26TH LEGCO REPORT TO HKSA COUNCIL By Hon. Eric K.C. Li

I.     Highlights

To present orally on political responsibility system, civil services pay, investigation on KCRC, anti-terrorism Bill and Drug Trafficking Bills.

On 3 April 2002, the heads of thirteen active accounting bodies (including HKSA) of Hong Kong and I met with Mr. Stephen IP, Secretary for Financial Services, and proposed to him a number of recommendations on how to strengthen Hong Kong's status as an international financial centre, attract foreign investment, and support local businesses in their bid to enter the mainland market. The recommendations include, for instance, the abolition of estate duty, which brings in little revenue but will adversely affect small and medium enterprises and middle-class families, in addition to deferring big investors from investing in Hong Kong.  A summarised text will appear in "The Hong Kong Accountant" in the June issue.

II.    Committees and Panels

1.     Public Accounts Committee (PAC):

On 24 April 2002, the Director of Audit tabled his Report No. 38 in the Legislative Council.  The Committee, after holding 7 public hearings to receive evidence from Controlling Officers and numerous close door meetings, have now finalized our own report.  I intend to present it to LegCo on 10 July 2002.

2.     Financial Affairs Panel:

The Panel held 6 meetings (including 3 special meetings - to receive a briefing by the Legislative Council Secretariat on "Practices of overseas jurisdictions in building up or maintaining their fiscal reserves" and to study the initiatives to strengthen Hong Kong's corporate governance regime (see below - special meeting); to study the Hong Kong Population Projections 2002-2031; and to receive a briefing by the Financial Secretary on Hong Kong's latest economic situation as well as to discuss the consumer protection in the banking sector) to date and the relevant agenda are attached as Appendix I.

       On 14 March 2002, the Hong Kong Society of Accountants (HKSA) was invited to attend a special meeting on the initiatives to strengthen Hong Kong's corporate governance regime (with specific references to the 'Enron event').  At the meeting, the President Mr. Alvin WONG gave an oral presentation, setting out the HKSA's contributions and plans in corporate governance and related issues, as well as the Council's current position with respect to the areas of standard-setting; auditor's role and audit independence; regulatory framework; corporate governance practices and financial reporting models - looking into the future.  The briefing received very positive repsonse from both LegCo Members and the media.

        A proposed list of future agenda items is attached as Appendix II for reference. 

3.     Economic Services Panel:

The Panel held 4 meetings since the last report. 

The Panel focused on the proposed Airport Authority (Permitted Airport-Related Activities) Order, financial implication of the decommissioning of Cheoy Lee Shipyard at Penny's Bay, the reconstruction of Public Piers at Kat O Chau, Peng Chau, Cheung Chau and Wu Kai Sha as well as Merchant Shipping (Local Vessels) (General) Regulation and Merchant Shipping (Local Vessels) (Safety Survey) Regulation.)

It also discussed the "Flag State Quality Control System" - An update, the regulation of beauty products and services provided by beauticians, Merchant Shipping (Local Vessels) (General) Regulation and Merchant Shipping (Local Vessels) (Safety Survey) Regulation as well as the retail prices of petrol as well as the Regulation of beauty products and services provided by beauticians

4.     Information Technology and Broadcasting Panel:

The Panel held 3 meetings to date.

The Panel studied the institutional arrangements for future management of the Cyberport project, the creation of Class Licence for In-building Telecommunications Systems under Section 7B(2) of the Telecommunications Ordinance (Cap. 106) as well as the online booking services under the Electronic Services Delivery Scheme.

It also discussed Telecommunications (Amendment) Bill 2002, the Licence Renewal Exercise for Asia Television Limited and Television Broadcasts Limited, the Digital Divide, the progress of interconnection issues, progress report on publicity and public education campaign on availability of new telecom and broadcasting services and operators' in-building access as well as the increase in commitment under the Capital Account in 2002-03 for hosting the ITU TELECOM ASIA 2002.

5.     Education Panel:

The Panel held 8 meetings to date. 

The Panel mainly focused on the Capital Works projects of University Grants Committee-funded institutions, the supervision of the administration of University Grants Committee-funded tertiary education institutions, the research report on "Education Voucher System".

It also studied the data collected from the Hong Kong 2001 Population Census on education as well as the Capital Works projects of University Grants Committee-funded institutions and research support for the education reform.

There were 4 special meetings (to receive a briefing on the Higher Education Review; to discuss the City University of Hong Kong - Review and appeal mechanism for non-renewal of contract, the harmonisation of kindergartens and child care centres as well as to receive views from deputations on the report of the University Grants Committee entitled "Higher Education in Hong Kong") and an informal meeting discuss the drafted research report on "Education Voucher System".

6.     Finance Committee and House Committee:

There were 12 meetings of Finance Committee and 12 meetings of House Committee (including six special meetings consisting of 18 sessions from 25 to 27 March 2002 to examine the draft Estimates of Expenditure 2002-03 and a special House Committee meeting to o discuss the Chief Secretary for Administration's visit to Beijing and cooperation between Guangdong and Hong Kong as well as the Government's policy on legislation and administration measures.)  TD of HKSA were kept informed of progress on all Bills on a weekly basis. 

The updated list of Government Bills in the current legislative session dated 13 March 2002 is attached as Appendix III.

III.   Bill Committees Joined

1.      Inland Revenue (Amendment) Bill 2000

  The Bills Committee is now waiting to recommence on the Administration's request and subject to the availability of a Bills Committee slot at the time.

2.     Drug Trafficking and Organized Crimes (Amendment) Bill 2000

  There were 4 meetings held since the last report.

  Originally, the Administration highlighted to the Bills Committee the need to close legal loopholes relating to money-laundering.  However, after two year's effort, to address the concerns of the HKSA, the Government has finally dropped the controversial proposal to amend S.25 and S.25A of the money laundering laws to compel disclosure on information by an untested 'objective' test as described before.  The decision to drop the proposal came as the Government pushed forward with its anti-terrorism bill.

 The Committee is now entering the last phase of resolving LegCo's differences.  

3.    Bills Committee on Securities and Futures Bill and Banking (Amendment) Bill 2000

 The Bill was passed on 13 March 2002, ending 10 years of debate over one of Hong Kong's most controversial piece of financial legislation.  The Bill replaces 10 securities and futures ordinances and brings Hong Kong into line with international practice.

 The Bill protects accountants who report alleged fraud uncovered during audits from being sued by their clients.  The legislation passed is in line with the Administration's agreement with HKSA.

4.    Companies (Corporate Rescue) Bill

At the House Committee meeting on 7 December 2001, the Bills Committee recommended that the scrutiny of the Bill should be held in abeyance to allow time for the Administration to conduct consultation on, and work out the details of, a new proposal based on ideas initiated by myself and refined by HKSA.  The House Committee agreed to the Bills Committee's recommendation.

5.    Bills Committee on Medical and Health Care (Miscellaneous Amendment) Bill 2001

 The Bills Committee has held 2 meetings with the Administration.  It has also met with representatives of the Dental Council of Hong Kong, the Midwives Council of Hong Kong, the Nursing Council of Hong Kong and the Radiation Board and the relevant professional associations.

 The objective of the Bill is to propose amendments to the Dentists Registration Ordinance (Cap. 156), Midwives Registration Ordinance (Cap. 162), Nurses Registration Ordinance (Cap. 164), Hospitals, Nursing Homes and Maternity Homes Registration Ordinance (Cap. 165), Radiation Ordinance (Cap. 303) and Chinese Medicine Ordinance (Cap. 549).

 The Bill was finally passed on 24 April 2002.

6.   Subcommittee on Matters Relating to the Implementation of Railway of Development Projects

 There were 2 meetings held since the last report.  The purpose of the meetings is to receive a briefing by the Kowloon-Canton Railway Corporation Chairman on the findings of the investigation of the West-Canton Railway.

 The independent report criticised the KCRC management for not altering the managing board sooner, and put the blame on the management's method of reporting problems.  KCRC chief executive, Mr. Yeung Kai-yin, has apologiesed for "errors of judgment".

 Although the report recommends strengthening communication between the board and management, there is no intention of making a scapegoat either of Mr. Yeung Kai-yin or other senior staff.

 A subcommittee decided not to form a select committee to investigate the scandal.  It urged the KCRC to make progress reports on improvements in management.

7.   Subcommittee on Draft Subsidiary Legislation to be Made under the Securities and Futures (Ordinance)

There were 4 meetings held since the last report.  The Subcommittee was formed to study the some 38 sets of draft subsidiary legislation to be made under the Securities and Futures Ordinance (SFO) for its commencement.  The SFO was passed by the Legislative Council (the Council) on 13 March 2002.  The Administration's target is to bring the SFO into operation by end 2002. 

       According to the work plan of the Subcommittee endorsed at the meeting on 28 March 2002, the Administration will submit the draft subsidiary legislation in four batches for scrutiny of the Subcommittee at meetings to be held at the end of April and May, in July and September 2002.  The grouping of draft subsidiary legislation in each batch and the meeting schedules of the Subcommittee will be adjusted in the light of progress made in drafting, public consultation and deliberations by members. 

 The last meeting of the House Committee in the current session will be held on 28 June 2002.  The Subcommittee would then have deliberated 18 sets of draft subsidiary legislation (i.e. three sets at its meetings in April and 15 sets in June).  Having regard to the lead time required by the Administration and the SFC to prepare the revised draft subsidiary legislation, the Subcommittee may not be able to report its deliberations on these subsidiary legislation at that House Committee meeting.  The Administration or the SFC may gazette the scrutinized draft subsidiary legislation during the summer break.  The gazetted subsidiary legislation will be tabled at the second Council meeting in October 2002.  The subsidiary legislation will be subject to the normal 28 plus 21 days’ scrutiny period.  The HKSA has not made any substantive submission on these subsidiary legislations.

8.    Bills Committee on Employees Compensation Assistance (Amendment) Bill 2002

The Bills Committee has held 10 meetings with the Administration.  The Bills Committee has met with representatives from the Board, the General Insurance Council (GIC) of The Hong Kong Federation of Insurers, the Employers' Federation of Hong Kong and The Hong Kong Construction Association Ltd. (HKCA)

The Bill seeks to amend the Employees Compensation Assistance Ordinance ("the Ordinance") with a view to improving the financial stability and viability of the Employees Compensation Assistance Fund ("the Fund").  The Bill also seeks to amend the Employees' Compensation Insurance Levies Ordinance (Cap. 411) and the Employees' Compensation Insurance Levy (Rate of Levy) Order (Cap. 411 sub. Leg.) to increase the rate of levy on the premium of employees' compensation insurance from 5.3% to 6.3% from 1 July 2002, and to adjust the distribution of such levy income amongst the Board, the Occupational Safety and Health Council and the Occupation Deafness Compensation Board.

The Panel on Manpower, the Board, the Labour Advisory Board and the Occupational Deafness Compensation Board have been consulted on the financial arrangements of the rescue package.  Members of the Panel generally expressed support for the proposed package of measures to restore the long-term viability of the Scheme.

        The Second Reading debate on the Bill will be resumed at the Council meeting on 26 June 2002.

9.     Bills Committee on Prevention of Child Pornography Bill

There were 4 meetings held since the last report.  The objectives of the Bill are to:

(a)    create offences of making, producing, publishing, importing, exporting, distributing, advertising and possessing pornography that depicts children under the age of 16;

(b)    create an offence for any person who uses, procures or offers another person who is under the age of 18 for making pornography, or for a live pornographic performance, in which that other person is pornographically depicted;

(c)    extend the application of certain sexual offence provisions to acts committed against children outside Hong Kong and prohibiting the making of any arrangement relating to commission of those acts and advertisements for such arrangement; and

(d)    make consequential amendments to various Ordinances.

According to the Administration, a public consultation on the Bill was conducted in November 2001.  The majority of comments received generally support the proposals in the Bill.  There are, however, some diverse comments on the coverage and clarity of the definition of child pornography, and whether artistic merit and genuine family purpose should be defences.

The Administration also consulted the LegCo Security Panel about the proposals in the Bill at its meeting on 6 December 2001.  Members generally supported the principles and spirit of the legislative proposals which offer better protection to children.  Members also raised several concerns, including enforcement difficulties, over the Bill.

10.   Bills Committee on United Nations (Anti-Terrorism Measures) Bill

There were 10 meetings held in very close succession since the last report.  The Bill seeks to implement certain mandatory elements of the United Nations Security Council Resolution 1373 relating to measures for the prevention of terrorism and three recommendations of the Financial Action Task Force on Money Laundering.

The Bill provides anti-terrorism measures such as specification of terrorists, terrorist associates and terrorist property; freezing of funds; prohibition of activities related to terrorism; disclosure of knowledge or suspicion of terrorist property; and obtaining of evidence and forfeiture of terrorist property.

There are similar proposals on dealing with property and disclosure of knowledge or suspicion based on the Drug Trafficking and Organized Crimes (Amendment) Bill 2000. As the result of strong opposition by myself and other legislators, the Administration eventually reversed all the controversial amendments.  The Administration intends to push for the final reading of the Bill on 10 July 2002.

11.   Subcommittee to Study the Proposed System of Accountability for Principal Officials and Related Issues

The Subcommittee, comprising 34 members, has held a total of 15 meetings (equivalent to 27 two-hour sessions) with the Administration.  The Subcommittee is to study the proposed accountability system and related issues such as powers and functions of CE and his accountability, legislative measures to give effect to the accountability system, a new system of employment of principal officials etc.

The Subcommittee also received representations from 126 organisations and individuals.  A total of 89 organisations and individuals also appeared before the Subcommittee to present their views.

To quote from 'A Letter to Hong Kong', your representative's position was "In an ‘executive-lead’ Government, the most important outcome that has to be achieved with this change is effective leadership. In the context of Public Governance, this does not necessarily equal to allowing a one-man dictatorship. I would rather hope to see a better balance of power that will ensure the least internal conflicts between the Executives, the civil servants and the Legislature".

12.   Bills Committee on Public Officers Pay Adjustment Bill

There were 6 meetings held since the last report.  This Bill seeks to provide a one-off reduction of the pay of, and the amounts of certain allowances payable to, public officers.  The one-off reduction will, with effect from 1 October 2002, affect all civil servants, including the Director of Audit and ICAC Officers and all public officers whose pay is pegged to civil service pay scales, but exclude those on a starting salary not linked to annual service pay adjustment and judicial officers.  The percentages of reduction are specified for different salary bands as set out in the Bill.

The Bill also seeks to provide for an interpretation of the employment relationship between public officers and the Government so as to allow the proposed reduction.  Clause 9 provides that contracts of employment of public officers are to be read as expressly authorizing the adjustments to pay and amount of the allowances made by the Bill.  However, clause 8 provides that the adjustments made by the Bill to the pay and amounts of allowances payable to public officers do not prohibit or affect any adjustment to the pay or the adjustment of allowances payable to public officers after 1 October 2002.

The policy aspects of the Bill were discussed at the meetings of the LegCo Panel on Public Service ("PS Panel") on 23 May and 29 May 2002.  A majority of Panel Members present at the meetings queried the need to implement civil service pay reductions by legislation.

I had strong reservations about implementing the civil service pay cut decision through legislation on July 10.  In an open letter to the Secretary for Civil Service, Mr. Joseph Wong Wing-ping, six other independent legislators joined me to urge the Government to withdraw the bill which forces a civil service pay cut and at the same time, made it almost impossible for civil servants to seek fair judgement mediation or litigation.  We asked him to propose a permanent, workable civil service pay adjustment mechanism instead.  I also wrote "A Letter to Hong Kong" on 23 June 2002 which will be launched on my website very soon.

V.    Motion Debate

List attached as Appendix IV.  In addition, I have written two 'Letters to Hong Kong' on 31 March 2002 and 22 June 2002 for the RTHK.  Speeches on my Web Page and highlights will be published in my circulars to members.
　

VI.   Questions

I have asked only 1 question - (questions for disciplinary proceedings against civil servants) since the last report which are attached as Appendix V.  The relevant HKSA Committees may wish to be advised and to consider the replies further.

VII.  General Political Background

To present orally.

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