Elliott Abrams, the U.S. Special Representative for Venezuela, announced a plan to lift sanctions on Venezuela should the Maduro regime step aside to permit a transitional government to be elected until full elections can take place in late 2020.[1]   If there is transition of power, individual sanctions on dozens of Venezuelan government officials could be lifted as soon as they give up their positions under the transition.  Additionally, broader economic sanctions on Venezuela’s oil sector and state-owned oil company Petróleos de Venezuela (PDVSA), would be lifted,  but only after Maduro steps down and all “foreign security forces”, including those from Cuba and Russia, are withdrawn.”  The details are set to be announced today, March 31, 2020.[2]

In order for the framework for transition of power to be successful, there would need to be a power-sharing between the  Guaido-led opposition and Socialist lawmakers, who would have to turn on Maduro.  The proposal would not provide for relief from criminal indictments against Maduro and alleged accomplices, and the plan also calls for the creation of a Truth and Reconciliation Commission.  The U.S. government believes offering sanctions relief may create an opportunity for transition since Venezuela is currently under immense pressure due to U.S. sanctions, lowering world oil prices, and the coronavirus pandemic.

[1] https://www.reuters.com/article/us-venezuela-politics-usa-exclusive/exclusive-us-calls-for-broad-venezuela-transitional-government-lays-out-proposal-for-sanctions-relief-idUSKBN21I147

[2] https://www.nytimes.com/aponline/2020/03/31/business/bc-us-united-states-venezuela.html

In response to the COVID-19 outbreak, USTR issued a Federal Register Notice requesting public comments on the possibility of removing the application of China Section 301 duties from medical care products, including inputs used to produce such needed medical care products.

The comment period will remain open until at least June 25, 2020, however, USTR indicated the deadline may be extended.  Interested parties are encouraged to submit comments as promptly as possible.  Responses to comments should be submitted within three business days after a comment is posted on the docket.  USTR will review requests and comments on a rolling basis.

The announcement further indicates that comments may be submitted regarding any product covered by Section 301 duties, even if the product is subject to a pending or denied exclusion request.  Commenters must identify the product of concern and explain how it relates to the COVID-19 outbreak, including whether a product is directly used to treat COVID-19 or limit the outbreak, or whether the product is used in the production of needed medical-care products.

For additional information, please contact Jennifer McCadney.

 

On February 27, 2020, the Department of Treasury issued General License No. 8 (“GL 8”) “Authorizing Certain Humanitarian Trade Transactions Involving the Central Bank of Iran (“CBI”).”  GL 8 authorizes certain humanitarian-related transactions in food, medicine and agricultural products (and certain associated activities) involving the CBI that were prohibited under the Iranian sanctions regulations as a result of the CBI’s designation under E.O. 13224.  Specifically, this new GL authorizes the following transactions and activities involving the CBI:

  • The exportation or reexportation of agricultural commodities, medicine, and medical devices to the Government of Iran (“GoI”), to any individual or entity in Iran, or to persons in third countries purchasing these items specifically for resale to any of the foregoing only as authorized in a one-year specific license issued by OFAC.
    • This authorization does not cover the exportation or reexportation of medical devices on OFAC’s List of Medical Devices Requiring Specific Authorization, medicine, or medical devices to military, intelligence, or law enforcement purchasers or importers.
    • There are certain payment terms applicable to the above sales pursuant to 31 CFR § 560.532.  (Otherwise, a specific license may be issued on a case-by-case basis.  The authorization does not permit debits to blocked accounts or debits/credits to Iranian accounts with U.S. depository institutions).
  • The provision of training necessary and ordinarily incident to the safe and effective use of medicine and medical devices exported or reexported pursuant to the above section to the GoI, an Iranian individual or entity, or to third country nationals purchasing such goods specifically for resale to the foregoing provided that: 1) payment terms and financing are authorized by the regulations; 2) any released technology is EAR99; 3) and the training is not provided to the military, intelligence, law enforcement, or any official or agent thereof
  • The provision by U.S. persons of brokerage services on behalf of U.S. persons for the sale and exportation or reexportation by U.S. persons of agricultural commodities, medicine, and medical devices so long as the sale and exportation or reexportation is authorized by a one-year specific license as required.  The authorization also covers any specific license granted to a U.S. person to broker services on behalf of non-U.S., non-Iranian persons for the foregoing activities with to the GoI or Iranian persons.
    • Payment of a brokerage fee earned pursuant to the authorization may not involve debits/credits to an Iranian account, and there are also reporting requirements.
  • Transfers of funds involving Iran by U.S. depository institutions or by U.S. registered securities brokers or dealers for the benefit of the CBI if the transfer arises from and is ordinarily incident and necessary to give effect to a transaction that has been authorized by the GL or a specific license referenced above.  Again, debits or credits to an Iranian account are generally not permitted.
  • Other transactions ordinarily incident to a licensed transaction and necessary to give effect thereto, with certain limited exceptions.

Continue Reading Treasury Issues General License No. 8 Regarding Certain Permitted Humanitarian Trade Transactions Involving the Central Bank of Iran

On February 24, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule announcing amendments to the Export Administration Regulations (EAR) that revise export licensing policy toward the Russian Federation and Yemen due to foreign policy and national security concerns, such as proliferation.  The amendment to the rule re-aligns the EAR’s “Country Group” designations for Russia and Yemen in light of these concerns.

The EAR “Country Group” designations establish export licensing requirements based on the country of destination for the export or re-export from the United States of an export-controlled item.  The final rule moves Russia from the more favorable export licensing treatment of Country Groups A:2 (Missile Technology Control Regime) and A:4 (Nuclear Suppliers Group) to the more restrictive Country Groups D:2 (Nuclear) and D:4 (Missile Technology).   Yemen has also been moved from Country Group B to Country Group D:1 (National Security).  These changes to the designations reflect the U.S. government’s concerns regarding diversion of U.S.-origin items in Russia and Yemen for unauthorized purposes, such as for prohibited end uses or prohibited end users.

BIS also notes that Russia has not been cooperative in permitting BIS to conduct pre-license checks or post-shipment verifications of U.S.-origin items.  As such, BIS also revised the licensing policy of exports to Russia to a “presumption of denial” when the items are controlled for export due to concerns of: (i) proliferation of chemical and biological weapons; (ii) nuclear nonproliferation; and (iii) missile technology under the EAR. Continue Reading Commerce Announces More Restrictive Licensing Policy for Exports to Russia and Yemen

Treasury Issues New Guidance Regarding June 21, 2019 Amendment to the Reporting, Procedures, and Penalties Regulations (“RPPR”)

In late February, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) published additional guidance regarding the June 21, 2019 amendment to OFAC’s Reporting, Procedures, and Penalties Regulations (“RPPR”).  That guidance caused a stir among manufacturing company compliance personnel and others because it appeared to imply that unsolicited sales inquiries and other contacts from Iranian companies or government entities might require submission of a report to OFAC whether those inquiries were formally rejected or not.

OFAC clarifies that as of June 21, 2019, when the changes to the RPPR took effect, they expected all U.S. persons and persons otherwise subject to U.S. jurisdiction, including entities that are not U.S. financial institutions, to comply fully with all requirements of the RPPR, including the requirement to report rejected transactions within 10 business days of the rejected transaction. (Note: Prior to June 21, 2019, only U.S. financial institutions were required to submit reports to OFAC for rejected funds transfers). Rejection reports must be submitted to OFAC using their Report of Rejected Transaction Form.

The June 21, 2019 changes incorporated new requirements for parties filing reports on blocked property, unblocked property, or rejected transactions. The rule requires more information in blocked property reports in order to prevent multiple requests from OFAC for additional information.  Continue Reading Do Manufacturers Have to Report All Iranian Sales Inquiries to OFAC or Only Those They Have Formally Rejected? 

On March 9, the Department of the Treasury published in the Federal Register a proposed rule to allow the Committee on Foreign Investment in the United States (“CFIUS”) to collect filing fees for certain notified transactions.  This proposed rule continues the implementation of the Foreign Investment Risk Review Modernization Act (“FIRRMA”), an overhaul of CFIUS processes that became effective in February of this year.

Under FIRRMA, CFIUS is authorized to impose filing fees that may not exceed the lesser of one percent of the value of a transaction or $300,000.  The proposed rule would authorize CFIUS to collect fees pursuant to a set schedule tied to the value of a notified transaction.  Specifically, the filing fees are:

  • $750 for transactions between $500,000 and $5 million;
  • $7,500 for transactions between $5 million and $50 million;
  • $75,000 for transactions between $50 million and $250 million;
  • $150,000 for transactions between $250 million and $750 million; and
  • $300,000 for transactions over $750 million.

Under the proposed rule, CFIUS would generally calculate a transaction’s value based on the total consideration provided by the foreign party to the transaction, including cash, shares, and other assets or services.

The filing fees would be required for any full joint voluntary notice filed with CFIUS, however, would not apply to short-form declarations filed with CFIUS or to CFIUS-initiated reviews.  If after review of a declaration CFIUS determines that a full joint voluntary notice is necessary, the filing fee would be required. The fee would be required prior to the Committee’s acceptance of a joint voluntary notice for review.

CFIUS is accepting comments regarding the proposed rule until April 8, 2020.

On February 27, 2020, President Trump announced that he would not impose duties on imports of titanium sponge pursuant to his authority under Section 232 of the Trade Expansion Act of 1962, a statute that allows for the imposition of duties where imports threaten to impair the national security.  The decision was well-received by much of the United States titanium industry and the many downstream users of titanium produced in the United States.

Approximately one year ago, the U.S. Department of Commerce initiated a Section 232 investigation concerning imports of titanium sponge as a result of a petition filed by Titanium Metal Corporation (“TIMET”) – the sole producer of titanium sponge in the United States. TIMET’s petition was filed on the heels of the company’s failed attempt to obtain relief from what it alleged were unfairly-traded imports from Japan and Kazakhstan under Title VII of the Tariff Act of 1930.  The United States International Trade Commission (“USITC”) issued a rare negative preliminary determination in that investigation based on its findings that there was no reasonable indication that TIMET was materially injured or threatened with material injury by reason of imports of titanium sponge.  The Commission’s determination was largely based on the fact that TIMET self-consumed nearly all titanium sponge it produced in the United States, did not supply titanium sponge to other domestic titanium producers, and thus did not compete with imports of titanium sponge that other domestic titanium producers consume in the production of downstream mill products.  The USITC determination is available here.

The Presidential Memoranda issued as a result of the Commerce Department’s Section 232 investigation indicates that the Secretary of Commerce determined that imports of titanium sponge are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States.  Although that report was transmitted to the President on November 29, 2019, it has not yet been made publicly available.

The memorandum also noted that nearly 95 percent of U.S. imports of titanium sponge are from Japan – a country with which the United States “has an important security relationship.”  At least in part as a result of this relationship, on the Secretary of Commerce’s recommendation, the President determined it would be inappropriate to adjust imports at this time.  The memorandum nevertheless directs the Secretaries of Defense and Commerce to form a working group to agree upon measures to ensure access to titanium sponge in the United States for national defense and critical industries in the case of an emergency.

Overall, the President’s determination was supportive of the position taken by the domestic titanium industry and the many downstream users of titanium mill products, including the defense and aerospace industries.

Today, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on Rosneft Trading S.A., a Switzerland-based subsidiary of Russian state-controlled global energy company Rosneft Oil, and its president and board executive Didier Casimiro.  Specifically, OFAC designated the company as a specially designated national (SDN) pursuant to Executive Order (E.O.) 13850 for supporting the Maduro regime by brokering the sale and transport of Venezuelan crude oil in circumvention of U.S. sanctions laws.  OFAC designated Casimiro as an SDN for acting on behalf of Rosneft Trading S.A. in collaborating with Petróleos de Venezuela (PdVSA), the designated Venezuelan state-owned oil company, on projects between Rosneft Trading S.A. and PdVSA.  Rosneft Trading S.A., as well as parent Rosneft Oil Company, were previously subject to restrictions under Ukraine/Russia related Directives 2 and 4 for operating in the energy sector of the Russia Federation.

Along with the designations, OFAC also issued General License (GL) 36 authorizing U.S. persons to engage in certain activities necessary to wind down transactions involving Rosneft Trading S.A., or any entity in which the company owns, directly or indirectly, a 50% or greater interest, through 12:01 a.m. eastern daylight time, May 20, 2020.

After the GL 36 expires, unless exempt or otherwise authorized by OFAC, U.S. persons will no longer be able to engage in transactions with Rosneft Trading S.A., or any entity in which Rosneft Trading S.A. owns, directly or indirectly, a 50 percent or greater interest, and must block property or interests in property of Rosneft Trading S.A. that are in the United States or the possession or control of a U.S. person.  Blocked transactions will also be subject to OFAC reporting requirements.

Please contact us with any questions on these developments.

 

Last Friday the United States Trade Representative (USTR) ramped up its tariffs on European aircraft, increasing the duty from 10% to 15%, effective March 18.

It also announced it would make minor modifications to 25% tariffs imposed on cheese, wine, Irish and Scotch whisky, and other non-aircraft products from the EU, namely adding a 25% tax on French and German butcher and kitchen knives and dropping prune juice from the list of taxed items. While the move is hard-hitting, particularly for European aircraft, EU officials had feared more drastic measures in an increasingly fraught trade relationship with the U.S.

Background

The tariffs are part of a 15-year-old complaint over European aircraft subsidies to plane maker Airbus, putting Boeing, its U.S. competitor, at a disadvantage. Last October, the World Trade Organization authorized the U.S. to impose tariffs of up to 100% on 7.5 billion dollars’ worth of EU exports annually to recoup its losses. The imposed duties are lower than those permitted under WTO’s ruling, however, USTR decided against additional escalation after a mid-December public consultation recorded protestations from more than 26,000 U.S. consumers and industries. While USTR’s latest action on tariffs thus could have been significantly more painful, businesses hoping for a relief remain disappointed with the levies, which are expected to continue until the U.S. and EU come to a negotiated resolution. As the two sides cannot agree on terms for starting talks, this remains an uncertainty at least in the short-term.

Potential for Escalation

Further escalation by Washington also is anticipated if Brussels hits U.S. imports with tariffs over unfair subsidies to Boeing. The WTO is expected to rule this spring on damages caused by U.S. plane maker’s state tax breaks, which would authorize the EU to target U.S. goods with retaliatory tariffs. A preliminary list of U.S. goods proposed as targets for EU retaliatory tariffs was drawn up last year, focusing primarily on U.S. farm products. Although Brussels no doubt is mulling over a right response to the most recent U.S. tariff hikes on aircraft, the broader picture for the EU remains to reset its trade relations with the U.S.

Impact on EU-US Trade Agreement

At the beginning of the year, European Commission President Ursula von der Leyen announced that she is seeking a mini trade deal with the U.S. in the next few weeks covering trade, technology and energy. However, the U.S. insists any deal must include EU agricultural concessions – a sticky and politically explosive topic for the EU. EU officials have conceded agricultural concessions could come in the shape of separate commitments lowering EU non-tariff barriers for certain U.S. farm goods. It has been suggested this could include the approval of more genetically modified crops for sale in the bloc, which is of obvious interest to the U.S. Continue Reading U.S. increases tariffs on European aircraft: EU response a litmus test for transatlantic trade relations

On January 17, 2020, the U.S. Treasury Department published final rules in the Federal Register implementing the Foreign Risk Review Modernization Act (“FIRRMA”), one of which implements FIRRMA’s provisions regarding foreign investments in U.S. real estate.  In accordance with FIRRMA’s expansion of Committee on Foreign Investment in the United States (“CFIUS”) jurisdiction, these final rules give CFIUS jurisdiction over purchase or lease by, or concessions to, foreign persons of “covered real estate” even when there is not an investment in a U.S. business.[1]  These final rules are generally consistent with the rules proposed last September.

Covered real estate transactions

The final rules identify two types of covered real estate: 1) real estate within, or that will function within or as a part of, a “covered port;” and 2) real estate within “close proximity” of U.S. military installations or other government property.  The former group includes certain airport and maritime ports identified by reference to other regulatory authorities, incorporating both major airports and strategically significant seaports.  The latter group includes real estate within one mile from the outer boundary of a designated military installation or other government property (i.e., in “close proximity” to such a location) and property within 100 miles of the real estate (i.e., within an “extended range” of such a location), among other enumerated properties.  The relevant properties are enumerated within the rule and will be included in an appendix to Part 802.

To qualify as a “covered real estate transaction” transaction within Part 802, a transaction must confer certain property rights to covered real estate.  Specifically, a transaction is covered only if it allows a foreign person at least three from the following property rights: 1) access the real estate; 2) exclusion of others from the real estate; 3) improve and/or develop the real estate; 4) attach fixed or immovable structures and/or objects to the real estate.  Holding these rights concurrently with another party, including a U.S. party, does not remove such a transaction from CFIUS jurisdiction.

Exceptions

The final rules identify a series of exceptions to what would otherwise be covered real estate transactions:

  • Excepted real estate investors: certain individuals, governments, and entities meeting a series of factors, provided that they are from an “excepted real estate foreign state.”  Currently, the excepted real estate foreign states are Australia, Canada, and the UK, though this list has the potential to expand.
  • Urbanized areas and urban clusters: real estate transactions that are within urbanized areas or urban clusters, as defined by the U.S. census, are excepted unless they are in close proximity to a military site or within, or functioning as a part of, a covered port.
  • Other exceptions are available for certain commercial office space and individual housing units, among other enumerated exceptions.

CFIUS explicitly refused to adopt an exception for certain intra-company real estate transactions.

These final rules become effective February 13, 2020, and will be located at 31 C.F.R. Part 802.

[1] Transactions in real estate that qualify as controlling investments in a U.S. business continue to be subject to CFIUS jurisdiction pursuant to 31 C.F.R. Part 800 under the traditional “control” analysis.