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The Office of the U.S. Trade Representative (USTR) has issued two Federal Register notices announcing the extension of numerous product exclusions from the Section 301 tariffs for imports from China appearing on List 1 (products from China with an annual trade value of $34 billion) and List 2 (products from China with an annual trade value of $16 billion).

USTR is extending 62 product exclusions from  List/Tranche 1, including:  certain submersible centrifugal pumps; certain tabletop water fountains; certain rotary compressors; certain thermal roll laminators; parts of swimming pool vacuum cleaners; certain types of shovel loaders; certain animal feeding machinery and parts; certain lathes and numerically-controlled milling machines; certain types of valve bodies and valve parts; certain types of ball bearings of various sizes; certain electrical AD and DC motors; numerous types of electrical switches, connectors and terminals; certain four-wheel off-road vehicles; various medical devices and accessories; certain X-ray tables, tubes and parts; and certain thermostats and covers.

USTR is extending 17 product exclusions from List/Tranche 2, including:  Acrylic acid-2-acrylamido-2-methylpropanesulfonic acid-acrylic ester; certain molded acrylonitrile-butadiene-styrene (ABS) tubes; certain electrical tape of polyvinyl chloride; certain transparent tape; certain rolls of polyethylene and polyvinyl chloride film coated with a solvent acrylic adhesive; certain sheets and strips consisting of both cross-linked polyethylene and ethylene vinyl acetate; certain polyethylene sheet and film; certain girders of iron or steel and certain pipes of iron or steel meeting various ASTM standard; certain monopolar conductors; and, certain electric motorcycles.

The product exclusion extensions will apply until December 31, 2020.  These exclusions continue to apply to any product that satisfies the description in the annexes of these Federal Register notices, regardless of whether the company using the exclusion filed the request.  Each exclusion is governed by the scope of the HTS subheading and the product description appearing in the annexes; they are not governed by the description set out in any particular exclusion request.

 

On September 15, 2020, a dispute settlement panel of the World Trade Organization (WTO) ruled that President Donald Trump’s tariffs against China violate the General Agreement on Tariffs and Trade (GATT) because they are prima facie inconsistent with Articles I:1 (Most-favored Nation Treatment) and certain of the GATT’s schedules and concessions, and the United States has not met its burden of demonstrating that the tariff measures it took under Section 301 of the Trade Act of 1974) are justified under GATT provisions for exceptions and necessary “to protect public morals.”

China filed the WTO complaint in 2018 when the Trump administration, under U.S. Trade Representative Robert Lighthizer, determined that the acts and policies of China related to technology transfer, intellectual property and innovation were unreasonable and discriminatory and implemented 25 percent tariffs on more than $200 billion worth of Chinese goods imported into the United States on an annual basis.  China argued that  under the most-favored nation clause, the United States could not impose tariffs unilaterally against another WTO member country.  The three-person WTO dispute panel agreed and stated:  “China has demonstrated that the additional duties apply only to products from China and thus fail to accord to products originating in China an advantage granted to the like product originating in all other WTO Members.”

While this ruling is the first report from a WTO dispute settlement panel to address the Trump administration’s wide use of tariffs as a retaliatory trade action, it will have little immediate impact.  The panel’s ruling is certain to be appealed by the United States to the WTO’s appellate body.  Since the Trump administration has refused  to agree to the appointment of new appellate judges at the WTO to fill vacancies, the appellate body no longer has a quorum and is unable to issue any final and actionable decisions.  Upon learning of the decision, President Trump stated to the press that “we’ll have to do something about the WTO because they’ve let China get away with murder….  But I’m not a big fan of the WTO — that, I can tell you right now.”  Ambassador Lighthizer added in a press statement: “This panel report confirms what the Trump Administration has been saying for four years:  The WTO is completely inadequate to stop China’s harmful technology practices….  The United States must be allowed to defend itself against unfair trade practices.”

 

On September 15, 2020, the Office of the United States Trade Representative (“USTR”) issued a statement that it will “modify the terms of the 10 percent tariff imposed in August on imports of Canadian non-alloyed unwrought aluminum.”  The United States will resume duty-free treatment of the Canadian aluminum retroactive to September 1, 2020, based on the expectations that trade will “normalize” in the last four months of 2020 after earlier surges.  However, tariffs could be imposed again retroactively for September-December, if shipment volumes exceed 105 percent of the stated volumes.

On August 6, 2020, President Donald Trump issued a Presidential Proclamation reimposing the 10% ad valorem tariff on imports of non-alloyed unwrought aluminum products from Canada and stating that imports of this form of aluminum had “increased substantially” and were “principally responsible for the 27 percent increase in total aluminum imports from Canada during June 2019 through May 2020.”  After the U.S. proclamation, the Canadian government issued a notice of intent to impose countermeasures against the United States in response to the tariffs. For more information on these actions, please see previous updates dated March 8, 2018,  August 7, 2020 and August 10, 2020.

The USTR’s most recent statement was announced as Canada was set to impose retaliatory measures against imports of U.S. aluminum and aluminum-containing products.  The USTR’s statement establishes monthly targets for the volume of aluminum imports the United States will accept from Canada without a tariff, and the USTR noted that it will monitor export volumes six weeks after the end of every month through December 2020 to ensure duty-free treatment remains warranted.

On September 15, 2020, the Department of the Treasury published in the Federal Register a final rule to modify certain regulations of the Committee on Foreign Investment in the United States (CFIUS) pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). As discussed in our previous update dated May 26, 2020, on May 21, 2020, the Treasury Department had issued the initial proposed rule seeking public comment on the changes to the CFIUS disclosure requirements. The final rule implements the proposed rule’s changes and modifies the mandatory declaration provisions for certain transactions involving critical technologies and amends the definition of “substantial interest.” The final rule will become effective 30 days after publication, on October 15, 2020.

Previously, CFIUS mandated the filing of a declaration in connection with a covered transaction involving a U.S. business that develops, manufactures or produces “critical technology,” where a foreign government has a “substantial interest” in a foreign person that will invest in one or more of the 27 industries identified by reference to the North American Industry Classification System (NAICS) codes. Like the proposed rule, the new final rule will narrow the mandatory declaration requirement and align it more closely with U.S. export controls instead of NAICS codes.

Under the new rule, a declaration would only be mandated if certain U.S. government authorizations would be required to export, re-export, transfer (in country), or retransfer the critical technology or technologies produced, designed, tested, manufactured, fabricated, or developed by the U.S. business to certain foreign parties to the transaction. The foreign parties would trigger a declaration mandate if the foreign person would control the U.S. business, have a covered investment in the U.S. business, and or in simplified terms, a direct or indirect voting interest of more than 25% in a person that would have a controlling or covered investment interest in the U.S. business. There is a carve-out to the declaration requirement if the export would be covered by certain license exceptions under the Export Administration Regulations (EAR).

Additionally, the new rule sets forth how to determine the percentage interest held indirectly by one entity in another for purposes of determining whether a foreign person obtains a “substantial interest” in a U.S. business where a foreign government in turn holds a “substantial interest” in the foreign person. FIRRMA also requires notifications for certain covered transactions in which a foreign government has a “substantial interest” in a foreign person that will acquire a substantial interest in certain types of U.S. businesses. Under the rule, a foreign government will be considered to have a substantial interest in an entity whose activities are primarily directed, controlled, or coordinated by or on behalf of a general partner, managing member, or equivalent, only if they hold 49% or more of the interest in that general partner, managing member, or equivalent.

On September 10, 2020, HMTX Industries LLC and two of its subsidiaries (“complainants”) filed a complaint at the U.S. Court of International Trade (“CIT”) alleging an unlawful escalation of the ongoing trade war with China through the imposition of a third round of tariffs on imports covered under List/Tranche 3. Arguing that the Trade Act of 1974 did not confer authority on the Office of the U.S. Trade Representative (USTR) “to litigate a vast trade war for however long, and by whatever means, they choose,” the complaint states that the USTR had a limited time to determine any actions to take and that the “arbitrary manner” in which the List 3 tariff actions were implemented violates the Administrative Procedure Act (APA). The complainants seek to set aside these unlawful actions and obtain a refund of any duties paid on imports of List 3 products from China.

The complaint acknowledges that Section 301 of the Trade Act of 1974 authorizes the USTR to investigate a foreign country’s trade practices and that the USTR may take “appropriate” action, such as imposing tariffs on imports from the country that administered the unfair practice, if “unreasonable or discriminatory” practices are present. The complainants argue, however, that Section 304 of the Trade Act of 1974 requires the USTR to determine what action to take, if any, within 12 months after the initiation of the investigation and that the USTR failed to issue additional tariffs for Chinese products on List 3 (or subsequently List 4) within this 12-month window. The complaint further argues that Section 307 of the Trade Act of 1974 “does not permit USTR to expand the imposition of tariffs to other imports from China for reasons untethered to the unfair intellectual property policies and practices it originally investigated under Section 301 of the Trade Act.” Nevertheless, in the months following the conclusion of the Section 301 investigation and the initial implementation of List 1 and 2 tariff actions, the complaint states, the USTR “wildly expanded the scope of the tariffs imposed under Section 301 of the Trade Act to cover imports worth more than $500 billion—ten times the amount it had deemed ‘commensurate’ with the findings of USTR’s original investigation.” The complaint argues that Section 307 only allows the USTR to “delay, taper, or terminate—not ratchet up—the actions it has already taken.”

In support of their allegations that the USTR was arbitrary and capricious in its implementation of List 3 tariffs under the APA, the complainants claim that the USTR failed to: (1) provide sufficient opportunity for public comment; (2) consider relevant factors when making its decision; and (3) connect the record facts to the choices it made. According to the complaint, “despite receiving over 6,000 comments, USTR said absolutely nothing about how those comments shaped its final promulgation of List 3” and USTR’s “preordained decision-making preordained decision-making resulted in the unlawful imposition of tariffs on imports covered by List 3 whose value equals $200 billion.”

The complainants request that the CIT: (i) declare the USTR’s actions resulting in tariffs on List 3 products are unauthorized by, and contrary to, the Trade Act of 1974; (ii) declare the USTR arbitrarily and unlawfully promulgated List 3 in violation of the APA; (iii) vacate the China Section 301 List 3 rulemaking; (iv) order a refund, with interest, on any duties paid by the complainants; and, (v) permanently enjoin USTR from applying List 3 and collecting any duties pursuant to List 3. The case is captioned HMTX Industries LLC, Halstead New England Corporation, and Metroflor Corporation vs. United States of America; Office of the United States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; Mark A. Morgan, U.S. Customs & Border Protection Acting Commissioner; Court No. 20-00177.

On September 3, 2020, the Department of State and the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned numerous entities and persons for their reported involvement with the petroleum or petroleum sector of Iran.  According to a press statement from Secretary of State Michael Pompeo,  the targeted entities and persons have “continued to facilitate Iran’s export of petroleum, petroleum products, and petrochemicals contrary to U.S. sanctions” and are being sanctioned pursuant to Executive Order (E.O.) 13846 issued in August 2018 when the United States re-imposed certain sanctions on Iran (see Update of August 6, 2018).  A press statement from Secretary of the Treasury Steven Mnuchin noted that, “The Iranian regime uses revenue from petrochemical sales to continue its financing of terrorism and destabilizing foreign agenda.”

The sanctioned entities and their country of location are: (i) Abadan Refining Company (Iran); (ii) Zhihang Ship Management Co. Ltd. (China); (iii) New Far International Logistics LLC (China); (iv) Sino Energy Shipping Ltd. (China); (v) Chemtrans Petrochemicals Trading LLC (UAE); (vi) Zagros Petrochemical Company (Iran); (vii) Petrotech FZE (UAE); (viii) Trio Energy DMCC (UAE); (ix) Jingho Technology Co. Limited (Hong Kong); (x) Dynapex Energy Limited (Hong Kong); and, (xi) Dinrin Limited (Hong Kong).

Three officials of these entities have also been sanctioned:  (i) Min Shi, employee of New Far International; (ii) Zuoyou Lin, employee of Sino Energy Shipping; and, (iii) Alireza Amin, employee of Abadan Refining.

All of these entities and persons have been designated and placed on the Specially Designated Nationals (SDN) List; additional identifying information is available here.  As a result of being designated, all property and interests in property of these entities and persons subject to U.S. jurisdiction are blocked, and U.S persons are generally prohibited from engaging in transactions with them.  In addition, foreign financial institutions that knowingly facilitate significant transactions for, or persons that provide material or certain other support to, the designated entities and persons risk exposure to sanctions that could sever their access to the U.S. financial system or block their property and interests in property under U.S. jurisdiction.

 

On August 28, 2020, President Donald Trump issued a Presidential Proclamation No. 10064 to adjust U.S. imports of steel from Brazil for national security reasons. In May 2018, President Trump granted an exemption for Brazilian steel products from additional tariffs imposed under Section 232 of the Trade Expansion Act of 1962, which provides the president with authority to adjust imports entering the United States in quantities or under circumstances that threaten to impair national security. Through negotiations, certain countries – including Brazil – agreed to restrict their U.S. shipments and, in turn, have those quota restrictions exempt from the 25 percent additional tariff implemented by the Department of Commerce. While this exemption was maintained in 2019 for Brazil, U.S. Trade Representative (USTR) Robert Lighthizer indicated in a press statement that in 2020, “in light of recent deterioration in market conditions brought on by the COVID-19 pandemic affecting domestic steel producers, the United States has deemed it necessary to reduce the remaining quota for Brazilian semi-finished steel products for the remainder of 2020.” Pursuant to the proclamation, the United States will reduce semi-finished steel imports from Brazil to 60,000 metric tons (60,000,000 kilograms), down from 350,000 metric tons for the remainder of calendar year 2020, but will maintain existing quotas for other steel imports from Brazil.

The proclamation continues to provide relief from the quota “in certain limited circumstances” for blooms, billets and slabs, semi-finished, provided for in HTS subheadings 7207.11.00, 7207.12.00, 7207.19.00, 7207.20.00 or 7224.90.00 (except for statistic reporting number 7224.90.0015, 7224.90.0025 and 7224.90.0035). In order to be eligible for this relief, the party requesting relief must have entered into a contract for the production of such Brazilian steel articles before August 28, 2020; must have an agreement that specifies the quantity of the steel and provides for a shipment date prior to December 31, 2020; must use the steel in the United States and the steel article cannot be procured from another supplier to meet necessary specifications and the delivery schedule; and must certify that the lack of relief from the quota limitation would significantly disrupt production activity in the United States. The proclamation states that the volume of imports that will be granted relief may not exceed 60,000,000 kilograms in the aggregate

Beginning with calendar year 2021, “the annual aggregate limit for Brazil shall revert to the aggregate limit for Brazil set forth in the Annex to Proclamation 9759” (i.e., the original import quota announced on May 31, 2018). The proclamation also notes, however, that the United States and Brazil will hold further consultations about the semi-finished steel quota for 2021 in December 2020 and discuss “the state of the steel trade between the two countries in light of then-prevailing market conditions.”

On September 1, 2020, the Department of State’s Bureau of International Security and Nonproliferation, the Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint advisory to alert persons to the Democratic People’s Republic of Korea’s (North Korea) ballistic missile procurement activities. The advisory identifies key North Korean procurement entities, examples of certain materials and equipment North Korea likely imports, and deceptive techniques employed by North Korean proliferators and procurement networks in support of the regime’s ballistic missile program.  The advisory also provides an overview of U.S. sanctions authorities related to North Korea proliferation, and lists North Korea-related sanctions enforcement resources.

The joint advisory indicates that North Korea’s ballistic missile procurement activities “expose the electronics, chemical, metals, and materials industries as well as the financial, transportation, and logistics sectors to the risk of possibly violating United Nations (UN) and U.S. sanctions.”  It further highlights that to obtain these materials, North Korea uses an extensive overseas network of procurement agents, including officials who operate from North Korean diplomatic missions or trade offices, as well as third country nationals and foreign companies.  This network includes collaboration with foreign-incorporated companies, such as Chinese and Russian entities, to acquire foreign-sourced basic commercial components and then consolidate and repackage them for onward shipment to North Korea, concealing the true end-user from the manufacturers and distributors of the materials and equipment.

The advisory notes that individuals and entities producing or trading in these products, or providing related financial or other services must be “vigilant regarding any involvement in the transfer of sensitive technology to North Korean entities” and are “encouraged to ensure they understand fully all sanctions obligations and risks that pertain to their activities.”  Persons should make informed decisions about providing products or services to customers based on the risks associated with those specific customers; implement appropriate Know-Your-Customer (KYC) policies and procedures; and conduct other sufficient due diligence in business transactions.

 

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published in the Federal Register on August 27, 2020 an advance notice of proposed rulemaking (ANPRM) for foundational technologies. BIS is soliciting public comments until October 26, 2020 to help identify foundational technologies essential to U.S. national security (“Foundational Technologies ANPRM”). This long-awaited ANPRM marks the start of an intra-agency review process implementing a key provision of the Export Control Reform Act of 2018 (ECRA) (see 50 U.S.C. Chapter 58 at § 4817), in which Congress directed BIS to establish controls on the export, re-export and in-country transfers of “foundational technologies.” In this bulletin, we summarize what you can expect next from BIS and the key takeaways from this recent action.

Key Notes:

  • The long-awaited advanced notice of proposed rulemaking (ANPRM) kicks off an intra-agency review process authorized by the Export Control Reform Act to determine what additional export controls should be implemented on foundational technologies essential to U.S. national security.
  • The ANPRM signals a change in strategy from BIS’s previous issuance of a similar ANPRM for emerging technologies, relying more on industry for guidance on the definition and categories of foundational technologies.
  • BIS is accepting public comments until October 26, 2020.

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