CITY UNIVERSITY OF HONG KONG

COMPARATIVE PUBLIC POLICY

Dr. Richard Walker

FIRST ASSIGNMENT:

Application of Tools from Abroad for Policy-Making in Hong Kong

LUJAN ANAYA, Raul Alejandro

Student No. 52915639

Semester A/ 2012-2013

October 2012

Application of Policy Tools from Abroad for Policy-Making in Hong Kong

Topic of Interest: Use of Trust Services and Agreements as policy tool for promoting

efficiency within the public sector of Hong Kong (HK).

In this work, I’m planning to assess the applicability of the Latin American trust system,

adopted concretely in the case of Mexico (MX) in both public and private sectors, to be

implemented for the public sector of HK, as a tool for promoting an efficient management

of resources for policy-making, and trying to use the methodology described by Richard

Rose, in his book Learning from Comparative Public Policy: A Practical Guide (2005),

specifically about: deciding where to look for a lesson; learn by going abroad; learning

how does a foreign program work; and decide on adoption and applicability of lesson.

On a first instance, we would have to define what would be the concept of Trust: In a legal

context, it’s “Property given (by a settlor) to a trustee to manage for the benefit of a third

person… the benefitiary gets interest and dividends… for a set number of years. An

agreement (bilateral) under which one person transfers title to specific property to another

who agrees to hold or manage it for the benefit of a third person (or even the benefits may

be returned to the settlor itself).” [1]. Under this definition, it can be considered that the

trustee acts in two ways: as administrator and owner of an estate (for the settlor “transfers

some or all of his property to a trustee who holds that trust property for the benefit of the

beneficiaries” [2]) given by any person which has legal capacity to do, and in a similar

way, it’s to be understood that the goods and assets object of the Trust agreement, should

necessarily derive from the settlor’s legal ownership.

My interest in talking about the applicability of Trust agreements into the public sector of

Hong Kong, comes from the fact that I worked three years in “Banco INVEX”, S.A., the

Mexican Investments Bank, where I understood that, from approximately the last 20-30

years, Trust agreements have become an important figure for the development of projects

in Mexico, and other countries of the Americas and Europe, not only in the private sector,

but also in various fields of the public sector (or even in private projects which could have

a public impact): such as the development of lands (ie. the creation of residential

complexes, renewal of public buildings) and urban planning in many aspects; develop and

creation of public infrastructure (ie. roads and highways, oil and energy, environmental

protection); and promoting a licit and transparent administration of public funds (ie.

control of public debt, pension funds). For this cases, the government may participate in

three ways: (i) as settlor; (ii) as trustee, acting through its authorized organs and authorities

(in the case of MX, the Ministry of Finance); (iii) using its faculties to “divest its non-core

functions to the private sector or voluntary agencies” [3], as it happens in the case of

concessions, in which private companies enter “into an agreement with the government to

have the exclusive right to operate, maintain and carry out investment in a public utility…

for a given number of years” [4], or; (iv) acting along with private businesses, for the case

of public-private partnerships.

Also, Trusts have a significant historical value, since remote times they have served as a

legal and economical tool to protect wealth and preserve property. According to the

Encyclopedia of Business (2nd edition), its use can be dated back to the times of Ancient

Egypt and the Roman Empire, when clerks and public officials (acting as equivalent for

today’s trust officers and delegates) where charged with duties of holding, managing and

caring for other people’s property, and eventually “prototypes of trust institutions were

later developed (specially) in second-century Rome, some of which involved the use of

property for charitable purposes” [5]. Under the Latin concept of Fiducia or

Fideicommissum, Trusts worked as bona-fide institutions, for which any person transferred

property of wealth to another party (fiduciam accipiere) who would act to deposit for the

sake of security in times of hardship or conflict, on the condition that those assets should

be restored to the person who conferred the duty, thus the fid. accip. became charged with

an obligation of handling wealth in honest and diligent manner (in the jargon of specialists

in this subject, it’s the principle of “acting as a good family father”), otherwise being

subject to civil liability and condemned by public infamy [6]. Later, this figure was

introduced and adapted in Britain around the Middle Ages, for knights were looking to

protect their wealth and assets in times of war and long journeys, thus transferring property

over their assets to a third party (probably persons of their personal trust, such as relatives

or friends) by covenants under which property of assets would be reverted to the knight

upon his return, in which case, the transfer of legal ownership allowed the trustee to

enforce rights over the estate against claims by third parties, however, as claims and

disputes over ownership of trust estates became more frequent, rules of Equity were

developed along with the common-law system of England, so that an interest in property

could exist beside a separate legal interest, and the Court of Chancery distinguished

between “the legal and equitable ownership of an asset… it was then possible for one

person to legally own and manage an estate in the best interests of other persons, without

that owner actually deriving any benefit (financial or otherwise) from the estate… (in

itself)” [7]. From this point in history, through a constant process of evolution and

reception in different systems (and within an ample variety of economical and cultural

contexts), our concept of Trust eventually came to be an institution of legal and

economical relationship between the settlor and the trustee, established by the duty of the

latter to protect the patrimonial interest of its client.

Actually, the most remarkable features and advantages of Trust agreements in Mexico are

the following:

• Any person (individuals or public/ private corporations and entities) with legal

capacity to do so, may act as settlor, transferring the property of assets, rights over

goods or monies which derive from, and are subject to, licit ownership;

• Pursuant to outstanding regulations in Mexico (such as the Credit Institutions Law,

Credit Operations Law, and MX Central Banking Regulations), only financial

institutions (traditionally banks, either private, or public: such as the Public Services

Bank or the National Financial Bank); authorized government branches; as well as

public/ private insurance companies; may act as trustees [8];

• On my personal view and according to conventional knowledge, Trust agreements

work as versatile and flexible figures, which assure transparency in management of the

estate, as well as accountability: the trustee, in spite of acting as proprietor, acquires an

obligation of acting as diligently and lawfully as it must, and can be held liable,

pursuant to civil and criminal laws, for the case of wrongful administration or breach

of duties under the outstanding agreement and applicable regulations;

• A common and quite unique aspect which characterizes the operation of Trust

agreements and schemes in MX, is the conformation of a Trust Committee (which can

also be known as Technical Committee), which works as an external consulting organ,

upon which the settlor can delegate powers and faculties in setting guidelines and

providing advice to the trustee in the discharge and performance of its duties. The only

limits that may be imposed are defined in the documentary deed or regulation under

which the Trust is established (for the cases in which public entities and organs act as

settlors or trustees, appointments made for the composition of Trust Committees, are

usually conferred as ex-officio posts for public servants whose position and expertise

are relevant in carrying out the object for which the Trust is established), and;

• A favourable taxation treatment, for the constitution of a Trust (either public or

private), doesn’t intend a transfer of ownership to third parties, under the view of fiscal

regulations (such as the MX Federal Fiscal Code, or the Law of Tax over Income),

considering that such ownership will come back to the property of settlor after a set

number of years (usually 50 years in civil and commercial transactions) without a

lucrative gain or interest for the settlor upon the reversal of such property.

So, having defined briefly how can Trust schemes work for the public sector (at least for

the case of MX), now the question would be: How can a figure which has been used and

developed from remote points in history, in different nations, and within different contexts,

can be applied to the contemporary reality of policy-making in Hong Kong? On a first

instance, a fact to be considered is that the figure of Trust as we know it, was one of many

legal institutions brought under British colonial rule, and evolved by the application of

common-law and the rules of Equity, under the jurisdiction of colonial courts. Nowadays,

Trust agreements and services prevail regulated in HK under specific regulations such as

the Trustee Ordinance (inherited from the English Trustee Act of 1925) [9], among other

rules applicable in both private and public sectors, and for the latter, case Trusts have

served as statutory bodies or sui generis entities which come under control and supervision

of the government, as well as they may be subject to public scrutiny (such as charitable

Trusts, which are subject to favourable income tax benefits [10]). In this context, the Trust

Ordinance recently proved it needed to be upgraded and updated in many of its provisions,

considering the fact that from the years of 2009 and 2010, the HK Financial Services and

Treasury Bureau (FSTB) released a public consultation for the review of the Trustee

Ordinance, and a consultation paper published on March 2012 for the amendment of such

Ordinance, based on the 2000 Trustee Act promulgated in the United Kingdom and the

Singapore Trusts’ amendments of 2004, with the purpose of bringing the “regulatory

regime (of HK) in line with other comparable common law jurisdictions such as the

United Kingdom and Singapore” [11], and according to which the FSTB proposes

amendments and reforms to the referred ordinance, for instance: (a) more faculties shall be

given to trustees in HK for the discharge of their duties: enhancing their organizational and

administrative powers, as well as their rights to delegate such powers; (b) setting limits to

economical remuneration of trustees, and a more cautious review in the liabilities regime

that shall be imposed upon trust servicers, for the case of breach in their duty of protecting

assets against risk, loss or damage; (c) secure the right of any beneficiaries of receiving

updated information on the administration of the trust estate, and that of removing and

hold trustees accountable under extra-judicial proceedings, and; (d) to prevent excessive

accumulation of income, except for the case of charitable trusts (which would be allowed

to accumulate income for up to 21 years) [12].

However the context in today’s Hong Kong, it’s to be noticed as for nowadays, trustees

operating pursuant to HK jurisdiction are mainly focused in providing services for private,

rather than for public sector, and as well are very much of market-driven in their activity,

due to Hong Kong’s history of becoming a panacea of trade and financial transactions

within the last 30 years, not only at a regional-level within Asia, but also at a global scale

and have HK become a city of international projection and ambitions and a gravity center

of “technocratic” governance (if this concept can be understood as the rule and policy

running of technician-managers as a baseline to pursue the goals of the State). This is

where I dare say that both government and private contractors, in acting under a scope or

attitude of partnership rather than a view of rivalry or antagonism, need to “push the

envelope” in diversifying their activities for the sake of giving a social benefit to the

people of Hong Kong (of course, this problem of antagonism between the public and

private sectors, is not exclusive of Hong Kong economical-political activity, but still

prevails in most regions around the globe). It can also prove useful for matter of this paper,

if we consider the fact that within the last couple decades, HK has been experiencing a

time of bonanza in the development and provision of public services, as well as in the field

of public-private partnerships (our dear professor, Dr. Mark Hayllar, pointing out during

the first couple days, when I was just entering this MAPPM program at CityU, one of the

first things he taught us, is that the HK government has developed a tendency of becoming

as efficient as it could be competing to work like the private sector; and about that, I can

also remember about a first academic visit to the Efficiency Unit of the HK government in

Wan Chai, which took place during my first week of classes, and I found quite impressive,

coming myself from a developing country, to see examples of remarkable improvements

in efficient administration of public resources: one specific case, is that of the HK Post

Office located in Mong Kok which was renewed a few years ago, and the provision of the

postal service has become automatized, more agile, and even the office in itself has now a

quite neat and more professional presentation; other case would be the recent scheme for

the implementation and use of IT tools to facilitate the flow and exchange of information

between government dependencies and public offices, however using a centralized

network system). Now I would be asking to myself: why not having more of this

achievements using, let’s say tools, like Trusts services, for this kind of new policy-

making, to continue decentralizing government functions and duties, keep promoting the

joint participation of government and private corporations in public projects, and keep

promoting the same efficient and transparent use of public resources?

In my point of view, and in an effort for trying to solve the question addressed in the last

paragraph, the idea of applying Trust services into the provision of public services in Hong

Kong can prove quite useful under the consideration of this “technocratic” tradition of HK

government, served under the principles of conforming a smaller and sustainable

government, and the idea of achieving entrepreneurial public management, as well as the

fact that within the legal framework and policy-making system of Hong Kong we can find

a very ample spectrum of “bodies which perform public service functions but… enjoy

varying degrees of independence and autonomy from the central government… They range

in type from executive agencies to statutory corporations to some private companies” [13].

Anyway, my feeling regarding this view is that conservative government officials and

citizens may fear that a very frequent use of this schemes may cause a substantial

enlargement of the public sector, with all the practical and economical disadvantages it

may cause (increases in public expenditure and debt, heavier taxation, overlap of duties);

and, of course, it may also cause the discontent of popular sectors and pressure groups

constantly keen on watching closely over the acts carried out everyday by the HK

government, and which are always anxious to hit the government in its most vulnerable

point: its lack of legitimacy. But when I’m talking about promoting the use of this scheme

as policy tool, I don’t believe it’s necessary to think about an “enlargement” of the public

sector or the government as itself, for the use and operation of Trust services and funds

basically implies nothing but a mere allocation of resources (supposing they would be

already appropriated for matter of public budgeting, and available to be spent or invested

in the programs of public agencies or enterprises as authorized) to provide services in a

decentralized manner, instead of creating new organizational bodies, expanding

bureaucratic functions, or implementing very complex infrastructure: as matter of fact, that

has been the idea in promoting the use of the Trust schemes for the development of public

projects, precisely to avoid this very “enlargement” of public sector and government

bodies, within the countries that have adopted this kind of model.

In reference to the third and fifth paragraphs of this essay, another advantage that may

facilitate the application of the Trust schemes for public-private partnerships, would be

that, being Trust agreements and services a very practical tool for developing projects of

public impact, they can also be used to implement very specific programs in Hong Kong,

shall they be in the fields of education (ie. organizational or infrastructure control, funding

administration of public schools); smart-housing systems (as part of the Housing

Authority’s recent programs to provide the middle-class families and elder people, with

the decent kind of household they deserve to live in); or environmental protection

purposes, as well…

Let’s say, to give a hypothetical example for the case of environmental protection (this one

coming from my own inventive): What if the HK government, acting as settlor, decided to

sign an agreement with HSBC or the Bank of China acting as trustee, to constitute a Trust

program for a term of 30 years, in the zone of the New Territories and which its main

targets would be: (a) to develop a natural reserve zone for the protection of wildlife, (b) to

protect the environmental health of undeveloped lands, and (c) to provide financing and

advice in projects for sustainable agriculture farms (considering of course, that the HK

Legislative Council, for matters of budget, had authorized and appropriated a priori the

funds for the constitution of the program, by the Environmental Bureau)? In this case, the

trustee, despite being a private corporation, would be providing a public service, for the

fact that it would be acting as proprietor of public assets but administering them under

directions of the HK government (it would be also recommendable for the government, as

settlor, to constitute a Trust Committee conformed by appointed ex-officio officials from

the competent authorities, namely the Environmental and/ or the Financial Bureaux, to

provide with advice and guidelines for the continuous operation of the Trust). Wouldn’t

such program like that, work as an innovative tool for policy-making?

As conclusion for this paper, and in spite of different contexts and backgrounds, I really

think there shouldn’t be practical problems for applying the Latin Trust scheme (as

adopted in the case of Mexico) into policy-making for the public sector in HK, as proposed

at the beginning of this paper, considering the features of how do Trust services work in

MX (as mentioned in the fifth paragraph of this essay). Under my point of view as

apprentice of policy-drawer, this essay let’s me stand firm on a personal point of view,

which tells me that reluctance to implement innovative solutions in matter of policy-

making, usually derives from mere political whims, biases or limitations of political

correctness: in this specific case, from both a conservative but unfortunate view of

antagonism or rivalry among public and private sectors, and a very typical conservative

view of the HK government in designing and running its public policies (for being a

government constantly worried of not causing any disappointments to both its own

subjects, or to the Central Government of the People’s Republic of China); however, in

any case, it wouldn’t really imply a matter of technical problems… As lawyer and scholar

who has lived and travelled among three different regions of the world (North America,

Western Europe, and now Southeast Asia), I had the opportunity to gain some useful

experience in the field of comparative lesson-drawing by comparing legal and political

scenarios between diverse systems and contexts; and in many (if not most) cases I’ve

witnessed situations in which, if there’s enough political will of achieving goals of public

impact, both private and public sectors can do an excellent (or terrible!) job together. As

policy-designers, we have a continuous responsibility of cultivating harmony and

collaboration between the activity of markets and the public sector, however an important

baseline in working for the benefit of our communities, no matter in which country, city or

jurisdiction of the world we may be living in; in the end, the same logic of taking chances

and cooperate in looking for solutions, applies to all levels and fields of policy-making.

Thank you for your Attention!

References:

(1) Lectric Law Library’s Lexicon: http://www.lectlaw.com/def2/t056.htm

(2) “Trust Law”; Wikipedia, the Free Encyclopedia:

http://en.wikipedia.org/wiki/Trust_law

(3) Scott, Ian. The Public Sector In Hong Kong. Hong Kong University Press (2010); p. 91.

(4) “Concession (contract)”. Wikipedia, the Free Encyclopedia:

http://en.wikipedia.org/wiki/Concession_(contract)

(5) Reference for business, Encyclopedia of Business, 2nd Edition:

http://www.referenceforbusiness.com/encyclopedia/Thir-Val/Trusts-and-Trustees.html#b

(6) “Fiducia”. Lacus Curtius/ Roman Law (Smith’s Dictionary, 1875):

http://penelope.uchicago.edu/Thayer/E/Roman/Texts/secondary/SMIGRA*/Fiducia.html

(7) RBC Wealth Management:

http://www.rbcwminternational.com/trusts-history.html

(8) “Mexican Trusts”. Mexico Living:

http://www.mexconnect.com/articles/321-mexican-trusts

(9) “Trust Law in Hong Kong, a time for change”; Allens (Australian Law Firm):

http://www.allens.com.au/pubs/asia/foasiamar10.htm

(10) Scott, Ian. The Public Sector In Hong Kong. Hong Kong University Press (2010); p. 131.

(11) “Consultation Paper for Legislative Proposals on Trust Law Reform”, Financial Services and

Treasury Bureau of Hong Kong:

http://www.gov.hk/en/residents/government/publication/consultation/docs/2012/Trust_Law_

Reform.pdf

(12) “Trust Law in Hong Kong, a time for change”; Allens (Australian Law Firm):

http://www.allens.com.au/pubs/asia/foasiamar10.htm

(13) Scott, Ian. The Public Sector In Hong Kong. Hong Kong University Press (2010); p. 125.