May 28, 2020

State Department Announcement Signals Possible Suspension of Hong Kong’s Special Trading Status

On May 27, 2020, Secretary of State Mike Pompeo announced that he has certified to Congress that the Hong Kong Special Administrative Region no longer enjoys a high degree of autonomy from China. According to the legislative mandate of the Hong Kong Policy Act of 1992, this certification could lead to Hong Kong losing its special trading status with the United States. If the United States officially suspends Hong Kong’s preferential trade treatment, it would mean, among other things, that export licenses would be required for many exports to Hong Kong that have not previously required one.

The Hong Kong Policy Act established bilateral ties between the United States and Hong Kong, allowed the United States government to treat Hong Kong as a separate custom territory, and granted products of Hong Kong nondiscriminatory trade treatment (also known as “most-favored-nation status under international treaties) as long as the President of the United States determines that “Hong Kong is . . . sufficiently autonomous” from the People’s Republic of China (PRC). The Hong Kong Policy Act was amended in November 2019 by the Hong Kong Human Rights and Democracy Act, which required that the Secretary of State, on at least an annual basis, issue a certification to Congress as to whether Hong Kong continues to warrant trade and export control treatment distinct from the PRC.

Secretary Pompeo made his announcement under this authority. In a strongly worded statement, he made clear that this certification is a result of “careful study” of “a series of actions that fundamentally undermine Hong Kong’s autonomy and freedoms and China’s own promises to the Hong Kong people under the Sino-British Joint Declaration.” In particular, the Secretary condemned China’s decision to enact national security legislation against the backdrop of ongoing protests in Hong Kong since June 2019. The Secretary called China’s decision to implement the legislation “disastrous.” He went on to conclude that “[n]o reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China.”

Depending on how the State Department certification is implemented in the coming weeks or months, goods from and transactions involving Hong Kong entities may become subject to the same tariffs, export control measures, and other trade restrictions that the United States has imposed on goods and entities from mainland China — such as Section 301 tariffs and new controls on technology exports. It may also require updated country of origin marking obligations for product currently produced in Hong Kong and labeled accordingly. This change may affect companies importing or transporting goods from Hong Kong, goods produced or manufactured in Hong Kong, or companies that have operations in, export or sell to, or otherwise conduct cross-border collaboration with entities in Hong Kong.

Faegre Drinker’s customs and international trade team closely monitors trade and national security law issues involving China and stands ready to assist companies with interests in the region.

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