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 You are in: Under Secretary for Political Affairs > Bureau of East Asian and Pacific Affairs > Releases > Reports > 2005

U.S.-Hong Kong Policy Act Report

As of April 1, 2005
As required by Section 301 of the United States-Hong Kong Policy Act of 1992, 22 U.S.C. 5731, as amended






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

V. U.S.-HONG KONG RELATIONS (4/1/04-3/31/05)

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


Hong Kong, with a population of nearly 7 million, remains an international city and one of the world’s most open and free economies. Hong Kong residents enjoy strong respect for the rule of law and civil liberties. Hong Kong is an independent customs territory and economic entity separate from the rest of China and continues to provide an effective and productive voice in a wide range of international organizations. The United States maintains substantial economic and political interests in Hong Kong and promotes Hong Kong's high degree of autonomy under Chinese sovereignty. The United States-Hong Kong Policy Act authorizes the U.S. Government to treat Hong Kong as a separate customs territory distinct from China. The United States also supports Hong Kong's high degree of autonomy by: concluding and implementing bilateral agreements; promoting trade and investment; arranging high-level visits; broadening law enforcement cooperation; bolstering educational, academic, and cultural links; and supporting the large community of resident and visiting U.S. citizens.

Hong Kong strongly supports the global campaign against terrorism. Hong Kong has participated in the Container Security Initiative since May 2003 and remains an important partner in eliminating funding for terrorist networks and combating money laundering. Our broader law enforcement relationship provides unique opportunities given Hong Kong’s professional police forces and the common perspectives we share with respect to overarching law enforcement objectives.

Hong Kong's autonomy as an international economic actor remains intact as it participates as a full member of numerous international economic organizations independently of China, such as the World Trade Organization (WTO), the Asia Pacific Economic Cooperation (APEC) forum, and the Financial Action Task Force. Hong Kong maintains an effective export control system and cooperates closely with the United States on export control matters. Hong Kong continues to play an important role as an international finance center. During this reporting period, Hong Kong also continued to broaden economic interaction with China, including expansion of its free trade agreement with China, the Closer Economic Partnership Arrangement.

A decision by the National People’s Congress (NPC) Standing Committee in April 2004 to preempt local debate on electoral reform and to rule out universal suffrage in the 2007 Chief Executive and 2008 Legislative Council (Legco) elections severely tested Hong Kong’s political autonomy under the principle of "one country, two systems" and raised concerns that Beijing was attempting to rein in democratization. The Hong Kong Government’s Constitutional Task Force continued to pursue consensus on constitutional reform within the limits set by the NPC decision with a view to effecting changes in time for the 2007 Chief Executive selection. In March 2005, Tung Chee-hwa announced he would resign as Chief Executive to assume the position of Vice-Chairman of the Chinese People’s Consultative Conference. In keeping with the Basic Law, Chief Secretary Donald Tsang became Acting Chief Executive pending election of a new Chief Executive within six months of the resignation. The election is scheduled for July 10, 2005. Debate over the length of tenure of Tung’s successor has been intense, with the Hong Kong Government arguing it should be for the two years remaining in Tung’s term, and a majority in Hong Kong’s legal community saying that the Basic Law calls for a five-year term. The Hong Kong Government expressed its intention to propose amendments to the Chief Executive Election Ordinance specifically providing for a by-election to fill out the remainder of the term. A broad array of lawyers and scholars, as well as a number of pro-democracy legislators, expressed opposition to the legislation, contending it is inconsistent with the Basic Law. Legislators have raised the prospect of filing for judicial review by the Hong Kong courts. In response, some politicians and pundits called for an interpretation by the NPC Standing Committee.

The rule of law and an independent judiciary remain pillars of Hong Kong's free and open society. Freedoms of speech, press, religion, assembly, association, and other basic human rights remained respected and defended in Hong Kong. The press continued to publish a wide variety of news stories and opinions, including articles critical of the Chinese and Hong Kong Governments, and articles on the April 2004 decision by the NPC’s Standing Committee ruling out universal suffrage in 2007/2008. However, this positive atmosphere was marred by charges of intimidation in both broadcast and print media, including allegations of advertising being witheld on the basis of editorial content and/or personal conflict. There were numerous demonstrations for and against government positions. Mainland Chinese companies in Hong Kong remain subject to the same laws and regulatory supervision as all other enterprises.

U.S. military ship and aircraft visits to Hong Kong, with the exceptions of all requests for P-3 aircraft visits, were consistently approved by Beijing in 2004, bolstering Hong Kong’s reputation as an open, cosmopolitan, and internationally connected city.


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, lifestyle, and the rights and freedoms enjoyed by the Hong Kong people shall remain unchanged for at least 50 years. The United States supports Hong Kong’s high degree of 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. 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 11th largest trading entity and 12th largest banking center, flourish in a largely open environment. In 2004, U.S. exports to Hong Kong totaled US$ 15.8 billion, making Hong Kong our 13th largest overseas export market. U.S. direct investment in Hong Kong through 2003 amounted to over US$ 44.3 billion. Over 1,100 resident American firms operate in Hong Kong and Hong Kong is home to an estimated 54,000 U.S. citizens (included in this total are many dual nationals not counted by Hong Kong authorities as resident Americans). Over one million U.S. citizens visited Hong Kong in 2004.

Cooperation between the SAR 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 substantial flow of tourists and students in both directions. The United States has significant interests in seeking Hong Kong's support in the global fight against terrorism, promoting economic and business relationships, maintaining a cooperative law enforcement relationship, and continuing access to Hong Kong as a port of call for U.S.military ships and aircraft.

The United States has strong interests in the protection of human rights and the promotion of democratic institutions throughout the world. The U.S. is committed to promoting democratic values in Hong Kong, ensuring that the people of Hong Kong have a say in the governance of Hong Kong, and supporting steady advances toward universal suffrage. The Hong Kong people share many values and interests with Americans and have worked to make Hong Kong a model of what can be achieved in a society based on rule of law and respect for civil liberties. Hong Kong remains an open and largely tolerant society, in which both local and foreign non-governmental organizations, businesses and persons, continue to operate freely. Representatives of the media work with few government-imposed restrictions

The protection of U.S. interests is enhanced by Hong Kong's continued autonomy, stability, and prosperity; the operation of a full-service U.S. Consulate General; the protection of civil liberties and promotion of democracy; 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 SAR Government, which includes communicating our views on Hong Kong to the SAR Government, central government authorities in Beijing, and the people of Hong Kong.


A. Anti-Terrorism Cooperation

Hong Kong remains a strong partner of the United States in the war on international terrorism. Hong Kong has passed two anti-terrorism laws implementing United Nations Security Countil Resolution 1373, which calls on all member states to prevent the financing of terrorism, criminalize the willful provision or collection of funds to carry out terrorist acts, and freeze terrorist assets. The laws also implemented the Financial Action Task Force (FATF), revised special anti-terrorism recommendations, which include reporting suspicious transactions related to terrorism and the licensing of all cash remittance agents. Ten of twelve international anti-terrorism conventions apply in Hong Kong. The SAR Government plans to adopt the final two conventions, the Convention for the Supression of Financial Terrorism and the Convention on the Physical Protection of Nuclear Material, after PRC accession (Note: Hong Kong is not a sovereign state and implementation of UN agreements and resolutions formally occurs via China. After China becomes a party to such international instruments, it has the authority to direct Hong Kong to implement them).

Hong Kong has given excellent support to the effort to prevent weapons of mass destruction from entering the United States. Hong Kong joined the Container Security Initiative (CSI) in September 2002 and the program became operational in May 2003. Cooperation between Hong Kong and the United States on CSI has been exemplary. Hong Kong and the United States have also conducted preliminary discussions on the Department of Energy’s "Megaports" initiative, which would involve installation of radiological detection equipment at Hong Kong’s port.

The Hong Kong police force continued to make counterterrorism a top priority and Hong Kong customs and immigration officials were vigilant in the face of the global terrorist threat. Authorities regularly direct financial institutions to conduct searches for terrorist assets using U.S. and UN lists, although these institutions have found no such assets to date. Hong Kong continued to play an active and leading role in the anti-terrorism finance effort as a member of FATF. The Hong Kong Government responded vigorously, and to the U.S. Government’s complete satisfaction, on requests for assistance in ensuring the security of U.S. citizens and American interests. For the fourth consecutive year, military representatives from the Pacific Command Explosive Ordnance Disposal community participated in the Hong Kong police force bomb disposal officer-licensing course.

B. Autonomy

Although Hong Kong continued to exercise a high degree of autonomy across a broad range of sectors, the decision by the NPC’s Standing Committee in April to preempt local debate on electoral reform and to rule out universal suffrage in the 2007 Chief Executive and 2008 Legco elections severely tested Hong Kong’s political autonomy under the principle of "one country, two systems." The NPC decision was the first time since 1997 that the Chinese Government had taken the initiative to exercise its authority to interpret the Basic Law. In 1999, the NPC offered an interpretation of the Basic Law with respect to residency rights in Hong Kong, but this was done at the request of the Hong Kong Government (see Section V.C below).

As provided for in the Joint Declaration, matters related to Hong Kong’s defense and foreign affairs remain solely in Beijing’s hands. Hong Kong, one of the world's most open and dynamic economies, actively participates as a full member -- and in some cases as a leader -- in international organizations in which membership is not based on statehood. For example, Hong Kong is a separate and autonomous member of 26 multilateral organizations, such as the WTO (whose sixth ministerial meeting it will host in December 2005), the Asia Development Bank, APEC, the Bank for International Settlements, and the World Customs Organization. In 2004, Hong Kong continued to participate actively in all these multilateral fora.

Hong Kong's high degree of economic autonomy remained intact during this reporting period. Customs and border controls remained in place and Hong Kong authorities continued to develop, implement, and enforce their own trade laws and regulations. The SAR Government was responsive to Hong Kong businesspeople looking to take advantage of China’s economic growth. The Government also continued work to broaden economic interaction with mainland China, especially in the Pearl River Delta. With this in mind, Hong Kong and China expanded the Closer Economic Partnership Arrangement (CEPA), a free trade agreement that now allows 1,087 types of products to be exported to the mainland duty-free. CEPA also now provides expanded access to 26 service sectors. U.S. and other firms with a significant presence in Hong Kong are eligible to take advantage of CEPA provisions to enter the mainland market. CEPA also includes provisions allowing tourists from numerous mainland cities and provinces to travel individually to Hong Kong rather than as part of a tour group. The resulting influx of visitors was a major factor in Hong Kong’s improved economic performance in 2004. China also continues to permit Hong Kong banks to provide deposit, remittance, exchange, and credit card services in Renminbi (the Chinese currency). The Hong Kong Government has deployed additional staff and upgraded computer systems and screening technology to handle the larger flow of cargo, people, and funds across the boundary. The increasing economic activity between Hong Kong and China has occurred against the backdrop of Hong Kong’s continuing commitment to a strong export control regime. Increased economic interaction between Hong Kong and the mainland has created new challenges that the United States and Hong Kong are working together to address. (See Section V.B below.)

The People's Liberation Army (PLA) Hong Kong Garrison, whose stated primary role is national defense, has largely remained an 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 the Chief Executive and approved by the PRC’s Central Military Commission. There were no such instances during this reporting period. The garrison did not engage in public security work or business activities. A flotilla of eight PLA Navy ships and submarines visited in May. This was the first PLA Navy ship visit since 2001 and the largest ever to visit Hong Kong. On August 1, the PLA held its first-ever parade at Shek Kong Military Barracks in the New Territories. Both events received heavy local media attention and drew many enthusiastic and supportive spectators.

Hong Kong law enforcement agencies remained independent of their PRC counterparts. Hong Kong and mainland Chinese law enforcement entities conduct routine cross-training exercises. Continued cooperation between the Hong Kong Government and the U.S. Government in law enforcement, particularly in the apprehension and extradition of fugitives, is a good example of Hong Kong’s judicial independence and exercise of a high degree of autonomy.

C. Political System

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. Currently, as defined in the Basic Law, a selection committee made up of roughly 800 Hong Kong residents selected through a variety of means, including some that are elected, chooses the Chief Executive. The number of directly elected seats in the 60 member Legislative Council elected in September 2004 increased to 30 (from 24) in compliance with the timetable laid out in the Basic Law.

The most important political developments during the year were:

  • a self-initiated decision by the Standing Committee of the NPC in April to preempt local debate on electoral reform and to rule out universal suffrage in the 2007 Chief Executive and 2008 Legco elections;
  • a free and fair Legco election in September 2004;
  • and the Chief Executive’s resignation in March 2005.

On April 6, 2004, the Standing Committee issued an interpretation on key electoral provisions of the Basic Law that effectively asserted that the PRC Government would be the final arbiter of the pace and scope of electoral changes in Hong Kong. Responding to the Standing Committee’s assertion that proposals for change needed to be submitted to Beijing first, Chief Executive Tung Chee-hwa on April 15 recommended to the Standing Committee that the electoral methods for the selection of the Chief Executive and the Legco be amended. Tung’s recommendation was based on the second report of the Hong Kong Government’s Constitutional Development Task Force (established in January 2004 and headed by Chief Secretary Donald Tsang), which was submitted to the NPC at the same time as his recommendation. Although the report did not contain specific proposals, it outlined nine factors that should guide political reform, including that the pace "should not be too fast," that reform should "consolidate" Hong Kong’s executive-led system, and that the Hong Kong Government should "pay heed" to Beijing’s views.

On April 26, the NPC Standing Committee formally endorsed Tung’s recommendation that the electoral methods be amended, but ruled out universal suffrage in the election of the Chief Executive in 2007 and the formation of the Legco in 2008. The Standing Committee also stipulated that there would be no changes in the balance between geographical and functional constituency (defined by business or commercial sector, i.e., bankers, lawyers)seats in the 2008 Legco elections, nor would there be changes in the procedures for voting on bills and motions in Legco. The Standing Committee justified its decision by citing a lack of consensus in society and Hong Kong’s short history of exercising democracy. The SAR Government characterized the NPC decision as aiming to protect Hong Kong’s long-term stability and prosperity. Pro-democracy advocates criticized both the NPC interpretation and the Hong Kong Government’s response as undermining the principles of "one country, two systems" and "Hong Kongers ruling Hong Kong." The issue featured prominently throughout the year in Legco debates, demonstrations (including a march by approximately 300,000 people on July 1), and the Legco elections in September. Some democracy advocates also proposed organizing a non-binding referendum on universal suffrage, although support for such a move was mixed among democracy supporters. Both the Hong Kong Government and Beijing have expressed strong opposition to a referendum.

On May 11, the Constitutional Development Task Force issued its third report, which outlined those areas where electoral arrangements could be amended in line with the NPC decision. With regard to the election of the Chief Executive, the Task Force said changes could be made in the composition, size and membership of the Election Committee that chooses the Chief Executive; the number of nominations needed to become a candidate; and the number and composition of people who vote for Election Committee members. With regard to Legco, the Task Force said that the overall number of seats could be increased as long as a balance was maintained between geographic and functional seats and that the delineation and size of functional constitutency electorates, as well as provisions regarding the nationality of Legco members, could be changed.

Legco members were elected to four-year terms in September. Fulfilling the Basic Law’s mandate, 30 members were directly elected from geographic districts through universal suffrage and 30 were chosen by restricted electorates from functional constituencies. The pro-Beijing Democratic Alliance for the Betterment of Hong Kong party gained the biggest number of seats (12), followed by the pro-business Liberal Party (10). The Democratic Party, formerly the largest party in Legco, came in third with nine seats, but candidates who considered themselves pro-democracy won 25 seats overall, three more than in the previous Legco. Despite reported allegations of voter intimidation prior to the election (see Section D) and some irregularities on election day, the voting was considered free and fair.

Following the Legco elections, in an apparent goodwill gesture, the PRC Government invited 10 newly elected "moderate" Legco democrats to attend National Day celebrations in Beijing on September 30, as part of the 200-person Hong Kong delegation. This marked the second time during the year that Beijing had made such a gesture to selected democrats. On August 1, all Legco members, including democrats who cannot travel to the mainland (in large part because of their involvement in the pro-democracy advocacy group, the Hong Kong Alliance in Support of Democratic Patriotic Movements in China, which is considered subversive by Beijing) were invited to attend the first-ever PLA parade at Shek Kong Military Barracks in the New Territories.

Throughout the year, the Task Force on Constitutional Development solicited local views on electoral reform. On December 15, it issued its fourth report, which summarized public views on the issue. While acknowledging that many submissions during the consultation process had called for universal suffrage, Task Force head Donald Tsang ruled out further action on proposals that were in conflict with the NPC’s April 26 decision. Tsang also said the Task Force would set aside the "complicated" issue of developing a timetable for introduction of universal suffrage. Constitutional Affairs Secretary Stephen Lam said that the Hong Kong Government was determined to reach consensus on constitutional reforms in 2005 so that it could enact legislation in 2006. Lam outlined three reforms that he said had strong public support:

  • expanding the membership of the 800-strong Election Committee for the Chief Executive;
  • broadening the electoral base for both the functional constituencies and the Election Committee; and
  • increasing the number of Legco seats.

The Task Force hopes to issue its fifth report, giving specific recommendations on the form the legislation should take, sometime in the middle of the year.

Tung Chee-hwa announced his resignation as Chief Executive on March 10, citing health concerns as the reason. His resignation was officially accepted by the State Council on March 12, the same day Tung was elected to the position of Vice-Chairman of the Chinese People’s Consultative Committee. In accordance with Article 53 of the Basic Law, Chief Secretary Donald Tsang succeeded Tung as the Acting Chief Executive on March 12. Also per the Basic Law, Tsang continues to hold the position until election of a new Chief Executive occurs, as required, within six months from Tung’s resignation. Upon asuming the position of Acting Chief Executive, Tsang announced that the election would take place on July 10 and that the elected Chief Executive would serve the remaining two years of Tung’s term. This decision has generated controversy, including criticism from the Hong Kong Bar Association, the Legal Society, and prominent legal scholars in Hong Kong. The consensus view in the legal community in Hong Kong is that the only term for a Chief Executive specified in the Basic Law is five years. Last year, the Hong Kong Government took the explicit position in an on-the-record statement in Legco that the five-year term applied without exception to any Chief Executive. In explaining the abrupt change of stance, Secretary for Justice Elsie Leung said that she had been persuaded by arguments put forth by legal experts on the mainland based on records from the committee that had drafted the Basic Law. They maintained the legislative intent of the Basic Law was that a Chief Executive returned through a by-election should only serve out the remaining term of the outgoing Chief Executive. The Hong Kong Government expressed its intention to propose amendments to the Chief Executive Election Ordinance specifically providing for a by-election to fill out the remainder of the term.

Those expressing opposition to the two-year term, including lawyers, scholars, and pro-democracy legislators, contend it is inconsistent with the Basic Law. Legislators have raised the prospect of filing for judicial review by the Hong Kong courts. In response, some politicians and pundits called for an interpretation by the NPC Standing Committee. Some see such an interpretation as a means of establishing a legal basis for the technical change in the term of office of the successor to Tung Chee-hwa. Others are concerned that if an interpretation is initiated after judicial review begins in Hong Kong, it could be seen as an intrusion designed to render ineffective the court’s ongoing deliberation. The SAR Government has repeatedly affirmed its commitment to transparency and the rule of law. It stated that it did not plan to ask for an NPC interpretation, but that it also had not ruled out doing so. The SAR’s Government said it would "act according to the situation" to hold the Chief Executive election on July 10 as scheduled.

D. Civil Liberties

Freedoms of speech, press, religion, assembly, association, and other basic human rights remained respected and defended in Hong Kong. The press continued to publish a wide variety of news stories and opinions, including articles critical of the Chinese and Hong Kong Governments, and articles on the April 2004 decision by the NPC’s Standing Committee ruling out universal suffrage in 2007. The press also devoted considerable coverage to the Taiwanese presidential election, as well as Chinese leadership dynamics and human rights. Despite regular coverage of sensitive subjects in print and in the broadcast media, professional journalist groups remained concerned that Hong Kong media outlets, many of which are owned by businesses with commercial interests on the mainland, were vulnerable to self-censorship. In addition, there have been consistent allegations of intimidation of print media by means of withholding advertising business on the basis of editorial content and/or political attitudes of media ownership.

Two incidents particularly affected perceptions about press freedom: the resignations in quick succession of three radio talk show hosts, who alleged intimidation by mainland Chinese elements in the spring, and raids on seven local newspaper offices by the Independent Commission Against Corruption (ICAC) following the release in the local press of the name of a woman under the ICAC witness protection program, in July. The Hong Kong Journalists Association, the Hong Kong Press Photographer Association, the Foreign Correspondents' Club, and the Society of Publishers in Asia all released statements during the year alleging that the PRC Central Government was "turning the screws" and putting media freedom at risk. The organizations cited such events as the February 2004 "patriotism" campaign instigated by Beijing (when some local pro-democracy figures were branded as "unpatriotic" because of their views on such issues as the 1989 Tiananmen Square massacre and Taiwan), the resignations of the three radio talk show hosts, and the ICAC raids as having "seriously threatened freedom of the press and freedom of expression." The Hong Kong Government reiterated its commitment to freedom of the press and free speech, stating that it would not tolerate any acts of violence or intimidation against the media and that it would investigate any allegations of violations of these freedoms.

Outspoken Commercial Radio talk show hosts Albert Cheng, Raymond Wong, and former NPC member Allen Lee all resigned from Commercial Radio between March and May 2004. In Mr. Lee's testimony to Legco – which was carried live on local television – he explained he had resigned after receiving a late-night phone call by a former Chinese Communist Party official that he felt was threatening. All three hosts have since returned to journalism: Mr. Cheng is a columnist and was elected as a Legislative Council representative in September 2004; Mr. Wong is back on Commercial Radio on Saturday nights; and Mr. Lee hosts a television talk show on Hong Kong Cable Television.

Local media roundly criticized the ICAC's July raids as heavy-handed and claimed it threatened Hong Kong's media freedoms. The Court of First Instance ordered the ICAC to set aside two search warrants against Sing Tao Daily regarding the case, but this ruling was contradicted in October when the Court of Appeal dismissed the ICAC's appeal on a technicality, saying it had no jurisdiction over a criminal case. However, if it had jurisdiction, the court stated, it would have dismissed the Court of First Instance's decision. The Hong Kong Journalists Association expressed concern over the "serious implication" on press freedom from the court's decision, which had reinforced the authorities' power to search and seize journalistic materials.

The Basic Law provides for freedom of association and assembly, and Hong Kong residents have enjoyed these fundamental freedoms during the reporting period. Over 8,400 societies have been registered since the 1997 reversion. No applications for registration have been denied. Demonstrations averaged over seven per day during the reporting period, well above the pre-handover rate. There were numerous demonstrations for and against the Hong Kong Government. On July 1, approximately 300,000 people marched through central Hong Kong as a follow up to the 2003 protest march demanding better governance. Under the law, demonstrators must notify the police for a march involving more than 30 persons and for an assembly of more than 50 persons. The police must give a clear reply within 48 hours if there is any official objection. Out of thousands of applications to hold public rallies or marches submitted since 1997, police have objected to 21, nine of which went ahead after organizers changed their routes.

Groups continued to be free to demonstrate on issues of sensitivity to China. On June 4, 50,000-80,000 people attended an annual candlelight vigil to commemorate the events in Tiananmen Square massacre of 1989. In January over 10,000 people attended a similar ceremony to mourn the passing of former PRC Communist Party General Secretary Zhao Ziyang, who was dismissed from his position as a result of his actions during Tiananmen. Hong Kong was the only city in China where such ceremonies openly took place. Falun Gong practitioners regularly conducted public protests against the repression of Falun Gong practitioners in mainland China. The Hong Kong Government has respected freedom of movement, freedom of immigration, and freedom to enter and leave the territory since the handover. In April and May, 41 Falun Gong practitioners attempting to enter Hong Kong to attend an annual Falun Gong conference were barred for "security reasons," but 350 other practitioners were admitted. Two Tiananmen Square-era student leaders were barred from entering Hong Kong to attend a conference focused on the Tiananmen Square massacre in May, although earlier in the year, other Tiananmen Square student leaders were allowed entry to engage in uncontroversial activities. In January, the Hong Kong Government declined to issue a visa to Taipei Mayor Ma Ying-jeou, who had been invited to participate in an academic conference. Widespread speculation was covered in the media to the effect that the decision to deny entry was prompted by Mr. Ma's opposition to Beijing's planned anti-secession law. Ma had previously been permitted to visit Hong Kong.

E. Judicial and Legal Developments

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. By law and tradition, the judiciary is independent and the Basic Law vests Hong Kong's highest court with the power of final adjudication. However, under the Basic Law, the Standing Committee of the NPC has the power of final interpretation of the Basic Law. Judicial appointments are made by a non-partisan commission that seems to operate well, although some have called publicly for the nomination process to be more transparent. Judges are well trained and highly qualified and the Court of Final Appeal includes distinguished justices from other Commonwealth jurisdictions who take part on a case-by-case basis.

Shortly after the September 2004 Legco elections, in response to a suggestion by Liberal Party Chairman James Tien that Article 23 "national security" legislation be re-introduced, Chief Executive Tung Chee-hwa announced that there were no plans to re-start the process. Tung stressed that the Government’s priorities were to revitalize the economy and to work out methods for selecting the Chief Executive and forming the Legco in 2007-2008. Government efforts to pass legislation enacting Article 23 of the Basic Law – requiring the SAR Government to enact legislation on its own, prohibiting treason, secession, sedition, subversion against the Central People’s Government, theft of state secrets, and links that are harmful to national security with foreign political organizations – abated after the Hong Kong Government formally withdrew its bill on September 5, 2003 in response to public pressure.

In November, 16 Falun Gong practitioners had their August 2004 convictions for obstructing the entrance of the Central Government Liaison Office overturned by Hong Kong’s Court of Appeal. In making the ruling, the three judges on the Court of Appeal asserted that "fundamental freedoms" of assembly, demonstration and expression were protected in Hong Kong under the Basic Law, the Bill of Rights and the International Covenant on Civil and Political Rights. The Court also upheld convictions against some of the Falun Gong members for obstructing and assaulting police during their March 2002 protest.

In December, the Hong Kong Government was forced to temporarily shelve a multi-billion dollar property privatization deal after a legal challenge from a public housing tenant. The postponement generated anger among many of the over 500,000 investors who bid on the listing. The claimant, who lost her case in two lower courts, is awaiting adjudication of her application for legal aid before making a decision on whether to appeal the case to the Court of Final Appeal.

F. Bilateral Agreements

There are more than a dozen U.S.-Hong Kong bilateral agreements currently in force, including a stand-alone Air Services Agreement, Extradition, Prisoner Transfer, and Mutual Legal Assistance Agreements that entered into force after reversion. These agreements have functioned very well, although Hong Kong legal requirements for "sovereign assent" by the PRC Government with respect to some forms of international liaison hindered timely cooperation and in rare instances resulted in denial of cooperation.

G. Suspensions under 204(a), Terminations under Section 204(d), or Determinations Relative to International Agreements under Section 201(b)

There were no suspensions under section 204(a), terminations under section 204(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.

V. U.S.-HONG KONG RELATIONS: April 1, 2004 to March 31, 2005

A. Economic-Commercial

Hong Kong remains one of the world’s most open economies, and U.S. companies continued to have a favorable view of Hong Kong's business environment, including its autonomous and impartial legal system, free flow of information, low taxes, and well-developed infrastructure. The American Chamber of Commerce's annual business confidence survey of its members, conducted in late 2004, showed that at least 97 percent of respondents anticipated that the business environment would be "good" or "satisfactory" over each of the next three years. U.S. and other foreign companies also continue to find Hong Kong attractive as a headquarters location for China and the wider Asia region.

Hong Kong maintains few non-tariff barriers and investment restrictions. Those remaining are in the area of professional services, such as the ability of doctors and lawyers to practice in Hong Kong. Although Hong Kong began opening its telecommunications market to greater competition starting in 1995, the Hong Kong Government recently agreed to consider loosening the requirement for the dominant fixed-line service provider to provide its competitors access to its customer access network at government-set rates. Proponents of such a move argue that it will spur further investment in Hong Kong’s telecommunications infrastructure, while critics worry such a change could signal the start of a roll back to the pro-competition measures that have increased consumer choice since Hong Kong first opened its fixed telecommunications market. In several other domestic service sectors, the absence of a general competition law and the high cost of local market entry have led to domination by major local companies.

Hong Kong has made significant progress over the past several years in fighting optical disc piracy and counterfeiting. Hong Kong Customs intelligence operations and raids on underground production facilities have shut down virtually all large-scale illicit manufacturing lines, forcing disc pirates to rely increasingly on smaller-scale copying technologies (such as disc-burners) or smuggled products. The Office of the U.S. Trade Representative regularly cites Hong Kong as a model in the Asia region for its strong overall protection of intellectual property rights and its tough enforcement against optical disc pirates.

Despite this positive track record, Hong Kong remains vulnerable to other types of infringement. Business-related end-use piracy is a serious problem for several U.S. industries, including publishers and business software makers. There are no criminal penalties for business-related piracy of printed works, although Hong Kong authorities have been able to use legislation passed in February 2004 to crack down on illegal copy shops that make and sell unauthorized copies for a profit. Business-related, end-use piracy of computer programs, movies, television programs, and music is a criminal offense under Hong Kong law, but Hong Kong still has one of the highest rates of business software piracy among advanced economies in the Asia-Pacific region. In September 2004, for the first time in almost two years, the SAR’s government prosecuted a business software end-use piracy case, winning guilty pleas from two of the defendents. The Hong Kong Government has initiated a consultation process aimed at amending provisions in the Copyright Ordinance dealing with criminal liability for end-use piracy, "fair use" exemptions from such liability, and related matters. The United States has urged the Hong Kong Government to take the steps necessary to achieve effective deterrence against end-use piracy.

Another area of vulnerability that is not unique to Hong Kong, but which is exacerbated by Hong Kong’s high rate of broadband connectivity to the Internet is the growing phenomenon of cyber-piracy. By using personal computers and the latest peer-to-peer technologies, cyber-pirates are able to upload and download entire feature-length films and other copyrighted works within minutes. According to the U.S. film industry, in November 2004 it found 2,446 Hong Kong IP addresses from which Internet users could download copyright-infringing movies for free, as opposed to only 107 such IP addresses in 2003. Hong Kong officials have set up a joint task force with copyright industry representatives and Internet service providers to track down online cyber-pirates engaged in unauthorized file-sharing and arrested a man for uploading movies to the Internet in January 2005. This case will test the applicability of the Copyright Ordinance to this form of piracy. The Hong Kong Government has repeatedly sought to deepen U.S.-Hong Kong cooperation in combating cyber crimes, including those involving protection of intellectual property.

A final area of vulnerability is patent protection for pharmaceutical products. Hong Kong’s health authorities continue to issue marketing approval to generic drugs that infringe on valid patents, thus implying government sanction for an infringing activity that leads to lost revenue for research-based pharmaceutical manufacturers. The United States has encouraged Hong Kong to consider instituting a link between the drug registration process and the patent system in order to address this problem.

Financial Secretary Henry Tang has indicated that the Government would follow a multi-pronged approach of reducing Hong Kong’s fiscal deficit by cutting expenditures, stimulating economic growth, selling Government bonds for capital projects, securitizing revenue streams from tolls, and studying the possibility of introducing a goods and services tax (GST). The Government’s revenues sharply increased in 2004 fueled by higher economic growth of approximately eight percent. Previously, deficits have been financed by running down fiscal reserves. Civil service unions agreed to a six percent pay cut, implemented in January 2004 and January 2005. Chief Executive Tung and other senior officials have reaffirmed the Government's commitment to the existing currency board exchange rate system linking the Hong Kong dollar to the U.S. dollar.

The Hong Kong Government is deliberating its policy toward agricultural biotechnology products and considering various labeling options. As yet, the Government has imposed no restrictions on agricultural biotechnology products. However, the government is proposing nutritional label laws for pre-packaged foods – initially, on a voluntary basis, later to be mandatory. The comment period for this proposal has ended, but no decision has been made. The U.S. Government is watching these consultations closely, as the adoption of any mandatory measures could affect U.S. exports to Hong Kong.

Hong Kong imposed a ban on U.S. beef effective December 24, 2003, following announcement of a BSE (bovine spongiform encephalopathy) case in the United States. Given that Hong Kong imported USD 80 million of U.S. beef (5 percent of U.S. exports to Hong Kong), in 2003, the cessation of imports in 2004 is significant. The Consulate General and visiting U.S. Government officials continue to urge the Hong Kong Government to lift the ban on U.S. beef on the basis of sound science and accepted international standards.

A February 2004 ban on U.S. poultry, with the exception of poultry products from the state of Texas, was lifted two months later in April. The restrictions on Texas were lifted in July after a Hong Kong technical team visit to the United States in June.

B. Export Controls

Hong Kong maintains an effective, highly autonomous, and transparent export control regime that the U.S. Government has encouraged others to emulate. In April 2004 the U.S. Department of Commerce Bureau of Industry and Security assigned an export control attaché to the U.S. Consulate General and in May 2004 the United States and Hong Kong held the ninth round of formal bilateral interagency export control consultations. These developments, have served to strengthen further the already strong U.S.-Hong Kong cooperation on export control matters.

The U.S. Consulate General export control attaché conducts pre-license checks (PLCs) and post-shipment verifications (PSVs) on a routine basis. The checks are conducted on companies in Hong Kong as part of the dual-use licensing process. As a result of the posting of an attaché, the Department of Commerce no longer sends Sentinel (formerly called "Safeguards") teams from Washington to perform such end-use checks. Likewise, Department of State and U.S. Customs officers carry out end-use checks on munitions items. In both instances, Hong Kong officials are neither informed of such checks nor involved in conducting the checks. These checks have been a key factor in evaluating Hong Kong’s effective export control system. Of the 28 PLCs that the export control attaché has completed since his arrival, 24 yielded favorable results, three yielded unfavorable results, and one yielded indeterminate results. Of the eight PSVs completed, seven yielded favorable results and one yielded indeterminate results. To date, not a single case involving violations of Hong Kong's strategic trade control laws has been uncovered as a result of these PSVs.

In March 2003, the U.S. Department of Commerce and Hong Kong’s Trade and Industry Department reached an agreement to share licensing enforcement information. Since then, the United States and Hong Kong have been able to cooperate on several matters that might involve violations of U.S. or Hong Kong dual-use export control laws. As economic interaction between Hong Kong and mainland China increases, the United States continues to monitor potential new vulnerabilities in the U.S. and Hong Kong export control systems; track individual cases that raise suspicions; collaborate with the Hong Kong Government to educate Hong Kong importers and end-users about their obligations under U.S. and Hong Kong law; and encourage the Hong Kong Government to maintain its vigilance in enforcing its strategic trade control laws.

Hong Kong has an active licensing system for both imports and exports of strategic trade, which reflects all the major multilateral export control lists. Recent enhancements to Hong Kong's export control system include the establishment of an online database of controlled items and the creation of an industry liaison position. Both of these initiatives aim to improve public outreach and education on Hong Kong's licensing regime.

To facilitate the growing flow of goods and people between Hong Kong and China, Hong Kong and PRC officials plan to locate their respective customs and immigration facilities on the mainland Chinese side of a proposed new border crossing that is expected to open in July 2006. The new border crossing will add to the four land border crossings that already exist with China. The Hong Kong Government is committed to retaining full legal authority to enforce Hong Kong law at this facility and along the bridge that will link this facility to Hong Kong territory. The legislature remained intent on passing a new law or laws if necessary to authorize Hong Kong law enforcement officers to conduct business on the other side of the border. The United States will continue to monitor the impact of co-location on the autonomy of Hong Kong’s export control system.

C. Law Enforcement Cooperation, Extradition, and Mutual Legal Assistance

Law enforcement cooperation remained a central pillar of U.S.-Hong Kong relations. The Consulate General is home to six law enforcement agencies: Drug Enforcement Administration (DEA), Federal Bureau of Investigation, Immigration and Customs Enforcement, U.S. Secret Service, Internal Revenue Service Criminal Investigation Division, and the Department of State’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 and precursor chemical control, commercial fraud, cyber crime, counterfeiting, credit card fraud, money laundering, violations of intellectual property rights, and general organized crime.

Particularly noteworthy was increased cooperation between Hong Kong Customs and DEA on drug precursor chemicals tracking and interdiction. For example, a joint Hong Kong Customs/DEA operation tracking exports of pseudoephedrine combination tablets from Hong Kong to Mexico for large-scale production of methamphetamine has resulted in the tracking and seizure of over 66 million tablets. These tablets could have been used to produce over seven tons of methamphetamine for eventual distribution in the United States.

U.S. law enforcement agencies in Hong Kong have conducted a number of training seminars with various law enforcement agencies in both Hong Kong and Macau during 2004-2005, including terrorism financing, money laundering, asset forfeiture and drug investigative training. In February, DEA Administrator Karen Tandy helped to open one of these seminars; she also served as keynote speaker at the "International Conference on Tackling Drug Abuse," organized by the Hong Kong Government. 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. During the period covered by this report, Hong Kong extradited seven people to the United States, while the U.S. Government extradited two to Hong Kong.

D. U.S. Military Ship and Aircraft Visits

Hong Kong is a regular port of call for the U.S. military. During the period of this report, 25 ships, including two aircraft carrier battle groups, visited Hong Kong. This is eight fewer visits than last year, reflecting the surge of ships to the Arabian Gulf in support of Operation Iraqi Freedom -- operations that left insufficient time for ships to visit Hong Kong on their return transit. However, the Seventh Fleet commander reiterated that his policy was to return to a pre-reversion level of 45-50 ship visits per year to Hong Kong. To emphasize this intention, an aircraft carrier battle group of eight U.S. Navy ships and some 8,000 sailors made port calls in Hong Kong in February. This represented the largest Navy presence in Hong Kong since 1997. The U.S. Navy continued to provide deck landing qualification support to Government Flying Service helicopters during these visits. Force protection support provided by local authorities has been excellent. Although Beijing has not approved the visit of any U.S. Navy P-3 aircraft to Hong Kong since the April 2001 EP-3 incident, more than 15 military aircraft missions other than P-3s have been approved. At the request of Hong Kong Civil Aviation Department, Hong Kong’s annual Search and Rescue Exercise was postponed until 2005. This exercise is the only multi-national exercise involving both U.S. and Chinese units.

E. Passport and Visa Regime

The Hong Kong SAR (HKSAR) passport is issued to PRC 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 concurrently hold BNO and HKSAR passports. The Hong Kong Government continued to seek visa-free access into the United States for HKSAR passport holders, who currently enjoy visa-free entry into 130 jurisdictions. 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 -- continues to be governed and limited by the terms of the Visa Waiver Program in section 217 of the Immigration and Nationality Act, 8 U.S.C. Section 1187. The United States currently issues ten-year multiple-entry visitor visas to qualified applicants, the maximum validity period available under U.S. law.

F. Cultural, Educational, Scientific, and Academic Exchanges

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. The Fulbright program in Hong Kong supports four U.S. lecturers and one to two American students in Hong Kong each year. The Hong Kong Government, through the Research Grants Council, funds post-graduate research in the United States for four Hong Kong academics for up to one academic year. The Hong Kong-America Center, which has been in operation since 1993 with support from five local universities and the Department of State, handles the selection of Hong Kong Fulbrighters doing research in the United States. The Department of State supports the University of Hong Kong's American Studies degree program by providing a Fulbright Scholar to the program each year. The Institute of International Education office in 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. The Department of State International Visitor Program supports a wide variety of professional exchanges for candidates sponsored by the Consulate General. In 2004-05, 14 individuals from Hong Kong and Macau, including journalists, politicians, NGO officers, Government and law enforcement officials, have traveled or will travel to the United States on study tours. There was an 19 percent rise in the number of student visas issued in 2004 versus 2003. This means that after the substantial decline in 2002-03, the number of students going to the United States in 2004 has recovered to roughly the same level as 2002.

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