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The US’ ending of a bilateral treaty covering taxes on shipping could adversely affect the decisions of firms looking to make Hong Kong their home base, an academic says. Photo: Bloomberg

National security law: US stands to lose just as much or even more by suspending three bilateral treaties, Hong Kong warns

  • Government spokesman says the treaties are not a question of ‘preferential treatment for Hong Kong’, as characterised by the Trump administration
  • US has suspended agreements on surrender of fugitive offenders, transfer of sentenced persons, and reciprocal tax exemptions for shipping firms

Hong Kong has warned the US stands to lose just as much or even more by suspending three bilateral treaties on the extradition of fugitives and sentenced criminals along with tax exemptions for the shipping industry, amid concerns that the city’s maritime hub status would also be hit.

In a “severe reprimand” issued by the government on Thursday, a spokesman said the treaties were not a question of “preferential treatment for Hong Kong”, as characterised by US President Donald Trump’s administration in punitive action over Beijing’s imposition of the new national security law on the city.

“They are bilateral agreements negotiated in good faith to benefit the peoples and businesses of both sides in areas of law and order, shipping and tax treatment. The US’ unilateral decision reflects its disrespect for bilateralism and multilateralism under the current administration and should be condemned by the international community.”

The decision to end a bilateral agreement related to taxes on shipping will result in double taxation for US firms, the Hong Kong government has argued. Photo: Winson Wong

Chinese foreign ministry spokesman Zhao Lijian voiced Beijing’s support for Hong Kong’s strongly worded response.

The city government said it had, under instructions from Beijing, informed the US consulate that it would suspend the treaties accordingly.

Beijing said it had also suspended Hong Kong’s agreement with the US on mutual legal assistance in criminal matters in retaliation for Washington’s “erroneous move”.

The Hong Kong government said: “The move by the US does not only smack of political manipulation and double standards, but is also gross interference in China’s internal affairs and a grave violation of international law and basic norms governing international relations.”

US suspension of tax deal leaves shippers sailing into sea of uncertainty

The US State Department on Wednesday suspended the treaties on the surrender of fugitive offenders, the transfer of sentenced persons, and reciprocal tax exemptions for shipping companies.

It marked a further deterioration in US-China relations since Beijing imposed the sweeping law banning acts of succession, subversion, terrorism and collusion with external forces to harm national security.

US allies Australia, Canada, New Zealand, Germany, France and Britain have also suspended their extradition treaties with Hong Kong in recent weeks.

“The HKSAR government strongly objects to and deplores the US’ action, which is widely seen as a move to create troubles in the China-US relationship, using Hong Kong as a pawn,” the government said.

The US move is yet another knock-on effect of President Donald Trump’s decision to sign an executive order declaring Hong Kong ‘no longer sufficiently autonomous’ from the mainland. Photo: EPA

The US State Department said it was following up on Trump’s July 14 executive order declaring that Hong Kong was “no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China”.

Earlier this month, Washington also sanctioned the city’s leader and 10 other current and former Hong Kong and mainland officials for their involvement in the imposition of the national security law.

In making its point that the suspension of the extradition treaty would “have greater impact on the US’ enforcement operation”, the government cited figures showing that since the agreement was signed with Washington in 1998, a total of 69 fugitive offenders had been surrendered to the US, and 23 to Hong Kong.

Outgoing EU envoy says national security law has cost Hong Kong

Since the crimes committed by fugitive offenders were mostly serious, such as murder, drug trafficking and rape, the spokesman said, allowing them to evade justice meant “the US will need to be answerable to the rule of law, to the American people and to the international community at large”.

The government also warned that US companies would suffer most from the suspension of the agreement on tax exemptions for international shipping that have been effective since 1989.

“The termination of the agreement increases the operating costs of the shipping companies concerned, in particular, the US companies, as they will be subject to double taxation. It would hamper the development of the shipping sector between Hong Kong and the US, and is to nobody’s interest,” the spokesman said.

Beijing’s imposition of a national security law on Hong Kong has amplified ongoing tensions between the US and China. Photo: Sun Yeung

With no details on when the suspension would take effect, US-Hong Kong container shipping businesses were left in a sea of uncertainty.

“They face great uncertainty and even anxiety due to the sudden changes to the arrangement that has been put in place for more than 30 years,” said Louis Chan Wing-kin, the Hong Kong Trade Development Council’s assistant principal economist in global research.

“There are collateral impacts on Hong Kong and the US shipping firms, shipowners, ships that use the city for repairs and maintenance, and the shipping companies will have to recalibrate tax obligations.”

Chan said this would add to the woes of global trade, already reeling from the Covid-19 pandemic.

The United States was Hong Kong’s No 2 trading partner after mainland China last year, with bilateral trade worth HK$517 billion (US$65 billion), or 6.2 per cent of the city’s total. The US last year had a trade surplus of US$26.4 billion with Hong Kong, the country’s highest.

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Chan noted Hong Kong’s reputation for its simple, low-tax regime, which attracted many ships to register in the city.

As of July, about 2,600 ships were registered in Hong Kong. The city, Panama, the Marshall Islands and Liberia are among the top choices for registration in the world.

Simon Shen Xu-hui, an academic at the Chinese University of Hong Kong, said the suspension of the extradition treaty could hurt the city.

He warned of the possibility that the US would label the city as a money-laundering haven next if it escalated the “financial war” against Hong Kong further.

But a senior police source said he was agitated by the “hypocrisy” in the “politically driven” decision, which reflected the US had given up on investigating transnational crimes.

“If whistle-blower Edward Snowden comes back to Hong Kong, shall we welcome him with open arms?” he said, referring to the former National Security Agency employee who leaked highly classified information in 2013 and flew to Hong Kong in May that year.
The United States’ decision to end three bilateral treaties with Hong Kong was done to ‘create troubles in the China-US relationship’, a government spokesman said on Thursday. Photo: AFP

Although the US wanted Snowden for espionage and theft of government property, the Hong Kong government refused to arrest him on legal technicalities, which allowed him to leave the country for Russia.

As for the Agreement on the Transfer of Sentenced Persons, the government spokesman said, it allowed sentenced persons to return to their place of origin to serve their terms.

“The US’ decision to terminate the agreement eliminates the possibility of such transfers and defies values of humanitarianism,” the spokesman said.

Chinese University academic Wilson Chan Wai-shun, who conducts research into Hong Kong’s external relations, said the US had sent a “strong and clear signal” indicating it meant business when it warned that it would take such measures.

“Other developed countries will monitor closely if the US is really going to take further steps in the near future to treat Hong Kong the same as the rest of China,” Chan said.

This article appeared in the South China Morning Post print edition as: City lashes out at U.S. move to suspend three treaties
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