Hong Kong firms counting on ASEAN trade pact soon

Mr Anson Tam has watches to sell. In particular, the managing director of Tomson Holdings is eyeing customers in Thailand and Malaysia for his company's range of Shenzhen-made fashion watches, manufactured under the brands Nice and Cool.

He is therefore looking forward to a free trade agreement (FTA) between Hong Kong and the 10 member states of ASEAN.

"At the moment, we have no good contacts in these countries," said the Hong Kong businessman. "We also need to consider tariff issues."

Mr Tam's ambitions fit in with new research by the Hong Kong Trade Development Council (HKTDC), which found glittering investment prospects in ASEAN for Hong Kong companies.

Free access to the ASEAN market of 616 million people - a quarter of whom fall in the fast-expanding middle class - will provide companies in the Special Administrative Region with an alternative engine of growth besides mainland China.

Hong Kong's top exports in the first quarter of this year were machinery, jewellery products and electronics, and it has an edge in specific segments, the HKTDC said. These include women consumers in Indonesia, given its rising female employment.

In Malaysia, Chinese-majority cities like Kuala Lumpur and Penang can be targeted, given their higher income and language affinity.

Many Chinese Malaysians speak Cantonese, said HKTDC chief researcher Nicholas Kwan.

Beyond consumer goods, Hong Kong logistics companies can win contracts in the Mekong sub-region, given their experience in helping to develop the Pearl River Delta's supply chain network. Hong Kong players are also a natural fit for public infrastructure projects like public transport.

The statutory board's drive to see a trade pact concluded between Hong Kong and ASEAN comes even as both sides struggle to start FTA talks.

In April last year, they agreed to start formal talks early this year but this was delayed in part by the political stalemate in Thailand, which is the coordinator for the FTA.

A spokesman for the Hong Kong administration, speaking to The Straits Times, said: "We are working closely with our Thai counterparts towards the common target of commencing formal negotiations this year."

Since ASEAN usually takes two to three years to conclude FTA talks, the original deadline next year now seems unlikely. "Nevertheless, we hope to expedite the process and conclude the negotiations as early as possible," she said.

Hong Kong and ASEAN are already firm trade partners. Last year, Hong Kong exports to ASEAN rose 4.1 per cent to US$30.4 billion (S$38.5 billion), while imports from ASEAN to Hong Kong increased 2.4 per cent to US$65.9 billion.

But Hong Kong companies still face trade barriers, compared with those in China, Japan or South Korea, all of which have FTAs with ASEAN.

This means clothing brands, such as Giordano, that want to set up shop in say, Indonesia, need to work with local partners. There is also no streamlining of intellectual property laws, which could be a problem for firms that want to establish franchises, said Mr Kwan.

Meanwhile, Hong Kong companies wanting to relocate factories from Guangdong to Cambodia or Laos, with their lower labour costs, have to pay tariffs on bringing in machinery and equipment.

And while Hong Kong is already a free port with zero tariffs on goods, it "needs to give better access for services, particularly for movement of natural persons into Hong Kong to provide services", said Singapore-based trade lawyer Edmund Sim, who has advised the ASEAN secretariat.

This, for instance, could include opening up the health-care sector so that foreign doctors and investors can set up hospitals and practice freely across borders, Mr Kwan said.

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