U.S. Dept. of State - IIP: The United States and China

Text: State Dept. Calls Hong Kong "One of Asia's Freest Cities"
(United States-Hong Kong Policy Act Report April 2002)

Hong Kong under Chinese sovereignty "remains one of Asia's freest cities, with the Hong Kong government committed to preserving Hong Kong's distinct way of life," the State Department said in its latest United States-Hong Kong Policy Act Report.

The report, released April 10, covers developments affecting U.S. interests in the Hong Kong Special Administrative Region (SAR) of China during the period August 1, 2001 through March 31, 2002. These interests include Hong Kong's support for global anti-terrorism efforts, preservation of Hong Kong's autonomy, progress toward greater accountability in and democratization of Hong Kong's political system, protection of civil liberties, and adherence to the rule of law.

Hong Kong was a British colony until it reverted to Chinese sovereignty on July 1, 1997.

Following is the full text of the United States-Hong Kong Policy Act Report, as required by Section 301 of the United States-Hong Kong Policy Act of 1992, as amended by section 586(a) of Public Law 107-115:

UNITED STATES-HONG KONG POLICY ACT REPORT
as of March 31, 2002
As Required by Section 301 of the United States-Hong Kong Policy Act of 1992, as amended by section 586(a) of the Kenneth M. Ludden Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2002, Pub. L. 107-115.

22 U.S.C. 5731

IV. SIGNIFICANT DEVELOPMENTS AFFECTING U.S. INTERESTS IN HONG KONG
(8/1/01-3/31/02)

A. Anti-Terrorism Cooperation
B. Autonomy
C. Political System
D. Civil Liberties
E. Judicial and Legal Developments
F. Bilateral Agreements
G. Suspensions under Section 201(A), Terminations under Section 202(D), or Determinations under Section 201(B)

A. Economic-Commercial
B. Export Controls
C. Law Enforcement Cooperation, Extradition, and Mutual Legal Assistance
D. U.S. Military Ship and Plane Visits
E. Passport and Visa Regime
F. Cultural, Educational, Scientific, and Academic Exchanges

Hong Kong under Chinese sovereignty remains one of Asia's freest cities, with the Hong Kong government committed to preserving Hong Kong's distinct way of life. Since the terrorist attacks of September 11, the Hong Kong government has provided strong support for global anti-terrorism efforts. With some notable exceptions discussed in previous reports, the Government of the People's Republic of China (PRC) has generally kept its commitments to respect Hong Kong's high degree of autonomy. In the period from August 1, 2001 to March 31, 2002, Hong Kong remained a free society that extended basic civil liberties to its citizens every day, largely defined its identity in terms of being an open international city, and continued to make its own decisions in pursuit of its own identity and economic interests. Reflecting a trend toward greater economic interaction between Hong Kong and the Mainland, the reporting period was marked by increasing local pressure on the government to help business capitalize on economic opportunities in the Chinese mainland, including by streamlining the flow of goods and people across the Hong Kong-Mainland border. While such a development is a natural consequence of the opportunities created by China's continued economic opening, the move toward deeper economic interaction with mainland China could pose new challenges to maintaining Hong Kong's autonomy and separate customs and border controls.

During the reporting period Chief Executive C.H. Tung and other senior government officials publicly and repeatedly stated their strong support for the global anti-terrorism campaign. Hong Kong has fully implemented or is taking steps to comply with applicable United Nations anti-terror resolutions. Hong Kong's regulatory authorities directed financial institutions to conduct searches for terrorist assets using U.S. and UN lists, and those institutions have found no such assets. U.S. law enforcement agencies received excellent cooperation from their Hong Kong counterparts. Through its presidency of the multilateral Financial Action Task Force (FATF), Hong Kong also played a lead role in disrupting terrorists' financial networks.

Hong Kong's civil service remained independent, and many officers initially appointed to senior posts by the British continued to serve in key posts. Hong Kong's export control system remained robust. Hong Kong continued to play an important role as an international finance center, actively participating in efforts to address the threat of terrorist financing in the wake of September 11. The Hong Kong press remained free and continued to comment critically on issues, including the PRC and its leaders, and the Hong Kong government. Demonstrations -- often critical of the PRC -- continued to be held. The Falun Gong remained legally registered and its members generally remained free to practice, proselytize, and protest against PRC policies, although the group's inability to secure public or private facilities to hold its annual international conference raised concerns about the government's commitment to supporting a climate of respect for the group's freedom of assembly. Mainland Chinese companies were subject to the same laws and regulatory supervision as all other enterprises. Hong Kong's Independent Commission Against Corruption (ICAC) successfully prosecuted several Hong Kong officers of mainland companies.

The rule of law and an independent judiciary remained pillars of Hong Kong's free and open society. Concerns about the ultimate authority of Hong Kong's highest court continued to linger over the potential re-use of a mechanism employed by the Hong Kong government in 1999 in the "Right of Abode" case that brought about an ex post facto reinterpretation of the Basic Law by the National People's Congress Standing Committee. U.S. military ship and aircraft visits to Hong Kong, for the most part, were approved by the PRC, bolstering Hong Kong's reputation as an open, cosmopolitan, and internationally connected city. At the very end of the reporting period, however, the PRC denied a U.S. Navy ship visit request. Hong Kong's autonomy as an international economic actor remained intact as it actively (and independently of the PRC) participated as a full and active member of numerous international economic organizations, such as the World Trade Organization, the Asia Pacific Economic Cooperation forum, and the Financial Action Task Force, in which membership is not based on statehood.

There was continued public pressure on Hong Kong's political system to evolve toward greater accountability and democratization. Legislators and the free press publicly demanded both, with some of the former boycotting in February the process that resulted in the selection of Chief Executive C.H. Tung to a second term. The government announced it would put in place in 2002 reforms for improved governance and executive accountability, a centerpiece of which would be a political appointment system for the top government policy secretaries. It was not clear, however, how these reforms would make the government more accountable to the Hong Kong people and legislature. Despite the public debate over the pace of democratizing elections for the legislature and chief executive, the Hong Kong government continued to state that the time was not appropriate to consider changes to Hong Kong's election arrangements.

The United States has substantial economic and political interests in Hong Kong and supports the concept of Hong Kong's high degree of autonomy under Chinese sovereignty. In recognition of Hong Kong's high degree of autonomy, the United States continues to accord Hong Kong a special status distinct from the rest of China. For example, the sanctions imposed on China after the June 1989 violence in Tiananmen Square (section 902 of P.L. 101-246) do not apply to Hong Kong. Similarly, the Hong Kong Policy Act allows the U.S. Government to license for export to Hong Kong sensitive commodities that we might not authorize for shipment to the PRC. In addition, the United States continues to lend support to Hong Kong's autonomy by concluding and implementing bilateral agreements, promoting trade and investment, arranging high-level visits, broadening law enforcement cooperation, and bolstering educational, academic, and cultural links.

After 156 years of British colonial rule, Hong Kong became a Special Administrative Region (SAR) of the People's Republic of China (PRC) on July 1, 1997. Hong Kong's status is defined in two documents: the Joint Declaration signed by Britain and China in 1984, and the Basic Law promulgated by China in 1990. These documents formally establish the concept of "one country, two systems" under which Hong Kong is guaranteed a high degree of autonomy except in foreign affairs and defense, and state that Hong Kong's social and economic system and lifestyle, and the rights and freedoms enjoyed by the Hong Kong people will remain unchanged for at least 50 years. The United States supports Hong Kong's autonomy and the United States-Hong Kong Policy Act of 1992, as amended, establishes the authority of the U.S. government to treat Hong Kong as a non-sovereign entity distinct from China for the purposes of U.S. domestic law based on the principles of the 1984 Sino-British Joint Declaration.

U.S. interests in Hong Kong remain substantial. U.S. trade, investment, and business with Hong Kong, the world's tenth largest trading entity and ninth largest banking center, flourish in a largely open environment. In 2001, U.S. exports to Hong Kong totaled U.S. $14.1 billion, making Hong Kong our thirteenth largest overseas export market. U.S. direct investment in Hong Kong through 2000 amounted to over U.S. $23.3 billion. Over 1,000 resident American firms operate in Hong Kong, and Hong Kong's open society and attractive living environment make it home to an estimated 50,000 American citizens. (Included in this total are many dual nationals not counted by Hong Kong authorities as resident Americans.)

Cooperation between the Hong Kong government and the U.S. Consulate General remains broad, effective, and mutually beneficial. The United States enjoys strong cultural and educational relations with the people of Hong Kong, including a large flow of tourists and students in both directions. The United States has significant interests in promoting economic and business relationships, maintaining a cooperative law enforcement relationship (including in the global fight against terrorism), and continuing access to Hong Kong as a routine port of call for Navy ships.

The United States also has strong interests in the protection of human rights, the promotion of democratic institutions, the free flow of information, the freedom of people to practice the religion of their choice, the development and protection of the rule of law, and the protection of individual liberties. Hong Kong residents share many values and interests with Americans and have worked to make Hong Kong a model of what can be achieved in a society that values freedom. Hong Kong is an open and largely tolerant society, in which both local and foreign non-governmental organizations continue to operate freely and representatives of the media work with few government-imposed restrictions.

Protection of U.S. interests is enhanced by Hong Kong's continued autonomy, stability, and prosperity after reversion to Chinese sovereignty; the operation of a full-service Consulate General; the protection of civil liberties; and the preservation of Hong Kong's legal system, which permits sustained and effective cooperation on law enforcement issues. The United States works closely with the Hong Kong Special Administrative Region government and communicates our views on Hong Kong to the Hong Kong government, the central government authorities in Beijing, and the people of Hong Kong.

IV. SIGNIFICANT DEVELOPMENTS AFFECTING U.S. INTERESTS IN HONG KONG (8/1/01-3/31/02)

Hong Kong Chief Executive C.H. Tung and numerous other senior officials publicly pledged full cooperation with the U.S. and global effort against terrorism. The government formally implemented United Nations Security Council anti-terrorism resolutions 1267 and 1333, and is taking steps to implement resolutions 1373 and 1390. Since Hong Kong is not a state, implementation of UN agreements and resolutions occurs via its sovereign, the PRC. Beijing instructs Hong Kong to implement mandatory UN Security Council resolutions, whereas optional UN agreements are applied to Hong Kong after consultation between Beijing and the SAR government. Once these steps are taken, these instruments become part of Hong Kong's body of law through appropriate executive or legislative action by the Hong Kong government. Most of the key UN anti-terror conventions apply to Hong Kong. The UN conventions against terrorist bombings and against terrorism financing do not yet apply to Hong Kong, as the SAR government is still putting in place implementing legislation necessary to give effect to the conventions' requirements.

Using lists of terrorist organizations and individuals supplied both by the U.S. government and United Nations, Hong Kong financial regulatory authorities have directed financial institutions to conduct record checks. To date, those institutions have found no such terrorist accounts. In the wake of the September 11 events, the Hong Kong police cooperated fully with U.S. law enforcement agencies, asked the U.S. government to provide updated watch lists on a regular basis, and pledged full cooperation in any terrorist investigations.

Internationally, Hong Kong played a key role in leading the 29-member Financial Action Task Force (FATF) to adopt stringent anti-terrorism measures in the wake of September 11. As president of FATF during this crucial time period, Hong Kong was instrumental in the organization's adoption of eight Special Recommendations that all members should implement in the fight against terrorism and terrorism financing. Hong Kong was also active in building global awareness of and support for FATF's work among non-members, including at a FATF plenary held in January in Hong Kong.

Hong Kong's promised high degree of autonomy except in defense and foreign affairs remained a reality. Hong Kong, one of the world's most open and dynamic economies, actively participated as a full member -- and in some cases as a leader -- of international economic organizations in which membership is not based on statehood. For example, Hong Kong is a separate and autonomous member of the World Trade Organization (WTO), the Asia Pacific Economic Cooperation forum, and the World Customs Organization. Hong Kong's global leadership on trade liberalization was especially significant in 2001, with Hong Kong's permanent representative to the WTO chairing the process that led to the launch of a new WTO negotiating round at Doha. Chinese central government authorities continue to take a "hands-off" approach to Hong Kong's economic autonomy, and indeed Hong Kong and Beijing at times adopted different positions on various issues in multilateral economic fora. Customs border controls remained in place, and Hong Kong authorities continued to develop, implement, and enforce their own trade laws and regulations.

At the same time, there was a growing tendency for Hong Kong, particularly in view of the continuing international economic slowdown and China's continued economic opening, to view closer economic cooperation with mainland China as the primary answer to Hong Kong's economic difficulties and a necessary component of its future economic prosperity. Hong Kong business and government leaders in 2001 repeatedly called on the PRC government to take action to "help" Hong Kong's faltering economy. These calls for help have taken a number of forms, the most significant being the Chief Executive's suggestion to PRC officials that Hong Kong and the Mainland initiate negotiations to conclude a free trade agreement, later renamed a "Closer Economic Partnership Agreement" (CEPA). Hong Kong and PRC officials pledged that the CEPA would be WTO-consistent and would be negotiated in a transparent manner. While there has been no erosion of Hong Kong's export control regime, and customs border controls remained in place, there has been growing business pressure to streamline the border. We will continue to monitor closely these developments as Hong Kong moves toward closer economic interaction with mainland China.

On the non-economic side, Hong Kong remained autonomous, and evident PRC pressures on issues related to Taiwan, the Vatican, and the Falun Gong that had caused concern in the previous reporting period did not publicly resurface. There were complaints by pro-democracy groups, however, that public expressions of support by PRC leaders and officials for a second term for Chief Executive C.H. Tung interfered with the process of selecting Hong Kong's next chief executive.

Hong Kong continued to submit its own reports to UN human rights bodies (under PRC diplomatic cover, because Hong Kong is not a sovereign state). On July 31-August 1, 2001, to take the most recent example, the UN Committee on the Elimination of Racial Discrimination reviewed Hong Kong's report under the International Covenant on the Elimination of Racial Discrimination.

The People's Liberation Army (PLA) Hong Kong Garrison, whose stated primary role is national defense, continued to be a largely unseen and symbolic presence in Hong Kong. As provided for in the Basic Law, the Garrison may assist the Hong Kong government in maintaining public order and disaster relief if requested by Hong Kong's Chief Executive and approved by the Central Military Commission, but no such instances occurred. The Garrison did not engage in public security work, had limited interaction with the Hong Kong disciplined services, and did not engage in any business activities. The unprecedented and apparently successful visit of the PLA Navy destroyer "Shenzhen" to Hong Kong in November suggests that similar efforts to boost the reputation of the PLA and the Garrison among the general public are likely in the future. On invitation from the Hong Kong government, and with the permission of the Central Government, the PLA Garrison is expected to participate in Hong Kong's annual Search and Rescue Exercise scheduled for April as it last did in December 2000. (The United States plans to participate as well.)

Hong Kong law enforcement agencies remained independent of their PRC counterparts. In a step that showed clearly the extent of Hong Kong's autonomy in immigration matters in the same way that convicted "spy" Li Shaomin's admittance to Hong Kong did in July (see previous report), the Hong Kong government in November allowed Nobel laureate Gao Xingjian, persona non grata in mainland China, to visit Hong Kong a second time in less than a year to receive an honorary degree.

The Basic Law calls for "gradual and orderly" progress toward the "ultimate aim" of electing the Chief Executive and all members of the legislature by universal suffrage. In February, incumbent Chief Executive C.H. Tung received 714 nominations for a second term from members of a Basic Law-defined selection committee of roughly 800 Hong Kong residents. In view of the requirement that a candidate receive at least 100 nominations, Tung's 700-plus nominations precluded any opponent from running against him. Tung was therefore declared the winner at the end of the nomination period on February 28. In March, the PRC government formally appointed Tung to his second five-year term, which begins July 1. The number of directly elected seats in the 60-member Legislative Council elected in September 2000 remained 24. That number will rise to 30 in 2004 in accordance with the timetable laid out in the Basic Law.

A group of pro-democracy activists formed a "Coalition Against a Second Term" and protested the undemocratic nature of the Chief Executive selection process. A number of legislators among the group, who were ex officio members of the Chief Executive selection committee by virtue of their status as legislators, boycotted the selection process. New groups composed of pro-democracy legislators, academics, human rights activists, and others formed to press for democratization in the coming years. Hong Kong government officials have committed to extensive public consultation on future constitutional developments, but continued to maintain that movement on this front should be gradual and that any decisions should take into account the experiences of the 2002 Chief Executive selection and the 2004 Legislative Council elections. There was also continued interest on the part of Hong Kong's private sector to preserve the status quo under which functional (or occupational) constituencies make up half the legislature.

Continued popular dissatisfaction with the unproductive confrontation between the legislative and executive branches, and with the government's lack of accountability, led the Chief Executive to pledge "better governance" as one of his top campaign promises for his second term. One aspect of this was a government plan to realize the Chief Executive's long-discussed "executive accountability scheme" early in his second term. According to the plan, the government would establish a new layer of senior, politically appointed officials to serve the Chief Executive, lead the politically neutral civil service, and argue in support of administration policies before the public and the legislature. While this scheme may enhance the ability of the Hong Kong government to build and press forward a clear agenda, it is not clear how this reform would increase accountability to the legislature and people as well as to the Chief Executive.

Freedoms of speech, press, religion, assembly, association, and other basic human rights remained well respected and staunchly defended in Hong Kong, although there were developments that caused concern. As was true in the previous reporting period, the severest test of Hong Kong's human rights record was related to the ability of the members of the Falun Gong to protest and organize freely. While the group remained legally registered and experienced no restrictions on its ability to practice its beliefs, the group's protests received close scrutiny by the authorities. In August, police briefly detained Falun Gong protesters who were conducting a rolling hunger strike outside PRC offices on the grounds of obstruction of a public place. In November, police confiscated some of the group's banners on the same grounds. In March, police arrested a group of four Swiss and twelve local practitioners on public obstruction grounds, but this time decided to press charges. The 16 were released on bail pending trial. The group's daily protests against PRC anti-Falun Gong policies nonetheless continued near the PRC offices throughout the reporting period. In addition, the Falun Gong has not been able to secure an appropriate venue to hold its annual international experience-sharing conference in Hong Kong. Whereas in the previous reporting period we noted that private sector entities like some hotels and bookstores were disinclined to rent venues to or otherwise associate with the group, in this reporting period, the group has found itself unable to rent space at numerous government-run cultural venues and at two publicly funded universities. Government spokesmen have responded to the group's complaints with explanations that venues were fully booked, priority was being given to performing arts groups, and time slots had to be reserved for maintenance.

The press remained free and generally aggressive in pursuit of a story, although there was continued concern over self-censorship, particularly by media whose owners had extensive business interests in the Mainland. Hundreds of societies have registered since reversion, and no applications for registration have been denied. Demonstrations averaged over five per day during the reporting period, above the pre-handover rate. Police generally used minimum constraints consistent with public order. Out of thousands of applications to hold public rallies or marches submitted since reversion, a small number were disallowed. In the most recent example, right of abode protesters were limited to 150 demonstrators in a planned March 1 rally (instead of the 2000 participants the group had expected) because the same group in an authorized February 26 march had staged an unscheduled sit-in that obstructed traffic on a main thoroughfare in downtown Hong Kong. Demonstration organizers cancelled the March 1 action. At the urging of some minority and human rights groups, the government continued to consider the introduction of anti-racial discrimination legislation. Smuggling of and trafficking in persons through and to Hong Kong remained an issue, but the government continued to combat such criminal activities.

Article 23 of the Basic Law requires Hong Kong to enact laws to prohibit subversion, secession, treason, and sedition against the Chinese government, among other things. The process of formulating the required legislation continued, with the government committed to conducting wide consultations. Human rights groups worry about possible creation of speech crimes, particularly regarding subversion and secession, which have no common law basis. PRC officials made clear in late February during the visit to Beijing of Secretary for Justice Elsie Leung that the Hong Kong government remains obliged to move forward with such legislation.

Rule of law has continued to prevail in Hong Kong under the common law system dating from colonial days and as prescribed by the Basic Law. From district courts up to the Court of Final Appeal -- Hong Kong's ultimate adjudication body -- justice is meted out fairly, and is largely seen to be fair. A non-partisan commission makes judicial appointments (although some have called publicly for the nomination process to be more transparent). The quality of judges is high, and the Court of Final Appeal includes distinguished justices from other Commonwealth jurisdictions who take part on a case-by-case basis.

The well-known 1999 "right of abode" case, in which the Hong Kong government sought a reinterpretation by the PRC National People's Congress Standing Committee (NPCSC), continues to loom in the background whenever sensitive issues come before the Court of Final Appeal. Although the Basic Law provides for interpretation by the NPCSC under certain circumstances, the use of a mainland mechanism foreign to common law practice to overturn in effect a decision of Hong Kong's courts unsettled many who thought that the practice undermined Hong Kong's judicial authority. Although there have been no subsequent referrals to the NPCSC for a reinterpretation, the Hong Kong government in more recent right of abode cases argued that the court itself should seek NPCSC interpretations. Court rulings in July, however, revealed that the court declined to seek such interpretations and the Hong Kong government did not seek an NPCSC reinterpretation in the one case that it lost. In a sign that the effects of the 1999 controversy were still with us, some observers interpreted a court decision in January on another right of abode case, which granted relief to only a small percentage of the 5,000-plus claimants, as a sign that the court was unwilling to risk confrontation with the government that might lead to another NPCSC reinterpretation. Others, including some human rights activists, did not make that interpretation.

Concerns also remained over concurrent jurisdiction, arising when Hong Kong residents were arrested and tried in China for crimes at least partly committed in Hong Kong. A limited Hong Kong-PRC arrest notification mechanism that entered into force in January 2001 came under increasing criticism for its limitations, and discussions continued on rendition and prisoner transfer agreements. Concerns about Hong Kongers' rights under the agreements kept the issues under close scrutiny.

There are more than a dozen U.S.-Hong Kong bilateral agreements currently in force, including a stand-alone air services agreement, and extradition, prisoner transfer, and mutual legal assistance agreements that entered into force since reversion. (Little progress has been made since 1997 on a U.S.-Hong Kong Bilateral Investment Agreement.) On the whole, these agreements have functioned very well, although Hong Kong legal requirements for "sovereign assent" by the PRC government with respect to some international cooperation have in a small number of cases in the past hindered timely cooperation.

G. Suspensions under Section 201(A), Terminations under Section 202(D), or Determinations under Section 201(B)

There were no suspensions under section 201(A), terminations under section 202(D), or determinations under section 201(B) of the United States-Hong Kong Policy Act of 1992, as amended, during the period covered by this report (August 1, 2001 to March 31, 2002).

Over the past several years Hong Kong has made dramatic progress in fighting optical disc piracy, starting with the creation of an anti-piracy task force in the Customs Department that allowed a stepped-up pace of raids against retail establishments and pirate manufacturers beginning in 1999. The past year also brought enactment of an amendment that criminalized the corporate use of unlicensed copyright materials from April 1, 2001. A public outcry led the government to partially suspend the criminal provisions of this law, but authorities pressed ahead with enforcement for certain key categories of works: computer software, movies, television shows, and sound recordings. At the end of the reporting period, the government was pursuing several corporate piracy cases, including one that produced a first ever conviction under the 2001 amendment. Reflecting this combination of stepped-up enforcement and strengthened legislation, the Office of the U.S. Trade Representative now regularly cites Hong Kong as a model for other Asian economies struggling with their own problems of IPR piracy.

Hong Kong maintained few non-tariff barriers and investment restrictions and moved steadily to reduce or remove what few restrictions exist. For example, beginning in 1998, Hong Kong has opened the broadcast and telecommunications markets to greater competition. One result of this liberalization was a significant increase in U.S. direct foreign investment (U.S. $2.5 billion in 1999), including several major telecommunications projects. In January, the government announced plans to open the local wire-based telecommunications market beginning in 2003, thereby removing the last major element of protection from this sector. Hong Kong's strong pro-competition record in telecommunications and broadcast, however, is not matched across the board. The absence of a comprehensive antitrust law and the high cost of local market entry has led to domination of some service sectors by major local companies.

The United States continued efforts to negotiate significant liberalization of the U.S.-Hong Kong civil aviation agreement, holding two rounds of negotiations during the period covered by this report. Liberalization would benefit consumers, businesses, and airlines and also the overall Hong Kong economy. A wide gap remains, however, between the U.S. position and the more restrictive Hong Kong approach.

U.S. companies continued to have a favorable view of Hong Kong's business environment, including its autonomous, impartial legal system, and the free flow of information, low taxation, and well-developed infrastructure. The American Chamber of Commerce's annual business confidence survey of its members, conducted in late-2001, showed that despite difficult economic conditions, they retained confidence in Hong Kong's future: 43 percent believed the business outlook for 2002 was "good" or "satisfactory," but this number increased to 83 percent and 92 percent for 2003 and 2004, respectively. U.S. and other foreign companies also continue to find Hong Kong attractive as a headquarters location for China and the wider Asia region.

Chief Executive Tung and other senior officials have reaffirmed the government's commitment to the existing currency regime linking the Hong Kong dollar to the U.S. dollar.

The Hong Kong government issued a consultation paper on labeling biotech foods, which proposed three policy options, including voluntary and mandatory measures. The U.S. government is watching these consultations closely, as the adoption of any mandatory measures could affect U.S. exports to Hong Kong of biotech foods.

There were no significant problems between Hong Kong and the United States in export control cooperation. Hong Kong continued to maintain an effective, autonomous and transparent export control system. Hong Kong authorities cooperated closely with U.S. and international counterparts to ensure compliance with relevant export control regimes.

The 7th round of U.S.-Hong Kong interagency export control discussions took place in March and focused on the effect on Hong Kong's export control system of a closer economic partnership with the Mainland. Hong Kong reasserted its commitment to enforce an autonomous control system while streamlining border controls and deepening economic ties with the Mainland. Hong Kong's past emphasis on its autonomy and separateness was tempered by a new focus on promoting economic integration with the Mainland and facilitating cross-border traffic. The U.S. delegation emphasized the importance the United States places on Hong Kong's autonomy and cautioned that border streamlining and economic integration must not impair the integrity of Hong Kong's autonomous customs territory. Enforcement and licensing issues arising from increased cross-boundary trade also were discussed, as were measures that both the United States and Hong Kong will take to resolve these issues.

U.S. Department of Commerce representatives in Hong Kong continue, on a regular basis, to carry out pre-license checks and post-shipment verifications on companies in Hong Kong as part of the dual-use licensing, vetting, and post-issuance process. Similarly, Department of State and U.S. Customs officials carry out end-use checks on munitions items. In both cases, Hong Kong officials are neither informed of such checks nor involved in making them. The importance of these checks was underscored by a 1997 General Accounting Office (GAO) report that stated the results of such checks were a key factor in determining if Hong Kong continues to maintain an effective export control system. These efforts are supplemented by regular visits to Hong Kong by Commerce Department enforcement agents under the Safeguards Verification program to conduct pre-shipment and post-shipment verification checks. The most recent team, which visited Hong Kong in January 2002, conducted 38 checks. The results of these checks, and plans to send another special team to Hong Kong later in 2002, were discussed during the March export control discussions.

Hong Kong Customs and Excise and the Trade and Industry Department continue to devote extensive resources to Hong Kong's strategic trade licensing and enforcement system. The very large volume of import and export license requests that the Trade and Industry Department processed in 2001 reflects Hong Kong's extensive requirements for import and export licenses for the most sensitive goods, even if only in transit. Hong Kong's system also criminalizes the brokering of sensitive commodities related to weapons of mass destruction programs. In its licensing policy, Hong Kong continues to apply all the major multilateral control lists and the licensing requirements of its trading partners.

During 2001, Hong Kong assisted U.S. law enforcement authorities in their investigation of allegations that in 1998 a Mainland China entity allegedly used Hong Kong and Florida front companies to export radiation-hardened integrated circuits through Hong Kong to a Mainland Chinese end user. Hong Kong and U.S. law enforcement cooperated in staging simultaneous raids on the targeted company and coordinated closely their follow-up investigations.

Law enforcement cooperation remained a central pillar of U.S.-Hong Kong relations. The Consulate is home to seven law enforcement agencies or bureaus: DEA, FBI, INS, Customs, Secret Service, IRS Criminal Investigation Division, and the State Department's Bureau of Diplomatic Security. U.S. and Hong Kong law enforcement agencies cooperated to combat activities such as terrorism, human smuggling, trafficking in persons, narcotics trafficking, commercial fraud, counterfeiting, credit card fraud, money laundering, violations of intellectual property rights, and general organized crime. U.S.-Hong Kong agreements on extradition, prisoner transfer, and mutual legal assistance, in effect since 1998, 1999, and 2000, respectively, all continued to function smoothly in most instances.

Since the July resumption of PRC approvals of requests for U.S. military ship and plane visits to Hong Kong following the April 2001 EP-3 aircraft incident cut-off, nearly 20 ships, including two aircraft carrier battle groups and the Seventh Fleet Flagship with the Commander of the Seventh Fleet embarked, have visited Hong Kong. At the very end of the reporting period, however, the PRC denied a U.S. Navy ship visit request. The U.S. Navy also resumed its program of providing Deck Landing Qualification support to Government Flying Service helicopters during these visits. In the wake of the September 11 terrorist attacks on the United States, force protection support provided by local authorities was excellent during each of these visits. While Beijing did not approve the visit of any U.S. Navy P-3 aircraft to Hong Kong since the EP-3 incident, a number of other non-P-3 aircraft missions were approved.

The HKSAR passport is issued to Chinese nationals holding Hong Kong permanent identity cards. The British National Overseas (BNO) passport is issued by the British government. China, however, recognizes the BNO passport as a travel document only, and not as evidence of citizenship. Most Hong Kong residents are entitled to hold BNO passports and HKSAR passports concurrently. The Hong Kong government continued to seek visa-free access for the HKSAR passport to other countries, with 107 countries currently affording visa-free entry. U.S. citizens visiting Hong Kong for a temporary stay of less than 90 days may enter without a visa. The ability of the United States to reciprocate -- to offer visa-free entry to holders of the HKSAR passport -- is governed and limited by the terms of the Visa Waiver Program in section 217 of the Immigration and Nationality Act, 8 U.S.C. ¡¦1187. The United States currently issues ten-year multiple-entry visitor visas to qualified applicants, the maximum validity period available under U.S. law.

Exchanges between Hong Kong's seven universities and other educational institutions and their U.S. counterparts range from short-term visits by American faculty and summer programs for students to ambitious multi-year exchanges of faculty and staff. In general, such linkages are beneficial exercises involving a practical exchange of ideas and sharing of resources and experiences. The Fulbright program in Hong Kong, which operates independently from the one in mainland China, supports four U.S. lecturers, one U.S. researcher, and three to four U.S. students in Hong Kong each year. The HKSAR government, through the Research Grants Council, now funds post-graduate research in the United States for four Hong Kong academics for up to one academic year. The initial group of candidates was selected in early 2002 by a panel of distinguished U.S. and Hong Kong academics and professionals, and will begin U.S. programs during the 2002-2003 academic year. The Hong Kong-America Center (HKAC), whose Board of Governors is made up of prominent American and Hong Kong leaders from the business and academic communities, has been in operation since 1993 with support from local universities and the Department of State. As part of its mission to foster exchanges between Hong Kong and the United States, the HKAC handles the administrative procedures for selection of Hong Kong Fulbrighters who will do research in the United States. Its supporting institutions are the Chinese University of Hong Kong, Baptist University, the University of Hong Kong, City University, and the Polytechnic University. The Department of State supports the University of Hong Kong American Studies degree program by providing a Fulbright Scholar to the program each year. The Institute of International Education (IIE) Hong Kong provides educational advisory services and conducts outreach programs for schools and thousands of Hong Kong and Macau students who wish to pursue studies in the United States. It also organizes well-attended university fairs and briefs American educators on opportunities in Hong Kong. The Department of State International Visitor Program supports a wide variety of professional exchanges for candidates sponsored by the Consulate General. In 2001-2002, over 14 individuals from Hong Kong and Macau, including journalists, politicians, government and law enforcement officials, and an environmentalist have traveled or will travel to the United States on study tours.

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)