On June 15, 2021, the United States and the European Union (EU) announced a “cooperative framework” to resolve their decades-long World Trade Organization (WTO) dispute involving alleged subsidies in the large civil aircraft industry supporting both Boeing and Airbus. U.S. Trade Representative Katherine Tai stated, “Our goal was clear – to forge a new, cooperative relationship in this sector so that our companies and our workers can compete on a more level playing field. The agreement includes a commitment for concrete, joint collaboration to confront the threat from China’s non-market practices, and it creates a model we can build on for other challenges.” The cooperative framework includes:

  • A Working Group on large civil aircraft led by each side’s respective “minister” responsible for trade. The Working Group will meet on request or at least every six months; the higher-level trade ministers will meet annually. The Working Group will address any disagreements that may arise and will collaborate on and continue discussing and developing the principles reached in the framework agreement.
  • Each side providing “financing to its LCA [large civil aircraft] producer for the production or development of large civil aircraft on market terms.”
  • Each side providing “funding for research and development (R&D) for large civil aircraft to its LCA producer through an open and transparent process and [intending] to make the results of fully government funded R&D widely available, to the extent permitted by law. Each side intends not to provide R&D funding or other support that is specific, to its LCA producer in a way that would cause negative effects to the other side.”
  • Each side intending “to collaborate on jointly analyzing and addressing non-market practices of third parties that may harm their respective large civil aircraft industries.” To that end, the framework agreement has an annex regarding cooperation on non-market economies so that the United States and EU can share information and more effectively address challenges posed by non-market economies (i.e., China).
  • Suspending current WTO-approved retaliatory tariffs for five years, with the expectation that the United States and EU “will contribute to establishing a level playing field and to addressing shared challenges from non-market economies.”
  • Continuing to confer on addressing outstanding support measures.

The full text of the framework is available here.

This latest announcement follows the March 2021 temporary suspension of retaliatory tariffs by each side in order to seek a “comprehensive and durable negotiated solution to the Aircraft disputes.” See Update of March 5, 2021. In this longstanding dispute, the WTO Dispute Settlement Body has authorized the EU to impose $4 billion in retaliatory tariffs annually on U.S. products and authorized the United States to impose $7.49 billion in retaliatory tariffs annually on EU products. For additional background on this dispute and the resulting retaliatory tariffs regarding EU subsidies to Airbus and U.S. subsidies to Boeing, see SmarTrade Updates of October 4, 2019, December 9, 2019, February 17, 2020, August 13, 2020, October 15, 2020 and November 11, 2020.

On June 8, 2021, the White House released its report analyzing the risks associated with supply chains for four key U.S. sectors – semiconductor manufacturing and advanced packaging; large capacity batteries; critical minerals and materials; and pharmaceuticals and advanced pharmaceutical ingredients.  The report, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth, was prompted by Executive Order 14017, in which President Joseph Biden directed the U.S. government to undertake a comprehensive review of critical U.S. supply chains to identify risks, address vulnerabilities and develop a strategy to promote resilience.  See Update of February 25, 2021.

The report found five key “inter-related” themes and findings that have contributed to U.S. supply chain vulnerabilities:  (1) insufficient U.S. manufacturing capacity; (2) misaligned incentives and short-termism in private markets that focus on short-term capital returns and not on long-term investment and resilience; (3) industrial policies adopted by allied, partner and competitor nations that advance their own competitiveness; (4) geographical concentration in global sourcing; and, (5) limited international coordination on supply chain security.

As initial steps and realizing that a “whole-of-government effort” is required to strengthen domestic competitiveness and supply chain resilience, the Biden administration will immediately:

  • Support domestic production of critical medicines by having the Department of Health and Human Services work and build on public-private partnerships for the onshore (domestic) production of essential medicine products.
  • Secure an end-to-end domestic supply chain for advanced batteries with the Department of Energy releasing a “National Blueprint for Lithium Batteries” for a 10-year plan to develop a domestic supply chain and offering loans through the Advanced Technology Vehicles Manufacturing Loan Program.
  • Invest in sustainable domestic and international production and the processing of critical minerals by having the Department of Interior establish a working group to identify sites where critical minerals could be produced and processed in the United States, and as necessary, to identify gaps and or provide updates to mining statutes and regulations.
  • Partner with industry, allies, and partners to address semiconductor shortages identified by the Department of Commerce and to strengthen engagement with allies and partners to promote fair semiconductor chip allocations, increase production, and promote increased investment.

A summary of the report and its key findings is available here.  The report also acknowledges that strengthening international trade rules and trade enforcement mechanisms are issues to be addressed.  The Biden administration also announced that it will establish a new Supply Chain Disruptions Task Force to provide the “whole-of-government response” needed to address near-term supply chain challenges to the economic recovery.  This task force will focus on areas where “a mismatch between supply and demand has been evident: homebuilding and construction, semiconductors, transportation, and agriculture and food.”

The second phase of this supply chain review continues as to six critical industrial base sectors: the defense industrial base, public health and biological preparedness industrial base, information and communications technology industrial base, energy sector industrial base, transportation industrial base, and supply chains for production of agricultural commodities and food products.  This report is due to President Biden no later than February 24, 2022.

On June 9, 2021, President Joseph Biden issued an Executive Order (E.O.) to further address the threat posed to the U.S. information and communications technology and services (ICTS) supply chain declared in Executive Order 13873 (the “Telecom Supply Chain E.O.”; see Update of May 16, 2019).  The June 9, 2021 E.O. also revoked and replaced three E.O.s aimed to prohibit transactions with TikTok, WeChat and eight other communications and financial technology software applications (see Update of August 7, 2020).  According to a brief statement from the White House, the new E.O. “directs the use of a criteria-based decision framework and rigorous, evidence-based analysis to address the risks posed by ICTS transactions involving software applications that are designed, developed, manufactured, or supplied by persons that are owned or controlled by, or subject to the jurisdiction of a foreign adversary, including the People’s Republic of China, that may present an undue or unacceptable risk to the national security of the United States and the American people.”

The new E.O. seeks to continue to protect sensitive personal data and directs the Department of Commerce (Commerce) to evaluate foreign adversary-connected software applications and to take action as necessary.  The E.O. continues to apply the criteria established in E.O. 13873 but notes other potential indicators of risk:

ownership, control, or management by persons that support a foreign adversary’s military, intelligence, or proliferation activities; use of the connected software application to conduct surveillance that enables espionage, including through a foreign adversary’s access to sensitive or confidential government or business information, or sensitive personal data; ownership, control, or management of connected software applications by persons subject to coercion or cooption by a foreign adversary; ownership, control, or management of connected software applications by persons involved in malicious cyber activities; a lack of thorough and reliable third-party auditing of connected software applications; the scope and sensitivity of the data collected; the number and sensitivity of the users of the connected software application; and the extent to which identified risks have been or can be addressed by independently verifiable measures.

Commerce is also directed to consult with other federal government departments and agencies in preparing a report with recommendations “to protect against harm from the unrestricted sale of, transfer of, or access to United States persons’ sensitive data, including personally identifiable information, personal health information, and genetic information, and harm from access to large data repositories by persons owned or controlled by, or subject to the jurisdiction or direction of, a foreign adversary.” This report is due in 120 days (i.e., October 7, 2021).  Commerce has further been directed to make any additional recommendations for executive and legislative branch actions to address ICTS risks involving foreign adversaries no later than December 6, 2021.

 

On June 3, 2021, President Biden issued Executive Order 14032, “Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China” (EO). The EO supersedes the executive orders targeting “Communist Chinese Military Companies” that the Trump administration issued. Specifically, it revises Sections 1 through 5 of Executive Order 13959, as amended, and revokes Executive Order 13974. The impact of the EO is to expand the restrictions on investments in Chinese defense and surveillance technology firms by adding 59 Chinese companies to the Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List). It also changes the date by which divestment must be made to June 3, 2022 at the earliest. Note: The previous annex listing Communist Chinese Military Companies has been replaced and superseded in its entirety by the Annex to the June 3, 2021 order.

Effective at 12:01 a.m. eastern daylight time (EDT) on August 2, 2021, the EO prohibits U.S. persons from engaging in the purchase or sale of any publicly traded securities of any persons listed in the Annex of the EO or the NS-CMIC List, or any persons added in the future. However, under the EO, companies may divest themselves from holdings in NS-CMIC entities listed in the EO before 12:01 a.m. EDT on June 3, 2022. Companies will be granted a one-year divestment period for all entities added to the NS-CMIC list in the future.

The EO clarifies that the Treasury Department has final authority in determining which companies are added. Unlike the previous Trump-era executive orders, the designation criteria in this EO have extended to companies that are deemed (1) to operate or have operated in the defense and related materiel sector or the surveillance technology sector of the economy of the PRC, or (2) to own or control, or to be owned or controlled by, directly or indirectly, parties operating in these sectors, and/or designated pursuant to this EO.

Moreover, the EO expands the U.S. government’s ability to “address the threat of Chinese surveillance technology firms that contribute – both inside and outside China – to the surveillance of religious or ethnic minorities or otherwise facilitate repression and serious human rights abuses.”

On June 1, 2021, the U.S. Department of Justice (DOJ), representing U.S. government defendants, filed its dispositive motion – a motion to dismiss and, in the alternative, a motion for judgment on the agency record – in litigation at the U.S. Court of International Trade (CIT) involving the potential refund of Section 301 tariffs placed on certain imports of Chinese products. The motion provides both a detailed review of the relevant statutory framework surrounding the Office of the U.S. Trade Representative (USTR) and section 301 of the Trade Act of 1974 and a lengthy factual discussion of the investigation that resulted in the tariffs.

According to the DOJ’s motion, the plaintiff group’s allegations that the U.S. government violated the Administrative Procedure Act (APA) fail because the USTR was acting at the direction of former President Donald Trump and the president is not subject to the APA. As the DOJ explained, the USTR issued Lists 3 and 4A, which identify the products subject to the tariffs at issue, pursuant to presidential directives and these discretionary directives to the USTR do not constitute a reviewable agency action. The DOJ also claimed that the plaintiff group has not challenged an agency action but the action of a president in directing the USTR and the USTR did not exercise independent discretion in determining to impose additional duties pursuant to Lists 3 and 4A (as well as in increasing or reducing tariff rates on those lists). The DOJ further argued that the USTR’s actions were “wholly discretionary and thus non-justiciable because the statute contains no ‘judicially discoverable and manageable standard.’” Since the president’s decision and the USTR’s implementation of that decision are “entirely discretionary,” the DOJ stated, the action is non-reviewable as it would require the CIT to “move beyond the areas of judicial expertise.”

The DOJ also argued that the plaintiff group has misconstrued the text and congressional intent of sections 301 and 307 of the Trade Act of 1974 and that modification of the USTR’s actions after China refused to cease its unfair trade practices was appropriate and authorized. The DOJ wrote that the plaintiff group’s mistaken reading of the statute is “fundamentally inconsistent with the purpose of taking action under section 301 in the first place, which is taking all ‘appropriate and feasible action’ within the power of the President” to eliminate the unfair trade practice, policy or act. If the president and the USTR had no authority under section 307 to modify any action, the DOJ explained, such an interpretation would only “incentivize other countries to refuse to negotiate and take wide-ranging retaliatory measures knowing the President and the USTR would be powerless to respond without conducting an entirely new investigation.”

Even if the CIT were to reject these arguments, the DOJ claimed that the government’s actions are exempt from the APA’s notice-and-comment requirements because they fall within the “foreign affairs function” exception since this was an informal rulemaking and “part of the negotiation of an international trade agreement.” According to the DOJ, the USTR fulfilled all of the statutory requirements under section 307 of the Trade Act of 1974 by seeking comments and holding public hearings. Alternatively, the DOJ argued that the government still complied with APA requirements and that the government’s actions were not arbitrary and capricious.

If the CIT doesn’t dismiss the case(s) as non-judiciable and proceeds to the merits, the case(s) will likely turn on how the CIT interprets the executive branch’s breadth of authority to modify its actions under section 307.

The plaintiff group’s response brief is due August 2, and amicus briefs are due August 9.

On June 2, 2021, the office of the U.S. Trade Representative (USTR) announced the conclusion of its Section 301 investigations of Digital Service Taxes (DSTs) that have been adopted by Austria, India, Italy, Spain, Turkey and the United Kingdom. For each country, USTR determined that it would take action in the form of additional duties of 25% on certain designated products from each country. However, such additional duties have been immediately suspended for a period of up to 180 days – until November 29, 2021 – to provide additional time to complete ongoing multilateral negotiations on international taxation issues. In making the announcement, USTR Katherine Tai stated, “The United States is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes … The United States remains committed to reaching a consensus on international tax issues through the OECD and G20 processes. Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs under Section 301 if warranted in the future.”

In January 2021, USTR found that the DSTs adopted by these countries “discriminate[] against U.S. companies, [are] inconsistent with prevailing principles of international taxation, and burden or restrict[] U.S. commerce.” See SmarTrade Updates of January 7, 2021 and January 14, 2021. In March 2021, the office of the USTR announced that it was considering tariffs of up to 25% “on an aggregate level of trade that would collect duties on goods” from each country, sought public comments and held a public hearing on potential retaliatory measures. See SmarTrade Update of March 29, 2021.

Today’s actions formally conclude the investigation and notify the public that the USTR has determined the appropriate action to be the imposition of ad valorem import duties of 25% on products of the six countries. The USTR has prepared six notices that indicate in Appendix A to each notice the specific products/tariff subheadings upon which these duties will be placed:

  • Austria – Annex A contains a list of 23 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $65 million.
  • India – Annex A contains a list of 26 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $119 million.
  • Italy – Annex A contains a list of 44 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $386 million.
  • Spain – Annex A contains a list of 27 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $324 million.
  • Turkey – Annex A contains a list of 32 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $310 million.
  • United Kingdom – Annex A contains a list of 67 tariff subheadings, with an estimated trade value for calendar year 2019 of approximately $887 million.

As noted, however, collection of these additional duties has been suspended for 180 days.

On May 28, 2021, the U.S. Customs and Border Protection (CBP) issued a press release announcing that the CBP had issued a Withhold Release Order (WRO) for imports of seafood products from Dalian Ocean Fishing Co., Ltd., a Chinese entity, “based on information that reasonably indicates the use of forced labor in the entity’s fishing operations.” The WRO will be effective immediately.

The CBP’s press release notes that, during the course of the investigation, the CBP identified 11 of the International Labor Organization’s indicators of forced labor, including physical violence, withholding of wages, and abusive working and living conditions. The WRO instructs all CBP personnel to detain at all U.S. ports of entry all entries of tuna, swordfish, and other seafood harvested by vessels owned or operated by Dalian Ocean Fishing Co. Ltd.

While the CBP issued WROs on individual distinct water fishing vessels in the past (e.g., Lien Yi Hsing No. 12, the Da Wang, and the Yu Long No. 2), this is the first WRO issued against an entire fleet of fishing vessels. Importers of detained shipments will have the opportunity to either export their shipments or demonstrate that the merchandise was not produced with forced labor.

The State Department’s Directorate of Defense Trade Controls (DDTC) on June 1, 2021 announced that a final rule from January 2020, which moved 3D-printed guns out from control under the International Traffic in Arms Regulations (ITAR) over to the Export Administration Regulations (EAR), is now in effect. See Federal Register notice of January 23, 2020. Although the final rule was originally set to go into effect in March 2020, a court challenge, including the issuance of a preliminary injunction, prevented the implementation of the final rule. On April 27, 2021, however, the U.S. Court of Appeals for the Ninth Circuit issued an opinion lifting the injunction that had blocked final implementation of the rule. Therefore, software and technical data related to 3D printing of firearms or components are now exclusively controlled by the EAR. The Department of Commerce issued a notice on June 1, 2021 announcing the transfer of jurisdiction of such technology and software to the EAR, and noted that its Final Rule controlling certain firearms, guns and related articles and technology is now fully implemented. See Federal Register Notice of January 23, 2021.

BIS has published guidance relating to the final rule in the form of 119 Frequently Asked Questions. The guidance outlines BIS’s approach to the controls, including recordkeeping, registering and applying for licenses, brokering controls, license exceptions, and clearance requirements. It also defines certain key terms to distinguish, among other things, additive manufacturing and 3D printing. For additional information, see SmarTrade Update of July 10, 2020.

On June 1, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8H, “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities.” This general license continues to authorize transactions and activities “ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements,” that:

  1. are for safety or the preservation of assets in Venezuela;
  2. involve PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest; and
  3. were in effect prior to July 26, 2019, for the following entities and their subsidiaries:
    • Chevron Corporation
    • Halliburton
    • Schlumberger Limited
    • Baker Hughes, a GE Company
    • Weatherford International, Public Limited Company

The term “safety or the preservation of assets” covers transactions and activities necessary “to ensure the safety of personnel, or the integrity of operations and assets in Venezuela; participation in shareholder and board of directors meetings; making payments on third-party invoices for transactions and activities authorized” under this general license (or prior to April 21, 2020, if such activity was authorized at that time) as well as “payment of local taxes and purchase of utility services in Venezuela; and payment of salaries for employees and contractors in Venezuela.” The general license authorizes such activities involving PdVSA and the other listed entities through 12:01 a.m. EST, December 1, 2021.

As with past extensions, General License 8H does not authorize any activities related to Venezuelan-origin petroleum or petroleum products; the provision of insurance for such products; the design, construction or work on wells or other facilities or infrastructure in Venezuela; contracting any additional personnel or services (except as required for safety); or, the payment of any dividends to PdVSA. Further, this General License does not authorize transactions related to the export or re-export of diluents to Venezuela; the issuance of any loans to, or accrual of additional debt by, or subsidization of PdVSA; or, any transactions prohibited by OFAC’s Venezuela Sanctions Regulations (31 C.F.R. part 591) or with any blocked persons other than those identified in this General License.

General License 8H replaces and supersedes General License 8G. See also SmarTrade Update of November 17, 2020.

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has formally issued the Burma Sanctions Regulations to implement Executive Order 14014 of February 10, 2021, “Blocking Property With Respect to the Situation in Burma.” See SmarTrade Update of February 11, 2021. These regulations took effect on June 1, 2021, and are now codified in the Code of Federal Regulations at 31 C.F.R. Part 525. The Burma Sanctions Regulations set forth formal definitions; provide the scope of prohibited transactions; detail the general and specific license procedures; and provide limited details on available interpretations. OFAC states that these regulations are being published “in abbreviated form at this time for the purpose of providing immediate guidance to the public,” but that the agency intends to supplement Part 525 “with a more comprehensive set of regulations, which may include additional interpretive and definitional guidance, general licenses, and other regulatory provisions.”

Currently, OFAC has issued four general licenses in order to authorize activities that would otherwise be prohibited with regard to the Burma Sanctions Regulations. General licenses allow U.S. persons to engage in the activity described in the general license without needing to apply for a specific license.

OFAC has also issued limited FAQs on the Burma sanctions.

As a reminder, BIS previously announced actions to limit exports and reexports of sensitive goods to Burma’s military and security services and suspended certain license exceptions for the country in the wake of the Burmese military’s February 1 coup to overthrow the civilian government of Burma. However, actual regulations had not been formalized. BIS’s policy remains a “presumption of denial” for any licenses for export and reexport to select Burmese government departments and agencies. See SmarTrade Update of February 12, 2021.

NOTE: While the U.S. government and its regulations still reference “Burma,” the country since 1989 has been known as Myanmar.