In the latest shoe to drop in the escalation of tensions between the United States and China, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule on December 23, 2020, removing Hong Kong as a separate destination under the Export Administration Regulations (EAR). Rather than adding Hong Kong alongside the People’s Republic of China to Country Group D in the Commerce Country Chart, BIS eliminated references to it in all but a few sections of the EAR.
The removal of Hong Kong as a separate destination is a further step toward implementation of Executive Order (EO) 13936, signed July 14, 2020. (85 FR 43413, 7/17/2020). Steptoe’s prior analysis of EO 13936 is available here. EO 13936 directed relevant agencies to amend their regulations to remove differential and preferential treatment for exports, reexports, or transfers (in-country) to or within Hong Kong of all items subject to the EAR when compared to the treatment for such transactions to or within China. The final rule codifies the BIS rule issued July 31, 2020, which required that Hong Kong be treated the same as China in almost all circumstances; that is, Hong Kong would be subject to the same license requirements, license exceptions, and other applicable provisions as China under the EAR (85 FR 45998).
Specifically, in this new rule, BIS removes the entry for Hong Kong from the Commerce Country Chart at Supplement No. 1 to Part 738, since Hong Kong is now to be governed by the entry for China. Most references to Hong Kong in Part 740 of the EAR governing license exceptions were previously removed, consistent with the July 31 final rule. The Hong Kong entities listed separately on the Unverified List, Supplement No. 6 to Part 744, are now merged, alphabetically under the entries for China.
Further, BIS specifically explains, in the new rule, that because Hong Kong is now treated as China in Country Group D:1, Hong Kong will now be subject to a broader application of the end user and end use restrictions in Part 744. Specifically, § 744.17 (controlling the export, reexport, and transfer (in-country) of certain microprocessors and associated software and technology to military end uses and end users) and § 744.21, the Military End Use/End-User Rule (MEU Rule) will apply to Hong Kong. As part of China, Hong Kong will now also be subject to the license requirements under the foreign produced direct product rule for reexports of foreign-produced direct products of US-origin technology and software to Hong Kong pursuant to § 736.2(b)(3), General Prohibition Three. Steptoe has written on changes to the MEU Rule here, here, and here.
The remaining instances where the EAR treat Hong Kong separately do not accord it preferential treatment, but rather are described as supporting US national security and foreign policy objectives, or as recognizing that trade is processed somewhat differently within and through Hong Kong. For example, because Hong Kong has retained its own customs and export control system, certain documents required by the Hong Kong Import and Export Regulations are provided for in the EAR. (§§ 740.2(a)(19)-(20), 748.13). Further, a People’s Republic of China (PRC) End-User Statement is not required for license applications for exports or reexports to Hong Kong (§ 748.10(a) Note 5). However, the EAR notes that the Electronic Export Information (EEI) filing requirement for China will now apply to Hong Kong, even if the destination filed in EEI is separately listed as Hong Kong. (§ 758.1(b)(10)).