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Commerce Department formally suspends most export license exceptions for Hong Kong

August 7, 2020

On June 30, 2020 the Chinese government passed a national security law for Hong Kong in response to anti-government protests on the previously autonomous island. In the wake of renewed tensions between China and the United States, the passage of the new law raised concerns in the U.S. and elsewhere about the viability of Hong Kong’s autonomous status, prompting the U.S. government to revise its policy towards Hong Kong and China. This included revisions to export control policy and legislation threatening sanctions against the People's Republic of China (PRC) individuals and entities.

On the same day the Hong Kong security law was passed in China, and in furtherance of comments made by the Secretary of Commerce the previous day, the Commerce Department’s Bureau of Industry and Security (BIS) announced it would cease granting differential treatment to goods originating on the island. According to a notice published on June 30, 2020, BIS was suspending license exceptions for exports to Hong Kong, re-exports to Hong Kong, and transfers (in-country) within Hong Kong of items subject to the Export Administration Regulation (EAR) to the extent they provided differential treatment as compared to those available for the PRC. Accordingly, if a license exception was not available for China, it can no longer be used for Hong Kong. BIS cited concerns that China’s new security law would create the risk that U.S. technologies and controlled items exported to Hong Kong would be diverted to unauthorized end uses and end users in China, Iran or North Korea. Controlled items that were on dock for loading, on lighter, laden aboard an exporting or transferring carrier or en route aboard a carrier to a port of export or re-export on June 30, 2020 were excepted from this change.

BIS excepted deemed exports/re-exports involving Hong Kong persons until August 28, 2020, but noted “exporters, re-exporters or transferors (in-country) availing themselves of this 60 day savings clause must maintain documentation demonstrating that the Hong Kong recipient was hired and provided access to eligible technology… prior to June 30, 2020.”

On July 31, 2020 BIS published a notice in the Federal Register formally implementing these changes and identifying the affected license exceptions. The amended rule includes the saving clauses for items in transit on June 30, 2020 and for continuation of deemed exports until August 28, 2020 (subject to the conditions set out in the original notice.)

While not cited in the Federal Register Notice, this rule appears to fulfill the BIS obligation under Executive Order 13936 (July 14, 2020), in which the President directed BIS, as well as other Federal agencies, to commence appropriate actions to “suspend or eliminate different and preferential treatment for Hong Kong to the extent permitted by law and in the national security, foreign policy, and economic interest of the United States.” We caution exporters to continue to monitor postings by the Department of State and BIS with respect to additional changes to U.S. export control laws and regulations with respect to Hong Kong.

Robert Shapiro, Jim Slear and Sean McGowan are members of Thompson Coburn’s International Trade group.