Yesterday, the Office of Foreign Assets Control (OFAC) issued General License No. 8D, authorizing U.S. persons to engage in transactions and activities involving Petroleos de Venezuela, S.A. (PdVSA) that are ordinarily incident and necessary to the maintenance of operations, contracts, and other agreements involving Chevron, Halliburton, Schlumberger Limited, Baker Hughes, and Weatherford International in Venezuela that were in effect prior to July 26, 2019.

The new general license is valid until January 22, 2020.  The prior General License 8C was set to expire on October 25, 2019.

 

 

Late last week, China filed a request with the World Trade Organization (WTO) Dispute Settlement Body (DSB) for authorization to “suspend concessions and related obligations” in the amount of $2.4 billion as recourse for the United States’ alleged failure to comply with a 2015 dispute settlement report.  The disagreement stems from a dispute filed by China in May 2012 challenging certain aspects of 17 countervailing duty investigations by the United States, on a wide range of products, as conducted by the Department of Commerce (DS437).  The decision reached by a WTO panel, as modified by the WTO Appellate Body and adopted by the DSB in January 2015, included a number of findings in favor of and against the United States.  In particular, the WTO Appellate Body found that Commerce’s “rebuttable presumption” that Chinese state-owned enterprises are public bodies, and that Commerce’s rejection of Chinese private transaction prices as distorting the benchmark for the “provisions of goods or services for less than adequate remuneration” benefit analysis, were inconsistent with WTO rules.

In May 2016, China returned to the WTO to request consultations with the United States under Article 21.5 of the Dispute Settlement Understanding (DSU), which establishes procedures for when parties disagree about whether the losing party has implemented the DSB’s recommendations and rulings.  Failed consultations led to the establishment of a compliance panel, which issued a decision in March 2018.  Both China and the United States appealed to the WTO Appellate Body.  In July 2019, the Appellate Body upheld the compliance panel’s Continue Reading China Requests $2.4 Billion in Relief After WTO Ruling Against United States

Today, the U.S. Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) to further tighten restrictions on Cuba.  The changes, which are effective immediately, are part of a broader U.S. government effort to tighten the embargo on Cuba after a tentative easing of relations under the Obama Administration.

The amendment lowers the applicable de minimis threshold for non-U.S. items that contain U.S.-origin content; tightens rules regarding the leasing or chartering of aircraft or vessels; and limits license exception Support for the Cuban People (SCP), including by clarifying the scope of authorized telecommunications exports and reexports.

10 percent de minimis threshold

First, and most importantly for non-U.S. companies, BIS lowered the de minimis threshold for Cuba from 25 percent to 10 percent. During the Obama Administration, the de minimis level for Cuba was raised from 10 percent to 25 percent.  This amendment reverses that change.

The amendment means that non-U.S. companies must now obtain a BIS license or use an EAR license exception before exporting any product (including goods, software, or technology) to Cuba if the product contains more 10 percent U.S.-origin content, by value.  According to BIS, such license applications will face a presumption of denial unless the project supports U.S. policy, defined in Section 742.2(b) of the EAR.  Non-U.S. companies should review pending and planned projects in Cuba to ensure compliance with the new rules.  There is no grace or wind down period associated with the change.

The EAR’s de minimis provisions are an example of the extraterritorial application of U.S. export control laws – non-U.S. items located outside of the United States are subject to the EAR’s license requirements if the items contain more than a de minimis level of controlled U.S.-origin content.

Aircraft & vessel restrictions

Second, BIS is rescinding a favorable a licensing policy regarding the export or reexport of aircraft leased to Cuban state-owned airlines and is revoking licenses issued under the prior licensing policy within seven days.  License requests related to such exports and reexports will now face a presumption of denial.  The amendment also tightens the restrictions in license exception Aircraft, Vessels, and Space (AVS) when applied to aircraft or vessels leased to or chartered by a Cuban national or a state sponsor of terrorism.

New limits on license exception Support for the Cuban People 

Finally, the amendment narrows license exception SCP with respect to certain donated items, clarifies the scope of the authorized telecommunications exports, and limits exports on Continue Reading BIS tightens Cuba restrictions, lowers de minimis threshold to 10 percent

At the WTO General Council’s meeting this week in Geneva, the debate over developing country rights at the WTO came to a head.  The United States has recently been especially outspoken in its criticism of developing country status for WTO members, which entitles the declared developing country to certain exemptions, longer timetables for implementation of commitments, and other flexibilities under WTO agreements to assist with integration into the world trading system – generally known as “special and differential treatment.”  Special and differential treatment provisions are found in virtually all WTO agreements, ranging from commitments to increase trade opportunities for developing country members, to requirements to protect developing country interests, to rules allowing for flexible implementation, transitional time periods, and technical assistance.  For example, developing countries may extend for two additional years their own safeguard actions to restrict imports causing injury to their domestic industries, and are generally exempt from the application of other members’ safeguard actions.  Since the WTO’s creation in 1995, however, the WTO has not specified any criteria or process for determining developing country status, allowing members to self-declare their status without meeting any analytical requirements.

According to the United States, this lack of discipline has led to unpredictable and illogical results, with some of the world’s wealthiest and fastest developing (in terms of economic, social, and other indicators) – and often most trade-distorting – countries putting themselves as the same category as the WTO’s least-developed members in order to strategically or uniformly avoid additional commitments.  Some of the examples cited by the United States of those WTO members seen to be unreasonably declaring themselves as developing include China, India, Singapore, Israel, Mexico, Turkey, Chile, Indonesia, South Africa, South Korea, the United Arab Emirates, and Qatar.  As the United States explained in a WTO communication issued in February 2019:

Simply put, self-declaration has severely damaged the negotiating arm of the WTO by making differentiation among Members near impossible.  By demanding the same flexibilities as much smaller, poorer Members, export powerhouses and other relatively advanced Members . . . create asymmetries that ensure that ambition levels in WTO negotiations remain far too weak to sustain viable outcomes.  Members cannot find mutually agreeable trade-offs or build coalitions when significant players use self-declared development status to avoid making meaningful offers.  Self-declaration also dilutes the benefit that the {least-developed countries} and other Members with specific needs tailored to the relevant discipline could enjoy if they were the only ones with the flexibility.

The United States’ February communication also proposed that the General Council adopt a new approach that would preclude special and differential treatment “in current and future WTO negotiations” for countries that fall into at least one of four categories: members of the Organization for Economic Cooperation and Development (OECD); one of the G20 countries; classified as “high income” by the World Bank; or account for “no less than 0.5 per cent of global merchandise trade (imports and exports).”  Continue Reading Developing Country Status Up for Debate at WTO

The crowd of journalists, functionaries, trade association reps, and political junkies hovering in Brussels for fresh Brexit news grew over the course of the last week following what appeared to be a positive meeting between UK Prime Minister Boris Johnson and Irish Taoiseach Leo Varadkar. That meeting set the stage for what became intensified EU-UK negotiations over the weekend culminating in agreement at this week’s European Summit on a revised Withdrawal Agreement to govern an orderly withdrawal of the UK from the EU.  The prevailing view that getting the EU back to the table might be a mountain too high for the UK to climb gave way to realisation of what long had been suspected: the EU has wiggle room.

Following months of emphatic statements by the EU that the agreement negotiated by predecessor Prime Minister Theresa may could be “re-opened” for negotiation, the EU did just that. The UK reversed its earlier rejection of any customs border that could “carve up” the UK and the EU rescinded its long-standing insistence that the UK, as a non-Member State, could not conduct customs checks for the EU.  These concessions laid the groundwork for a unique arrangement whereby Northern Ireland would be part of the UK’s customs territory but also would be required to follow EU customs rules.  Checks on goods exported from England, Wales and Scotland that present a risk of entering the EU market, i.e., not remaining in Northern Ireland, would ensure payment of EU tariffs  The arrangement does not require any change on the side of the EU.

Crucial to reaching agreement was a new “consent mechanism” that gives Northern Ireland power to decide whether to continue or terminate the arrangement after four years and every four years after.  It was this consent mechanism that enabled the EU to abandon its previously untouchable “backstop” that would have kept the UK permanently in the EU’s customs union if the EU and the UK were unable to conclude a trade deal by the end of a transition period scheduled under the Withdrawal Agreement to end on 31 December 2020.

The big question is whether Johnson can summit the next challenge.  With a minority government, Prime Minister Boris Johnson must keep the party faithful, but also convince others to cross party lines, to obtain the 320 votes in the UK Parliament to ratify the revised Agreement.  The vote will take place in an extraordinary sitting on Saturday, 19 October.  Further complicating matters, opposition parties intend to push for a second referendum but are yet to agree on the best way to achieve it.  Should Johnson fail to achieve a majority, the Benn Act, passed by the Parliament in September to avoid a “hard” Brexit, requires the Prime Minister to write to the EU before midnight to seek an extension until 31 January 2020.  The vigil outside the UK Parliament is in full swing but with much less hope of white smoke.

On Friday, October 11, 2019, President Trump announced that a “phase one” agreement had been reached with China. Most notably, the U.S. agreed to suspend its plan to increase tariffs from 25% to 30% on $250 billion in Chinese goods, which had been scheduled for October 15. In return, China has agreed to purchase between $40 to $50 billion worth of U.S. agricultural products.  The agreement also includes changes to sanitary, phytosanitary, and biotechnology issues that should ease the burdens U.S. farmers face when exporting to China.

The deal is agreed to in principle, but subject to “getting everything papered.” Other aspects of the deal include technology transfer, financial services, and intellectual property. Without any documentation or draft text it remains unclear what exactly these additional provision will entail.

The agreement has had the effect of reducing tensions between the two countries. With President Trump facing an election in 2020 and China under scrutiny for its slowing economy, traction on the trade front, limited as it may be, may be seen as politically necessary by President Trump and Chinese President Xi Jinping. That said, there are virtually no details available on what is in the agreement, and how or whether the Chinese would implement any changes in their domestic law. Indeed, it was the unwillingness of hard line officials in China to commit to certain changes in law that derailed a draft agreement a few months ago. Skeptics on the U.S. side are wondering as well whether the written agreement will be much more than a commitment to purchase more farm goods, leaving the hardest issues to be resolved at a later point.

Absent from the agreement is any change regarding the Trump Administration’s treatment of Huawei, which USTR Lighthizer stated was a “separate process,” or a decision to rescind the tariff increases currently scheduled for mid-December. Treasury Secretary Steven Mnuchin said Monday that he expects the tariffs to be imposed if there is no agreement at that point.

President Trump estimates this “phase one” agreement will be papered in the next four or five weeks.

Companies outside the U.S. contemplating purchases of U.S. business (and potential U.S. acquisition targets) are continuing to parse the Department of the Treasury’s two proposed regulations continuing implementation of the Foreign Investment Risk Review Modernization Act (“FIRRMA”).  The proposed rules change the Committee’s jurisdiction and certain procedures related to the national security reviews undertaken by the Committee on Foreign Investment in the United States (“CFIUS”).  These proposed regulations provide additional clarity regarding how CFIUS intends to implement the FIRRMA amendments.  When implemented, these regulations will formally expand CFIUS jurisdiction – but will also formalize current CFIUS practice in most respects.  Implementation is scheduled to occur on or before February 13, 2020.[1]

Jurisdiction over non-controlling investments

Traditionally, CFIUS exercised jurisdiction over investments that result in the “control” of a non-U.S. person over a U.S. business.  After FIRRMA implementation, CFIUS will have jurisdiction over certain investments that do not result in control by a non-U.S. person.  Specifically, CFIUS will have jurisdiction over non-controlling investments if the investment is in a specific company type, and if it affords the investor specific, enumerated rights.

The draft regulations identify several company types that satisfy the first part of the test.  The first type is a business that produces or otherwise deals in certain “critical technologies.”  A separate statute[2] authorizes the Department of Commerce to identify these critical technologies.  Although the Department of Commerce did identify examples of these technologies in a 2018 rulemaking, that process is not yet complete. Continue Reading CFIUS to Cover More Foreign Investments in U.S. Companies

On Monday, October 14, 2019, President Trump announced that the U.S. will increase steel tariffs to 50% as a sanction against Turkey’s military advance into Syria last week.  The steel tariffs were originally imposed at 25% under Section 232 of the Trade Expansion Act of 1962 in March, 2018.  In August, 2018, President Trump raised the duties on steel from Turkey to 50% because Turkish imports had continued to increase as the lira devalued against the dollar.  The President reduced them back to 25% in May, 2019, after import levels from Turkey had decreased.  The U.S. will also immediately end negotiations on a $100 billion trade deal that was underway.  These actions demonstrate the Trump Administration’s continued willingness to use tariffs and trade deals as a means of obtaining leverage to change the behavior of its trading partners.

The President’s plan was developed after a meeting with administration officials including Treasury Secretary Steve Mnuchin, Secretary of State Mike Pompeo, and National Security Advisor Robert O’Brien.  The increased steel tariffs will work in tandem with sanctions imposed by an Executive Order issued on Monday and enforced by the Secretary of the Treasury in consultation with the Secretary of State.  Our sanctions analysis can be found here.

While the Trump Administration has taken heat on Capitol Hill for its liberal use of tariffs to achieve its policy goals, there is broad, bipartisan and international support for some form of action against Turkey. President Trump’s statement on Turkey notes he is “fully prepared to swiftly destroy Turkey’s economy if Turkish leaders continue down this dangerous and destructive path.” Others, including Speaker Nancy Pelosi, have voiced the opinion that stronger sanctions are appropriate now. Finland, France, Germany, and Sweden also announced on Monday that they will suspend arms exports to Turkey.

The impact and duration of the sanctions are as of yet unclear.  Hours after President Trump’s announcement, Turkish President Erdoğan expanded the military operation amidst broad domestic support.

At this time, Turkish President Erdoğan is still expected to visit Washington, D.C. next month.

Yesterday, the U.S. government issued an Executive Order (E.O.) imposing new primary and secondary sanctions that target the government of Turkey in response to the escalating conflict in northern Syria.  Pursuant to the new sanctions, the Office of Foreign Assets Control (OFAC) also added the Turkish Ministry of Energy and Natural Resources, the Turkish Ministry of National Defense, and the Turkish ministers of Defense, Energy and Natural Resources, and Interior to the SDN List, formally blocking (freezing) those parties’ property and interests in property, subject to U.S. jurisdiction.  Entities owned 50 percent or more, directly or indirectly, by these SDNs are also subject to blocking sanctions pursuant to OFAC’s “50 percent rule.”

While the sanctions are currently narrowly targeted, the E.O. authorizes a broad array of future possible sanctions against other parties connected to the Turkish government and companies operating in Turkey.  Whether and to what extent sanctions are expanded on Turkey will depend on developments on the ground in Syria and U.S. domestic politics.  Various groups, including prominent voices in Congress, are pushing the administration for more aggressive action against Turkey, which could portend an expansion of sanctions against the Ankara government.

Blocking sanctions

The October 14, 2019 E.O. authorizes the U.S. government to block any person (e.g., designate that person as a Specially Designated National (SDN)) that the Secretary of the Treasury determines to: Continue Reading U.S. Issues New Primary and Secondary Sanctions Targeting Turkey

On October 7, USTR Robert Lighthizer and Ambassador Shinsuke Sugiyama signed both the U.S.-Japan Digital Trade Agreement and the U.S.-Japan Trade Agreement. President Trump praised the agreements, stating “[t]hese two deals represent a tremendous victory for both of our nations.  They will create countless jobs, expand investment and commerce, reduce our trade deficit very substantially, promote fairness and reciprocity, and unlock the vast opportunities for growth.”

The two agreements signed Monday formalized earlier agreements between President Trump and Japanese Prime Minster Abe, which were reached a few weeks ago. Initialdetails of the agreements were covered in an earlier post on this blog in late September. The text of the agreements, as well as side letters on interactive computer services, alcoholic beverages, beef, rice, safeguards, skimmed milk powder, and whey, were also released Monday.

The Digital Trade Agreement includes many provisions similar to those included in the USMCA Digital Trade Chapter. Provisions eliminating discriminatory treatment of digital products, preventing future customs duties on electronic transmissions, validating the use of electronic signatures, and providing protections to online consumers and personal information appear in both the Digital Trade Agreement and the USMCA.

For information and communication technology (ICT) goods that use cryptography, neither party shall require a manufactureror supplier of a good, as a condition for sale, distribution, import, or use of an ICT good, to “transfer or provide access to any proprietary information relating to cryptography, including by disclosing a particular technology or production process.” This language is also found in Annex 12-C of the USMCA.

The agreements signal a growing economic partnership between the United States and Japan, and the two countries have committed to continue negotiating in the coming months with the hopes of concluding a comprehensive agreement.