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Global Trade Advisory Alert
US pursues several measures impacting US trade with Hong Kong
24 July, 2020
The Hong Kong Autonomy Act becomes law
On 14 July 2020, US President Trump signed the Hong Kong Autonomy Act (“HKAA”) into law. The legislation imposes mandatory sanctions on foreign individuals and entities that help China restrict Hong Kong’s autonomy.
Further, the HKAA identifies recent and historical actions by the Chinese government that the US contends undermine the 1984 Joint Declaration between China and the United Kingdom to preserve Hong Kong’s independence (“Joint Declaration”). Based on the Joint Declaration, Hong Kong’s Basic Law obligates China to grant Hong Kong “a high degree of autonomy” and prohibits China from interfering in many of Hong Kong’s internal affairs.
The President issues an Executive Order directing Hong Kong Normalization
On 14 July 2020, the President issued an executive order (“EO”) eliminating the differential treatment of Hong Kong in relation to China, concluding that Hong Kong is no longer sufficiently autonomous to justify such treatment. Accordingly, the President has ordered US federal agencies to take action to suspend, by 29 July 2020, policies the provide Hong Kong with differential treatment from China.
The EO specifically directs policy changes to the regulations under the Arms Export Control Act, the Export Control Reform Act of 2018, and section 1304 of the Tariff Act of 1930, among others. Anticipated changes include:
- The revocation of export license exceptions applicable to Hong Kong that differed from those applicable to China for items subject to the Export Administration Regulations (“EAR”);
- The termination of export licensing suspensions applicable to exports of defense articles to Hong Kong persons not-physically located in Hong Kong or China; and
- The adjustment to country of origin marking requirements, insofar that goods previously marked as originating from Hong Kong will be considered of Chinese origin for marking purposes going forward.
US Departments of State and Commerce issue statements on actions to be taken with respect to Hong Kong
On 29 June 2020, the US Department of State (“State”) and US Department of Commerce (“Commerce”) issued separate statements announcing their decision to revoke the special status and tighten controls on exports of US-origin items to Hong Kong.
Secretary of Commerce Wilbur Ross stated that China’s imposition of new security measures in Hong Kong has created the risk that sensitive US technology could be diverted to the Chinese government. As such, Ross announced that Commerce is suspending regulations granting preferential treatment to Hong Kong, including certain provisions in the EAR has historically grouped Hong Kong with Canada, the United Kingdom, and numerous European Union member states, limiting license requirements for dual-use exports. In comparison, China has been grouped with Russia and Venezuela due to national security concerns. Commerce export license authorizations may sometimes be substituted with EAR license exceptions, but Commerce has now suspended Hong Kong’s eligibility for such exceptions, primarily as it relates to sensitive US technology.
Commerce’s announcement came on the same day as a new rule took effect expanding license requirements for exports for certain military end-uses or to certain military end-users in Russia, China, and Venezuela. Finally, Commerce has indicated that it is also evaluating further actions to eliminate differential treatment.
Secretary of State Mike Pompeo announced that the US will “end exports of US-origin defense equipment” to Hong Kong, citing the risk of defense items being diverted to the People’s Liberation Army as a significant threat to national security. As such, State will take steps to impose restrictions that mitigate that risk.
State administers the US International Traffic in Arms Regulations (“ITAR”), which control the export of defense articles and related technical data, and defense services thereof. China is currently a proscribed destination under the ITAR, and defense articles may not be exported to China absent an export license authorization. It is possible that Hong Kong may be added to the ITAR’s list of proscribed countries, potentially all but eliminating the ability of exporters of ITAR-controlled items to conduct business in Hong Kong due to the presumption of denial for any license applications as a proscribed destination.
How we can help
Deloitte’s Global Trade Advisory specialists are part of a global network of professionals who can provide specialized assistance to companies that need support adjusting their global trade strategy and operations to accommodate rapidly evolving regulatory requirements.
Deloitte can help navigate the changes described above by:
- Evaluating the impact of forthcoming changes to US imports as well as export controls on dual-use and defense items;
- Conducting country of origin determination and marking assessments;
- Assessing potential risks associated with exports to Hong Kong;
- Assisting with export license authorization applications to State and Commerce;
- Developing, assessing and/or conducting a Military End User (“MEU”) due diligence screening program; and
- Configuring trade automation solutions to prevent unauthorized exports and manage new import requirements.
For more information, contact:
Meng Yew Wong