On December 2, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the expansion of sanctions against Belarus in response to the Lukashenka regime’s continued “disregard for international norms.” The actions taken by OFAC pursuant to Executive Orders 14038 and 13405 include 35 new designations to the Specially Designated Nationals and Blocked Entities (SDN) List and the issuance of a related wind-down license, General License 5 (GL 5), for activities related to two new SDNs, Open Joint Stock Company Belarusian Potash Company (BPC) and BPC subsidiary Agrorozkvit LLC (Agrorozkvit). OFAC also issued Directive 1 imposing restrictions on new debt issued by the Ministry of Finance and the Development Bank of the Republic of Belarus. OFAC published Frequently Asked Questions (FAQs) 939, 940, 941, 942, 943, 944, 945, 946, 947 and 948 on the scope of GL 5 and Directive 1. These actions were taken in coordination with the European Union, United Kingdom and Canada.

The designations target officials and entities playing key roles in disrupting EU border security, shipping ammunition and weapons to foreign conflict zones, and developing military radio-electronics, optics and chassis for missile systems and potash exports. These designations include, among others, state-owned tourism company Republican Unitary Enterprise Tsentrkurort; state-controlled cargo carrier JSC Transaviaexport Airlines and its two aircrafts, EW-78843 and EW-78779; and potash exporters BPC and Agrorozkvit.

OFAC issued GL 5 to provide U.S. persons with 120 days to wind down transactions involving BPC or Agrorozkvit, or any entity in which BPC or Agrorozkvit owns a 50% or greater interest, including the wind-down of such transactions in which Belaruskali OAO has a property interest. GL 5 expires on April 1, 2022. Per FAQ 939, GL 5 does not authorize direct transactions with Belaruskali OAO and does not extend Belarus GL 4, which expires on December 8, 2021.

Directive 1, issued pursuant to EO 14038, prohibits transactions in, provision of financing for, or other dealings by U.S. persons in new debt with a maturity of greater than 90 days issued on or after December 2, 2021 by the Ministry of Finance of the Republic of Belarus or the Development Bank of the Republic of Belarus. FAQ 948 provides that Directive 1 prohibits U.S. persons from entering into derivative contracts linked to underlying assets that constitute prohibited debt thereunder. Pursuant to FAQ 943, the prohibitions of Directive 1 do not apply to any entity that is owned 50% or more by the Ministry of Finance or the Development Bank. Further guidance on the scope of the Directive is available in FAQs 940-947.

On November 24, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8I, “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% 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, June 1, 2021.

As with past extensions, General License 8I 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 8I replaces and supersedes General License 8H. See also SmarTrade Update of June 2, 2021.

On November 26, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) published a Final Rule in the Federal Register adding 27 foreign entities and individuals to the Entity List for engaging in activities that are contrary to the national security or foreign policy interests of the United States. These entities and individuals are located in the People’s Republic of China, Japan, Pakistan and Singapore, as follows:

China

  • Corad Technology (Shenzhen) Ltd.
  • Hangzhou Zhongke Microelectronics Co., Ltd.
  • Hefei National Laboratory for Physical Sciences at Microscale
  • Hunan Goke Microelectronics
  • New H3C Semiconductor Technologies Co., Ltd.
  • Peaktek Company Ltd.
  • Poly Asia Pacific Ltd., (PAPL)
  • QuantumCTek Co., Ltd.
  • Shaanxi Zhi En Electromechanical Technology Co., Ltd.
  • Shanghai QuantumCTek Co., Ltd.
  • Xi’an Aerospace Huaxun Technology
  • Yunchip Microelectronics

 Japan

  • Corad Technology Japan K.K.

 Pakistan

  • Al-Qertas
  • Asay Trade & Supplies
  • Broad Engineering (Pakistan)
  • Global Tech Engineers
  • Jade Machinery Pvt. Ltd.
  • Jiuding Refrigeration & Air-conditioning Equipment Co (Pvt) Ltd.
  • K-SOFT Enterprises
  • Muhammad Ashraf
  • Muhammad Farrukh
  • Prime Tech
  • Q&N Traders
  • Seljuk Traders (SMC-Private) Limited
  • U.H.L. Company

 Singapore

  • Corad Technology Pte Ltd.

Eight of the Chinese entities were added to the Entity List in an effort to prevent U.S. emerging technologies from being used for China’s quantum computing efforts that support military applications. Sixteen Chinese and Pakistani entities and individuals were added to the list due to their contributions to Pakistan’s unsafeguarded nuclear activities or ballistic missile program. Three affiliates of Corad Technology Limited (a Chinese entity placed on the Entity List in 2019) have been added due to their involvement in sales of technology from the United States to Iran’s military and space programs, Democratic People’s Republic of Korea (North Korea) front companies, and Chinese government and defense industry subordinate entities.

Placement on the Entity List means that all exports, re-exports, or transfers of items subject to U.S. Export Administration Regulations (EAR) require a license from BIS, regardless of whether a U.S. person is involved in the transaction or whether the transaction involves the U.S. financial system. BIS has imposed a license review policy of a “presumption of denial” for these entities. In addition, no license exceptions are available for exports, reexports, or transfers (in-country) to these entities.

BIS also added the Moscow Institute of Physics and Technology to the Military End-User (MEU) List due to its production of military products for a military end-user. Placement on the MEU List places a requirement for a license for specific export, reexports or transfers (in-country) due to an “unacceptable risk of use in or diversion to a ‘military end use’ or ‘military end user’” in Russia. BIS has imposed a license review policy of a presumption of denial for this Russian entity. In addition, no license exceptions are available for exports, reexports, or transfers (in-country) to this entity for items specified in Supplement No. 2 to Part 744 of the EAR.

This final rule was effective as of November 26, 2021. However, shipments that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on November 26, 2021, pursuant to actual orders for export or reexport to a foreign destination, may proceed to that destination under the previous eligibility for a license exception or export, reexport, or transfer (in-country) without a license (NLR).

On November 30, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Notice of Inquiry in the Federal Register seeking public comments regarding areas and priorities for United States and European Union (EU) export control cooperation. This information gathering is intended to inform and assist the work of the U.S.-EU Trade and Technology Council (TTC) Export Control Working Group. The TTC was established during the U.S.-EU summit in June 2021 (see Update of June 17, 2021) and held its first meeting on September 29, 2021 (see Update of September 30, 2021).

Under the TTC’s Export Control Working Group, the United States and the EU will seek to enhance cooperation in the following areas:

  • Technical consultations on current and upcoming legislative and regulatory developments;
  • Technical consultations on compliance and enforcement approaches;
  • Capacity building assistance to third countries; and
  • Technical consultations regarding multilateral and international cooperation.

Comments should address ways in which existing U.S. and/or EU dual-use export control policies and practices may be “more transparent, more efficient and effective, more convergent, and fit for today’s challenges, in particular with regards to the control of emerging technologies.” The notes highlight that comments “providing specific and concrete examples where further convergence in U.S. and EU export control practices and policies could enhance international security and the protection of human rights, and support a global level-playing field and joint technology development and innovation, would be particularly helpful.”

Comments must be submitted no later than January 14, 2022, using the federal rulemaking portal (www.regulations.gov). The docket number for this request for comments is BIS-2021-0044.

 

On November 24, 2021, the Office of the U.S. Trade Representative (USTR) announced that the United States and India reached an agreement regarding the treatment of Digital Services Taxes (DSTs). Under the agreement, India will remove its existing DSTs before the entry into force of Pillar 1 of the agreement on global taxation of the Organization for Economic Cooperation and Development (OECD). The United States and India agreed that the same terms that apply under the Unilateral Measures Compromise reached in an earlier agreement between the United States and Austria, France, Italy, Spain, Turkey and the United Kingdom will apply under this agreement. See Updates of October 22, 2021 and November 23, 2021.

In circumstances defined in the agreement, liability for DSTs that U.S. companies accrue during this interim period (from April 1, 2022 until either the implementation of Pillar 1 or March 31, 2024 (whichever is earlier)) will be creditable against future income taxes accrued under Pillar 1 of the OECD global taxation agreement. In return, the United States will terminate its currently suspended additional duties on certain imports from India that had been adopted in the USTR’s Section 301 investigation of India’s DSTs. The Department of the Treasury’s announcement of this agreement with India is available here. While the Section 301 investigation into India’s DSTs will soon be terminated, the USTR will monitor implementation of the agreement with India. For more information on this investigation, see Updates of June 4, 2020, June 2, 2021, and January 7, 2021.

On November 22, 2021, the Office of the U.S. Trade Representative (USTR) announced that the United States and Turkey reached an agreement regarding the treatment of Digital Services Taxes (DSTs).

Under the agreement, Turkey will remove its existing DSTs before the entry into force of Pillar 1 of the agreement on global taxation of the Organization for Economic Cooperation and Development (OECD). The United States and Turkey have agreed that the same terms that apply under the Unilateral Measures Compromise reached in an earlier agreement between the United States and Austria, France, Italy, Spain and the United Kingdom will apply under this agreement. See Update of October 22, 2021.

In circumstances defined in the agreement, liability for DSTs that U.S. companies accrue during this interim period (Pillar 1 of the OECD agreement is to be fully implemented in 2023) will be creditable against future income taxes accrued under Pillar 1 of the OECD global taxation agreement. In return, the United States will terminate its currently suspended additional duties on certain imports from Turkey that had been adopted in the USTR’s Section 301 investigation of Turkey’s DSTs. The “Joint Statement from the United States and Turkey Regarding a Compromise on a Transitional Approach to Existing Unilateral Measures During the Interim Period Before Pillar 1 Is in Effect” is available here. While the Section 301 investigation into Turkey’s DSTs will soon be terminated, the USTR will monitor implementation of the agreement with Turkey. For more information on this investigation, see Updates of June 4, 2020, June 2, 2021, and January 7, 2021.

Key Notes:

  • U.S. importers should review their HTSUS classifications to be ready for anticipated changes in 2022.
  • The changes may be effective as early as January 1, 2022, although the exact implementation date has not been published yet.

In April 2021, following the World Customs Organization’s (WCO) recommendation of changes to the global Harmonized System (HS), the U.S. International Trade Commission submitted to the president Recommended Modifications to the Harmonized Tariff Schedule, 2021. The Recommended Modifications would primarily update the HTSUS to conform to amendments to the HS adopted by the WCO in its recommendation of June 28, 2019, which are scheduled to enter into force on January 1, 2022.

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On November 17, 2021, the Office of the U.S. Trade Representative (USTR), Japan’s Ministry of Foreign Affairs and its Ministry of Economy, Trade and Industry announced the formation of the “U.S.-Japan Partnership on Trade.” The intent of this trade initiative is to deepen cooperation between the two countries and reaffirm their “shared commitment to strengthen this alliance through regular engagement on trade-related matters of importance to both countries” according to an announcement issued by the USTR.

The initial areas of focus will include: (i) third-country concerns; (ii) cooperation in regional and multilateral trade-related fora; (iii) labor-related and environment-related priorities; (iv) supportive digital ecosystems; and (v) trade facilitation. The first formal meetings under this partnership will occur in early 2022, with periodic meetings to be held regularly thereafter “to advance a shared agenda of cooperation across a broad range of issue areas as well as to address bilateral trade issues of concern to either side.”

The Office of the U.S. Trade Representative (USTR) has announced that it will again extend Section 301 product exclusions for imports from China of medical care products needed to address the COVID-19 pandemic. The 99 exclusions were published on December 29, 2020, and were scheduled to expire on November 14, 2021. See past Updates of September 28, 2021 and December 23, 2020 for additional details on past extensions.

The current extension applies in two phases. First, in order to provide a transition period, USTR is extending all of the 99 exclusions scheduled to expire on November 14, 2021, through November 30, 2021. As of December 1, 2021, USTR will extend product exclusions on only 81 medical care products, as set forth in Annex B of USTR’s announcement. These extensions will expire on May 31, 2022. The exclusion extensions are available for any product that meets the description in the product exclusion. Further, the scope of each exclusion and modification is governed by the scope of the 10-digit Harmonized Tariff Schedule of the United States (HTSUS) subheadings and product descriptions in the annexes to this notice.

Effective November 1, 2021, the Department of State’s Directorate of Defense Trade Controls (DDTC) amended the International Traffic in Arms Regulations (ITAR) to add and update entries for Ethiopia and Eritrea, respectively. As a result, it is now the policy of the United States to deny licenses and other approvals for exports of defense articles and defense services to certain end-users (see below) in these countries. The Federal Register notice states that the United States “has deepening concerns about the ongoing crisis in northern Ethiopia as well as other threats to the sovereignty, national unity, and territorial integrity of Ethiopia. People in northern Ethiopia continue to suffer human rights violations, abuses, and atrocities, and urgently needed humanitarian relief is being blocked by the Ethiopian and Eritrean militaries as well as other armed actors.”

With these amendments to the ITAR, it is now the policy of the United States to deny licenses or other approvals for exports of defense articles or defense services destined to or for the armed forces, police, intelligence, or other internal security forces of Eritrea and Ethiopia.