US-HK Policy Act – A New Battleground in US-China Trade Wars
As US-China trade wars escalate, residents in Hong Kong have waged fierce battles against a proposed extradition law, which poses the horrendous specter of any person physically present in Hong Kong being seized and extradited to China and subject to its “capricious legal system” on trumped-up charges, without meaningful legislative or judicial reviews. (See, eg, here.) The battles in Hong Kong, however, may turn out to be more than merely domestic politics, but rather far-reaching extensions of the US-China trade war battlegrounds.
To circumvent the rising tariffs imposed on Chinese goods, one strategy for Chinese manufacturers and exporters is to label the Chinese goods as made in another country/region that is not subject to the high tariffs. One such country/region is Hong Kong. (See, eg, here.) Under the US-HK Policy Act of 1992 (22 USC §5701 et seq), Hong Kong is treated by US as a region “autonomous” from China with regard to commerce, among others, even after UK returned HK to Chinese control in 1997. Specifically, the Act provides:
“The United States should continue to […] treat Hong Kong as a territory which is fully autonomous from the People’s Republic of China with respect to economic and trade matters.”22 USC 5713(3)
Therefore, currently, goods designated as made in Hong Kong are not subject to the increased tariffs imposed on Chinese goods. If Chinese goods are first shipped to HK and then re-labeled (if necessary) and re-shipped to US, potentially these goods could evade the higher tariffs. – As long as the US laws continue to grant HK the special treatment as an autonomous region.
That special treatment, however, may be subject to change, and may be used as a weapon and an extended battleground in the trade wars. Specifically, the Act allows the President of US to suspend the special treatment, in consultation with the Congress, if the President determines that HK is “not sufficiently autonomous”. (22 USC 5722(a)) Additionally, the Congress may enact new laws affecting adversely or eliminating altogether the special treatment.
Judging from recent news headlines (eg, “U.S. warns extradition law changes may jeopardize Hong Kong’s special status”, Reuters, 6/10/2019; “McConnell: Protesters in Hong Kong Should be Heard”, Youtube Senate Majority Leader Mitch McConnell Channel, 6/11/2019; “Pelosi Vows to Review Hong Kong Trade Ties Over Extradition Bill”, Bloomberg, 6/12/2019), the battle of Hong Kong might have begun!