What is the importance of Hong Kong’s free trade agreement with ASEAN?

The ASEAN – Hong Kong, China Free Trade Agreement

The ASEAN – Hong Kong, China Free Trade Agreement (AHKFTA) first came into force in June 2019 after having been formulated two years prior. It was intended to increase the level of trade flows between Southeast Asian countries and Hong Kong. It would also serve to reinforce investment and trade linkages between Hong Kong and Southeast Asia.

The AHKFTA saw every country of Southeast Asia, with the exception of Singapore, eliminate customs duties on the majority of products traded with Hong Kong within either 10 or 15 years. These countries would then reduce a smaller percentage of tariff lines within either 14 or 20 years. In the case of Singapore, customs duties would be fully eliminated upon entry of goods. This would be the case from the first day that the agreement would be to go into effect.

The following is a breakdown of the reductions or eliminations of customs duties and tariff lines:

• Singapore: Tariff-free access and full elimination of customs duties as soon as the agreement went into force
• Brunei/Malaysia/Philippines/Thailand: Elimination of customs duties on 85% of products traded with Hong Kong within 10 years; further 10% reduction of tariff lines within 14 years
• Indonesia/Vietnam: Elimination of customs duties on 75% of products traded with Hong Kong within 10 years; further 10% reduction of tariff lines within 14 years
• Cambodia/Laos/Myanmar: Elimination of customs duties on 65% of products traded with Hong Kong within 15 years; further 15% reduction of tariff lines within 20 years

Why the AHKFTA Is Important

There are several reasons why the AHKFTA is important. One of the primary reasons relates to the increasingly close economic ties which connect Southeast Asia and China. Hong Kong is able to play a role which would connect both. This is possible through Hong Kong’s Closer Economic Partnership Arrangement (CEPA) with mainland China. The CEPA provides as well as tariff-free treatment for Hong Kong products which are exported to China. It also grants preferential market access to service suppliers based in Hong Kong who seek to enter China. In this way, Hong Kong serves as a conduit for businesses in Southeast Asia to enter the mainland Chinese market.

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Re-exports of goods from Southeast Asia to China have been increasing rapidly. Every year since 2012, the increase in value of such re-exports has typically been at a rate of around 6.4% per year. Many of these goods pass through Hong Kong on their way to mainland China. The AHKFTA has done much to both simplify this complex process as well as bring economic benefits to both Hong Kong and Southeast Asia.

Furthermore, the value of commodity products which are traded between Hong Kong and Southeast Asia has risen tremendously. Well over US$100 billion worth of commodities are traded between Hong Kong and Southeast Asia. This figure is almost seven times as much as the value of services traded between Southeast Asia and Hong Kong. The AHKFTA has permitted this high value of commodity trade to persist.