President Trump Revokes Preferential Treatment for Hong Kong
On July 14, 2020, President Trump issued “The President’s Executive Order on Hong Kong Normalization” (the Executive Order). The Executive Order directs the suspension or elimination of special and preferential treatment for Hong Kong, laying the groundwork for the United States to treat Hong Kong in the same manner as Mainland China.
The Executive Order follows President Trump’s May 29, 2020 announcement (see our Legal Update) 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. On the same day he issued the Executive Order, President Trump also signed into law the Hong Kong Autonomy Act (HKAA) (see our Legal Update), which provides for mandatory sanctions against individuals, entities and financial institutions in response to China’s National Security Law for Hong Kong.
Call to Agency Action
As a result of the Executive Order, Hong Kong will no longer receive special treatment under a variety of US laws. The Executive Order instructs federal agencies to commence, within 15 days, “all appropriate actions to further the purposes of this order” and sets forth a series of policy changes with respect to Hong Kong’s special status, including:
- Export Controls:1
- Suspending Hong Kong’s special treatment under the Arms Export Control Act and the Export Control Reform Act of 2018.
- Taking action to revoke license exceptions for exports to Hong Kong, reexports to Hong Kong, and transfers (in-country) within Hong Kong of items subject to the Export Administration Regulations that provide differential treatment compared to those license exceptions applicable to China.
- Taking action to, in accordance with applicable law, terminate certain export licensing suspensions insofar as such suspensions apply to exports of defense articles to Hong Kong persons who are physically located outside of Hong Kong and Mainland China.2
- Imports: Taking action to remove the special treatment of Hong Kong under US import-marking regulations. This action could ultimately result in products made in Hong Kong and imported into the US being marked as Chinese-origin. This may in turn subject these products made in Hong Kong to special US tariffs applicable to Chinese products, i.e., Section 301 tariffs. In addition, if the US initiates an antidumping or countervailing duty investigation against products made in Hong Kong in the future, it will likely administer the case as a non-market economy proceeding.3
- Immigration: Taking steps to remove preferences and distinctions for Hong Kong under certain immigration laws.
- Extradition and Security:
- Suspending the agreement between the US and Hong Kong for the Surrender of Fugitive Offenders as well as for the Transfer of Sentenced Persons; and
- Ending the provision of training to members of the Hong Kong Police Force or other Hong Kong security services.
- Other:
- Taking steps to suspend or terminate other cooperative agreements and exchange programs, such as the Fulbright program with respect to China and Hong Kong.
- Addressing Hong Kong’s special status in certain aspects of the Defense Production Act.
It remains to be seen how the administrative agencies will interpret and move forward with the provisions of the Executive Order. The Executive Order additionally dictates that agency heads will propose for the President’s consideration “any further actions deemed necessary and prudent to end special conditions and preferential treatment for Hong Kong,” suggesting that the agencies may have considerable flexibility with regard to these actions.
New Hong Kong-Based Sanctions
In addition to the above actions, the Executive Order also introduces new sanctions to block the property and interests in property of individuals and entities determined to have engaged in certain activities, such as implementing the new National Security Law in Hong Kong. It is now up to the US Secretaries of State and Treasury to determine which parties to designate under this authority.
Together, these actions have prompted swift criticism from China. Both the Executive Order and the enactment of the HKAA follow sanctions imposed by the US Department of the Treasury’s Office of Foreign Assets Control, which on July 9 sanctioned several current and former Chinese officials and a Chinese entity determined by the US Department of Treasury to be tied to human rights abuses. Earlier this week, following the Office of Foreign Assets Control sanctions, China imposed travel bans and sanctions on several members of Congress. China has now threatened additional retaliatory measures following the Administration’s action with regard to Hong Kong.
Early reports indicate that the Administration may take a pause on designating parties under the new Hong Kong-based sanctions to prevent further escalation. However, the decision-making process is ongoing and fluid. The consequences of designation would be significant, and companies should be prepared. We will continue to monitor this situation.
1 On June 29, 2020, the US Secretary of State announced that it was “end[ing] exports of U.S.-origin defense equipment and will take steps toward imposing the same restrictions on U.S. defense and dual-use technologies to Hong Kong as it does for China.” Simultaneously, the US Secretary of Commerce announced that “Commerce Department regulations affording preferential treatment to Hong Kong over China, including the availability of export license exceptions, are suspended.”
2 On July 15, 2020, the US State Department Directorate of Defense Trade Controls issued Frequently Asked Questions addressing the Executive Order, and noting in particular that “DDTC will review on a case-by-case basis license applications to export defense services to Hong Kong persons,” and that “ [a]t this time the Department is not taking steps to revoke or rescind previously approved authorizations to export defense articles or services to Hong Kong.”
3 Hong Kong is a member of the World Trade Organization (WTO), separate from Mainland China. It is unclear whether the Trump Administration intends to revoke its recognition of Hong Kong as an independent WTO member, and what the legal consequences of that action would be.
