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Commerce Department Removes Hong Kong as a Separate Destination under the Export Administration Regulations

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On December 23, 2020, the Commerce Department’s Bureau of Industry and Security (“BIS”) amended the Export Administration Regulations (“EAR”), in further implementation of Executive Order 13936 (“EO 13936”), to remove provisions that provide differential and preferential treatment for exports, reexports, and transfers of items to Hong Kong as compared to China.  As a result of these changes, Hong Kong will be removed as a separate destination on the Commerce Country Chart and in other places in the EAR, which will affect license exception availability and certain licensing policies and requirements for Hong Kong. 

The amendments are the latest step taken by the Trump Administration to eliminate Hong Kong’s differential and preferential treatment vis-à-vis mainland China and formalize or introduce conforming changes to the EAR implementing previously-issued guidance with respect to Hong Kong.  Our blog posts on prior steps taken to eliminate Hong Kong’s differential and preferential treatment under the EAR and EO 13936 are available here, here, and here.

The amendments to the EAR include the following significant changes or clarifications:

  • Alignment of Hong Kong’s Commerce Country Chart and Country Group Entries with those of China:  Hong Kong’s Commerce Country Chart entry has been removed and Hong Kong’s EAR license requirements are now covered by China’s Commerce Country Chart entry.  Hong Kong is now considered part of China, which is currently included in Country Groups D:1, D:3, D:4, and D:5, and is subject to all EAR limitations or authorizations applicable these Country Groups.  Hong Kong was previously in Country Groups A:6 and B on the EAR’s Country Group Chart, though license exceptions providing for differential and preferential treatment for Hong Kong were previously suspended, as described in further detail below.
  • Removal of Hong Kong License Exception Suspension Provision (EAR § 740.2(a)(23)):  Various license exceptions previously available for Hong Kong were suspended under EAR § 740.2(a)(23) following the implementation of BIS’ July 31, 2020 final rule.  Because Hong Kong’s Commerce Country Chart and Country Group Entries have been aligned with those of China, this provision is no longer necessary to align Hong Kong’s license exception availability with China, though the license exceptions suspended for Hong Kong under the July 31, 2020 rule remain unavailable.  Our blog post on the July 31, 2020 final rule can be found here. 
  • Consolidation of Entity and Unverified List Entries:  The Entity and Unverified List entries for Hong Kong are now merged into the applicable entries for China.
  • Inapplicability of China End-User Statement Requirement:  Part 748 of the EAR has been amended to clarify that PRC-issued end-user statements are not required for license applications for exports or reexports to Hong Kong, even though Hong Kong is now considered part of China in the EAR.  Such end-user statements or other supporting documents for license applications involving Hong Kong may be requested on a case-by-case basis.
  • Electronic Export Information (“EEI”) Filing Requirements:  Part 758 of the EAR has been amended to clarify that the EEI filing requirements for China apply to exports to Hong Kong, even if Automated Export System requirements state that the destination is to be listed as Hong Kong.
  • China-Specific Licensing Policies:  Certain licensing policies specific to China are now also extended to Hong Kong (e.g., nuclear nonproliferation (EAR § 742.3(b)), national security (EAR § 742.4(b)), and regional stability (EAR § 742.6(b))).
  • Military End-Use and End-User Restrictions:  Because Hong Kong is now treated as part of China (and Country Group D:1), exports to Hong Kong are subject to the military end-use and end-user provisions of EAR § 744.21.  See our most recent blog post on the military end-use and end-user rules here.  In addition, the restrictions on exports, reexports, and transfers of certain microprocessors to military end-uses and end-users in EAR § 744.17 now apply to Hong Kong. 
  • Expansion of Foreign Direct Product Licensing Requirements:  Because it is now treated as a Country Group D:1 destination, Hong Kong is subject to the EAR’s General Prohibition Three; i.e., the prohibition on exports of certain foreign-produced direct products of certain US-origin technology and software controlled for national security reasons.
  • Addition to List of US Arms Embargoed Countries:  The alignment of Hong Kong’s Country Group entries with those of China are consistent with guidance previously issued by the State Department’s Directorate of Defense Trade Controls that Hong Kong is now considered to be included in the entry for China under International Traffic in Arms Regulations § 126.1(d)(1).  Destinations in Country Group D:5 are subject to the US arms embargo.
  • Validated End-User Eligibility:  End-users located in Hong Kong are now eligible to be added as validated end-users in Supplement No. 7 to Part 748 of the EAR.

The amendments result in Hong Kong being subject to the same license requirements, licensing exceptions, and provisions applicable to China under the EAR.  Although some separate references to Hong Kong will remain in certain provisions of the EAR in recognition of Hong Kong’s separate customs and export control systems, the amendments formalize the elimination of differential and preferential treatment for Hong Kong under the EAR.

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Paul Amberg is a partner in Baker McKenzie’s Madrid office, where he handles international trade and compliance issues. He advises multinational companies on export controls, trade sanctions, antiboycott rules, customs laws, anticorruption laws, and commercial law matters. Paul helps clients assess and address compliance risks presented by export controls, trade sanctions, antiboycott rules, customs laws, and anticorruption laws. His practice especially focuses on internal reviews, voluntary disclosure filings, and enforcement actions brought by, the US Government in relation to the Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR), trade and economic sanctions programs, and US customs laws.

Author

Inessa Owens is an associate in the Washington, D.C. office and member of the Firm’s International Trade practice group. She focuses on outbound trade compliance issues, including compliance with the Export Administration Regulations, anti-boycott rules, and economic sanctions administered by the US Treasury Department’s Office of Foreign Assets Control, including those targeting Cuba, Iran, North Korea, Syria, and Russia. She has worked with clients in diverse industries that include finance, pharmaceuticals, and energy.

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Ryan’s practice focuses on International Trade law, particularly compliance with US export controls, trade and economic sanctions, and antiboycott laws. He also represents clients in national security reviews of foreign investment before the Committee on Foreign Investment in the United States (CFIUS).

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