The Hong Kong Human Rights and Democracy Act (HRDA) was passed into U.S. law by President Donald Trump on 27 November. Its key points are:

• Strengthening the conditions and monitoring requirements for Hong Kong’s separate treatment from Mainland China in terms of trade 
• Tighter requirements for monitoring compliance with U.S. export controls regarding sensitive technologies.
• Empowering the U.S. authorities to deny U.S. visas to foreign individuals found to have undermined the rights and freedoms of Hong Kong citizens.
• Monitoring the effect of any changes in Hong Kong law that would put U.S. citizens at risk of extradition to Mainland China

Impact on U.S.-Hong Kong trade

The background to HRDA is the U.S.-Hong Kong Policy Act of 1992, which provides that the existing legal and trade arrangements would continue after the 1997 handover. This was subject to an important proviso, however. If the president determines that Hong Kong is not “sufficiently autonomous” from Mainland China, he or she can issue a determination to that effect. 

The 1992 Act also states that the U.S. will continue to support Hong Kong’s access to sensitive technologies (essentially “dual-use” technologies that can be used for civil or military purposes) as long as the U.S. is satisfied that they are protected from improper use or export.

Assessing “sufficient autonomy”

In assessing “sufficient autonomy,” an evaluation will be made of Hong Kong’s compliance with the rule of law, the 1984 Sino-British Joint Declaration, the Basic Law, the Universal Declaration of Human Rights, and the International Covenant on Civil and Political Rights.  The U.S. Secretary of State shall annually certify whether Hong Kong continues to be “sufficiently autonomous.” What is considered “sufficient” is clearly a subjective matter.

Export Controls on Sensitive Technologies

An annual report will be provided to Congress on Hong Kong’s compliance with U.S. export controls on sensitive technologies, in particular to ensure that they are not being re-exported to Mainland China.

Implications for Hong Kong businesses

The HRDA is silent on the measures that the U.S. might take if Hong Kong’s autonomy was considered not “sufficient,” or if compliance with export controls was found wanting. In the extreme, the U.S. could decide to stop treating Hong Kong as a separate customs territory, so Hong Kong would be subject to the same trade treatment as Mainland China. Short of that, specific sanctions or tariffs could be applied to certain sectors.

These measures would most adversely affect Hong Kong companies that rely on the U.S. for exports or imports. The sectors most vulnerable to trade sanctions are financial services, exporters and importers of machinery, transport (particularly airlines and logistics industries) and Hong Kong franchisees of U.S. services.    

Whether re-export controls are being properly enforced by Hong Kong on “dual-use” products (such as hi-tech equipment) would be subject to particular scrutiny. This may increase the regulatory compliance burden on importers of such technologies. The risk of being denied access to such technologies could also affect Hong Kong’s prospects as a technology hub.

Besides the potential direct impact on certain sectors, the mere passing of the HRDA may impact adversely on Hong Kong’s attractiveness as a centre for global headquarters and stock exchange listings, particularly as Singapore has a free trade agreement with the U.S.