As another sign of the escalating tensions between the United States and China, in addition to the long-running trade war, China this week suspended visits to Hong Kong by the U.S. military and vowed to impose sanctions on a handful of U.S.-based non-governmental organizations after President Trump signed two bills into law on November 27, 2019, mandating sanctions and export restrictions relating to Hong Kong.
The moves by the two governments have left global banks and multinational companies scrambling to assess whether, where, and how they can implement U.S. sanctions that may be imposed as a result of the new laws, particularly in their regional hubs in Hong Kong, without running afoul of the very authorities in Hong Kong and China that may be targeted by the sanctions. The Trump Administration has six months to decide whether and whom to target, including whether top officials such as Hong Kong Chief Executive Carrie Lam should be on the list. As a result, Hong Kong private sector entities will likely have some time to evaluate these further developments before making any tough decisions.
President Trump waffled on whether to sign the bills, calling the Chinese president “a friend,” but may have believed he did not have much choice in the matter, given that a bipartisan Congress passed both bills by veto-proof majorities (417-1 in the House and unanimously in the Senate). Ultimately, the President signed the bills, but issued a signing statement indicating that “[c]ertain provisions of the [sanctions] Act would interfere with the exercise of [his] constitutional authority to state the foreign policy of the United States,” and that his Administration would treat the provisions of the laws accordingly, suggesting that he may hedge on the tough sanctions mandated by Congress.
The first bill, the Hong Kong Human Rights and Democracy Act of 2019 (the “Hong Kong Human Rights Act”), requires the Trump Administration to submit a report to Congress within six months, and at least annually thereafter, on each foreign person who is determined to be responsible for extrajudicial rendition, arbitrary detention, torture, or any other gross violations of “internationally recognized human rights” in Hong Kong. The Administration would then be obliged to sanction anyone named in the reports, which would include the standard asset freeze, prohibition on dealing, and visa ban.
The Hong Kong Human Rights Act also requires the Administration to submit reports to Congress within six months, and at least annually thereafter, on whether the Hong Kong government was violating or being used by China to violate U.S. export control and sanctions laws. The United States-Hong Kong Policy Act of 1992 allows the United States to continue to treat Hong Kong separately from Mainland China for matters concerning trade and export control. Hong Kong administers its own import and export systems with multilateral export control regimes, receives favorable treatment with regard to U.S. export licensing and regulations. The Hong Kong Human Rights Act, however, requires the Administration to assess whether U.S.-origin items were being transshipped through Hong Kong in violation of U.S. sanctions on Iran or North Korea, or in circumvention of dual-use controls, or whether U.S. products were being used to develop mass surveillance, predictive policing, or China’s “social credit system.” The Act also requires reports from the Secretary of State within similar timeframes on whether Hong Kong continues to warrant the same treatment under a variety of U.S. laws as it did before its transfer from the United Kingdom back to China in 1997.
The second bill prohibits the Administration from issuing licenses to allow the export of covered munitions items such as tear gas, pepper spray, rubber bullets, stun guns, tasers, and other crowd control-related items to the Hong Kong Police Force. The bill includes narrow exceptions for U.S. national and foreign policy interests.
After President Trump’s signature on the bills on Thanksgiving Eve, China warned the Trump Administration “not to put the law into practice.” On December 2, 2019, China announced the suspension of visits to Hong Kong by U.S. military ships and aircraft – which have visited Hong Kong periodically since China took control of the territory in 1997 – and vowed to impose unspecified sanctions on various U.S.-based non-governmental organizations for purported support of the Hong Kong protests. Among the organizations identified as potentially subject to sanctions are Freedom House, Human Rights Watch, the International Republican Institute, the National Democratic Institute for International Affairs, and the National Endowment for Democracy.
The Chinese response was viewed as “mostly symbolic” and an effort not to let the dispute over Hong Kong derail the long-running trade negotiations.
The MoFo National Security team will stay tuned and keep you informed on relevant developments as they occur.