Industry Should Expect 'Much More Restrictive Regime' as US Prepares Export Controls on Hong Kong, Lawyer Says

Companies operating in Hong Kong and mainland China should be reviewing their portfolios in preparation for increased U.S. export controls, which could impact a wide range of global firms, a Mayer Brown trade lawyer said. Aside from sanctions against Chinese officials for interference in Hong Kong’s autonomy, the U.S. is likely to align export control policies for Hong Kong with its policies toward mainland China, creating a significantly more restrictive trade environment, the lawyer said.

“This has important implications for Japanese trading partners, European trading partners -- not just U.S. companies,” said Tamer Soliman, global head of Mayer Brown’s export controls and sanctions practice, speaking during a June 12 webinar hosted by the law firm. “A lot of things that can go to Hong Kong … would become subject to a much more restrictive regime -- even more restrictive than it's been.”

Although the Trump administration has yet to announce specific sanctions or export control measures against China or Hong Kong (see 2005290047 and 2006040038), Soliman said an increase in export controls could have a “potentially significant impact” and immediately disrupt business operations for companies across the world. He stressed that changes to U.S. export control laws would impact actors throughout global supply chains. “This is not just about U.S. firms or those operating in China or Hong Kong. It really has broader implications outside of those borders,” he said. “The law applies to goods, content and technology equally without regard to the nationality of the person.”

Companies should be assessing the impact of increased export controls on their business as if their operations were to “become significantly more constrained,” Soliman said. He also said companies should closely monitor increased sanctions, even though he suspects that the U.S. will first introduce “limited, targeted” sanctions, followed by an “incremental” ramping up of measures.

Soliman noted that Congress is considering legislation that would expand U.S. sanctions against Beijing officials and foreign financial institutions (see 2005260031) -- a marked difference from measures authorized under the 2019 Hong Kong Human Rights and Democracy Act (see 1911290012). “That also has an impact outside of the [U.S.’s] borders if you think about accounts and assets that are held by those individuals that could be subject to asset freezes,” Soliman said. “That would be an immediate impact.”

Companies should also be considering “exit strategies” to prepare for the increased sanctions, he added. “A good thing to be doing right now … is reviewing certain assets and account portfolios for politically exposed persons and assessing the impact of potential sanctions,” Soliman said.

As the U.S. prepares sanctions, firms should also ready themselves for Chinese retaliation, which could include the country’s so-called unreliable entity list. Chinese state media recently reported that China is considering placing several large U.S. companies on the list (see 2005180032), although many of the details remain unclear, said Thomas So, a partner in Mayer Brown’s Hong Kong office. “There aren't any clear regulations to say what consequences will follow if a company is being included in that list,” he said during the webinar. “At present it is still very unclear.”

U.S. attention on Hong Kong is unlikely to fade anytime soon, Soliman said. As the U.S. presidential election draws closer, both President Donald Trump and Joe Biden, the likely Democratic Party nominee, are likely to vie over “who is tougher on China,” Soliman said. The issue is also expected to remain a priority for Congress, which has shown bipartisan support for Chinese sanctions and export controls (see 2003300039 and 2006040038). “It’s clear … this is going to continue to be center stage, at least from the American perspective,” Soliman said.