Earlier this week, the Bureau of Industry and Security (“BIS”) published a request for public comment regarding a proposed expansion of export controls under the Export Administration Regulations (“EAR”) for certain spraying or fogging systems, which are controlled under Export Control Classification Number (“ECCN”) 2B352.i. Currently, the ECCN controls only spraying or fogging equipment that is specially designed or modified for use on certain aircraft that also meet certain technical specifications related to droplet size and flow rate.
US Customs and Border Protection has finally released the much anticipated proposed changes to the drawback regulations. (See FRN August 2)
Drawback provides an opportunity for importers to apply for refunds of duty payments upon exportation of the same or similar product. It is also a terrific opportunity for importers of components to receive duty refunds once the finished product is exported. Importers and exporters need not be the same party to apply for drawback as long as there is cooperation between the two.
The 444 page proposed regulations attempt to simplify the program especially with regard to manufacturing in the US and record keeping requirements. Electronic filing will also be a new requirement. Comments may be submitted until September 16, 2018.
After months of negotiation, Congress recently passed, and the president is expected to sign, the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”). FIRRMA updates the national security review of inbound investments undertaken by the Committee on Foreign Investments in the United States (“CFIUS” or “the Committee”), an interagency body located within the Treasury Department. The bill is broad, expanding and clarifying the Committee’s jurisdiction, codifying CFIUS practices, amending the Committee’s administrative procedures, and granting judicial review of CFIUS decisions. However, the final legislation did not adopt several proposals, including expanding the Committee’s authority over export control regulations and certain joint ventures. Overall, we expect FIRRMA to create a more aggressive, transparent, and efficient CFIUS process.
Expansion and clarification of jurisdiction
FIRRMA both expands CFIUS jurisdiction and codifies certain existing practices. CFIUS reviews certain “covered transactions” to determine whether proposed foreign investments in a U.S. business would impair U.S. national security, and has the authority, along with the president, to block or amend transactions. Under current law, a “covered transaction” requires that a foreign person have effective control over a U.S. business. FIRRMA expands CFIUS jurisdiction to several non-controlling transactions, if the investment involves:
- Critical technologies. This includes items or technology that are subject to export controls under either the International Traffic in Arms Regulations (“ITAR”) or the Export Administration Regulations (“EAR”), as well as certain undefined “emerging and foundational technologies.”
- Critical infrastructure. The Committee will “enumerate specific types and examples” of critical infrastructure, and will presumably include defense and military, energy, telecommunication, and financial infrastructure, among others. However, because the regulations will likely enumerate a non-exhaustive list, the Committee may interpret this term broadly.
- Sensitive personal data of U.S. citizens. This will broadly include consumer data, as well as information regarding financial services, insurance, and health care.
However, CFIUS is authorized to exempt certain countries from these non-controlling transactions.
Other expansions of CFIUS jurisdiction include the Committee’s ability to review certain changes in a foreign investor’s existing rights in a U.S. entity, which could allow the Committee to review both the initial investment by a foreign person, as well as any future investment or change to an entity’s governance structure or authorities. Further, CFIUS may review transactions in real estate located near military facilities, ports, or other sensitive national security facilities. These expansions largely formalize our experience with current CFIUS practices. though it may signal the Committee’s intention to assert this jurisdiction more aggressively.
Administrative procedures and appeals
FIRRMA made significant changes to the CFIUS process, including changes regarding expedited reviews for less sensitive transactions, mandatory filings for certain transactions, timing of the review and investigation procedures, and transparency.
- Expedited reviews. CFIUS will permit parties to file a short “declaration,” rather than a full joint voluntary notice, describing less sensitive transactions. CFIUS will then have 30 days to respond to the declaration by either clearing the transaction or demanding a full joint voluntary notice.
- Mandatory filings. Under current law, submitting a transaction to CFIUS for review and investigation is a voluntary process. Although most transactions will remain subject to voluntary filing, CFIUS will require notification of transactions in which the U.S. business involves either critical infrastructure or critical technology, and a foreign government has a substantial interest in the foreign investor. CFIUS will define “substantial interest” in subsequent rulemakings.
- Review and investigation timelines. When considering a transaction, CFIUS currently has a 30-day review period and an additional 45-day investigation period, if necessary. FIRRMA extends both of these timeframes, automatically making the review period 45 days and allowing the Committee to extend the investigation phase to 60 days, if necessary.
- Increased transparency. CFIUS currently provides an annual report to Congress, but focuses almost exclusively on broad, aggregated statistics (such as the nationality of foreign investors and the economic sector of the U.S. business). FIRRMA will require CFIUS to report at least basic details regarding all reviews that include a full notice, which will include the results of the case. CFIUS will also be required to provide statistics on the length of time the CFIUS review process takes. The increased transparency will offer parties significantly more information regarding how CFIUS has handled transactions in the past and may allow the development of some baseline precedents.
- Judicial review. Currently, only very limited substantive due process appeal rights exist in the CFIUS context. FIRRMA will allow appeals of CFIUS determinations to the DC Circuit Court of Appeals, though presidential determinations are not included in the right to judicial review.
- Filing fees. CFIUS will establish by regulation a filing fee for full notices, though the fee may not exceed either $300,000 or one percent of the value of the transaction. These fees will allow CFIUS to increase its staff to handle CFIUS’ notoriously heavy workload.
FIRRMA reflects Congressional recognition that CFIUS requires broader direct authority to perform its national security reviews, especially over critical technologies and infrastructure, as those terms will be defined under the regulations. The new statutory authority to review transactions implicating sensitive personal data will give the Committee the opportunity to greatly expand its jurisdiction beyond cases traditionally associated with national security and into other, rapidly increasing economic sectors and businesses that store significant amounts of personal data. Even though certain FIRRMA provisions are arguably codifications of current CFIUS practices, the Committee now has direct authorization to continue to aggressively interpret transactions falling within its jurisdiction.
 Although the majority of the statutory provisions will come into force 180 days after FIRRMA’s effective date, some provisions will be in force immediately after the president signs the bill, including the changes to the review and investigation period timeframes and the right to judicial review.
 In our experience, any transaction not meeting the regulatory 10 percent foreign ownership threshold has been potentially subject to CFIUS review.
 An interagency committee will be established to identify emerging and foundational technologies.
 See Ralls Corp. v. CFIUS.
Yesterday the U.S. government announced that it would implement new sanctions against Russia mandated under the Chemical and Biological Weapons Act of 1991 (the CBW Act) following the apparent deployment of a chemical weapon on British soil by Russia.
The first round of sanctions, which are expected to come into force on or around August 22, will prohibit many exports and reexports of goods, software, or technology to Russia controlled for national security reasons under the dual use Export Administration Regulations. Such items include gas turbine engines, encryption items, electronics components, optical equipment, lasers, sensors, electronic components, materials, and certain unmanned systems, among many others. National security controlled items currently require a license to be exported to Russia, but the new rules will require the Commerce Department to apply a ‘presumption of denial’ to future license requests in many instances. In a briefing announcing the new sanctions, the State Department indicated that certain exceptions will be made, including those related to joint space activities, aviation safety, and the activities of U.S. and other foreign companies in Russia. While the scope of the sanctions has yet to finalized, the State Department suggested that up to half of all licensed exports to Russia are controlled for national security reasons. If the sanctions are fully enforced, the impact could be substantial – based on 2016 figures over $1 billion in trade could be impacted. Continue Reading
A set of changes to the U.S. dual use export control rules makes exporting sensitive goods, software, and technology to India less burdensome.
Over the last several years, India has joined three of the four major multilateral export control regimes – the Missile Technology Control Regime (MTCR), the Wassenaar Arrangement, and the Australia Group. In response to India’s ascension to these agreements, the United States has amended the Export Administration Regulations (EAR) to ease export control license requirements for exports and reexports of qualifying items to India.
Earlier this year, the Bureau of Industry and Security (BIS) lifted license requirements for exports and reexports of “CB2” controlled items to India, including fluid handling equipment controlled under Export Control Classification Number 2B350 and chemicals controlled under ECCN 1C350, as a result of India’s ascension to the Australia Group. This move eased restrictions on many fluid handling companies that produce controlled equipment, as they may more easily transfer products and share data between operations in India and the United States.
Last week, BIS lifted licensing requirements for transfers of items controlled for “NS2” reasons to India, including a broad array of optical equipment, lasers, sensors, electronic components, and materials, reflecting India’s status as a participant in the Wassenaar Arrangement. The amendment also allows exporters to more broadly use License Exception Strategic Trade Authorization (STA) to export more sensitive items controlled for national security purposes to India without a license. Although license exception STA involves a number of administrative steps, once an STA program is set up, it can be far more efficient to use than obtaining individual licenses from BIS for each export.
Tomorrow the United States will re-impose a set of secondary sanctions on Iran as the newly amended EU blocking statute comes into force.
Following the U.S. withdrawal from the multilateral Iran nuclear deal (the Joint Comprehensive Plan of Action or JCPOA), the United States is set to re-impose a raft of secondary sanctions targeting Iran. The secondary sanctions are designed to penalize non-U.S. companies for conducting certain types of business involving Iran, even in cases where that activity occurs wholly outside of U.S. commerce. Pursuant to prior announcements and a new Executive Order, tomorrow the United States will have the authority to sanction non-U.S. companies that engage in the following types of activity with Iran:
- The purchase or acquisition of U.S. dollar bank notes by entities owned or controlled by the Government of Iran;
- Trade in gold or precious metals;
- The direct or indirect sale, supply, or transfer to or from Iran of certain materials, including graphite, raw and semi-finished metals (such as aluminum, steel, and coal), and certain software for integrating industrial processes;
- Significant transactions related to the Iranian rial;
- The purchase of, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
- The sale or supply of significant goods or services related to the Iranian automotive sector, including the manufacture and assembly of light and heavy vehicles, the manufacture of aftermarket parts, and the provision of auto kits or “knock-down kits.”
The European Union (EU) is preparing to treat the United Kingdom (UK) as a third country after its withdrawal from the bloc, commonly known as Brexit. Unless a deal is agreed before 29 March 2019, the UK’s trade with the EU will be heavily impacted by regulatory restrictions, increased costs, and lengthier procedures applicable to the movements of people, goods and services. Less obvious is the impact on trade of the “no deal” scenario from potentially restricted data flows. With only eight months left until Brexit Day, the UK and EU have yet to start talks on a data protection agreement.
Data flows play an increasingly important part in international trade and are estimated to contribute up to 2.8 trillion USD to the world economy. In 2016 alone, EU services reliant on data exported to the UK, such as finance, telecoms and entertainment, were worth approximately 36 billion EUR. Data flows from the UK to the EU constitute as much as three-quarters of all data from the UK. Under the EU’s General Data Protection Regulation (GDPR), however, personal data included in such data flows must be protected. For companies, this can include employee data (e.g. payroll information, biographical information, etc.) and customer data (e.g., contact information, transaction information, biographical information, social media profiles, etc.). Data flows from the EU to a third country are permitted if there is an adequacy decision by the European Commission that the third country’s data protection laws are adequate to meet the objectives of the GDPR or through another adequacy mechanism approved by the European Commission (e.g., EU-approved Binding Corporate Rules, use of Standard Contractual Clauses, etc.). Continue Reading
On Wednesday, July 18, the Department of Commerce announced that it would begin investigating the effects of uranium imports on the national security interests of the United States. The investigation will be conducted under Section 232 of the Trade Expansion Act of 1962. Two U.S. uranium producers – Ur-Energy and Energy Fuels Resources Inc. – petitioned Commerce in January 2018 to open the investigation.
According to the petitioners, a domestic supply of uranium is essential to national defense, as uranium is critical to military applications and a significant portion of electricity for the U.S. power grid. Petitioners assert that they have struggled financially to compete with uranium imports from countries like Russia, Kazakhstan, Uzbekistan, and China that have targeted the U.S. market. The petition states that imports have grown dramatically to capture almost 80% of domestic uranium demand, while U.S. producers have been forced to idle production and lay off workers. Petitioners note that six U.S. nuclear reactors – required to enrich uranium for defense purposes – have closed since 2013 and another eight are scheduled to close between 2018 and 2025. In a statement made regarding initiation of the investigation, Secretary of Commerce Wilbur Ross cited the fact that “U.S. uranium production had been 49 percent of U.S. requirements in 1987. Today, U.S. uranium production has dropped to only five percent of U.S. requirements.”
Commerce has 270 days to submit a report to President Trump as to whether uranium imports threaten to impair U.S. national security. If Commerce reaches an affirmative conclusion, the president is authorized to take actions deemed “necessary to adjust the imports of such article” to address the harm, including by imposing tariffs or other import restrictions, or through indirect action such as domestic industry assistance. The two petitioning companies have called for a quota on uranium imports that would reserve 25% of the U.S. nuclear market for domestic production, and domestic procurement rules that would require the government to purchase U.S.-sourced uranium. Continue Reading
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.
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%
|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||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
|Effective date: 7/6/2018
Effective date: TBD
|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||