Hong Kong’s Warning From Washington Should Mean No More WTO Special Treatment

As foreshadowed last week, President Biden’s Treasury Department sent a warning to American companies doing business with Hong Kong. It was closely pegged to the recent Xinjiang Supply Chain Business Advisory, which warned companies of financial risks if they continue to source from the West China province that is holding hundreds of thousands of Uyghur Muslims in captivity. The Hong Kong notice serves the same purpose.

The U.S. Departments of State, Commerce, Treasury, and Homeland Security issued the joint advisory on Friday after business hours.

It said the advisory was needed to “highlight the growing risk associated with actions undertaken by the People’s Republic of China and the Government of the Hong Kong Special Administration Region.”

Businesses, investors, individuals, and academic institutions that operate in Hong Kong could have exposure to sanctioned entities or individuals, most of which is tied to Xinjiang.

However, the advisory also warns about last year’s National Security Law, implemented in Hong Kong. It more closely connects Beijing and Hong Kong courts, erasing much of the One Country, Two Systems policy that was in place since the British government handed over Hong Kong to the Chinese Communist Party in 1997.

“As a result of these changes, they should be aware of the potential reputational, regulatory, financial and…legal risk associated with their Hong Kong operations,” the notice said.

Friday’s notice spent a lot of time on the National Security Law (NSL). It said that part of the NSL included massive data collection on private businesses and individuals as China sees fit, under the guise of protecting national security and stopping the spread of “misinformation.”

Anyone posting opinions contrary to Beijing’s point of view on social media and anyone meeting with members of the diplomatic community may be suspect to the long arm of China’s law.

“Prosecutions to date may not fully reflect the extent to which ‘national security’ is used to local authorities in the future as a legal pretext to penalize any behavior or speech deemed to oppose Hong Kong or (CCP) authority,” the advisory noted.

With that in mind, Hong Kong has the same privileges as the other 47 countries that are part of the Government Procurement Agreement (GPA) of the World Trade Organization. The GPA means that Hong Kong companies can bid for American federal government contracts under Buy American rules, making them no different than a Kansas contractor. CCP companies can claim they are in Hong Kong, bid on Biden administration contracts, and the WTO rules require them to receive bid preferences the same as a domestic firm. Clearly, this warning should sever Hong Kong from the GPA.

“The Biden administration correctly believes that doing business with Hong Kong poses material risks for businesses because it is now controlled by Chairman Xi. As a result, the administration should not buy goods and services from Hong Kong as if it was Germany or the U.K.,” says Michael Stumo, CEO of CPA.

Since moving to capture Hong Kong before its full handover in 2049, as China’s deal with Britain stated, Beijing has made Hong Kong a hotbed of asymmetric material risk for American banks, corporate compliance officers, and now Congress.

During the Hong Kong anti-government protests, Washington was relatively benign in its actions against Hong Kong because it saw it as part of the One Country, Two Systems of China. Washington also did not want to make life more complicated for Hong Kongers or rattle multinational financial interests there, which are finally  getting their wishes of a more open mainland Chinese securities market.

The late Friday notice is a total shot across the bow. The Biden administration is now saying that only they can genuinely protect U.S. investors against Chinese predation and, perhaps, even protect American companies from embarrassing themselves further, as Disney did by filming parts of Mulan in Xinjiang and as Hollywood continues to do with actor John Cena apologizing last month for calling Taiwan a country. While corporate America prefers the status quo that allows the profits from China to continue pouring in, the Biden administration just put them on notice that the status quo in Hong Kong is crumbling.




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