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Thursday, Jan 21, 2021

Hong Kong’s WTO threat against US ‘Made in China’ ruling puts city in uncharted waters

Hong Kong’s WTO threat against US ‘Made in China’ ruling puts city in uncharted waters

Hong Kong confirms intention to launch a World Trade Organisation case over Donald Trump’s order requiring ‘Made in China’ labels on goods exported from the city to the United States
On April 24, 1986, when Hong Kong became an independent member of the global trading system in its own right, Michael Cartland stood up from his erstwhile British colleagues within the European Community’s delegation and walked over to take Hong Kong’s seat between Haiti and Hungary.

More than a third of a century later, Hong Kong is facing an existential crisis in the system in which it has thrived for decades.

In response to sweeping national security legislation that has placed question marks on Hong Kong’s autonomy, Washington has begun to strip away the city’s special trading status.

Goods made in Hong Kong for export to the United States must be labelled as “Made in China” from September 25. And the city will no longer enjoy unfettered access to sensitive technology due to US export controls on China being broadened to include Hong Kong, while many think additional tariffs on Hong Kong’s exports will follow in due course.

On Thursday, a Hong Kong Commerce and Economic Development Bureau spokeswoman told the South China Morning Post that it “will take action against the US under the WTO dispute-settlement mechanism to defend our separate customs territory status and protect our interests”, adding that the US rules on labelling flout “Hong Kong’s status as a separate WTO member”.

Citing articles 116 and 151 of the Basic Law, which “provide that the HKSAR is a separate customs territory”, she said that it will seek bilateral consultations with the US, which will proceed to a panel dispute at the World Trade Organisation should the talks fail.

This is uncharted territory for Hong Kong, one of the world’s most open economies, which has only once been the sole sponsor of a WTO suit – when it requested consultation on Turkey’s garment import quotas in 1996. The Hong Kong government is said to be formulating what kind of complaint it will lodge, and lawyers at the WTO have “heard no rumblings as yet”, sources said.

But in a city often defined by free trade, there are conflicting views as to whether taking on the world’s most powerful economy is the best course of action.

“I think it is a mistake,” said Cartland, now retired in Hong Kong after having spent decades representing the city, first via the General Agreement on Tariffs and Trade (GATT) in the late ’80s, then as a judge at the WTO. “It is a hornet’s nest that we might kick; the result could be worse. My advice would be: don’t stir things up, [Donald] Trump could easily just make things much worse for Hong Kong.”

But others say Hong Kong must stand up for its rights as a separate WTO member, as a matter of principle.

“Hong Kong people need a legal compass for trading, and the Hong Kong government should take a lead on that. We can’t say: ‘Trump says this, there is nothing we can do about it.’ So, what rules apply? Or are there no rules? We can’t just act like any other mainland city because Trump has redefined us as that,” said Alan Hoo, a pro-establishment politician and chairman of the city’s Basic Law Institute.

In interviews with more than a dozen trade scholars, politicians, diplomats and lawyers, a majority said there is a legal case for the US to answer to, with multiple articles in the GATT and WTO covering potential infringements on labelling, tariffs, export controls and autonomy, even if victory would not be guaranteed.

“I see potentially multiple violations of WTO rules in the US action – a number under the GATT and the Agreement on Rules of Origin, and possibly the Agreement on Customs Valuation as well. If they really want to preserve Hong Kong’s autonomy, they have a funny way of showing it – hacking away at one of the main pillars,” said Stuart Harbinson, previously Hong Kong’s permanent representative at the WTO, and a strong supporter of action against the US.

Representatives of other trading partners in the city who have been privately critical of the national security law also acknowledged Hong Kong’s WTO membership, with the implication that they would not follow America’s lead. “We are rule-abiding,” said one official, in an apparent dig at Washington’s unilateral assault.

Angered by Trump’s erosion of Hong Kong’s special trading status, proponents of action insist that the Hong Kong government must act quickly.

“Just because it is a labelling issue right now doesn’t mean it won’t be a prelude to something else,” said Chin Leng Lim, a law professor at the Chinese University of Hong Kong (CUHK). “If someone comes onto your land, you don’t make a fuss about it. Tomorrow they pitch a tent, and you think, ‘I don’t go to that part of my land anyway’. Before you know it, there’s a settlement, and when you say, ‘Get off my land’, they might say they’ve been here for a long time and nobody complained before. So, there is a point of principle, but there is also a practical element to this.”

Hoo urged the government to be more aggressive in defending the city’s rights under Chapter 5 of the Basic Law, which he described as the most “capitalistic” document you will find anywhere in the world.

“The Hong Kong government is going around like a half-decapitated chicken claiming it has still got its head,” Hoo added, accusing the leadership of failing to pre-empt an escalating situation. “Where is the task force on this?”

But there is also a group of trade watchers urging caution. They do not necessarily dispute the validity of a case, more the practicality and desirability of the process. WTO action could invite further ire from a Trump administration that wants to be seen as being tough on China ahead of November’s presidential election.

Hong Kong might also be inviting an international audience to sift through its relationship with Beijing, raising questions as to whether the spoils of victory would even be worthwhile.

Julien Chaisse, a trade professor at City University of Hong Kong, said that this sort of “Pandora’s box scenario” would emerge if the government brought a case under Article 26.5.c of the WTO’s founding document, which enshrines fair treatment for any member that “possesses or acquires full autonomy in the conduct of its external commercial relations”.

But even if Hong Kong raised a case on other trade-specific grounds, as is more likely, the US could request broadening it to include a forensic analysis of Hong Kong’s autonomy.

“This would need to be sanctioned by Beijing … I don’t think that they will want this to be litigated in public,” said Henry Gao, a professor of trade law at the National University of Singapore. “If I was a Hong Kong government official, I would not want to make such a hoo-ha.”

Rambod Behboodi, a former Canadian government trade official now at law firm King & Spalding in Geneva, cites the example of Canada bringing a WTO case against France over a ban on asbestos, which was a major Quebecois export. Canada ended up losing the case, but the process in itself was even more damaging for Ottawa, Behboodi said, since it highlighted the government’s determination to support the sale of toxic materials.

“This was a cautionary tale about airing your dirty laundry in public. A WTO case could expose more about the Hong Kong-China relationship than they want,” Behboodi said. “The US will have a year and a half of solid material showing Hong Kong may not have independent policies to Beijing. Does the Hong Kong government want that evidence judged by an international tribunal?”

Then there is the fact that the WTO itself is in a state of disarray. Without a functioning WTO appeal court, the US could just keep appealing if it lost. Even a victory may be a pyrrhic one, given that there are few retaliatory options.

“So, if Hong Kong decides to put tariffs on the US – which would be a first – what does it target? Consumer products or food? What kind of message does that send about Hong Kong? And who would it hurt, the US or Hong Kong consumers,” asked Bryan Mercurio, a trade law professor at CUHK.

The Hong Kong government’s statements since the US announced the end of “Made in Hong Kong” goods have been ferocious. In a statement sent to the Post, a spokeswoman said that the “US’ actions have demonstrated its double standards and hypocrisy, seriously violating international law and the basic norms underpinning international relations, and are despicable”.

Through all the tumult of the past year, Hong Kong has tried to maintain its image as a bastion of free trade, and US efforts to wipe this out appear to have stung as much as any of the international criticism that has come the city’s way since last summer.

Felix Chung, the leader of the Liberal Party, among the most pro-free trade of Hong Kong’s political groupings, summed up the dilemma facing the government: “In reality, this action is totally useless. Even if we win, it will come a few years later, and even then the US can ignore it – it is too big, too strong.

“It is symbolic action, but the government has to do something. At least making a complaint will tell the whole world that we are protecting our reputation.”
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