Founded in 1947, the  Employers' Federation has come a long way. The Federation is far more than a lobby of employers. It promotes good practices in human resources management, and provides constructive advice to the Government on labour and manpower issues. Furthermore, it comprises members with social responsibility and a long term vision for Hong Kong.

Your support for the Mandatory Provident Fund Schemes was one of the critical factors that had made it possible for the schemes to materialise in 2000. No one knows better than I do, as you might recall, that I was in the hot seat in the late '90s pushing through the MPF schemes.

Looking back on the Year of the Rooster, despite high oil prices, rising interest rates and the threat of avian flu, Hong Kong's economy steamed ahead. We registered real GDP growth of 7.3% in the first three quarters, and we concluded 2005 by successfully hosting the Sixth Ministerial Conference of the World Trade Organisation, which once again reconfirmed Hong Kong's position as a first class international world city.

Looking ahead to this year, as the Chief Executive said, we should focus on fostering economic development, improving people's lives and building social harmony. Social harmony is predicated on a fair, just, civil and stable society.

Among the key underpinnings of social harmony are access to employment for those who want to work, reasonable pay for the work done, and cordial labour relations. I would like to focus briefly today on these issues, which are of vital interest to all employers.

Let me deal first with employment. While the jobless rate has subsided from an all-time high of 8.6% in the summer of 2003 to the current 5.3%, which will be updated later this afternoon, it is still relatively high. In fact, tackling unemployment will remain a long-term challenge for all of us. Our unemployment problem is both cyclical and structural.

As our economy moves up the value chain, the proportion of lower-skilled jobs inevitably shrinks, and the supply of lower-skilled workers outstrips demand. Older workers, and those with few skills or lower education levels, are finding it increasingly difficult to secure or keep jobs. Even for those who are employed, wages have stayed soft and working hours have remained long. 

The Government is not and cannot be oblivious to the plight of these workers. None of us want to see wages go so low that they become a disincentive to work and an incentive for people to rely on welfare instead.

As we all know, harmonious industrial relations have been a key ingredient of Hong Kong's economic prosperity and social stability. Our average time lost to work stoppages in the last four years was only one-twentieth of a day per 1,000 employees. That's one of the lowest rates in the world, and must make other industrialised economies green with envy. At the same time, the Labour Department's successful conciliation rate was close to 70% last year, the highest rate since 1994.

Some Hong Kong employers may subscribe to the view that labour unions are by nature aggressive and obstructive, and that our unionists prefer confrontation to consensus and dialogue. While this perception may or may not be understandable, it is in any case very unfair. Take the Textiles & Clothing Manpower Development Plan recently launched by the Labour Department. This is a clear example of the strong sense of understanding and collaboration among employer groups, labour unions and the Government. 

The plan represents a formula that benefits all parties, and it marks a milestone in Hong Kong's labour relations history. In essence, to enable our manufacturers to capitalise on Hong Kong's unrestricted access to the US and EU markets, the plan seeks to address the manpower needs of the sector through the two-pronged strategy of job creation for local workers and flexible importation of skilled labour.

It was not easy to secure a consensus on the Labour Advisory Board for the plan to proceed, let alone bring the unions on side. Nonetheless, it has been achieved and the plan augurs well for future tripartite collaboration on other equally difficult and sensitive labour issues.

I think we need to look at the fundamentals. Why do we need to legislate? The need to legislate of course is not to introduce more bureaucracy, and the need to legislate is not because we want to increase the size of the civil service. It's something more fundamental, because at the end of the day we have to fulfil Hong Kong's obligation to legislate against race discrimination under the International Convention on the Elimination of All Forms of Racial Discrimination. It is our obligation under the Basic Law. So it is something that we cannot avoid, and must take on.

But of course, in principle, preventing and combating racial discrimination is something that we all subscribe to. Likewise, promoting equal opportunities.

The Government, way back in 2004, issued a consultation paper entitled Legislating Against Racial Discrimination.We have invited public views on our legislative proposals and that particular document also contained the main provisions of the proposed bill. And since then our Home Affairs Bureau has discussed the legislative proposals with over 70 organisations, including the Employers' Federation, the Labour Advisory Board, a few overseas chambers of commerce and individual corporations.

Now in the course of our discussions with employer groups, we have noticed that there are a few main concerns and requests. For example, employers have asked for an exception for small employers, preparation of codes of practice by the Equal Opportunities Commission on employment and on the provision of goods and services, and an exception for differential treatment between employees on overseas terms, in other words, expatriates, and employees on local terms, locals.

We have been trying to address employers' concerns and trying to meet their requests as much as possible within the context of the need to introduce a set of legislation that is fair and acceptable to all and conforms within the international standards and norms.

We have also talked to a few overseas chambers of commerce, such as the American Chamber and the Canadian Chamber and their concern is that in future the exception for differential treatment between expatriates is only for persons recruited from overseas, who are not permanent residents of Hong Kong and have special skills, knowledge or experience not readily available in Hong Kong.

Their concerns are: expatriates are not free to change jobs in Hong Kong if they wish to remain on overseas terms and expatriates cannot apply for permanent resident status in Hong Kong. Now we have reassured the chambers that our proposals should not pose problems for employers who would like to recruit expatriates and I think I should raise a number of principles, if you like, before I end my address regarding this particular problem of expatriates and locals, whether there are any major difficulties under the proposed legislation.

Now first of all we have to note that in our proposals, overseas terms may be offered to expatriates doing more or less the same job as locals because they have to relocate to Hong Kong. And since they have to relocate, rents being what they are in terms of levels, and school fees are not low in Hong Kong. So a differential is not in itself objectionable.

If someone decides to become a permanent resident, he or she chooses to become a local out of his or her free choice. He or she then faces the same problems as locals and should not be offered expatriate terms on the ground of his or her race. And a difference between a local local and an expatriate local is, in practice - in nearly all cases - race.

If a person is recruited in Hong Kong, then he or she is not from overseas. However, if he or she returns home, their home first, and then comes back, then he or she may be treated as an expatriate. Existing employees on overseas terms are grandfathered. That is, they will not be affected even if they become, or have become, permanent residents.

And finally, the exception needs only be deployed as a defense if a claim of racial discrimination has been made. Now on this legislation we still need some time to further consult and consider. We hope to introduce the legislation into Legislative Council within this year. At the moment, there is no specific time yet, but we hope to introduce the bill to Legislative Council within this year and in any case, before the current term of the current administration expires on July 1, 2007.

We all have an interest in ensuring that every segment of society can enjoy the dignity of work, for a decent wage. We all have an interest in improving the rights and benefits of our workforce, increasing productivity and ensuring harmonious industrial relations. For our part, the Government will continue to nurture a business-friendly environment - which is one of the pillars of Hong Kong's status as Asia's world city.

Chief Secretary for Administration Rafael Hui gave this address at the spring luncheon of the Employers' Federation of Hong Kong.