July 17, 2020 / 4:22 AM / 20 days ago

Hong Kong reverts to China tariffs under Trump order, impact limited - trade lawyers

WASHINGTON (Reuters) - President Donald Trump’s executive order ending Hong Kong’s special status under U.S. law effectively ends the territory’s separate customs treatment from China - but the immediate impact on trade is likely to be limited, trade law experts say.

Trump's order here issued late on Tuesday to punish China over a new national security law imposed on Hong Kong, does not explicitly mention tariffs nor Hong Kong's separate customs status.

Instead, it suspends a 1992 law granting Hong Kong special economic status, referencing a statute governing country-of-origin labeling for imported goods.

The net effect is to rescind Hong Kong’s status as a separate customs territory, said Georgetown University law professor Jennifer Hillman, a former World Trade Organization appellate judge.

That means goods from Hong Kong will now be considered as being from China for duty purposes, Hillman and other Washington trade lawyers said.

As Hong Kong shifted from being a manufacturing center to a trading and finance hub, its goods exports to the United States have fallen, to only $4.7 billion in 2019. The largest category, according to U.S. Census Bureau data here was $2.2 billion worth of returned goods initially exported from the United States.

The next largest categories were gem diamonds at $388 million, jewelry at $317 million and other gemstones at $247 million.

“It’s not going to be a devastating blow to Hong Kong’s economy,” said Claire Reade, senior counsel with Arnold and Porter in Washington. She added that much of Hong Kong’s exports had shifted to services.

The change also could leave many U.S. tariffs unchanged. Before the Trump administration’s trade war with China, goods from both Hong Kong and China had long been subject to duties at the U.S. Most Favored Nation rate, which WTO data show averaged 3.3% last year.

A “Section 301” list subjected many Chinese consumer goods, including diamonds and jewelry, to a 15% U.S. tariff in September 2019, reduced in February to 7.5% as a result of the Phase 1 trade deal with China.

The Trump order means that gems and jewelry from Hong Kong - among the biggest imports from the territory - along with some other products, are now subject to the same duties.

Several trade lawyers said they were still examining the implications of the order on Thursday, and noted that the U.S. Trade Representative’s Office has the ability to grant exclusions from the Section 301 tariffs on Chinese goods. A USTR spokesman did not respond to a request for comment.

Trump's order does not immediately affect the United States' $30 billion to $40 billion in annual exports here to Hong Kong, which are largely tariff-free, nor Hong Kong's independent membership in the WTO. However China's threatened retaliation could dampen sales of U.S. goods there in the future, trade experts say.

The port and trade hub is consistently the source of the largest U.S. bilateral trade surplus - $26 billion in 2019 - with top U.S. export categories including semiconductors, diamonds, jewelry, beef and aircraft engines and parts.

Reporting by David Lawder editing by Heather Timmons and Jonathan Oatis

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