• 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.
• Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China had been established to monitor EU imports of Chinese textiles and apparel, which was scheduled to operate for one year, covering 8 out of the 10 previously restricted categories. On 11 December 2008, the European Commission announced that the regime of double checking surveillance system was to expire on 31 December 2008. Accordingly, starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.
• The EU's new scheme on generalised system of preferences ("GSP") entered into effect on 1 January 2009, and will 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 bicycle parts and certain leather footwear, which are of interest to Hong Kong exporters.
• Hong Kong's total exports to the UK increased by 1% to US$9.7 billion in 2008, while its imports from the UK soared by 26% to US$4.9 billion.
• The total stock of UK's direct investment in Hong Kong amounted to HK$134.5 billion as at the end of 2007.
• After a feeble growth of 0.7% in 2008, the UK's economy is forecast to contract by 2.8% in 2009. Continued strains in the financial and property markets, declining production activities, sliding business and consumer sentiment, rising unemployment and weak external demand are pointing the UK to a prolonged economic recession.

Current Economic Situation

The UK's economic performance has deteriorated severely with GDP contracting respectively by 0.6% and 1.5% in the third and fourth quarter of 2008, after levelling off in the second quarter. As the economic crisis spread and property prices plummeted, sliding business and consumer sentiment, rising unemployment and declining production activities have dragged down the UK's economy. Although the rescue packages have helped remove a collapse in UK's banking sector, banks continue to face hits as the economic recession augments the risk of defaults. The sustained credit squeeze not only exerts a dampening effect on consumption but also business investment, which in turn further hampers the employment outlook and consumer confidence. Externally, despite a weaker sterling, exports have moderated as external demand weakens, while falling consumption curbs UK's import bill.

Over the medium term, the prospects of the British economy look frail as the global economic crisis lingers on. Under the twin bite of the continued strains in the financial and housing markets, and a worsening consumption demand amid rising unemployment, domestic consumption and investment demand will continue to slacken, while exports are also expected to remain subdued in response to a feeble demand from overseas markets. All in all, the UK economy is forecast to deteriorate further in 2009, with GDP contracting by 2.8%.

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 imposed safeguard quotas on 10 categories of Chinese textile products for the period of 2005-2007. Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China was established to monitor EU imports of Chinese textiles and apparel for one year, covering 8 out of the 10 previously restricted categories.

On 11 December 2008, the European Commission announced that the regime of double checking surveillance system was to expire on 31 December 2008. Accordingly, starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU.

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") entered into effect on 1 January 2009, and will 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 bicycle parts and certain leather footwear (definitive duty at 16.5%), which are 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 3 December 2008, the European Commission (EC) presented two proposals: one for a recast WEEE Directive and the other for a recast RoHS Directive. As per the EC, the purpose of a recast WEEE Directive is to tackle a number of technical, legal and administrative difficulties since its entry into force, while as for the recast RoHS Directive, the EC aims to improve implementation by the Member States (e.g., by ensuring a more harmonised implementation), improve enforcement and increase understanding of the provisions.

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. On 16 July 2008, the EC presented a proposal to extend the EuP Directive to set compulsory minimum ecodesign requirements for not only energy-using products but all energy-related products. The EuP Directive as it stands now already applies to a wide range of equipment, from office appliances, televisions and hairdryers to boilers, water heaters and industrial fans. The proposed extension, while continuing to apply to energy-using products, will cover products that - while not themselves consuming energy - nonetheless impact on the consumption of energy. The proposal is expected to be subjected to a first reading by the European Parliament and Council before the end of spring 2009.

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.

Highlighted by the 2007 summer of recalls, the European Parliament voted through the new Toy Safety Directive by an overwhelming majority on 18 December 2008. As adopted by the European Parliament, the new Toy Safety Directive provides a clearer definition of what is considered to be a 'toy', bolsters safety regulations, clarifies warnings and age-limit descriptions, bans substances which are carcinogenic, mutagenic or toxic for reproduction (CMRs) and restricts the use of heavy metals and fragrances. The Directive has now been forwarded for approval by the European Council. Once adopted, the Directive is expected to enter into force twenty days after its publication in the Official Journal.

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 1% to US$9.7 billion in 2008, after growing by 2% to US$9.6 billion in 2007. Major export items included articles of apparel, of textile fabrics (shared 16% of the total), telecommunications equipment & parts (13%), women's or girl's wear of textile fabrics, not knitted (8%), toys, games & sporting goods (7%), jewellery (4%) and printed matter (4%).

On the other hand, Hong Kong's imports from the UK soared by 26% to US$4.9 billion in 2008, after decreasing by 4% to US$3.9 billion in 2007. Major import items included engines & motors, non-electric, & parts (shared 25% of the total), telecommunications equipment & parts (10%), passenger motor cars (5%), sliver & platinum (4%), plastic waste, parings and scrap (4%), and semiconductors, electronic valves & tubes (3%).