Sanctions, new tariffs? What it means for US to certify Hong Kong as not autonomous from China

President Donald Trump would have to issue an executive order to change Hong Kong's status under US law. PHOTO: REUTERS

WASHINGTON - The United States' formal declaration that Hong Kong is no longer autonomous from China paves the way for Washington to impose sanctions on individuals and new tariffs - actions that could threaten its standing as a financial hub, said analysts.

But the "nuclear option" of stripping Hong Kong of its special status under American law would hurt Hong Kong and the American companies based there more than it would harm the Chinese government, said analysts, who thought the drastic move was unlikely in the near future.

In an assessment required by federal law, Secretary of State Mike Pompeo on Wednesday (May 27) certified that Hong Kong was no longer sufficiently autonomous from Beijing to warrant being treated differently from other Chinese cities in trade and other matters.

"No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground," he said in a statement.

The move was a condemnation of a national security law Beijing is set to give the go-ahead to this week, which would tighten the central government's control over Hong Kong.

President Donald Trump must now decide what actions to take in response to the assessment, and would have to issue an executive order to change Hong Kong's status under US law. Alternatively, Congress could do so by repealing the Hong Kong Policy Act of 1992.

Assistant Secretary of State for East Asian and Pacific Affairs David Stilwell told reporters at a briefing on Wednesday that US actions could include visa and economic sanctions, adding: "We will do our best to ensure the people of Hong Kong are not adversely affected to the best we can."

China analysts and international trade lawyers said a likely option is to apply Chinese tariff rates to Hong Kong exports.

"It is likely that the US will no longer grant most-favoured nation treatment to Hong Kong-origin goods separate from China goods," said Ms Nicole Bivens Collinson, the president of international trade and government relations at the Sandler, Travis and Rosenberg international law trade firm.

International trade lawyer Fred Rocafort of international law firm Harris Bricken said restrictions on exports to Hong Kong could also likely form part of the US government's initial response to the certification. He added that this should concern companies that export sensitive technologies to Hong Kong.

Congress is also likely to pass a new Bill, currently under consideration, that gives it the power to sanction Chinese officials who undermine Hong Kong's autonomy and banks that transact with them.

'Nuclear option'

More vocal critics of China in Congress are calling for the US to fully revoke Hong Kong's special status, which Republican Senator Marco Rubio of Florida called the "nuclear option" in a Washington Post commentary last September.

Republican Senator Josh Hawley of Missouri said on Twitter that Mr Pompeo's certification should trigger a revision of Hong Kong's special trade laws and treatment by the US, adding: "We should not stop there. China's own trade status with the US should be on the table."

But analysts said such a drastic move would disproportionately hurt Hong Kong, particularly given its waning importance to the Chinese economy.

"Losing its special status would hurt Hong Kong more than Beijing, further straining an already struggling economy while doing little long-term damage to Beijing's plans," said Eurasia Group analysts in a research note on Wednesday. They said a full repeal of Hong Kong's special status was unlikely.

Mr Rocafort, who is a former diplomat, told The Straits Times: "Any policy change that blurs the lines between the Hong Kong and mainland economies will likely have an adverse impact on Hong Kong, not least because of investors' reduced confidence in a market with heavy state intervention and a glaring lack of rule of law."

He said that his clients were already concerned about the future of Hong Kong even before the State Department's certification, given the looming national security law, the ongoing civil unrest, and possibility of retaliation by China.

"All of this is leading to a dramatic loss of confidence in Hong Kong and is accelerating efforts to find alternatives, be they in Singapore or elsewhere," he said.

Said the Eurasia Group analysts: "This is the start of an incredibly complicated process of redefining US treatment of Hong Kong, one that will touch on complicated issues of regulatory cooperation, tax treatment, and legal cooperation.

"These will not unfold quickly but have important ripple effects for Hong Kong's role as a business and financial hub."

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