On July 14, 2020, President Trump issued an Executive Order to begin the process of eliminating policy exemptions under U.S. law that give Hong Kong differential treatment in relation to China. This is the latest in a series of U.S. actions that since April 2020 have increasingly imposed new sanctions, export controls and other measures affecting U.S. trade with and investment in China.¹ It follows the determination of U.S. Secretary of State Pompeo in May 2020 that, due to the imposition by China of new national security laws on Hong Kong, “[n]o reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China.”

The latest Executive Order triggers a formal regulatory process that will further accelerate U.S. “decoupling” with China on various trade, investment and national security fronts. The summary below provides highlights of the Executive Order and the changes it makes to U.S. export control, national security and import laws.

I. Background

After 156 years of British colonial rule, Hong Kong became a Special Administrative Region of the People’s Republic of China (China) on July 1, 1997. This status was defined in two documents: a Joint Declaration signed by the United Kingdom and China in 1984, and a “Basic Law” established by China in 1990. These documents formally established the concept of “one country, two systems” under which Hong Kong was guaranteed a high degree of autonomy, except in foreign affairs and defense, for at least 50 years.

In 1992, the United States enacted the United States-Hong Kong Policy Act of 1992 (22 U.S.C. § 5721) (the Hong Kong Policy Act), which allowed the U.S. government to continue to treat Hong Kong as a non-sovereign entity distinct from China for the purposes of U.S. law, notwithstanding the changeover of rule on July 1, 1997. The Hong Kong Policy Act specifically allows the president to change the special application of U.S. law to Hong Kong by executive order and to terminate Hong Kong’s rights under U.S. treaties or other international agreements if the president determines that Hong Kong is not legally competent to carry out its obligations.

II. Findings Regarding Hong Kong

In the Executive Order, pursuant to the Hong Kong Policy Act, President Trump determined that Hong Kong is “no longer sufficiently autonomous to justify differential treatment” in relation to China. The president noted that in May 2020, the National People’s Congress of China announced its intention “to unilaterally and arbitrarily impose national security legislation on Hong Kong.” Following this announcement, the Secretary of State announced that China had “fundamentally undermined Hong Kong’s autonomy” and certified to Congress, pursuant to the Hong Kong Policy Act, that Hong Kong no longer warrants treatment under U.S. law in the same manner as U.S. laws were applied to Hong Kong before July 1, 1997.

III. Determinations and Orders Under the Executive Order

Section One of the Executive Order broadly states, “[i]t shall be the policy of the United States to suspend or eliminate different and preferential treatment for Hong Kong to the extent permitted by law and in the national security, foreign policy, and economic interest of the United States.”

Section Two suspends application of the special application of U.S. law to Hong Kong with respect to certain immigration statutes, the Arms Export Control Act, portions of the Defense Production Act of 1950, the Export Control Reform Act of 2018, and an import-related statute concerning the marking of imported articles and containers.

With respect to U.S. export control and national security laws, the Executive Order directs heads of agencies to begin making the following regulatory changes within 15 days:

• All sales and exports of defense articles to Hong Kong that were previously authorized under the Arms Export Control Act and the International Traffic in Arms Regulations (with the exception of sales and exports authorized by a specific license from the Directorate of Defense Trade Controls) will no longer be permitted.
• Future license applications for sales and exports of defense articles to Hong Kong will be subject to a presumption of denial.
• All transactions subject to the jurisdiction of the Committee on Foreign Investment in the United States, when involving investors who are residents of Hong Kong or based in Hong Kong, will be reviewed under the same national security analysis applicable to investors who are Chinese nationals or who are based in China.
• All exports, re-exports, and transfers of goods, software, and technology (collectively “items”) that are subject to the Export Control Reform Act and the Export Administration Regulations will be treated identically to items bound for mainland China; specifically, license exceptions that previously were available to exports, re-exports and transfers of items to Hong Kong are revoked.
• All provisions in Executive Orders declaring China as a foreign adversary under the authority of the International Emergency Economic Powers Act will apply to Hong Kong with the same force and effect as they apply to mainland China.
• Economic sanctions will be imposed on properties and interests in properties of individuals who are determined by the United States government to have engaged in certain activities in relation to facilitating the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Administrative Region or circumventing certain civil rights in Hong Kong.
• Such sanctions will also be imposed on individuals who are determined to have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of,” including those making humanitarian donations to or receiving funds, goods, or services from, the above-mentioned sanctioned persons.

As previously reported, several of these measures were already in process, particularly with regard to export controls under the U.S. Export Administration Regulations and International Traffic in Arms Regulations. The agencies charged with administering and enforcing these regulations have now issued new guidance in conjunction with the Executive Order as to how quickly and extensively the Executive Order will impact export license reviews and determinations.²

Regarding U.S. import laws, the Executive Order calls for suspension of special treatment of Hong Kong regarding the marking of imported articles and containers pursuant to 19 U.S.C. § 1304. Presumably, this means that merchandise imported into the United States that is produced in Hong Kong would now have to be marked as being made in China, rather than specifically made in Hong Kong.

Please note that the Executive Order does not specifically call for any changes in the Section 301 tariffs that apply to certain products made in China. The Executive order also does not identify any specific changes to the treatment of products made in Hong Kong under the U.S. antidumping or countervailing duty laws. However, given the overarching theme of the Executive Order to withdraw any special customs treatment of Hong Kong, the Trump Administration may take additional actions to treat products of Hong Kong the same as products of other areas of China, both with respect to Section 301 tariffs and with respect to antidumping and countervailing duty laws.

FOOTNOTES

1. For more background, see our prior client alerts here, here, here and here.
2. See here and here.