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World Trade
Organization / RESTRICTED
WT/TPR/S/181
26 March 2007
(07-1169)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
MACAO, CHINA
This report, prepared for the third Trade Policy Review of Macao, China, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Macao, China on its trade policies and practices.
Any technical questions arising from this report may be addressed to Mr.MarioKakabadse (tel: 022 739 5172).
Document WT/TPR/G/181 contains the policy statement submitted by Macao,China.
Note: This report is subject to restricted circulation and press embargo until the end of the firstsession of the meeting of the Trade Policy Review Body on Macao, China.
Macao, China WT/TPR/S/181Page iii
CONTENTS
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SUMMARY OBSERVATIONS vii
(1) Economic Environment vii
(2) Trade and Investment Regime viii
(3) Trade Policies and Practices viii
(4) Sectoral Policy Developments ix
(5) Outlook x
I. Economic environment 1
(1) Introduction 1
(2) Recent Economic Developments 2
(i) Macroeconomic performance 2
(ii) Macroeconomic policies 6
(iii) Balance of payments 8
(iv) Structural policies 9
(3) Developments in Merchandise Trade 9
(i) Composition of merchandise trade 10
(ii) Direction of trade 10
(4) Foreign Direct Investment 13
(5) Outlook 14
II. trade policy regime: framework and objectives 15
(1) Introduction 15
(2) General Constitutional and Legal Framework 15
(3) Trade Policy Formulation and Implementation 17
(4) Trade Policy Objectives 21
(5) Trade Agreements and Arrangements 22
(i) Multilateral agreements 22
(ii) Regional agreements 23
(iii) Bilateral agreements 23
(6) Trade Disputes and Consultations 25
(7) Foreign Investment Regime 25
III. trade policies and practices by measure 28
(1) Introduction 28
(2) Measures Directly Affecting Imports 29
(i) Procedures 29
(ii) Customs valuation and rules of origin 30
(iii) Tariffs 30
(iv) Other charges on imports 31
(v) Import licensing, prohibitions, and other restrictions 32
(vi) Anti-dumping, countervailing, and safeguard measures 35
(vii) State trading, countertrade, and cartels 35
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(viii) Standards and other technical requirements 35
(ix) Trade-related investment measures 38
(x) Government procurement 38
(3) Measures Affecting Exports 41
(i) Procedures and documentation 41
(ii) Export taxes, charges, and levies 41
(iii) Export cartels and other arrangements 42
(iv) Export prohibitions, restrictions, and licensing 42
(v) Export support 43
(vi) Export finance, insurance, and guarantees 43
(vii) Export promotion and marketing assistance 43
(4) Measures Affecting Production and Trade 43
(i) Taxation system and tax incentives 43
(ii) Non-tax incentives and other forms of assistance 46
(iii) Intellectual property rights protection 49
(iv) Competition policy 52
(v) Corporate governance 54
iV. trade policies by sector 55
(1) Introduction 55
(2) Manufacturing 56
(i) Textiles and clothing 57
(ii) Industrial diversification 58
(iii) Construction 59
(3) Services 59
(i) Telecommunications 61
(ii) Financial services 64
(iii) Transport 68
(iv) Tourism 71
(v) Gaming 72
references 77
APPENDIX TABLES 79
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CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Production composition of merchandise trade, 2001 and 2005 11
I.2 Direction of merchandise trade, 2001 and 2005 12
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1 Structure of the Secretariat of Economy and Finance 18
II.2 Structure of Macao Economic Services 18
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Major features of Macao, China's economy, 2006 2
I.2 Performance of Macao, China's economy, 2000-06 3
I.3 Resident and non-resident workers, 2003-06 5
I.4 Government budget and fiscal reserves, 2000-06 7
I.5 Balance of payments, 2000-05 8
I.6 Inward direct investment by industry and investors' place of residence, 2001-05 13
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1 Main trade-related legislation in Macao, China 19
II.2 Selected notifications by Macao, China under WTO Agreements, March 2007 22
II.3 Macao, China's exports under GSP treatment, 2001-05 25
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Consumption taxes, 2006 31
III.2 Responsibility of government bodies for import authorizations, 2001 and 2005 32
III.3 Import licensing regime, 2005 33
III.4 Accredited laboratories, December 2005 36
III.5 Government procurement, 2001-05 39
III.6 Local and foreign procurement contracts, 2001-05 39
III.7 Type of tendering in public sector construction projects, 2003-06 40
III.8 Regulated exports and governing legislation, 2001 and 2005 42
III.9 Government account, 2001-06 44
III.10 Main types of taxation and related incentives in Macao, China 44
III.11 Estimated tax revenues forgone as a result of incentives/exemptions, 2001-05 45
III.12 Subsidies granted, 2001-05 46
III.13 Violations of intellectual and industrial property rights, 2001-05 51
IV. TRADE POLICIES BY SECTOR
IV.1 Production-based GDP at current prices by sector, 2002-05 55
IV.2 Employed population by economic activity, 2003-05 55
IV.3 Structure of manufacturing industry, 2005 57
IV.4 Telecommunication market, 1999-05 62
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IV.5 Major financial sector indicators, 2001-05 64
IV.6 Financial institutions, 2001-05 65
IV.7 Total visitor arrivals, by source and method of travel, 2000-06 68
IV.8 Total exports by means of transport, 2001-05 69
IV.9 Macao, China visitors receipts, 2000-06 72
IV.10 Investment projects of gaming concessionaires and sub-concessionaires, 2006 74
IV.11 Gross revenue of concessionaires and share of total gross revenue of games of fortune, 2002-06 75
IV.12 Overview of gaming in Macao, China, 2002-06 76
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1(a) Total merchandise exports by group of products, 1999-05 81
AI.1(b) Domestic merchandise exports by group of products, 1999-05 82
AI.1(c) Merchandise re-exports by group of products, 1999-05 83
AI.2 Merchandise imports by group of products, 1999-05 84
AI.3(a) Total merchandise exports by destination, 1999-05 85
AI.3(b) Domestic merchandise exports by destination, 1999-05 86
AI.3(c) Merchandise re-exports by destination, 1999-05 87
AI.4 Merchandise imports by origin, 1999-05 88
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SUMMARY OBSERVATIONS
1. The economy of Macao, China having recovered from the Asian financial crisis and subsequently SARS, grew at an average annual rate of 14.5% in the period 2001 to 2005; in 2006, growth is expected to have been well above that average, perhaps close to 20%. Growth has been led by a rapid increase in tourism, underpinned by the gaming industry. While the overall direction of trade and investment policies of the Macao Special Administrative Region (SAR) is broadly the same as at the time of its previous Review in 2001, great emphasis has been placed since 2002 on the opening of gaming, which now constitutes the cornerstone of the economy of the Macao SAR. Competition between gaming operators has stimulated massive private investment in casinos, hotel resorts, and other tourist facilities, and this is expected to continue into the foreseeable future. In the same period there has been a significant and increasing inflow of tourists from the Mainland. The introduction in 2003 of the "Individual Traveller Scheme", which relaxed visa restrictions on travel by Mainland Chinese, has enabled a strong growth in tourism to Macao, resulting in the more than doubling of visitors to over 22 million between 2000 and 2006.
(1) Economic Environment
2. Badly hit by the 1997-98 Asian financial crisis, the economy recovered in 2000 in response to external demand and then slowed as the world economy entered a sharp downturn. Growth since then has been strong with GDP growing by 10.1% in 2002, supported by a strong expansion in gaming and tourism. Except for a temporary decline of 3.1% in the second quarter of 2003, due to the effects of the SARS outbreak, the economy experienced strong growth in the second half of that year, partly supported by the introduction of the Individual Traveller Scheme, which led to a tourism boom in the latter months of 2003. The expansion in the tourism sector continued into 2004 as strong investments continued to be made in infrastructure as well as in casinos and hotels. The overall result was a very impressive and historically high 28% growth of GDP in 2004. Real GDP growth was more moderate in 2005 at 6.7%. The inflation rate rose from 1% in 2004 to 4.4% in 2005, reflecting the overall rapid pace of economic growth.
3. Macao, China's currency, the pataca, remains pegged to the Hong Kong dollar and hence indirectly to the U.S. dollar. This means that interest rates in Macao, China are determined largely by the U.S. Federal Reserve, rather than the territory's monetary authority. The Currency Board Arrangement, which ensures full backing of monetary liabilities, is the underlying monetary mechanism to support the linked rate. Foreign reserves stood at US$6.7billion at the end of 2005 compared with US$3.3billion at the end of 2000, representing approximately nine times the monetary base and covering 11.8months of the total value of imports of goods and services in 2005.
4. The Basic Law requires the MSAR Government to strive to achieve fiscal balance, and throughout the period under review, the Government has consistently run a budget surplus, mainly on the basis of revenue from the gaming industry. The fiscal position has benefited from a thriving economy in recent years; income from gaming tripled between 2001 and 2005.
5. Macao, China is heavily dependent on the external sector. In 2005, exports of goods and services were equivalent to 96% of GDP. Gaming and related tourism services constitute the core of the economy with gross gaming receipts accounting for 49% of GDP in 2005 and direct taxes on gaming providing 75% of government revenue in 2006. Flows of foreign direct investment into Macao,China more than tripled between 2001 and 2004 and nearly quadrupled in the recreational and gaming sector; it is expected to increase substantially in 2006 and beyond. Previous foreign investment projects have been dwarfed by recent commitments by foreign investors to develop the gaming, hotels, and conventions subsector. The liberalization of the gaming industry, and the competition thereby unleashed, have played an important role in attracting new investments.
(2) Trade and Investment regime
6. In line with the principle of "one country, two systems", the Basic Law, the main constitutional document governing the MSAR, grants it a high degree of autonomy in economic matters including the conduct of foreign trade relations. Macao, China's institutional and policy framework has remained largely unchanged during the review period. The main change in trade policy since 2001 is the implementation in 2004 of a freetrade agreement, the Closer Economic Partnership Arrangement (CEPA), with Mainland China aimed at developing joint economic prosperity and development through liberalization of goods and services trade. Macao SAR exports more services than merchandise and it is possibly the services sector, and the sale of services to the Pearl River Delta region of neighbouring Guandong province, rather than manufacturing, that will make more effective use of preferential access to the Chinese market under CEPA's services provisions. Macao, China's trade and investment regime remains relatively open and, in general, continues to rely on market forces to determine the allocation of resources in the manufacturing sector, which however, now accounts for only 5% of GDP. The partial liberalization of the services sector has played a key role in government efforts to diversify the economy by attracting foreign investment and maintaining an investor-friendly environment.
(3) Trade Policies and Practices
7. Restrictions at the border are few. Imports enter the Region duty-free although the scope of Macao, China's bindings remains limited. Nearly 70% of Macao, China's tariff lines have not been bound although it seems that there are plans to progressively expand their coverage. Tariff lines are bound at a zero rate, and this, together with Macao,China's status as a free port under the Basic Law, would appear to exclude increases in applied rates for bound tariff lines as well as those that are unbound. Although consumption taxes are levied on imports and domestically produced goods alike, they fall disproportionately on imports since there is little or no domestic production of these goods. Steps in trade facilitation have focused on the introduction of electronic customs clearance and documentation procedures. The few nontariff border measures include import licensing and prohibitions aimed at ensuring security as well as protecting public health and the environment. Correspondingly, there are virtually no government controls on exports other than export licensing and restrictions maintained for implementing UN sanctions. Licensing arrangements under the WTO Agreement on Textiles and Clothing were eliminated at the end of 2004. Macao,China has no legal instrument protecting domestic producers from the entry of dumped or subsidized products nor is there any legislation on safeguards.
8. In 2001, optical-media piracy constituted a serious problem for the authorities. During the review period, Macao,China has made a number of improvements in reinforcing protection of intellectual property rights. It has tightened controls over optical disc manufacturing and stepped up street-level IPR enforcement. Also, Macao, China's courts have implemented an expedited prosecution system that allows a suspect to be brought to trial expeditiously. It appears that as a result of such enforcement actions, virtually all illicit optical disc manufacturers in Macao, China have been shut down.
9. Macao, China, which is not a party to the GPA, has not made any significant changes to its legislation on government procurement since 2001, but it has taken steps to simplify procedures and enhance transparency in order to attract more bids. However, in the construction sector, open tendering has accounted for less than 10% of tenders during the period under review.
10. Macao, China's tax system is characterized by a low overall level of taxation and a pronounced reliance on direct taxes, in particular those derived from gaming, which account for three quarters of government revenue. As in 2001, most direct taxes, including those on profits and employment income, are levied at low rates, which helps to make Macao, China attractive to domestic and foreign investors. At the same time, the tax system is the main instrument used to assist production and trade with various tax incentives for projects that promote industrial diversification, create employment, foster technological development, and encourage exports. The Government has also increased funds for small and mediumsized enterprises.