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Legal Update: Hong Kong Human Rights and Democracy Act

The formal relationship between the United States (the “US”) and Hong Kong is based upon the “one country, two systems” framework established in the Basic Law of Hong Kong. The United States-Hong Kong Policy Act of 1992 (the “HK Policy Act”) enacted by the US establishes the US government’s policy of treating Hong Kong as a non-sovereign entity distinct from China for purposes of US-Hong Kong trade and economic cooperation.

On 19th November 2019 following a similar move by the House of Representatives, the US Senate passed the Hong Kong Human Rights and Democracy Act of 2019 (the “HK Human Rights Bill”), which is intended to amend the HK Policy Act. Despite passage by both the House and Senate, however, the HK Human Rights Bill will not become law until the US President signs off on it.

This writer tries to explore key provisions of the HK Human Rights Bill and analyse its potential impact on Hong Kong should it be passed from the commercial point of view.  This article should not form any advice on US laws and legislation.  

Major provisions of the HK Human Rights Bill

1. The existing HK Policy Act requires the Secretary of State to submit an annual report on US-Hong Kong relationships in terms of bilateral agreements entered into, cultural exchanges and export control cooperation etc. The Human Rights Bill adds additional matters for reporting, including China’s ability to limit Hong Kong’s autonomy, limitations to Hong Kong’s autonomy, and their impact on US-Hong Kong cooperation. 
   
   The Secretary of State is obliged to submit an annual certification on the status and treatment of Hong Kong under treaties and agreements as to commercial and law enforcement cooperation.
    
2. Another major amendment to the HK Policy Act is that US visa applicants shall not be denied solely on the basis of the applicants’ past arrest, detention or government action against them as a result of their participation in Hong Kong protests.   
    
3. The HK Human Rights Bill, if enacted, requires the US President to submit a report to the Congress, assessing whether Hong Kong enforces the US Export Control Reform Act of 2018 and sanctions imposed by the US and the United Nations. The report shall describe goods and services transshipped or re-exported through Hong Kong in violation of such sanctions and relating to terrorism, drugs trafficking or weapons of mass destruction, or other matters that pose a threat to US national security or economy.
   
   The HK Human Rights Bill particularly provides for scrutiny of whether US-originated technology is transferred to China through Hong Kong in violation of US laws, and which ends up being used in mass surveillance, predictive policing or social credit system in China.  
    
4. The Secretary of State will have to notify the Congress of any proposed legislation in Hong Kong that may put US citizens at risk of rendition to China or have an adverse impact on US interests in Hong Kong. 
    
5. Foreign persons regarded as being knowingly responsible for gross violations of human rights in Hong Kong, including arbitrary detention or torture of individuals in Hong Kong, are to be identified in a report to the Congress. The said persons may be subject to sanctions by the US such as freezing of their US properties and barring of entries into the US by themselves and their family members.  

Implications

Should the HK Human Rights Bill be enacted, it entails (and indeed, expands the scope of), among other things, an annual review of the degree of autonomy of Hong Kong, which was the justification for preferential trade and economic benefits as a result of the city’s special status granted under the HK Policy Act – It is indeed with this special status Hong Kong is shielded from tariffs on Chinese goods levied by the US.

Should the special status of Hong Kong be revoked, it would be unavoidable for Hong Kong to suffer a heavy economic blow from various tariffs and import and export restrictions. There is also the possibility of US sanctions imposed on Hong Kong, creating challenges to Hong Kong’s commercial services and potentially unseating it from its position as an international financial hub.

Other benefits afforded by the special status, such as the free currency exchange between Hong Kong and US Dollars, import of sensitive technologies from the US to Hong Kong, and circumvention by Hong Kong residents of visa restrictions that apply to their mainland Chinese counterparts, would likely be cancelled should the HK Human Rights Bill be enacted.

Not only would Hong Kong suffer, but the US-Hong Kong relationship could also be jeopardized. There are currently more than 1,300 US firms operating in Hong Kong. The US trade surplus with Hong Kong is the single largest with a US trading partner, and the US remains a major source of foreign direct investment in Hong Kong. 

From a business perspective, if the HK Human Rights Bill becomes law, we can expect to see a chilling effect on US trade and investments in Hong Kong. While it is unclear how substantial the economic impact it would have on Hong Kong, it is almost certain that Hong Kong’s reputation as a trusted player in the global economy would be adversely affected.

If you are interested to discuss with or want to learn more about how your business may be impacted by different current legal developments, please feel free to contact us atvictor.ng@oln-law.com.