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Hong Kong taps UK for post-Brexit trade deal

Territory targets RCEP membership amid US-China tensions, says Chief Executive Lam

Hong Kong Chief Executive Carrie Lam said the territory "always welcomes more bilateral and multilateral relationships" in an interview with the Nikkei Asian Review. (Photo by Takeshi Kihara)

HONG KONG -- Hong Kong has been working with the British government on a potential free trade agreement, seeking to become one of the U.K.'s first bilateral trade partners after its withdrawal from the EU, Hong Kong Chief Executive Carrie Lam said.

"In the last two years, we have been working very closely with the U.K. government," on a possible free trade deal. "We are making some steps already," she said in an interview with the Nikkei Asian Review. 

Lam also said her administration was taking a more "proactive" approach to forging such agreements, as the trade war between China and the U.S. is expected to impact the territory's export-oriented economy.

Under the "one country, two systems" principle, Hong Kong manages its trade relations separately from mainland China and acts as an independent member of bodies like the World Trade Organization.

As a free port, Hong Kong has almost no tariffs, but has increasingly sought to preserve favorable access to foreign markets through bilateral and regional trade pacts. The city has reached agreements on eight FTAs to date, including deals with China and the Association of Southeast Asian Nations.

While acknowledging that the U.K. government was still locked in negotiations with the EU on a post-Brexit agreement, Lam said she hoped Hong Kong would be among London's priority partners when it is in a position to start bilateral negotiations following the withdrawal in March.

Such a deal would make the UK one of the territory's largest FTA partners. Lam said her administration is also in talks regarding pacts with Australia and the Pacific Alliance, a Latin American trade bloc that includes Chile, Colombia, Mexico and Peru.

Direct trade agreements offer Hong Kong a potential buffer to help soften the impact of the Sino-U.S. trade war. As a re-export hub, Lam said the city's trade and logistics, which together account for about 20% of its total GDP, will "certainly" be impacted by the tensions.

"Next year will be a very difficult time," she said.

Hong Kong also intends to join the Regional Comprehensive Economic Partnership, a proposed free trade agreement between ASEAN's 10 member states, Australia, China, India, Japan, South Korea and New Zealand. Members are aiming to reach a board agreement by the end of this year.

 A view of the Victoria Harbour in Hong Kong (Getty Images)

RCEP was largely promoted as an alternative to the Trans-Pacific Partnership, a proposed FTA among 12 American and Asian countries that excluded China and India. The U.S. withdrew from negotiations soon after President Donald Trump came into office.

The 11 remaining members reached a basic agreement late last year, and the deal is expected to come into force in January. While not excluding a bid to join the TPP, Lam insisted that efforts would focus on RCEP for the time being.

"We always welcome more bilateral and multilateral relationships but the priority now is really RCEP."

There are concerns, however, over the strength of the "one country, two systems" principle after a series of incidents suggesting Lam's administration was taking a more hard-line stance on dissent.

The principle guaranteed the former British colony would retain a degree of autonomy following its return to Chinese rule in 1997, including an independent judiciary and freedom of expression, reporting and association.

But recent government decisions, including the rejection of a foreign journalist's visa renewal and the banning of a pro-independence party, have led to criticism.

"I have to make it absolute clear that 'one country, two systems' is of paramount importance, [there is] absolutely no evidence, no worry about its erosion," Lam said.

She said the territory's integration into China's national strategy "enriches the implementation" of the political framework.

"Of course, from time to time, there will be isolated incidents, which may have given people a bit of concern and perception," she said, "but I can assure you that 'one country, two systems' is well recognized and appreciated by the Central People's Government."

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