As widely reported, the Standing Committee of the National People’s Congress (the “NPC”) completed its deliberation of and formally promulgated the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (the “HKNSL” or the “Law”) on June 30, 2020, and the Law was gazetted for promulgation in Hong Kong and took effect at 11 pm the same day.
This alert provides links to related resources, a brief summary of a number of key provisions of the HKNSL, and an overview of some of the policy responses being discussed in Washington, D.C. that will be relevant to U.S. companies doing business in China and to Hong Kong and mainland China companies doing business in the United States.
With the Law now in force, the pace of change both in Hong Kong itself and in the broader international environment relevant to Hong Kong might be expected to accelerate. The government of the Hong Kong Special Administrative Region (the “HKSAR”) will begin to implement the various institutional arrangements contemplated under the HKNSL. Meanwhile, the U.S. government will begin to work with a number of its constituencies to mount a robust policy response to what critics have said is a major challenge to the HKSAR’s autonomy. International companies need to understand the impacts on their businesses not only of the Law itself but responses to it in Washington, DC and internationally.
The Law contemplates establishment of a number of new agencies and departments within the HKSAR government to safeguard national security, including:
Membership in the CSNC includes the Chief Executive of the HKSAR (serving as chair), along with the Chief Secretary for Administration, the Financial Secretary, the Secretary for Justice, the Secretary for Security, the Commissioner of Police, the Head of the National Security Division of the Police Force, the Director of Immigration, the Commissioner of Customs and Excise, and the Director of the Chief Executive’s Office.
The CSNC will have a secretariat headed by a Secretary-General, nominated by the Chief Executive and appointed by the central government. An Advisor to the CSNC on National Security Affairs will be appointed by the central government and will be responsible for advising the CSNC on matters relating to the discharge of its duties.
The Law authorizes establishment by the Central People’s Government (“CPG”) of a new Office for Safeguarding National Security of the CPG in the HKSAR (the “CPGNSO”).
Roles of the CPGNSO include advising and coordinating with the HKSAR government on national security matters, intelligence gathering, dealing with stipulated national security offenses, and coordinating with the other formal presences for the CPG in Hong Kong, the Liaison Office of the Central People’s Government in the HKSAR, the Commissioner’s Office of China’s Foreign Ministry in the HKSAR, and the Hong Kong Garrison of the Chinese People’s Liberation Army.
The Law creates four new categories of criminal offense in the HKSAR relating to national security – secession, subversion, terrorist activities, and collusion with a foreign company or with external elements to endanger national security – and includes detailed provisions defining the elements of these offences and stipulates the range of punishments for these offences.
The Law contemplates broad jurisdictional application, including to:
HKSAR law enforcement and judicial authorities have principal jurisdiction for the prosecution of national security offences under the law, including in respect of criminal investigation, prosecution, trial, and execution of penalties.
The Law stipulates powers of the HKSAR Police Force in regard to the investigation of national security offenses.
Trials by HKSAR courts of national security cases are to be presided over by specialist judges separately appointed by the Chief Executive of the HKSAR in accordance with provisions stipulated in the Law.
At the same time, the Law reserves jurisdiction for the CPGNSO for cases in specified circumstances:
The United States government (“USG”) had urged the Chinese government not to proceed with implementing the HKNSL as planned and warned of various policy consequences if the Chinese government proceeded to do so.
With the HKNSL now in effect, USG executive and congressional action will change at least some features of the special status that Hong Kong enjoys under U.S. law and expose Chinese entities and individuals deemed to be involved in undermining fundamental freedoms and “contravening” Hong Kong autonomy to potential sanction under U.S. law. Announced and potential USG actions include:
Since the HKSAR was first established in 1997, when China first resumed sovereignty over Hong Kong, the USG has accorded HKSAR with special status, recognizing HKSAR’s separate legal system and autonomy from China.
Under the Hong Kong Policy Act of 1992 (HKPA), as amended, the United States treats Hong Kong as autonomous from the PRC with respect to economic and trade matters, including as a separate jurisdiction from the PRC for purposes of export controls, customs, and other legal matters. The HKPA provides, however, that the President may suspend this separate treatment with respect to specific laws or provisions if the President determines that Hong Kong is not sufficiently autonomous to justify the separate treatment.
The USG has begun to revoke aspects of this special status. In May 2020, Secretary of State Pompeo reported to Congress (pursuant to the Hong Kong Human Rights and Democracy Act of 2019, which amended the HKPA to require such a report) that he could no longer certify Hong Kong’s autonomy. President Trump then announced that his administration would begin the process to suspend Hong Kong’s exemptions, including specifically regarding export controls and extradition.
On June 29, 2020, Secretary Pompeo and Secretary of Commerce Ross issued statements that the Departments of State and Commerce, respectively, will suspend Hong Kong’s special status under U.S. export control regimes in response to China’s imposition of the new security measures on Hong Kong. The Agencies still need to publish regulations to implement these statements, but the principal effects are clear from the statements.
This will mean the State Department will not approve licenses to export defense articles or services to Hong Kong under the International Traffic in Arms Regulations (ITAR). (A more limited ban on export of specified crowd control munitions items to the Hong Kong Police Force had been legislated in November 2019 for a one-year period).
The Commerce Department has suspended all License Exceptions for exports to Hong Kong of dual-use items subject to the Export Administration Regulations (EAR), effective June 30, 2020 (with a saving clause for certain exports and deemed exports). Exports to Hong Kong that previously would have proceeded without needing a U.S. export license pursuant to a License Exception will now need a specific license, unless they are eligible for the much narrower License Exceptions applicable to the PRC. Parties will likely now face a more burdensome and difficult licensing process for Hong Kong, both in terms of the scope of items requiring a license and the likelihood of successfully obtaining a license.
In announcing the suspension of aspects of the EAR affording preferential treatment to Hong Kong over China, including the availability of export license exceptions, Secretary Ross “urge[d] Beijing to immediately reverse course and fulfill the promises it has made to the people of Hong Kong and the world.”
Further potential changes to Hong Kong’s special status could result in:
The Department of State also announced visa restrictions against Chinese Communist Party officials “responsible for, or complicit in, undermining Hong Kong’s high degree of autonomy,” without publicly identifying these officials.
In addition to the President’s considerable authority to impose sanctions on individuals and entities, the U.S. Congress has taken action to create sanctions authority specifically with respect to Hong Kong.
The Hong Kong Human Rights and Democracy Act, enacted in November 2019, requires the President to identify and report to Congress persons (individuals or entities) responsible for gross violations of human rights, extrajudicial rendition, arbitrary detention, or torture in Hong Kong. The Act prescribes asset-blocking and visa-blocking sanctions for persons so identified. No such persons have been identified and sanctioned to this point.
Another piece of legislation, The Hong Kong Autonomy Act, was recently passed in the U.S. Senate and has been introduced in the House of Representatives. It would authorize asset-blocking and visa-blocking sanctions against persons, and specific financial sanctions against foreign financial institutions, that the Secretary of State, in consultation with the Secretary of the Treasury, identifies as contravening Hong Kong’s autonomy.