U.S. Commerce Department Imposes New Document Requirements on U.S. Companies Doing Business in Hong Kong
The Commerce Department’s Bureau of Industry and Security (BIS) recently published a rule that will soon impose new documentation requirements on companies that ship certain goods to, or re-export certain items from, Hong Kong. The rule is slated to take effect on April 19, 2017; therefore, affected companies will have a little time to adjust their operations and processes to the new requirements. The new rule will impact:
Physical shipments of commodities, software and technology from the U.S. to Hong Kong;
Intangible transfers, such as electronic exports or downloads of software and technology by parties in Hong Kong;
Exports of items from the U.S. to customers for end-use in Hong Kong;
Exports of items from the U.S. to Hong Kong distributors and re-sellers; and,
Exports of items to related parties and affiliates in Hong Kong.
What the New Documentary Requirements Entail
As noted above, the new rule will affect U.S. exporters and companies that reexport certain items from Hong Kong to third countries. First, U.S. exporters must obtain from their customers/distributors/re-sellers/affiliates in Hong Kong a copy of a valid Hong Kong import license covering the items that they are shipping. If a Hong Kong import license is not required, a written statement from the Hong Kong government confirming that no license is required must be obtained—this “written statement” may include the Hong Kong government’s response to an import license application stating that no license is required or even a printout from a Hong Kong government website that publicly states that such licenses are not required.
Second, companies that intend to reexport items that are subject to the U.S. Export Administration Regulations (EAR) from Hong Kong to third countries will be required to obtain a copy of the original import license or the above-referenced written statement from the Hong Kong government (that no license is required). Reexporters must also obtain an export license from the Hong Kong government or a statement that no such license is required. It should be noted that the Hong Kong import license must still be valid and in effect when the items are subsequently reexported from Hong Kong to third countries.
The rule applies to U.S. exports that are authorized under a BIS export license as well as those that are being shipped under a license exception in Part 740 of the EAR. The documentation described above must be obtained and maintained for a period of five years as specified by the record keeping requirements found in Part 762 of the EAR.
Items Covered by the New Rule
The new rule will apply only to commodities, software and technology that are subject to the EAR (i.e., purely commercial items, dual-use items and certain munitions items) and which are classified in Export Control Classification Numbers (ECCNs) that are controlled for the following reasons under the Commerce Control List (CCL):
National Security (NS);
Missile Technology (MT);
Nuclear Proliferation (NP Column 1 of the Commerce Country Chart); or,
Chemical and Biological Weapons (CB).
Companies that export to Hong Kong should review their export classification data repositories (or otherwise confirm the CCL classifications of the items that they ship to Hong Kong) to confirm whether they have anything that would bring them within the scope of the new rule.
Amendments Made to the EAR
The specific requirements for the new rule can be found in the EAR at: (a) Section 7402.(a)(19) for companies exporting to Hong Kong under a License Exception; (b) Section 748.13 for companies exporting to Hong Kong under a BIS export license; and, (c) Sections 740.2(a)(20) and 748.13 for reexports from Hong Kong. To read the new rule in its entirety, click here.
The BIS is implementing the new rule to ensure that items that are subject to the EAR are properly authorized by the U.S. government to their final destination—even when those items first pass through Hong Kong. Because Hong Kong’s import and export laws already impose licensing requirements on companies, the BIS stated that the new rule should not impose any additional licensing requirements on the parties to their transactions. Rather, the new rule will only require the Hong Kong parties to provide copies of licenses or written statements from the Hong Kong government to U.S. companies as discussed in greater detail above.
Again, the rule will not take effect into mid-April 2017; therefore, companies that export covered items to Hong Kong still have time to update their processes by identifying the items and supply chain channels that will be impacted, updating their documented policies and procedures to give effect to the new rule, communicating the new requirements to their supply chain partners in Hong Kong, and amending existing agreements as necessary to reflect the new rule (e.g., sales terms and conditions, distributor agreements, etc.).