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RESTRICTED GENERAL AGREEMENT C/RM/G/48 30 August 1994 ON TARIFFS AND TRADE Limited Distribution (94-1694) Original: English TRADE POLICY REVIEW MECHANISM MACAU Report by the Government In pursuance of the CONTRACTING PARTIES' Decision of 12 April 1989 concerning the Trade Policies Review Mechanism (BISD 36S/403), the initial full report by the Government of Macau for the review by the Council is attached. NOTE TO ALL DELEGATIONS Until further notice, this document is subject to a press embargo. Macau C/RM/G/48 Page iii TABLE OF CONTENTS Page EXECUTIVE SUMMARY 1 INTRODUCTION - THE POLITICAL, LEGAL AND INSTITUTIONAL SITUATION IN MACAU TRADE POLICIES AND PRACTICES (i) Objectives of trade policies 3 (ii) Description of the import and export system 3 (iii) The trade policy framework 4 (iv) The implementation of trade policies 10 B. RELEVANT BACKGROUND AGAINST WHICH THE ASSESSMENT OF TRADE POLICIES WILL BE CARRIED OUT, WIDER ECONOMIC AND DEVELOPMENTAL NEEDS, EXTERNAL ENVIRONMENT (i) Wider economic and development needs, policies and objectives of the contracting party concerned 12 (ii) The external economic environment 14 (iii) Problems in external markets 20 ANNEX I THE CONSTITUTIONAL SYSTEM OF MACAU: PRESENT AND POST 1999 23 ANNEX II IMPORT AND EXPORT CONTROLS 30 ANNEX m SUMMARY OF TEXTILE EXPORT QUOTAS ALLOCATION SYSTEM 31 Macau C/RM/G/48 Page 1 GATT TRADE POLICY REVIEW ON MACAU - COUNTRY REPORT EXECUTIVE SUMMARY Trade is the lifeblood of Macau. The territory has historically been a free port and it operates one of the most liberal trading regimes in the world. There are practically no restrictions at all on the free flow of goods and capital in to, and out of, Macau. This free trade approach is both logical and necessary for a territory such as Macau. It has limited natural resources and a very small domestic market: so it relies on trade for its own economic survival. Macau intends to continue with this free market approach both during the transitional period before December 1999, and in the time thereafter, once sovereignty has been transferred from Portugal to China. The Basic Law governing the territory after December 1999, provides that Macau may remain as a free port and as a GATT member. Macau is fully committed to the GATT and to the system of open, fair and transparent trade which the rules are intended to promote. The multilateral framework of GATT is particularly important for Macau since it exports to, and imports from, a wide range of trading partners. Consequently, Macau would like to see a free trade system maintained and strengthened on a truly global level. Historically, traders in Macau have depended very heavily on the textile sector. This dependency still exists, though efforts have been made towards diversification of industrial production and development of the services sector. Macau believes that the GATT system, and the principle of free trade which it is designed to protect, is absolutely fundamental for the continuing development of the territory as a modern, outward-looking, dynamic economy. C/RM/G/48 Trade Policy Review Mechanism Page 2 INTRODUCTION - THE POLITICAL. LEGAL AND INSTITUTIONAL SITUATION IN MACAU Macau became a full Contracting Party to GATT on 20 January 1991. This is, therefore, the first time that Macau has submitted a report under the Trade Policy Review Mechanism. In these circumstances, it is important to describe, as background to the review of its trade policies, Macau's special political, legal and institutional situation. A full description of Macau's constitutional system, at present and as envisaged after 1999, is set out in Annex I. The current status of Macau is defined by the Constitution of the Portuguese Republic and the Macau Organic Statute (MOS). In a Joint Declaration of the Government of the Republic of Portugal and the Government of the People's Republic of China (PRC) on the Question of Macau, signed in Beijing on 13 April 1987, it was agreed that - with effect from 20 December 1999 - Macau's status would be determined by a Basic Law enacted by the National People's Congress of the PRC. The Basic Law was approved on 31 March 1993. In the transitional period until 20 December 1999, the Macau authorities - acting in accordance with the provisions of the Joint Declaration - will prepare and enact new legislation in a number of areas, including some of relevance to Macau's trade and economic policies. On foreign affairs, the Basic Law provides that Macau may conclude and implement agreements with countries, regions and international or regional organizations in the fields of economics, finance, trade, shipping and communications. Agreements to which the PRC is not a party, but which apply to Macau, will be permitted to remain in force after 1999. The Basic Law provides that Macau is to continue to be a free port, pursuing trade policies that ensure the free movement of goods and capital. It also stipulates that Macau is to remain a separate customs territory from the PRC, with the right to participate in international trade organizations and agreements such as the GATT and MFA, including preferential arrangements. Macau will also retain responsibility for the management of export quotas, tariff preferences and origin certificates after December 1999. Under the Basic Law Macau may participate in international agreements which are not limited to States. It may also continue to establish economic and trade missions in third countries and receive consular missions in Macau with the approval of the PRC. Certain matters, including Macau's participation in international economic organizations may be the subject of discussion in the Liaison Group established by the 1987 Joint Declaration between Portugal and China. In essence, the transitional period until 20 December 1999, is designed to ensure stability in Macau's liberal economic and trade policies. This will be reinforced by the provision in the Joint Declaration that policies covered by the Basic Law will remain unchanged for 50 years after 1999. Likewise, the legislative, executive and judicial functions in Macau are being adapted during the transitional period to meet Macau's new situation, nonetheless preserving effective functional continuity. Macau C/RM/G/48 Page 3 A. TRADE POLICIES AND PRACTICES (i) Objectives of trade policies The Government of Macau is firmly committed to non-discriminatory free trade. This commitment is a conscious and logical choice for a territory such as Macau. With a very small domestic market and limited resources, the economic development of the territory is integrally linked to the maintenance and development of strong and open trading relations. In keeping with this free trade philosophy, all goods enter and leave Macau without payment of customs duty. There are practically no trade restrictive measures in Macau. Macau acceded to GATT in January 1991 and fully supports the maintenance of an open, multilateral system of international trade. It is committed both to fulfilling its obligations and to protecting its rights under the General Agreement. Macau participated in the Uruguay Round through tariff consolidation and submission of commitments on trade in services. As a free port and a developing centre for trade in services, Macau firmly supports the new WTO as the guarantor of free and fair international trade, within a transparent regulatory framework. Macau has chosen not to pursue specific sectoral trade policies, except in the context of participation in the MFA. The government is, however, generally in favour of economic policies which will help stimulate and diversify industrial production and expand higher value-added industries in the territory. (ii) Description of the import and export system In principle, imports from any source may enter Macau on a duty-free basis and with minimum controls. Trade flows to and from the territory are determined by free market forces. As explained, the economic development and diversification of Macau is closely linked to the maintenance of free and open trade. Thus, it is logical for the government to follow policies which promote and strengthen the free trade system. Such control as there is takes the form of licensing: Import licensing Goods entering Macau are subject to import licensing (with the exception of perishable goods). Licences are issued automatically and at no charge. Licensing is carried out for statistical purposes and does not present an obstacle to the free flow of goods. Certain products require prior authorization, such as: (a) Textiles and Clothing for surveillance purposes, as a back-up to the Macau textile export control system: (b) Arms and Ammunitions Explosives and Pyrotechnic Products: for public safety reasons: (c) Gold and Platinum: to prevent eventual disturbances to the economy of Macau: (d) Radio Transmitting Equipment, Electrical Apparatus for Line Telephony or Line Telegraphy, to prevent interference with the public telephone system; C/RM/G/48 Trade Policy Review Mechanism Page 4 (e) Fuels: for public safety reasons; (f) Vehicles: to monitor the number of cars in circulation; (g) Endangered Plant and Animal Species (CITES), (h) Live Animals. Meat and Edible Meat Offal: to prevent infectious diseases and protect public health; (i) Chemical and Pharmaceutical Products: to safeguard human life and public health. (j) Electricity Supply Products: to monitor the existing power supply system Under relevant Macau legislation the only other restriction on imports applies to second-hand motor-vehicles, lorries and motorcycles. This is due to environmental considerations and the fact that Macau is a very small territory. Export licensing Similarly, goods leaving Macau are subject to export licensing (again, with the exception of perishable goods). Temporary exports and re-exports require prior authorization, as do textile products which are subject to quota. This is necessary to ensure compliance with Macau's responsibilities under textile bilateral agreements in accordance with the MFA.