I.                   OVERVIEW

1.                   The Government of the Macao Special Administrative Region (MSAR) is pleased to present this report on developments in the economic and trade environment of the MSAR since the Trade Policy Review carried out in 2001.  During the period under review these developments have in general been highly positive:  on the basis of the legal and constitutional guarantees provided by the Basic Law, and of stability in economic and trade policy, the economy has enjoyed sustained and rapid growth.

2.                   Seven years after the resumption of the exercise of sovereignty of Macao by the Peoples’ Republic of China it can be seen that the principle of "one country, two systems" established under the Basic Law, has operated very effectively. Macao, China enjoys, inter alia, a high degree of autonomy in economic and trade relations, with its own currency, separate customs territory and border controls, as well as all the rights and obligations of a full Member of the WTO.  It remains one of the most open economies in the world, a free port with no tariffs or other charges or restrictions on imports and exports, welcoming foreign investments and fundamentally committed to free trade. These policies ensue from our free-trading traditions and from the requirements of a small economy wholly dependent on exchanges with the outside world: most importantly, they are guaranteed by the Basic Law.

3.                   Against this background of policy stability there have been a number of major developments since 2001, as a result of which the experience of the economy over the period presents a strong contrast with that covered in the second Trade Policy Review, 1994-2000.  That was a time of severe economic difficulty, in which investment fell, unemployment increased and the GDP contracted sharply. Since 2001 Macao, China has experienced sustained and rapid growth, stimulated by the economic recovery in Asia but responding in particular to the liberalization of the gaming industry and to a massive increase in the number of visitors from Mainland China. This has underlined the critical importance of the Closer Economic Partnership Arrangement (CEPA) with Mainland China. The vast manufacturing potential of the Mainland offers great scope for Macao’s entrepreneurs and suppliers of business and professional services.

4.                   The economy of Macao has been transformed in the past decade and more from its former dependence on manufacturing industry into one dominated by services, which now account for more than 90% of GDP. This transformation has been encouraged by incentives to investment in key service sectors and by improvements in the legal and business environment.  It will be further stimulated by the designation of the Historic Centre of Macao as a World Heritage Site by UNESCO and by the development of the city as a convention and conference venue. At the same time, the Government of the MSAR is resolved to maintain a healthy manufacturing sector, and has introduced a number of policies to promote new investment, particularly by small and medium-sized manufacturing enterprises.  The basic policy of the Government, in both the services and manufacturing sectors, is to foster investment and competition in a business environment of legal security, minimal intervention and low taxation. Tax on corporate profits, which ranges from 3% to 12%, is the lowest in the region. By investment in public infrastructure, particularly for housing and transport, the Government is seeking to create a physical environment equally conducive to efficiency and human welfare.

5.                   Macao, China has fulfilled all of its obligations as a Member of the WTO and has strengthened its capacity to play an active part in the work of the Organization by opening the Macao Economic and Trade Office in Geneva in 2003.  Under the Doha Development Agenda, Macao, China has greatly improved its offer of commitments on services. The MSAR earnestly hopes that these negotiations, which are essential to sustain and strengthen the multilateral trading system, will be concluded successfully.

II.                INSTITUTIONAL  DEVELOPMENTS

6.                   There have been no changes in the constitutional and legislative system established in 1999 in accordance with the "one country, two systems" principle enunciated in the Basic Law.[1]  However, since 2001 there have been some important administrative reforms resulting in new institutions and authorities. A major priority of Macao’s policy-makers has been the promotion of reforms in public administration and the enhancement of government services. Administrative efficiency has been improved by training of civil servants and the provision of "one-stop" services to the public and business. A sustained and successful effort has been made to raise ethical standards in public administration. The Commission Against Corruption is vigorously exercising its powers to prevent and punish corruption and fraud in the public sector, and has earned the confidence of the general public, which is showing greater readiness to bring concerns and complaints about maladministration to the Commission. In consequence Macao was ranked fourth, after Singapore, Japan and Hong Kong, in the annual report for 2006 of the Political and Economic Risk Consultancy on the Trend of Corruption in Asia. In addition, Macao was ranked 26^th in the 2006 edition of the Transparency International Corruption Perceptions Index 2006 (CPI), an index ranking more than 150 countries and regions by their perceived levels of corruption, as determined by expert assessments and opinion surveys. The Commission of Audit is simultaneously monitoring and improving the efficiency of public Departments.

7.                   Cooperation with neighbouring authorities has also been intensified, to combat cross-border and international crime. Macao, China is determined to preserve and strengthen its reputation as a stable and efficient place to invest and do business.

8.                   Several new governmental bodies have been established. Those of most interest for the purposes of this Review are the following:

- The Economic and Trade Office to the WTO

The Economic and Trade Office in Geneva is Macao’s permanent representation to the WTO. It was created in accordance with the Basic Law in August 2003 to participate in the full range of WTO affairs. It has made possible a more sustained and involvement by the MSAR in negotiations and the other work of the WTO.

-        Macao Customs Service

Macao’s unified Customs Service was created in 2001, combining the formerly separate Marine and Customs Police services. In addition to all customs functions, its responsibilities include the prevention and suppression of commercial fraud and a wide range of duties related to external trade, notably the protection and enforcement of intellectual property rights, both at the border and internally.

- Bureau of Telecommunications Regulation

The Bureau of Telecommunication Regulation was established in March 2006, replacing the former Office for Development of Telecommunications and Information Technology.  It is a modern independent regulator, whose duties include regulation, supervision and promotion of telecommunications services and ensuring fair competition in the telecommunications sector. One of its responsibilities is the granting of new mobile and internet licences. The Bureau also promotes the competitiveness of the telecommunications market and safeguards the rights and interests of users.

- Financial Intelligence Office

The Financial Intelligence Office is responsible for the collection and analysis of information concerning transactions which may be suspect or of interest to the authorities in the context of money-laundering.

- Science and Technology Development Fund

The Science and Technology Development Fund, whose objective is to promote the development of new technologies and to enhance scientific knowledge and capacity, was established in 2004. It provides funding for science-related education, research and project development.

III.             Recent Economic Developments

(1)     Macroeconomic Developments

9.                   The period under review has been one of strong and sustained economic growth. The contrast with the period 1994-1999 could hardly be more striking. The recovery which began to manifest itself in 2000 was sustained throughout the period 2001-2006, despite the outbreak of the Severe Acute Respiratory Syndrome (SARS) in neighbouring territories in 2003. Although this caused a decline in the number of tourists and in tourism revenues, the impact was  short-lived; the economy grew by 14.2% even in 2003, and by 28.3% in 2004. In 2001-2005 real economic growth averaged 14.5% annually and GDP per capita rose from USD 14,253 to USD 24,316. Investment, both public and private, increased even more rapidly, by 36.1% a year on average over the same period.  The rate of GDP growth moderated to 6.7% in 2005, but very fast growth was resumed in the first three quarters of 2006. Unemployment fell to about 11,000, or 3.8%, in the third quarter of 2006. In the absence of major external shocks there is good reason to expect that the economy will continue to expand, even if the extraordinary rates of growth which followed the liberalization of the gaming industry are not sustained.

10.               Two major policy decisions account for most of the accelerating growth of Macao, China’s economy in this period. The first was the decision by the MSAR Government to liberalize the gaming sector in 2002. The second was the signing of the Closer Economic Partnership Arrangement with Mainland China in 2003, under which the Individual Traveller Scheme allowed for residents from 44 Chinese cities to visit Macao on an individual basis. This brought about a massive surge in the number of visitors from Mainland China, who now account for more than half of all arrivals in Macao. Their number increased by 66% in 2004 and by a further 9.8% to a total of 10,462,966 in 2005, as compared with just over 3 million in 2001. This provided a sharp boost to all tourism-related industries – casinos, hotels, restaurants and transport – which rapidly recovered from losses caused by the SARS outbreak. The total number of visitors from all sources has doubled since 2000. Tourist facilities of all kinds, and the transport infrastructure, are being upgraded and expanded to accommodate this continuing growth.

11.               The decision to liberalize the gaming industry, which had been a monopoly under one concessionaire for 40 years, was taken in 2001, in order to promote competition and new investment in the industry. In 2002 gaming licences were granted, after a competitive tendering process to three concessionaires, each of which now has one sub-concessionaire. The liberalization policy has been remarkably successful. In 2002 there were 11 casinos in the MSAR: by the end of 2006 the number had risen to 24 and it is likely to reach 28 in 2007. The scale and quality of the new establishments is even more striking than their number.

12.               The establishment of new casino resorts is bringing benefits far beyond increased gaming revenues. The grant of new gaming concessions was made conditional on major investment undertakings by the concessionaires. As a result they have not merely expanded and upgraded gaming facilities to the highest international level: they are doing the same for the entire hotel and entertainment sector, through the development of large integrated hotel/resorts providing gaming, accommodation, entertainment and shopping under one roof.  Foreign Direct Investment in the MSAR has increased dramatically in the past three years as a result of the liberalization of the gaming industry.  At the end of 2005 "cultural, recreational, gaming and other services" accounted for some 60% of the total stock of FDI: the shares of the financial and industrial sectors were about 20% and 7% respectively.

13.               These developments, along with the major programme of investment in housing and public infrastructure undertaken by the Government, largely explain the remarkable transformation of the performance and prospects of the MSAR economy in this period. As a result, the macroeconomic situation of the MSAR is strong; the overall fiscal surplus rose by 102.1% per annum on average in 2001-2005 and the Government has no external debt. The balance of payments was in surplus throughout the period. The large surplus on invisible trade, boosted by the growth of tourism, more than offset the growing deficit on visible trade and a net outflow on the capital and financial account.

14.               Since the Macao pataca (MOP) is pegged to the Hong Kong dollar, and thus indirectly to the US dollar (at a rate of about MOP8:USD1) the effective exchange rate index against the currencies of trading partners declined by about 10.5% between 2001 and September 2006.

15.               In the property sector demand and prices rose strongly over the period, and the overall rate of inflation rose from about 1% in 2004 to 4.7% in the third quarter of 2006. Rising demand for manpower has generated a labour shortage, particularly in the construction industry and in casinos, which is being addressing through re-training programmes and by increasing the number of non-resident workers admitted to work in the MSAR. The total number of non-resident workers increased from 27,736 in 2004 to 62,045 in November 2006. More than half of these come from Mainland China. Hong Kong and the Philippines are the other major sources. The productivity of labour is being raised by promotion of the concept of "lifelong learning" through vocational training and retraining within the community. The Macao Productivity and Technology Transfer Centre provides advanced training in languages, information technology and textiles and clothing manufacture.

16.               The strength of confidence in the economy is also evident in the rapid increase in the number of newly formed companies, from 1,597 in 2003 to 3,072 in 2005 and 2,313 in the first three quarters of 2006.

(2)     Regional Cooperation

17.               These positive developments have taken place in the context of a highly favourable external environment, dominated by the strong growth of the neighbouring provinces of Mainland China and of East Asia as a whole. Since the MSAR economy is heavily dependent on external demand it is vulnerable to adverse developments in the world and regional economies. The Government is therefore seeking both to diversify the economy and to strengthen economic cooperation with neighbouring economies.

18.               The Closer Economic Partnership Arrangement between the MSAR and Mainland China was signed on 17 October 2003. It is designed to liberalize progressively trade in all goods and services and to facilitate trade and investment between the two sides. Under the CEPA, goods imported from Macao into Mainland China enter duty-free, if they satisfy the CEPA rules of origin. Macao does not impose tariffs on imports from all sources. The share of Macao, China’s exports to the Mainland benefiting from CEPA treatment is still growing, as exporters are developing their networks. In 2006, rules of origin have been agreed for 625 tariff lines; others will follow, as applications to import additional products are received. Three Supplements to the CEPA were signed in 2004, 2005 and 2006.

19.               In services, China has conferred preferential treatment on MSAR suppliers through specific commitments in 27 service sectors, in most cases permitting the establishment of wholly-owned Macao enterprises and opening the sector to Macao suppliers one to three years earlier than is required by China’s commitments under the GATS. Any company established in the MSAR may benefit from the CEPA’s liberalized treatment of goods and services.

20.               The CEPA also provides for closer cooperation between the two economies in a wide range of activities, including trade facilitation, trade and investment promotion, electronic business, sanitary and phytosanitary measures and intellectual property protection. It has been notified to the WTO Committee on Regional Trade Agreements, which carried out the third round of its examination in April 2006.  The CEPA can already be seen to have stimulated investment by Macao service suppliers in the Mainland, and will increase the attraction of the MSAR to third-country investors aiming to serve the Mainland market.

21.               The most significant expression of the increasing interaction between the MSAR and Mainland is the great increase in the number of visitors to Macao from the Mainland, referred to above. This also reflects the importance of the CEPA, under which the Mainland introduced the Individual Travelers Scheme.

22.               Apart from the CEPA, Macao, China has no preferential trade relationships with any country. However, efforts have been made to sustain and deepen cooperation among the Portuguese-speaking countries, on the basis of Macao’s unique historical relationship with Portugal. The Framework Agreement on Cooperation between the MSAR and Portugal, signed in 2001, is intended to promote cooperation in economics, finance, science and other key areas. With the strong encouragement of the People’s Central Government, the role of Macao, China as a platform for trade between China and the Portuguese-speaking countries was emphasized. As a result, the Forum on Economic and Trade Cooperation between China and the seven-member Community of Portuguese-speaking Countries (Angola, Brazil, Cape Verde, Guinea-Bissau, Mozambique, Portugal and East Timor) took place in Macao. In the first Forum, held in 2003, it was agreed to establish a permanent secretariat in Macao. The second Forum took place in 2006, in which it was agreed that the next Forum will also be held in Macao in 2009.

IV.              THE TRADE AND INVESTMENT ENVIRONMENT

(1)               Trade Environment

(a)                Customs Procedures

23.               The Macao Foreign Trade Law, enacted in June 2003 has simplified and streamlined all import and export procedures. In general, imports and exports of all goods are subject only to a declaration, for statistical purposes, to the Macao Customs Service: customs clearance is normally effected within 20 minutes, in conformity with the Service’s Performance Pledge to traders, and even less when declarations are made electronically.

24.               Macao has no rules of origin, and it imposes no tariffs, and no anti-dumping, countervailing or safeguard laws. Import licences are required for imports of live animals and plants, optical discs manufacturing equipment and raw materials, telecommunication and radio communication apparatuses, wine and tobacco, arms and ammunition and explosives, toxic chemicals and precursory substances, medicines and pharmaceuticals, gasoline and motor vehicles, ozone-depleting substances and plant and animal species protected by CITES. Importation of used cars and heavy passenger vehicles is prohibited for environmental reasons.

25.               Export certificates, to prove Macao origin, are required for goods exported to the Mainland under CEPA and are available, at the option of the exporter, for exports to some other markets. Export licences are also required for optical discs, related equipment and raw materials (in furtherance of intellectual property protection), textiles and clothing, CITES species, ozone depleting substances, toxic chemicals and precursory substances and for arms, ammunition and explosives. The government provides no subsidies or other financial incentives to exports.

26.               Many customs declarations are now made electronically through the Electronic Data Interchange system which was initiated in 1999. In the near future, all customs clearance procedures are expected to be paperless.  Almost all licence applications and approvals can also be handled electronically. This is an important step forward both in trade facilitation and in improving trade data accuracy.

(b)               Tariff Policy

27.               The longstanding policy of duty-free entry for all imports from all sources will be maintained, irrespective of tariff bindings. However, Macao, China has bound at zero 28.6% of its tariff lines, including all agricultural products and products covered by the ITA and, in the context of a successful tariff negotiation in the Doha Round, would expect to make many more bindings on industrial products, as a contribution to the success of the Round and to trade liberalization on the multilateral level.

(c)                Consumption Tax

28.               The consumption tax applied to tobacco products, alcoholic drinks, fuels and lubricants is levied on both imports and domestic production, though mostly these goods are imported. Motor vehicles, which were previously subject to consumption tax, have been subject since 2002 to the motor vehicle tax, which rises progressively from 30% to 55% according to the value of the vehicle.

(d)               Government Procurement

29.               Although Macao, China is not a member of the plurilateral Government Procurement Agreement, it is fully aware of the need to obtain the best possible value in its procurement of goods and services for government use, and welcomes tenders from all sources. It promotes openness and transparency at all stages of the procurement process, from posting of tenders to announcement of their results. Detailed information is available on the official website, from which tender documents can be downloaded. Procedures regulating procurement are currently under review, to align them with best international practice and to ensure the most efficient use of computer technology.

30.               Procurement of construction services is in general handled by the Lands, Public Works and Transport Bureau, but for very large projects procurement is the responsibility of the Office for the Development of Infrastructures, which is seeking wider foreign participation in building and management contracts through advertisements. For these projects, joint ventures between local and foreign companies are highly desirable, and it is hoped that the new website will generate additional participation by foreign contractors, who are required only to register with the Lands, Public Works and Transport Bureau.

(2)               The Investment Regime

31.               Macao’s economy is open to foreign investment as it is to foreign trade, as a matter of deliberate policy. The attractiveness of the SAR as an investment location is founded on the rule of law, low rates of tax on company profits and the absence of any discrimination against foreign investors. There are no restrictions on imports of capital, capital equipment, raw materials or professional staff, or on the repatriation of profits and procedures for the approval of investments by foreigners are the same as for locals. The Macao Trade and Investment Promotion Institute operates a "One-Stop Service" for investors setting up and registering a company in Macao, its mission being to see the process of establishment through from start to finish. A foreign company setting up for the first time may be granted temporary office space and other facilities such as meeting rooms, free of charge, for several months.

32.               The Government provides a number of fiscal and financial incentives to investment which are available to both local and foreign investors. Complete or partial exemption from property tax, business registration tax, corporate income tax, tourism tax, consumption tax on fuel for industrial use and stamp duty may be granted for projects which promote economic diversification, technological modernization or exports to new markets or which add value to the production chain.

V.                 SECTORAL DEVELOPMENTS

(1)     Trade in Goods

33.               The export of manufactures, especially clothing and textiles, was traditionally the mainstay of Macao’s economy, but its relative importance has steadily declined over the past twenty years and more, as the services sector has accounted for an ever larger share of exports, investment and employment. This trend will certainly continue. Employment in manufacturing stood at under 15% in 2005, compared with 28.5% in 1992.

34.               The deficit on visible trade increased throughout the review period. Goods exports increased by 2.6% annually in 2001-2005, while goods imports rose by 13.7% a year. The United States continues to be by far the largest market for the MSAR’s merchandise exports. The share of the EU, in second place, declined steadily over the period while those of China and Hong Kong, China increased. Over 80% of imports, by contrast, came from Asia, 43.1% from China alone in 2005. Given the great preponderance of textiles and clothing in the industrial history of Macao, the termination of the system of quotas under the Agreement on Textiles and Clothing in January 2005 was bound to be a historic turning point: textiles and clothing still account for over 90% of domestic exports, and of these about 90% had traditionally gone to the two great restricted markets of the USA and the EU, which would now be open to imports from all sources. In the event, exports to these markets fell steeply in 2005, but recovered in the first three quarters of 2006.

35.               The Concordia Industrial Park, established on reclaimed land in 1993, has now been supplemented by the Macao section of the Macao-Zhuhai Transborder Industrial Park, which opened in December 2006. When fully developed it will provide 27 industrial units of different sizes, all of which have already been allocated to manufacturers of pharmaceuticals, textiles and clothing, health foods, chemicals and information technology among other products. Preference has been given in the allocation of sites to projects offering new technology, high added value or similar benefits to Macao’s industrial development. Round-the-clock direct access to the customfree zone of the Zhuhai section will greatly facilitate cross-border cooperation and exports to the Mainland.

(2)     Trade in Services

(a)                Overview

36.               The future growth of the economy nevertheless depends on the services sector, which is already by far the most important in terms of employment, GDP, investment and tax revenues. The Government’s policy is to create conditions in which the market can work efficiently, with minimal restrictions on market entry and business operations but with all means of regulation and supervision in place. The objective is not merely to promote domestic growth, but to exploit the potential of the MSAR as a services hub for the Pearl River Delta region and further afield, building on its strengths in business and other services and on its history of East-West interchange.

37.               The openness of trade in services is exemplified in Macao, China’s revised offer of commitments on services in the Doha Round. Macao, China supports the GATS principle of progressive liberalization, in line with Members’ level of development, but the Government also believes that a successful negotiation on services should benefit developing and least-developed members in particular.  Whereas in the Uruguay Round Macao had made commitments in financial services, tourism and leasing services, the revised offer is far more comprehensive, with commitments in eight of the eleven sectors covered by the GATS (73 sub-sectors). This is perhaps one of the most improved offers so far submitted in the Round, and is intended as a contribution to the success of the services negotiations.

38.               The commitment to liberalization of the service industries on this scale is a new departure for Macao. An evolutionary step is the liberalization of the gaming industry and mobile telephony services. Nevertheless, some other public utilities such as water and electricity supply are provided under concessions due to the small size of the domestic market.

(b)               Tourism, Gaming and Related Services

39.               The extraordinary transformation of the economic performance and prospects of the MSAR since 2001 essentially results from the massive increase in visitors from Mainland China and investments in casino resorts following the liberalisation of the gaming industry. In 2005 visitor receipts and gaming revenues together accounted for 72% of GDP and direct taxes on gaming provided around 70% of total tax revenues. In total, taxes account for about 33% of the industry’s gross revenues. As the Individual Travellers Scheme is extended to new cities and regions in China, and major new casino/hotel complexes now planned or building come into operation, the flow of visitors and tourist revenues will increase. Funds generated by gaming will finance the improvements in infrastructure needed to serve the needs of visitors.

40.               It is the Government’s stated policy to develop the city as a world-class tourist venue, symbolised by the designation of the Historic Centre of Macao as a UNESCO’s World Heritage Site and taking full advantage of its cultural diversity and vitality. Over the next ten years 58 new hotels and around 41,000 new rooms will be added to the city’s capacity.  Business tourism is being promoted by the creation of sophisticated exhibition and conference facilities. Tourism based on meetings, incentives, conventions and exhibitions (MICE) is expected to enhance the consumption of individual visitors and prolong their stay in the city. The casino operators themselves are diversifying into family-oriented and conference services. New facilities have also been developed for cultural and sporting events. In order to host the 4^th East Asian Games, which it did with great success in 2005, Macao created a full range of stadia to the highest international standards, and these will form a permanent attraction for events of this kind.

(c)                Telecommunications

41.               Basic telecommunication services have been provided since 1981 by the Companhia de Telecomunicações de Macao, under a concessionary agreement. The exclusive rights provisions were extended in 1999 to 2011. However, the scope of the Agreement was limited to fixed lines, data communication and leased lines. Internet services and mobile telephony were opened to competition in 2000 and 2002 respectively. As a result, Macao has five mobile operators, ten internet service providers and eight internet content providers. Further, a public tender for 3G operation licenses was opened in April 2006. Three licenses were granted initially in October. 3G mobile services will be available in 2007. Broadcasting services are also very dynamic, with five television and two radio broadcasting companies. Where the regulatory framework is concerned, the Bureau of Telecommunications Regulation was established in May 2006 to administer the Basic Telecommunications Law and related regulations and to ensure fair competition in the sector. In addition, the Government is conducting a feasibility study on the establishment of a second fixed or wireless network for the provision of broadband services.

(d)               Financial Services

42.               The financial sector has always been notably open to foreign participation.  The absence of restrictions on investment and of discrimination against foreign suppliers was reflected in Macao’s very comprehensive commitments on insurance and banking services under Mode 3 of the GATS in the Uruguay Round. In terms of foreign investment, the MSAR financial sector is undoubtedly one of the most open in the world.

43.               At the end of 2006 there were 27 banks operating in Macao, 12 locally incorporated and 15 incorporated elsewhere. 5 banks, 1 locally incorporated, opened in the period 2001-2005. Only two banks, plus the Government-owned Postal Savings Bank, are registered with local capital; all others are registered with foreign capital. Mainland China and Portugal between them accounted for about 70% of banking assets at the end of 2005. All banks operating in Macao have full access to central bank credit (with the exception of offshore banks) local financial markets and settlement and clearing facilities.

44.               The regulation and supervision of the entire financial sector is the responsibility of the Monetary Authority of Macao (AMCM), which also performs the functions of a central bank. Its supervisory structure and procedures for banking were assessed in 2001 by the IMF, which concluded that they were in full compliance with the Basel Core Principles for Effective Banking Supervision.

45.               Particular attention has been paid to prevent from money-laundering activities. The Law on Prevention and Suppression of the Crime of Money Laundering came into force in April 2006, greatly strengthening the authorities’ capacity to detect suspect transactions and punish offenders. Moreover a new Financial Intelligence Office has been established with responsibility for collecting and analysing information on suspect transactions.

46.               There are no restrictions on the entry of foreign insurers into the market, other than an obligation to invest in stated fund assets and to have their general representative permanently resident in Macao. Licensing criteria are the same for all insurers seeking authorisation to carry on insurance business and all are subject to identical prudential supervision, whatever their origin. In 2006 there were 24 insurers operating in Macao, 16 of them overseas-based. Overseas insurers accounted for some 83.7% of life insurance business in the third quarter of 2006, and for about 22.4% of non-life business. Insurers are not permitted to provide life and non-life insurance concurrently.

(e)               Construction

47.               The construction sector has enjoyed unprecedented growth in recent years, as result of three factors: a boom in residential and commercial building, major development such as the third Macao-Taipa Bridge and the new sporting facilities for the East Asian Games, and the building of new casino resorts.

(f)                 Transport Services

48.               Air cargo services are flourishing in the MSAR: cargo movements through Macao International Airport increased ten-fold between 2001 and 2005. Passenger movements increased from 3.8 to 4.2 million, but are expected to multiply in response to Macao’s development as a world-class tourist destination. Air Macau is the sole concessionary operator of scheduled passenger and cargo services, but during 2006 it granted sub-concessions to 2 other companies to operate services to destinations not served by Air Macau. Two additional companies operate helicopter and executive jet services respectively. Apart from Air Macau, there are 12 airlines currently conducting business in Macao. Because of the expected rise in regional tourist traffic and in cargo traffic boosted by re-exports from the Mainland, the International Airport needs to be expanded, and this is now underway.

49.               Maritime transport services are also being expanded to handle the growing number of visitors. In addition to the enlargement of the main ferry terminal, two new terminals are now under construction, one of them adjacent to the Airport. There are no restrictions on the number of sea transport operators.

(3)     Intellectual Property Rights

50.               There have been important developments since 2001 in the protection of intellectual property rights – not through amendment of the law, which had been comprehensively reformed in 1999, but in its enforcement. The legislation, including the Laws on Copyright and Related Rights and on Industrial Property, both enacted in 1999, was reviewed by the TRIPS Council in 2000, Macao, China having volunteered to be one of the first developing Members to undertake the review process. Further, the legislation is being revised, inter alia to reflect the fact that since 2004 the examining entity for patent applications has been the State Intellectual Property Office of the PRC: invention patents granted in the Peoples’ Republic can now be extended to the MSAR. But the system, which implements the MSAR’s obligations under the TRIPS Agreement, is firmly established. Its management is the responsibility of the Intellectual Property Department of Macao Economic Services.

51.               Confidence in the system, and in the health of the economy, is indicated by the very striking increase in the number of applications for industrial property rights over the period under review.  Trademark applications increased from 1,696 in 2001 to 4,651 in 2005, and applications for patents and models and designs increased in proportion, though from much lower levels. An Association of Copyright Owners has recently been established in Macao. The system for the registration of rights is essentially the same as in the EU, having been based on that of Portugal.

52.               The Macao Customs Service was created in November 2001 with strong powers to prevent and punish violations of intellectual property rights, and its efforts have been remarkably successful. The production and sale of illicit optical discs in Macao, has been effectively eliminated. As a consequence, more than 30 illegal producers which were operating before 1999 have been closed down. 25 production lines have been seized. Two legitimate operations, a plant producing blank discs and a stamper factory, remain in operation. The importation and exportation of raw materials and machinery for disc production takes place under licence and is stringently controlled.

53.               Retailing of optical discs is also strictly controlled:  retailers wishing to sell them must obtain advance authorisation and discs must carry an individual Source Identification code. Using its powers of random inspection of retailers and seizure of pirated products, the Customs Service has virtually eliminated the retail sale of pirated optical discs. In consequence the Macao Customs Service was awarded the "Sixth Annual Global Anti- Counterfeiting Award" by the Global Anti-Counterfeiting Group in 2003.

VI.              FUTURE PROSPECTS 

54.               Prospects for the economy of Macao, China for the foreseeable future are very positive. In the short term - strong but sustainable growth is expected on the basis of major investment commitments already scheduled, in the city’s infrastructure, in hotels and casinos, in housing and in manufacturing. As these projects mature, complementing the investment boom of the last five years, the signature of CEPA, the liberalization of gaming and the designation of the Historic Centre of Macao as a World Heritage Site, the flow of visitors and business investors will increase. And in the medium and longer term the economic integration of the Macao with the surrounding regions will deepen, strengthening its role as a regional business and service centre and as a bridge to the Mainland economy. It is the firm intention of the Government, as stated in the 2007 Policy Address, to promote diversification of the economy and the development of a more varied and sophisticated tourism sector, based on the territory’s unique mix of cultures and its outstanding modern facilities: gaming will remain an important constituent of the economy, but Macao is not positioned merely as a gaming centre.

55.               The dramatic recovery of Macao, China’s economy since 2001 would have been impossible without the great stimulus of external demand and investment. However, the economy’s ability to respond so effectively to this stimulus is a reflection of its inherent strengths: the confidence and flexibility derived from free trade, efficient regulation and the rule of law. In a highly competitive and dynamic region, Macao’s future as a modern economy, and especially its continuing ability to attract investment, will depend on the transparency, fairness and efficiency of its regulatory system, and on the essential discipline of non-discrimination. The Government will maintain these conditions, as it will maintain Macao’s free port status and its respect for all WTO obligations as the foundation for the effective formulation and implementation of economic and trade policy.

__________