Hong Kong no longer autonomous from China: US

The Trump administration no longer regards Hong Kong as autonomous from mainland China. That sets the stage for the possible withdrawal of the preferential trade and financial status the U.S. accords the former British colony.

Background

• Hong Kong has long occupied a peculiar place in the international economic order. It’s not an independent country, but can enter trade agreements with other states on its own.
• It sets its own taxes, and has its own currency.
• Though it’s part of China, tariffs and customs controls applied on Chinese goods don’t apply to Hong Kong.
• When the Hong Kong government attempted to introduce national security legislation in 2003, an estimated 500,000 people turned out to protest against the bill on July 1, 2003—the largest protest the city had seen since its handover from the U.K. The bill was eventually shelved.
• Since then, the city’s government hasn’t attempted to introduce the legislation again.
• Pressure to enact the bill has increased since widespread unrest erupted in June 2019.
• But following the new law, countries are re-evaluating whether the city should continue enjoying its special trade privileges, or be treated as just another mainland Chinese city.
• Hong Kong’s special status is now facing its most urgent crisis yet

What is the issue?

• China’s legislature has approved controversial national security laws for Hong Kong.
• The legislation, aimed at stamping out protests that have racked the city for the past year, would ban “any acts or activities” that endanger China’s national security, including separatism, subversion and terrorism – charges often used in mainland China to silence dissidents and other political opponents.
• In short, the law bans sedition, secession, and subversion of China’s central government.
• The law will drastically broaden Beijing's power over Hong Kong, which last year was roiled by anti-government protests calling for greater democracy and more autonomy from mainland China.
• It would also allow “national security agencies” – potentially Chinese security forces – to operate in the city.
• Critics say it threatens civil liberties in Hong Kong and undermines the “one country, two systems” arrangement that separates the region’s political, legal, and financial infrastructure from mainland China’s. 

About Hong Kong:

• On 1 July 1997, Hong Kong became a Special Administrative Region of the People's Republic of China and the Basic Law came into effect.
• The Basic Law is the constitutional document of the Hong Kong Special Administrative Region.
• It enshrines within a legal document the important concepts of "one country, two systems", "Hong Kong people administering Hong Kong" and a high degree of autonomy.
• According to the Basic Law, Hong Kong's political system and way of life remain unchanged  for 50 years.

The rights and freedoms of people in Hong Kong are based on the impartial rule of law and an independent judiciary.

How the world reacted to the law?

• The move is widely considered a severe blow to Hong Kong's promised autonomy
• In a joint statement, Australia, Canada, the UK and the US said: “China’s decision to impose the new national security law on Hong Kong lies in direct conflict with its international obligations.”
• They called on Beijing to work with the Hong Kong government and people to find a “mutually acceptable accommodation”.
• The UK separately said it would extend visa rightsfor as many as 300,000 Hong Kong British national (overseas) passport holders if China does not change tack.

The Special Status:

• In a latest statement, US secretary of state Mike Pompeo declared that Hong Kong can no longer be deemed to have a high degree of autonomy from China. 
• This designation underpins US-Hong Kong relations, as Washington has legislated that the city must remain “sufficiently autonomous” to justify special treatment from the US.
• Under the Hong Kong Human Rights and Democracy Act passed last year in support of Hong Kong's months-long pro-democracy protests, the US government must annually verify to Congress that the city remains autonomous from China, or risks losing its special status with the US.
• Hong Kong's special trade and economic status with the US exempts it from the tariffs and export controls imposed by Washington on mainland China.
• US senators have already introduced a billthat would impose sanctions on Chinese officials and firms who violate freedoms in Hong Kong.
• The fallout could potentially be much wider, such as bringing an end to the extradition treaty between US and Hong Kong.

How China reacted?

• China has threatened the US with countermeasuresif Washington decides to punish Beijing for its plans to enact the national security law, saying other countries have no right to interfere with Hong Kong’s internal affairs.
• Some Hong Kong politicians, including the pro-Beijing lawmaker Regina Ip, have tried to dismiss the prospect of US sanctionsby saying they wouldn’t affect the local economy very much.

US’s presence in Hong Kong economy:

• The US has a sizeable presence in the Hong Kong economy. It has the highest number of regional headquarters and offices in the city. 
• Almost one-third of the city’s restricted license banks—those that mainly deal with merchant banking and capital market activities—are owned by US interests.
• It is also Hong Kong’s second-largest trading partner, after China, accounting for 6.2% of the total share.
• And in 2018, 8% of China’s exports to the US, worth $37 billion, were routed through Hong Kong, according to the city’s trade and industry department.
• The US is also the single economy with the largest trade surplus with Hong Kong, at over $33 billion in 2018. Scrapping Hong Kong’s trade status would jeopardize all of that, and more.

How will it impact?

• The US could impose targeted sanctions and roll back certain privileges.
• Or it could deploy arguably its most aggressive retaliatory tool and revoke Hong Kong’s special trade status.
• This is often referred to as the “nuclear” option, and would be hugely damaging not just to Hong Kong’s economy, but also a lot of US businesses.

Conclusion:

The US announcement is likely to infuriate Beijing and further strain relations between the two sides, following disputes over the coronavirus pandemic and a prolonged trade war.