International Trade Law News /title <!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> <html xmlns="http://www.w3.org/1999/xhtml" xml:lang="en" lang="en"> <meta name="verify-v1" content="6kFGcaEvnPNJ6heBYemQKQasNtyHRZrl1qGh38P0b6M=" /> <head> <title>International Trade Law News

November 29, 2017 

US Customs and Border Protection to Increase Merchandise Processing and Other User Fees on Imports Effective January 1, 2018

US Customs and Border Protection (CBP) recently announced that effective January 1, 2018 the minimum and maximum Merchandise Processing Fee (MPF) on imported goods will increase. 

This increase is a result of the Fixing America’s Surface Transportation Act (FAST Act) that was passed by Congress and signed into law in 2015. The FAST Act, which was recently implemented by CBP, requires certain customs user fees to be adjusted for inflation when the consumer price index increases by more than one percent.  


CBP has announced that effective January 1, 2018, the minimum and maximum MPF will increase as follows:



Current MPF Amounts
New MPF Amounts Effective January 1, 2018
Minimum MPF = $25.00
$25.67
Maximum MPF = $485.00
$497.99 (which applies to entries greater than $143,760)(see below)
While the minimum and maximum MPF amounts will increase, the manner in which the MPF is calculated on formal entries will remain unchanged. The MPF on formal entries will continue to be equal to 0.3464 percent of the entered value of the goods (not including freight, insurance, or duties). Based on the 0.3464 percent MPF rate, the maximum MPF amount of $497.99 will only apply to entries with an entered value greater than $143,760. 

Imports qualifying for certain free trade agreements, such as NAFTA, and other trade preference programs will continue to be exempt from MPF. CBP recently published a useful table showing which preference programs are eligible for MPF exemptions. 


As indicated in CBP’s notice, a number of other CBP user fees will also increase, including the MPF on informal entries (increased to $2.05).  


October 17, 2017 

Impact of President Trump's Iran Policy Announcement: No Changes for Now, but the Future of the JCPOA Remains Uncertain

By Glen Kelley, Doug Jacobson, Michael Burton & David Brummond
Jacobson Burton Kelley PLLC
      
On October 13, 2017 President Trump announced the long-awaited results of his Administration's Iran policy review. The key aspect of the announcement was that President Trump will not renew certification of Iranian compliance with the Joint Comprehensive Plan of Action (“JCPOA”) as required by the Iran Nuclear Agreement Review Act of 2015 (“INARA”), a law passed by the US Congress to provide oversight of the JCPOA. President Trump stated that his decision was made because Iran "has committed multiple violations of the JCPOA" and "has not lived up to the spirit of the agreement." 

President Trump also stated that he will "terminate" US participation in the JCPOA unless the parties to the JCPOA agree to make various changes to the JCPOA and that he will request the US Congress to modify INARA to reflect the Administration's concerns. Following President Trump's announcement, OFAC designated the Iranian Revolutionary Guard Corps ("IRGC") as a Specially Designated Global Terrorist (SDGT) as required by Congress in a law passed in August 2017. While there has been much discussion on the designation of the IRGC as a SDGT, in practice the designation was purely symbolic as the IRGC has been listed on OFAC's Specially Designated National List since 2007 under various Executive Orders.  

Though significant, these announcements do not trigger any changes in the status of the JCPOA or to existing US sanctions. 

Following the President's announcement, Secretary of State Rex Tillerson indicated that staying in the JCPOA "was in the best interests of the US." In addition, Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker said yesterday that it "is important not to confuse the internal US legal process of certification under INARA with our continued implementation of the JCPOA."

President Trump's decision not to certify Iran's compliance with the JCPOA under Inara now shifts the burden to the US Congress, which could in the coming months reimpose some or all of the secondary sanctions on Iran that were waived on January 16, 2016 when the JCPOA was implemented. In addition, President Trump could in the future refuse to waive the secondary sanctions on Iran that remain suspended and could direct OFAC to terminate OFAC General License H. 

While the US position on Iran should become clearer in the coming months, President Trump's continued criticism of the JCPOA increases the uncertainty regarding (1) the future of US sanctions relief that was a key part of the nuclear agreement with Iran, and (2) whether non-US companies will continue to be able to conduct business with Iran without fear or being subject to US sanctions. 

Increased Risk of US Withdrawal from JCPOA and "Snap-Back" of US Sanctions on Iran 

It is important to recall that the US has suspended only a small portion of its Iran sanctions for US companies (relating to commercial aircraft), and "US persons" remain prohibited from nearly all transactions involving Iran or its government. 

Nearly all of the suspended US sanctions were “secondary” sanctions primarily directed at non-US companies and individuals. The recent events increase the risk of reimposition or "snap-back" of US sanctions, which could be done in one of the following ways:

1. Reimposition of Sanctions Within Next 60 Days – Once the President fails to certify Iran's compliance with the JCPOA, Congress can pass "qualifying legislation" under INARA in 60 days choosing to reimpose all or some of the Iranian sanctions that have been suspended. However, there does not appear to be significant interest by Congress to proceed in this direction at this time and it is not likely that the necessary votes can be obtained to proceed under this route. 

2. Contingent Future Sanctions – Another scenario that is being contemplated by congressional leadership (the Corker-Cotton proposal) is to amend INARA to automatically reimpose US sanctions on Iran’s nuclear program in the future if Iran crosses key thresholds. Among the thresholds being considered is if weapons-grade nuclear material accumulates to the point where there is less than a one-year “breakout” period for obtaining a nuclear weapon. 

3. Failure to Waive Suspended Sanctions – Under the JCPOA the President must waive the various sanctions that were suspended. Depending on the underlying law, these waivers must be renewed every 120 days to every six months. It is possible that the Trump Administration could simply choose not to renew one or more of the waivers, which would automatically reimpose the US sanctions. The next waiver deadline is in mid-January 2018. Such action would not require congressional approval and would effectively snap-back sanctions on Iran. 

4. Unilateral Withdrawal from JCPOA – The JCPOA does not specifically authorize any party to the agreement to “withdraw." However, the US could choose to cease implementing its commitments under the agreement, which would effectively lead to US abrogation of the JCPOA. 

Next Steps and Practical Impact

Because the JCPOA is a multilateral arrangement, a decision by the US to withdraw from the agreement or to reimpose sanctions would have significant ramifications. Iran has threatened to stop complying with its commitments to curtail its nuclear program if the US reimposes sanctions. The costs of Iran’s reinitiating its nuclear program, however, could undercut the sanctions relief it has received from trading partners other than the US. The EU has made clear that if the suspended US sanctions are reimposed, the EU intends to continue to abide by the terms of the JCPOA so long as Iran does. If US sanctions are reimposed, the EU member states would likely support their companies in their Iranian activity and would strongly oppose any US government move to penalize them under reimposed sanctions. There is also the possibility that the EU would expand its sanctions blocking legislation (sometimes referred to in the EU as antiboycott laws) to cover US secondary sanctions on Iran. If Iran stopped complying with the JCPOA, the EU member states would likely withdraw their support for their companies’ activities in Iran, and might even move to the dispute resolution procedures of the JCPOA or a UN Security Council review, which could lead to the reimposition of EU sanctions. 

While we are currently in uncharted waters and are dealing with an unpredictable US Administration, the following is a summary of the possible changes to impact on the JCPOA and US sanctions:

1. Incremental non-nuclear additional sanctions are likely, but the reimposition of the suspended US secondary sanctions or other major changes in the near future seem unlikely at this time. It is important to recall that there have been no immediate changes to US sanctions on Iran.

2. The Trump Administration could terminate US participation in the JCPOA and reimpose sanctions in the future, if insufficient progress is made with the parties to the JCPOA to address certain concerns relating to Iran. There are early indications that EU leaders might try to find a way to provide these additional assurances from Iran regarding their activities of concern. 

3. The US could reimpose the suspended secondary (extraterritorial) sanctions. While appearing dramatic, this may not have much practical impact on many non-US companies. Moreover, if discreet secondary (extraterritorial) sanctions are "snapped-back", it seems likely the EU and its member states would defend EU-based companies from the adverse economic consequences of a reimposition of sanctions.  

4. If US sanctions are reimposed, there is reason to believe that Iran, after protesting, would continue to abide by its JCPOA commitments, particularly if it remains clear that the EU and other countries involved in the JCPOA intend to continue to abide by its terms and authorize business with Iran. Of course it is possible that Iran would follow through on its threat to pull out, and this likely would have a more dramatic practical impact.

Whatever the outcome, the OFAC policy that authorizes the export of US-origin humanitarian products to Iran, including medicine, medical devices, and agricultural products, will remain unchanged, just as it was during the height of US sanctions. However, payments for these transactions remains difficult due to the reluctance of many non-US banks to handle Iran-related payments. 

August 01, 2017 

International Sanctions Lawyer David J. Brummond Joins Jacobson Burton Kelley PLLC

International trade law firm Jacobson Burton Kelley PLLC today added leading international sanctions lawyer David J. Brummond as Of Counsel in the firm’s Washington D.C. office. Brummond joins the firm from DLA Piper LLP where he practiced sanctions law after serving as Senior Sanctions Advisor – Insurance for the United States Treasury Department’s Office of Foreign Assets Control (OFAC) from 2006 to 2014.

At Jacobson Burton Kelley, Brummond will work in tandem with firm members Doug Jacobson, Michael Burton and Glen Kelley to advise U.S. and non-U.S. companies and financial institutions on sanctions compliance and enforcement matters.


“Dave’s knowledge of U.S. and international sanctions law and related compliance requirements, particularly in the insurance sector, will be a tremendous addition to our sanctions practice” said Doug Jacobson, the firm’s managing partner.


In addition to his unique background and expertise with economic sanctions, Dave has over 40 years of experience in the insurance industry and its regulatory environment. Brummond previously served as legal counsel for the Terrorism Risk Insurance Program at the Treasury Department. Earlier in his career, he served as legal officer for various insurance trade groups, as well as general counsel and acting staff director for the National Association of Insurance Commissioners, the national organization of state insurance regulators.


“Dave will greatly enhance our ability to advise clients on the increasingly complex and global nature of insurance coverage for international trade transactions,” added Glen Kelley.


Michael Burton said “Dave is a well-respected sanctions and insurance industry practitioner with a depth and breadth of experience that complements our existing sanctions practice.”


“Dave was very well-respected while he was at OFAC and I am pleased that he is joining our firm,” said Doug Jacobson. “With our combined experience we are now even better able to provide our clients with solutions to their most complex sanctions and export compliance issues.” Jacobson added that “Dave’s unique insight into the U.S. government's processes and sanctions programs will complement the firm's experience and capabilities in economic sanctions and international trade law.”


About Jacobson Burton Kelley PLLC


With offices in Washington, DC and New York, New York, Jacobson Burton Kelley PLLC advises U.S. and non-U.S. companies on a wide variety of international trade issues, including compliance, investigations and audits, enforcement and transactional matters. The firm’s practice areas include sanctions and export controls, anti-bribery, U.S. foreign investment reviews, customs, and trade remedies.


Jacobson Burton Kelley PLLC's attorneys are ranked in the leading international attorney guides, including Chambers and Partners and Who's Who Legal. Jacobson Burton Kelley PLLC is a member of the Trusted Trade Alliance and has strategic alliance with MME, a Switzerland-based law and consulting firm, and with True Compliance Group a Los Angeles-based law firm. The firm was recently recognized by the publication WorldECR as one of the leading export controls law firms in the United States.

July 28, 2017 

New US Sanctions Expected for Russia, Iran and North Korea

On July 25 and 27, 2017, both houses of US Congress passed almost unanimously a lengthy bill expanding US sanctions on Russia, Iran and North Korea. President Trump was expected to sign the bill into law. It is titled the Countering America’s Adversaries Through Sanctions Act (“CAATSA”).

The provisions that are likely to have the greatest practical impact are those seeking to expand US capital markets and other “sectoral” sanctions targeting major Russian banks and oil and gas companies. The bill also introduces “secondary sanctions” for non-US persons engaged in certain types of transactions with Russia. However, it is far from clear that the Trump Administration will implement these sanctions.


In this summary we use the term “persons” to refer to both individuals and companies and other entities, and the term “US persons” to refer to US citizens and permanent residents, entities formed under US law, and any other person engaged in conduct within the United States.



Expanding and Locking in Russia Sanctions


Restrictions on lifting of sanctions


Under CAATSA, the Trump Administration will not be able to lift the Russia sanctions without first going through a Congressional review procedure. The statute also “codifies” almost all existing US sanctions executive orders focused on Russia, which means the President will not be able to lift sanctions imposed on any specific person without first submitting certain specified determinations or certifications to Congress.


Before the bill passed Congress, the White House indicated it was reluctantly prepared to accept these provisions, after a last-minute compromise reached with Congressional negotiators, that:

-  increased the procedural hurdles for Congress to block a lifting of sanctions, and
-  ruled out Congressional review of any “routine” US government license (authorization) of a specific transaction that “does not significantly alter United States foreign policy”.

The bill also authorizes the imposition of sectoral sanctions on companies in Russia’s railways, mining and metals sectors. However this already overlaps with existing sanctions authorities, and the Trump Administration is unlikely to choose to implement these sanctions.


Expanded sectoral sanctions 


In 2014, the US and EU imposed “sectoral sanctions” on many of the largest Russian banks, oil and gas companies and dozens of their subsidiaries.


The bill directs the US Office of Foreign Assets Control (“OFAC”) to expand its Directives 1 and 2 under the sectoral sanctions. These Directives prohibit US person involvement in new financing for such Russian banks and oil and gas companies, and new share issuances by such banks. The bill directs that the Directives be broadened to cover new debt of such banks with a maturity longer than 14 days (currently only debt with a maturity over 30 days is covered), and new debt of such oil and gas companies with a maturity over 60 days (currently 90 days).


This could have a significant practical impact. OFAC interprets the prohibition on new debt to include the payment terms of any invoice for goods or services rendered to these covered companies. After the changes go into effect, there could be a US sanctions issue for any US person who is not paid within 14 or 60 days (rather than the current 30 or 90 days) by a covered company.


The bill also directs OFAC to expand its Directive 4, which prohibits US persons from providing goods, technology and non-financial services for exploration and production by certain targeted Russian oil and gas companies, and their subsidiaries, in Russian deepwater, arctic offshore and shale oil and gas fields. The bill directs that Directive 4 be broadened to cover new projects in deepwater, arctic offshore or shale oil and gas fields anywhere in the world (not just in or offshore Russia), if a company covered under Directive 4 has at least a 1/3 ownership interest.


New secondary sanctions


The bill establishes new secondary sanctions, giving the Trump Administration the option of penalizing non-US companies engaged in certain sensitive activities relating to Russia, even if the penalized company has no ties or contact with the United States. However, unless there is a change in Trump Administration policy on Russia, we think it is unlikely that there will be significant enforcement of these new sanctions.


Companies and banks involved in covered transactions may need to decide whether to avoid those transactions, on the basis that they could theoretically trigger US secondary sanctions penalties in future. As part of that decision-making process, companies should consider that such penalties are unlikely under present circumstances, and that they could become more likely if there is a change in the Russia-related policies of the US President and his Administration.


Under the new secondary sanctions President Trump will have the authority to penalize non-US persons engaging in the following activities: 

-  investing, or providing goods, technology or services, that directly and significantly contributes to Russian energy export pipelines, in each case with a value of $1 million or in smaller transactions with an aggregate value of $5 million in any 12-month period;
-  investing or facilitating investment by others, with a value of $10 million, related to Russian privatization of state assets that unjustly enrich Russian government officials or their associates; or
-  a significant transaction, more than 180 days after the bill becomes law, with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Russian government.

In the first of these new measures Congress apparently had the planned Nord Stream 2 pipelines in mind, which will transport natural gas from Russia to consumers in the EU. In a June 15 joint statement, Germany and Austria, which support the pipelines, said the new sanctions measure “introduces a completely new, very negative dimension into European-American relations” and “we can't accept the threat of illegal and extraterritorial sanctions against European companies”.


In addition, President Trump will have the authority to penalize non-US persons for the following types of transactions, though he is likely to waive or decline to exercise that authority:

-  investments by non-US persons in any of the projects covered by Directive 4;
-  significant transactions by non-US banks related to such investments, arms exports to Syria, or any withholding by Gazprom of significant natural gas supplies from NATO or certain Eastern European countries; and
-  significant financial transactions by non-US banks on behalf of any Russian persons added to the SDN List under the Russia sanctions.

Expanded blocking sanctions


Finally, the bill expands existing sanctions authorities under which non-US persons engaged in certain activities can be blocked (meaning their assets can be frozen). For example, blocking can now be imposed for:

-  a broader range of hacking activities on behalf of the Russian government;
-  transactions seeking to evade the effect of Russia sanctions;
-  human rights violations in territories occupied by Russia; and
-  support to the Syrian government in acquiring significant weapons, ballistic or cruise missiles or weapons of mass destruction.

The practical impact for the private sector may be limited, so long as companies keep a close watch on any entities added to the US List of Specially Designated Nationals and Blocked Persons (“SDN List”).



Adjustments to Iran Sanctions


Most of the Iran sanctions provisions will have limited or no practical impact on the private sector, because they (i) largely overlap with existing sanctions measures, (ii) will likely be interpreted by the Trump Administration to not require any additional sanctions, or (iii) merely require the executive branch to carry out analysis or provide reports to Congress.


For example, the new sanctions relating to persons who materially contribute to Iranian missile programs, or for persons involved in the supply to or from Iran of major weapons systems, arguably do not greatly expand the Administration’s ability to sanctions such persons under existing authorities.


While the new human rights sanctions arguably expand existing authorities to target Iranian government officials and others engaged in gross violations of human rights against Iranians, this is unlikely to directly impact most private companies outside Iran.


The bill calls for the terrorist designation of the Iranian Revolutionary Guard Corps (IRGC) and its officials, agents and affiliates. There would be little practical impact for the private sector, as the IRGC and many related persons are already targeted under similar sanctions authorities.


Further limiting the practical impact on the private sector, the new sanctions expressly do not impact humanitarian transactions, including the sale of agricultural commodities, medicine and medical devices to Iran, and related payments and transportation.



North Korea


The bill amends a February 2016 statute that sought to expand US sanctions on North Korea, and codified (locked in) the existing sanctions. The current sanctions bill adds the following to the list of sanctionable activities:

-  purchasing certain metals and minerals from North Korea, or selling to North Korea of rocket, aviation or jet fuel;
-  supporting the operation and maintenance of vessels and aircraft covered by the sanctions, or insuring or registering North Korean government vessels; or
-  maintaining a correspondent account for a North Korean financial institution (this has been prohibited for US banks since November 2016 under a separate “special measure” under US anti-money laundering law).

As with the 2016 statute, the bill seeks to require the President to implement these sanctions. However, the Trump Administration could react in the way the Obama Administration did in 2016, and decline to do so.


Under the bill, if a US bank learns that a correspondent account they maintain for a non-US bank is being used by the non-US bank to indirectly provide significant financial services to a person added to the SDN List pursuant to the 2016 statute, the US bank will be required to ensure that this conduct is terminated. The practical impact of this is not yet clear.


The bill prohibits the entry or operation in US waters of vessels included on a list to be developed by the Department of Homeland Security, of vessels over 300 gross tons owned or operated by the North Korean government, by any North Korean person, or by a country not complying with UN sanctions on North Korea. Potentially, 180 days after the publication of this list, the denial of entry will be extended to all vessels registered to any flag state that has registered any of the vessels on the list. This could have a broad impact, depending on how it is implemented.


There are a number of other provisions relating to Russia, Iran and North Korea sanctions that are unlikely to be implemented, or are unlikely to have a practical impact on the private sector.


November 15, 2016 

New Harmonized EAR and ITAR Destination Control Statement Requirements Take Effect Today

Today is the effective date of the final BIS and DDTC rules implementing the new harmonized EAR and ITAR Destination Control Statement (DCS) and making changes to other shipping requirements. The text of the final rules published by DDTC and BIS on August 17, 2017 can be found here (ITAR) and here (EAR). 

As a result, the following language must now be included on the Commercial Invoice associated with items on the Commerce Control List (CCL) or US Munitions List (USML) that are exported from the United States:
These items are controlled by the U.S. Government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations.
This new DCS language only has to be included on the Commercial Invoice and no longer needs to be included on the shipping documents, such as the bill of lading or airwaybill, as in the past. While we have had a number of clients express concerns that this language exceeds the size fo the current DCS field on invoices generated in their ERP system, BIS and DDTC have stated that this language cannot be shortened or modified. 

While this language only has to be included on the commercial invoices for items actually on the CCL (i.e., those items with an ECCN and not classified as EAR99), BIS has stated that it is permissible to include this DCS language on commercial invoices associated with the export of EAR99 goods, if the exporter chooses to do so. 

In addition to including the new DCS language on the commercial invoices, the following additional requirements also take effect today:

Exports of ITAR controlled goods on the USML  New section 123.9 of the ITAR requires the commercial invoice associated with the shipment of ITAR controlled defense articles to include the following additional information: 
  • name of country of ultimate destination;
  • name of the end-user; and 
  • license or other approval number or exemption citation 

Exports of "600" series and 9x515 Controlled Goods  The BIS final rule also modifies section 758.6 of the EAR to require the commercial invoice to include the ECCN(s) for any goods that are classified in the "600 Series" on the CCL (military parts and components) or items that are classified in ECCNs 9x515 (i.e., ECCNs 9A515 and 9B515 covering spacecraft and commercial satellites) that are exported from the US. The ECCN of other items not included in these classifications does not have to be included on the Commercial Invoice, but it is useful to include them.  

The purpose of the DCS and other informational requirements "is to ensure that [the export control information regarding the item] reaches the ultimate consignee and/or end user(s) that will be in a position to make a subsequent reexport or transfer (in-country), so they are aware the item in question is subject to U.S. reexport controls." 

It is important to note that the EAR does not require the DCS to be included on the Commercial Invoice associated with the reexport or transfer of US export-controlled items from one country to another. 

However, section 123.9 of the ITAR requires the DCS to be included on the commercial invoice when ITAR-controlled are "transferred". 

November 10, 2016 

Overview of Possible Post-Election Changes in US Trade and Sanctions Policy

By Glen Kelley, Doug Jacobson, and Michael Burton
Jacobson Burton Kelley PLLC

With Donald Trump’s surprise election victory, there is now a great deal of uncertainty regarding the future direction of the US government on international trade and foreign policy issues. President-elect Trump’s campaign and transition teams have released few specific policy proposals and plans in these and other areas.


Just as the pollsters could not predict the outcome of the election, no one really knows what will happen after January 20, 2017. Candidate Trump took many conflicting positions during the campaign and many campaign promises are never implemented.


However, we can already envision some significant changes in US trade and sanctions policy. We will closely watch the Trump transition team and the new Administration over the next few months for indications of the policies they will be formulating.


Trade Policy


For more than a year, a major part of President-elect Trump’s platform has been rejecting major US free trade agreements as “bad deals” for America, promising dramatic changes in the US approach to trade agreements. Ostensibly the goal is to better protect the interests of American workers and consumers.


As set out in President-elect Trump’s “100 day action plan”, his Administration could:



  • terminate US support of the Trans-Pacific Partnership (TPP), which would, if adopted, greatly reduce the remaining trade barriers between the US and 11 other countries in the Americas and Asia. If the US chooses to withdraw from TPP, the other 11 countries may choose to enact their own free trade agreement. It is possible that Trump Administration will seek to re-open the TPP to new negotiations, although that will be difficult since many of the TPP member countries have already commenced the ratification process. 
  • seek to renegotiate the terms of the North American Free Trade Agreement (NAFTA), which could trigger substantial regulatory uncertainty, and possibly economic disruption, for manufacturers and exporters in the US, Mexico, and Canada. It is important to note that this same promise was made by candidate Obama during the 2008 presidential campaign and was never acted upon. President Obama became a leading advocate of free trade agreements during his second term. 
  • reject other trade agreements and arrangements that “unfairly impact American workers”. How a Trump Administration views the US-EU Transatlantic Trade and Investment Partnership (T-TIP), which is currently being negotiated, remains to be seen. It is possible the US will choose to enter into a free trade agreement with the United Kingdom, once Brexit has occurred. 
As set out on the Trump campaign website, the Trump Administration can be expected to ramp up enforcement of US trade remedy laws, as authorized in the Trade Facilitation and Trade Enforcement Act (TFTEA) that was enacted in early 2016, to combat perceived unfair trade practices and subsidies by major US trading partners, particularly China. Also, candidate Trump indicated that he would direct the Secretary of the Treasury to take action against China's alleged currency manipulation. Of course, there is a significant risk that these measures could trigger a damaging trade war (such as mutually escalating tariffs) with China and other trading partners.

Economic sanctions


Iran – During the presidential campaign, President-elect Trump frequently disparaged the current multilateral nuclear agreement with Iran and several other countries, known as the Joint Comprehensive Plan of Action (JCPOA) (commonly known as the Iran deal). Since the JCPOA was implemented on January 16, 2016, most US sanctions have remained on Iran ("primary sanctions") al
though most US and EU sanctions applicable to EU and other non-US companies have been suspended by waivers, general licenses and other regulatory action ("secondary sanctions"). Non-US companies have been gradually increasing their new business and investment in Iran.

It is possible that the Trump Administration could reject all or some of the terms of the JCPOA and choose to reimpose some of the suspended sanctions, or the US Congress could enact additional sanctions on Iran. Either action would be viewed by Iran and the other parties to the agreement as a violation of the JCPOA. It seems unlikely that the EU, Russia or China would agree to any US request to renegotiate the JCPOA or to reimpose sanctions on Iran.

If the US reimposes sanctions, the Iranian government may be willing to continue with their nuclear-related commitments in exchange solely for continued EU sanctions relief, considering that the practical impact of US sanctions relief has been limited. On the other hand, if Iran rejects the JCPOA and accelerates its nuclear program, the world could once again see tensions escalate towards potential armed conflict.


Cuba – Over the last two years, the Obama Administration has made numerous gradual amendments to the US sanctions regulations on Cuba. This has opened up opportunities for greater travel and cargo service between the US and Cuba, exports from the US of certain categories of goods, and US participation in the development of Cuban infrastructure, agriculture, and telecommunications. Last month the White House made clear these changes were intended to “make our opening to Cuba irreversible”.


However, all of these changes were made by executive action, without the active support of Congress, and so the next President could immediately unwind them and put all of the sanctions back in place. President-elect Trump has signaled that he intends to “renegotiate” with the Cuban government. It seems that further relaxation of the sanctions will come slowly, if at all, and we will be watching for any indication that some of the sanctions could be reimposed next year.


Russia and Ukraine – President-elect Trump has expressed skepticism over the current US sanctions related to the situation in and around Ukraine and the underlying policies. These sanctions include a broad embargo of the Russian-occupied territory of Crimea, capital markets and other targeted sanctions on the Russian oil and gas, banking and defense sectors, and targeted sanctions on numerous Russian companies and individuals.


With a weakened US commitment to the sanctions, we might see the US sanctions start to fall away in 2017. For example, they might be traded away in exchange for agreement with Russia on other issues. If this occurs, the voices within the EU against the continuation of sanctions may gain the upper hand, and we could also see some or all of the EU sanctions lifted.


Export controls


To date, there has been no indication how the Trump Administration will view export controls, many of which are subject to multilateral agreements. The Trump campaign website suggests that simplifying and reducing regulation will be a focus of the new Administration, but this may not apply as directly to regulations such as export controls that are primarily intended to protect US national security interests. We will be watching to see whether the current level of funding and support for the export control agencies can be expected to continue.


While President Obama's Export Control Reform initiative (ECR) has made significant progress toward accomplishing the goal of achieving the "Four Singles" – a single control list, single licensing agency, single enforcement coordination agency, and single government IT system – the process is incomplete. The most significant progress from the perspective of exporters has been: (1) the review and update of the US Munitions List (USML) and the Commerce Control List (CCL); (2) the transfer of jurisdiction from the USML to the CCL of a broad range of less sensitive defense articles, such as parts and components; and (3) reducing the differences in the definitions of key terms in the two main sets of regulations, the ITAR and EAR.


The overall process, however, remains incomplete and further progress under the next Administration is in question given the close association of ECR with President Obama, a potential leadership gap within the agencies due to retirements and replacement of key political appointees driving ECR, and whether this initiative will be a priority of the next Administration. That being said, such significant investments have been made in ECR and momentum created that completing the less controversial portions of ECR seems likely. In sum, we may see further regulatory reforms next year, but it is unlikely that Congress will enact implementing legislation required to combine US export control agencies and lists.


Regarding defense manufacturing and exports, the Trump campaign website suggests that the new Administration will seek to enact legislation to expand all of the branches of the US military, to expand the US missile defense system and to expand US cyber warfare and defense capabilities. This implies an emphasis on growing the US defense industrial base.


Other trade and investment controls


Anti-corruption – it is difficult to say whether the Trump Administration will continue the aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) against non-US and US companies found to have engaged in bribery or corruption. In a 2012 CNBC interview Trump stated that the FCPA is a “horrible law and it should be changed.” Relevant factors include president-elect Trump's stated focus on domestic (US) political corruption, on reducing regulations impacting US companies, and avoiding an interventionist foreign policy. It is possible FCPA enforcement could be de-prioritized in favor of national security, anti-terrorism and a greater focus on domestic corruption.


Anti-money laundering (AML) – much of the AML regulatory system built up by the last several presidential administrations is focused on countering the financing of terrorism. While little specifics can be gleaned from candidate Trump's public statements thus far, with the overall focus on anti-terrorism we can assume that AML compliance and enforcement will remain a priority, both for financial institutions and companies involved in cross-border payments and transactions.


Foreign investment review/ CFIUS – we anticipate that the Trump Administration will be very focused on reviewing ‎foreign investments into the United States. The Trump campaign has emphasized national security issues and on the perceived harm to the US economy of the policies of other countries and has had an unfortunate tendency to espouse protectionist policies. The range of transactions scrutinized by the US Committee on Foreign Investment in the United States (CFIUS) may continue to expand. Unfortunately, as with the risk of a tariff-based  "trade war", any significant tightening of the US foreign investment review process could trigger increased restrictions on US companies investing in other countries.


June 10, 2016 

BIS to Use Single License Type Code for EEI Export Filings Starting on October 1, 2016

U.S. exporters and freight forwarders should be aware that on October 1, 2016, the Department of Commerce's Bureau of Industry and Security (BIS) will remove License Type code C32, No License Required (NLR), from the list of "License Types" for purposes of filing Electronic Export Information (EEI) in the in the Automated Export System (AES).  

As a result, License Type code C33 will be the only License Type in AES designating an NLR shipment from the U.S. 

This change is being made as a result of requests from industry to simplify the NLR reporting in AES by using only a single NLR License Type Code. 

NLR is the export authorization reported in EEI filings for items classified as EAR99 or items on the Commerce Control List that do not require a license for the destination. 

However, exports of an EAR99 item to a country subject to anti-terrorism controls or comprehensive sanctions (AT Controls), a restricted end-user (i.e., a party on the BIS Entity List), or in support of a prohibited end-use may require a BIS export license and would not be eligible to be exported NLR.

Changes to License Type C32 will be accepted in AES for 180 days after the effective date (i.e., until March 30, 2017). In the meantime, for items that have a reason for control other than or in addition to Anti-Terrorism (AT), License Type Code C33 should be used as the License Type in the EEI filing. 

A complete list of all of the AES License Type codes and reporting instructions for these types can be found at http://www.cbp.gov/document/guidance/aestir-appendix-f-license-and-license-exemption-type-codes.

May 23, 2016 

DDTC Implements Policy Change on Exports of Certain ITAR-Controlled Items to Vietnam

During President Obama's trip to Vietnam today, the U.S. announced that it will fully lift the long-standing ban on the sale or transfer of lethal weapons to Vietnam that is currently contained in section 126.1(l) of the ITAR. 

As a result, the State Department's Directorate of Defense Trade Controls today published the following notice on its website regarding the implementation of this policy changes:

Industry Notice: Change in Policy on Exports of Munitions to Vietnam (05.23.16) 
Pursuant to a decision made by the Secretary of State and effective immediately, the Department of State's policy prohibiting the sale or transfer of lethal weapons to Vietnam, including restrictions on exports to and imports from Vietnam for arms and related materiel, has been terminated. Consequently, in accordance with the Arms Export Control Act, the Directorate of Defense Trade Controls (DDTC) will review on case-by-case basis applications for licenses to export or temporarily import defense articles and defense services to or from Vietnam under the International Traffic in Arms Regulations (ITAR). DDTC will soon publish a rule in the Federal Register to implement a conforming change to ITAR §126.1.
DDTC maintains an unofficial list of country policies and embargoes on its website, which includes a disclaimer that the information is not complete and that the latest version of the ITAR should be reviewed to determine the current list of ITAR proscribed countries and other country-specific restrictions.  

May 18, 2016 

The US Narrows its Remaining Financial Sanctions on Myanmar (Burma)

Effective today, the US Office of Foreign Assets Control (“OFAC”) has narrowed the remaining US sanctions restricting trade and investment in Myanmar by US companies, US individuals and other persons located in the US (“US persons”). Some significant US sanctions remain on Myanmar, to which the US government continues to refer, for policy reasons, as “Burma”.

These changes may make it easier, going forward, for US companies to find a non-sanctioned bank in Myanmar to support trade or business in Myanmar, and may reduce the number of US investors that must file lengthy “responsible investor” reports with the US State Department. With these changes, the US government intends to recognize Myanmar’s transition to a democratically-elected government, and signal its “strong support for this political and economic progress”.

This is the first significant relaxation of the remaining US sanctions on Myanmar since February 2013. The US has for several years been alone in maintaining substantial sanctions on Myanmar. The EU suspended in 2012 and permanently lifted in 2013 essentially all of its sanctions, other than an arms embargo and export controls on certain sensitive items.

Exports of non-export controlled items
US sanctions and export controls generally do not restrict the export of goods and technology that are not export-controlled (meaning they are classified "EAR99" under US export controls), so long as no prohibited end-use or prohibited end-user is involved. US persons generally cannot engage in a transaction involving any person on the primary US list of sanctioned persons, the US Specially Designated Nationals List (“SDN List”), or any entity in which they hold a 50% or greater ownership interest.

Lifting of most banking sector sanctions
OFAC has noted, in announcing today’s changes, that most transactions are no longer prohibited with the Myanmar banks that were, prior to yesterday, on the SDN List:
- Transactions with Asia Green Development Bank and Ayeyarwady Bank have been generally authorized by general license since February 2013. These banks remain on the SDN List, so any of their assets “blocked” (frozen) by US persons must remain blocked.
- Innwa Bank and Myawaddy Bank were added today to this general license, so all prospective transactions with these banks are now authorized, though their previously blocked assets must remain blocked.
- The same was true until yesterday for Myanma Economic Bank and Myanma Investment and Commercial Bank. They were removed from the SDN List yesterday, so transactions with these banks are no longer prohibited.

Remaining sanctioned persons
Yesterday OFAC removed several state-owned banks and companies from the SDN List. However, several of the largest companies and most prominent businessmen in Myanmar remain on the SDN List. US persons are generally prohibited from dealing with such persons and entities in which they hold a 50% or greater ownership interest, and must “block” (freeze) their assets. Flagging the importance of these remaining listings, several more of these entities were added to the SDN List yesterday.

Many of the sanctioned persons have interests in a number of other companies through complex corporate structures, and in several sectors of the Myanmar economy it can be a challenge to find suitable investment targets or business partners that are verifiably free of direct or indirect SDN ownership. While today’s easing of the sanctions may be helpful, it will not greatly reduce this due diligence and compliance burden for US companies considering an investment.

Other remaining sanctions
US persons remain prohibited from making any “new investment” in Myanmar involving the Ministry of Defense, other Myanmar armed groups or their majority-owned subsidiaries, or involving any of person remaining on the SDN list which still includes four Myanmar banks as noted above. It is also generally prohibited for US persons to provide financial services to Myanmar if those services would be related to the provision of security services to the Myanmar military or armed groups.

US persons must file a detailed “responsible investor” report with the State Department on new investment aggregating over $500,000. The State Department is currently considering whether to increase this threshold to $5 million. Separately, US persons must report any investments involving Myanma Oil and Gas Enterprise (MOGE). Some US companies have filed lengthy reports in response to this requirement, and most sections of these reports are released to the public. In some other cases the reporting requirement may not be triggered if the investment is made independently by a non-US affiliate or subsidiary.

US law still restricts the import of Myanmar jadeite or rubies to the US, and exports to Myanmar of US-export controlled items.

Burma was designated as a “jurisdiction of primary money laundering concern” in 2004 under Section 311 of the USA PATRIOT Act, and as a result US banks are generally restricted from providing correspondent accounts to Myanmar banks. However, OFAC has confirmed that correspondent accounts may be opened, following the sanctions relief described above, so long as the transactions carried out through those accounts do not violate any of the remaining sanctions.

Other general licenses
A general license is an authorization of certain otherwise-prohibited activity that OFAC releases to the public. Any person may rely on a general license, if their transaction meets the terms and conditions set out in the general license, in most cases without prior notice to or approval by OFAC.

Effective today, OFAC has eliminated the expiration date of a general license it issued five months ago to authorize certain transactions “ordinarily incident to” exports to or from Myanmar that indirectly involve an SDN or other “blocked” person under US sanctions. Several major banks had requested this because such sanctioned persons are apparently indirectly involved in certain port or airport operations in Myanmar. This general license was expanded today to cover certain transactions relating to the movement of goods within Myanmar.

OFAC also issued today a general license that expands on existing authorizations and exemptions to authorize transactions ordinarily incident to routine and necessary expenses of US persons residing in Myanmar. The general license does not authorize employment of a US person by an SDN or other blocked person.

March 09, 2016 

US Customs and Border to Increase De Minimis Value of Duty Free Imports from $200 to $800 on March 10, 2016

By Doug Jacobson, Jacobson Burton Kelley PLLC

As as result of a provision contained in the recently enacted Trade Facilitation and Trade Enforcement Act of 2015 (Public Law No: 114-125), US Customs and Border Protection (CBP) will increase the low value (de minimis) exemption from duties and taxes on goods imported by a single person on one day into the US from $200 to $800. 

The low value exemption can be claimed on goods imported on commercial goods as well as goods purchased by individuals from parties outside the US. 

This is the first increase in the low value exemption since 1993 and makes the duty exemption identical to that which can be claimed by travelers entering the US. 

These low value entries, which are entered as an informal customs entry, are often referred to as "section 321" shipments, since they are authorized under section 321(a)(2)(C) of the Tariff Act of 1930, as amended (19 U.S.C. § 1321(a)(2)(C)).

CBP has stated that it will publish an Interim Final Rule amending the appropriate regulations (e.g, 19 CFR § 10.151) and soliciting comments from interested parties. However, beginning on March 10, 2016, shipments valued at $800 or less will be eligible for release under the same processes and with the same restrictions as currently apply for de minimis shipments of $200 or less.  

CBP has indicated that it retains the right to require a formal entry on any shipment where additional information, bonding or protection is required.  In addition, CBP stated the low value treatment can be denied "if used for the purpose of avoiding compliance with any pertinent law or regulation."


March 08, 2016 

China's ZTE Added to BIS Entity List: The Impact on ZTE, US and Non-US Companies

By Doug Jacobson, Jacobson Burton Kelley PLLC, Washington, DC

The Commerce Department's Bureau of Industry and Security today published a notice in the Federal Register (reprinted below) announcing that China's ZTE Corporation (ZTE or ZTEC), and three of its affiliates, have been added to the Entity List.

Founded in 1985 and headquartered in Shenzhen China, ZTE, whose shares are traded on the Shenzhen, China and Hong Kong stock exchanges, is China's second largest telecommunications company. ZTE is also the world's seventh largest producer of smartphones and has operations in the US and more than 160 other countries. ZTE has annual revenues of approximately $15 billion per year.  

ZTE is being added to the BIS Entity List for allegedly reexporting US origin products to sanctioned countries, including Iran, and for planning "a scheme to establish, control, and use a series of “detached” (i.e., shell) companies to evade US export controls.

This action, which comes after a four-year investigation of ZTE by BIS's Office of Export Enforcement and the Federal Bureau of Investigation will have a major impact on ZTE and US and non-US companies.

BIS Entity List

The BIS Entity List, found at Part 744 of the US Export Administration Regulations (EAR), includes non-US businesses, research institutions, government and private organizations, individuals, and other types of legal persons, that are subject to specific license requirements for the export, reexport and/or transfer (in-country) of specified items. Parties are added to the Entity List by BIS when there is an increased risk of diversion of US-origin items or where the parties engaged in activities contrary to U.S. national security and/or foreign policy interests. BIS has been using the BIS more frequently in the past few years.

Specific entries on the Entity List identify the items that are subject to a license requirement and BIS's licensing policy regarding any license applications that are submitted.

Parties Added to Entity List and Licensing Requirements

As a result of today's BIS action, which takes effect immediately, BIS will impose a license requirement for all persons and companies, wherever located, to export, reexport or transfer to "all items subject to the EAR" to the following four companies:

1. Zhongxing Telecommunications Equipment (ZTE) Corporation (also referred to as ZTEC)
Address: ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, China;

2. Beijing 8 Star International Co.
Address: Unit 601, 6thFloor, Tower 1, Prosper Center, No. 5, Guanghua Road, Chaoyang District, Beijing, China;

2. ZTE Kangxun Telecommunications Ltd.
Address: 2/3 Floor, Suite A, Zte Communication Mansion Keji (S) Road, Hi-New Shenzhen, 518057 China

4. ZTE Parsian.
Address No. 100, Africa Ave., Mirdamad Entersection [sic], Tehran, Iran.

The license review policy for all four entities is "presumption of denial", meaning that is not likely that BIS will approve any license applications to these four parties.   

Because the license requirement for all four companies applies to all "items subject to the EAR", as defined in section 734.3 of the EAR, a license will be required to export, reexport or transfer all US-origin goods, software or technology, wherever located, whether classified as EAR99 or listed on the Commerce Control list (i.e., identified with an ECCN number, such as ECCN 3A001). 

This will also have an impact on non-US companies because the license requirement will also apply to any item produced outside the US and sold to the four ZTE entities that incorporates US-origin parts, components, software if the total value of the controlled US content exceeds the de minimis level in section 734.4 of the EAR (e.g., 25% for reexports to China).

Impact on ZTE and US and non-US companies

This action will have a major impact on ZTE and many US companies as it has been estimated that ZTE sources more than 40% of its parts and components from US suppliers. As a result of  ZTE's size and international footprint, US and non-US companies should immediately screen their customer databases to make sure that ZTE is flagged as a party subject to Entity List restrictions and that any shipments be stopped. While the BIS notice contains a "savings clause" for certain items that were already en route aboard a carrier to ZTE, there is no "grandfathering" of items that had been ordered but have not been shipped.

Unlike parties included on OFAC's SDN List, the addition of ZTE to the Entity List does not prohibit US or non-US persons from engaging in financial transactions with ZTE or require that any of the listed companies' assets be frozen. Rather, BIS is restricting the export, reexport or transfer of any goods, technology, or software to these ZTE companies. Also, unlike OFAC, BIS does not control the export of services to a listed party. However, the term “technology” is broadly defined in the EAR to include certain types of information, including specific information necessary for operation, maintenance, repair, overhaul and refurbishing of items subject to the EAR.

In addition, BIS does not have a 50% rule that applies to companies owned by the four ZTE companies listed. BIS has stated that the licensing requirements imposed on a listed entity by virtue of its being listed do not per se apply to its subsidiaries, sister companies, or other legally distinct affiliates that are not listed on the Entity List. However, BIS has also stated that if affiliates of the listed company act as an agent, a front, or a shell company for the listed entity in order to facilitate transactions that would not otherwise be permissible with the listed entity, then the company is likely violating General Prohibition 10 and other provisions of the EAR. Therefore, exporters are encouraged to take extra steps in an effort to make sure that items are not ultimately destined for the listed entities.

Reasons for Adding ZTE to Entity List

The Federal Register notice specifies that ZTE was added to the BIS Entity List because it reexported controlled US origin items to Iran in violation of US law. In addition, BIS noted that the company created an internal document entitled: “Proposal for Import and Export Control Risk Avoidance” describing how ZTE planned and organized a scheme to use a series of shell companies to reexport controlled items to Iran in violation of US export control laws.

In an unusual move, BIS published on its website documents obtained during its investigation of ZTE to support its findings. These documents, which are published below, are very thorough and read like a playbook on how to circumvent US export controls.


These documents, which were posted by BIS in their original Mandarin and translated English versions, provide detailed information on ZTE's understanding of how US export control laws applied to them and the repercussions if they were unable to continue with their work in the US sanctions countries, including Iran, Sudan, North Korea, Cuba and Syria. The documents even included a summary of the enforcement actions that could be taken against the company, including listing the US supply chain, and provided examples of prior export control issues the company had faced, and recent enforcement cases brought against other Chines companies. The documents show that ZTE tried to attract members to its export control team by paying a bonus.

For example, the "Proposal for Import and Export Control Risk Avoidance" describes how ZTE planned to establish and use "detached" (i.e., shell) companies and other measures to avoid "risks of import and export control". The document suggests that the company use the Jebel Ali Free Zone in Dubai as the "primary choice" to locate one of the companies. The document also describes ways to properly handle and pack the goods to minimize the risks to ZTE.

Repercussions

Because ZTE is a major telecommunications company the addition of ZTE to the Entity List has already had ripple effects. ZTE's stock has been suspended from trading on the Hong Kong and Shenzhen Stock Exchanges and China's Ministry of Foreign Affairs denounced the BIS actions in the following statement:
"The Chinese side is firmly opposed to the US using domestic laws to place sanctions on Chinese companies. The Chinese side urges the US side to call off the wrong action lest it should jeopardize economic cooperation and relationship between China and the US."
Representative Eliot L. Engel (D-NY), Ranking Member of the House Committee on Foreign Affairs, called for further restrictions on ZTE in the following statement:
"Today's action to impose a virtual embargo on exports to China's number-two telecom company, ZTE, reveals publicly for the first time that this company has systematically violated U.S. sanctions on Iran, North Korea, and other proscribed countries. ZTE bought U.S. telecom equipment and illegally incorporated it into communications systems for the Iranian and North Korean security, military, and intelligence agencies. I commend the federal agents at the Commerce Department, FBI, and Homeland Security Department for carrying out this four-year investigation. Additional criminal charges are likely to be brought. I believe that the U.S. sanctions should be extended to cut off all ZTE commercial activity and investment in the United States.”
It has been widely reported that BIS and the FBI commenced an investigation on ZTE's compliance with US export control laws in 2012. It has also been reported that senior ZTE executives have not traveled to the US over the past few years for fear of being arrested. 

Given the activities described in the ZTE documents and in the BIS Entity List notice, it appears likely that ZTE will remain in the crosshairs of the US Government for some time to come. 


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