U.S. Department of Commerce Lifts ZTE Denial Order

Today the U.S. Department of Commerce lifted its denial order on Chinese telecommunications firm ZTE Corp., allowing THE U.S. and other companies to resume most business with ZTE.

The Commerce Department imposed the denial order in April after ZTE made false statements to the Commerce Department in connection with an earlier settlement agreement regarding violations of the U.S. embargoes on Iran and North Korea.  The denial order broadly barred U.S. companies from selling goods, software, or technology to ZTE Corp, which effectively brought the company to a standstill.

In exchange for lifting the denial order, ZTE has paid an additional $1.4 billion ($1 billion in fines and $400 million in an escrow account), changed its management, and agreed to compliance monitoring measures.  Citing concerns regarding U.S. national security, U.S. legislators are debating a proposed amendment to a must pass defense spending bill that would re-impose sanctions on ZTE.

USTR Proposes Third Round of Tariffs on Chinese Imports

Targets $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent

On July 10, 2018, the United States Trade Representative (USTR) announced it was initiating the process of imposing a 10% tariff on Chinese imports as a supplemental action under Section 301 of the Trade Act of 1974.  USTR’s proposed list covers more than 6,000 products, including seafood and agriculture, chemicals, textiles, metals, electronics, and a host of consumer goods from apparel to furniture to appliances.  The list is valued at $200 billion annually and follows prior action on $50 billion worth of Chinese imports.

This latest round of tariffs will take effect at a later date following a public review process, including an opportunity for the submission of written comments and an opportunity to participate in a public hearing.  USTR is seeking public input on:

  • Whether any listed products should be retained or removed, and whether any products not listed should be added;
  • The level of the duty rate; and
  • The appropriate aggregate level of trade to be covered by additional duties.

Key dates include:

  • July 27, 2018: Due date for filing requests to appear and a summary of expected testimony at the public hearing, and for filing pre-hearing submissions.
  • August 17, 2018: Due date for submission of written comments.
  • August 20-23, 2018: Section 301 Committee public hearing.
  • August 30, 2018: Due date for submission of post-hearing rebuttal comments.

The tariffs are part of the Trump Administration’s response to USTR’s investigation under Section 301(b)(1) of the Trade Act of 1974 regarding China’s acts, policies and practices related to intellectual property and forced technology transfers.  As mentioned, the most recent announcement follows prior USTR action on a combined $50 billion worth of Chinese imports:

  • The first set of tariffs – which took effect July 6, 2018 – covers 818 products valued at $34 billion (at a tariff rate of 25%).  The list was drawn from a draft list of 1,333 products published in April and finalized by USTR after a public comment process.  On July 6, USTR announced a product exclusion process for domestic interests seeking product-specific exclusions from the tariffs.
  • A second set of 284 products – valued at $16 billion – will see tariffs take effect at a later date following an ongoing public review process similar to that outlined above.
  • The tariffs in these first two sets targeted Chinese imports containing “industrially significant technologies, including those related to China’s ‘Made in China 2025’ industrial policy.”
  • The third set includes products from across all sectors of the Chinese economy, including some subheadings that commenters suggested for inclusion in the first round.

China announced retaliatory tariffs almost immediately in response to the U.S. release of its first two lists.  On June 18, following China’s announcement, President Trump directed USTR to identify $200 billion worth of Chinese goods for additional tariffs.  In response to USTR’s release of its latest list, China indicated it was considering non-tariff retaliatory measures.

 

Date Action Product List Tariff Rate Value of Imports Key Dates
6/15/2018 USTR finalized first set of 818 tariff lines of Chinese imports; products previously subject to public comment; product-exclusion process now open

 

1st set available here 25%

 

$34 billion

 

Effective date: 7/6/2018

Requests for product-exclusions due: 10/9/2018

 

USTR released second set of 284 tariff lines of Chinese imports; public comment underway 2nd set

available here

25% $16 billion Written comments due: 7/23/2018

Public hearing to be held: 7/24/2018

Rebuttal comments due: 7/31/2018

Effective date: TBD

 

6/16/2018 China released retaliation list to be implemented in two phases – 545 tariff lines and 114 tariff lines (covering U.S. imports into China)

 

1st set available here

 

2nd set available here

 

25%

 

 

 

TBD

$34 billion

 

 

 

$16 billion

Effective date:  7/6/2018

 

 

 

Effective date: TBD

7/10/2018

 

USTR released a third set of 6,000+ tariff lines of Chinese imports; will be subject to public comment

 

3rd set available here 10% $200 billion Request to appear at public hearing due: 7/27/2018

Written comments due: 8/17/2018

Public hearing to be held: 8/20-8/23/2018

Rebuttal comments due: 8/30/2018

Effective date: TBD

 

7/10/2018 China  reportedly considering additional non-tariff retaliation measures  

 

USTR Announces Section 301 Exclusion Process

Background:
On Friday, July 6, 2018, the United States Trade Representative (USTR) announced a process for U.S. interests to obtain product-specific exclusions from tariffs on Chinese imports as a result of the U.S. investigation into, and response to, China’s IP practices (see attached Federal Register notice).  The duties, applied under Section 301 of the Trade Act of 1974, took effect on July 6 and cover an annual trade value of approximately $34 billion.  In imposing the new tariffs, USTR focused on “products identified as benefiting from China’s industrial policies, including the ‘Made in China 2025’ program.”

A complete list of products – covering 818 tariff lines – currently subject to the new tariffs (at a rate of 25%) is available here.  USTR will consider excluding a particular product within a subheading (but not the tariff subheading as a whole) from the tariffs.  Note that USTR is currently considering / accepting public comment on an additional 284 proposed tariff lines.  Once finalized, the additional tariffs will likely be accompanied by a similar exclusion process.

In announcing the exclusion process, USTR indicated it received comments that specific products “were only available from China, that imposition of additional duties on the specific products would cause severe economic harm to a U.S. interest, and that the specific products were not strategically important or related to the ‘Made in China 2025’ program.”  The new exclusion process was designed to address those concerns.

Criteria:
USTR will accept requests from all interested persons, including trade associations.  Each request must specifically identify a particular product and provide supporting data as well as the rationale for the exclusion request.  Entities wishing to exclude more than one product must submit a separate request for each product. Continue Reading

WTO Declines to Find Australia’s Tobacco Product Packaging Restrictions Inconsistent with Trade Rules

Last week, a WTO dispute settlement panel ruled that Australia’s plain packaging rules for tobacco products do not violate WTO rules.  In April 2012, Honduras requested consultations with Australia at the WTO over Australia’s 2011 law banning logos, trademarks, and other distinctive packaging for tobacco products in favor of uniform-color packages with health-related warnings and images across the front of the packages and brand names printed in small, standardized fonts.  Honduras challenged the law under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the WTO Technical Barriers to Trade Agreement, and the national treatment provision of GATT 1994.  Similar challenges later brought by the Dominican Republic, Cuba, and Indonesia to Australia’s plain packaging law were consolidated with Honduras’s dispute and ruled upon at the same time.  The WTO dispute settlement panel was composed in May 2014.

In its report, issued on June 28, 2018, the WTO panel concluded that Honduras, the Dominican Republic, Cuba, and Indonesia did not demonstrate that Australia’s plain packaging law and related regulations were inconsistent with the various WTO agreement provisions cited.  Specifically, the plain packaging measures were not shown to be more restrictive than necessary to achieve a legitimate regulatory objective; to impede the registration, use, or enforcement of trademarks; to mislead with respect to or diminish geographical indications; or to devalue the Cuban Government Warranty Seal otherwise provided on Cuban-origin tobacco products. Continue Reading

U.S. Government and ZTE Agree to Have Denial Order Lifted Upon Payment of Penalty

On June 7th, Secretary of Commerce Wilbur Ross announced that the U.S. government reached an agreement with ZTE Corporation (ZTE) to lift a denial order suspending the export privileges of ZTE for a period of seven years.  Under this new agreement, ZTE must pay $1 billion and place an additional $400 million in escrow in a U.S.-approved bank within 90 days of this superseding order.  The Bureau of Industry and Security (BIS) will lift the denial order after the payment has been received and notify the public that ZTE has been removed from the Denied Persons List.

In addition to the civil monetary penalty, ZTE must adhere to several other conditions under the new agreement, which collectively are the most severe penalty BIS has ever imposed on a company.  Most notably: Continue Reading

OFAC Formally Rescinds General License H – Foreign Subsidiaries of U.S. Companies Must Withdraw from Iran

Yesterday the Office of Foreign Assets Control (OFAC) formally rescinded General License H, requiring foreign subsidiaries of U.S. companies to wind down remaining business related to Iran by 11:59 pm EST on November 4, 2018.  After that date, foreign subsidiaries of U.S. companies and other owned or controlled entities will generally be prohibited from conducting any business related to Iran, including wind down activity.  This action was required following the President’s announcement on May 8 that the United States would withdraw from the multilateral Iran nuclear deal (the Joint Comprehensive Plan of Action or JCPOA).

OFAC issued amended FAQs and replaced General License H with a new Section 560.537 to the Iranian Transactions and Sanctions Regulations (ITSR, 31 C.F.R. Part 560) authorizing the following wind down activities related to foreign subsidiaries’ business with Iran: Continue Reading

New Bonds Needed for Importers of Products on the Section 301 List

With the Section 301 25% duties on imports of Chinese made products set to go into effect on July 6, 2018, importers should be aware that they may need to increase their bond amounts.  Bonds are based on value and duty on imported goods.  U.S. Customs and Border Protection (“CBP”) routinely reviews bond amounts for their sufficiency.  After the Section 232 duties on imported steel and aluminum went into effect recently, CBP sent letters to certain importers giving them thirty days to increase their bonds to be commensurate with the new tariffs.  While bonds are based on imports for the previous twelve months, the time period is rolling and we expect CBP to be aggressively reviewing imports from China beginning on July 6, 2018.

President Trump Targets Chinese Investments in the United States

On Wednesday, President Trump issued a statement in support of restrictions on Chinese investment in the United States in firms with critical technologies, and in greater protection of those technologies through enhanced export controls.  In particular, the President has thrown his support behind the Foreign Investment Risk Review Modernization Act (FIRRMA), bipartisan legislation that passed in the House on Tuesday.  FIRRMA intend to strengthen the existing Committee on Foreign Investment in the United States (CFIUS) by expanding the scope of foreign investment restrictions that the Administration could block for national security reasons.

CFIUS is an inter-agency committee that has jurisdiction to review transactions that could result in control of a U.S. business by a foreign person  If CFIUS determines the transaction presents a national security risk, it can take action to mitigate the risk or refer the case to the President for further action.  The reforms under FIRRMA would expand CFIUS’s jurisdiction to review foreign minority investments in start-ups in key sectors, certain sensitive real estate transactions, and joint ventures – all of which are currently not subject to examination.  The FIRRMA bill passed in the House specifically notes that the “national security risks related to foreign investment, particularly those emanating from countries such as China and Russia, warrant an appropriate modernization of the processes and authorities of {CFIUS}.”  FIRRMA would also expand existing export controls that govern trade in sensitive technologies. Continue Reading

BREXIT UPDATE: European Commission Warns Importers and Exporters of Goods with Possible UK Origin

On 4 June, the European Commission advised economic operators to prepare for the consequences of the United Kingdom leaving the European Union on their imports and exports.   Following the UK’s withdrawal, UK inputs, including materials and certain processing operations, will no longer be considered EU origin for purposes of enjoying preferential treatment.   Whether a particular good qualifies depends on the rules of origin specified in each trade agreement between the EU and its trading partners.  The Commission advises EU exporters to treat any UK inputs as “non-originating” when determining the EU’s treatment of their goods post-Brexit and to take appropriate steps to be able to prove the preferential origin of goods without counting UK inputs as EU content.  Economic operators importing goods into the EU also are advised to take steps to ensure that the exporter can demonstrate compliance with EU preferential origin rules given the exclusion of UK inputs after Brexit. Continue Reading

Russia Adopts New Counter-Sanctions Law

On June 4, 2018, Russian President Vladimir Putin signed into law new counter-sanctions in response to U.S. sanctions imposed against Russia on April 6, 2018.  Under the new law, Putin may, among other things, sever ties with unfriendly countries and ban trade of goods with those countries.  The final version of the law stopped short of imposing criminal liability for compliance with U.S. and other foreign sanctions against Russian parties.  Companies are advised to consult with sanctions counsel before undertaking transactions in Russia (and certain other locations) that may be subject to OFAC primary and secondary sanctions.

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