The Commerce Department’s Bureau of Industry and Security (BIS) has ended license exceptions for the export, re-export and transfer of defense equipment and dual use technologies to Hong Kong in response to China passing a national security law that would tighten its control over the city.

The move means that companies need to carefully review shipments to Hong Kong if they are using export control license exceptions, previously permitted because of Hong Kong’s status as a special administrative region with a high-degree of autonomy from Chinese rule. That special status was agreed to by Beijing and London in 1984, paving the way for the British colony’s handover of sovereignty to China in 1997. Under the terms of the agreement, Hong Kong’s way of life would not change for 50 years after the handover.

More Stringent Export Controls to Safeguard U.S. National Security Interests

Washington’s stance is aimed at safeguarding its national security interests. Secretary of State Mike Pompeo said in a statement: “We can no longer distinguish between the export of controlled items to Hong Kong or to mainland China. We cannot risk these items falling into the hands of the People’s Liberation Army.”

Annual U.S. exports to Hong Kong under export control license exceptions were worth about US$500 million, according to figures from the Hong Kong government. Hardest hit will likely be the companies in the electronics gaming and consumer products category, as well as bilateral IT research and development.

The Need for Export Compliance Vigilance

Hong Kong has until now been treated as a ‘Group A’ nation, under the BIS Commerce Control List (CCL) Country Chart. This category allows for the exports of military and dual use items, with or without licenses and exceptions.

While its place in the CCL Country Chart has not been amended, the U.S. move effectively relegates Hong Kong to the Group D:1 countries list–along with Russia, China and Venezuela–who are deemed a concern for national security reasons. Under this scenario, exports of sensitive goods and technologies would require a license, which might or might not be approved.

U.S. Secretary of State Wilbur Ross indicated that more restrictions on Hong Kong were likely in the near future. He said that unless China reverses course, “further actions to eliminate differential treatments are also being evaluated”.

For exporters doing business with Hong Kong, this means keeping up to date with export compliance regulations. Indeed, Washington has imposed visa restrictions on a number of Chinese Communist Party officials in connection with the issue. Observers say to also keep a close watch out for new names appearing on denied party screening lists.

To be compliant with export control laws, consider solutions such as a comprehensive set of tools to help classify exports for multiple jurisdictions including the Commerce Control List (CCL), the United States Munitions List (USML), and European Union Controlled good Classification; and export license management solutions that help you to stay on top of license issues.