News and Insight from Choice’s Global Trade Solutions

Hong Kong: Regulatory Uncertainty and Supply Chain Disruption

Since the end of June there have been considerable changes to the US trade posture towards Hong Kong and China that mirrors the rhetoric and events more broadly covered in the popular news cycle. Given the broad applicability of the US regulatory approach this change in posture should be a concern for any company conducting business in Hong Kong due to the likelihood of downstream supply chain impacts; especially amongst freight forwarders.

As detailed more fully below, the tightening of trade restrictions has elevated Hong Kong’s risk profile. This is especially true for Choice clients that currently require licensing for some, or all, of their product set. While Choice will continue to support local client requirements in Hong Kong and China, we do believe that a prudent regional supply chain strategy requires a re-assessment of stocking activity to minimize any exposure to further sanctions or retaliatory actions.

Subsequent to China passing what is colloquially known as the Hong Kong national security law materially expanding their influence and control over the Hong Kong Administrative Region, there have been a cascading set of US regulatory changes. Starting on July 14, 2020 when President Trump signed the Hong Kong Autonomy Act of 2020 and Executive Order 13936 the US began to eliminate the differential trade treatment that had been afforded to Hong Kong.

In the subsequent months, additional measures were enacted that target China, Hong Kong politicians, and related technology firms. Key enhancements and measures include

• Export controls expanding the along with state owned companies;
• Targeting of specific political figures within Hong Kong with OFAC “blocking” sanctions;
• The elimination of certain Hong Kong BIS license exemptions;
• Publication of a final rule formally extending Entity List requirements to all parties involved in any transaction under the Export Administration Regulations (including freight forwarders).

Although the final rule extending the Entity List simply codifies long-standing BIS interpretative practice it is important to note that given the current context it is likely to have a further destabilizing effect for any firm engaged in trade activities into Hong Kong.