Alert July 09, 2020

Hong Kong Targeted for Enhanced U.S. Export Controls

On June 29, 2020, the U.S. Departments of State and Commerce announced stricter controls on exports to Hong Kong, withdrawing Hong Kong’s preferential treatment as an autonomous territory. The regulatory changes follow Secretary of State Pompeo’s certification to Congress that Hong Kong no longer maintains a high degree of autonomy from mainland China, and President Trump’s announcement that his administration would rescind special considerations afforded to Hong Kong.

The Department of State, which administers the International Traffic in Arms Regulations (ITAR), extended to Hong Kong the long-standing embargo on the export of defense articles and defense services to China. Companies that manufacture, export, or broker defense articles and defense services should review transactions involving Hong Kong.

The Department of Commerce, which administers the Export Administration Regulations (EAR), announced a suspension of regulations that afforded preferential treatment to Hong Kong over China, including reliance on export license exceptions that are unavailable to China. The Bureau of Industry & Security (BIS) shortly followed the statement with a formal suspension of license exceptions for Hong Kong, effective June 30. The suspension also restricts the sharing of controlled technology (i.e., deemed exports) with Hong Kong persons, wherever located, who were previously authorized pursuant to a license exception. The announcement contains limited wind-down periods for shipments already in progress and for Hong Kong persons who will require a deemed export license. Companies exporting dual-use items to Hong Kong (i.e., items with an Export Control Classification Number other than EAR99) should carefully review whether an export license is now required. The suspension does not affect reliance on license exceptions that are also available for exports to China.

Further complicating the rollback on Hong Kong’s special status, BIS recently expanded the scope of items for which an export license is required for “military end users” in China, expanded the definition of “military end use,” and broadened Electronic Export Information filing requirements, each effective on June 29 (described in our prior client alert). These restrictions may apply to end users in Hong Kong, particularly where the end users support “military end uses” for China. Given the unique, evolving relationship between Hong Kong and mainland China under the “one country, two systems” policy, enhanced end-use/end-user due diligence is appropriate for exports to Hong Kong. BIS has since published FAQ regarding the rulemaking, requiring enhanced diligence from companies that export affected items to China or Hong Kong, as well as to Russia and Venezuela.