Exported goods from Hong Kong to the USA will be labeled “Made in China”
According to the US government’s draft notice, goods manufactured in Hong Kong for export to the United States must be labeled “Made in China” after September 25.
This move, in line with the suspension of the Hong Kong Policy Act of 1992 and the enactment of a U.S. presidential decree Donald Trump about «Hong Kong normalization», would cause Hong Kong companies to be subject to the same trade war tariffs as mainland Chinese exporters if they manufacture products subject to those duties.
On August 11, a notice will be posted on the U.S. federal registry stating that «45 days after the date of publication» products «must be labeled to indicate their origin is China». This step «triggered by the determination that Hong Kong is no longer autonomous enough to warrant differential treatment with China».
This will be another blow to Hong Kong’s struggling economy and to the highly profitable, albeit small, urban exporting base. Goods that do not meet the requirements will be subject to a 10 percent penalty at US ports.
Hong Kong has a higher trade deficit with the US than any other economy, although it fell 16% last year up to $ 26 billion. From January to May of this year, Hong Kong’s exports to the United States fell 22.3% in volume terms from a year earlier..
Hong Kong is a much more important re-export center than an independent center for direct trade. Its economy is very different from that of the 1970s and 80s, when manufacturing was its mainstay. Now only 1% of goods shipped from Hong Kong are produced in the city, which instead serves as a logistics gateway to mainland China – both for goods produced there and for those traveling there..
Domestic exports to the U.S. in 2019 totaled $ 471 million, or 0.1% of total outbound shipments, including re-exports, according to the City Council for Trade and Development..
At the same time, jewelry accounted for 48.5% of exports from Hong Kong to the United States in value terms in the first half of the year. The second most valuable sector was food, which accounted for 10.7% of domestic supplies.
Under the current tariff regime, jewelry is subject to a 7.5% duty on exports to the United States from China – a duty that has been halved from 15% following the first stage of a trade deal signed in January..
John Marrett, lead analyst for Hong Kong at the Economist Intelligence Unit, said that «by and large this is clearly not good, but it does not mean much, because in general – the total cost is negligible».
The city’s economy contracted 9% in the second quarter of 2020 from a year earlier, just below the record 9.1% decline in the first quarter. Now, amid strict social distancing and measures to contain the coronavirus, the city remains under strong economic pressure..
«The change also raises concerns that goods manufactured or substantially transformed in Hong Kong would be treated as being manufactured in China to qualify for Section 301 trade duties that the US currently levies on goods originating in China.», – noted by experts in commercial law Sandler, Travis and Rosenberg.
Currently, US trade duties apply exclusively to $ 550 billion worth of Chinese goods. Adding Hong Kong-made goods to this volume would expand it, albeit slightly.
Analysts say the most significant US trade action against Hong Kong in recent weeks has been the rollout of export controls. This means that importers in the city cannot access some of the sensitive American technology. It could hinder university research and even access to consumer technology, analysts and industry representatives warn..
Arthur Lee Kam-hun – CEO Hong Kong X’tals, a manufacturer of high-tech components used in 5G base stations and autonomous vehicles. His firm sells some products from Hong Kong, but he said the new regulations won’t affect him much as the company has already distanced itself from «outdated» and «unstable» American market.
«Regarding our traditional components [quartz crystal] which are sourced from the mainland, 25% of the US trade duties [already] apply to our products [and] are paid by our US customers. But the US market is very small for our business as we focus on Chinese and European customers», – he said.
Lee added that the trade war has forced him to diversify sources of supply of some materials outside the United States, but Trump’s policies and sanctions are forcing him «extremely worry» on how to do business with the USA. «We will refrain from any investment or sourcing in the US market.», – he said.
The company had already planned to put in place several spare production facilities for its operations in Hong Kong to counter the risk of severe disruption to the city’s economy by the coronavirus..
«These plans are unlikely to change regardless of whether the US introduces new trade duties and changes the label. “Made in Hong Kong” on “Made in China” or not», – said Lee.
Last week, the United States began to impose sanctions on top Hong Kong officials, including the CEO Carrie Lam Cheng Yuet-ngor, for the enactment of the national security law, which was called a violation of the governance model «one country, two systems».
Hong Kong police also arrested pro-democracies in the city this week under a sweeping new law, including a prominent media mogul Jimmy Laya Chi-in, arrested on monday.