On November 5, 2020, the United States and Mexico announced that they had concluded consultations pursuant to their Joint Statement of May 17, 2019 to address the transshipment of grain-oriented electrical steel (GOES) from outside North America into the United States through GOES-containing downstream products. The May 2019 Statement committed Mexico (and Canada) to implement measures (1) to prevent the importation of certain steel and aluminum products into the United States that are unfairly subsidized or sold at dumped prices and (2) to prevent the transshipment into the United States of aluminum and steel made outside of Canada, Mexico or the United States. Mexico has now established a strict monitoring regime for exports of electrical transformer laminations and cores made of non-North American GOES. According to the Office of the U.S. Trade Representative (USTR), Mexico will begin monitoring in the fourth quarter of 2020 shipments of these products to the United States. Further, the United States and Mexico will consult at regular intervals on the implementation of these agreed measures and on the state of bilateral trade and market conditions relating to GOES products.

As a result of Mexico’s commitment to such monitoring, Ambassador Robert Lighthizer stated that imports from Mexico will not be subject to any action to adjust imports of electrical transformers and related parts arising from the U.S. government’s ongoing national security Section 232 investigation into imports related to electrical transformers for the bulk-power system grid. Ambassador Lighthizer thanked Mexico for its commitment to monitor these imports, stating: “The resilience of North America’s energy infrastructure is significantly enhanced by having electrical steel production capability within our region.  An influx of low-price steel from third countries imperils this capability.”

For additional background information, please see updates of May 20, 2019 and May 19, 2020.

On October 29, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Federal Register notice announcing further amendments to the Export Administration Regulations (EAR) to revise the license review policy for items controlled for national security reasons destined to the People’s Republic of China (PRC), Venezuela or the Russian Federation (Russia). BIS has increasingly sought to prevent efforts by entities in China, Russia and Venezuela to acquire U.S. technology that could be used in the development of weapons, military aircraft or surveillance technology through civilian supply chains or under civilian-use pretenses. Please see our prior updates of April 28, 2020 and June 26, 2020).

This action amends the license review policy for items that have a national security (NS) reason for export control. Effective October 29, 2020, BIS will determine, “on a case-by-case basis, whether the proposed export, reexport, or in-country transfer of such items will make a material contribution to the weapons systems capability of [China, Russia, and Venezuela].”

In order to do so and to assist exporters in preparing license applications, BIS has prepared an illustrative list of factors that will be considered in reviewing all license applications. This list will include consideration of:

  • The appropriateness of the export for the stated end use;
  • The significance of the item for the weapons systems capabilities of China, Russia or Venezuela;
  • Whether any party is a military end user;
  • The reliability of the parties to the transaction, including whether: (i) an export license application has previously been denied; (ii) any parties are or have been engaged in unlawful procurement or diversion activities; (iii) the parties are capable of securely handling and storing the items; and (iv) end-use checks have been and may be conducted by BIS;
  • The involvement of any party to the transaction in military activities;
  • Government strategies and policies that support the diversion of exports from their stated civil end use and redirection towards military end use; and
  • The scope and effectiveness of the export control system in the importing country.

In addition, BIS will also undertake in any review “an assessment of the impact of a proposed export of an item on the United States defense industrial base” and whether “the denial of an application for a license that would have a significant negative impact.”

BIS notes that license applications for exports destined for a civil end user for civil end uses in China, Russia or Venezuela will continue to be reviewed under a “presumption of approval,” and that there will continue to be a license review policy of a “presumption of denial” for applications to export items that would “make a material contribution to the ‘development,’ ‘production,’ maintenance, repair, or operation of weapons systems, subsystems, and assemblies.”

On October 27, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a final rule in the Federal Register amending the Cuban Assets Control Regulations (CACR) to remove from the scope of generally authorized remittances any transactions involving “entities or subentities” identified on the U.S. Department of State’s Cuba Restricted List. The amendment will restrict these entities’ access to funds obtained in connection with remittance-related activities, including in their role as intermediaries or in their receipt of fees or commissions from processing remittance transactions.  The amendment becomes effective on November 26, 2020.

Specifically, the final rule’s amendment will directly impact the scope of the following general licenses:

  • 31 CFR § 515.570, authorizing certain types of remittances to Cuba from persons subject to U.S. jurisdiction or from blocked accounts;
  • 31 CFR § 515.572(a)(3), authorizing certain travel related and remittance forwarding services; and
  • 31 CFR § 515.587, authoring certain remittances from Cuban nationals to persons subject to U.S. jurisdiction.

The rule will also amend 31 CFR § 515.421 (authorizing certain transactions ordinarily incident to licensed transactions) to make clear that a transaction relating to the “collection, forwarding, or receipt of remittances” involving any entity or subentity identified on the Cuba Restricted List “is not authorized as an ordinarily incident transaction where the terms of the general or specific license expressly exclude any such transactions.”

As a result of these amendments, effective November 26, 2020, persons subject to U.S. jurisdiction will no longer be authorized to process remittances to or from Cuba through FINCIMEX and AIS or any other entity or subentity on the Cuba Restricted List.

On October 20, 2020, U.S. Customs and Border Protection (CBP) issued a finding determining that stevia extracts and derivatives, mined, produced, or manufactured in the People’s Republic of China (China) by the Inner Mongolia Hengzheng Group Baoanzhao Agriculture, Industry, and Trade Co., Ltd. (Baoanzhao) with the use of convict, forced or indentured labor, are being, or are likely to be, imported into the United States. Based upon this determination, U.S. port directors may seize the covered merchandise for violation of 19 U.S.C. 1307 (which prohibits the importation of such goods) and commence forfeiture proceedings. This finding applies to any such merchandise that is imported on or after October 20, 2020; or which has already been imported and has not been released from CBP custody before October 20, 2020.

This finding covers stevia leaf (Stevia rebaudiana) extracts, or glycosides classified under U.S. Harmonized Tariff Schedule subheading 2938.90.0000, that are mined, produced or manufactured wholly or in part by Baoanzhao in China. This entity is also known by the following names: The Inner Mongolia Hengzheng Group Baoanzhao Agriculture and Trade Co., Ltd.; the Inner Mongolia Autonomous Region Prison Administration Bureau Baoanzhao Agriculture and Trade Co., Ltd.; and the Baoanzhao Prison Farm.

On October 19, 2020, the Department of Justice (DOJ) filed a motion before the U.S. Court of International Trade (CIT) in the matter of HMTX Industries LLC, et al. v. United States of America, et al. asking that the CIT adopt case management procedures to administer not only this case but also the approximately 3,600 complaints filed since September 10, 2020. As previously noted on the SmarTrade blog, a complaint was filed on September 10, 2020, with the CIT alleging that President Donald Trump and the Office of the U.S. Trade Representative had unlawfully implemented a third and fourth round of tariffs against China beyond the scope allowable under the Trade Act of 1974 and beyond the stated impact of China’s unfair trade policies and practices. See Update of September 10, 2020. The initial complaint filed by HMTX Industries LLC led to an avalanche of additional cases filed by thousands of affected importers. To date, the DOJ has entered its appearance and responded only to this first-filed complaint but is seeking permission from the CIT, inter alia, to treat certain cases as the lead cases and to treat all submissions in those cases as filed in the others.

The October 19, 2020 DOJ motion asks the CIT stay all related cases, and, if it is not granted by November 9, 2020, that it be deemed a motion for an extension of time in both the HMTX Industries case and all of the related cases.   The DOJ notes that all of the cases challenge tariffs imposed by USTR in the Section 301 investigation concerning China and that plaintiffs in all of the cases contest additional tariffs imposed by “List 3” or “List 4A” (the lists) because the action was allegedly unauthorized by Section 301 of the Trade Act of 1974. The DOJ thus requests the following case management process for all Section 301-related cases before the CIT:

  • Automatic Stay: The DOJ requests that the CIT automatically stay all pending Section 301-related cases identified in an attachment to its motion, except for one or more “test cases.” To be released from this stay, a plaintiff, according to the DOJ, must “make a showing of good cause” and must consult with the Plaintiffs’ Steering Committee before such a release.
  • Plaintiffs’ Steering Committee: The DOJ requests that the CIT appoint a steering committee consisting of several lead counsel for the plaintiffs. While deferring to plaintiffs’ counsel on the composition of this committee, the DOJ has recommended that the attorneys for the first three cases filed be appointed as the Steering Committee.
  • Service/Notice of Filing Mechanism: The DOJ requests that the CIT not require the U.S. government parties to file entries of appearance in each individual case, or to file copies of documents in each individual case. Instead, the DOJ asks the CIT to create “a tab on its website so that all parties and their counsel can have notice of any case management submission or filing in the ‘test case(s)’ and that all filings be made in the ‘test case(s).'”
  • Designation of Test Case(s): The DOJ requests that the CIT designate the HMTX Industries case, the first-filed case, as the test case. It further requests that the CIT establish a deadline of 30 days from the date of the entry of any order on this matter for any plaintiffs that believe their complaints would constitute a better or additional test case to file a request with the CIT.
  • Amicus Curiae Participation: The DOJ requests that the CIT provide for amicus participation in the test case(s) by other plaintiffs. To participate as amicus curiae, the DOJ proposes that plaintiffs be required to file a notice within 30 days of the selection of any additional “test cases” to note that they intend to serve as amicus curiae. Further, the DOJ proposes that amicus curiae briefs be filed after the briefs filed by the test case plaintiffs, that amicus curiae should not be permitted to repeat arguments raised by the test case plaintiffs, and that their briefs be limited to 10 pages.
  • Briefing Schedule: The DOJ requests that a briefing schedule proceed but that the U.S. government parties’ motion to dismiss be briefed and decided first before the CIT proceeds with the merits of the case. The DOJ affirmed that it would be filing a motion to dismiss based on plaintiffs’ “failure to state a claim upon which relief can be granted.”

In its motion, the DOJ acknowledges that plaintiffs have filed a motion asking the CIT to appoint a three-judge panel for any proceeding. The DOJ states that it does not object to this motion and defers to the CIT in determining whether it will appoint such a panel to resolve the substantive claims and defenses raised in these cases. However, the DOJ argues that case management would be better handled by a single judge. This motion is expected to trigger a raft of challenges by plaintiffs’ counsel in all of the Section 301-related cases on such DOJ positions as the composition of the Plaintiffs’ Steering Committee and the designation of appropriate test cases.

Thompson Hine attorneys and trade professionals represent a number of plaintiffs in this matter and will continue to generally report on the litigation status as warranted.

On October 19, 2020, the United States and Brazil agreed to an updated protocol for the 2011 Agreement on Trade and Economic Cooperation (ATEC) with three new annexes:  Customs Administration and Trade Facilitation, Good Regulatory Practices, and Anticorruption.  U.S. Trade Representative Robert Lighthizer said that the protocol “uses the existing ATEC to establish common standards for the two countries on efficient customs procedures, transparent regulatory development, and robust anti-corruption policies that will create a strong foundation for closer economic ties between our two countries.”  In a joint statement, representatives of both countries agreed that “these provisions demonstrate the countries’ mutual commitment to the fundamental elements necessary for a fair shake on trade – publishing information, giving stakeholders an opportunity to provide input on the rules, providing transparent and efficient processes at the border, and being vigilant against corruption.”

The full text of the U.S.-Brazil ATEC Protocol on Trade Rules and Transparency can be found here.  Key provisions of the three new annexes include:

Annex I: Customs Administration and Trade Facilitation – expanding on the multilateral WTO Trade Facilitation Agreement, including:

  • Online publication of customs and other border information
  • Single window for import, export and transit
  • Electronic systems and electronic documentation for traders, including submission of customs declaration and related documentation
  • Broad scope for advance rulings, including classification, valuation, origin, and application of quotas, and mechanisms for consistent customs treatment
  • Disciplines on penalties, including no penalties on minor errors (unless part of a consistent pattern) and procedures to allow correction of errors without penalties

Annex II: Good Regulatory Practices – providing greater transparency about Brazilian regulatory procedures, including:

  • Online publication and comment periods of draft regulations
  • A web site with information about plans for regulating, regulations being developed, and regulators’ specific responsibilities
  • Encouragement of the use of a Regulatory Impact Assessment to evaluate draft regulations
  • Review of regulations to assess effectiveness of regulations and identify opportunities to reduce regulatory burden
  • Encouragement for regulatory authorities to use reliable high quality information and to be transparent about the source of information used

Annex III: Anticorruption – new commitments include:

  • Obligations to adopt and maintain measures to prevent and combat bribery and corruption
  • Provisions to preclude the tax deductibility of bribes and establish measures regarding the recovery of proceeds of corruption and the denial of a safe haven for foreign public officials who engage in corruption
  • Effective sanctions for corrupt acts, as well as effective policies and procedures to promote accountability of public officials
  • Rules for integrity in maintaining financial records, including financial statement disclosure and auditing requirements
  • Procedures to report corrupt acts and protection for persons who report corruption (whistleblowers)

The U.S. and Brazilian governments will review implementation and operation of these annexes on an annual basis.  If either party has concerns with the implementation of a provision of the annexes, it may request consultations to seek a mutually satisfactory resolution.  Either party to the protocol may terminate it by providing written notice, and termination will take effect on a date agreed to by the parties or 180 days after the date of delivery of the notice of termination.

On October 15, 2020, the White House released a report, “National Strategy for Critical and Emerging Technologies,” outlining steps the United States will take to preserve its competitive edge in certain critical and emerging technologies. Noting in a statement the importance of U.S. dominance in the science and technology sectors, the White House press secretary indicated that, “The United States will not turn a blind eye to the tactics of countries like China and Russia, which steal technology, coerce companies into handing over intellectual property, undercut free and fair markets, and surreptitiously divert emerging civilian technologies to build up their militaries.” The report briefly summarizes the efforts both China and Russia are undertaking to develop and advance their science and technology sectors, including both licit and illicit efforts of technology transfers, coercing companies to disclose intellectual property, illicit procurement networks, requiring access to source code from technology companies seeking to do business in their countries, and promoting authoritarian practices that run counter to democratic values.

For the purposes of the national strategy, critical and emerging technologies are defined as “those technologies that have been identified and assessed by the National Security Council (NSC) to be critical, or to potentially become critical, to the United States’ national security advantage, including military, intelligence, and economic advantages.” The report identifies 20 specific areas:

  • Advanced Computing
  • Advanced Conventional Weapons Technologies
  • Advanced Engineering Materials
  • Advanced Manufacturing
  • Advanced Sensing
  • Aero-Engine Technologies
  • Agricultural Technologies
  • Artificial Intelligence
  • Autonomous Systems
  • Biotechnologies
  • Chemical, Biological, Radiological, and Nuclear (CBRN) Mitigation Technologies
  • Communication and Networking Technologies
  • Data Science and Storage
  • Distributed Ledger Technologies
  • Energy Technologies
  • Human-Machine Interfaces
  • Medical and Public Health Technologies
  • Quantum Information Science
  • Semiconductors and Microelectronics
  • Space Technologies

The report states that the United States, with its allies and partners, will promote continued leadership in critical and emerging technology by Promot[ing] the National Security Innovation Base (NSIB) (Pillar I) and Protect[ing Our] Technology Advantage (Pillar II). Promote the NSIB entails investing in STEM education, an advanced technical workforce; and early-stage research and development. The report also calls for innovation-friendly regulations; venture capital investment; collaboration between the U.S. governments, academia, and the private sector; and, working with allies and partners. Protect Technology Advantage includes, but is not limited to, ensuring that competitors do not use illicit means to acquire United States companies’ intellectual property and technologies, appropriate application of export controls, and encouraging allies to develop national security restrictions on foreign investment similar to the U.S. Committee on Foreign Investment in the United States.

On October 16, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a notice announcing that exporters may request six-month validity period extensions for export licenses that are currently due to expire on or before December 31, 2020. Acting Under Secretary for Industry and Security, Cordell Hull stated, “The streamlined process will help ensure that exporters with licenses due to expire on or before the end of 2020, who may not have been able to ship orders due to resource constraints during the pandemic, have the opportunity to benefit fully from the authorizations granted on their licenses.”

The notice states that BIS has established a central electronic mailbox for submission of extension requests: LicenseExtensionRequest@bis.doc.gov. Upon receipt of the request, the original export license will be reviewed and, according to BIS, “in most cases, the validity extended via the electronic system.” BIS estimates that the majority of extension validity requests should be processed and approved within two to three business days.

On October 14, 2020, pursuant to the Hong Kong Autonomy Act (HKAA), the State Department submitted to Congress a report identifying foreign persons “who are materially contributing to, have materially contributed to, or attempt to materially contribute to the failure of the People’s Republic of China (China) to meet its obligations under the Sino-British Joint Declaration or Hong Kong’s Basic Law.” For background, see Update of July 16, 2020. The report identifies 10 Chinese and Hong Kong government officials whose actions under the recently implemented National Security Law have undermined freedoms of assembly, speech, press, or the rule of law, and reduced the autonomy of Hong Kong. The report notes recent disturbing developments in Hong Kong, including the arrest of opposition lawmakers and peaceful protestors, the editing of textbooks to remove references to civil disobedience and separation of powers in Hong Kong, and arrest warrants issued for statements made supporting democracy in Hong Kong. It also cites the denial of visas to those who could be considered critical of the administration, arrests on “spurious” charges to limit international travel, and Chinese state-owned media suggestions that Hong Kong residents meeting with foreign diplomats could be subject to “collusion” charges under the National Security Law.

The report identifies each foreign person and provides an explanation for why each individual was identified and a description of the activity that resulted in their identification. On August 7, 2020, the Treasury Department’s Office of Foreign Assets Control (OFAC) imposed sanctions on these same individuals and placed them on the Specially Designated National (SDN) List. See Update of August 10, 2020. OFAC has further noted that the HKAA requires blocking sanctions on persons identified by the State Department and that the Treasury secretary must (within 30-60 days thereafter) identify – and potentially sanction – any foreign financial institution that knowingly conducts significant transactions with such identified foreign persons.

On October 13, 2020, a World Trade Organization (WTO) arbitrator ruled that the European Union (EU) may take countermeasures/implement retaliatory tariffs against the United States for illegal subsidies to Boeing. This ruling allows the EU to request authorization from the WTO’s Dispute Settlement Body (DSB) to take countermeasures against the United States at a level not to exceed $3,993,212,564 annually.

This ruling is part of the longstanding dispute between the United States and the EU over subsidies to their largest civil aircraft manufacturers, Airbus and Boeing. The arbitrator determined that payments to Boeing by the National Aeronautics and Space Administration (NASA) and the Department of Defense were not subsidies but that certain state of Washington tax exemptions and exclusions were subsidies in violation of the WTO’s Agreement on Subsidies and Countervailing Measures. The arbitrator concluded that Airbus suffered “adverse effects” of these subsidies from three sales won by Boeing between 2012 and 2015 that a previous WTO ruling determined would have been won by Airbus had a state of Washington tax break not been in place for Boeing.

This latest WTO ruling follows a 2019 decision allowing the United States to impose retaliatory tariffs of approximately $7.5 billion annually on various EU goods. See Updates of October 4, 2019 and August 13, 2020. Upon release of the ruling, U.S. Trade Representative Robert Lighthizer issued a statement that the EU has “no lawful basis to impose tariffs on imports from the United States.” He added, “Because Washington State repealed that tax break earlier this year, the EU has no valid basis to retaliate against any U.S. products. Any imposition of tariffs based on a measure that has been eliminated is plainly contrary to WTO principles and will force a U.S. response.”

The EU’s Executive Vice-President and Commissioner for Trade, Valdis Dombrovskis, in a statement, said:

This long-awaited decision allows the European Union to impose tariffs on American products entering Europe. I would much prefer not to do so – additional duties are not in the economic interest of either side, particularly as we strive to recover from the Covid-19 recession. I have been engaging with my American counterpart, Ambassador Lighthizer, and it is my hope that the U.S. will now drop the tariffs imposed on EU exports last year. This would generate positive momentum both economically and politically, and help us to find common ground in other key areas. The EU will continue to vigorously pursue this outcome. If it does not happen, we will be forced to exercise our rights and impose similar tariffs. While we are fully prepared for this possibility, we will do so reluctantly.

In his statement, Ambassador Lighthizer indicated that the United States also wished to negotiate a settlement to a WTO dispute that began in 2004, noting that he was “waiting for a response from the EU to a recent U.S. proposal and will intensify our ongoing negotiations with the EU to restore fair competition and a level playing field to this sector.”