On July 14, 2020, President Trump issued Executive Order 13936 “The President’s Executive Order on Hong Kong Normalization” (the “Hong Kong Normalization EO”), which directs the suspension or elimination of special and preferential treatment for Hong Kong under a wide range of US laws, setting the stage for Hong Kong to be treated the same as mainland China. It also authorizes sanctions against persons involved in developing, adopting, or implementing China’s Law on Safeguarding National Security in the Hong Kong Administrative Region (the “China National Security Law”), as well as individuals and entities determined to be engaged in several categories of human rights-related conduct in or related to Hong Kong.

Changes to Export Control Laws

The Hong Kong Normalization EO directs a variety of changes to US export control laws, including:

  • Suspending the special treatment currently afforded to Hong Kong under the Arms Export Control Act and the Export Control Reform Act of 2018;
  • Revoking 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 (“EAR”) that provide differential treatment compared to those exceptions applicable to China (we note that potentially relevant key EAR license exceptions with differential treatment include  license exceptions LVS, GBS, TSR, APP, GOV, TSU, APR, and STA); and
  • Terminating export licensing suspensions under Section 902 of the Foreign Relations Authorization Act insofar as they apply to exports of defense articles to Hong Kong persons who are physically located outside of Hong Kong and the People’s Republic of China (“China”) and who were previously authorized to receive defense articles prior to the date of the Normalization EO.

These developments are consistent with and an extension of the Administration’s recent moves to suspend EAR license exceptions for Hong Kong that provided differential treatment compared to those exceptions applicable to China, halted defense exports to Hong Kong, and imposed visa restrictions on Chinese Communist Party officials, which are detailed in our prior blog post here

The relevant agencies, including the Commerce Department’s Bureau of Industry and Security (“BIS”) and the State Department’s Directorate of Defense Trade Controls (“DDTC”), must begin implementation of the various changes directed by the Hong Kong Normalization EO before July 29, 2020.

Regarding the International Traffic in Arms Regulations (“ITAR”), DDTC published guidance on July 15, 2020 confirming that Hong Kong is now considered to be included in the entry for China under ITAR section 126.1(d)(1) and is therefore subject to a policy of denial for all transfers subject to the ITAR. DDTC stated that it will review on a case-by-case basis license applications to export defense services to Hong Kong persons who (1) are physically located outside of Hong Kong and China and (2) were previously authorized to receive defense articles prior to July 14, 2020.  Further, DDTC indicated that it is not taking steps to revoke or rescind previously approved authorizations to export defense articles or services to Hong Kong.

New Hong Kong Sanctions Authority

In addition, the Hong Kong Normalization EO authorizes several categories of persons to be designated as Specially Designated Nationals (“SDNs”), including:

  • Persons determined to be involved, directly or indirectly, in the coercing, arresting, detaining, or imprisoning of individuals under the authority of, or to be or have been responsible for or involved in developing, adopting, or implementing, the China National Security Law;
  • Persons who with respect to Hong Kong are determined to be responsible for or complicit in, or to have engaged in (1) actions or policies that undermine democratic processes or institutions; (2) actions or policies that threaten the peace, security, stability, or autonomy; (3) censorship that restricts the exercise of freedom of expression or assembly or that limits access to free and independent print, online or broadcast media; or (4) extrajudicial rendition, arbitrary detention, or torture or other gross violations of internationally recognized human rights or serious human rights abuse.
  • Persons determined to be leaders or officials of entities, including government entities, which have engaged in or supported the above activities, which are owned or controlled by or have acted on behalf of entities designated under this sanctions authority, or who are members of the board of directors or a senior executive officer of entities designed under this sanctions authority.

The sanctions set out in the Hong Kong Normalization EO are distinct from those set out in the Hong Kong Autonomy Act, which separately authorized the imposition of sanctions on foreign persons who materially contribute to the undermining of Hong Kong’s autonomy by China and foreign financial institutions who engage in significant transactions with such foreign persons. Our blog post on the passage of that law is available here.

In addition to the above export control- and sanctions-related developments, the Hong Kong Normalization EO also sets out a number of other changes in US law and policy, including terminating several extradition-related agreements, terminating training provided to the Hong Kong Policy Force and other Hong Kong security services, and terminating the Fulbright exchange program in Hong Kong and China.

Author

Ms. Contini focuses her practice on export controls, trade sanctions, and anti-boycott laws. This includes advising US and multinational companies on trade compliance programs, risk assessments, licensing, review of proposed transactions and enforcement matters. Ms. Contini works regularly with companies across a wide range of industries, including the pharmaceutical/medical device, oil and gas, and nuclear sectors.

Author

Ms. Test advices clients on issues relating to licensing, regulatory interpretations, enforcement actions, internal investigations and compliance audits, as well as the design, implementation and administration of compliance programs. She also advises clients on the extra-territorial application of trade compliance-related regulations in cross-border transactions.

Author

Daniel Andreeff’s practice focuses on US economic and trade sanctions, including those targeting Iran, Russia, Cuba, Syria, and North Korea, export controls, and anti-boycott laws. He represents clients in national security reviews before the Committee on Foreign Investment in the United States (CFIUS), and has experience in federal court litigation and congressional investigations. His pro bono practice includes providing sanctions and export control advice to a global humanitarian NGO. * Admitted in New York only. Practice in the District of Columbia is under the supervision of a member of the District of Columbia Bar.