Export controls in China, US, EU: Turmoil and sanctions around Hongkong

Dual-use goods

• On July 31, 2020, the Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR). As a result, preferential treatment for Hongkong over China in the area of license exceptions was suspended. 
  
• In order to implement this change in export controls, BIS inserted a new paragraph specific to Hongkong in Section 740.2 of the EAR ("Restrictions on all License Exceptions"). Other related changes in compliance with this were also made in § 740.2. 
• As of this date, the following license exceptions for exports and re-exports to Hongkong as well as transfers within Hongkong for all items that are subject to the EAR are partially or completely unavailable: LVS; GBS; TSR; APP; TMP; RPL; GOV; GFT; TSU; BAG; AVS; APR; STA. 
• The EAR country groups have not changed and Hongkong remains in the same groups.

Military equipment

• On July 15, 2020, the Directorate of Defense Trade Controls (DDTC) published a Guidance regarding the International Traffic in Arms Regulations ("ITAR"). 
• This guidance on export controls confirms that Hongkong is included in the entry for China under section 126.1(d)(1) ITAR and is therefore subject to a denial policy for all transfers of goods that are subject to ITAR (military equipment). 
• DDTC also stated that no steps are being taken to revoke or cancel previously authorized exports of defense equipment or services to Hongkong.

Another measure in line with the E.O. 13936: Sanctions against eleven high-ranking Chinese politicians were issued. The reason: Undermining Hongkong's autonomy and restricting the freedom of expression or assembly of the citizens of Hongkong. The names of these Chinese politicians were added to the SDN sanctions list on August 7, 2020.

It is clear that these developments further escalate the ongoing global trade war between China and the US.

In response to the above-mentioned OFAC sanctions, China promptly announced sanctions against eleven US politicians at a press conference of the State Department on August 10, 2020.

The difference: these have so far only been announced in a press release. An actual legal act did not accompany this announcement at the time. Therefore, it is currently not clear what exactly these sanctions mean, what legal consequences they have, and who has to observe them. In the general media, it has been translated as a Chinese sanctions list, however, this does not correspond to the current state of affairs. A new official sanctions list has not yet been published by the Chinese government at the time of this article.

The US sanctions, on the other hand, are very much based on a legal act. It delivers reasoning and defines legal consequences for Chinese politicians. The range of persons, who must consider these sanctions, is also defined there.

The EU Council conclusions on Hongkong were adopted on July 28, 2020. They define various areas that will be affected by future coordinated EU actions. Among others, these include: 

• The export of certain sensitive equipment and technology for end-use related to internal repression 
• Interception of internal communications or cyber surveillance in Hongkong

At the time of this article, no concrete measures have yet been implemented.

The changes in the US Export Administration Regulations (EAR) and the sanctions list US SDN must be implemented immediately. The expected measures of the EU and, if applicable, China must be monitored and implemented promptly as soon as they become legally binding. Recent developments stand testament to the fact that the sanctions and export control environment is and will remain highly dynamic. AEB trade compliance solutions provide security and peace of mind for companies through automatic AEB data service – find out more below or just request an appointment. 

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