Worry over unintended consequences freights Hong Kong debate

Washington enters tense 'wait-and-see' period with Beijing

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Posted June 19, 2020 at 6:05am

After staking out opposing maximalist positions on the future of Hong Kong in May, the United States and China this summer are in a tense wait-and-see period until Beijing finishes drafting a new national security measure for the semiautonomous territory and moves to enact it, possibly in August or September.

But Washington isn’t just sitting back and waiting for the anti-sedition law, which is expected to criminalize “any acts and activities” that jeopardize China’s national security, to go into effect.

In late May, President Donald Trump said his administration would start the process of curtailing the United States’ special relationship with Hong Kong. That announcement came on the heels of a finding by Secretary of State Mike Pompeo that Hong Kong was no longer sufficiently autonomous from China to warrant separate treatment as specified by the 1992 Hong Kong Policy Act.

Washington treats the island city as separate from mainland China on many matters related to trade, investment, export controls and visas.

Democrats and Republicans on Capitol Hill are weighing many Hong Kong-related bills including bipartisan legislation from Sens. Patrick J. Toomey, R-Pa., and Chris Van Hollen, D-Md., that would gradually impose penalties on foreign banks that do business with certain Chinese government officials involved in the Hong Kong crackdown.

“The Chinese Communist Party in Beijing has been waging an aggressive and systematic campaign that seems designed to eliminate the distinction between the freedoms enjoyed by the people of Hong Kong versus the absence of those freedoms on mainland China,” said Toomey, at a Senate Banking Committee hearing earlier this month to consider his legislation. “Let’s be clear, the Chinese Communist Party wants to bring the people of Hong Kong to heel, lest mainlanders decide that they want some of those freedoms themselves.”

Between this aggressive positioning by Beijing on the one hand and anti-China hawks in Washington on the other, advocates for a less confrontational approach must work extra hard to ensure their views are heard. That isn’t the easiest thing to do in Washington these days. With American public opinion of China at its lowest point in decades, politicians on both sides of the aisle see heaping criticism on Beijing as an easy political win.

Testifying before the Banking Committee, Michael Martin, a specialist on Hong Kong with the Congressional Research Service, urged lawmakers to keep in mind, “what are your goals? What are your intentions?” and to work backward from those answers.

“From what I can see, the People’s Republic of China, with the support of the Hong Kong SAR [special administrative region] government and the chief executive, Carrie Lam, are fully committed to the course of action they have underway,” Martin said. “And it is unclear to me what actions if any, will dissuade them from their current path.”

Growing anti-China views

Craig Allen, president of the U.S.-China Business Council, in an interview said he thought it was a “little bit early” for Pompeo to have certified that Hong Kong was no longer sufficiently autonomous from Beijing. He prefers to see the actual text of the new anti-sedition measure and any accompanying regulations before taking action.

Hong Kong’s preferential trade relationship with the United States is codified in regulations by the Commerce Department and U.S. Customs and Border Protection. Hong Kong’s treatment as a separate customs territory from mainland China can be curtailed if Trump issues an executive order suspending some or all of those regulations.

“I would go back to the litmus test of ‘Does it help the people of Hong Kong or does it hurt the people in Hong Kong?’” Allen said. “And if you use that as a filter, unfortunately, there are not a lot of things that leap to mind that will actually help Hong Kong.”

A powerful counterpoint to arguments like that comes from some of Hong Kong’s most prominent democracy activists, who argue that Hong Kongers have shown through mass protests that they are willing to disrupt their way of life and that of their city’s critical tourism and financial sectors to secure autonomy from Beijing.

“At the end of the day, it’s not just about making money anymore,” Samuel Chu, who was born and raised in Hong Kong and is managing director of the Washington-based Hong Kong Democracy Council, said in an interview. He described many Hong Kong residents’ willingness to jeopardize their city’s position as a global commercial hub if it means securing their political freedoms. “I think that Hong Kongers over the last year have demonstrated that they understand and know that this is in their interest in the long haul.”

Chu said while he supports the “surgical use” of revoking some of Hong Kong’s special privileges, he is supportive of the approach in the Toomey-Van Hollen bill. The legislation would establish a framework for the mandatory sanctioning of foreign banks that continue doing business with Chinese officials who are blacklisted for their involvement in the crackdown in Hong Kong.

“Urging a change in behavior in global financial institutions is a lever that we have to explore in using against China,” he said. “I think that more than ever we are willing to do it now.”

Eric Lorber, senior director with the Center on Economic and Financial Power, which is part of the think tank Foundation for Defense of Democracies, testified that he believed the Toomey-Van Hollen bill could be improved by narrowing the scope of the secondary sanctions on foreign banks and by giving the executive branch more flexibility “to ensure that this pressure does not cause unintended market impacts, significant escalation, or real damage to businesses and international financial markets.”

Though the bill has solid bipartisan support including four Democratic and three Republican co-sponsors, it still has a ways to go.

“While I would support effective calibrated additions to our present sanctions arsenal, an approach that narrowly focuses ... on unilateral U.S. sanctions, including new mandatory secondary sanctions on large foreign banks may be ineffective and have unintended consequences harmful to our strategic interests,” said Democratic Sen. Sherrod Brown of Ohio, the ranking member on the Banking Committee.

Brown said he feared that while lawmakers deliberate over possible new sanctions measures, the Trump administration might use that as an excuse to delay using the powerful sanctions authorities it already has.

Trump “should have made it clear months ago” that he would use his existing powers under multiple human rights laws to sanction Chinese government officials who suppress Hong Kong residents’ political freedoms, Brown said.

Options are many

Testifying before the committee, Peter Harrell, a former deputy assistant secretary of State for Counter Threat Finance and Sanctions, recommended making permanent a one-year export ban on crime control equipment to Hong Kong — mandated by Congress last year — and further prohibiting the sale to Hong Kong of surveillance technologies that can be used to monitor individuals online and in person.

“With Chinese officials drafting the law over the next two months, U.S. policy should make clear the costs China will face after the national security law is enacted,” Harrell, an adjunct senior fellow with the Center for a New American Security, said in his submitted testimony.

One option, Harrell said, is requiring that the Committee on Foreign Investment in the United States treat investments from Hong Kong-headquartered firms the same as investments coming from mainland Chinese companies. CFIUS is an interagency federal panel that assesses how foreign investments in U.S. companies could affect national security.

Washington should also warn that it will direct the Commerce Department to start treating most exports of dual-use goods — things that have commercial and military uses — to Hong Kong as it does sensitive exports to the rest of China. Washington could also announce a phase-in for tariff rates that would gradually treat Hong Kong the same as China on customs matters, according to Harrell.

But at the end of the day if those calibrated threats do not work and China proceeds in ending Hong Kong’s political autonomy, then “as a moral matter and as a message of signaling to Beijing,” Hong Kong should cease to be treated as a separate trade jurisdiction by the United States, Harrell said.

Kurt Tong, a former U.S. consul general to Hong Kong, suggested that the types of punishments that Washington imposes on China should be determined after U.S. policymakers see what is in the final national security measure and its implementing rules.

“The details on this issue are going to matter, the actual details of the national security, law, how it’s implemented, what impact it has on existing patterns of the judicial system’s operation in Hong Kong, all of that is going to be very, very important,” Tong, a partner with the Asia Group consulting firm, said in an interview.

A better scenario, according to Tong, for Hong Kong and the U.S. relationship with the territory would be if Beijing uses narrow and clear definitions of what constitutes things such as sedition and treason while drawing from Hong Kong’s Basic Law by making references to the principles of freedom of speech and assembly.

“There’s no need to change any of the law enforcement systems of Hong Kong in order to implement this law,” Tong said. “There’s no real need for supplementing that with any mainland institutions or personnel.”

A bad outcome would be if the law defines sedition very broadly, leaving it to the eye of the beholder to determine what is allowed and not allowed. “That will be very difficult for Hong Kongers to understand — where the boundaries are in their natural daily activities or the activities of foreign NGOs or journalists or businesses operating according to the way that they’re used to,” said Tong, a retired career Foreign Service officer.