NPCSC Passes Two Tax Laws and “Confirms” Constitutionality of Hong Kong-Mainland Joint Checkpoint Plan

The NPC Standing Committee (NPCSC) concluded its last session in 2017 on December 27, with the passage of three legislative bills and two decisions. As usual, in this blog post we will summarize and explain the actions taken by the NPCSC yesterday, with a focus on the approved Hong Kong-Mainland Cooperation Agreement regarding the joint checkpoint plan for a cross-border high-speed rail.

Legislations

The NPCSC passed the Tobacco Leaf Tax Law (烟叶税法), replacing the State Council’s Provisional Regulations on Tobacco Leaf Tax, in effect since April 2006. The Law levies a 20% tax on the cost of tobacco leaves purchased by authorized entities under the Tobacco Monopoly Law. Here is the explanation of the draft Law, and the NPC Law Committee’s two deliberation reports.

The NPCSC also passed another tax law, the Vessel Tonnage Tax Law (船舶吨税法), which will repeal the State Council’s Provisional Regulations on Vessel Tonnage Tax upon taking effect. The tax is levied on vessels entering domestic Chinese ports (excluding Hong Kong and Macau ports) from foreign ports (including the two cities’). Vessels of Chinese nationality and certain other vessels will qualify for preferential, or lower, tax rates. The Law also provides for certain categories of exemptions. Here is the explanation of the draft Law, and the NPC Law Committee’s two deliberation reports.

Finally, the NPCSC revised the Specialized Farmers’ Cooperatives Law (农民专业合作社法), first enacted in 2006. The revised Law removes the restriction that each cooperative must only deal in one type of products or provide only one type of service, and gives unions of cooperatives legal status, among other changes made to the original law. Here is the explanation of the draft Law, and the NPC Law Committee’s two deliberation reports.

All three laws will take effect on July 1, 2018.

(The NPCSC also approved an amendment to the Metrology Law and the Bid Invitation and Bidding Law—which is as exciting as it sounds.)

Decisions

First, the NPCSC renewed a 2015 authorization that suspended the application of certain provisions of the Property Law (物权法) and the Guaranty Law (担保法) in select localities, thereby allowing the rights to use cultivated land and house sites (宅基地) to be mortgaged. The authorization will now expire on December 31, 2018. The the explanation of the renewal decision explains why the State Council was seeking the renewal.

Second, and most significantly, the NPCSC approved a Cooperation Agreement between Hong Kong and the Mainland, which authorizes mainland officers to perform exit-entry inspections (among other functions) within a designated “Mainland Port Area” (MPA) inside the West Kowloon Station (WKS) in Hong Kong—the southern terminus of the Guangzhou-Shenzhen-Hong Kong Express Rail Link. (A schematic of the WKS and MPA is attached to the Agreement. The South China Morning Post has prepared a interactive version of the diagram in this report.)

This so-called “co-location” arrangement (“一地两检”) is highly controversial in Hong Kong, for it allegedly violates a provision of Article 18 of the Hong Kong SAR Basic Law that no national law can be applied in Hong Kong unless it is listed in Annex III to the Basic Law. Further, the laws listed in Annex III are restricted to those concerning national defense, diplomacy, or other matters outside the scope of Hong Kong’s autonomy under the Basic Law.

The NPCSC, unfortunately, did not satisfactorily explain in its decision approving the Agreement why the Agreement does not flout the provisions of Article 18. According to the Explanation of the NPCSC’s decision, its argument is as follows:

  1. Any law listed in Annex III is (1) implemented in the entire city, (2) enforced by the Hong Kong Government, and (3) applied to everyone in Hong Kong.
  2. But the mainland laws enforced in the MPA will only be (1) implemented within that area (i.e., not the whole city), (2) enforced by mainland authorities, and (3) only applied to passengers physically in the MPA (i.e., not everyone in Hong Kong).
  3. Therefore, the Agreement does not violate Article 18.

But the argument fails to recognize that, if a national law cannot be listed in Annex III (because it won’t be universally applicable in Hong Kong and won’t be enforced by Hong Kong authorities), then it cannot be applied in Hong Kong at all, not even some part of Hong Kong.

In providing an alternative justification, the Explanation cites Article 4, paragraph 2 of the Agreement, which states that for purposes of division of jurisdiction, “the MPA is deemed to be located within the Mainland,” where mainland laws can obviously be enforced. But (as the Hong Kong Bar Association also points out in a statement) this logic could potentially be extended to authorize the enforcement of mainland laws in any part of Hong Kong—as long as it is less the whole of Hong Kong—thereby completely circumventing Article 18’s ban. It is hardly reasonable to interpret the city government’s land-leasing power in a way that contravenes one of the essential provisions of the Basic Law.

It has been suggested that the NPCSC invoke Article 20 of the Basic Law in approving the Agreement. That article provides in part that Hong Kong “may enjoy other powers granted to it by” the NPCSC. But the Explanation dismissed the suggestion by contending that because “the Cooperation Agreement involves relatively complicated legal issues,” having the NPCSC adopt a decision (in the way it did) is “more appropriate.”

So, what did the NPCSC decide? After reciting the merits of the cross-border high-speed rail, the decision states that the NPCSC considers the Agreement “a concrete embodiment of the Hong Kong SAR’s exercise of its high degree of autonomy in accordance with law.” The establishment of the MPA in the WKS, says the decision, “does not alter the boundary of the administrative region of the Hong Kong SAR, does not affect the high degree of autonomy the Hong Kong SAR enjoys according to law, and does not abridge the rights and freedoms the residents of the Hong Kong SAR enjoy according to law.” The decision then states that Article 18 is inapplicable and that the Agreement conforms to various provisions of the Basic Law, the “one country, two systems” policy, and the “fundamental purpose” of the Basic Law—all without giving any reasons. In the body of the decision, the NPCSC decides in part to “confirm that the Cooperation Agreement conforms to the Constitution and the Hong Kong SAR Basic Law” (确认《合作安排》符合宪法和香港特别行政区基本法), still without providing any explanation.

At a press conference held after the NPCSC session, Li Fei, Chairman of the NPCSC Hong Kong Basic Law Committee spoke at length about the NPCSC’s decision. When explaining the legal significance of the decision, Li said:

  1. Such a decision made by the NPCSC has constitutional status and has the highest legal effect. . . .
    全国人大常委会作出这样一个决定,具有宪制性地位,具有最高法律效力……

  2. The NPCSC . . . exercises the legislative power of the State, the power to interpret laws, and the power to supervise the implementation of laws. This includes the powers to interpret the Hong Kong Basic Law and to supervise the implementation of the Hong Kong Basic Law. The NPCSC has the final power to decide whether [any] law implemented or any act taking place in Hong Kong conforms to or violates the Basic Law. Therefore, . . . the decisions made by the NPCSC regarding the implementation of the Hong Kong Basic Law or to handle major legal issues have constitutional status and have the highest legal effect. . . .
    全国人大常委会……具有国家立法权、法律的解释权和对法律实施的监督权。当中包括对香港基本法的解释权和监督香港基本法实施的职责。在香港实施的所有法律和发生的行为是否符合基本法、是不是与基本法相抵触,全国人大常委会具有最终决定权,因此……全国人大常委会对实施香港基本法、处理重大法律问题所作出的决定具有宪制性地位,具有最高法律效力……

  3. The NPCSC’s decision approving the “co-location” arrangement . . . is an important constitutional judgment and must not be questioned.
    全国人大常委会作出批准“一地两检”的决定……是重要的宪制性判断,不容质疑。

Then in explaining the constitutional basis of the co-location arrangement, Li said:

Relevant polls in Hong Kong also reflected that most residents have always stably [sic] supported the “co-location” arrangement. This fact suffices to demonstrate that the “co-location agreement” is consistent with the public opinion in Hong Kong, meets the demands of development in this era, and is compatible with Hong Kong’s and China’s developmental interests, and conforms to the fundamental purpose established by the Basic Law.
香港社会有关的民调也显示,绝大多数市民始终稳定地支持“一地两检”。这个事实足以说明,“一地两检”符合香港社会民意、符合时代发展的要求、符合香港和国家发展的利益,这与香港基本法所确定的根本宗旨是一致的。

On Article 18 of the Basic Law, in addition to repeating the argument made by the Explanation, Li added:

To correctly understand Article 18 of the Basic Law is to not understand it narrowly. A constitutional law enacted in our country must not be understood textually as under the common law, but the principle and connotation of that constitutional law must be understood.
正确理解基本法第18条,就不能够狭义理解。我们国家所制定的宪制性法律,不能用普通法上的字面理解,要知道宪制性法律所确定的原则和内涵。

Lastly, when asked why the NPCSC did not invoke Article 20, or for that matter any other article, of the Basic Law, Li contended that the issues posed by the co-location arrangement “cannot be resolved by any single provision” in the Basic Law.

Now, to summarize Li’s argument, we quote the Hong Kong Bar Association’s formulation:

[T]he Co-operation Agreement complies with the Constitution and the Basic Law “just because the NPCSC says so”.

The NPCSC’s vote on the decision approving the Cooperation Agreement was unanimous.


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