Lesson from Hong Kong – Unilateral Economic Reforms

Hong Kong was a particularly apt venue for the WTO ministerial meeting in December 2005.

If liberalisation of international trade was the objective of the delegates, there could not have been a more appropriate setting. Unfortunately, most delegates did not preach, what many of them practised. Hong Kong has been a shoppers’ paradise for four decades now. For many delegates it was an opportunity to shop for electronics, or clothes, or toy, or anything under the sun, and benefit from Hong Kong’s free trade policy. Delegates from around the world wanted to take back to their families and friends, the goodies, access to which were denied to their own countrymen because of restrictive trade policies of their own government.

If seeing was to believe, the delegates from the 149 countries would have done much better to take a walk in the streets, or enter one of the innumerable shopping plazas in Hong Kong. One can’t but be impressed with transformation of Hong Kong over the past half century. A few tiny islands, originally settled by a few fishing villages, devoid of any major natural resources, has become one of Asia’s first miracle economy. Hong Kong is the original Asian tiger that had freed its economy, and unilaterally adopted free trade policies, that allowed its entrepreneurial people the freedom to reach out to the world.

Hong Kong has been a free port, with duty free access for many decades now. But it has consistently been at the top of the Economic Freedom Index prepared annually by the Fraser Institute, a Canadian think tank. The index places Hong Kong at the top in most categories.

Hong Kong’s free trade policy was founded on fundamental institutions of economic freedom – security of private property, and strong legal structures, sound monetary policies, smaller size of government, simple regulatory procedures.

The delegates at WTO had gathered to negotiate the Doha Development Agenda. In contrast to Hong Kong, most believed that economic development requires restricting trade. Consequently, the paradox between the issues on the table at WTO, and the experience of Hong Kong was glaring.

The Korean rice farmers protesting in the street outside the WTO venue were among the richest in Asia. These farmers received 65% of their income as transfer from the Korean government. While the Korean tax payers bore the burden, it is the Korean consumers who were forced to pay five times more for their rice than the international price.

Agriculture has been a very contentious issue at the WTO. The rich countries are accused of subsidising their agriculture to the tune of USD 1 billion a day. The poor countries, with a large number of people living the poverty line of USD 1 a day, would like to limit access to their domestic agriculture market on grounds of livelihood and food security.

Hong Kong has hardly any agriculture to boast of. But its enormous economic success has meant that no one doubts Hong Kong’s ability to feed itself, although most of what it eats will have to be purchased from elsewhere. The best way to provide food security is to develop economically, not protectionism.

Another issue that dominated the agenda at WTO was cotton and textile. Poor cotton growing countries, and poor textile and garment manufacturers could take a leaf out of Hong Kong. Hong Kong doesn’t grow any cotton, but in the 1960s, Hong Kong was a major base for low cost textile and garment manufacturing. The sweat shops in Hong Kong laid the foundation for the electronic and other high end manufacturing in the 1970s and 1980s. And by 1990s, Hong Kong had graduated into a major service economy. Today 80% of its economy is tied to services.

At the WTO, many poor countries sought special privileges to protect their produce or infant industries. They would do well to take a look at economic transformation of Hong Kong.

Hong Kong did not wait to negotiate free trade agreements with any country. She practised free trade. She did not seek any protection or privileges for herself. She sought to take advantages of follies of protectionism of others. Hong Kong was the first truly globalised economy of Asia. Rather than being apprehensive, as many of the delegates to WTO, Hong Kong chose to ride the crest of globalisation, and found a place for herself among the richest in the world.

The Korean protestors and their sympathesisers outside the WTO meeting were wrong in attacking free trade, and blaming globalisation for their own ills. Across the harbour one small group of freedom to trade campaigners showed how easy it was to breakdown the trade barriers, because the poor has nothing to lose but their poverty. Hong Kong illustrates the benefit of unilateral free trade, and consequently paved its way to development, if only the WTO delegates would open their eyes.

** Barun Mitra is the director of Liberty Institute , an independent think tank based in New Delhi.