U.S. Secretary of State Mike Pompeo said on Wednesday China had undermined Hong Kong's autonomy so fundamentally that the territory no longer warranted special treatment under U.S. law, a potentially big blow to its status as a major financial hub.
Pompeo's certification to the U.S. Congress follows China's announcement of a plan to impose new national security legislation on Hong Kong, which has triggered fresh unrest in the territory, with police firing tear gas and water cannon.
It now falls to President Donald Trump to decide to end some, all, or none of the U.S. economic privileges which the territory enjoys.
Pompeo made no recommendations in his statement. But people familiar with the matter said the Trump administration was considering suspending Hong Kong's preferential tariff rates for exports to the United States as part of its response to China's plan.
Trump could also opt for targeted sanctions against Chinese officials, government entities and businesses involved in enforcing the new legislation, according one of the sources, who spoke on condition of anonymity.
Trump, already at odds with Beijing over trade and China's handling of the coronavirus pandemic, had said on Tuesday Washington was working on a strong response that would be announced before the end of the week.
He offered a muted response to democracy protests in Hong Kong last year while prioritizing a trade deal with China he saw as important for his November re-election bid. But ties with Beijing have since soured considerably and bipartisan pressure has mounted for decisive action.
Pompeo said China's plan to impose the new legislation was "only the latest in a series of actions that fundamentally undermine Hong Kong's autonomy and freedoms.
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"No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground," he said.
He said he certified that Hong Kong no longer warrants treatment under U.S. laws "in the same manner as U.S. laws were applied to Hong Kong before July 1997", when Britain ended its administration of the territory and returned it to China.
"It is now clear that China is modeling Hong Kong after itself," Pompeo said.
The "Hong Kong Human Rights and Democracy Act" approved by the U.S. Congress and Trump last year requires the State Department to certify at least annually that Hong Kong retains enough autonomy to justify the favorable U.S. trading terms that have helped it remain a world financial center.
Under the act, officials responsible for human rights violations in Hong Kong could be subject to sanctions, including visa bans and asset freezes.
China's security proposal, unveiled last week, triggered the first large street protests in Hong Kong for months.
The United States, European Union, Britain and others have expressed concern about the legislation, widely seen as a possible turning point for China's freest city.
Pompeo discussed the legislation with British Foreign Secretary Dominic Raab on Wednesday and "both agreed the international community must support the people of Hong Kong and respond to Beijing's continued erosions of Hong Kong's autonomy," a State Department statement said.
Specifics of the security bill remain unclear and will not be enacted until later. It is meant to tackle secession, subversion and terrorism after major unrest last year and could see Chinese intelligence agencies set up bases in Hong Kong.
More protests and arrests
Chinese authorities and Hong Kong's Beijing-backed government say there is no threat to the city's high degree of autonomy and the new security law will be tightly focused.
Beijing has said it will take necessary countermeasures to any foreign interference.
"It's for the long-term stability of Hong Kong and China, it won't affect the freedom of assembly and speech and it won't affect the city's status as a financial centre," Hong Kong Chief Secretary Matthew Cheung told reporters.
Hong Kong police fired pepper pellets and made 360 arrests on Wednesday as thousands of people protested against the bill.
Late into the evening, protesters were still cramming sidewalks, chanting for full democracy and for Hong Kong to seek independence from China, saying this is now "the only way out".
A heavy police presence around the Legislative Council had earlier deterred protesters from disrupting a debate of a bill that would criminalize disrespect of the Chinese national anthem. That is expected to become law next month.