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

Our previous blog post listed the specific types of PPE respirators, masks, and gloves restricted for export from the U.S. on April 10, 2020 by the Federal Emergency Management Agency (FEMA) in response to the COVID-19 pandemic.

On April 21, 2020, FEMA published a list of exemptions to those export restrictions which includes:

  • shipments to U.S. commonwealths and territories;
  • exports by non-profit or non-governmental organizations solely for donation to foreign charities or governments for free distribution;
  • intra-company transfers by U.S. companies to company-owned or affiliated foreign facilities;
  • exports for assembly into kits ultimately destined for U.S. sale and delivery;
  • sealed, sterile kits where only part of the kit is comprised of covered materials that cannot easily be removed;
  • diplomatic shipments from foreign embassies to their home countries;
  • shipments to overseas U.S. military and U.S. embassy addresses;
  • in-transit merchandise;
  • shipments where the final destination is Canada or Mexico; and
  • shipments by/on behalf of the U.S. federal government.

It is important to review the entire rule or to consult qualified counsel before relying on an exemption.  Moreover, many of these exemptions require the submission of an attestation letter with specific requirements to U.S. Customs and Border Protection.

We are monitoring these developments and are happy to discuss.


COVID-19 Resources

Kelley Drye has been closely monitoring developments related to the COVID-19 outbreak. We created a task force of lawyers and industry experts from core practice areas to address concerns ranging from workplace safety and work from home policies to cancelled events and unmet contractual obligations. To help clients face these challenges and address questions as they surface, we are providing up-to-date information including advisories, blog posts and webinars about the legal and business implications of the evolving coronavirus pandemic. This content can be found on Kelley Drye’s COVID-19 Resource Center.

On April 22, 2020, President Trump ordered Chevron to “wind down” its business in Venezuela by December 1, 2020. This will have a significant impact on companies that supply Chevron with equipment used for oil and gas projects in Venezuela that were previously licensed.

Effective April 21, 2020, the Department of Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 8F, which, significantly limits the activities in which Chevron and other covered entities are authorized to engage while winding down their operations through December 1, 2020.

Chevron is the only covered entity significantly impacted by the new GL 8F as it is the last major U.S. oil company permitted under an OFAC general license to do business in Venezuela.  Companies that supply or otherwise do business with Chevron related to Venezuela should immediately review this significantly limited GL 8F carefully to determine whether their existing and planned business would be authorized pursuant to the new GL or whether they may need to alter their plans, review force majeure clauses, apply for a specific OFAC license or other authorization from OFAC, or take other steps.

Specifically, GL 8F authorizes Chevron, and other covered entities, to engage in certain transactions and activities, otherwise prohibited by the Venezuela Sanctions Regulations (VSR), that are ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements.  However, these wind-down transactions/activities must now be for the preservation of assets or safety in Venezuela, involve PdVSA or any entity in which they own 50% or greater interest, and have been in effect prior to July 26, 2019.

Additionally, regarding Chevron and the other covered entities, GL 8F no longer authorizes:

  • The drilling, lifting, or processing of, purchase or sale of, or transport, or shipping of any Venezuelan-origin petroleum or petroleum products;
  • The provision or receipt of insurance or reinsurance regarding the above activities;
  • The design, construction, installation, improvement, or repair of any wells, facilities, or other infrastructure in Venezuela or the purchasing or provision of any goods or services, except as required for safety;
  • Contracting for additional services or personnel, except as required for safety;
  • The payment of any dividend, including in kind, to PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest; or
  • Any loans to, accrual of additional debt by, or subsidization of PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest, including in kind, as prohibited by Venezuelan Sanctions Regulations.

On Monday, April 20, 2020, U.S. Customs and Border Protection (CBP) issued interim instructions for implementation of the U.S.-Mexico-Canada Agreement (USMCA).*  The instructions provide guidance regarding preferential tariff claims under the USMCA.  The Agreement, once it enters into force, provides for the immediate or staged elimination of trade barriers for goods originating in one of the three countries.  The instructions provide guidance regarding rules of origin (including for automotive goods), regional value content (RCV) calculation methods, de minimis rules, transshipment, eligibility for textiles and apparel, making preference claims, and certification and recordkeeping rules and requirements.

The instructions provide a rules of origin definition to determine whether a good qualifies as an “originating good” under the USMCA, such that it is eligible for preferential tariff treatment.  Under USMCA a good is “originating” in the United States, Mexico, or Canada when:

a) The good is wholly obtained or produced entirely in the territory of one or more of the Parties, as defined in Article 4.3 of the Agreement;

b) The good is produced entirely in the territory of one or more of the Parties using non-originating materials provided the good satisfies all applicable requirements of product- specific rules of origin;

c) The good is produced entirely in the territory of one or more of the Parties exclusively from originating materials; or Continue Reading CBP Posts Interim Instructions for USMCA Implementation

On April 10, 2020, the Federal Emergency Management Agency (FEMA) issued a temporary final rule (TFR), pursuant to the Defense Protection Act (DPA) and related authorities[1], to require explicit approval for exports of certain personal protective equipment (PPE).  This TFR is aimed at allocating certain scarce or threatened materials for domestic use as needed for national defense during the COVID-19 pandemic.  The TFR took effect April 7, 2020, and remains effective until August 10, 2020.  This date could be extended.

Five Types of PPE Currently Covered:

Pursuant to this TFR, shipments of the following five types of PPE, determined by the Secretary of Health and Human Services (HHS) to be “scarce or threatened materials”, may NOT leave the United States without explicit FEMA approval:

  • N95 Filtering Facepiece Respirators, including devices that are disposable half-face-piece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth to reduce exposure to pathogenic biological airborne particulates;
  • Other Filtering Facepiece Respirators (e.g., those designated as N99, N100, R95, R99, R100, or P95, P99, P100), including single-use, disposable half-mask respiratory protective devices that cover the user’s airway and offer protection from particulate materials at an N95 filtration efficiency level;
  • Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges;
  • PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials; and
  • PPE gloves or surgical gloves, including exam and surgical gloves, as well as gloves intended for the same purposes.

Note that this list is not exhaustive, and that the FEMA Administrator may add other materials if they are determined to be scarce and critical materials essential for national defense.  Other such materials would be added to this allocation order, and there would be a Federal Register notice.

FEMA Approval Process

Pursuant to this TFR, before any shipments of these materials may leave the United States, the U.S. Customs and Border Patrol (CBP) will detain the shipment temporarily, so that FEMA may determine in a reasonable time period, which is not defined, and acting based on promoting national defense how to proceed.  They could either issue a rated order for all or part of the shipment and return the merchandise for domestic use (i.e., not allowing the export at all), or they could allow the export in whole or in part. Continue Reading FEMA Issues New Rule Requiring Approval for Exports of Certain Personal Protective Equipment

Even as companies make rapid changes to respond to business challenges posed by the COVID-19 pandemic, executives and compliance team leaders must protect their company and employees by continuing to comply with critical U.S. international trade laws and regulations (including those addressing customs, anti-corruption, export controls, and economic sanctions).  Trade regulations are not suspended, and it is important to not make assumptions or conclude that the law does not apply during this difficult time with all of the issues competing for attention, not least family and employee health and company survival.  With the need to move so quickly, we have seen clients inadvertently come close to trade compliance violations that would not pose a problem for them in normal times.  The following suggestions are intended to help companies reduce the risk of certain significant federal international trade law violations and avoid inbound and outbound shipment delays – while continuing to operate.

Trade rules and surrounding circumstances are changing quickly.  For example, the Administration very recently appeared to be seriously considering suspending or lowering certain import tariffs, but backed away from that approach given the complexity of administering a revised system on short notice, among other problems.  You are likely also seeing reports about various countries’ restrictions on exports of medicine, medical equipment (including protective equipment and ventilators), and food, among other products.  How do you keep up with what is actually happening that may affect your company and what is just rumor that you do not need to react to?

One step companies are taking is to include key personnel from their trade compliance and legal teams in the decision processes related to changing international transactions.  You need to move quickly, but including a team member who knows trade rules can help keep things on track and help avoid clear compliance errors.

Here are four substantive areas of U.S. trade regulation that should continue to be part of international transaction diligence:  U.S. anti-corruption, export controls, and sanctions laws (that permit most exports of medicines, medical devices, and food to sanctioned locations), and U.S. Customs rules on personal protective equipment and medical devices (among other imported items). Continue Reading COVID-19 – Four Key International Trade Compliance Considerations

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