China’s Accession to the wto and the Legal Services in Hong Kong

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China’s Accession to the WTO and

the Legal Services in Hong Kong

A Speech by the Secretary for Justice, Miss Elsie Leung,

in Sydney, Australia on Thursday, 21 February 2002


Mrs Wallis, Ladies & Gentlemen,

I last visited Sydney in June 1997, shortly before the People’s Republic of China resumed the exercise of sovereignty over Hong Kong. On that occasion, the people I met were most concerned about whether former Hong Kong residents could travel in and out of Hong Kong freely, whether the economic, social and legal systems of Hong Kong could be maintained and the life-style remain unchanged after 1997. Fortune Magazine had announced that “Hong Kong is dead”. Now that more than 4 years and seven months have elapsed, it gives me great pleasure to be here again, and to confirm that the doomsday prophecy of Fortune Magazine did not come true, and the things people were afraid would happen did not happen. This is reflected by the fact that the Fortune Magazine held its Global Forum in Hong Kong in May last year. Chinese nationals who were permanent residents of Hong Kong before Reunification, and who are still ordinarily resident in Hong Kong, continue to enjoy the right of abode even if they have acquired Australian nationality. Even those who are no longer permanent residents of Hong Kong, because they acquired Australian nationality and ceased to be ordinarily resident in Hong Kong, have retained their right to land, the right to unconditional stay, and the right not to have removal orders made against them. The economic, social and legal systems and life-style have remained unchanged.
2. You may, perhaps, expect me, as Secretary for Justice of the Hong Kong Special Administrative Region, to speak about the Rule of Law, Judicial Independence, Law and Order, etc. These are issues close to my heart and are matters about which I have spoken on numerous occasions in the past 4½ years. I shall be glad to answer questions on any of these issues, whether they are sensitive or not, because it is the Government’s job to provide members of the public and the international community with information on our action and policies.
3. Tonight, I would like to talk about China’s Accession to the WTO and how Australians may use legal services in Hong Kong when entering into the Chinese market.

Implications of China’s accession to WTO

4. China’s accession will have enormous and far-reaching effects. With a population of over 1.2 billion, China’s entry will undoubtedly be a boost for economic globalization. The Recital in the WTO Establishment Agreement proclaims –

“…[multilateral] relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and … allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development … and seeking to protect and preserve the environment …
5. As well as raising standards of living in China, membership of WTO will be a catalyst for the development of its legal system. A comprehensive set of published laws, coupled with a stable and transparent legal system, are fundamental to investors’ confidence. The reform of China’s laws is, of course, already well under way. A new Securities Law and a unified Contract Law are two examples. Accession to WTO will increase the momentum for change. Legal procedures must be more transparent and there must be finality of proceedings. The Chinese Judiciary has been pushing hard with reforms.
6. Foreign investment in China is expected to increase dramatically as new areas of trade and investment open up. China will provide a competitive production base for exports and will increase imports as a result of the lowering of tariffs. In addition, China has also committed to relax foreign investment restrictions on many important service industries, including distribution services, telecommunications, financial services, professional services, audio-visual equipment and tourism. Foreign investors will turn to lawyers for legal advice in the negotiation and conclusion of China-related agreements, as well as for help in resolving disputes that arise from these agreements.
7. Some lawyers in the Mainland are extremely sophisticated in their practice, have a good command of English and IT, and have up-to-date information on legal developments elsewhere in the world. Legal publications and judgments in hard copies, on discs, or on the net are no longer lacking. However, until the late 1980s, lawyers in China were still state legal workers1 and an independent legal profession was only formally recognised by the enactment of the Lawyers Law of the PRC on the 15 May 1996. There are approximately 110,000 lawyers in the Mainland, of whom about 80,000 are full time lawyers. Amongst them, only approximately 5-6,000 lawyers have acquired the language proficiency and experience to handle international legal practice. Between 1957 and 1978, the whole legal system in China was dismantled. It was only in such a situation that the Gang of Four could have wrought such havoc as it did during the Cultural Revolution. Since 1978, China has progressed significantly in the re-establishment of its legal system. To meet the requirements of WTO, there is no doubt that its legal system must be further modernized and become more transparent and its lawyers must meet the standards of international practice.

Hong Kong experience

8. Like the rest of the world, Hong Kong is undergoing an economic metamorphosis in face of globalization. The impact on lawyers has been tremendous. Between the 1950s and 1990s, the property market enjoyed the most flamboyant growth and many lawyers could rely on it as the sole area of their practice. The number of lawyers (barristers and solicitors) including overseas graduates and international firms who set up offices in Hong Kong grew many times, far more rapidly than the growth in population. The setting up of offices by foreign lawyers stimulated local lawyers to develop their practice in order to meet the demand for expertise in capital markets, corporate finance, securities, intellectual property, information technology, etc. Without doubt, Hong Kong lawyers are more mature in international practice than their Mainland counterparts.

9. When the Asian financial turmoil occurred, there came a severe downturn in the property market and the legal service sector suffered a heavy blow. The legal profession took a hard look at itself and is keen to find ways to survive the economic crisis and to meet the challenges arising from globalization. The Bar Association and the Law Society stepped up their Advanced Legal Education Scheme and Continuous Professional Development Scheme respectively and the Law Society has tightened up the requirement of attendance at lectures as a condition for the issuance of practising certificates. Lawyers seek opportunities to have more exchanges with their counterparts in the Mainland and study China law and acquire or improve on their IT skills. They have accepted that diversification and specialization are necessary if their practices are to survive. Recently, the Steering Committee on Legal Education and Training has published a preliminary report entitled “Legal Education and Training in Hong Kong: Preliminary Review”, where proposals are made to improve the standards of future barristers and solicitors. The two law faculties have already begun to revise the Postgraduate Certificate in Laws course to bring it in line with professional needs and to elevate the standards of admission, and is inviting representatives of the legal profession to participate in curriculum, admission and human resources policies. A working group led by the Chief Justice has, like the Woolf Committee in the UK, published a consultation paper on Civil Justice Reform and have considered ways to improve civil proceedings by minimizing the costs and speeding up the process through case management, making litigation a less expensive and time-consuming way of dispute resolution. All these efforts, I hope, will help to make Hong Kong one of the most efficient and cost-effective legal services centres in Asia. In the final analysis, a profession that regards its independence as so significant must willingly embrace change of its own accord.

What can the HKSAR Government do to assist

10. The HKSAR Government believes that Hong Kong’s legal system offers a reassuring setting for litigation, arbitration, mediation and other forms of alternative dispute resolution. This will be of particular assistance to those businessmen and investors who enter into a business relationship with Mainland enterprises. Our common law system is well-known and highly respected throughout the world. The official languages of Hong Kong are Chinese and English, which means that language problems will be reduced to a minimum. The rule of law, a clean government, and our independent judiciary, are cornerstones of our society. Our laws on financial affairs, trade, intellectual property and contract, have long been in line with international practice and our courts are experienced in dealing with such matters. The transport and communication systems are well developed. We have a world-class International Arbitration Centre the awards of which are enforceable in the Mainland2 and in all contracting states of the New York Convention3. It handles about 300 cases per year. We have over 5,000 local lawyers, including 60 Senior Counsel (the equivalent of Queen’s Counsel), over 600 registered foreign lawyers from 19 different jurisdictions working in Hong Kong, more than 250 of whom work in registered foreign firms and the remainder in local firms. If disputes in the Mainland are to be resolved in Hong Kong, overseas businessmen will have confidence that their contracts are underpinned by reliable, independent, and unbiased legal sanctions.

11. Using Hong Kong as a dispute resolution forum also has an attraction to Mainland parties, since communication with lawyers in Hong Kong will present no problem because all firms, including foreign law firms, will have personnel who share the same language and culture as the Mainland party. Law firms in Hong Kong are familiar with the operation of the Mainland market and so will not need lengthy briefings on the background to the matter. Geographically, it is easier for them to travel to Hong Kong to attend hearings and have the dispute resolved on their doorstep.

12. The Government has faith in the efforts by legal practitioners to meet the challenges upon China’s accession to WTO. It is the Government’s responsibility, however, to provide a favourable business environment and to promote Hong Kong as a legal services centre. This we are doing by publicizing the use of Hong Kong companies as an investment vehicle4; and the use of Hong Kong law as the applicable law for China-related contracts and Hong Kong courts and arbitral bodies as a forum for dispute resolution5. To this end, the Government is actively pursuing:
(1) negotiations for a new multilateral treaty on jurisdiction in civil and commercial cases and for the reciprocal enforcement of judgments with other countries at The Hague;

(2) the setting up of a mechanism for reciprocal enforcement of court judgments between the Mainland and HKSAR, limited to those cases in which the parties have entered into an agreement to submit to the exclusive jurisdiction of a court in either Hong Kong or China as the venue for dispute resolution; and

(3) negotiations with Mainland authorities to enable Hong Kong lawyers to gain entry into the Mainland market by making it easier for them to set up offices in the Mainland6; and
(4) negotiations for a Closer Economic Partnership Arrangement (CEPA) (similar to a Free Trade Agreement) with the Mainland, which would cover legal services, e.g. permitting Hong Kong lawyers to qualify to practise Chinese law and developing different forms of long term entrustment relationship between Hong Kong and Mainland lawyers.
13. These measures are very important for people doing business in the Mainland. It would be futile if a business dispute leads to litigation and the winning party cannot have his judgment enforced in another jurisdiction where the loosing party has substantial assets. Currently Hong Kong has a statutory scheme for registration of money judgments (in civil and commercial matters) given by the superior courts of designated foreign countries on the basis of reciprocity. 15 countries have entered into agreements with Hong Kong for reciprocal enforcement7. At present, there is no arrangement for the reciprocal enforcement of judgments as between Hong Kong and the Mainland. However, judgments from non-designated countries may be enforced by action under the common law. We have plans to extend the reciprocal enforcement of judgments more widely. The Hague Conference on Private International Law started work on a draft Convention in March 1997. The aim is to conclude a global convention that would harmonise international rules of jurisdiction and facilitate the recognition and enforcement of foreign judgments in civil and commercial matters. Hong Kong participates in the negotiation as part of the Chinese delegation. Once the Hague Convention enters into force, Hong Kong would enjoy reciprocal enforcement of judgments with all parties to the Convention. This would not, however, apply as between the Mainland and Hong Kong, since they are two parts of one country. Separate negotiations are about to begin in order to establish a limited scheme for the enforcement of Hong Kong awards in the Mainland and vice versa. The scheme will be limited to commercial money judgments arising from contracts in which the parties have chosen to have their disputes resolved either in Hong Kong courts or in the Mainland courts. The scheme will be similar to that for the reciprocal enforcement of arbitral awards. When the proposed arrangements are in place, foreign investors who have chosen Hong Kong as the venue for dispute resolution and have obtained judgments in Hong Kong may have them enforced in the Mainland.
14. In the past 20 years, China has lifted more than 200 million people out of poverty. A lot more is being done to further raise the general living standard, particularly in the western regions. It had been more than 14 years since China applied for resumption of her membership of GATTS. The long struggle is now over. The years ahead will certainly be marked by rapid growth, both in terms of trade volume and economic restructuring. The challenge for China will be in managing fundamental change. Those of you who decide to do business in China will be playing a part in this historic process and, more importantly, will help to expedite the development of the legal system and strengthen the rule of law in China. The benefit is more than monetary gain.
15. It remains for me to answer questions which you may wish to ask and to wish you good luck, good health and good fortune in the Year of the Horse. Thank you.

1 See Article l of the Interim Regulations of the PRC on Lawyers.

2 By an Agreement made between the Supreme People’s Court and the HKSARG which came into effect in June 1999, arbitral awards made in the Mainland and in HKSAR are mutually enforceable.

3 Both PRC and HKSAR are members of the New York Convention.

4 Formation of companies is speedy and not costly; there is no capital requirement, nationality or residency requirements for shareholders or directors and no requirement for labour representation on the board etc. Hong Kong practises a low tax policy, with only a few types of taxes and practising territorial and source rules.

5 China’s Contracts Law permits the choice of applicable laws in most foreign-related contracts and its Joint Venture Laws permits the use of arbitral bodies other than that of CCPIT.

6 On the 22 December 2001, the State Council passed the Management Regulation for Foreign Law Firms setting up Offices in the Mainland but it expressly stated that other independent customs territories (e.g. Hong Kong, Macau) will have separate rules applicable to them. Drafting of such rules is expected to be completed by the end of March 2002. Previously foreign law firms including Hong Kong law firms were allowed to set up office in the Mainland under the Provisional Regulations on the Setting Up of Offices by Foreign Law Firms Within the Territory of China (May 1992).

7 They are Australia, Bermuda, Brunei, India, Malaysia, New Zealand, Singapore, Sri Lanka, Belgium, France, Germany, Italy, Austria, the Netherlands and Israel.

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