millions of Patacas in fines have been
levied, there have been no criminal convictions of
intellectual property pirates. Macau was placed on the USTR's
Priority Watch List for IPR in April 1998 as a result of
widespread piracy, particularly of videos and optical disks.
Certainly, corruption plays a role in contributing to the
transshipment and piracy problems. Macau's laws on trade also
lack effective enforcement mechanisms in the areas of money
laundering and export control. The new Chief Executive has
pledged to work closely with the U.S. on trying to deal with
these issues. The problem of money laundering, through
Macau's casinos and banks, particularly by organized crime
gangs, but also on behalf on North Korea is a continuing
problem.
The nature and extent of North Korean activity in Macao is
emerging as a concern. Weekly flights from Pyongyang support
significant activity. Press reports suggest that North Korea
takes advantage of weak banking laws to launder money and
facilitate the sale of ballistic missiles and their
components. Recent evidence suggests that Pyongyang also has
used Macao to launder counterfeit U.S. $100 bills. It also
has been reported that banks in Macao serve as a repository
for the proceeds of North Korea's growing trade in meth-
amphetamines and other illegal drugs.
The Hong Kong Policy Act provides a legislative basis to
continue to treat Hong Kong as a separate entity from China.
However, although a similar Macau Policy Act was introduced
in the 106th Congress, it was not enacted into legislation.
This has created considerable uncertainty as to how Macau is
to be treated in regard to such matters as export controls
and the sale of certain items such as riot control equipment
that are prohibited from shipment to China. It has also
terminated availability of U.S. trade promotion programs
including those of the Trade and Development Agency (TDA) and
the Overseas Private Investment Corporation (OPIC) in Macau.
This uncertainty in turn has created serious concerns in
Macau about U.S. interest for the territory.

Conclusion

The picture of Hong Kong two and a half years after
reversion to Chinese sovereignty is largely positive. It
remains a bastion of free-market capitalism, as shown by its
ranking as the world's freest economy in the recent Heritage/
Wall Street journal report. After two difficult years
economically, Hong Kong seems well on the road to economic
recovery. It continues to formulate an independent economic
policy and maintain its own membership in international
economic organizations. People's Republic of China companies
are subject to the same laws and prudential supervision as
all other companies. Hong Kong's excellent system of export
controls remains intact, although continued vigilance to
potential violations or loopholes is required. Trade related
issues, particularly Intellectual Property Rights piracy and
money laundering, also require continued close attention.
Hong Kong's political system continues to evolve. The Hong
Kong media remains free and continues to comment critically
on the PRC, although concerns about self-censorship and the
proposal for a ``privacy council'' watchdog over the press
bear continued scrutiny. Demonstrations continue to be held.
There is vigorous public debate on the issues of democracy
and the law. The legislature and free press have used their
roles to increase government accountability and transparency.
However, the controversy over the ``right of abode'' case
has cast a pall over the issue of Hong Kong's future judicial
autonomy and the rule of law. This is a fundamental issue
that business and the international community will be
watching closely. If the Standing Committee of the National
People's Congress continues to intervene in decisions
primarily affecting Hong Kong, confidence in Hong Kong's
future could be seriously undermined. Willingness by the Hong
Kong Government to speed up the pace of democratization of
elections for Chief Executive, Legco, and local government
could help ease some of the fears that the ``right of abode''
case has raised.

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