On December 2, 2022, the Department of the Treasury (“Treasury”) issued a Determination pursuant to Executive Order 14071 of April 6, 2022 imposing a price cap of $60 per barrel on seaborne crude oil of Russian origin, effective December 5, 2022.  Thus, companies can purchase and/or provide services related to the maritime transport of Russian-origin oil only if the oil is traded at or below $60 per barrel; otherwise, they may be subject to sanctions by Treasury’s Office of Foreign Assets Control (“OFAC”) for offering prohibited services to Russia.  The prohibited services related to the maritime transport of crude oil of Russian origin were outlined earlier in a Determination dated November 21, 2022 that was also issued pursuant to Executive Order 14071 (see Update of November 29, 2022).  The price cap and its policy structure will be imposed by the European Union, the G7, and Australia—collectively the “Price Cap Coalition”—as well.

Treasury anticipates the price cap to encourage countries—particularly low- and medium-income countries—to use the price cap as leverage to bargain for steeper discounts on Russian oil, thus fomenting greater discounted Russian oil on the global energy market.  In doing so, the price cap aims to limit Russia’s “most important source of revenue,” which, in turn, will constrain Russia’s ability to fund its ongoing invasion of Ukraine.

Further, to deter purchasers from buying seaborne crude oil of Russian origin above $60 per barrel, Treasury affirmed its commitment to the Price Cap Coalition’s plans to ban more services related to the maritime transport of seaborne crude oil of Russian origin next week, including a ban on maritime insurance and trade finance.  The additional ban on maritime insurance is particularly noteworthy as companies based in the G7 control approximately 90% of the market for relevant maritime insurance products and reinsurance, and are less expensive than their non-G7 counterparts.  Treasury also confirmed the additional bans will apply to Russian-origin petroleum products beginning on February 5, 2023—the date when the price cap for Russian-origin petroleum products will be announced.

The price cap also clarifies the Preliminary Guidance published in September 2022 by OFAC, which notably extended service providers with a “safe harbor” from strict liability for breach of sanctions if Treasury concluded service providers inadvertently purchased Russian oil above the price cap due to falsified or erroneous records provided by persons who act in bad faith or made material misrepresentations.  The “safe harbor,” though, is only for persons who comply with the price cap program’s recordkeeping and attestation process to demonstrate or confirm that seaborne Russian oil had been purchased at or below the price cap (see Update of September 19, 2022).

On November 21, 2022, the Department of the Treasury issued a Determination pursuant to Executive Order 14071 (prohibiting new investment in and the provision of certain services to the Russian Federation, see Update of April 7, 2022), that prohibits the following categories of services related to the maritime transport of crude oil of Russian Federation origin: (i) trading/commodities brokering; (ii) financing; (iii) shipping; (iv) insurance, including reinsurance and protection and indemnity; (v) flagging; and (vi) customs brokering. As a result, the following activities are prohibited, unless licensed or authorized by the Office of Foreign Assets Control (OFAC): “the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any of the Covered Services to any person located in the Russian Federation.” The prohibition on providing these services will be effective as of December 5, 2022.

Notwithstanding the prohibitions covered by this Determination, these services are authorized “when the price of the crude oil of Russian Federation origin does not exceed the relevant price cap” that has been established by the “Price Cap Coalition” (the United States, G7 members, the European Union, and Australia – countries that have agreed to prohibit the import of crude oil and petroleum products of Russian origin). OFAC has also published guidance on the implementation of the price cap policy for crude oil of Russian Federation origin. This guidance indicates that the price cap for Russian oil will be set after a technical exercise conducted by the Price Cap Coalition. The guidance provides information on how to apply the price cap to determine if a transaction is permissible, offers a more robust description of the covered categories of services enumerated above, and describes the steps for establishing a “safe harbor” from OFAC enforcement and penalties for U.S. companies that operate in good faith with the required due diligence, recordkeeping and attestation process to confirm that Russian oil has been bought at or below the established price cap.

With the issuance of this Determination, OFAC has also issued the following Russia-related General Licenses (GL) to authorize certain activities which would otherwise be prohibited:

  • GL 55 – Authorizing certain services related to Sakhalin-2 until September 30, 2023 involving the maritime transport of crude oil originating from this oil and gas development in Sakhalin Island, Russia.
  • GL 56 – Authorizing certain services with respect to the European Union to allow the importation of crude oil into the Republic of Bulgaria, the Republic of Croatia, or landlocked European Union Member States.
  • GL 57 – Authorizing certain services related to vessel emergencies to allow transactions that are ordinarily incident and necessary to addressing vessel emergencies related to the health or safety of the crew or environmental protection, including safe docking or anchoring, emergency repairs, or salvage operations. This GL does not authorize transactions related to offloading Russian crude oil, unless necessary to address a vessel emergency, nor does it authorize transactions related to the sale of such crude oil.

On November 18, 2022, Customs Trade Partnership Against Terrorism (CTPAT) director Manual Garza announced that Customs and Border Protection (CBP) added three new forced labor benefits for its trade compliance partners “to the greatest extent possible and practical effective immediately.” These benefits include:

  • Front of the Line Admissibility Review: CTPAT trade compliance members who have their shipments detained due to forced labor concerns will have their admissibility packages prioritized for review by the appropriate Center of Excellence and Expertise. To avail itself of the benefit, the importer must assert that it is a CTPAT member and request prioritized review at the time that supporting documentation is submitted to CBP.
  • Redelivery Hold: CTPAT members whose shipments have been held due to ties to forced labor, where redelivery is normally requested, may hold their shipments at their facility until an admissibility determination is made or until such time as a physical inspection is required. 
  • Detained Withhold Release Order Shipments Move to Bonded Facility: CTPAT members whose shipments have been detained by CBP due to a withhold release order will be allowed to move their goods to a bonded facility to be held until such time that an admissibility determination by CBP is made.

CBP’s announcement follows its addition of six new forced labor requirements to its CTPAT trade compliance program in August 2022. These requirements include risk-based mapping, code of conduct, evidence of implementation, due diligence and training, remediation planning and sharing of best practices. These requirements are detailed in the CTPAT Trade Compliance Handbook.

On November 23, 2022, Customs and Border Protection (CBP) issued a Withhold Release Order (WRO) that mandates CBP personnel at all U.S. ports of entry detain raw sugar and sugar-based products produced in the Dominican Republic by Central Romana Corporation Limited (Central Romana). This WRO followed an investigation that reasonably indicated Central Romana uses forced labor in its operations in the Dominican Republic. The WRO will likely have an impact on the sugar market as, according to an April 2022 report by the U.S. Department of Agriculture (USDA), Central Romana is the largest sugar producer in the Dominican Republic, accounting for approximately 59% of the Dominican sugar market in 2021-22 and resulted in 62.84% of the U.S. tariff rate quota for raw sugar in fiscal year 2021.

CBP issued the WRO upon identifying five of the International Labor Organization’s 11 indicators of forced labor in Central Romana’s operations: (i) abuse of vulnerability, (ii) isolation, (iii) withholding of wages, (iv) abusive working and living conditions, and (v) excessive overtime. Accordingly, the WRO is authorized under 19 U.S.C. §1307, which prohibits the importation of merchandise produced, in whole or in part, by convict labor, forced labor, and/or indentured labor, including forced or indentured child labor.

CBP’s WRO follows a myriad of activity aimed to raise awareness of forced labor in global supply chains, including a September 2022 update by the U.S. Department of Labor to its List of Goods Produced by Child Labor or Forced Labor to include sugarcane from the Dominican Republic. According to CBP Acting Commissioner Troy Miller, “[t]he agency will continue to set a high global standard by aggressively investigating allegations of forced labor in U.S. supply chains and keeping tainted merchandise out of the United States.”

With the WRO against Central Romana, CBP now oversees the enforcement of 55 WROs and nine Findings.

On November 26, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela General License (GL) 41 authorizing all transactions ordinarily incident and necessary to certain activities for or related to the operation and management by Chevron Corporation or its subsidiaries (“Chevron”) of Chevron’s joint ventures in Venezuela (collectively, the “Chevron JVs”) involving Petróleos de Venezuela, S.A. (PdVSA) or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest, that are prohibited by current U.S. sanctions in place toward Venezuela. Authorized activities under GL41 are:

  1. Production and lifting of petroleum or petroleum products produced by the Chevron JVs, and any related maintenance, repair, or servicing of the Chevron JVs;
  2. Sale to, exportation to, or importation into the United States of petroleum or petroleum products produced by the Chevron JVs, provided that the petroleum and petroleum products produced by the Chevron JVs are first sold to Chevron;
  3. Ensuring the health or safety of personnel or the integrity of operations or assets of the Chevron JVs in Venezuela; and
  4. Purchase and importation into Venezuela of goods or inputs related to the three activities described above, including diluents, condensates, petroleum, or natural gas products.

This GL has a number of restrictions on Chevron’s activities in Venezuela, including the following activities that remain prohibited:

  • The payment of any taxes or royalties to the Government of Venezuela;
  • The payment of any dividends to PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest;
  • The sale of petroleum or petroleum products produced by or through the Chevron JVs for the exportation to any jurisdiction other than the United States;
  • Any transaction involving an entity located in Venezuela that is owned or controlled by an entity located in the Russian Federation;
  • Any expansion of the Chevron JVs into new fields in Venezuela beyond what was in place on January 28, 2019; or
  • Any transactions otherwise prohibited by current U.S. sanctions toward Venezuela, unless separately authorized.

OFAC has announced that GL41 will be automatically renewed on the first day of each month and is valid for a period of six months from the effective date of each renewal. In clarifying FAQs, OFAC has indicated that non-U.S. persons do not risk exposure to sanctions for facilitating transactions that are authorized under this GL. In addition, U.S. persons may provide goods or services to Chevron for certain activities related to the operation and management of Chevron’s joint ventures in Venezuela, as specified in this GL.

On November 26, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8K, extending authorization until May 26, 2023 for certain activities previously authorized under General License 8J. General License 8K authorizes the continuation of 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 Petróleos de Venezuela, S.A. (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:
    • 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, May 26, 2023.

As with past extensions, General License 8K 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 otherwise 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 8K replaces and supersedes General License 8J. See also SmarTrade Update of May 27, 2022.

On November 23, 2022, the Office of the U.S. Trade Representative (USTR) announced the further extension of exclusions for numerous products used to combat COVID-19 that are subject to China Section 301 tariffs. The exclusions were scheduled to expire on November 30, 2022, and have been extended for an additional 90 days, until February 28, 2023. The exclusions cover 81 medical care products and were initially granted on December 29, 2020.

For more details on past China Section 301 tariff exclusion extensions for COVID-19 products, see Update of May 27, 2022.

As previously reported, on November, 15, 2022, the Office of the U.S. Trade Representative (USTR) opened a docket to receive public comments on the continuation of tariffs in the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.  The questionnaire form provides sections for comments on both economy-wide and sector-specific comments, as well as a section for commenting on a particular tariff heading currently covered by the trade actions (Lists 1, 2, 3, and 4A).  The USTR also continues to seek feedback on, among other matters, the effectiveness of the actions in achieving the objectives of the investigation, other actions that could be taken, and the effects of such actions on the U.S. economy.

All comments must be submitted via the online portal at https://comments.USTR.gov on Docket No. USTR-2022-0014. The portal will allow for the submission of Business Confidential Information (BCI). The USTR will post submissions in the docket for public inspection, except for BCI filings. The docket will close on January 17, 2023. At a later date, the USTR will evaluate whether to provide further opportunities for public comment through additional written comments or by holding public hearings.

In early September 2022, the USTR confirmed that domestic industries had reported benefiting from the tariffs and that such tariffs would continue during the review process (see Update of September 6, 2022). For more details on the initiation of these reviews and the public comment period, see Updates of May 3, 2022, October 13, 2022, and November 2, 2022.

On November 21, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a revised Russia-related General License (GL) 13C, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024,” which states that U.S. persons are authorized to pay taxes, fees, or import duties and purchase or receive permits, licenses, registrations, or certifications, to the extent such transactions are prohibited by Directive 4, provided such transactions are ordinarily incident and necessary to such persons’ day-to-day operations in the Russian Federation. Directive 4 prohibits any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.

The only revision to this GL is the extension of time for such authorizations. Originally set to expire on December 7, the effectiveness of this GL has been extended through 12:01 a.m. eastern standard time, March 7, 2023. Certain dealings remain unauthorized under this general license and therefore require close analysis.

On November 10, 2022, the Department of Commerce’s International Trade Administration (ITA) announced that it was revoking Russia’s status as a market economy (ME) and reclassifying the country as a non-market economy (NME) for any antidumping (AD) proceeding. In announcing this determination, the ITA noted that Russia’s market-oriented economic reforms “have notably and significantly backtracked.” This determination was based on evidence of expanding government activity and prices and costs in Russia that are no longer predictably set by free-forming supply and demand factors.

Russia now joins China, Vietnam and nine other former Soviet republics on Commerce’s NME list for AD proceedings. Notably, this reclassification marks the first time the ITA has withdrawn a country’s ME status after previously upgrading it.  The Department of Commerce designated Russia a ME in 2002 as part of Russia’s bid to join the World Trade Organization (WTO). As recently as October 2021, Commerce had reiterated its position that Russia should maintain its ME status, even though the agency lamented that market-oriented reforms in Russia “have not progressed as significantly as expected and in some cases have backtracked” in the same communique. In March 2022, however, shortly after Russia’s invasion of Ukraine, the petitioners in an ongoing AD investigation involving urea ammonium nitrate solutions from Russia argued that Russia should be treated as a NME country given the “significant changes in market conditions” related to “ruble convertibility, the environment for foreign investment” and the Russian government’s control over the country’s “economy, rule of law, and freedom of information.”

The ITA assessment determined that: (i) “Russia’s prior liberalization initiatives on currency convertibility and foreign investment have notably reversed course”; (ii) “backtracking of economic reforms” continues; (iii) government ownership and control over the economy and setting prices has grown; and (iv) there has been a deterioration in rights associated with freedom of information. These factors thus “render any cost or sales information that [the ITA] could use for AD investigations unrepresentative of market-determined outcomes.” Practically, this assessment means Russian producers now face a presumption of government control, which could result in higher duties in AD proceedings. When the Department of Commerce tries to determine whether a good is sold at less than fair value in the United States, the agency compares the good’s price in its home market with its U.S. import price; when the home market is a NME, however, the ITA assumes that the in-country price is not subject to market forces and relies instead on data from a ME country similarly sized to assess the price of the good. In doing so, the ITA has significantly greater discretion when determining dumping margins for products from NMEs and, in turn, establishing AD duties for them.

The effective date of implementation of the ITA’s determination is November 1, 2022.