2018 Hong Kong Policy Act Report

In 1993; annually from 1995 through 2007; and in 2015, 2016, and 2017, the Department of State submitted reports to Congress referred to in section 301 of the United States-Hong Kong Policy Act of 1992, as amended (the “Act”). Consistent with section 7019(e) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2018 (Div. K, P.L. 115-141) and Senate Report 115-152, the Department submits a similar report this year. This report highlights key issues from September 2017 through April 2018 and is submitted to update Congress on recent developments in Hong Kong.

Key Findings

 * The United States continues to have deep economic and cultural interests in Hong Kong. Cooperation between the U.S. government and the Hong Kong government remains, in many areas, broad, effective, and mutually beneficial.
 * Certain actions by the Mainland Central Government during the period covered by this report were inconsistent with China’s commitment in the Basic Law to allow Hong Kong to exercise a high degree of autonomy.
 * Hong Kong still generally maintains a high degree of autonomy under the “one country, two systems” framework in most areas – more than sufficient to justify continued special treatment by the United States for bilateral agreements and programs per the Act.

Progress in U.S.-Hong Kong Relations
U.S.-Hong Kong relations are based upon the continued substantial maintenance of the “one country, two systems” framework, as established in the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, as enacted by the National People’s Congress. The Act establishes the policy of the U.S. government to treat Hong Kong as a non-sovereign entity distinct from China for the purposes of U.S. domestic law, based on the principles of the 1984 Sino-British Joint Declaration.

Hong Kong’s strong traditions of rule of law, as displayed by its independent judiciary, low levels of corruption, and high standards for public health and safety, have continued to make Hong Kong a preferred platform for U.S. businesses, as well as an important base for U.S. investments and business activity in the Indo-Pacific region writ large. Hong Kong was ranked the world’s freest economy for the 24th consecutive year on the 2018 Heritage Foundation Index of Economic Freedom. However, for the same year, Freedom House continued to rate Hong Kong as only “partly free” for political rights and civil liberties.

Trade, commerce, and finance: The United States recognizes Hong Kong as a separate customs territory. More than a dozen U.S.-Hong Kong bilateral agreements are in force, helping to provide the legal underpinning for the extensive and mutually beneficial economic relationship between the United States and Hong Kong. The World Bank lists Hong Kong as the world’s 33rd-largest economy (ranked at 14th on a per capita basis).

Hong Kong is a major international financial center, with a U.S. dollar peg. More than 1,400 U.S. firms operate in Hong Kong, and most leading U.S. financial services firms are represented there.

U.S. trade relations with Hong Kong are very strong. Two-way trade in goods and services totaled an estimated $68.9 billion in 2017. The United States enjoyed its largest bilateral trade surplus world-wide with Hong Kong, at $34.5 billion, as exports totaled $51.7 billion and imports were $17.2 billion. U.S. exports of goods and services to Hong Kong supported an estimated 188,000 U.S. jobs in 2015 (latest data available). Hong Kong’s trade and investment policies were based on free market principles, although there were a few areas that could be improved (see the National Trade Estimate for more details).

Looking specifically at goods trade, in 2017 the United States’ bilateral surplus was $32.5 billion. Hong Kong counted the United States as its second-largest goods trading partner, while Hong Kong ranked ninth-largest among U.S. goods exports destinations. In 2017, Hong Kong was the fourth-largest market for U.S. exports of consumer-oriented agricultural products, valued at $4.3 billion, representing a 10 percent growth from 2016. Top-selling items included $1.3 billion in tree nuts, $884 million in beef and beef products, $469 million in poultry meat and products (excluding eggs), $415 million in pork and pork products, $292 million in U.S. fresh and dried fruits, and over $100 million in U.S. wine exports to Hong Kong.

Hong Kong continues to participate separately from Mainland China in a number of multilateral organizations and agreements, including the Asia-Pacific Economic Cooperation forum, the World Trade Organization, the Financial Action Task Force, and the Financial Stability Board. Hong Kong’s legal requirement for Central Government “sovereign assent” for certain forms of international liaison has at times hindered cooperation, but not during the reporting period.

An estimated 85,000 U.S. citizens live in Hong Kong, while 1.3 million visited or transited in 2017. Hong Kong remains one of the safest cities in the world, with low rates of crime, in part due to the admirable effectiveness and integrity of its police force. Approximately 127,000 Hong Kong residents visit the United States each year, and the number of direct flights between Hong Kong and the United States, which has reached more than 20 flights per day, is continuing to expand.

Law enforcement cooperation: U.S. federal law enforcement agencies continue to have strong and valuable cooperation with the Hong Kong Disciplined Services, which include police, customs, and immigration elements. The Hong Kong Disciplined Services help to disrupt the flow of contraband, including narcotics such as fentanyl and synthetic opiates, between East Asia and the United States. The United States provided information regarding shipments entering Hong Kong, which generated 38 arrests and multiple seizures of contraband, to include 485 pounds of illegal drugs, more than 40,000 counterfeit items, and more than 6,500 firearm parts and ammunition. The United States has assisted in Hong Kong’s identification of drug trafficking organization cells operating in Hong Kong and East Asia that could affect the United States. Meanwhile, the Hong Kong Police Force has recently stepped up its assistance to try to stop millions of dollars of illicit fund transfers from United States victims to and through Hong Kong banks.

Hong Kong generally remains a good partner for fugitive surrender and sharing of evidence in criminal cases. In October 2017, however, the Hong Kong Chief Executive turned down a U.S. fugitive surrender request at the behest of the Central Government, and released the detainee into Central Government custody on the basis that the Central Government is pursuing a separate criminal action. This was the first such instance since 1997. The Central Government has provided no information as to the disposition of its own case against the individual. Hong Kong also has yet to enact certain laws that would improve identification of high-risk travelers and fully implement recommendations in United Nations Security Council resolutions on counterterrorism.

U.S. Navy activities: With approval from the Central Government, Hong Kong received two port calls from three U.S. Navy ships between September 2017 and April 2018, including the USS Ronald Reagan. Engagement between U.S. military forces and the Hong Kong Disciplined Services continues, with a focus on counterterrorism.

Export controls: The United States cooperates closely with Hong Kong on strategic trade controls and counter-proliferation initiatives. In December 2017, the U.S. and Hong Kong governments held their annual meeting on counter-proliferation cooperation in the areas of threat assessment, finance, licensing, and enforcement. The Hong Kong government is obligated to implement United Nations sanctions adopted by the Central Government, but has yet to incorporate Security Council resolutions 2270, 2321, 2371, 2375, and 2397 into its Sanctions Ordinance, inhibiting full North Korea sanctions enforcement. The U.S. Department of Commerce, which employs a full-time Export Control Officer to conduct end-use checks, industry outreach, and government liaison work, continues to raise concerns about the diversion of controlled items, including during its annual bilateral discussion about strategic trade controls. The U.S. and Hong Kong governments have taken steps together to tighten licensing requirements as well as holding joint seminars for industry groups, publishing due diligence guidance to raise industry awareness about transshipment risks, and cooperating on ongoing investigations.

Unlike Mainland China, Hong Kong is also eligible to receive controlled U.S. defense articles sold via direct commercial sale. The Department of State, which licenses commercial sales of such articles under the International Traffic in Arms Regulations, ensures compliance via its Blue Lantern end-use monitoring program, and works with the Hong Kong government to reduce the risk of diversion.

Cultural, Scientific and Academic Exchanges: The United States enjoys excellent academic, cultural, educational, and scientific exchanges with Hong Kong, including short-term visits by U.S. faculty, summer programs for students, and exchanges of faculty and staff. Hong Kong ranks 23rd as a source of foreign students in the United States. During the 2016-17 academic year 7,547 Hong Kong students were studying at U.S. colleges and universities, contributing $300 million to the U.S. economy. Hong Kong hosts more than 1,600 American students each year, including American undergraduates in the Gilman Scholarship program. In 2017, ten Hong Kong residents were selected as Fulbright students and scholars, and Hong Kong hosted 11 U.S. Fulbright students and scholars and two Fulbright specialists. During the same period, 14 Hong Kong residents were selected to participate in the State Department’s International Visitor Leadership Program.

Media: Freedom of expression remains open in Hong Kong. The Special Administrative Region’s online environment remains free, although journalists assess that many media outlets practice a degree of self-censorship for both commercial and political reasons. Many media outlets are owned by companies with business interests on the Mainland. Further, as noted in the most recent Country Reports on Human Rights, certain Hong Kong and Central Government actions and statements have raised the perceived risks associated with expressing dissenting political views.

Other Matters Affecting U.S. Interests in Hong Kong
Autonomy: Hong Kong’s highly developed rule of law, independent judiciary, and respect for individual rights are fundamental to its way of life, as well as its economic prosperity, and are only made possible by Hong Kong’s high degree of autonomy. Throughout the reporting period, Central Government authorities emphasized that the Hong Kong Basic Law is subordinate to the Mainland Constitution, and issued public statements that diluted the concept of “high degree of autonomy” and the freedoms contemplated in the Basic Law. For example, in November 2017, Chair of the Basic Law Committee Li Fei said that the Central Government “jointly administers” Hong Kong, and that the Central Government will decide policy for Hong Kong in “some important matters” while “more local matters are dealt with by local authorities,” thereby blurring distinctions made clear in the Basic Law.

Several high-profile court cases over the reporting period demonstrated that Hong Kong’s judiciary still remains predominantly independent and professional. For example, the Court of Final Appeals overturned jail sentences for prominent student activists Joshua Wong, Nathan Law, and Alex Chow, while better clarifying the distinction between civil disobedience and violent protest for sentencing purposes. While the Central Government publicly and frequently reiterated its commitment to the “one country, two systems” framework over the reporting period, including via statements by President Xi Jinping, other statements and actions by the Central Government were inconsistent with its stated commitment to Hong Kong’s high degree of autonomy.

In November 2017, the National People’s Congress Standing Committee (NPCSC) passed a law criminalizing abuse of the national anthem or flag, and stipulated that the law be adopted by Hong Kong via Annex III of the Basic Law. In December 2017, the NPCSC approved a plan to place Mainland security agents and apply Mainland law to a discrete area in the West Kowloon Express Rail Link train station.

In December 2017, the Hong Kong government concluded an agreement with the Central Government to improve notification procedures governing cross-border detention cases. The agreement was prompted by the 2015 disappearance of five Hong Kong booksellers, in which it appeared in one instance that the Central Government bypassed Hong Kong law enforcement agencies to pursue an individual inside Hong Kong. (The Department of State has no information that indicates that Hong Kong agents, persons, or entities were involved in the disappearances.) During this reporting period, some U.S.-based non-governmental organization employees have reported being under surveillance by unidentified persons, presumed to be Mainland agents.

In October 2017, United Kingdom politician and human rights activist Benedict Rogers was denied entry into Hong Kong. The Basic Law refers to immigration controls as the responsibility of the Hong Kong Special Administrative Region government. The United Kingdom noted in its semi-annual report on Hong Kong that “In this case, the [Mainland] Government, not the Hong Kong SAR Government, instigated the process.” The Hong Kong Chief Executive explained the action by noting that “issues relating to foreign affairs were involved in the immigration process.” During this reporting period, the political activities and statements of the Central Government Liaison Office in Hong Kong continued to exceed the range of involvement that appears to be contemplated in Article 22 of the Basic Law.

Development of Hong Kong democratic institutions: On November 7, 2016, the NPCSC issued an interpretation of Basic Law Article 104, which requires all Hong Kong government officials, when assuming office, to swear to uphold the Basic Law and swear allegiance to the “Hong Kong Special Administrative Region of the People’s Republic of China.” The NPCSC had full legal authority to issue this interpretation, but it did so even while the Court of First Instance was still considering judicial review petitions filed against two legislators-elect on the grounds that they had incorrectly taken their oaths of office. The United States at the time criticized the NPCSC preemptive interpretation as unfortunate and unnecessary. As a result of the interpretation, Hong Kong courts disqualified six pan-democratic legislators elected in 2016 for improper oath-taking; two still have appeals pending.

By-elections for the vacated Legislative Council seats were conducted on March 11, 2018 in a manner consistent with the Basic Law. Hong Kong election officials barred three candidates from competing in the by-elections on the basis that their political views did not accord with the Basic Law. Agnes Chow was barred because her political party advocated “democratic self-determination” for Hong Kong. Ventus Lau and James Chan were barred for their prior advocacy of Hong Kong independence. After the by-election, in March 2018, Tam Yiu-cheng, Hong Kong’s only NPCSC representative, stated his “personal view” that criticism of the Communist Party of China by Hong Kong Legislative Council candidates “may not be in line with the Constitution.” His statement was widely criticized in political circles. Pan-democratic candidates only regained two of the four seats contested in the election, all of which had originally been held by pan-democratic legislators.

Hong Kong Policy Act Findings
There were no suspensions under section 202(a), terminations under section 202(d), or determinations under section 201(b) of the Act during the period covered by this report.