Shaping trade laws and policies for a more efficient economy: research contributions to Hong Kong’s adoption of the UN Convention on Contracts for International Sale of Goods (CISG)

Based on the Research of Liu Qiao and Wang Jiangyu

For many years, Hong Kong has followed the rare example of the United Kingdom by not embracing the CISG, even though the CISG has extended to almost all major trading regimes including Hong Kong’s biggest trading partners. This unfortunate legal status has clouded the economic future of Hong Kong since its return to the People’s Republic of China in 1997. In 2020, the Hong Kong Department of Justice released a consultation paper for the possible adoption of the CISG.

A report was drafted by Liu in response to the questions raised in the consultation paper following discussion with Wang, who has expertise in public international law. Both authors started as Professor at CityU in January 2020. The report called emphatically for the adoption of the CISG. It further suggested several changes to the DoJ’s draft bill. The report was based on previous research conducted by Liu on the CISG and was informed by his work as a contributor to the UNCITRAL’s official Digest of Case Law on the CISG. At City University Liu has continued to publish in this area of the CISG’s application by the Chinese Mainland courts.

Detailed academic analyses were provided by Liu in his 2022 article. In particular, the article concluded that both a literal interpretation and a purposive interpretation of article 93 of the CISG (which covers extension of the treaty to multiple regions within a member state) indicate that Hong Kong’s handover in 1997 did not automatically make the CISG applicable to HKSAR. It was also argued that, based on a combination of domestic constitutional rules and public international law, the Central People’s Government should deposit a declaration with the Secretary-General of the UN in order to extend the CISG to Hong Kong.

Another significant point concerns whether Hong Kong should keep the reservation made by the Chinese Mainland under Article 95 of the CISG, which restricted the scope of the CISG to sales contracts whose parties were from two different member states. After examining the reasons underlying this reservation and how a similar reservation was recently revoked in Singapore, the article concluded that HKSAR’s position as a major international trading hub militates against adopting such a reservation.

Of equal (if not greater) importance is the study on the applicability of the CISG to trade between Hong Kong and the Mainland, which led the article to conclude that, for its promise of economic benefits to be fully realised, the CISG must cover inter-regional contracts (i.e. transactions between parties from HKSAR and Mainland) as well as international ones, and that a bilateral agreement between Hong Kong and Mainland was required to extend the CISG to such contracts. This is a complex issue which was, on Liu’s advice, eventually left aside in the 2023 Ordinance. It is also a critical issue in the DoJ’s next phase of work, on which the article is the first major attempt to shed light.

(1) Impact on law and public policy

The Liu/Wang report has clearly shaped law and policy by answering both the whether and how questions. As shown in the DoJ consultation report, the Liu/Wang report was one of the most cited responses (and the most prominent academic response), with a total of four citations (including extensive quotation).

a) Article 95 reservation. The consultation paper proposed that the reservation under article 95 of the CISG be adopted by HKSAR to keep Hong Kong legislation in line with the Mainland. However, Liu/Wang report advocated the removal of this reservation, emphasising the restrictive effect it would have on the intended economic benefits to Hong Kong. The responses of the two legal professional bodies (HKBA and HKLawSoc) diverged, and the Liu/Wang report was relied on as expressing the deciding view in the DoJ’s decision to abandon the reservation. This view was consequently endorsed by the Legislative Council .

b) Hong Kong-Mainland transactions. The consultation paper proposed that extension of the CISG to contracts between the two regions be effected through clause 4(2) of the attached draft bill – making the CISG unilaterally binding on Hong Kong. The Liu/Wang report supported the removal of clause 4(2) and advocated the negotiation of a bilateral agreement with the Chinese Mainland, based on Liu’s pioneering research on this matter. Since Liu/Wang report was the only response advancing this view, it was clearly acted upon by the DoJ when the latter removed clause 4(2) and favoured future bilateral negotiation. This is partly reflected in the Ordinance, which refrains from dealing with the matter.

c) Need for Central Government’s declaration. Although this was not a specific consultation question, both the report and LIU’s research article made it clear that it was essential for the Central Government in Beijing to make a formal declaration to the UN before any further steps towards enactment of the ordinance could be taken. This advice was met with approval by the DoJ. When in May 2022 the Central Government deposited a declaration with the United Nations in the way suggested in the Liu/Wang report, the causative link seems clear: the Central Government would not have so acted without a specific request from the DoJ.

The above significant changes in law and policy will have impact on a wide range of stakeholders, including traders, lawyers, judges and many other persons who might be affected by or come in contact with the Ordinance and/or the CISG.

(2) Impact on economy

The CISG is expected to have lasting positive impact on economy by promoting trade and facilitating dispute resolution. The DoJ unequivocally recognised in its consultation paper the CISG’s expected effect of reducing barriers to trade and hence boosting gross domestic product. Further, the DoJ quoted the Liu/Wang’s statement that “the trade between Hong Kong and Mainland China is so significant that, should the CISG not be applied to contracts for sale of goods between parties with their respective places of business in Hong Kong and Mainland China (“Hong Kong–Mainland contracts”), the above economic case would be considerably weakened”. Although no qualitative evidence is available for such long-term economic benefits, it might not be necessary given the unanimous acceptance of the benefits from all quarters in the consultation process.

In economic terms, the beneficiaries of the research will comprise trading industries and communities in both Hong Kong and the Chinese Mainland.