On June 3, 2020, the U.S. Department of Commerce’s (“Commerce”) Bureau of Industry and Security (“BIS”) published notice in the Federal Register of its initiation of an investigation to determine whether imports of vanadium threaten to impair the national security.  According to a press release, Commerce is initiating the investigation based on a petition filed on November 19, 2019 by two U.S. producers of vanadium — AMG Vanadium LLC, and U.S. Vanadium LLC.

Vanadium is a metallic element often used as an alloying agent in the production of steel and other metals.  It is used to improve the resulting metal’s hardness, ductility, and toughness. Typical end uses for vanadium-alloyed steels include armor plates, parts of jet engines, and cutting tools.

According to the U.S. Geological Survey, vanadium is mined mostly in Brazil, China, Russia, and South Africa.  Vanadium can also be produced through a secondary process.  This source also indicates that from 2015-2018, U.S. demand was supplied 100 percent by imports.

Commerce’s notice provides interested parties with an opportunity to submit written comments and information pertaining to the investigation by July 20, 2020.  Commerce is particularly interested in comments and information relating to the following criteria:

  1. The quantity and circumstances of imports of vanadium;
  2. Domestic production and capacity needed to meet projected national defense requirements;
  3. Existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce vanadium;
  4. Growth requirements of the vanadium industry to meet national defense requirements and/or requirements for supplies and services necessary to assure such growth including investment, exploration, and development;
  5. The impact of foreign competition on the economic welfare of the vanadium industry;
  6. The displacement of any domestic vanadium production causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;
  7. Relevant factors that are causing or will cause a weakening of our national economy; and
  8. Any other relevant factors, including the use and importance of vanadium in critical infrastructure sectors.

Interested parties will also have the opportunity to submit rebuttal comments addressing issues raised in affirmative comments by August 17, 2020.

At the conclusion of the investigation, Secretary Ross will prepare a report and advise the President on whether vanadium is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.

On May 22, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) announced the addition of the following  businesses and a government institute to the agency’s Entity List in response to involvement in or support for human rights abuses related to the Xinjiang Uighur Autonomous Region (XUAR):

  • China’s Ministry of Public Security’s Institute of Forensic Science
  • Aksu Huafu Textiles Co.
  • CloudWalk Technology
  • FiberHome Technologies Group and the subsidiary Nanjing FiberHome Starrysky Communication Development
  • NetPosa and the subsidiary SenseNets; Intellifusion; and IS’Vision

All of these parties will be subject to significant restrictions on exports or reexport of products, software and technology from the U.S.  Contact us for details if you have existing or proposed business with any of these parties.

On May 21, the U.S. Treasury Department, as chair of the Committee on Foreign Investment in the United States (“CFIUS”), issued a proposed rule that more directly links mandatory filing obligations with export control restrictions administered by other federal agencies, including the Bureau of Industry and Security (“BIS”) and the Directorate of Defense Trade Controls (“DDTC”).  The rule is open for comment until June 22.

Pursuant to amendments implementing the Foreign Investment Risk Review Modernization Act (“FIRRMA”), which expanded CFIUS jurisdiction in several respects, certain types of transactions are subject to mandatory declarations with CFIUS.  Currently, one type of transaction that requires a mandatory filing is one in which: 1) the target company produces, designs, tests, manufactures, fabricates, or develops a “critical technology.”  A “critical technology” is an item that is included on one of the U.S. export control lists, including the Commerce Control List (“CCL”), included within the Export Administration Regulations (“EAR”); and 2) the target company uses the critical in a sensitive industry, identified in Appendix B to the CFIUS regulations (31 C.F.R. Part 800).  This two-prong test is slightly more strict than the export control regulations themselves because an item included in the CCL is not generally restricted for export to all destinations.  For example, transactions with NATO allies are generally subject to more permissive restrictions than are transactions with other countries.  The current CFIUS mandatory declaration framework does not account for this distinction.

The proposed rule would more closely align the mandatory filing obligations with the export control analysis.  Under the proposed rule, the mandatory declaration obligation would be amended to apply to transactions in which the export, re-export, or transfer of a critical technology would require an authorization from one of the export controls regulators.  Specifically, CFIUS would consider the nationality of the transaction parties and non-U.S. parties in the ownership chain of the acquiring entity.  Further, under the proposed rule, CFIUS would no longer consider the industry in which the target company operates.  Overall, we expect that the proposed rule would result in fewer mandatory declarations from countries subject to relatively permissive U.S. export controls.

If implemented, this rule would increase the importance of transaction due diligence clearly identifying what export-controlled items and know-how a target company produces or develops.  Because mandatory declarations are required prior to the completion of a transaction and failure to timely file can result in a penalty of up to the transaction value, all parties must clearly understand the export controls implications of a proposed transaction well in advance of a transaction’s close.

Comments Due by July 10, 2020

Today, the Department of Commerce’s Bureau of Industry and Security (“BIS”) published a Federal Register Notice seeking comments from interested parties to assist in its decisions on exclusions from the Section 232 tariffs and quotas imposed on imports of steel and aluminum articles.

Since issuing its interim final rule establishing the Section 232 exclusion request process, BIS has received over 179,000 exclusion requests (157,900 for steel and 21,100 for aluminum), with over 78,500 being granted and 25,400 being denied.

BIS is seeking public comment regarding “the appropriateness of the factors considered, and the efficiency and transparency of the process employed, in rendering decisions on requests for exclusions from the tariffs and quotas imposed on imports of steel and aluminum articles.”  The notice lists various topics for comments including but not limited to expanding or restricting eligibility requirements for requestors and objectors; the Section 232 Exclusions Portal; the factors considered in rendering decisions on exclusion requests; and the incorporation of steel and aluminum derivative products into the product exclusion process.

BIS is also seeking suggested revisions to the exclusion process, such as time-limited annual or semi-annual windows during which all product-specific exclusion requests and corresponding objections may be submitted and decided; issuing an interim denial memo to requesters who receive a partial approval of their exclusion request until they purchase the domestically available portion of their requested quantity; requiring requestors to make a good faith showing of the need for the product in the requested quantity, as well as that the product will in fact be imported in the quality and amount, and during the time period, to which they attest in the exclusion request; and in the rebuttal/surrebuttal phase, requiring that both requestor and objector demonstrate in their filings that they have attempted to negotiate in good faith an agreement on the said product (i.e., producing legitimate commercial correspondence).

In a May 22 press statement announcing the comments, Secretary of Commerce Wilbur Ross indicated the Department’s inquiry was reflective of its ongoing efforts to improve the product exclusion process. Specifically, Ross said, “We want these critical national security measures to be applied effectively while avoiding unnecessary impacts on downstream American industries.”

Since its inception, the product exclusion process has been the subject of much criticism from the business community and Members of Congress, with concerns raised by both proponents and opponents of the tariff program. On a bipartisan basis, Members have raised the issue in letters and during various oversight hearings, and several pieces of pending legislation seeking broad Section 232 reform have also specifically addressed the product exclusion process. Additionally, last October – during the course of an audit of the Department of Commerce’s processes and procedures for reviewing and adjudicating Section 232 exclusion requests – the Department’s Office of Inspector General (OIG) issued a Management Alert raising transparency concerns.

Comments on the Section 232 exclusion process are due by July 10, 2020 (45 days after publication).  All written comments must be submitted to the Federal rulemaking portal (www.regulations.gov). The regulations.gov ID for this rule is: BIS-2020-0012.  Please refer to RIN 0694-XC058 in all comments and in the subject line of e-mail comments.

Earlier this week, the COVID-19 Accountability Act was introduced in the Senate and the House by Rep. Senator Lindsey Graham and Rep. Doug Collins respectively.  While the text of the draft legislation is not yet available, a summary indicates that it would require within sixty days that the President certify to Congress that China has:

“Provided a full and complete accounting to any COVID-19 investigation led by the United States, its allies, or United Nations affiliates, such as the World Health Organization (WHO);

  • Closed all wet markets that have the potential to expose humans to health risks; and
  • Released all pro-democracy advocates in Hong Kong that were arrested in the post COVID-19 crackdowns.”

If there is no such certification, the Act would then authorize the President to impose at least two of a variety of sanctions to hold China accountable, including travel bans, visa revocations, asset freezes, restricting U.S. financial institutions from loaning money to Chinese businesses, and barring Chinese firms from being listed on American stock exchanges.  Such sanction would be effective until the certification could be made.

The legislation has additional requirements, most notably for exporters requires Buy America for procurements related to the Strategic National Stockpile with standard waiver authority for the Health and Human Services Secretary.

We are closely monitoring this draft legislation and related developments. We are happy to help answer any questions your company may have regarding this Act or other export and sanctions related matters, particularly in light of COVID-19.

Last week, the Department of Commerce (the “Department”) initiated two new Section 232 proceedings on mobile cranes and electrical transformer components. Section 232, a previously seldom used section of the Trade Expansion Act of 1962, is used to investigate the impact of certain imports on national security and provide relief if those imports threaten to impair U.S. national security. During the Trump Administration, Section 232 has been used to investigate imports of steel, aluminum, automobiles (and parts), titanium sponge, and uranium. Under Section 232, President Trump has imposed tariffs on steel and aluminum.

The investigation on electrical transformer components will cover laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators. Transformers are an essential part of the U.S. energy infrastructure. The Department’s press release notes that “[a]n assured domestic supply of these products enables the United States to respond to large power disruptions affecting civilian populations, critical infrastructure, and U.S. defense industrial production capabilities.” Several members of Congress had previously urged the Administration to initiate proceedings.

The investigation on mobile cranes follows a petition filed by domestic producer The Manitowoc Company, Inc. (“Manitowoc”), according to the Department’s press release. That petition, filed in December, alleges that “increased Continue Reading Commerce Launches 232 Investigations on Transformer Components and Mobile Cranes

On May 12, 2020, the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”) announced that U.S. persons no longer need OFAC authorization to engage in dealings with Nynas AB, provided such activities do not involve blocked persons or otherwise prohibited activities.  Further, Nynas AB is no longer subject to U.S. blocking sanctions as the entity has restructured and is no longer majority-owned by a sanctioned party.

Below are the specific changes:

  • OFAC revoked General License (GL) 13E, “Authorizing Certain Activities Involving Nynas AB,” as it is no longer needed.
  • OFAC issued GL 3H (“Authorizing Transactions Related to, Provision of Financing for, and Other Dealings in Certain Bonds”), which replaces and supersedes GL 3G.  The only change was to remove Nynas AB, which was previously excepted from the GL’s authorization.  The GL continues to have restrictions on bonds issued by PDV Holding, Inc. and CITGO.
  • OFAC similarly issued GL 9G (“Authorizing Transactions Related to Dealings in Certain Securities”), replacing and superseding GL 9F, to remove the reference to Nynas AB, meaning that the authorization applies to Nynas AB-issued securities that otherwise meet the criteria set forth in the GL.   The GL continues to have restrictions on securities issued by PDV Holding, Inc. and CITGO.

OFAC emphasizes that absent agency authorization, U.S. persons continue to be prohibited from engaging in activities with Petróleos de Venezuela, S.A. (PdVSA), or entities in which PdVSA owns, directly or indirectly, a 50 percent or greater interest.

The Department of State’s Office of Defense Trade Controls Policy announced that they are temporarily suspending, modifying, and excepting certain International Traffic in Arms Regulations (ITAR) requirements in an effort to mitigate the impact of the COVID-19 pandemic.  The temporary changes are as follows:

  • As of February 29, 2020, ITAR registrations and fees with an expiration dates from February 202” through June 30, 2020 are extended for two months from the original expiration date.
  • As of March 13, 2020, ITAR licenses and agreements expiring between March 13 and May 31, 2020 will be extended for six months from the original expiration date, so long as there are no changes to the name/address, scope, or value of the authorization.
  • As of March 13, 2020, there is a temporary suspension, modification, and exception to the requirement that a regular employee, for purposes of ITAR § 120.39(a)(2), work at the company’s facilities, to allow the individual to work at a remote work location.  Additionally, regular employees of licensed entities, who are working remotely in a country not currently authorized by a technical assistance agreement (TAA), manufacturing license agreement or exemption, can access, send, or receive technical data that is authorized for export, reexport or retransfer to their employer via a TAA.

For both situations, the individual employee must not be located in Russia or a country listed in ITAR § 126.1.  These two provisions end on July 31, 2020, unless extended in writing.

We are happy to answer questions about these or other recent trade compliance changes in light of the COVID-19 pandemic.

Yesterday, the U.S. International Trade Commission (“USITC”) released a report on imports of products known to be related to the response to COVID-19.  The report was requested by Congressman Richard E. Neal, Chairman of the House Committee on Ways and Means and Senator Charles E. Grassley, Chairman of the Senate Committee on Finance in early April.

Relying on lists compiled by the World Customs Organization (“WCO”), the World Health Organization (“WHO”), World Trade Organization (“WTO”), and input from the U.S. Department of Commerce’s Industry and Analysis division of the International Trade Administration and other government agencies, the USITC identified 112 Harmonized Tariff Schedule of the United States (“HTSUS”) 10-digit statistical reporting numbers as partially or wholly relevant to the response.  The 112 statistical reporting numbers were grouped into the following eight categories:

  1. COVID-19 test kits/testing instruments;
  2. Personal protective equipment (PPE);
  3. Disinfectants and sterilization products;
  4. Oxygen therapy equipment and pulse oximeters;
  5. Medical imaging, diagnostic, and other equipment;
  6. Non-PPE medical consumables and hospital supplies;
  7. Medicines (pharmaceuticals); and
  8. An “other” category that includes transportation for patients, mobile clinics, and furniture used in a healthcare setting.

Of the 112 relevant statistical reporting numbers, 36 are currently subject to normal duties, 39 are subject to 25 percent Section 301 tariffs on imports from China, and 16 are subject to 7.5 percent Section 301 tariffs on imports from China.  Notably, the report did not identify whether antidumping or countervailing duties were applicable to the categories or products identified.

On the heals of the USITC’s release of its report, Congressman Neal called for President Trump to suspend “all tariffs” for 90-days on the items identified in the USITC’s report as related to the response to COVID-19.  Congressman Neal also urged President Trump to take measures necessary to increase domestic production of these essential items.

Congressman Neal also acknowledged that the United States Trade Representative’s request for comments on the possibility of removing the application of China Section 301 tariffs on certain medical care products.  The Congressman noted, however, that this process will take time – as the comment period will remain open until at least June 25, 2020 – and that several items identified by the USITC are imported from countries other than China and are subject to normal duties regardless of origin.

A copy of the USITC’s report is available for download on the agency’s website under publication number 5047 – COVID-19 Related Goods: U.S. Imports and Tariffs, Inv. 332-576.  The report identifies all 112 10-digit statistical reporting numbers subject to the report.

A press release concerning Congressman Neal’s call for a 90-day suspension of tariffs is available here and the Congressman’s complete analysis of the report is available here.

On April 28, 2020, the Department of Commerce’s Bureau of Industry Security (“BIS”) published three separate rules which, in response to the Administration’s conclusion that “civil-military integration” in China is increasing, impose significant additional restrictions on the export of dual-use items to strategic rivals including China, Russia, and Venezuela.  These rules, when implemented, will have an especially acute effect on transactions with China.  Specifically, consistent with the Administration’s conclusion that these countries present national security and other foreign policy concerns, BIS restricted exports, re-exports, and in-country transfers to these destinations by: 1) issuing a final rule expanding end-use and end-user restrictions related to China by expanding the scope of prohibitions to include “military end-users” in China and expanding the definition of “military end use”,  among other changes; 2) issuing a final rule removing a license exception that allows the export of some items to certain countries that present national security concerns, including China and Russia, provided that the end-use was civilian (license exception CIV); and 3) issuing a proposed rule narrowing the scope of a license exception that allows the re-export of some items that present national security concerns (license exception APR).

These changes, which are largely effective on June 29, 2020, will create additional hurdles in transactions with China, Russia, and Venezuela.  Continue Reading Bureau of Industry and Security Imposes Significant Additional Restrictions on Exports to China, Russia, and Venezuela