On June 12, 2024, the Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS) announced new sanctions and export control restrictions on Russia and Belarus. These measures have significant implications for companies that do business with or in these regions, as they may face new licensing requirements, limitations, or prohibitions on their transactions and operations.

OFAC Sanctions

OFAC announced new sanctions to increase pressure on Russia over its war against Ukraine. These measures include the following:

  • Broader Secondary Sanctions: Foreign financial institutions face greater risk of secondary sanctions, as OFAC has broadened the definition of Russia’s military-industrial base to include all persons blocked pursuant to Executive Order (E.O.) 14024. This means that foreign financial institutions risk being sanctioned for conducting or facilitating significant transactions, or providing any service, involving any person blocked pursuant to E.O. 14024. OFAC has also updated the Specially Designated Nationals and Blocked Persons List (SDN List) for five sanctioned Russian financial institutions to include the addresses and aliases of their foreign locations to help clarify the sanctions risk for foreign financial institutions.
  • Software and IT-Related Services: OFAC restricted access to certain software and IT-related services. To implement this, OFAC has issued a new determination under E.O. 14071, which prohibits providing to any person in Russia (1) IT consultancy and design services; and (2) IT support services and cloud-based services for enterprise management software and design and manufacturing software. The determination will take effect on September 12, 2024. This means that starting from that date, U.S. persons will be prohibited from providing these services to Russia. OFAC also issued FAQs Nos. 1184, 1185, 1186, 1187, and 1188 to clarify what activities are considered prohibited.
  • New Designations: OFAC designated as SDNs hundreds of individuals and entities both in Russia and outside its borders. These include:
    • Sanctions Evasion Networks: Russia-based and other foreign persons designated for their roles in complex schemes and supply chains aimed at evading sanctions and supporting Russia’s war efforts.
    • Russia’s War Economy: Russia-based persons within defense, manufacturing, technology, transportation, and financial services sectors for contributing to the country’s war economy.
    • Limiting LNG Revenue: Persons involved in key Russian liquefied natural gas (LNG) projects and related construction and manufacturing, in line with G7 commitments to restrict Russia’s future energy revenues.

BIS Export Control Restrictions

The BIS issued a final rule that imposes additional export control measures against Russia and Belarus under the Export Administration Regulations (EAR) that affect exports, reexports, and transfers (in-country) to or within Russia and Belarus (the document is unpublished in official form; it is scheduled to be published on June 18, 2024 but is effective as of June 12, 2024). The changes include:

  • Software Export Restrictions: BIS is imposing license requirements on the export, reexport, or in-country transfer of certain EAR99-designated “software” and software updates, including enterprise management and design software, to Russia and Belarus.
  • Narrowing License Exceptions: The scope of License Exception Consumer Communications Devices (CCD) has been narrowed, excluding items like lower-level graphics processing units from export to Russia or Belarus. BIS can revoke or suspend license exceptions for entities aiding in export control evasion.
  • Entity List: The BIS is implementing a new regulatory framework to list high-risk addresses on the Entity List, making it difficult for shell companies to engage in unlawful trade. Enhanced screening is now required. As of today, BIS added eight addresses in Hong Kong to the Entity List. In addition, many other entities were added to the Entity List.
  • Expanded List of Goods: BIS added over 500 additional Harmonized Tariff System (HTS) codes to lists of items requiring a license if destined to Russia and Belarus, covering 22 entire chapters of HTS codes. These include certain oil and gas equipment, aerospace and defense products, and chemicals.

In addition to that, BIS has issued two Temporary Denial Orders (TDOs) against Russian procurement networks for exporting aircraft parts to Russia through third countries in violation of U.S. export controls, affecting several companies and individuals involved in hundreds of shipments.

Implications for Companies

These new sanctions and export control restrictions on Russia and Belarus pose significant challenges and risks for companies. Companies should review their existing and potential transactions, contracts, and relationships with persons or entities that may be subject to the new measures, and ensure that they have the necessary licenses, authorizations, or exemptions to comply with the U.S. regulations. Companies should also monitor the developments and updates from OFAC and BIS, as well as consult with legal counsel, to stay alert of the changing regulatory landscape and avoid potential violations or penalties.

On May 31, 2024, the Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) published a Federal Register notice announcing the seventh phase of the Lacey Act’s import declaration requirement, adding enforcement of Phase VII will begin on December 1, 2024. Known as “the United States’ oldest wildlife protection statute,” the Lacey Act (16 U.S.C. §§ 3371–3378) went into effect in 1900 and prohibits importing, exporting, transporting, selling, receiving, acquiring, or purchasing any illegally taken wildlife, fish, or plant. In 2008, Congress expanded the Lacey Act’s protections, adding, among other amendments, a prohibition to import certain plants, including plant products, without an import declaration. Since 2008, APHIS has phased in what plants and plant products are subject to the import declaration regime, and the newest phase adds all remaining plant products in the Harmonized Tariff Schedule (HTS) that are not 100% composite materials.

As acknowledged by a press release issued by APHIS, Phase VII “includes the broadest range of items” covering a myriad of plants and plant products spanning twenty-six HTS chapters. The press release notes that the newest phase is so comprehensive in scope that “[i]f an importer imports items that contain plant products, but do not currently file a Lacey Act [import] declaration, they likely will need to file [now] under Phase VII.” Items covered by Phase VII include industrial or medicinal plants, handbags, plywood, laminated wood, tools, matches with natural wood stems, products of natural cork, products of bamboo and rattan, footwear, and more. The full range of items can be found on APHIS’s dedicated Lacey Act webpage

Enforcement of Phase VII, however, will not begin until “at least 6 months’ notice to persons and industries affected by [the] changes,” hence why enforcement will not start until December 1, 2024. 

Public Comment

APHIS is seeking public comments addressing the products to be covered under Phase VII, as well as on any additional HTS code(s) that should be included in the newest phase. Note that APHIS is only responsible for the plant provisions of the Lacy Act; the Department of the Interior’s Fish and Wildlife Service is responsible for the wildlife provisions of the Lacey Act, and the Department of Homeland Security works with both agencies to oversee the import declarations at the borders and ports. Comments must be received by APHIS no later than July 30, 2024.

On May 28, 2024, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) revised the Cuban Assets Control Regulations (CACR) to enhance support for the Cuban people and independent Cuban private sector entrepreneurs. These amendments, effective on May 28, 2024, aim to promote internet freedom and broaden financial services in Cuba. In announcing these amendments, OFAC stated they were “in support of internet-based services to promote internet freedom in Cuba, support independent Cuban private sector entrepreneurs, and expand access to certain financial services for the Cuban people.” The U.S. Embassy in Cuba issued a press statement providing further details.

The latest amendments to the CACR will be effective on May 29, 2024, and include the following key revisions:

  • Internet-Based Services: The scope of authorized internet services has been expanded to include social media, video conferencing, e-learning, and cloud-based services, among others. Training and support for communication-related software development are also enhanced, and restrictions on certain export classifications have been lifted.
  • Support for Entrepreneurs: The term “self-employed individual” has been updated to “independent private sector entrepreneur,” now including private cooperatives and small businesses with up to 100 employees. This change aligns with Cuba’s authorization of small- and medium-sized enterprises. However, Cuban officials and Communist Party members are excluded from this definition.
  • Banking Access: Independent private sector entrepreneurs who are Cuban nationals are authorized to open, maintain, and remotely use U.S. bank accounts, including through online payment platforms, to conduct authorized or exempt transactions, regardless of their location.
  • U-Turn Transactions: The authorization for “U-turn” transactions, previously revoked in 2019, has been reinstated. This allows for certain fund transfers involving Cuba to pass through U.S. banks, provided that neither the originator nor beneficiary is under U.S. jurisdiction.
  • Reporting Requirements for Telecommunications: The amendment replaces the fax or mail reporting requirement for telecommunications-related transactions with an email reporting requirement and clarifies that the reporting requirement applies only to the non-banking institution entity providing telecommunications services.

Additionally, OFAC has updated and released new FAQs on its website to assist with the understanding of these changes (See FAQs 1174-1179 and FAQs 732, 736, 745, 748, 757, 769, 770, and 785), including a detailed definition of the term “independent private sector entrepreneur” and examples of authorized services.

On May 24, 2024, the Office of the United States Trade Representative (USTR) announced that it was further extending certain product exclusions in the Section 301 Investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. The current 429 product-specific exclusions were scheduled to expire on May 31, 2024. However, under the forthcoming Federal Register notice, the USTR announced that only 164 product exclusions will be extended while the rest will expire as of June 14, 2024.

The 164 product exclusions that have been granted extensions will not expire until May 31, 2025. In allowing these extensions, the USTR announced that it “has found that extending these exclusions will support efforts to shift sourcing out of China, or provide additional time where, despite efforts to source products from alternative sources, availability of the product outside of China remains limited.” The exclusions that are extended are identified in Annex C to the notice.

For those product exclusions that were not granted any extension, the USTR noted that 102 of them received no public comments requesting an extension. For the remaining exclusions expiring on June 14, the USTR stated that the “public comments do not demonstrate that further extending the exclusion would aid efforts to shift sourcing out of China in the near term or do not demonstrate that products covered by the exclusion are unavailable outside of China.” It appears that the USTR specifically declined to extend product exclusions in instances where U.S. importers indicated no plans or efforts to shift sourcing outside of China, or where vague explanations were offered on seeking alternative sourcing. The exclusions that will expire are identified in Annex D to the notice. To provide a transition period for these expiring exclusions, the USTR has extended their expiration date from May 31, 2024, until June 14, 2024.

On May 28, 2024, the Office of the U.S. Trade Representative (USTR) posted in the Federal Register a request for comments regarding its proposed modifications to certain tariffs related to the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation that was initiated in 2018 and resulted in a recently released statutorily mandated four-year review report. For additional details on this report, see Thompson Hine Update of May 15, 2024. The proposed modifications, directed by President Joe Biden, will either add or increase Section 301 duties on certain imported Chinese products in strategic sectors. Also included in the notice are proposed subheadings eligible for an exclusion process by which interested persons may request that particular machinery used in domestic manufacturing be temporarily excluded from this tariff and a proposal to grant 19 temporary exclusions for certain solar manufacturing equipment.

Annex A to the USTR’s request for comments proposes 382 Harmonized Tariff Schedule of the United States (HTSUS) subheadings and five statistical reporting numbers of the HTSUS for the Section 301 tariff. The products include: (i) batteries; (ii) electric vehicles; (iii) medical gloves, facemasks and other medical items; (iv) critical minerals; (v) semiconductors; (vi) cranes; (vii) solar cells; and (viii) steel and aluminum products. The USTR proposes that increases for these products take effect on August 1, 2024, January 1, 2025, and January 1, 2026, as noted in this Annex. 

The USTR is establishing an exclusion process by which interested persons may request that particular machinery used in domestic manufacturing and classified within certain subheadings under Chapter 84 (nuclear reactors, boilers, machinery and mechanical appliances; parts thereof) and Chapter 85 (electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles) of the HTSUS be temporarily excluded from the Section 301 tariff. The HTSUS subheadings eligible for consideration of this temporary exclusion are set forth in Annex B of the USTR’s request for comments. Procedures for requesting exclusions under this process will be published in a separate notice; and exclusions granted through this process will be effective through May 31, 2025.

At the direction of President Biden, the USTR is also proposing 19 temporary exclusions for solar manufacturing equipment that fall under the HTSUS four-digit subheading 8486. The proposed temporary exclusions are set forth in Annex C to the request for comments. These proposed exclusions will be effective May 28, 2024 through May 31, 2025.

Request for Comments

As to USTR’s proposed modification for adding or increasing Section 301 duties on certain imported Chinese products listed in Annex A, interested persons are invited to comment on:

  • The effectiveness of the proposed modification in obtaining the elimination of or in counteracting China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.
  • The effects of the proposed modification on the U.S. economy, including consumers.
  • The scope of the product description to cover ship-to-shore cranes under subheading 8426.19.00 (Transporter cranes, gantry cranes and bridge cranes).
  • For facemasks, medical gloves, and syringes and needles, whether the tariff rates should be higher than the proposed rates.
  • For facemasks, whether additional statistical reporting codes under tariff subheading 6307.90.98 should be included.
  • Whether the tariff subheadings identified for each product and sector adequately cover the products and sectors included in the President’s direction to the USTR.

For the exclusion process, the USTR seeks comments on whether the subheadings listed in Annex B should or should not be eligible for consideration in the machinery exclusion process and whether Annex B omits certain subheadings under Chapters 84 and 85 that cover machinery used in domestic manufacturing and should be included.

Finally, for the proposed solar manufacturing machinery exclusions in Annex C, the USTR requests comments on the scope of each exclusion, including any suggested amendments to the product description. The USTR web portal and public docket (Docket No. USTR–2024–0007) at https://comments.ustr.gov will open for interested persons to submit comments on May 29, 2024, and close on June 28, 2024. All public comments must be submitted via this online portal.

On May 17, 2024, the Commerce Department’s Bureau of Industry and Security (BIS) published a Final Rule revising the Section 232 tariff exclusion process for imported steel and aluminum products. These changes, effective July 1, 2024, are intended “to refine the framework under which exclusions from the tariffs on steel and aluminum can be requested, ensuring a fairer and more transparent process.”  The revisions remove 12 General Approved Exclusions (GAEs), six for steel and six for aluminum, that were added in December 2020. BIS originally established GAEs to streamline the exclusion process for products consistently found not to be produced in sufficient quantity or quality in the United States.  In announcing the removal of these 12 GAEs, BIS stated that “[r]eversing previous exemptions that facilitated imports of these metals aims to strengthen our U.S. industrial base and our national security by reducing reliance on foreign manufacturing and enhancing domestic production of steel and aluminum.”

In March 2018, former President Donald Trump issued presidential proclamations imposing additional tariffs on imports of aluminum and steel pursuant to Section 232 of the Trade Expansion Act of 1962.  These proclamations authorized BIS to grant exclusions if it was determined the steel or aluminum article for which the exclusion is requested is not “produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality” or should be excluded “based upon specific national security considerations.”  Since implementation of these tariffs, BIS has issued five interim final rules to establish, revise and update this exclusion process.  In December 2020, BIS issued the interim rule establishing GAEs in an effort to reduce the number of exclusion requests for products consistently found not to be produced in the United States.  See Update of December 11, 2020.  In August 2023, BIS proposed several revisions to the Section 232 tariff exclusion process, including adjustments to the criteria for identifying GAEs, the introduction of new General Denied Exclusions (GDEs), and the introduction of new certification requirements for both requestors and objectors.  See Update of August 30, 2023.

The May 17, 2024 Final Rule removes the following GAEs:

  • Six GAEs for steel: GAE.24.S: 7211296080; GAE.43.S: 7209900000; GAE.46.S: 7216330090; GAE.84.S: 7209270000; GAE.90.S: 7216100010; and GAE.93.S: 7208380015; and
  • Six GAEs for aluminum: GAE.1.A: 7609000000; GAE.4.A: 7604210010; GAE.5.A: 7604291010; GAE.9.A: 7601209080; GAE.10.A: 7607116010; and GAE.13.A: 7604295090.

As a result, the steel and aluminum articles specified by these 12 GAEs will revert to the duties and treatment previously established under the March 2018 presidential proclamations (as revised by President Joseph Biden).  According to BIS, the suspension of these 12 GAEs will not substantially increase the total volume of submitted exclusion requests in the Section 232 Exclusions Portal.  This Final Rule makes no additional changes to the other remaining 81 GAEs.

On May 17, 2024, the Department of Homeland Security (DHS) issued a Federal Register notice announcing that effective immediately, 26 Chinese entities have been added to the UFLPA Entity List. These entities include cotton traders and warehouse facilities within China, but the majority of which operate outside of the Xinjiang Uyghur Autonomous Region (XUAR). DHS determined that there was reasonable cause to believe that 21 of the entities source and sell cotton from the XUAR on the wholesale market, and that five entities also source cotton from the XUAR.

As a result of their listing on the UFLPA Entity List, goods produced by these 26 entities will be presumed to be made by forced labor and subject to detention under the Uyghur Forced Labor
Prevention Act. DHS Secretary Alejandro N. Mayorkas stated, “Today’s announcement strengthens our enforcement of the UFLPA and helps responsible companies conduct due diligence so that, together, we can keep the products of forced labor out of our country. We will continue to execute on our textile enforcement strategy and hold the PRC accountable for their exploitation and abuse of the Uyghur people.”

For general background information on the Uyghur Forced Labor Prevention Act (UFLPA), see Thompson Hine’s International Trade Update of June 2022.

Citing national security concerns, President Biden issued an executive order (EO) on May 13, 2024, demanding a Chinese-affiliated company “sell or transfer” its ownership interests and any other rights in an approximately 12-acre lot that comes within one mile of Francis E. Warren Air Force Base (“Warren AFB”) in Cheyenne, Wyoming. The divestment order is particularly noteworthy because it is uncommon for the Committee on Foreign Investment in the United States (CFIUS), the interagency committee tasked with reviewing national security implications of certain foreign investments and real estate transactions in the United States, to refer matters to the President for final resolution. Nonetheless, CFIUS determined a negotiated mitigation agreement “would not be possible” with the Chinese-affiliated company, hence the need for conclusive presidential action.

According to the EO, the Chinese-affiliated company acquired the Wyoming land in June 2022, and subsequently made improvements to the real estate to support “specialized cryptocurrency mining operations.” However, the Chinese-affiliated company never reported the initial real estate acquisition with CFIUS, and only began cooperating after CFIUS initiated an investigation reportedly prompted by a public tip. The relatively new Foreign Investment Risk Review Modernization Act empowers CFIUS to review certain real estate transactions that are in close proximity to specific, sensitive U.S. facilities, such as Warren AFB, even when such acquisitions are not initially notified to CFIUS (see Update of January 22, 2020).

Ultimately, President Biden concluded that the national security risks posed by land owned by a Chinese-affiliated company that abuts Warren AFB, coupled with the related risk associated with the presence of specialized cryptocurrency mining equipment there—some of which is foreign-sourced and “potentially capable of surveillance and espionage activities”—were too problematic and necessitated divestment. Warren AFB is not only a “strategic missile base and key element of America’s nuclear triad,” but also home to Minuteman III intercontinental ballistic missiles.

The Chinese-affiliated company now has 120 days until September 10, 2024 to complete the divestment. However, “all items, structures, or other physical objects” that have been stockpiled, stored, deposited, or installed onto the land or connected to it must be removed within 90 days. Nothing can be sold or transferred without the knowledge and consent of CFIUS, though.

For more details on CFIUS’ functions, see Thompson Hine’s CFIUS/National Security Practice.

Key Notes:

  • The Section 301 tariff actions have been effective in encouraging China to take steps toward eliminating its unfair practices, but it has not eliminated many of its forced technology transfer-related acts, policies and practices.
  • Products currently subject to Section 301 duties will remain subject to the existing additional duties.
  • The USTR will implement new tariffs on seven specific sectors where China continues to rely on government policies and nonmarket practices to unfairly capture market share.
  • The USTR will establish a product exclusion process for certain critical machinery used in domestic manufacturing.

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Key Notes:

  • The Department of Commerce’s Bureau of Economic Analysis requires the reporting of certain statistical data on foreign direct investment in the United States. This includes reporting data when a foreign entity acquires a U.S. business, when a foreign entity or its existing U.S. affiliate establishes a new legal entity, or when an existing U.S. affiliate of a foreign entity expands its U.S. operations.
  • Filing a response is mandatory under the International Investment and Trade in Services Survey Act unless the business does not meet the filing requirements. The act protects the confidentiality of the data that companies submit.
  • A qualifying U.S. business must file a response no later than 45 days after the date of the investment transaction.

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