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 Notably, this reclassification marks the first time the ITA has withdrawn a country’s ME status after previously upgrading it.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.

On November 10, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued amended Russia-related General License No. 8D extending the authorization to conduct transactions involving Vnesheconombank, Bank Financial Corporation Otkritie, Sberbank, VTB Bank, Alfa-Bank, and the Central Bank of Russia that are related to energy until May 15, 2023. The original General License No. 8, issued on February 24, 2022, had previously been amended to expand the scope of Russian entities and was scheduled to expire on December 5, 2022.

The term “related to energy” means the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources.

General License No. 8D authorizes energy-related transactions through 12:01 a.m. EST, May 15, 2023, unless renewed. For prior updates on this topic, see Updates dated June 14, 2022, April 7, 2022, and February 28, 2022.

On Friday, November 4, 2022, the government defendants in the ongoing Court of International Trade (CIT) litigation challenging the validity of the China Section 301 tariffs filed their response to the comments of the plaintiff group and amici curiae on the remand explanation of the Office of the U.S. Trade Representative (USTR).  In filing their response, the government defendants argue that the CIT should sustain the remand as the USTR “did not act in an arbitrary or capricious manner when, at the specific direction of the President, it imposed additional tariffs on merchandise imported from [China]” pursuant to Section 301 of the Trade Act of 1974.

In their response, the government defendants claimed that the USTR’s remand explanation responded “to all significant comments”, satisfying the USTR’s obligations under the Administrative Procedure Act (APA) and complying with the CIT’s instructions in the April 1, 2022 remand order, which only required that the USTR “state the main reasons for its decision and indicate it has considered the most important objections.”  The government defendants argue  that the USTR has complied with all instructions provided by the CIT, including:

  • Inclusion of Exclusion of Specific Tariff Subheadings –  reflecting that USTR “balanced numerous factors” in determining the potential benefit or harm of additional duties.
  • The Level of Duty – showing that the USTR balanced concerns of potential harm of the List 3 and 4A tariffs and the amount of those duty rates.
  • The Aggregate Amount of Trade – stating, among other things, that “no commenter disputed that the Lists 1 and 2 actions had not been effective.”
  • Harm to the Consumers and the U.S. Economy – noting that “mitigating harm to U.S. consumers was an important consideration in developing and finalizing lists of products that would be subject to additional duties.”
  • The Legality and Efficacy of the Tariffs – arguing that, in initially responding to the Remand Order, the USTR provided a “fuller explanation of how it evaluated public comments on the efficacy of additional tariffs based upon its experience negotiating with China,” and how it balanced those comments with the President’s specific direction.
  • Alternatives to Additional Section 301 Tariffs – indicating that in responding to comments on the efficacy and legality of additional tariffs, “and by explaining that after the close of public comment, the President had directed it to take a specific final action.”

Per the remand order, the government defendants further claimed in their response that they addressed “whether and how” the USTR modified Lists 3 and 4 at the direction of former President Donald Trump.  This process included consideration of public comment and inter-agency recommendations to determine which duties would “not be practicable or effective to eliminate China’s acts, policies, and practices,” and which would cause “disproportionate economic harm.”  This also included the need to follow Presidential directives in guiding the aggregate amount of trade and duty rate.

In rebuttal to the comments of the plaintiff group and amici curiae, the government defendants argued that they provided “further explanation” per the CIT’s remand order and may “further explain a prior justification” in accordance with a U.S. Supreme Court’s 2020 decision – despite the plaintiff group “contending that USTR could not re-examine the record and could instead only parrot existing statements in the administrative record” and that USTR “engaged in impermissible, post hoc reasoning.” The government defendants added that, according to case law, the “USTR is presumed to have considered all of the issues and all of the evidence in the record in making its decision” and that the USTR in this investigation based its comments and responses on materials available on the full record.  In reply to the plaintiff group’s criticism that the USTR relied on presidential direction as a significant factor in its trade actions in lieu of responses to significant comments, the government defendants explained that this was a factor among many and that they were complying with the CIT’s request in its remand order to explain how it considered the President’s instruction.

To conclude, the government defendants claimed that not one of the plaintiff group’s objections carries the plaintiff group’s burden of establishing that Lists 3 and 4A violate the APA, and that the remand should be sustained. Once the plaintiff group files its short – no more than 10 pages – reply due on December 5, 2022, the CIT will issue its final ruling.  The CIT is under no deadline to issue a final ruling.

See Update of September 15, 2022 for details on the plaintiff group’s comments in response to the USTR’s remand explanation. See also Update of August 2, 2022 for more details on the USTR’s Remand Results explanation and Update of April 6, 2022 for the CIT’s decision directing such further explanation.

On November 1, 2022, the Office of the U.S. Trade Representative (USTR) posted a list of questions interested parties may address in the agency’s ongoing four-year statutory review of the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. While the portal for submitting comments will not formally open until November 15, 2022, the USTR published the questionnaire on its website in advance of the open comment period “to provide advance notice to submitters” — noting that the questions “may be clarified or amended.”

As part of the review, the USTR is seeking public comments on 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. The USTR in its questionnaire seeks to gather responses in three main areas of inquiry: (1) the overall effectiveness of the trade actions and comments on the actions and tariffs on an “economy-wide level,” including any impact on the U.S. economy and consumers; (2) sector and industry-specific impact and effectiveness of the trade actions; and (3) the utility of the tariff headings covered by this Section 301 trade action. For the first two areas of inquiry, the USTR asks (a) if the actions have been effective in obtaining the elimination of or in counteracting China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation; (b) whether there are other actions that could be taken under Section 301 of the Trade Act of 1974 that might help eliminate or counteract China’s actions and policies; and (c) whether there have been any impacts on U.S. workers, small businesses, the supply chain, and U.S. consumers. For the third area of inquiry, noting that the actions apply additional duties to goods under 10,351 eight-digit tariff codes and 57 ten-digit tariff codes of the current Harmonized Tariff Schedule of the United States (HTSUS), the USTR in its questionnaire seeks comments on whether any specific HTSUS codes should be removed, remain covered by the tariffs, or added.

All comments must be submitted via the the USTR’s 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 and October 13, 2022.

UPDATE: On November 1, 2022, U.S. Customs and Border Protection (CBP) issued a message announcing that implementation of its Uyghur Forced Labor Prevention Act (UFLPA) Region Alert is postponed until further notice. CBP stated that its Office of Trade “is actively working with impacted users to address concerns” and that a new implementation date will be determined.

Original SmarTrade post of October 27, 2022:

CBP to Require New Customs Entry Data Element for Chinese Goods

U.S. Customs and Border Protection (CBP) announced it is adding a Uyghur Forced Labor Protection Act (UFLPA) “Region Alert” with a new mandatory data element for reporting imports via the Automated Commercial Environment (ACE) system. The UFLPA Region Alert will add new validations that will be performed when the Country of Origin is reported as China for entry and for Manufacturer Identification Code (MID). The new data element will be a required postal code for entries from China. After inputting the postal code, users will receive an error message if the postal code provided is not a valid Chinese postal code. In addition, users will receive a warning message when a Uyghur region postal code has been provided.

While noted for implementation in November 2022, a more formal Information Notice will likely be published by CBP in November with a testing period, followed by a full implementation date in mid-December 2022. This new data element and validation process is intended to assist CBP with the implementation of the UFLPA and screening imports for possible concerns involving forced labor in the importation of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of China.

Key Notes:

  • The Rule restricts exports to China of high-end chips and semiconductor manufacturing equipment, including foreign made items that are the product of U.S. technology.
  • The Rule restricts the export of a wide range of items that would support certain supercomputing or integrated circuit production end-uses in China. In some circumstances, any item subject to the EAR is restricted.
  • Specific activities of U.S. persons that support the development or production of certain integrated circuits in China will be prohibited without a license.

On October 7, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) issued an Interim Final Rule (the “Rule”) implementing additional export controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs and certain semiconductor manufacturing items.

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Key Notes:

  • The Treasury Department recently released guidelines specifying conduct that may be considered a violation of CFIUS regulations.
  • The guidelines provide information about how CFIUS gathers information and the formal penalty process.
  • They also indicate factors that CFIUS may consider in making an enforcement determination, including aggravating and mitigating factors.

On September 15, 2022, President Biden issued Executive Order (E.O.) 14083 to elaborate upon existing statutory factors and include additional national security factors the Committee on Foreign Investment in the United States (CFIUS or “Committee”) must consider in its review process of covered transactions. This marks the first time a president has issued a formal presidential directive on CFIUS-related matters since President Carter’s E.O. in 1975 which established the Committee.

The October 20, 2022, the Department of the Treasury, as the lead agency for the Committee on Foreign Investment in the United States (CFIUS or “Committee”), released written Enforcement and Penalty Guidelines that for the first time provide information on how the Committee assesses violations of the laws and regulations that govern foreign direct investment transactions that fall under its jurisdiction, including potential breaches of CFIUS mitigation agreements.

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On October 14, 2022, the Departments of Commerce, Treasury and State issued a joint alert regarding the Impact of Sanctions and Export Controls on Russia’s Military-Industrial Complex. The alert provides a summary of the major actions taken by Treasury’s Office of Foreign Assets Control (OFAC) and Commerce’s Bureau of Industry and Security (BIS) with helpful links to official web sites and documents. The overview notes the significant sanctions that have been imposed on Russia’s banking sector as well as sanctions and export restrictions placed on major Russian military, defense, oil and technology companies.

Equally important, the alert serves as an ongoing warning of the risks of supporting Russia’s military-industrial complex. The agencies note that the “intent of our actions is to degrade Russia’s ability to wage its unjust war against Ukraine and prevent Russia from projecting military force beyond its borders.” Since Russia has historically relied heavily on foreign-sourced items to sustain its defense industrial base, the alert indicates that Russia is increasingly attempting to evade U.S. and other allied partners’ sanctions and export controls. These efforts include the use of front companies, intermediaries in third countries, and fraudulent end-user licenses. As such, the alert serves as a reminder by the agencies that existing sanctions authorities allow for the imposition of sanctions “on deceptive or structured transactions or dealings to circumvent any United States sanctions” and that the U.S. government will continue to “use their authorities against persons inside and outside Russia that engage in sanctions evasion or circumvention.”

In an October 12, 2022 petition, the Coalition of Domestic Folder Manufacturers (“Coalition”) alleged that paper file folder imports from China, India and Vietnam are being sold in the United States at less than fair market value with dumping rates as high as 236% and that paper file folder imports from India are benefitting from 16 different Indian government subsidy programs. The proposed scope covers “file folders consisting primarily of paper, paperboard, pressboard, or other cellulose material, whether coated or uncoated, that has been folded (or creased in preparation to be folded), glued, taped, bound, or otherwise assembled to be suitable for holding documents … regardless of color, whether or not expanding, and with or without tabs, fasteners, closures, hooks, rods, hangers, pockets, gussets, or internal dividers.” The paper file folders have “a length and width of at least 8 inches and no greater than 17 inches, regardless of depth.” Manila folders, hanging folders and fastener folders are examples of paper file folders.

The scope excludes:

  1. mailing envelopes with a flap bearing one or more adhesive strips that can be used permanently to seal the entire length of a side such that, when sealed, the folder is closed on all four sides;
  2. binders with two or more rings to hold documents in place, made from paperboard or pressboard encased entirely in plastic;
  3. non-expanding folders with a depth exceeding 7 inches and that are closed or closeable on the top, bottom and all four sides (e.g., boxes or cartons);
  4. fashion folders, which are defined as folders with all of the following characteristics: (1) plastic lamination covering the entire exterior of the folders, (2) printing, foil stamping, embossing (e., raised relief patterns that are recessed on the opposite side), and/or debossing (i.e., recessed relief patterns that are raised on the opposite side), covering the entire exterior surface area of the folder, (3) at least two visible and distinct printed or foil stamped colors other than the color of the base paper, and other than the printing of numbers, letters, words, or logos, each of which separately covers no less than 10 percent of the entire exterior surface area, and (4) patterns, pictures, designs, or artwork covering no less than thirty percent of the exterior surface area of the folder;
  5. portfolios, which are folders having (1) a width of at least 16 inches when open flat, (2) no tabs or dividers, and (3) one or more pockets that are suitable for holding letter size documents and that cover at least 15 percent of the surface area of the relevant interior side or sides; and
  6. report covers, which are folders having (1) no tabs, dividers or pockets, and (2) one or more fasteners or clips, each of which is permanently affixed to the center fold, to hold papers security in place.

In support of its allegations, the Coalition referenced data showing that sales of paper file folders fell during the COVID-19 pandemic, from $57.9 million in 2019 down to $49.7 million in 2021, but skyrocketed to nearly $46 million in the first half of 2022 — a 74.3% increase from the same period one year ago. The data also indicate that as U.S. folder sales fell between 2019 through 2021, the presence of paper file folders from China, India and Vietnam in the U.S. market expanded, reducing the market share of domestic manufacturers and importers from Mexico.

The Department of Commerce’s International Trade Administration now has 20 days following the filing of the petition to determine whether to grant the Coalition’s request for an investigation based upon its claims. Meanwhile, the International Trade Commission has 45 days to issue a preliminary determination on whether there is a reasonable indication that the imports at issue are causing or threatening to cause material injury to the domestic industry.

On October 7, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) issued an Interim Final Rule  implementing additional export controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items. BIS made clear in its announcement that advanced computing items and “supercomputers” can be used to enhance data processing and analysis capabilities, including through artificial intelligence (AI) applications, and that China is “rapidly developing exascale supercomputing capabilities” that have multiple uses, including military applications. These revisions are intended to restrict China’s “ability to both purchase and manufacture certain high-end chips used in military applications.” As a result, with this rule, BIS “seeks to protect U.S. national security and foreign policy interests by restricting [China’s] access to advanced computing for its military modernization, including nuclear weapons development, facilitation of advanced intelligence collection and analysis, and for surveillance.”

Specifically, the rule:

  1. Adds certain advanced and high-performance computing chips and computer commodities that contain such chips to the Commerce Control List (CCL);
  2. Adds new license requirements for items destined for a supercomputer or semiconductor development or production end use in China;
  3. Expands the scope of the EAR over certain foreign-produced advanced computing items and foreign produced items for supercomputer end uses;
  4. Expands the scope of foreign-direct product rule for items subject to license requirements to 28 existing entities on the Entity List that are located in China;
  5. Adds certain semiconductor manufacturing equipment and related items to the CCL;
  6. Adds new license requirements for items destined to a semiconductor fabrication “facility” in China that fabricates ICs meeting specified. Licenses for facilities owned by Chinese entities will face a “presumption of denial,” and facilities owned by multinationals will be decided on a case-by-case basis. The relevant thresholds are as follows:
    • Logic chips with non-planar transistor architectures (i.e., FinFET or GAAFET) of 16nm or 14nm, or below;
    • DRAM memory chips of 18nm half-pitch or less;
    • NAND flash memory chips with 128 layers or more.
  7. Restricts the ability of U.S. persons to support the development, or production, of ICs at certain Chinese-located semiconductor fabrication “facilities” without a license; and,
  8. Adds new license requirements to export items to develop or produce semiconductor manufacturing equipment and related items.

To assist companies whose activities and supply chains involving China may be impacted by this rule, BIS has provided a “model certificate” to assist exporters “with the process of resolving potential red flags” over whether items are subject to the EAR based on the advanced computing foreign direct product rule. It has also established a Temporary General License (TGL) that will allow specific, limited manufacturing activities related to items destined for use outside of China.

This rule will become effective in phases. The semiconductor manufacturing items restrictions are effective as of October 7, 2022; the restrictions on U.S. persons’ ability to support the development, production, or use of ICs at certain Chinese-located semiconductor fabrication “facilities” is effective as of October 12, 2022; and, the advanced computing and supercomputer controls, as well as the other changes in the rule, are effective on October 21, 2022. Public comments on all aspects of this Interim Final Rule must be submitted to BIS no later than December 12, 2022.