US’ perverse bullying of Hong Kong on trade will prove counterproductive



Stuart Harbinson | South China Morning Post

Last week, US President Donald Trump determined – in an executive order on so-called Hong Kong Normalisation – that the Special Administrative Region (SAR) is no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China under various American laws.

Lurking at the bottom of a list of laws is the innocuous sounding “section 1304 of title 19, United States Code”. No details are provided.

This seemingly obscure provision in fact ends Hong Kong’s status as a separate entity for country of origin marking purposes.

It means goods made in Hong Kong and shipped to the US in future will need to be marked as “Made in China”, and while details of its implementation are awaited, it paves the way for Hong Kong exports to be subject to the additional customs duties already imposed on Chinese exports as a result of the trade war.

These additional duties go way beyond the US tariff ceilings at the World Trade Organisation (WTO). Hong Kong is a WTO member in its own right, as a separate customs territory and its trade regime is widely recognised as being distinct from the mainland’s.

In the trade sphere, there are three criticisms that might be made.

First, this looks like disgraceful bullying by the most powerful nation in the world against a small, largely defenceless and very open economy.

Second, it is perverse and hypocritical. How can anyone believe the US’ pious homilies about the need for more market-oriented conditions in the world trading system when they then whack an open trading economy like Hong Kong? Hong Kong came top of the Heritage Foundation’s Index of Economic Freedom for 25 years running between 1995 and 2019, and was second in 2020.

Third, and perhaps most importantly, it is counterproductive. It brings about the very situation that the US claims it wants to avoid – namely, conflation of Hong Kong trade policy with that of the mainland, leading to further erosion of the SAR’s autonomy.

According to the executive order, “the situation with respect to Hong Kong” constitutes an unusual and extraordinary “threat”, requiring the declaration of a “national emergency”. The additional customs duties will be justified by the US under the General Agreement on Tariffs and Trade’s (GATT) exception for measures to protect essential security interests, taken during an emergency in international relations.

Quite how normal trade with Hong Kong under the GATT’s “most favoured nation” clause on non-discrimination threatens the US is baffling. We all know how much emphasis the current US administration places on trade balances. In 2018 the US enjoyed a surplus of US$31 billion in its goods trade with Hong Kong – its highest surplus with any economy in the world.

The SAR government’s response remains to be seen. Retaliation against imports from the US may be tempting but seems unlikely given Hong Kong’s long attachment to free trade. The US knows that, which makes its action look even more like a cheap shot.

Another option – after the deed has been done – would be to take the first steps towards formal dispute settlement proceedings in the WTO.

Trade disputes take a long time to come to a conclusion. And the US is currently in no mood to observe WTO niceties – except when it’s the complainant. But at least Hong Kong would have signalled a determination to stand on its principles. That would also shore up its position with other trading partners.

Hong Kong’s trading status with the US is often characterised, even in Hong Kong, as “special” or a “privilege”. That may be the view from Washington but there’s no need for people in the SAR to be so subservient.

Hong Kong has rights under an international treaty called the WTO Agreement. What’s the point of having those rights if you do not invoke them when you need them?

Stuart Harbinson served as a senior Hong Kong government trade policy official and negotiator in the 1980s and 1990s. He was Hong Kong’s representative to the World Trade Organisation (WTO) from 1994 to 2002, after which he became chief of staff to WTO director general Supachai Panitchpakdi and then special adviser to his successor, Pascal Lamy. He is a fellow of the Asia Global Institute and the European Centre for International Economic Policy, and a senior consultant on international trade for Hume Brophy.

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