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 You are in: Under Secretary for Political Affairs > Bureau of East Asian and Pacific Affairs > Releases > Reports > 2006

U.S.-Hong Kong Policy Act Report

As of April 1, 2006
As required by Section 301 of the United States-Hong Kong Policy Act of 1992, 22 U.S.C. 5731, as amended







A. Counterterrorism 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 (4/1/05-3/31/06)

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 participate actively and independently in a wide range of international organizations, most recently through its successful hosting of the December 2005 Sixth Ministerial Conference of the World Trade Organization (WTO). 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 mainland 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 highly professional police force 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 WTO, the Asia-Pacific Economic Cooperation (APEC) forum, and the Financial Action Task Force (FATF). 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 the mainland, including expansion of its free trade agreement with China, the Closer Economic Partnership Arrangement (CEPA).

Following the March 2005 resignation of Tung Chee-hwa, Chief Secretary Donald Tsang became Acting Chief Executive. In June, under a controversial interpretation of Hong Kong 's Basic Law by the PRC National People's Congress Standing Committee (NPCSC), Tsang was selected to serve the remaining two years of Tung's term. (A number of Hong Kong politicians, many of them in the democratic camp, had urged that the Chief Executive be elected for a new five year term.) In his first annual policy address on October 12, Tsang discussed his plan to create a “people-based” government focused on strong governance, social harmony, and economic development. In addition to reorganizing and strengthening the executive branch, he described plans to further enhance relations with the mainland, expand the powers and functions of the district councils, and seek ways to attract and develop new political talent. Tsang explicitly limited his discussion to proposals that could be achieved within the remaining twenty months of his current term. In the next few months, Tsang moved decisively to fill several key positions, restructure the office of the Chief Executive, and revive the moribund Commission for Strategic Development (CSD) as a center for policy analysis and recommendation.

On October 19, the Hong Kong Government's Constitutional Reform Task Force issued its Fifth Report, proposing limited changes to the electoral systems for the 2007 Chief Executive and 2008 Legislative Council (Legco) elections. Under Annex I of Hong Kong's Basic Law, any changes in the method for election of the Chief Executive must be endorsed by the Chief Executive and two-thirds of the Legco members, and also approved by the NPCSC. The Task Force's proposals were strongly opposed as inadequate by Legislative Councilors and other political and social leaders who advocate for progress toward the goal of universal suffrage and specifically, a timetable for implementation. After extensive debate, a large demonstration in favor of universal suffrage on December 4, and no timetable proposal from the Government, Legco members who advocated faster implementation of universal suffrage blocked enactment of the Chief Executive's proposals in late December. Following that defeat, Tsang emphasized that he would not offer any further proposals for electoral reform during the remainder of his current term, instead leaving the issue for consideration by the CSD. As a result, the next test for Hong Kong 's democracy prospects will be in connection with the 2012 Chief Executive and Legco elections, although the debate over the political future will continue. During the past year, the U.S. position on universal suffrage has been clear. The U.S. continued to support progress toward universal suffrage in accordance with the Basic Law and the aspirations of the Hong Kong people, who should determine the pace and scope of moving to universal suffrage. After the December march, the U.S. stated publicly and privately that the sooner a timetable for universal suffrage is set, the better.

The rule of law and an independent judiciary remain pillars of Hong Kong's open society. Freedom of speech, press, religion, assembly, association, and other basic human rights remained respected and defended in Hong Kong . Although there is some degree of self-censorship in the media, many of whose owners have business interests in the mainland or are otherwise inclined not to provoke mainland censors, t he press continued to publish a wide variety of news stories and opinions, including articles critical of the Chinese and Hong Kong Governments. Following public criticism of a June 2005 programming change by government-owned Radio Television Hong Kong (RTHK), seemingly in response to a Hong Kong Government recommendation, the Government formed a committee to examine its role as regulator of the RTHK. Separately, the Legco has assembled a multi-party committee to review the status of RTHK as an independent, publicly funded broadcaster. In February 2006, the Hong Kong office of the Falun Gong-owned Epoch Times newspaper was attacked and printing equipment was damaged. There were numerous public 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 approved by Beijing in 2005, bolstering Hong Kong 's reputation as an international hub.


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 assured 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 15th largest banking center, flourish in a largely open environment. In 2005, U.S. exports to Hong Kong totaled US$ 16.3 billion, making Hong Kong our 13th largest overseas export market. U.S. direct investment in Hong Kong through 2004 amounted to over US$ 43.7 billion. Approximately 1,200 resident American firms operate in Hong Kong. Hong Kong is home to an estimated 55,000 U.S. citizens (included in this total are many dual nationals not counted by Hong Kong authorities as resident Americans). Over 1.14 million U.S. citizens visited Hong Kong in 2005.

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, although some observers believe the level of self-censorship exercised by some media organizations has increased subtly in the past few years.

The success of arrangements under the Basic Law is in our interest and that of the region. U.S. interests are enhanced by Hong Kong's continued autonomy, stability, and prosperity; 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.


A. Counterterrorism 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 Council 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 revised special anti-terrorism recommendations of the Financial Action Task Force (FATF), 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 Suppression 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 superb. The joint CSI teams have not uncovered any weapons of mass destruction, but have found and seized several million dollars worth of counterfeit merchandise. Hong Kong and the United States also are engaged in 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. As a member of the FATF, Hong Kong continued to play an active and leading role in the anti-terrorism finance effort. 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 fifth consecutive year, military representatives from the U.S. Pacific Command Explosive Ordnance Disposal community participated in the Hong Kong police force bomb disposal officer-certification course. In its preparations for hosting the December 2005 WTO Sixth Ministerial Conference, and during the conference itself, Hong Kong police and security officials worked closely with U.S. Government agencies to ensure safety and security for the conference.

B. Autonomy

Under Article 2 of the Basic Law, the National People's Congress (NPC) of the PRC “authorizes the Hong Kong Special Administrative Region to exercise a high degree of autonomy and enjoy executive, legislative and independent judicial power, including that of final adjudication, in accordance with the provisions of this Law.” Although Hong Kong continued to exercise a high degree of autonomy across a broad range of sectors, the April 2004 decision by the NPCSC to preempt local debate on electoral reform and to rule out universal suffrage in the 2007 Chief Executive and 2008 Legco elections continued to constrain the implementation of universal suffrage and full democratization in Hong Kong . On April 27, 2005, the NPCSC -- in its third interpretation of Hong Kong's Basic Law since the 1997 handover -- ruled that Hong Kong 's next Chief Executive would serve only the remaining two years of the term of Tung Chee-Hwa, who had resigned the previous month. Although the Hong Kong Government had requested this interpretation, these two NPCSC interpretations of Basic Law provisions severely tested Hong Kong 's political autonomy under the principle of “one country, two systems.” In 1999, the NPC offered an interpretation of the Basic Law with respect to residency rights in Hong Kong , but this also was done at the request of the Hong Kong Government.

As provided for in the Basic Law, Hong Kong's defense and foreign affairs are 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, the Asian Development Bank, APEC, the Bank for International Settlements, and the World Customs Organization. In 2005, Hong Kong continued to participate actively in all these multilateral fora, and successfully hosted the WTO Sixth Ministerial Conference in December 2005.

Hong Kong 's high degree of economic autonomy has remained intact. 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 mainland China continued to expand the CEPA, a free trade agreement for Hong Kong-origin goods and selected service sectors in the mainland. The agreement originally was implemented at the beginning of 2004 and since then has been expanded three times, most recently at the beginning of 2006. CEPA now allows all Hong Kong-origin products to enjoy tariff-free access to mainland China and also gives preferential treatment to service providers in 27 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 has been a major factor in Hong Kong 's improved economic performance since 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 mainland 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. There were no PLA Navy ship visits to Hong Kong in 2005, but the October 1 open house at Stanley Barracks 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 close cooperation between the Hong Kong Government and the U.S. Government in law enforcement, particularly in the apprehension and extradition of fugitives, is an important indicator of the exercise of a high degree of autonomy.

C. Political System

Under Articles 45 and 68 of the Basic Law, the methods used for the selection of the Chief Executive and the Legco shall, “in the light of the actual situation” and “in accordance with the principle of gradual and orderly progress,” advance toward the “ultimate aim” of election by universal suffrage. The Basic Law, however, does not specify a complete time frame for such progress. Currently, as defined in the Basic Law, a selection committee comprised of 800 Hong Kong residents selected through a variety of means, some who are elected by one of four constituent sectors, 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 terms of the Basic Law. This system will remain in force through the July 2007 Chief Executive and September 2008 Legco elections.

The most important political developments during the year were:

  • the April 2005 accession of former Chief Secretary Donald Tsang to Acting Chief Executive, replacing Tung Chee-hwa, and the controversy regarding the NPCSC intervention to set the length of his term of office (Tsang formally became Chief Executive office on June 21);
  • the ground-breaking visit, led by Chief Executive Tsang, of 59 of Hong Kong's 60 Legislative Councilors to Guangdong Province in September 2005; and
  • the issuance of the Chief Executive's proposals for constitutional reform in October 2005, followed by intense public debate, a massive December 4 rally against the proposals, and their eventual rejection by the Legco in December.

Following the March 10, 2005 resignation of Chief Executive Tung and his subsequent election as Vice Chairman of the Chinese People's Political Consultative Committee (CPPCC), Chief Secretary Donald Tsang became Acting Chief Executive. According to Hong Kong's Basic Law, under such circumstances a new Chief Executive must be elected within six months. Accordingly, on March 12, Tsang announced that an election to fill the office would be conducted on July 10 by the existing 800-member Election Committee, which had been selected for a five-year term in 2000. At the same time, Acting Chief Executive Tsang also announced that whoever was selected by the Election Committee would only serve the remaining two years of Mr. Tung's term, rather than a full five-year term. On the same date, Secretary for Justice Elsie Leung announced that, revising her May 2004 interpretation, she now had concluded that the intention of the Basic Law was that a replacement Chief Executive should only serve the remainder of the departing Chief Executive's term. This decision generated considerable controversy, including criticism from the Hong Kong Bar Association, the Legal Society, and prominent legal scholars in Hong Kong .

The Hong Kong legal community's consensus view was that the only term for a Chief Executive specified in the Basic Law was five years.

On April 6, the Government submitted the Chief Executive Election (Amendment) (Term of Office of the Chief Executive) Bill to the Legco for a second reading. That bill amended the election law to specify that a successor who fills a mid-term vacancy of the Chief Executive's office would serve the remainder of the incumbent's term, rather than a new five-year term. On the same date, independent Legco member Albert Chan announced that he would submit an application for judicial review to challenge the proposed amendment to the Chief Executive Election Bill. Also on April 6, Acting Chief Executive Donald Tsang told the Legco that the HKSAR Government would request the PRC State Council to interpret Article 53 of the Basic Law concerning the term of office issue.

On April 12, NPCSC Deputy Secretary General Qiao Xiaoyang discussed the Chief Executive term of office issue with 82 representatives of Hong Kong 's legal community in Shenzhen, PRC. At that time the Article 45 Concern Group, some of whose members attended the meeting, delivered a letter to Qiao urging NPCSC restraint in its interpretations of the Basic Law. On April 21, seven of the most vocal advocates for universal suffrage from Hong Kong 's Legco participated in a second round of discussions in Shenzhen. On April 19, approximately 800 Hong Kong legal professionals, law students, and others, including seven former Hong Kong Bar Association Chairmen and eleven current Legco members, conducted a silent march from Hong Kong 's High Court to the Court of Final Appeal to protest NPCSC interpretation of the Basic Law. On April 24, a second protest march, organized by the Civil Human Rights Front, drew approximately 1,500 participants.

On April 27, the NPCSC, in its third interpretation of the Basic Law since the 1997 handover, formally ruled that Hong Kong 's next Chief Executive would serve only the remaining two years of Tung Chee-hwa's term. All 154 NPCSC members reportedly approved the ruling. The legal basis for the determination was derived from the April 2004 NPCSC determination that the third Chief Executive would be elected in 2007. On April 30, Albert Chan withdrew his application for judicial review. Vacancies on the Election Committee were filled through by-elections on May 1, with a 15 percent turnout rate.

On May 25, the Legco passed the Chief Executive Election Bill, after which Donald Tsang announced that he had submitted his resignation to the State Council in order to run for Chief Executive. Two Legco members, Democratic Party Chairman Lee Wing-tat and independent legislator Chim Pui-chung, already had announced their candidacies for Chief Executive. During the first round of the election, held June 3-16, candidates needed to gain the support of at least 100 of the 800 Election Committee members; Donald Tsang secured 710 nominations; Lee Wing-tat, 51; and Chim Pui-chung, 20. As the only candidate with at least 100 nominations, Tsang automatically became the Chief Executive-designate. On June 21, PRC Premier Wen Jiabao signed the appointment decree and Tsang assumed office.

In late September, Chief Executive Tsang proposed and organized a two-day visit to the Pearl River Delta region of Guangdong Province in southern China for 59 of the 60 Legco members. (One Liberal Party member did not participate due to a prior overseas travel commitment.) This was the first time that all Legco members had been invited to the mainland. Eleven pan-democratic members who did not have valid PRC home return permits received single-entry permits for their travel. The visit included a meeting with Guangdong Province Communist Party Secretary Zhang Dejiang, with whom the group engaged in discussions of democracy in Hong Kong and of the 1989 Tiananmen Square massacre. Following the visit, Tsang said he hoped the Legco would organize further trips to the mainland; in December, the Legco Transport Panel visited Guangdong for meetings with their provincial counterparts.

In his first policy address on October 12, Chief Executive Tsang focused on three broad themes: strong governance, social harmony, and economic development. In the following months, he implemented several significant changes in the Government to improve its effectiveness. He appointed, with Beijing's approval, a new Secretary for Justice (see Section IV, Part E); restructured and strengthened the Office of the Chief Executive; added eight new members, including one universal suffrage activist and former Democratic Party Vice Chairman, to the Executive Council, which functions as his Cabinet; revamped the CSD as a center for policy analysis and recommendation; and announced his intention to include more political appointees in his administration.

On October 19, Hong Kong's Constitutional Development Task Force, which was established in January 2004 to conduct public consultations and prepare recommendations for reform, released its fifth and final report. The report's proposals, conforming with the April 2004 NPCSC determination concerning the 2007 Chief Executive and 2008 Legislative Council elections, recommended the following: a) expansion of the Legco from 60 to 70 seats, with five new seats directly elected from geographical constituencies and five elected by all 529 District Councilors (of whom 427 currently are directly elected and 102 are appointed); b) enlargement of the Chief Executive Election Committee from 800 to 1,600 members, with all District Councilors as well as additional representatives of the commercial, social and professional sectors joining the Committee; and, c) requirement that candidates for Chief Executive have 200 nominations from the Committee to contest the second round of the Chief Executive election. The Government announced that the Task Force's proposals would be submitted, in the form of two resolutions, to the Legco on December 21. As amendments to the Basic Law, they would require approval by at least two-thirds (40 of 60) of the Legco members.

Following the release of the Government's proposals, Legco members demanding faster progress toward universal suffrage vowed to oppose the proposals and began to organize a mass rally and march for December 4. They specifically called for a timetable for implementation of universal suffrage and criticized the proposed role of the appointed District Councilors in the electoral system. As the debate continued through November, the democrats received support from several professional organizations and religious leaders, most notably then-Bishop (now Cardinal) Joseph Zen of the Hong Kong Catholic Diocese. Conversely, the PRC's Central Government Liaison Office in Hong Kong voiced support for the Chief Executive's plan, saying that the proposals “accord to the Basic Law and the interpretation of the Standing Committee of the National People's Congress.”

On November 29, NPCSC Deputy Secretary General Qiao Xiaoyang invited Chairs and Deputy Chairs of the Legco Committees, District Council Chairs, and various community representatives to a December 2 meeting in Shenzhen to exchange views on constitutional reform with PRC officials. Although all four Article 45 Concern Group legislators declined to participate due to other commitments, a number of leading members of the pan-democratization camp in the Legco attended, including several who previously were not permitted to travel to the mainland. The success of the December 4 rally, which drew an estimated 100,000-150,000 participants, surprised many observers and clearly indicated that the Chief Executive's reform proposals were in trouble.

On December 21, the Legco rejected the Government's two proposals; 24 of the 25 democrats opposed the bills, with one abstention. In a press conference following the vote, Chief Executive Tsang emphasized that he would not propose any further constitutional reforms for the remainder of his current term, instead leaving consideration of the issue to the CSD. The initial public reaction from the central government was limited and mild. On December 22, a spokesman for the Hong Kong-Macau Affairs Office noted that the outcome was not what the Beijing and Hong Kong Governments and the Hong Kong people wanted. More strongly, a “China Daily” editorial said that opponents of the reform proposals should bear responsibility for bringing the political system to a standstill. A number of local NPC deputies also criticized the pan-democracy Legco members for rejecting the Government's reform package, saying they had let the Hong Kong people down.

Several minor technical adjustments to the law are required for conduct of the 2007 and 2008 elections; as of March 2006, the Legco was considering legislation to implement those changes. Absent any new initiatives, the next opportunity for significant progress toward universal suffrage will be the 2012 Chief Executive and Legco elections.

Throughout the debate, the U.S. position on universal suffrage has been clear. The U.S. continued to support progress toward universal suffrage in accordance with the Basic Law and the aspirations of the Hong Kong people, who should determine the pace and scope of moving to universal suffrage. After the December march, the U.S. stated publicly and privately that the sooner a timetable for universal suffrage is set, the better.

D. Civil Liberties

Freedom 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 2005 decision of the NPC's Standing Committee limiting the length of term for the Chief Executive. The press also devoted considerable coverage to various issues in Taiwan, Falun Gong activities, social unrest in the mainland, and 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 practicing self-censorship; the Hong Kong Journalists Association noted this concern in its 2005 annual report. 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.

The detention by Beijing of Hong Kong resident and British National (Overseas) passport holder Ching Cheong, a Singapore Straits Times correspondent arrested in Guangzhou on April 22, 2005, has continued to have a chilling effect on other Hong Kong journalists who travel to the mainland, or report on mainland affairs. The PRC Foreign Ministry announced on May 31 that Ching was detained on suspicion that he provided intelligence information to a foreign agency. On June 28, Chief Executive Tsang reported to the Legislative Council that he had raised Ching's case with state leaders in Beijing. On August 5, Ching was formally arrested on charges of spying for Taiwan. Chief Executive Tsang again raised the issue with Premier Wen Jiabao in their December 28 meeting and reportedly was told that the case was being actively pursued. As of March 2006, Ching remained in detention without trial due to the “complex” nature of the case. The U.S. Government has raised this case with Chinese authorities.

Several other specific incidents reflected continuing sensitivities regarding press freedom in Hong Kong. In July 2005, a radio talk show host resigned his position, claiming he was denied a primetime slot because of his outspoken views. In March 2006, the media reported that RTHK was planning to offer the talk show host another program slot. Subsequently, however, he decided to run for a Legco seat in 2008, which would conflict with employment at RTHK. In June 2005, the government-owned RTHK discontinued live broadcasts of horse racing following a suggestion by then-candidate for Chief Executive Donald Tsang that the program already was being broadcast by commercial radio stations. In January 2006, in response to the ensuing controversy that included allegations of unwarranted and inappropriate control of RTHK, the Government announced the establishment of an independent seven-member committee to review public service broadcasting, including its structure, financing, governance, management, programming, and public accountability. The committee will consult the industry and community, as well as examine overseas models, before making recommendations that could affect RTHK. Some observers worried that the committee could transform RTHK into a government mouthpiece. Committee Chair Raymond Roy Wong, the former head of RTHK's TVB news section, stated that he would not have accepted the appointment had there been “any hint” of using the review for such an outcome.

In November 2005, two employees of the local daily newspaper Ming Pao were slightly injured by a small package bomb that was addressed to the paper's editor. An accompanying letter denounced the paper's executives for publishing an unspecified article. To date the perpetrator's identity and motivation remain unknown. Also, in late February 2006, the Hong Kong press reported that four hammer-wielding men broke into the printing office of the Falun Gong's Epoch Times newspaper and damaged the newspaper's printing equipment. Falun Gong representatives alleged that the attack was part of a broader campaign against their organization by the PRC Government. As of mid-March, the police investigation of the incident was continuing.

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 of societies have been denied, and the government routinely issues the required permits for public meetings and demonstrations. Under the law, demonstrators must notify the police of a march involving more than 30 persons and of an assembly of more than 50 persons. The police must give a clear reply within 48 hours if there is any official objection.

During the first half of 2005, there were 834 public meetings and processions, roughly half of which required notification. Many of these activities concerned local Hong Kong issues, but some also involved subjects that are sensitive to the central authorities. For example, on June 4 approximately 30,000 people attended the annual candlelight vigil to commemorate the anniversary of the 1989 Tiananmen Square massacre. On July 1, somewhere between 15,000 and 50,000 people marched through central Hong Kong in support of universal suffrage, workers rights, gay rights, and other social causes. As noted above, on December 4 an estimated 100,000-150,000 people demonstrated against the Government's proposals for constitutional reform. All of these events were legally sanctioned and peaceful. Falun Gong practitioners participated in some of these events and also regularly conducted public protests against the repression of Falun Gong practitioners in mainland China. In May, the Hong Kong Court of Final Appeal overturned the convictions of eight Falun Gong practitioners who had been charged with obstructing and assaulting police officers during a protest in 2002. The ruling was viewed as an important affirmation of Hong Kong's fundamental freedom of assembly, demonstration, and expression under the Basic Law. During the WTO ministerial meeting in December 2005, approximately 1,000 protestors, most of whom were not Hong Kong residents, clashed with police, who responded with tear gas, pepper spray, and water cannons. While some groups alleged police brutality, most observers said the police responded appropriately.

The Hong Kong Government has respected freedom of movement, freedom of immigration, and freedom to enter and leave the territory since the handover. Unlike in previous years, no Falun Gong practitioners were denied entry to Hong Kong in 2005. In the months leading up to the Sixth WTO Ministerial Conference in December 2005, the Government said it would not allow violent protestors to enter Hong Kong , although it denied having a “blacklist.” Apart from one French activist and three Filipino activists who were detained temporarily at the airport before being allowed to enter, there were no reports that immigration officials denied entry to demonstrators. On the contrary, some media reports criticized the Government for allowing known activists to enter 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 NPCSC 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.

On July 5, a District Court halted a bribery case brought by the Independent Commission Against Corruption (ICAC), on the grounds that ICAC and, more generally, the Hong Kong Government, did not have legal procedures to authorize covert surveillance in criminal investigations. Consequently, on August 5, Chief Executive Tsang issued the “Law Enforcement (Covert Surveillance Procedures) Order” to provide interim regulation of the use of covert surveillance by law enforcement agencies. Some Hong Kong law enforcement agencies, including the ICAC, had been criticized for allegedly abusing their powers to use covert surveillance without legal authorization. On August 8, the Hong Kong Bar Association issued a statement that the Chief Executive could not claim the power to authorize covert surveillance when such surveillance might infringe the fundamental rights of Hong Kong residents. On August 16, independent democratic legislator Leung Kwok-hung, together with Koo Sze-yiu of the “April Fifth Action Group,” filed an application for judicial review with the High Court to overturn the Chief Executive's order on the grounds that it was a breach of the Basic Law. On November 7, the Court of First Instance rejected the Government's application to adjourn the judicial review, and on February 9 the High Court ruled that the August executive order had no legal effect. The judge, however, suspended the effect of his ruling for six months to allow the Government time to enact new legislation. As of March 2006, legislation had been submitted to the Legco and was under debate.

On October 20, 2005, Chief Executive Tsang announced that the NPCSC had approved his recommendation to appoint the well-known and highly regarded Hong Kong barrister Wong Yan-lung as Secretary for Justice, to replace the retiring Elsie Leung. The appointment of Wong was greeted with broad approval. During the press conference following his appointment, Wong said he had participated in demonstrations against the NPCSC's interpretation of the Basic Law in 2005 because he was concerned about its impact on the Hong Kong legal system.

In early 2006, the Hong Kong Government decided to pursue legal action against a junior officer assigned o the Hong Kong PLA Garrison. The officer was charged with theft from Hong Kong Disneyland.

In early March 2006, Hong Kong media reported that the NPCSC had decided to reshuffle the membership of the joint Hong Kong-PRC Basic Law Committee. NPCSC Deputy Secretary General Qiao Xiaoyang remained Chairman, NPC Legislative Affairs Commission Vice Chairman Li Fei was promoted to Committee Vice Chair, and four new mainland representatives were appointed. Former Hong Kong Secretary for Justice Elsie Leung was named Vice Chairman while the other five Hong Kong members remained unchanged. The media and other observers have suggested that the reshuffle would result in a more activist approach by the committee.

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, as well as 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, 2005 to March 31, 2006

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 2005, indicated that 96 percent of respondents reported “very satisfactory” or “somewhat satisfactory” levels of confidence in Hong Kong's economy and business environment, while 98 percent expect “good” or “satisfactory” conditions to prevail over 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.

The Hong Kong Government pursues a market-oriented approach to commerce. Hong Kong is a duty-free port, with few barriers to trade in goods or services and few restrictions on foreign capital flows and investment. The few remaining non-tariff barriers and investment restrictions are in the area of professional services, such as the ability of doctors and lawyers to practice in Hong Kong . 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. The Competition Policy Advisory Group (COMPAG), led by the Financial Secretary, has appointed an independent committee to review the COMPAG's composition and the effectiveness of existing competition policy. It will also consider whether additional measures, including legislation, are needed to ensure fair competition. The review is scheduled to be completed in mid-2006.

As a result of changes to legislation and regulations in recent years, there are no significant trade barriers with regard to telecommunications or electronic commerce. Hong Kong completed its liberalization of the fixed line telecommunications network services market on January 1, 2003. There are no limits on the number of licenses issued and no time limit for submitting license applications. In July 2004, the Hong Kong Government announced that it would withdraw its interconnection policy for local fixed-line telecommunications services by June 30, 2008. Interconnection charges will then be subject to commercial negotiation between the operators concerned.

U.S. banks licensed in Hong Kong have been permitted to provide renminbi (RMB) services since November 2004. In November 2005, banks in Hong Kong were permitted modest increases in the scope of RMB business they can offer to clients, but Hong Kong banks cannot extend RMB-denominated loans. The October 2002 U.S.-Hong Kong civil aviation agreement significantly expanded opportunities for U.S. carriers, but some restrictions on frequencies and routes remain. During 2005, the U.S. Government continued its dialogue with the Hong Kong Government on these limitations, but there have been no changes to date.

The Hong Kong Government continues to maintain a robust IPR protection regime. Hong Kong has strong laws in place, a dedicated and effective enforcement capacity, and a judicial system that supports enforcement efforts by sentencing those convicted of some IPR violations to prison. However, there are vulnerabilities with regard to some forms of infringement. The U.S. Government continues to monitor the situation and to urge that Hong Kong's IPR protection efforts are sustained and that problem areas are addressed.

The Hong Kong Government has continued public education efforts to encourage respect for intellectual property rights and has re-launched its “no fakes” campaign with local retailers who pledge to sell no counterfeit or pirated goods. Hong Kong authorities also continue to conduct aggressive raids at the retail level and to act against vendors who advertise illegal products over the Internet. Hong Kong Customs intelligence operations and raids on underground production facilities have closed most large-scale manufacturing operations for pirated goods, prompting many producers of pirated optical media to switch to computers or CD burners to produce illicit copies and forcing retailers to rely increasingly on smuggled goods. Despite the crackdown on large-scale illicit manufacturing, there is still concern about Hong Kong's licensed optical media production lines, which give the territory an overcapacity that must be carefully monitored. Although infringing products remain, the volume of openly marketed pirated optical media found in retail shopping arcades has decreased significantly.

Hong Kong's IPR enforcement efforts have helped reduce losses by U.S. companies, but end-use piracy, the rapid growth of peer-to-peer downloading from the Internet, and the illicit importation and transshipment of pirated and counterfeit goods, including optical media and name brand handbags and apparel from mainland China and elsewhere in the region, are continuing problems. The software industry estimates that Hong Kong's software piracy rate was 52 percent in 2004, placing Hong Kong well above the software piracy rates in other advanced economies and resulting in losses of approximately $116 million to rights-owners.

The Hong Kong Government continues to take action on each of these problems. In October 2005, in the first successful case of its kind in the world, Hong Kong convicted a man for using BitTorrent file sharing technology to distribute illegally on the Internet three Hollywood movies; he was sentenced to three months imprisonment. The Hong Kong Government issued a press release at the time of the conviction quoting the Secretary for Commerce, Industry, and Trade as stating that the posting of copyrighted materials in Hong Kong using BitTorrent dropped 80 percent in the wake of the man's arrest ten months before. Hong Kong Customs routinely seizes IPR-infringing products from mainland China . Hong Kong officials have also established a joint task force with copyright industry representatives to track down online pirates using peer-to-peer networks for unauthorized file sharing.

In November 2005, Hong Kong Customs and four local Internet Service Providers (ISPs), trade associations and IPR owners of a number of brand names launched a new program, “E-Auctioning with Integrity,” to prevent and stop piracy activities at auction sites. Under the program, ISPs step up their monitoring of goods auctioned on their sites and remove IP violating items when the IPR owners alert the ISPs of the suspected counterfeit goods being auctioned. The information on the auction sites will be passed on to the Hong Kong Customs for investigation.

U.S. pharmaceutical companies are concerned that the Hong Kong Department of Health continues to issue marketing authorizations for potentially patent-infringing pharmaceutical products. The local pharmaceutical industry association (which represents a number of U.S. and other international firms) submitted a proposal to the Hong Kong Government in 2004 that would give patent holders an opportunity to commence legal action against infringing generics before their marketing authorization applications are processed by the Department of Health. However, the Department of Health has not agreed to undertake the required process to amend its pharmaceutical registration law. In addition, the industry has concerns about sales of counterfeit pharmaceuticals, which threaten consumer safety and brand reputation, and it seeks more vigorous enforcement and tougher penalties to deter this kind of illicit trade. The U.S. Government continues to urge the Hong Kong Government to address both the patent protection and counterfeiting issues as they pertain to pharmaceutical products.

Amendments to the Copyright Ordinance that provide tougher measures against illicit copy shops took effect on September 1, 2004. The Hong Kong Government also plans to introduce new end-user piracy related Copyright Ordinance amendments in the Legco for consideration and enactment before the end of July 2006. The current draft of the amendments seems to be geared toward liberalization of the legislative measures governing the enforcement of copyright regulations. Of particular concern are revisions regarding business software end-use piracy, the introduction of fair use and safe harbor provisions for copyrighted works, and the reduction of parallel import periods. An additional concern is that the Hong Kong Government plans to propose a blanket exclusion on the fair use of copyrighted works by educational institutions and public administration for all types of media, printed and digital. This is a particular concern because under Hong Kong law certain commercial enterprises can be categorized as educational institutions.

Financial Secretary Henry Tang's budget proposal for 2006 projected a small revenue surplus for the 2005-06 budget period, due to strong recent economic performance. The Government's consolidated and operating budgets both now are in balance for the first time in eight years, and government expenditure amounts to less than twenty percent of GDP. Currently, approximately one-third of Hong Kong's workers pay income taxes. Tang also said the Government would announce details in mid-2006 of a plan for a consumption tax (Goods and Services Tax, or GST), and that this would be followed by public consultations. The Hong Kong Government remains publicly committed to the existing currency board exchange rate system linking the Hong Kong dollar to the U.S. dollar.

At present, there is no labeling requirement for biotech foods. The Hong Kong Government is considering adopting voluntary labeling and pre-market safety assessment for biotech foods but has set no timetable for implementation. The proposal of voluntary labeling and mandatory pre-market safety assessment was delivered to the Hong Kong Legislative Council for discussion in March 2003.

The Hong Kong Government intends to implement a mandatory nutrition labeling system. According to the latest proposal, nutrition labeling will be introduced in two phases and all prepackaged foods will eventually be subject to nutrition labeling. The administration aims to introduce the legislative amendments to the Legislative Council in 2006/07. With the provision of a grace period, 2010 would be the earliest that nutrition labeling would take full effect. The USG concern, which has been conveyed to the HKG, is that any nutritional labeling requirements should conform with existing U.S. and international labeling standards.

On December 29, 2005, the Hong Kong Government lifted the ban on imports of U.S. beef that it had imposed on December 24, 2003, following announcement of a BSE (bovine spongiform encephalopathy) case in the United States . The estimated cost to the U.S. beef industry in terms of lost exports during the two-year ban was USD 160-200 million. During the ban, the Consulate General and numerous visiting U.S. Government officials repeatedly urged the Hong Kong Government to lift the ban on U.S. beef on the basis of sound science and accepted international standards.

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 (BIS) assigned an export control officer (ECO) to the U.S. Consulate General, and in May 2005 the United States and Hong Kong held the tenth round of formal bilateral interagency export control discussions in Washington . The next round is scheduled for Hong Kong in May 2006. These developments have served to strengthen further the already strong U.S.-Hong Kong cooperation on export control matters.

The ECO 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. Likewise, Department of State and U.S. Immigration and Customs Enforcement (ICE) officers carry out end-use checks on munitions items, including for example handguns and ammunition as well as military goods. In both instances, Hong Kong officials are neither informed of such checks nor involved in conducting the checks. The U.S. signed a Customs Mutual Assistance Agreement with Hong Kong on June 13, 1996.

During the period from April 1, 2005 to March 31, 2006, the ECO conducted 30 PLCs, of which 22 yielded favorable results, six produced unfavorable results, and two were inconclusive. “Unfavorable” findings included absence of the company at the listed address, determination that the goods in question were not destined for Hong Kong, and/or unwillingness of the company's representatives to respond to the ECO's questions. During the same period, the ECO conducted 26 PSVs, of which 22 were favorable, three unfavorable, and one not conclusive. 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. Additionally, on October 31, 2005, BIS published a notice in the Federal Register adding one Hong Kong Company to the Unverifed List as an entity whose bona fides as an end-user could not be verified. In March 2003, the U.S. Department of Commerce and Hong Kong 's Trade and Industry Department reached an agreement to share licensing and enforcement information. Since then, the United States and Hong Kong have cooperated 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 mainland 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 early 2007. The new border crossing will add to the four land border crossings that already exist with mainland 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 (FBI), 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 the continuing close cooperation between Hong Kong Customs and the DEA on drug precursor chemicals tracking and interdiction. In February 2006, the DEA and Hong Kong Customs hosted the Chemical Precursors Conference in Hong Kong. Approximately sixty delegates from twelve countries, as well as the European Union and the International Narcotics Control Board, attended the conference, the purpose of which was to improve coordination of production and shipment of chemical precursors commonly used for manufacture of methamphetamine and related substances. Such coordination would help concerned countries assess worldwide production levels, estimate legitimate needs, and ascertain quantities diverted to the black market.

In March 2006, FBI Deputy Director Pistole visited Hong Kong for discussions with the Hong Kong Police Department, Security Bureau, and Justice Bureau on bilateral law enforcement cooperation. In February 2006, an FBI delegation visited Hong Kong for discussions with Police and Customs officials on currency counterfeiting issues.

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 2005-2006. U.S.-Hong Kong agreements on extradition, prisoner transfer and mutual legal assistance, in force since 1998, 1999, and 2000, respectively, all continued to function smoothly in most instances. During the period covered by this report, the U.S. Government extradited one person to Hong Kong; and one Thai national was extradited from Hong Kong to the U.S. As of March 10, 2006, one case was pending and may be concluded shortly.

The Hong Kong Government responded quickly and cooperatively to requests for assistance regarding terrorism and money laundering. After the U.S. Department of the Treasury designated the Macau-based Banco Delta Asia (BDA) as a bank of “primary money laundering concern,” the Hong Kong Monetary Authority (HKMA) appointed a manager to take over BDA's Hong Kong-based holding company, Delta Asia Credit (DAC), and to manage its operational and administrative affairs. As long as the HKMA-appointed manager remained in place, DAC was no longer under instruction from BDA or its shareholders.

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, 33 ships, including three aircraft carrier strike groups and, for the first time in over two years, two expeditionary strike groups (Marines), visited Hong Kong. This level of activity is on track to increase the number of visits to the pre-reversion level of 45-50 ship visits per year to Hong Kong, as desired by the U.S. Seventh Fleet Commander. 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, every military aircraft mission other than P-3s has been approved. The Hong Kong Civil Aviation Department has indicated that the U.S. will be invited to the 2006 Search and Rescue Exercise.

E. Passport and Visa Regime

The Hong Kong SAR (HKSAR) passport is issued to Chinese citizens holding Hong Kong permanent identity cards and having the right of abode in the HKSAR. 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 135 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. In 2005, for the first time, two American corporations agreed to support two Hong Kong graduate students' research in the United States under the auspices of the Fulbright Program. 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, traveled to the United States on study tours. There was a 5.5 percent increase in the number of student visas, including students, exchange visitors and their dependents, issued in 2005 versus 2004.

April 27, 2006

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