The Supply Chain Act and its impact in Hong Kong (S.A.R.)

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last updated on 15 September 2022 | reading time approx. 4 minutes


 

Supply chain risks in Hong Kong 

As a special administrative region of China, Hong Kong enjoys extensive economic autonomy with its own laws and regulations. The supply chain risks that can arise in “Mainland” China are therefore not relevant for Hong Kong.
 
Hong Kong's economy has undergone a major transformation in recent decades. Industrial production and agri­culture play virtually no role anymore. More than 90 percent of the economic output is generated by services (especially in the financial, trade, logistics and tourism sectors). This is also reflected in potential supply chain issues.  
 
Risks can therefore arise when involving a company in Hong Kong for the purpose of sourcing in other coun­tries, namely in Mainland China, but also in other countries in Southeast Asia, since under the German Supply Chain Act the supply chain does not start with the Hong Kong company, but its suppliers and subcontractors must also be included, albeit at a lower level.
 
Corruption plays a minor role in Hong Kong and occurs mainly locally in the private sector. According to Trans­parency International's Corruption Perceptions Index, Hong Kong ranks 12th in 2021, ahead of countries such as Canada, Austria or Japan. Nevertheless, when auditing supply chains, it should be ensured that direct and indirect suppliers outside Hong Kong comply with the laws and regulations applicable to them in this respect.
 
Due to its status as one of the most important global international financial centers, there is a fundamental risk with regard to money laundering and similar criminal acts. Such threats exist both internally and externally, in particular from transnational or cross-border money laundering syndicates. In the period 2016 to 2020, a breakdown of money laundering investigations showed that about 70 percent of money laundering cases were fraud-related, while in another almost 20 percent of cases the predicate offense could not be identified. According to this, money laundering in relation to predicate offenses such as corruption, human trafficking, tax crimes or also smuggling only play a very minor role in Hong Kong.
 

Vulnerable sectors in terms of human and labour rights violations and environmental issues

As mentioned above, Hong Kong generates over 90 percent of its economic output in the service sector and there is very little manufacturing and agriculture. For this reason, there are hardly any negative effects of Hong Kong's economy on the environment. At most, the air pollution caused by the significant marine traffic can be mentioned here.
 
Regarding human/labour rights, the construction industry plays a prominent role in a negative sense. The number of fatal occupational accidents and the number of occupational accidents per 1,000 employees in the construction industry is the highest among all sectors.
 
In addition, there are in part significant labour and human rights violations in the field of domestic helpers and in part in the service sector (e.g. restaurants, delivery services). In these areas, forced labour or withholding of wages occur frequently. Besides this, Hong Kong plays an inglorious role with regard to human trafficking, with prostitution playing a particularly significant role.
 
With regard to the German Supply Chain Act, however, the aforementioned aspects are unlikely to be of much relevance. With regard to these aspects, the focus should rather be on direct and indirect suppliers outside Hong Kong.
 

Applicability of legal provisions and practical implementation

Hong Kong has a comprehensive and relatively efficient and reliable judiciary that can rely on a wide range of laws and regulations tailored to the above-mentioned risks.
 
To combat money laundering, Hong Kong has enacted comprehensive laws, regulations and standards relating to anti-money laundering and counter-financing of terrorism (AML/CFT framework).
 
The fight against corruption in both the public and private sectors is the responsibility of the Independent Commission against Corruption (ICAC). The legal basis for the Commission and the corresponding penal provisions are codified in the Prevention of Bribery Ordinance.
 
In connection with the protection of the environment, Hong Kong became a signatory to a large number of international conventions, for example in relation to climate change, hazardous waste, marine pollution, mer­cury. In addition, there is a large number of laws for specific areas of environmental protection, e.g. air pollution, discharge of wastewater, hazardous chemicals, and environmental impact assessment for designated projects.
 
Hong Kong's labour law is very employer-friendly. It follows the Anglo-American tradition of employment-at-will. The most important law in the area of labour law is the Employment Ordinance. The law applies to employees who have been employed for at least four weeks and a working time of at least 18 hours per week. Where applicable, the law provides various benefits and protections, such as entitlements to rest days, vacation, sick pay, maternity protection, employment protection. Furthermore, the law protects trade union activities and provides for the payment of severance pay in the event of dismissal, reaching the statutory retirement age or untaken annual leave. In addition, there is also a law on minimum wage.
 
Employment of children under the age of 13 is generally prohibited for all industries. Children between the ages of 13 and 14 may work in non-industrial sectors. Another provision (Employment of Young Persons (Industry) Regulation) regulates the working hours and employment conditions of young persons between the ages of 15 and 17 in industrial undertakings.
 
With respect to occupational health and safety, the Occupational Safety and Health Ordinance and the Industrial Undertakings Ordinance, among others, are in place as statutory regulations. Under these laws, 32 regulations have been enacted covering aspects such as hazardous work and work procedures in factories, at construction sites, in restaurants and other sectors.
 
These laws and regulations are generally enforced in practice. With regard to labour law, Hong Kong has a fast, inexpensive and informal procedure for resolving disputes between employers and employees. With regard to labour protection, approximately 130,000 inspections and nearly 17,000 accident investigations were conducted in 2021. The Labour Department handled about 2,600 cases and imposed fines of over 15.3 million Hong Kong dollars.
 
Difficulties often arise for domestic helpers and other foreign workers, who are often unaware of their rights and do not seek lawyers' advice to enforce their rights due to the high costs involved.
 

Examples of negative impacts on foreign and domestic companies

For German companies with business relationships with Hong Kong business partners, as things stand, there are currently only minor or no risks under the German Supply Chain Act. However, in the event that the Hong Kong business partner on its part commissions direct and indirect suppliers outside Hong Kong, corresponding auditing obligations on these suppliers should be contractually agreed for with the Hong Kong business partner.  
 
Despite all efforts, there are still violations of the laws at the local level. The construction industry is parti­cu­larly affected. In June 2022, for example, two construction workers suffered fatal accidents when their work platform fell off outside the building under construction. Both were carrying out work even though the construction site was suspended at the time.
 
Public discussions were also caused by the fate of dozens of domestic helpers. Some of them tested positive for the coronavirus or were only suspected of being infected. For fear of infection, the domestic helpers were forbidden to return to their homes or were even terminated without notice. Due to the strict travel restrictions, those affected could not return to their home countries. Moreover, they had no health insurance. They therefore suddenly found themselves without income and without a place to live. Many had to spend their nights in tents in parks or under bridges for several days, so that the Consulate General of the Philippines, for example, also got involved.
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