9. Trade Controls

Upholding Hong Kong's Trading Integrity

Given the importance of trade and industry to the economy of Hong Kong, the department enforces various trade controls systems including the Certification of Origin System, the Textiles Control System, the Strategic Trade Control System,  the Import and Export Declaration System and the Kimberley Process Certification Scheme to ensure that Hong Kong fully discharges its international obligations and complies with multilateral trade agreements.  Through its enforcement actions, the department also protects the legitimate interests of traders and manufacturers.  In addition, the department mediates disputes between overseas traders and local suppliers to safeguard Hong Kong's trading reputation. 

Certification of Origin System

Hong Kong maintains a comprehensive Certification of Origin System to establish the origin of goods produced in Hong Kong.  As part of the control arrangements, Certificate of Origin (CO) applications covering exports of cut-and-sewn garments have to be supported by production notifications (PNs) validated by the Trade and Industry Department.  The PN requirement serves to ensure that the origin-conferring process for the manufacture of cut-and-sewn garments has taken place in Hong Kong.  To uphold the credibility and integrity of the System, the department conducts pre-registration inspections on factories applying for CO facilities to ensure their production capacities, periodic inspections on registered factories to ensure their continuous compliance with registration conditions, and consignment checks on goods covered by CO applications and PNs.  In 2005, the department conducted 31 356  factory inspections and consignment checks.  In 2006, 45 997 factory inspections and consignment checks were conducted.

Textiles Control System

Upon the global elimination of quota restrictions on textiles and clothing (T&C) products since 1 January 2005, Hong Kong continues to maintain a Textiles Control System to ensure origin compliance of T&C products claiming HK origin.  The department is committed to taking vigorous enforcement actions in upholding the integrity of the System to strengthen the confidence of our trading partners, thereby ensuring unrestricted access of HK’s T&C products to their markets.   

The department operates a comprehensive enforcement programme and reviews regularly its strategies to meet the changing circumstances in the global and  local T&C trade and industry.  The department has adopted an intelligence-led strategy and a two-pronged approach to tackle the problem of illegal textile transshipment.  Apart from the factory-based pre-shipment and post-shipment checks, real time production checks and factory audit checks, it regularises blitz check operations and strengthens targeted checks and investigations. 

Blitz checks have been proven effective in tackling illegal transshipments. The strategic use of intelligence and risk management in blitz check operations has greatly enhanced the department's effectiveness in combating illegal transshipment activities. In 2005, the department examined 36 311 textile consignments during 1 092 blitz check operations and detected 343 cases of illegal textile transshipment with seizures worth $ 62.5million, representing an increase of 2 per cent in the number of cases detected and an increase of 18 percent in the value of seizures as compared to 2004. Meanwhile, 939 persons/companies were prosecuted for various textiles-related offences, resulting in the imposition of court fines which amounted to $18.5million and seizure of offending textiles and clothing goods worth $ 80.7million.

In 2006, the department examined 33 397 consignments in 1 022 blitz check operations and detected 496 cases of illegal textile transshipment with seizures worth $49.56million. Meanwhile, 560 persons/companies were prosecuted for various textiles-related offences, resulting in the imposition of court fines which amounted to $ 12 million and seizure of offending textiles and clothing goods worth $72.97million.

In addition, to weed out shady establishments engaging in illegal transshipment of textiles, the department mounted special operations in 2005-6 by conducting audit checks on 441 factories for ascertaining their production capability within specified manufacturing periods.  As a result, 9 factories were prosecuted and 276 factories were suspended from further using the licensing and certification facilities. 

After the global elimination of quotas in 2005, a Memorandum of Understanding (MOU) was signed between the HKSAR Government and the US Government in August 2005 on the cooperation in trade in textiles and apparel goods.  During the HK/US Joint Factory Observation Visits conducted in November 2005 under the MOU, a total of 38 factories were visited.  In another round of Joint Factory Observation Visits conducted in December 2006, a total of 54 factories were visited.

Strategic Trade Control System

To maintain a free flow of high-tech commodities for legitimate commercial and research use while at the same time to prevent Hong Kong from being used as a conduit for the proliferation of controlled strategic goods, the department, in collaboration with the TID, vigorously enforces the Strategic Trade Control System to monitor the flow of strategic commodities and to detect the provision of services used for the development and production of weapons of mass destruction.

The Chemical Weapons (Convention) Ordinance which aims to fully implement the Chemical  Weapons Convention in Hong Kong, underlines Hong Kong's commitment to internationally agreed arrangements on the ban of chemical weapons and on the monitoring of activities involving sensitive chemicals. Through enforcement of the Ordinance, the department helps ensure Hong Kong's continued access to a full range of chemicals needed for local industrial, medical, research and trading purposes.

In combating illegal diversion of strategic commodities, the department carries out licence checks to verify the authenticity of information given in import and export licence applications and disposal checks to ensure that articles imported are used as declared. In 2005, the department conducted 2 474 import licence checks, 3 594 export licence checks and 180 disposal checks; investigated 227 cases; and prosecuted 33 persons/companies resulting in a total fine of $490 000. In these cases, the value of goods involved was $46 million. In 2006, the department conducted 2 352 import licence checks, 3 875 export licence checks and 78 disposal checks; investigated 226 cases and prosecuted 52 persons/companies leading to a total fine of $1.83 million. In these cases, the value of goods involved was $153 million. 

Import and Export Declarations

The department administers and enforces the Import and Export Declaration System. Any person who imports or exports an article other than an exempted article is required by law to submit a declaration within 14 days after importation or exportation and to pay a declaration charge. For exports of Hong Kong manufactured clothing (including footwear) items specified in the Schedule to the Industrial Training (Clothing Industry) Ordinance, an additional clothing industry training levy has to be paid. The department conducts checks to ensure that declarations are submitted within the statutory time frame and that they contain accurate information. Late lodgment of declarations or lodgment of inaccurate declarations is liable to prosecution and penalties.

In 2005, the department received 18.9 million declarations and collected $1 190 million in import and export declaration charges/clothing industry training levies/late penalties. Short-paid declaration charges/clothing industry training levies recovered and late/administrative penalties imposed amounted to $ 23.8 million. In 2006 , the department received 19.5 million declarations and collected $1 305 million import and export declaration charges/clothing industry training levies/late penalties. Short-paid declaration charges/clothing industry training levies recovered and late/administrative penalties imposed amounted to $23.5 million.

Assistance to Overseas Customs Administrations on Valuation Fraud Cases

Being a member of the World Customs Organization, the department offers assistance to other Customs administrations upon their request for investigation of customs duty related frauds. In 2005 and 2006 the department respectively received 108 and 36 requests, and most of them involved under-valuation of goods.

Closer Economic Partnership Arrangement (CEPA) -Trade in Goods

Since the implementation of CEPA from 1 January 2004, 1 407 items of Hong Kong products currently enjoy zero tariff treatment upon importation into the Mainland if covered by a Certificate of Hong Kong Origin (CEPA) (“CO(CEPA)”). In 2005 and 2006, a total of 16 544 applications for CO(CEPA) were received. Of these applications, 16 025 CO(CEPA)s at a total value of $ 5 619 million were issued. These applications covered a wide range of products, top five of which in terms of value were pharmaceutical products; plastic materials and articles; textiles and clothing; food and beverage; and metal products.

The department is charged with the enforcement duties of the CEPA Certification System. In 2005 and 2006 the department conducted consignment checks against 2 078 applications for CO(CEPA) and examined 282 CEPA consignments at various cargo exit points.

Kimberley Process (KP) Certification Scheme

The Kimberley Process (KP) Certification Scheme for rough diamonds has been developed by the KP , an international negotiating forum, that seeks to stop the trade in "conflict diamonds" from fuelling armed conflicts, activities of rebel movements and illicit proliferation of armament.  Some 69 economies including the People's Republic of China (PRC) have participated in the Certification Scheme.  Hong Kong joined the Scheme as a designated importing and exporting authority of the PRC in order to safeguard Hong Kong's interest as a trading hub of diamonds in this region.  The Certification Scheme, which comprises a registration system for rough diamond traders and a certification system for the import and export of rough diamonds, has been implemented in Hong Kong since 2 January 2003. In 2005 and 2006, the department conducted 447 and 522 consignment inspections and 12 and 13 investigations on rough diamonds respectively.

Reserved Commodities Control

Through the enforcement of the Reserved Commodities Ordinance, the department monitors the import and export of rice and ensures a stable supply of the commodity in Hong Kong. In 2005 and 2006, the department respectively conducted 3 264 and 3 464 inspections under the rice control.

Trade Mediation

To protect Hong Kong's trading reputation, the department provides free mediation service to settle cases of trade dispute lodged by overseas trading firms against local companies. In 2005, the department mediated in 142 cases of trade dispute and 41 of them were successfully settled. In 2006, the department medicated in 118 cases and 36 of them were successfully settled.