The U.S. Department of Commerce’s Bureau of Industry & Security (BIS) issued a final rule amending the Export Administration Regulations to eliminate most reporting requirements related to open source encryption software and certain “mass market” encryption items and to revise the Commerce Control List.

Key Notes:

  • BIS issued a final rule eliminating certain reporting requirements relating to “publicly available” encryption source code and beta test encryption software and certain “mass market” encryption products.
  • The rule also makes technical revisions to 22 ECCNs in Categories 0-3, 5-6 and 9 of the Commerce Control List.
  • The final rule is effective immediately.

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On April 8, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule adding seven Chinese supercomputing entities to the Entity List for “conducting activities that are contrary to the national security or foreign policy interests of the United States” due to their support of China’s military modernization and “other destabilizing efforts.”

These Chinese entities are:

  • Tianjin Phytium Information Technology
  • Shanghai High-Performance Integrated Circuit Design Center
  • Sunway Microelectronics
  • The National Supercomputing Center Jinan
  • The National Supercomputing Center Shenzhen
  • The National Supercomputing Center Wuxi
  • The National Supercomputing Center Zhengzhou

According to a statement issued by BIS, these entities “are involved with building supercomputers used by China’s military actors, its destabilizing military modernization efforts, and/or weapons of mass destruction (WMD) programs.” Secretary of Commerce Gina M. Raimondo added, “Supercomputing capabilities are vital for the development of many – perhaps almost all – modern weapons and national security systems, such as nuclear weapons and hypersonic weapons. The Department of Commerce will use the full extent of its authorities to prevent China from leveraging U.S. technologies to support these destabilizing military modernization efforts.”

The listing of these seven entities on the Entity List is effective as of April 8, 2021. Their listing imposes a license requirement that applies to all items subject to the Export Administration Regulations (EAR) and removes any license exceptions on exports, reexports or transfers (in-country) to these entities. In applying for any license to export to these entities, BIS has adopted a license review policy of a presumption of denial.

On April 8, 2021, the Department of the Treasury issued its most recent listing of foreign countries requiring cooperation with an international boycott. The countries on this list has been fairly static for years; however, the United Arab Emirates (UAE) has been removed due to the country’s issuance of Federal Decree-Law No. 4 of 2020, which repealed its law mandating a boycott of Israel and, according to Treasury, “the subsequent actions that the UAE government has taken to implement a new policy.”

Remaining on the list are the following countries that continue to participate in the boycott of Israel: Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria and Yemen.

U.S. companies conducting business in these listed countries are reminded that the Department of Commerce’s Bureau of Industry and Security (BIS) is charged with administering and enforcing the antiboycott laws under the Export Administration Act. These antiboycott laws were adopted to encourage and, in some circumstances, require U.S. companies to refuse to participate in foreign boycotts that the U.S. government does not sanction. According to BIS, the laws “have the effect of preventing U.S. firms from being used to implement foreign policies of other nations which run counter to U.S. policy.” Together, the Department of the Treasury (via the 1976 Tax Reform Act) and BIS’s Office of Antiboycott Compliance have oversight as to efforts to counteract the participation of U.S. persons and companies in other countries’ economic boycotts.

On April 5, 2021, the U.S Court of International Trade (CIT) published a summary judgment opinion invalidating former President Donald Trump’s executive order, Proclamation 9980, which imposed 25 percent tariffs on various imports of aluminum and steel derivative articles pursuant to Section 232 of the Trade Expansion Act of 1962. The CIT found in favor of plaintiff PrimeSource Building Products, Inc., a U.S. importer of various steel derivative products, which argued that Proclamation 9980 was issued after a key statutory deadline in the proceeding.

In January 2021, the CIT dismissed all claims but one in PrimeSource Building Products, Inc. vs. United States, et al., finding that a “genuine issue of material fact” existed for the remaining claim concerning the issuance of Proclamation 9980 after a statutory deadline established following the submission of the Department of Commerce’s Section 232 investigative report to the president. See Update of January 28, 2021, for additional background on the case and prior CIT dismissal of the other claims. At the time of its January 27, 2021 order, the CIT instructed the parties to submit by February 26, 2021, a joint scheduling report for briefing the remaining claim. Instead of filing a joint schedule, the parties on March 5, 2021 filed a joint status report, stating that the defendants “expressly waived ‘the opportunity to provide additional factual information that might show that the essential requirements of [the relevant statutory provision]’ were met.” The parties instead agreed that there was no reason for the CIT to delay any final judgment.

Since the defendants declined to present additional evidence and did not previously address that issue, the CIT found that the “defendants having waived any argument that Proclamation 9980 was issued within the 105-day time period beginning on the President’s receipt of [the Section 232 Steel Report], there are no contested issues of fact.” The CIT issued summary judgment, declaring Proclamation 9980 “invalid as contrary to law” and directed that all entries affected by this litigation be: (i) liquidated without the assessment of duties if still pending; and (ii) refunded if such duties have already been collected and liquidated.

The U.S. government is expected to appeal the CIT decision to the U.S. Court of Appeals of the Federal Circuit, relying on the dissenting opinion of CIT Judge Miller Baker.

On April 2, 2021, President Joseph Biden issued an Executive Order terminating a previously declared national emergency and related sanctions against certain persons involved with the International Criminal Court (ICC). In June 2020, President Trump issued Executive Order 13928 declaring a national emergency due to the ICC’s “illegitimate assertions of jurisdiction over personnel of the United States and certain of its allies, including the ICC Prosecutor’s investigation into actions allegedly committed by United States military, intelligence, and other personnel in or relating to Afghanistan.” The ICC operates under the auspices of the Rome Statute, prosecuting cases of international concern, including war crimes and crimes against humanity. The United States is not a party to the Rome Statute. OFAC issued sanctions against certain ICC personnel in October. See Update of October 5, 2020.

President Biden terminated the Executive Order and stated that he has determined that, “although the United States continues to object to the ICC’s assertions of jurisdiction over personnel of such non-States Parties as the United States and its allies absent their consent or referral by the United Nations Security Council and will vigorously protect current and former United States personnel from any attempts to exercise such jurisdiction, the threat and imposition of financial sanctions against the Court, its personnel, and those who assist it are not an effective or appropriate strategy for addressing the United States’ concerns with the ICC.”

On March 31, 2021, the three-judge panel at the U.S. Court of International Trade (CIT) assigned to the litigation involving the potential refund of Section 301 tariffs on certain imports from China issued its fourth procedural order in the proceeding. In the order, the CIT: (1) accepted the first-filed case as the sample case for the proceeding – HMTX Industries, et al. v. United States, et al. filed by Akin Gump — staying all other cases but allowing a plaintiff to move to lift the stay of a particular case if it consults with the other parties and the plaintiff group’s steering committee before filing a motion to show good cause; (2) accepted the plaintiff group’s proposed 15-person steering committee with Akin Gump serving as the CIT’s point of contact; (3) set an April 12, 2021 deadline for a joint status report that will provide a briefing schedule and identify any issues requiring case management intervention; and (4) refused to address at this time the availability of Section 301 tariff refunds regardless of the liquidation status of the subject entries, explaining that no motion is before it and that it “will not issue an advisory opinion on the matter of relief” and encouraging the parties instead to work together to determine if there is injunctive relief that can be effectuated in the “most administratively efficient manner both for the court and for the relevant agencies.” The order followed the plaintiff group’s March 19, 2021 proposal in response to the previous CIT procedural order and the U.S. government defendants’ March 26, 2021 filing in rebuttal.

In a de facto addendum to the March 31, 2021 order, the CIT issued its fifth procedural order on April 1, 2021, clarifying that a plaintiff in a case that has been stayed may amend its complaint “either as a matter of course or with the court’s leave or the opposing parties’ consent.”

Thompson Hine attorneys and trade professionals will continue to monitor and report on significant developments in this litigation.

The Office of the U.S. Trade Representative (USTR) has released its annual National Trade Estimate Report on Foreign Trade Barriers that addresses the status of foreign trade and investment barriers to U.S. exports worldwide. This is the U.S. government’s major annual report on the barriers to U.S. exports of goods and services, investment and electronic commerce that U.S. exporters and other businesses encounter globally. The report discusses the largest export markets for the United States, covering 61 countries, the European Union, Taiwan, Hong Kong and the Arab League, and includes each of the United States’ 20 free trade agreement partners and other economies and country groupings. Together, these countries and groupings account for over 99 percent of U.S. goods trade and 87 percent of U.S. services trade.

The annual report notes that trade barriers often “elude fixed definitions” but are, for the purposes of the report, “broadly defined as government laws, regulations, policies, or practices that protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights.” The report continues to classify foreign trade barriers in 11 categories:

  • Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing, customs barriers and shortcomings in trade facilitation, and other market access barriers);
  • Technical barriers to trade (e.g., unnecessarily trade restrictive standards, conformity assessment procedures, or technical regulations, including unnecessary or discriminatory technical regulations or standards for telecommunications products);
  • Sanitary and phytosanitary measures (e.g., trade restrictions implemented through unwarranted measures not based on scientific evidence);
  • Subsidies, including export subsidies (e.g., export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third country markets) and local content subsidies (e.g., subsidies contingent on the purchase or use of domestic rather than imported goods);
  • Government procurement (e.g., “buy national” policies and closed bidding);
  • Intellectual property protection (e.g., inadequate patent, copyright, and trademark regimes and inadequate enforcement of intellectual property rights);
  • Services barriers (e.g., prohibitions or restrictions on foreign participation in the market, discriminatory licensing requirements or regulatory standards, local presence requirements, and unreasonable restrictions on what services may be offered);
  • Barriers to digital trade (e.g., barriers to cross-border data flows, including data localization requirements, discriminatory practices affecting trade in digital products, restrictions on the provision of internet-enabled services, and other restrictive technology requirements);
  • Investment barriers (e.g., limitations on foreign equity participation and access to foreign government-funded research and development programs, local content requirements, technology transfer requirements and export performance requirements, and restrictions on repatriation of earnings, capital, fees and royalties);
  • Competition (e.g., government-tolerated anticompetitive conduct of state-owned or private firms that restricts the sale or purchase of U.S. goods or services in the foreign country’s markets or abuse of competition laws to inhibit trade); and
  • Other barriers (barriers that encompass more than one category, e.g., bribery and corruption, or that affect a single sector).

This year’s report notes that the USTR is “scrutinizing foreign labor practices” that may impact labor obligations in free trade agreements and that the USTR is enhancing its monitoring and enforcement of environmental commitments under those agreements. The report contains lengthy sections pertaining to continuing trade barriers with China and Russia.

In the USTR’s press statement, the new USTR, Ambassador Katherine Tai, stated, “The 2021 NTE Report identifies a range of important challenges and priorities to guide the Biden Administration’s effort to craft trade policy that reflects America’s values and builds back better.” See Update of April 3, 2020 for information on and links to USTR’s 2020 NTE Report.

On March 26, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that it will hold a virtual forum on April 8, 2021 to allow the public to address policy objectives and concerns over President Joseph Biden’s Executive Order 14017, which seeks to address the need for resilient, diverse and secure supply chains for critical and essential goods. Under the executive order, the president directed numerous departments and agencies to submit reports within 100 days on certain findings and policy recommendations. See Update of February 28, 2021 for additional details. The comments received during the virtual forum are intended to assist the Department of Commerce in preparing the report.

Representatives from Commerce and other U.S. government agencies will serve on the virtual forum panel. The forum will run from 2:00 to 5:00 p.m. (EDT). Registration is required and will close on April 1, 2021. Requests to make a presentation must also be received by that date. More information on the virtual forum is available at: https://www.bis.doc.gov/semiconductorforum.

On March 26, 2021, the Office of the U.S. Trade Representative (USTR) issued several Federal Register notices concerning the ongoing Section 301 investigations of Digital Service Taxes (DSTs) adopted or under consideration by 10 U.S. trading partners. For six countries, the investigations will continue and the USTR is seeking public comment on possible trade actions. For four other jurisdictions, the USTR has decided to terminate the investigations at this time without action. These investigations under Section 301 of the 1974 Trade Act were initiated on June 2, 2020, out of concern that many U.S. trading partners are adopting tax schemes designed to unfairly target U.S. companies. See Updates of June 4, 2020, January 7, 2021 and January 14, 2021 for further details.

In the ongoing investigations involving Austria, India, Italy, Spain, Turkey and the United Kingdom, the USTR issued separate Federal Register notices seeking comment on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations. The notices indicate that the USTR is considering tariffs of up to 25 percent on “on an aggregate level of trade that would collect duties on goods” from each country “in the range of the amount of the DST” that country is expected to collect from U.S. companies. In each notice, the USTR requests the following information from interested parties:

  1. The level of the burden or restriction on U.S. commerce resulting from the specific country’s DST, including the amount of DST payments owed by U.S. companies, the annual growth rate of such payments, and other effects, such as compliance costs.
  2. The appropriate aggregate level of trade to be covered by additional duties.
  3. The level of the increase, if any, in the rate of duty.
  4. The specific products to be subject to increased duties, including whether the tariff subheadings listed in the attached Annex to each Federal Register notice should be retained or removed, or whether tariff subheadings not currently on the list should be added.

Any written comments must be submitted no later than April 30, 2021. If seeking to appear and testify at the multi-jurisdictional hearing on May 3, 2021, a party must submit a written request with a summary of the expected testimony no later than April 21, 2021. Any post-hearing rebuttal comments must be submitted by May 10, 2021. There will also be a series of country-specific DST hearings after the May 3 multi-jurisdictional hearing; dates for these hearings and any deadlines for post-hearing rebuttal comments vary and are set forth in each Federal Register notice. Documents must be submitted via the electronic portal at https://comments.ustr.gov/s and should be placed under the appropriate docket number for each country.

In the final Federal Register notice, the USTR announced that it was terminating the Section 301 investigations involving Brazil, the Czech Republic, the European Union (EU) and Indonesia because “these jurisdictions either have not adopted or not implemented a DST during the period of investigation.” In the notice, the USTR stated that it would continue to monitor the status of any proposed or adopted DSTs that the EU and three countries may consider. If any of these jurisdictions proceeds to adopt or implement DSTs, the USTR noted that it may initiate new investigations.

In a brief statement, Ambassador Katherine Tai stated, “The United States is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation ….  [and] remains committed to reaching an international consensus through the OECD process on international tax issues.”

On March 22, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned two Chinese government officials for “serious human rights abuses” against ethnic minorities in the Xinjiang Uyghur Autonomous Region of China. In a brief press statement, the Director of OFAC stated, “Chinese authorities will continue to face consequences as long as atrocities occur in Xinjiang …. Treasury is committed to promoting accountability for the Chinese government’s human rights abuses, including arbitrary detention and torture, against Uyghurs and other ethnic minorities.” This action was taken by the United States in conjunction with the European Union, United Kingdom and Canada, which imposed sanctions on these individuals and others.

The two officials sanctioned are: (i) Wang Junzheng, the Secretary of the Party Committee of the Xinjiang Production and Construction Corps (XPCC), and (ii) Chen Mingguo, Director of the Xinjiang Public Security Bureau (XPSB). OFAC has previously sanctioned other Chinese officials over concerns in the Xinjiang region over human rights abuses (see Update of August 3, 2020). The Department of Commerce has also placed a number of Chinese companies on the Entity List (see Federal Register notices of July 22, 2020 and June 5, 2020) in an effort to combat China’s campaign of repression, mass arbitrary detention, forced labor and high-technology surveillance against Uyghurs, Kazakhs and other members of Muslim minority groups in the Xinjiang region.

As a result of this action, these officials have been placed on OFAC’s Specially Designated Nationals (SDN) List and all property and interests in property of the individuals, and of any entities that are owned 50% or more by them, that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. Unless authorized by a general or specific license issued by OFAC, or otherwise exempt, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of these designated persons is generally prohibited.

U.S. exporters and importers should remain mindful of the July 1, 2020 multi-agency advisory that warns U.S. businesses of potential supply chain risks involving the Xinjiang region (see Update of July 2020). U.S. businesses, individuals, academic institutions, service providers, investors and others operating in this region could face significant reputational, economic and legal risk if sufficient due diligence of supply chain activity in China is not conducted.