President Trump Signs the Hong Kong Autonomy Act and Issues Executive Order on Hong Kong Normalization
International Trade Update
Date: July 16, 2020
On July 14, 2020, President Donald Trump signed into law the “Hong Kong Autonomy Act” (H.R. 7440), which authorizes and imposes sanctions on foreign persons, entities and financial institutions contributing to China’s actions to remove autonomy from Hong Kong. Unanimously passed by both the House of Representatives and the Senate in early July, this new law addresses growing concerns over China’s crackdown on protests in Hong Kong, which began in June 2019, and its continued efforts to remove Hong Kong’s economic and administrative autonomy (see Trump and Trade Update of June 1, 2020 for additional background). In remarks to the press, President Trump said, “This law gives my administration powerful new tools to hold responsible the individuals and the entities involved in extinguishing Hong Kong’s freedom.” The president also signed an executive order ending U.S. preferential treatment for Hong Kong, stating in his remarks, “Hong Kong will now be treated the same as mainland China: no special privileges, no special economic treatment, and no export of sensitive technologies.”
Hong Kong Autonomy Act
This new law directs the secretaries of State and the Treasury to identify foreign persons who materially contribute to the failure of China to adhere to its obligations in maintaining aspects of Hong Kong’s autonomy under the legally binding Joint Declaration between the United Kingdom and China in 1984 and to identify any foreign financial institutions that knowingly conduct significant transactions with such foreign persons. Once a foreign person is identified, a two-step sanctions process is implemented. On the date such a person is identified, the president “may” impose the following sanctions; however, after that person has been designated for one year, the president “must” impose the sanctions:
- Prohibit such person from (a) “acquiring, holding, withholding, using, transferring, withdrawing, transporting, or exporting any property that is subject to the jurisdiction of the United States and with respect to which the foreign person has any interest; (b) dealing in or exercising any right, power, or privilege with respect to such property; or (c) conducting any transaction involving such property.
- Direct the secretary of State to deny a visa to the foreign person.
Once a foreign financial institution is identified, no later than one year after its designation, the president must impose no fewer than five of the sanctions listed below. No later than two years after the foreign financial institution’s designation, the president must impose all of the following sanctions:
- Prohibit loans or credit from any U.S. financial institutions;
- Prohibit designation as a primary dealer in U.S. government debt instruments;
- Prohibit service as an agent of the U.S. government or service as a repository of U.S. government funds;
- Prohibit any transactions in foreign exchange that are subject to the jurisdiction of the United States and involve the foreign financial institution;
- Prohibit any banking transactions involving the designated foreign financial institution that are subject to U.S. jurisdiction;
- Prohibit the foreign financial institution from (a) “acquiring, holding, withholding, using, transferring, withdrawing, transporting, or exporting any property that is subject to the jurisdiction of the United States and with respect to which the foreign financial institution has any interest; (b) dealing in or exercising any right, power, or privilege with respect to such property; or (c) conducting any transaction involving such property;
- Prohibit or restrict exports and reexports involving the designated foreign financial institution;
- Prohibit any U.S. person from investing in or purchasing significant amounts of equity or debt instruments of the foreign financial institution;
- Exclude from entry into the United States any corporate officer or principal of, or a shareholder with a controlling interest in, the foreign financial institution; or
- Impose on the principal executive officer or officers of the foreign financial institution, or on individuals performing similar functions and with similar authorities as such officer or officers, any of the previously described sanctions.
For national security reasons, the president may waive or terminate the imposition of sanctions under this law. A foreign person or foreign financial institution can be removed from designation if it is determined that the actions taken did not have a significant and lasting negative effect on Hong Kong’s autonomy in contravention of China’s obligations; are not likely to be repeated in the future; and have been reversed or otherwise mitigated through positive countermeasures taken by that foreign person or foreign financial institution. Congress, however, may override such a waiver or termination by passing a joint resolution of disapproval.
Hong Kong Executive Order
Shortly after signing the Hong Kong Autonomy Act into law, President Trump issued an executive order determining that Hong Kong “is no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China under … United States laws” since China has “followed through on its threat to impose national security legislation on Hong Kong.” Accordingly, the order states, “It shall be the policy of the United States 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.”
The executive order directs all relevant agencies to amend any regulations “which provide different treatment for Hong Kong as compared to China,” including, but not limited to, various immigration and export control laws and regulations (see also Trump and Trade Update of June 30, 2020 regarding changes and export restrictions already imposed by the Departments of State and Commerce). The order also eliminates any preference for Hong Kong passport holders; notices the intent to suspend agreements between the United States and Hong Kong including, but not limited to, the surrender of fugitives and the transfer of sentenced persons; and signals the intent to end training members of the Hong Kong Police Force or other Hong Kong security services at the Department of State’s International Law Enforcement Academies. The executive order also directs the relevant agencies to take steps to terminate the Fulbright exchange program with China and Hong Kong and to reallocate admissions to residents of Hong Kong based on humanitarian concerns.
Additionally, the executive order authorizes the secretaries of State and the Treasury to identify and block all property and interests in property in the United States of foreign persons determined “to be or have been involved, directly or indirectly, in the coercing, arresting, detaining, or imprisoning of individuals under the authority of, or to be or have been responsible for or involved in developing, adopting, or implementing, the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Administrative Region.” Such persons also include those responsible for or who have engaged in any of the following:
- actions or policies that undermined the democratic processes or institutions in Hong Kong;
- actions or policies that threaten the peace, security, stability, or autonomy of Hong Kong;
- censorship or other activities with respect to Hong Kong that prohibit, limit or penalize the exercise of freedom of expression or assembly by citizens of Hong Kong, or that limit access to free and independent print, online or broadcast media; or
- the extrajudicial rendition, arbitrary detention or torture of any person in Hong Kong or other gross violations of internationally recognized human rights or serious human rights abuse in Hong Kong.
The scope of the executive order also covers those who materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any designated person; those who are owned or controlled by, or who have acted on behalf of, directly or indirectly, any designated person; and any member of the board of directors or a senior executive officer of any designated person. The unrestricted immigrant and nonimmigrant entry into the United States of such designated persons, as well as immediate family members, or those acting on behalf of such designated persons, will be suspended as well.
The executive order makes clear that “any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.”
FOR MORE INFORMATION
For more information, please contact:
David M. Schwartz
Partner and Practice Group Leader, International Trade
Samir D. Varma
Partner, International Trade
Francesca M.S. Guerrero
Partner, International Trade
Senior Counsel, International Trade
Scott E. Diamond*
Senior Legislative & Regulatory Policy Advisor,
*Not licensed to practice law
Associate, International Trade
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