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On June 29, 2020, the U.S. Departments of State and Commerce each announced the revocation of certain export control regulations that afforded preferential treatment to Hong Kong over China. The revocation came in response to China’s passage of a national security law designed to broadly criminalize anti-government activities in support of Hong Kong independence. In a press statement, the Department of State announced that the United States would “end exports of U.S.-origin defense equipment and will take steps toward imposing the same restrictions on U.S. defense and dual-use technologies to Hong Kong as it does for China” and that “the United States is reviewing other authorities and will take additional measures to reflect the reality on the ground in Hong Kong.”1 The Department of Commerce released a similar statement, in which it suspended the availability of export license exceptions under the Export Administration Regulations (EAR) for Hong Kong that are not available for China. In addition, the Commerce Department said, “[f]urther actions to eliminate differential treatment are also being evaluated.”2 Meanwhile, on July 2, U.S. sanctions over the national security law appeared imminent as the Senate unanimously passed and sent to President Trump for signature legislation to impose sanctions on businesses and individuals that help China restrict Hong Kong's autonomy.

The shifts in export policy by the U.S. State and Commerce Departments are only the most recent events in a series of continuing developments and escalating tensions regarding international trade between China and the United States. Below, we discuss some of the changes in export controls and other trade-related actions taken by both countries over the past several months that led to this week’s imposition of restrictions on Hong Kong.

A. Export control developments in China

In recent years, Chinese regulators have worked to establish an export control system within China. Currently, China’s export controls are administered and enforced by various government agencies, including but not limited to the Ministry of Commerce (MOFCOM), the Chinese Customs Bureau (CCB) and the State Council and Central Military Commission (SCCMC), but without a unified underlying law. In 2017, China released a first draft of its Export Control Law (ECL) for public comment. On Dec. 28, 2019, China released a second draft of the ECL, which is based largely on international standards and standards adopted by other countries, or as countermeasures to foreign sanctions or enforcements. In addition to the ECL, China has taken steps to establish an Unreliable Entity List (UEL), a restricted party list targeting companies that Chinese regulators deem to have taken boycott measures or any other specific discriminatory actions against Chinese companies. Lastly, on June 30, China passed new national security measures for Hong Kong. All of these measures are discussed in more detail below.

1. China’s Export Control Law

Legislators in China are working to establish China’s ECL. The ECL is drafted based on China’s existing Foreign Trade Law and relevant administration laws (for example, Administration of Chemicals Subjected to Supervision and Control), as well as relevant provisions under Chinese customs and criminal law.

i. Items for nuclear and military use will be subject to the ECL

The draft ECL combines and revises relevant provisions in six administrative regulations: 1) Administration of Chemicals Subjected to Supervision and Control; 2) Regulations on Nuclear Export Control; 3) Regulations on Export Control of Military Items; 4) Administration of the Export of Dual-Use Nuclear Facilities and Related Technologies; 5) Regulations on Export Control of Missiles and Missile-related Items and Technologies; and 6) Regulations on the Administration of the Export of Dual-Use Biology Facilities and Related Technologies.