On June 29, 2020, the US Department of State announced that the US government “will today end exports of US-origin defense equipment and will take steps toward imposing the same restrictions on US defense and dual-use technologies to Hong Kong as it does for China.”
The US Department of Commerce also announced on June 29, 2020, that, as part of the “revocation of Hong Kong’s special status,” the “Commerce Department regulations affording preferential treatment to Hong Kong over China, including the availability of export license exceptions, are suspended. Further actions to eliminate differential treatment are also being evaluated. We urge Beijing to immediately reverse course and fulfill the promises it has made to the people of Hong Kong and the world.”
The Commerce Department’s announcement may indicate that the favorable provisions under the US Export Administration Regulations (EAR) previously applicable to Hong Kong as compared with China should now be viewed as suspended and no longer in effect. Hong Kong could soon be treated in much the same way as China under the EAR. While the details are still not clear, this could potentially mean that, among other things, Hong Kong could be viewed as falling under EAR Country Groups D:1, D:3, D:4, and D:5 (restricting trade in products controlled for national security, chemical and biological weapons proliferation, and missile technology reasons, and also subject to US arms embargo policies under the EAR), not eligible for more favorable treatment under EAR Country Groups A:6 and B or under the Commerce Country Chart, and subject to the end-user and end-use restrictions now applicable to China under Part 744 of the EAR.
We have not yet seen a similar regulatory announcement from the US State Department, although we would expect Hong Kong to be added to the list of proscribed (i.e., US arms embargoed) destinations in Section 126.1 of the International Traffic in Arms Regulations (ITAR). Given the State Department’s use of the word “today” with respect to the announced “end” of “exports of US-origin defense equipment,” a cautious approach would be to assume that this is already US policy under the ITAR. Companies doing business with Hong Kong in the defense sector should be cautious in assessing whether US export control restrictions or obligations apply to their activity.
In announcing the changes today, the State Department stated that “the United States is reviewing other authorities and will take additional measures to reflect the reality on the ground in Hong Kong.” It further explained that “the Chinese Communist Party’s decision to eviscerate Hong Kong’s freedoms has forced the Trump Administration to re-evaluate its policies toward the territory” and to announce this export controls policy change, “as Beijing moves forward with passing the national security law.” See our earlier advisory providing additional background on this issue.
Additionally, it appears that, effective June 29, 2020, the US government may revoke or begin the process of reviewing with an eye towards possible revocation any licenses or other authorizations that may have been granted for trade with or technology transfers to Hong Kong (possibly including so-called “deemed export” or “deemed reexport” authorizations for Hong Kong residents outside of Hong Kong) that would be inconsistent with this new policy, and that any future or pending requests for such licenses or authorizations will be subject to the more restrictive review policies currently applicable to China.
Other US export control regulations could also be impacted, such as the nuclear export control regulations at 10 C.F.R. Parts 110 and 810, which currently impose significant restrictions on trade with and technology transfers to China and in some cases Chinese nationals as well.
Steptoe will continue to monitor these developments closely and provide updates as warranted.