Legal Sidebari
Revoking Hong Kong’s Preferential Trade
Status: Legal Framework and Implications
June 5, 2020
On May 30, 2020, President Trump announced that his Administration would begin the process of
eliminating U.S. policies that provide Hong Kong with special and different treatment from the People’s
Republic of China (China), including revocation of “Hong Kong’s preferential treatment as a separate
customs and travel territory from the rest of China.” The President also indicated the potential to sanction
officials from Hong Kong and China directly or indirectly involved in eroding Hong Kong’s autonomy.
This Sidebar presents the legal framework that currently applies to Hong Kong’s status as a separate
customs territory from China and several potential implications of such a revocation.
Background
On May 28, 2020, the National People’s Congress of China approved a decision authorizing its Standing
Committee to enact laws to prohibit acts and activities in the Hong Kong Special Administrative Region
that it considers as undermining its national security. The same day, the United States, United Kingdom,
Canada, and Australia issued a joint statement expressing “deep concern” about the decision, suggesting
that such a law would “dramatical y erode Hong Kong’s autonomy” and conflict with China’s
international obligations stemming from, among other things, a Sino-British Joint Declaration on the
Question of Hong Kong to respect such autonomy. In addition, the U.S. Secretary of State issued a report
(State Department Report) finding that Hong Kong is no longer sufficiently autonomous from China to
warrant certain privileges under U.S. law that al ow Hong Kong to be treated differently than China.
Following the State Department Report, the President announced on May 30, 2020, that his
Administration wil take actions to curtail these privileges, including by no longer treating Hong Kong,
the United States’ 15th-largest export market, as a separate customs territory from China.
Legal Framework for Hong Kong’s Preferential Trade
Status
The current U.S. legal framework that applies to Hong Kong was initial y enacted in 1992 in anticipation
of Hong Kong’s transfer from British to Chinese control. This section first provides a brief overview of
Congressional Research Service
https://crsreports.congress.gov
LSB10488
CRS Legal Sidebar
Prepared for Members and
Committees of Congress

---

Congressional Research Service
2
the legal status of Hong Kong vis-à-vis China, and then sets out how the U.S. legal framework applies
this status.
Hong Kong’s Legal Status as a Special Administrative Region
From 1842 to 1997, the United Kingdom exercised sovereignty over Hong Kong. In 1984, the Chinese
and British governments negotiated the Sino-British Joint Declaration on the Question of Hong Kong
(Joint Declaration), which transferred control of Hong Kong to China in 1997 while articulating certain
rights for Hong Kong. In particular, the Joint Declaration states that Hong Kong shal be designated a
“special administrative region” of China, as permitted by Article 31 of the Chinese Constitution. It also
stipulates that Hong Kong “wil enjoy a high degree of autonomy, except in foreign and defence affairs”
for fifty years after 1997. Additional y, the Joint Declaration states that Hong Kong “wil retain the status
of a free port and a separate customs territory” and may enter into international agreements and
participate in international organizations under the name “Hong Kong, China.”
These guarantees are codified in Hong Kong’s Basic Law, passed by the National People’s Congress of
China in 1990. The Basic Law also adds that, as part of Hong Kong’s status as a separate customs
territory, its “[e]xport quotas, tariff preferences and other similar arrangements . . . remain valid” and it
“may issue its own certificates of origin.” Pursuant to this arrangement, Hong Kong has remained a
member of the World Trade Organization (WTO) and negotiated a number of trade agreements, including
one with China.
U.S. Legal Framework on Hong Kong’s Status
To recognize the Joint Declaration, the United States enacted the U.S.-Hong Kong Policy Act of 1992,
which it later amended in the Hong Kong Human Rights and Democracy Act of 2019. Under this legal
framework, Congress states that, among other things, the “United States should continue to fulfil its
obligations to Hong Kong under international agreements, so long as Hong Kong reciprocates,” and the
“United States should respect Hong Kong’s status as a separate customs territory, and as a WTO member
country.” Further, it adds that the United States should “grant the products of Hong Kong
nondiscriminatory trade treatment by virtue of Hong Kong’s membership in the General Agreement on
Tariffs and Trade” (i.e., GATT, the WTO’s predecessor) and “recognize certificates of origin for
manufactured goods issued by” Hong Kong.
To implement these policy statements, these acts approve the following: (1) continued application of
existing U.S. laws to Hong Kong in the same manner as they applied prior to July 1, 1997, unless
otherwise provided for by law or executive order; and (2) continuation of al international agreements to
which the United States and Hong Kong are members, provided these agreements were in force on or
after July 1, 1997, and entered into before November 27, 2019.
The President may decide to suspend application of a U.S. law that provides Hong Kong with treatment
different from that accorded to China if he determines that “Hong Kong is not sufficiently autonomous to
justify” such different treatment. Such a determination must be done via executive order and may be
rescinded by a subsequent executive order if the President determines that Hong Kong has regained
sufficient autonomy to qualify for differential treatment.
In addition, the President may determine whether Hong Kong is legal y competent to carry out its
international obligations or “that the continuation of Hong Kong’s obligations or rights under any such
treaty or other international agreement is not appropriate under the circumstances.” Such a finding must
be reported to Congress. The precise consequences of the President’s exercise of this authority are
unclear, as the statute does not set out what the President may do following such a finding. This may

---

Congressional Research Service
3
reflect the fact that the processes for suspending, terminating, or withdrawing from treaties and other
international agreements differ depending on the terms of the agreements.
When executing his powers under these acts, the President must consult with Congress, a requirement that
reflects the executive branch’s sole authority to recognize governments and their boundaries (i.e., to
recognize that China is not only sovereign over but also controls Hong Kong) and Congress’s role in
certain foreign affairs, including regulating foreign commerce.
Implications of Revoking Hong Kong’s Trade Status
The President has not specified precisely when or how his Administration intends to withdraw Hong
Kong’s trade status under U.S. law. This section discusses several options that the Administration may be
considering under the current legal framework, and the implications of doing so.
Hong Kong’s Customs Status Under U.S. Law
The U.S. Department of Commerce and U.S. Customs Service (now U.S. Customs and Border Protection)
promulgated regulations to continue to treat Hong Kong as a separate customs territory, as it had been
treated while under British control. Under the U.S.-Hong Kong Policy Act of 1992, the President may
issue an executive order suspending application of these regulations if the President determines in that
order that Hong Kong is not sufficiently autonomous to justify this differential treatment.
Absent this separate treatment, Hong Kong may be subject to the same tariffs and other trade
determinations that apply to China. However, there may be questions about whether al such treatment
can be extended immediately if the President revokes Hong Kong’s special status. Some of the
uncertainty arises from whether the United States stil intends to acknowledge Hong Kong as a member of
the WTO separate from China. If the United States intends to continue treating Hong Kong and China as
distinct members, then the United States may impose the same tariffs on Hong Kong as apply to China
only insofar as they are consistent with WTO rules, including the most-favored-nation principle, which
general y requires a WTO member to extend the same trade benefits to al other members. However, if the
United States intends to stop recognizing Hong Kong as a separate WTO member, then it could argue that
these WTO obligations do not apply.
Hong Kong and the WTO
Hong Kong retains its own membership in the WTO (separate from China), as the organization permits
customs territories, in addition to countries, to join. As stated above, the Joint Declaration and Basic Law
permitted Hong Kong to retain its membership in the WTO’s predecessor (i.e., GATT) and carry over this
membership to the WTO in 1995 (which China did not join until 2001). Other nonsovereign customs
territories are also WTO members, including Macao and Taiwan, which has led to what some refer to as a
“One China, Four WTO Memberships” phenomenon.
It is unclear whether the Trump Administration intends to revoke its recognition of Hong Kong as an
independent WTO member. The 2020 State Department Report appears limited to finding that Hong
Kong lacks sufficient autonomy to justify differential treatment “under U.S. law,” and makes no express
finding that Hong Kong is not “legal y competent” to carry out its WTO obligations, or that it would be
inappropriate to continue recognizing Hong Kong as a WTO member. That said, should the Trump
Administration consider taking steps in this direction, there are several legal issues to consider.
First, any actions that President Trump may take under U.S. law do not affect Hong Kong’s status as a
WTO member vis-à-vis other WTO members. In other words, Hong Kong would not lose its WTO

---

Congressional Research Service
4
membership due to any potential U.S. actions to revoke its trade privileges under U.S. law, and other
WTO members are not required to adhere to a U.S. decision on the matter.
Second, the question whether a determination that Hong Kong is effectively no longer
autonomous from China relieves the United States from its international obligations to Hong
Kong is more complex. Hong Kong is not a sovereign State—although its independent legal
personality from China has led some to describe it as a “quasi-State.” Thus, if the United States
concludes that Hong Kong no longer has a separate legal personality or legal capacity from
China, one might argue that the United States no longer needs to respect its WTO obligations to
Hong Kong, as only actors with international legal personality may incur or be owed
international obligations. Hong Kong could, however, argue that it retains its legal personality, at
least with respect to trade, as this status remains in effect under the Basic Law. Thus, if future
U.S. actions raise questions about WTO compliance, Hong Kong could take actions separate and
apart from China against the United States, including raising questions in the relevant WTO
committees, or initiating a dispute by requesting consultations under the WTO’s Dispute
Settlement Mechanism. The United States may refuse to participate in such proceedings, but its
unilateral determination cannot prevent Hong Kong from seeking to assert its rights as a WTO
member.

Author Information

Nina M. Hart

Legislative Attorney




Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

LSB10488 · VERSION 1 · NEW

---