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Hong Kong Trade Situation Re-cap: What You Need to Know

Posted September 02, 2020

The following is intended to provide a brief summary of various trade actions taken by the United States with respect to Hong Kong in connection with China’s recent imposition of new security measures on the former British colony. Also included is the latest information about the new U.S. marking requirements applicable to goods produced in Hong Kong, along with guidance concerning how they should be declared to U.S. Customs.  
China, US and Hong Kong Flags

Timeline: How Did We Get Here?

U.S. Policy Change (picture of White House)

On May 29, President Trump announced that his administration would “begin the process of eliminating policy exemptions that give Hong Kong different and special treatment” than mainland China under U.S. law. The announcement followed an assessment by the Department of State based on the findings of a report mandated by the bipartisan Hong Kong Human Rights and Democracy Act of 2019 (H.R. 3289), which determined that the territory was no longer “sufficiently autonomous” from China according to terms of the 1992 Hong Kong Policy Act.

Washington’s decision to no longer treat Hong Kong as a separate customs territory came as a response to China’s imposition of new national security measures that Washington contends stifle democratic expression and violate the former British colony’s autonomy guaranteed under the “one country, two systems” governing principle.

Tighter Export Controls (pic of Mike Pompeo)

At the end of June, the Trump administration announced it was ceasing exports of U.S.-origin defense equipment to Hong Kong and would be taking steps to impose the same restrictions on U.S. defense and dual-use technologies to Hong Kong as it does for China. Also at this time, the Commerce Department suspended all regulations providing preferential trade and export control treatment to Hong Kong, including the availability of export license exceptions through the department’s Bureau of Industry and Security.  

Trump Signing Executive Order at Resolute Desk in White House

On July 14, 2020, President Trump signed into law the Hong Kong Autonomy Act (H.R. 7440), which authorizes the imposition of sanctions on foreign persons, entities and financial institutions contributing to China’s actions to deprive Hong Kong of autonomy. At the same time, the White House issued an Executive Order on “Normalization” directing all relevant agencies to amend any regulations “which provide different treatment for Hong Kong as compared to China,” including, but not limited to, various immigration and export control laws and regulations. 

Other actions taken by the U.S. following Trump’s directive included the suspension of an extradition treaty and a bilateral agreement that allowed for tax exemptions for shipping companies.

Made in China Label

As part of Washington’s “normalization” process, Customs and Border Protection announced on August 11 that, unless excepted from marking, goods produced in Hong Kong would now have to be marked to indicate China, rather than Hong Kong, as their country of origin.

Importers had at first been granted a 45-day transition period to implement changes consistent with the new marking rules. CBP subsequently extended the period through November 9, in order, it said, to give importers “apple time to comply” with the requirements. During this time, CBP will be providing information about the new rules, but won’t be taking any enforcement action. 

Section 301 Tariffs Not Applicable — Customs Entry Procedures Unchanged

Many importers had initially feared the marking policy change would lead to goods produced in Hong Kong being subject to the additional Section 301 tariffs levied against Chinese imports; to their relief, however, this has turned out not to be the case (at least for now).

Published guidance on CBP’s website states that the marking change “does not affect country of origin determinations for purposes of assessing ordinary duties under Chapters 1-97 of the HTSUS or temporary or additional duties under Chapter 99 of the HTSUS.” With regards to the country code to be shown on customs entries, CBP further instructs that goods produced in Hong Kong ”should continue to report … ‘HK’ as the country of origin when required.”

China’s Reaction 

While denouncing Washington’s “gross interference” in its domestic affairs and vowing to take “firm countermeasures against the egregious behaviors that undermine China’s legitimate rights and interests,” apart from the tit-for-tat blacklisting of nearly a dozen lawmakers and NGO executives, Beijing’s response so far to the Trump administration’s punitive trade actions has largely been one of restraint.

Touting the virtues of globalization and the need for “multilateral rules” and “international norms” (here and here, for example), Chinese officials have urged their U.S. counterparts to “work with us to ease current tensions and put the relations back onto the right track of no conflict, no confrontation, mutual respect and win-win cooperation.” 

The Hong Kong Special Administrative Region (HKSAR) Government last month declared its intention to “take action against the US under the WTO dispute settlement mechanism to defend our separate customs territory status and protect our interest.” HKSR argues that the new U.S. marking rule “disregards Hong Kong’s status as a separate WTO member and violates WTO rules.”

No protest has so far been made with the WTO, however, nor have preliminary bilateral consultations with the U.S. been requested. It remains to be seen, therefore, whether HKSAR will actually follow through on its threat, particularly seeing as opinion within the territory is divided on the issue. Not without reason, some worry that such an action will simply provoke Washington and invite President Trump to “make things much worse for Hong Kong.”

Need More Information?

If you have questions or concerns about the treatment of goods imported from Hong Kong, don’t hesitate to contact one of our knowledgeable trade experts.

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