Hong Kong is China: No Longer Entitled to Special Treatment

President Trump has signed an executive order declaring that the Hong Kong Special Administrative Region (SAR) is no longer sufficiently distinct from China to warrant special treatment, and therefore it shall be treated as the same as the rest of China for U.S. legal purposes.

This is import for members of the ASA community who are exporting goods to Hong Kong, because the executive order is intended to affect both ITAR-controlled articles and EAR-controlled articles.  Exporters will have to make sure that they meet the regulatory requirements as those requirements change.

Here are just a few examples of the differences between Hong Kong and China for export purposes (these are the differences that are expected to be eliminated by impending regulatory change):

  • China was excluded from certain exceptions because it is in country group D:1; while Hong was treated as country group B and exporters to Hong Kong could take advantage of those exceptions that excluded country group D:1 participants – one important provision affected by this change is the AVS license exception that is widely used by aircraft parts exporters;
  • Commerce-controlled exports subject to CB column three need a license when exported to China, but did not necessarily need a license when exported to Hong Kong;
  • Hong Kong is considered to be a Computer Tier 1 Eligible Destination, while China is considered to be a Computer Tier 3 Eligible Destination; this distinction means that one could use the License Exception APP for exports of computer commodities to Hong Kong, but not to China;
  • For purposes of the GOV License Exception, Hong Kong was considered to be a cooperating government (and China was not);
  • Re-exports from Hong Kong were treated like re-exports from a country group A:1 nation under License Exception APR (re-exports from China are not treated the same way).

Consequences for the ASA Community

By July 29th, the export-controlling agencies like BIS, OFAC and DDTC are required to begin changing the regulations (including license exceptions) where China and Hong Kong are treated differently.

These changes do not change our commitment to safety; nor does it change our commitment to supporting the Chinese aviation community in any way that is legal and safe.

This does NOT change the broader mechanisms for exporting to China, although the White House has added some conditions for blocking transactions with certain individuals in Hong Kong and China.  So always carefully check your transaction partners through the consolidated screening list before your ship to them.

This executive order directs agencies to make changes to the Hong Kong provisions and exceptions, so make sure that the provisions and exceptions on which you rely have not changed before each transaction.  They will be changing, soon.

The rules are not yet changed, but this executive order signals that they will change; and they may change soon.  This is a difficult time for the ASA community and anything that hinders aviation safety trade can impede an important sale.  It will typically still be possible to engage in transactions with ChIna (including the Hong Kong SAR), but the compliance path for aircraft parts destined for Hong Kong may change for certain transactions.  We plan to keep the community apprised of changes as they are developed.

About Jason Dickstein
Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. Since 1992, he has represented aviation trade associations and businesses that include aircraft and aircraft parts manufacturers, distributors, and repair stations, as well as both commercial and private operators. Blog content published by Mr. Dickstein is not legal advice; and may not reflect all possible fact patterns. Readers should exercise care when applying information from blog articles to their own fact patterns.

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