On September 26, 2023, the Department of Homeland Security added three entities to the Uyghur Forced Labor Act (UFLPA) List as a result of each entity’s work with the government of the Xinjiang Uyghur Autonomous Region to recruit, transport, transfer, harbor or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of the Xinjiang Uyghur Autonomous Region.  The entities are:

  • Xinjiang Tianmian Foundation Textile Co., Ltd.
  • Xinjiang Tianshan Wool Textile Co. Ltd.
  • Xinjiang Zhongtai Group Co. Ltd.

For additional details, see DHS’ Federal Register Notice. This brings the total number of entities designated on the UFLPA Entity List to 27. Since enforcement of the UFLPA began in June 2022, Customs and Border Protections (CBP) has reviewed more than 5,300 shipments valued at more than $1.8 billion under the UFLPA. For background information on the UFLPA, see Thompson Hine’s International Trade Update of June 2022.

On September 19, 2023, the Department of Commerce’s Bureau of Industry and Security (BIS) announced additional items considered significant to Russian weaponry and are now restricted for export to both Russia and Belarus. In coordination with the United Kingdom and European Union, BIS continues to identify “high-priority items” by their six-digit Harmonized System (HS) codes that Russia seeks to procure for its weapons programs. Items described by these HS codes have been found in multiple Russian weapons systems used against Ukraine. In the September 2023 notice, BIS is more clearly identifying the current 45 high-priority items to highlight that pose a heightened risk of being diverted illegally to Russia because of their importance to Russia’s war efforts. In addition, BIS has added seven new HS codes to the list, including bearings needed for heavy vehicles or other machinery and antennae used for navigation systems.

All items on the list are subject to export controls under the Export Administration Regulations (EAR) and require a license for export to, reexport to, or transfer within Russia and Belarus.  The list is divided into four tiers, according to their “relative degree of criticality”:

  • Tier 1: Items of the highest concern due to their critical role in the production of advanced Russian precision-guided weapons systems, Russia’s lack of domestic production, and limited global manufacturers.
  • Tier 2: Additional electronics items for which Russia may have some domestic production capability but a preference to source from the United States and its partners and allies.
  • Tier 3: A broader range of electronic items, as well as navigation and camera components, that Russia has sourced from foreign companies.
  • Tier 3.A: Further electronic components used in Russian weapons systems, with a broader range of suppliers.
  • Tier 3.B: Mechanical and other components utilized in Russian weapons systems.
  • Tier 4: Manufacturing, production and quality testing equipment for electric components, circuit boards and modules.

BIS has prioritized the nine HS codes in Tier 1 and Tier 2 – covering items such as integrated circuits and radio frequency (RF) transceiver modules – that have extensive commercial applications but have also been found in Russian missiles and drones on the battlefield in Ukraine. See Thompson Hine Update of June 20, 2023 and BIS Notice of May 19, 2023 for additional details. These items are set forth in Supplement No. 7 to Part 746 of the EAR. Tier 3 has now been divided into mechanical and non-mechanical items “to provide greater clarity.” Tier 4, the lowest tier of priority remains unchanged. Tier 3 and 4 items are included in Supplement No. 4 to Part 746 of the EAR. The items in these 45 HS codes include both lower technology items designated EAR99, as well as more sensitive items on the Commerce Control List (CCL), including items designated under Export Control Classification Numbers (ECCNs), 3A001, 3A002, 3A090, 3A991, 3A992, 3B001, 3B991, 3B992, 5A001, 5A991, 6A002, 6A003, 6A993, 7A003, and 7A994. 

For all of these high-priority HS codes, BIS notes that exporters are “strongly encouraged to conduct due diligence when encountering the listed HS codes to identify possible third-party intermediaries and attempts at evasion of U.S. export controls.”

On September 14, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced another round of sanctions and economic restrictions targeting Russian elites and Russia’s industrial base, financial institutions, and technology suppliers. According to a press release, the sanctions on over 100 individuals and entities continues the effort “to leverage sanctions and economic restrictions to undermine Russia’s capacity to wage its war against Ukraine.” These sanctions include designations by the Department of State on entities involved in expanding Russia’s energy production and export capabilities as well as Russia’s metal and mining sector. Both agencies also targeted Russia’s defense industrial base and third-party actors seeking to assist Russia in evading sanctions.

The sanctions continue OFAC’s sustained efforts to target individuals and entities that enable, or attempt to enable, Russia’s ability to procure high-tech and dual-use goods. As such, OFAC sanctioned a Finland-based network that specializes in shipping foreign electronics to Russia-based end-users, including UAV cameras, high-performance optical filters and lithium batteries. OFAC also designated two entities based in Türkiye that have engaged in shipments to Russia of components for UAVs, sensors and measuring tools.

Numerous additional electronics, technology, automotive, manufacturing and construction firms were also designated by OFAC. The State Department sanctions involve designations of entities involved in expanding Russia’s energy production and future export capacity, entities in Russia’s metal and mining sectors, various defense entities that provide repair and maintenance services to the Russian defense sector, and two vessels.

For additional identifying details on these newly designated individuals and entities, the SDN List is available here.

As a result of these actions, all property and interests in property of the persons placed on OFAC’s SDN List above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

OFAC did issue Russia-related General License (GL) 72 that authorizes the wind down of transactions with certain newly sanctioned entities. GL 72 authorizes transactions prohibited by Executive Order (E.O.) 14024 that are ordinarily incident and necessary to the wind down of any transaction involving eight (8) of the Russian entities placed on the SDN List. Such activities are authorized through 12:01 a.m. EST, December 13, 2023, provided that any payment to such an entity is made into a blocked account in accordance with the Russian Harmful Foreign Activities Sanctions Regulations. Application of the GL should be reviewed carefully as the GL does continue to prohibit certain activities.

OFAC has also issued revised Russia-related GL 55A which continues to authorize certain services related to the maritime transport of crude oil originating from the Sakhalin-2 project. 

On September 6, 2023, the Office of the U.S. Trade Representative (USTR) issued a notice that it was extending certain China-related Section 301 product exclusions until December 31, 2023.  This action extends 352 exclusions previously reinstated in December 2022 through September 30, 2023, and 77 COVID-related exclusions previously extended in May 2023 through September 30, 2023.  For additional information, see Updates of December 16, 2022 and May 15, 2023.  The USTR stated that it has extended these exclusions to “provide a transition period for the expiring exclusions and to allow for further consideration under the [statutory] four-year review.” 

These extended product exclusions remain available for any product that meets the description in the product exclusion.

On August 28, 2023, the Bureau of Industry and Security (BIS) published a proposed rule to revise the Section 232 steel and aluminum tariff exclusion process. The proposed rule responds to public comments received in response to BIS’s February 2022 Request for Public Comments. By proposing further revisions to the exclusion request process, BIS aims to balance the needs of various stakeholders while upholding U.S. national security interests.

Section 232 tariffs on steel and aluminum were imposed in 2018 by former President Donald Trump under the Trade Expansion Act of 1962 after investigations into the impact of steel and aluminum imports on U.S. national security. Since then, BIS has been responsible for administering the product exclusion process that allows U.S. businesses to request exemptions for specific steel and aluminum imports from the 25 percent tariff. The August 28 proposed rule builds on previous regulations, aiming to refine the process further. The proposed rule outlines four main amendments designed to make the exclusion process more “transparent, equitable, and streamlined”:

  • Revised Approach to General Approved Exclusions (GAEs). BIS seeks to streamline the process for GAEs by changing the criteria used for them. Instead of focusing on whether any objections have been submitted, the new criteria would hinge on the substance of the objections. Previously, GAEs were identified based on whether Harmonized Tariff Schedule of the United States (HTSUS) codes had received objections. The new proposal shifts the focus to HTSUS codes with very low rates of successful objections, which would discourage objections that lack merit and thereby streamline the exclusion process. This shift toward considering substantiated objections is designed to be a more accurate gauge of industry capabilities and needs. BIS believes this change could result in up to a 20 percent reduction in the total number of exclusion requests, enhancing the efficiency, fairness and effectiveness of the system.
  • Implementation of General Denied Exclusions (GDEs). BIS proposes to add a process for GDEs. To balance the new system for GAEs, the process for GDEs would target HTSUS classification codes that have a high frequency of substantiated objections. By doing so, BIS aims to reduce the number of exclusion requests that have a low likelihood of approval, thereby streamlining the process and reducing the burden on both objectors and requesters. Like GAEs, the identification of GDEs would also be based on the volume and substance of objections received. The implementation of GDEs is anticipated to improve the overall efficiency of the Section 232 exclusions process, although the exact impact on the number of exclusion requests remains uncertain.
  • Modifications in Certification Requirements for Exclusion Requests. BIS is proposing modifications to the existing certification requirements for exclusion requests. These changes would ensure that businesses are genuinely in need of the high volumes of imported steel or aluminum they are requesting and have made reasonable attempts to source these materials from either the United States or countries deemed safe under Section 232 national security measures: Argentina, Australia, Brazil, Canada, the European Union, Japan, Mexico, South Korea, and the United Kingdom. Requesters would be required to submit evidence of their sourcing attempts as part of their exclusion requests. If this evidence is not provided, the request will be rejected. The proposed certification changes are designed to make the exclusion process more efficient and to ensure that the volume requested aligns with real business needs, thereby informing more accurate policy decisions.
  • New Certification Requirements for Objectors. BIS is proposing new certification requirements for objectors. These requirements aim to ensure that objectors can actually supply the same quality and quantity of steel or aluminum that requestors are seeking to import, and can make it “immediately available” in accordance with prior guidelines. Alongside their objections, objectors would have to submit evidence, either of having commercially sold the same product within the last year or of having engaged in relevant sales discussions. Failure to provide this supporting evidence would result in the rejection of the objection. This move aims to eliminate instances where objections are made but not substantiated, thereby streamlining the exclusion process and making it more efficient.

BIS has initiated a 45-day public comment period, ending on October 12, 2023. Comments can be submitted through the federal eRulemaking website under Docket Number BIS-2023-0021 or RIN 0694-AJ27.

In a landmark ruling on August 16, 2023, the World Trade Organization (WTO) determined that the retaliatory tariffs imposed by China on U.S. imports in response to U.S. steel and aluminum tariffs were inconsistent with international trade rules. The decision marks a significant moment in the long-standing trade dispute between the two major economic powers. A full text of the decision is available here.

The trade dispute began in 2018 when the United States imposed a 25% tariff on steel and a 10% tariff on aluminum from China under Section 232 of the Trade Expansion Act of 1962. The tariffs were declared as a necessity to protect the U.S. steel and aluminum industries for national security purposes. In response, China retaliated with additional import duties on 128 U.S. items worth $3 billion, including agricultural goods.

The WTO handed down its ruling on August 16, 2023, focusing on two main aspects:

  • U.S. Tariffs Justified: The WTO panel upheld the U.S. tariffs on steel and aluminum, imposed under Section 232.  These tariffs were justified as necessary for national security purposes, with the U.S. arguing that protecting its steel and aluminum industries was vital to its security interests.
  • China’s Retaliation Violated Trade Rules: The WTO dispute panel stated that China’s retaliatory tariffs were “inconsistent” with various articles of the General Agreement on Tariffs and Trade (GATT). The panel rejected China’s claim that the tariffs were legitimate safeguards and that the U.S.’s actions were safeguard measures that could be “rebalanced.”

The Office of the U.S. Trade Representative (USTR), in response to the ruling, stated it was pleased the WTO upheld the Section 232 tariffs, declaring that China “illegally retaliated with sham ‘safeguard’ tariffs.” According to the USTR, “The WTO does not have the authority to second-guess a WTO member’s response to threats to its security, and WTO reform must ensure that issues of national security cannot be reviewed in WTO dispute settlement.”

China’s response was critical of the ruling. While the country’s Commerce Ministry stated it was studying the case, it also argued that the root of the problem “lies in the unilateralism and protectionism of the U.S.” China called for the removal of the U.S. Section 232 tariffs and emphasized that its actions were a legitimate move to safeguard its rights and interests.

The ruling may have implications on future trade relations between the two countries and the overall global trade landscape. The case brings attention to the complexity of international trade law and the ongoing debates around national security, unilateral actions, and the role of the WTO in settling such disputes.

The U.S. Departments of State, Labor, and Commerce issued a business advisory on August 14, 2023, outlining key risks for U.S. companies operating in South Sudan. Concerns revolve around corruption, transparency, and human rights violations. Businesses are particularly cautioned against engaging with entities connected to South Sudanese government officials, especially in the oil and mining sectors. The main areas of concern noted in the advisory include:

  • Government Tenders: Firms engaging in South Sudanese government tenders may face significant reputational risks, mainly due to perceptions of corruption and resource diversion. The country ranks poorly in public sector corruption indices, with specific allegations of corrupt dealings in oil cargos and the misuse of oil revenue. Transparency International ranked South Sudan as the country with the world’s worst public sector corruption in its 2021 rankings of perception of corruption; South Sudan tied for second-worst in 2022.
  • Oil and Gold: South Sudan’s primary income sectors, oil (over 90%) and gold, are riddled with challenges, including corruption and lack of transparency. There is evidence of substantial leakage and diversion of oil revenue, and gold production is allegedly tied to illicit markets and high-level government officials. This has prompted U.S. regulatory actions and calls for enhanced due diligence.
  • Contracts for Assistance Delivery: South Sudan’s transitional government’s reliance on international aid has created opportunities for corruption and resource diversion. Examples include unnecessary fees, engagement with unqualified companies, and siphoning of funds intended for critical relief. U.S. entities are advised to exercise caution, particularly if engaging directly with government-tied entities.
  • Arms, Military Equipment, and Related Activity: The UN’s embargo on arms and related items in South Sudan is upheld by U.S. in the International Traffic in Arms Regulations (ITAR), which reflects the policy of denial on the export of defense articles and defense services to South Sudan with certain exceptions. Businesses are cautioned against dealings with South Sudanese armed forces due to widespread human rights abuses. Compliance with laws and sanctions is emphasized given the alarming degree of impunity in the region.

Additionally, the advisory includes two annexes:

Annex 1 offers an overview of U.S. Government reports and resources relevant to South Sudan, emphasizing legal measures, sanctions, and monitoring mechanisms concerning human rights, corruption, money laundering, and more. Specifically, U.S. Government Measures include:

  • Department of the Treasury has sanctioned individuals/entities in South Sudan under various sanctions authorities, including Executive Order 13664 and under Executive Order 13818.
  • Department of Commerce can impose licensing for security or policy reasons, adding entities to the Entity List (Supp. No. 4 to Part 744 of the EAR).  March 22, 2018 – 15 South Sudanese Entities Added to the Entity List.
  • Department of Labor maintains lists of goods and countries associated with child and forced labor, including cattle from South Sudan.  They provide tools and reports to help businesses assess risks and ensure compliance with labor standards, and they have assessed South Sudan as making no advancement in eliminating the worst forms of child labor.
  • Department of Homeland Security investigates allegations of forced labor, issuing orders to prevent relevant merchandise from entering U.S. ports, and conducts criminal inquiries into businesses and individuals connected to forced labor.
  • Department of State’s 2022 reports highlight South Sudan’s ongoing challenges with human trafficking, child soldier recruitment, forced labor, and sex trafficking, keeping the country in Tier 3 of the Trafficking in Persons Report and on the Child Soldier Prevention Act List.  Additionally, the Investment Climate Statement underline South Sudan’s dysfunctional legal system, plagued by corruption, unenforced laws, and challenges related to investment.

Annex 2 lists a number of resources for businesses conducting due diligence and establishing compliance programs.

For past SmarTrade Updates on Sudan, see:

Key Notes:

  • A new Executive Order prohibits U.S. investments in semiconductors and microelectronics, quantum information technologies, and artificial intelligence capabilities in China and other countries of concern and imposes certain notification requirements.
  • Certain passive and similar investments will be excepted from the restrictions.
  • An Advanced Notice of Public Rulemaking seeks public comment on the scope of restrictions, notification requirements, and exceptions by September 28.

On August 9 President Biden signed an “Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern” (EO), which authorizes the Secretary of the Treasury to regulate certain U.S. investments into “countries of concern” in entities engaged in activities involving sensitive technologies that are critical to U.S. national security. Currently, the only identified country of concern is the People’s Republic of China (China), including the Special Administrative Regions of Hong Kong and Macau. Simultaneously, the Department of the Treasury (Treasury) released an Advanced Notice of Proposed Rulemaking (ANPRM) setting forth more proposed details on the scope of such investment restrictions and the manner of implementing this requirement and seeking public comment.

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On August 9, 2023, marking the three-year anniversary of the fraudulent August 2020 presidential election in Belarus, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions on eight individuals and five entities, focusing notably on the aviation sector.

Among the designated entities, OFAC has targeted the state-owned flagship carrier of Belarus, Belavia Belarusian Airlines (BELAVIA). Additionally, OFAC has designated Open Joint Stock Company Minsk Civil Aviation Plant 407, a state-owned aircraft component manufacturer. The facility has been highlighted as a key player in Belarusian production to meet Russia’s civil and military aircraft demand. The sanctions also include the designation of Joint Stock Company Byelorussian Steel Works (BSW) and BEL-KAP-STEEL LLC, a joint venture with BSW, which have been pivotal in generating substantial revenue for the Lukashenka regime.

OFAC also issued two Belarus-related General Licenses (GL) to allow for the wind down of activities with certain newly designated entities:

  • General License 8 authorizes all transaction ordinarily incident and necessary to the wind-down of transactions involving Joint Stock Company Byelorussian Steel Works Management Company of Holding Byelorussian Metallurgical Company through 12:01 a.m. EST, October 9, 2023. 
  • General License 9 authorizes all transaction ordinarily incident and necessary to the provision of exports, technology or services to ensure civil aviation safety, and transactions involving the wind-down of any transactions involving BELAVIA, through 12:01 a.m. EST, September 8, 2023.

In addition, sanctions were implemented on members of a Belarusian business and tobacco mogul and close associate of Alyaksandr Lukashenka.  Also, actions were taken against the Department of Financial Investigations of The State Control Committee of the Republic of Belarus and affiliated individuals for their involvement in cracking down on Belarus’s pro-democracy movement and free media.

For additional identifying details on these newly designated individuals and entities, the SDN List is available here.

As a result of these actions, all property and interests in property of the persons placed on OFAC’s SDN List above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

On July 27, 2023, the U.S. Court of Appeals for the Federal Circuit issued a significant decision in a case involving the alleged evasion of antidumping duties assessed on pencils of Chinese origin by Royal Brush Manufacturing, Inc. (Royal Brush) under the Enforce and Protect Act of 2015 (EAPA). The EAPA is a statutory scheme for determining whether “covered merchandise was entered into the customs territory of the United States through evasion,” and in the underlying matter involving Royal Brush, Customs and Border Protection (CBP) found that the pencils had been transshipped from China through another country to the United States. This finding was based in part on evidence that was not supplied to Royal Brush because it was confidential business information provided by a competing U.S. importer of pencils. Royal Brush was also denied the opportunity to rebut this evidence. The Federal Circuit found that the failure to provide access to the redacted information was a violation of due process and that, under the applicable CBP regulation, Royal Brush must be given an opportunity to rebut this information with its own evidence.

The original 2018 EAPA case involved allegations of transshipped pencils from China through the Philippines to the United States, falsely claiming the pencils to be of Philippine origin and thus not subject to the antidumping duties assessed on certain pencils from China. CBP conducted an investigation, including onsite visits to the Philippine facility that resulted in the preparation of a Verification Report. However, Royal Brush was provided with only a redacted version of that report due to certain confidential business information. CBP ultimately issued an affirmative determination finding evasion.

In 2019, Royal Brush appealed the determination to the U.S. Court of International Trade (CIT) that led to a remand decision requiring CBP to issue a summary of the redacted information. Royal Brush again appealed the remand determination by CBP arguing that such summaries were insufficient and that the failure to provide the unredacted information violated the company of due process. The CIT continued to find that CBP had complied with the relevant regulation by providing the summaries.

In issuing its July 27, 2023 ruling, the Federal Circuit made clear that one “‘relatively immutable’ principle of due process is that ‘where governmental action seriously injures an individual, and the reasonableness of the action depends on fact findings, the evidence used to prove the [g]overnment’s case must be disclosed to the individual so that he has an opportunity to show that it is untrue.’” The three-judge Federal Circuit panel ruled that such a principle applies to administrative proceedings, stating that “the law is clear that, in adjudicative administrative proceedings, due process ‘includes the right to know what evidence is being used against one.’” The facts of the case indicate that CBP relied on information not provided to Royal Brush to determine that it had evaded duties, and that “[t]his in and of itself, is a clear violation of due process.” The judges found that all off CBP’s concerns over confidentiality could be addressed by issuing a protective order.

CBP argued before the Federal Circuit that confidential business information cannot not be disclosed absent a statute or regulation authorizing a protective order, and that the EAPA does not provide for such a protective order. CBP relied on both the general language of the Trade Secrets Act and case law supporting the proposition that agencies generally must be able to regulate the conduct of their own proceedings. The Federal Circuit judges, however, responded by stating, “We have no doubt that a release of information is ‘authorized by law’ within the meaning of the Trade Secrets Act if that release is required as a matter of constitutional due process, as is the case here.” The judges strongly emphasized the importance of due process:

… the government asserts, unless a protective order is authorized by law, disclosure is not authorized by law. In other words, the government can avoid compliance with due process requirements by the simple expedient of failing to provide for a protective order in a statute or regulation. We are aware of no case supporting any such extraordinary theory, and it is untenable on its face. The right to due process does not depend on whether statutes and regulations provide what is required by the constitution.

According to the ruling, CBP has the “inherent authority to utilize protective orders in appropriate circumstances” and that the EAPA and associated regulations do not bar protective orders. The judges noted that CBP offered no reason why the use of protective orders would impair the function of the EAPA process. 

The Federal Circuit remanded the case to the CIT with instructions for the CIT to order CBP to provide Royal Brush with the confidential information contained in the Verification Report and to allow it an opportunity for rebuttal.