On May 29, 2020, US President Donald J. Trump announced in a news conference that Hong Kong is no longer sufficiently autonomous to warrant the special treatment that the United States has afforded Hong Kong since its handover to China. As a result, the Trump Administration is beginning the process of eliminating US policy exemptions that give Hong Kong special and different treatment.
The End of “One Country, Two Systems” Under US Law?
Under the United States-Hong Kong Policy Act of 1992 (as amended by the Hong Kong Human Rights and Democracy Act of 2019), the United States treats Hong Kong, a semi-autonomous part of China, differently than Mainland China. For example, the United States does not apply its economic sanctions and export control laws to Hong Kong the same way it applies those laws to Mainland China. The same is true for US antidumping, countervailing duty and other trade laws, as notified in an announcement in 1997 by the US Department of Commerce: “Hong Kong will be considered a separate Customs territory within the PRC.”
However, on May 27, 2020, US Secretary of State Mike Pompeo certified to Congress that Hong Kong does not continue to warrant treatment under United States laws in the same manner as US laws were applied to Hong Kong before July 1997 (press release). The State Department’s view is that Hong Kong no longer maintains a high degree of autonomy from China. Secretary Pompeo’s statement has paved the way for a seismic shift in the treatment of Hong Kong under US law.
The Beginning of “One Country, One System” Under US Law?
1. The Trump Administration is beginning the process of eliminating policy exemptions that give Hong Kong special and different treatment. Most of the US agreements with Hong Kong will be affected, namely extradition treaties, export controls, and restrictions on dual-use technology, with few exceptions.
In his statement, President Trump confirmed that the changes to Hong Kong’s separate treatment under US law would extend to “the full range of agreements” and “policy exemptions,” specifically including US export controls “with few exceptions.” However, the statement contained few details as to scope or timing for these changes. Currently, the Export Administration Regulations (“EAR”) promulgated by the Department of Commerce’s Bureau of Industry and Security (“BIS”) treat Hong Kong as a separate export destination from the People’s Republic of China (“PRC”). Hong Kong is a less restricted destination than the PRC under the EAR, and accordingly the Administration’s statement raises the prospect of substantially heightened restrictions on exports and re-exports of goods, software and technology to Hong Kong (as with any other Chinese destination).1 It remains to be seen, however, how this policy will be implemented.
2. Taking necessary steps to sanction PRC and Hong Kong officials considered by the United States as directly or indirectly involved in eroding Hong Kong’s autonomy and freedom.
President Trump also announced that he will be taking steps to sanction PRC and Hong Kong officials who have played a role in eroding Hong Kong’s freedom. The statement did not specify the nature of the sanctions restrictions, which may be imposed in a number of forms up to and including an asset freeze prohibiting virtually all transactions with these individuals.
3. Revoking Hong Kong’s preferential treatment as a separate customs territory from the rest of China.
The Trump Administration is removing Hong Kong’s status as a separate customs territory. It means that all antidumping and countervailing duties imposed by the United States on various products from China, as well as all applicable Section 301 tariffs, will soon apply to Hong Kong, as well. Hong Kong manufacturers of certain goods will be subject to the above tariffs. In short, by removing Hong Kong’s status, Hong Kong and China are one in the same with respect to trade tariffs and duties. What the United States levies on products from China will now apply directly to products from Hong Kong as well, without distinction. For questions regarding the duties and tariffs on specific products manufactured in Hong Kong or China, contact us for more information.
It should be noted that President Trump in his news conference did not cancel or terminate the Sino-US “Phase One Trade Deal,” officially known as the Economic and Trade Agreement between the Government of the United States of America and the Government of the People's Republic of China.
4. Proclamation on the Suspension of Entry as Nonimmigrants of Certain Students and Researchers from the PRC
President Trump has announced that he will revise the US State Department’s travel advisory for Hong Kong. In addition, President Trump issued the above Proclamation. With certain exceptions, the Proclamation suspends and limits the visa entry as a nonimmigrant of any national of the PRC seeking to study or conduct research in the United States and who either receives funding from or who currently is or has been associated with an entity in the PRC that implements or supports the PRC’s strategy to acquire and divert foreign technologies for the PRC’s military capabilities.
More US Policies and Measures to Follow?
As announced by President Trump in the news conference, his Administration is beginning the process of eliminating policy exemptions that give Hong Kong special and different treatment. More details remain to be seen regarding the scope, timing and implementation of such measures.
1 As discussed in our recent Legal Update of April 29, 2020, this announcement follows final and proposed rules issued by BIS on April 28, 2020, to impose significant restrictions on exports and re-exports to China and remove license exceptions on certain items controlled on national security grounds to that country. As with other aspects of US export controls up until now, Hong Kong has fallen outside the scope of these restrictions.