As previously detailed in our September 26 Trump and Trade Update, the U.S. International Trade Commission (ITC) unanimously determined that crystalline silicon photovoltaic (CSPV) cells (or solar cells) were being imported into the United States in such quantities that they were causing substantial injury to the U.S. solar equipment industry. On October 31, 2017, the ITC issued its remedy recommendations to address the injury and to facilitate the efforts of the domestic industry to “make a positive adjustment to import competition.”

The recommendations varied among the four ITC commissioners but included quantitative import restrictions and tariff rate quotas (TRQs). Three commissioners recommended TRQs, while the fourth suggested quantitative restrictions only. The commissioners further recommended international negotiations “to address the underlying cause of the increase in imports of CSPV products and alleviate the serious injury thereof.” Commissioner Broadbent found that the main cause of the increase in imports was global oversupply of solar cells from China and specifically recommended negotiations with that country. Others acknowledged this global oversupply but also recommended that imports from certain countries (including Canada and other free trade agreement countries) be excluded because they were not the root cause of injury to the U.S. solar cell industry. Suniva, the primary petitioner in the case, which had requested a price floor, called the recommendations “disappointing” and urged the president to reject the ITC’s recommendations and follow the recommendations of the domestic industry.

The ITC will now forward its report, which will contain the injury determination, remedy recommendations, certain additional findings, and the basis for them, to President Trump by November 13, 2017. The president will make the final decision on whether to provide relief to the U.S. solar cell industry and on the type and amount of any relief. The Office of the U.S. Trade Representative has issued a formal notice requesting comments on the ITC’s injury determination and remedy recommendations. Any public comments are due by November 20, 2017; the USTR will also hold a public hearing on December 6, 2017. The president will have until January 12, 2018 to make a final decision on any remedy.

In support of its preliminary determination in the antidumping duty investigation of imports of aluminum foil from the People’s Republic of China, the Department of Commerce has released a 205-page memorandum finding that China continues to be considered a nonmarket economy (NME) country in trade remedy cases because it “does not operate sufficiently on market principles to permit the use of Chinese prices and costs for purposes of the Department’s antidumping analysis.” At its core, the memo concludes, “the framework of China’s economy is set by the Chinese government and the Chinese Communist Party (CCP), which exercise control directly and indirectly over the allocation of resources through instruments such as government ownership and control of key economic actors and government directives. The stated fundamental objective of the government and the CCP is to uphold the ‘socialist market economy’ in which the Chinese government and the CCP direct and channel economic actors to meet the targets of state planning. The Chinese government does not seek economic outcomes that reflect predominantly market forces outside of a larger institutional framework of government and CCP control.”

The memo provides a detailed analysis of the six statutory criteria for determining whether a country is a market economy in trade remedy cases as set forth in the Tariff Act of 1930. Among the factors detailed in the memo are the Chinese government’s continuing restrictions on foreign investment, the level of Chinese government ownership of various entities, the government’s ability to set and control prices, and the continued functioning of  China’s legal system as “an instrument by which the Chinese government and the CCP can secure discrete economic outcomes, channel broader economic policy, and pursue industrial policy goals.”

Section 231 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), enacted on August 2, 2017, mandates that the president must impose certain sanctions on persons the president determines knowingly engage in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the government of the Russian Federation. The sanctions include, among others, prohibitions concerning property transactions, export license restrictions, Export-Import Bank assistance restrictions, debt and equity restrictions, visa ramifications for corporate officers, and U.S. government procurement prohibitions. The intent of Section 231 of the CAATSA is to respond to Russia’s behavior as to the crisis in eastern Ukraine, cyber intrusions and attacks, and human rights abuses.

On October 27, 2017, the State Department provided a list of those Russian defense and intelligence agencies that may face sanctions under CAATSA. At this time, however, this designation is not a determination regarding imposition of actual sanctions against these Russian entities; the CAATSA requires the imposition of sanctions beginning on or after January 29, 2018. In a short briefing, senior State Department staff indicated that over the next 180 days, the department will take a close look at transactions and dealings with these entities that it thinks may fall within the scope of the sanctions provision of CAATSA, and engage with partners and allies to determine whether any transactions undertaken with entities on the list are problematic. At that time, sanctions may be implemented.

Over the course of the next three months, U.S. companies should assess the amount and type of business transactions they may be conducting with Russian entities on the State Department list. Ultimately, persons who are determined to “knowingly engage in a significant transaction” with a person specified on the list may face sanctions. In determining whether a transaction is “significant” for purposes of CAATSA, the Department of State will consider the totality of the facts and circumstances surrounding the transaction and weigh various factors on a case-by-case basis. Clearly, issues of national security and U.S. foreign policy interests will be factors in such an analysis.

The Department of Commerce (Commerce) has announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of aluminum foil from the People’s Republic of China (China). While the preliminary antidumping duty rates, ranging from 96 percent to more than 162 percent, will not be finalized by Commerce until late February 2018, Commerce will instruct U.S. Customs and Border Protection (CBP) to require cash deposits based on these preliminary rates.

The merchandise covered by these investigations is aluminum foil having a thickness of 0.2 mm or less, in reels exceeding 25 pounds, regardless of width. The implications of this trade remedy action, however, are potentially more far reaching and may affect U.S.-China trade relations. The preliminary determination comes just weeks before President Trump travels to China, and China was quick to state that it was “strongly dissatisfied” with the determination. A key issue in this investigation is the U.S. government’s continued treatment of China’s economy as a “nonmarket economy.” Commerce relied upon surrogate/third-country pricing analysis to conclude that China was dumping its aluminum foil in the U.S. market. Upon China’s accession to the World Trade Organization (WTO), other WTO members were allowed to use such a nonmarket economy methodology in antidumping duty matters involving China. Commerce continues to use this methodology, arguing that China still does not operate as a market economy due to continuing government price controls and other governmental involvement. China argues that this clause in its accession agreement has now expired and that its goods must be accorded market economy status.

After four rounds of negotiations, the United States, Canada and Mexico are beginning to express frustration concerning the discussions and proposals to revise and update the North American Free Trade Agreement (NAFTA). In an October 17 joint statement, the parties indicated that they have put forward “substantially all initial text proposals” but that these proposals have “created challenges” and highlighted “significant conceptual gaps” among the three countries.

Acknowledging that one of President Trump’s clear objectives is the reduction of the U.S. trade deficit with its NAFTA partners, U.S. Trade Representative Robert Lighthizer stated that he was “surprised and disappointed by the resistance to change from our negotiating partners.” In his closing remarks, Ambassador Lighthizer said, “As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits. Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantage. But the President has been clear that if we are going to have an agreement going forward, it must be fair to American workers and businesses that employ our people at home.”

In response, Canadian Foreign Affairs Minister Chrystia Freeland called the U.S. list of proposals “unconventional” and “troubling,” stating that some of them would “turn back the clock on 23 years of predictability, openness and collaboration under NAFTA.”

Mexican Secretary of the Economy Ildefonso Guajardo Villarreal said, “We must ensure that decisions we make today do not come back to haunt us tomorrow,” adding that, in order for the negotiations to be fruitful, “we must understand that we all have limits.”

Mexico will host the fifth round of negotiations November 17-21, 2017, and the parties have agreed that additional rounds will be necessary and scheduled during the first quarter of 2018.

In brief remarks, President Trump announced that in addition to his administration’s new Iran strategy, he “cannot and will not” certify to Congress that the continued suspension of sanctions against Iran under the Joint Comprehensive Plan of Action (JCPOA) is appropriate. Reiterating his often stated claim that “the Iran Deal was one of the worst and most one-sided transactions the United States has ever entered into,” the president stated that he needed “negotiators who will much more strongly represent America’s interest.” The president added that, “Since the signing of the nuclear agreement, the regime’s dangerous aggression has only escalated. At the same time, it has received massive sanctions relief while continuing to develop its missiles program. Iran has also entered into lucrative business contracts with other parties to the agreement.”

Arguing that he will not “continue down a path whose predictable conclusion is more violence, more terror, and the very real threat of Iran’s nuclear breakout,” President Trump directed his administration to work with Congress and allies “to address the deal’s many serious flaws so that the Iranian regime can never threaten the world with nuclear weapons.” He added that should a solution not be reachable, “then the agreement will be terminated. It is under continuous review, and our participation can be cancelled by me, as President, at any time.”

After a nine-month review, consultations with his national security staff and discussions with members of Congress, President Trump has announced a new U.S. strategy on relations with Iran. In a statement, the White House announced that the “new Iran strategy focuses on neutralizing the Government of Iran’s destabilizing influence and constraining its aggression, particularly its support for terrorism and militants.” While not providing specifics, the announcement indicated that the United States would work to deny Iran, and particularly the Islamic Revolutionary Guard Corps (IRGC), funding; counter Iran’s efforts to develop its ballistic missiles and other asymmetric weapons capabilities; and “deny the Iranian regime all paths to a nuclear weapon.”

Regarding the Joint Comprehensive Plan of Action (JCPOA), Trump stated that Iran’s “activities severely undercut whatever positive contributions to ‘regional and international peace and security’ [the JCPOA] sought to achieve,” adding that Iranian officials have sought to “exploit loopholes and test the international community’s resolve.” While not yet making a full statement on whether he will refuse to re-certify to Congress Iranian compliance under the JCPOA, which must be done by October 15, 2017, Trump clearly indicated that current Iranian behavior cannot be tolerated and that “the deal must be strictly enforced, and the IAEA must fully utilize its inspection authorities.”

Congressional Activity on Iran

On October 12, 2017, the House Foreign Affairs Committee, chaired by Rep. Ed Royce (R-CA), passed the Iran Ballistic Missiles and International Sanctions Enforcement Act (HR 1698). The legislation seeks to expand sanctions against Iran for its continuing efforts to develop intercontinental ballistic missile capabilities. In remarks prior to the committee markup of HR 1698, Chairman Royce stated, “As flawed as the [JCPOA] deal is, I believe we must now enforce the hell out of it. Let’s work with allies to make certain that international inspectors have better access to possible nuclear sites, and we should address the fundamental sunset shortcoming, as our allies have recognized.” Committee member statements, witness testimony and a webcast of the October 11, 2017 hearing on the legislation are available on the House Foreign Affairs Committee’s website. The legislation currently has 320 cosponsors in the House of Representatives. HR 1698 will next be reported to the full House for further debate and consideration.

In the Senate, on October 13, 2017, Senators Bob Corker (R-TN) and Tom Cotton (R-AK) announced their intention to introduce legislation to amend the Iran Nuclear Agreement Review Act of 2015 (Public Law No. 114-17), to address certain provisions in the JCPOA, particularly an elimination of the deal’s sunset on limitations placed on Iran’s future development of any nuclear program. The legislation, which has not yet been formally introduced, would penalize Iran if it fails to abide by guidelines related to centrifuge research and development. Ultimately, under the proposed restrictions in the legislation, any violations by Iran could result in the reinstatement of U.S. sanctions, especially if it were to come within a year of gaining nuclear capability.

The White House has acknowledged that while no decision is final, President Trump is likely to decline to recertify that Iran is in compliance with the terms of the Joint Comprehensive Plan of Action (JCPOA), which is more commonly known as the Iran nuclear deal. Trump is expected to publicly announce his position on the JCPOA and an overall strategy toward Iran next week; any final determination must be issued by October 15, 2017. Until then, the Trump and Trade team offers this summary of the 2015 law that would be triggered should Trump not recertify to Congress that Iran is in compliance with the JCPOA.

Under the Iran Nuclear Agreement Review Act of 2015 (Public Law No. 114-17), the president must submit to Congress every 90 days a compliance certification indicating that (1) Iran is fully implementing the terms of the JCPOA, (2) it has not committed a material breach, (3) it has taken no actions to advance its nuclear weapons program, and (4) the suspension of sanctions remains warranted. Under this law, there are clear and detailed provisions pertaining to congressional oversight of Iranian compliance under the JCPOA should the president not submit a certification of Iran’s compliance. Subsection (e) of the law provides for expedited consideration of “qualifying legislation” introduced within 60 calendar days of the date when the president does not submit a certification stating Iran is in compliance with the JCPOA.

The term “qualifying legislation” is defined to mean only a bill that (1) is titled, “A bill reinstating statutory sanctions imposed with respect to Iran” and (2) states, after the enacting clause, “Any statutory sanctions imposed with respect to Iran pursuant to __________ that were waived, suspended, reduced, or otherwise relieved pursuant to an agreement submitted pursuant to section 135(a) of the Atomic Energy Act of 1954 are hereby reinstated and any action by the United States Government to facilitate the release of funds or assets to Iran pursuant to such agreement, or provide any further waiver, suspension, reduction, or other relief pursuant to such agreement is hereby prohibited,” with the blank space filled with the law or laws under which sanctions are to be reinstated. Such qualifying legislation must be introduced in the House by either the majority leader or minority leader or in the Senate by the majority leader or minority leader (or one of their designees).

Any such legislation is to receive expedited consideration; if any committee to which the bill has been referred has not reported out the bill within 10 legislative days, that committee will no longer have oversight of the bill. Each chamber (House and Senate) has slightly different rules under the law in which to consider any bill. In the House, all points of order against any qualifying legislation are waived as are any motions against its consideration; two hours of debate are allowed; and no motions for reconsideration will be allowed. In the Senate, all points of order pertaining to any qualifying legislation are also waived; no motions to postpone or reconsider will be allowed, but certain (undefined) debatable motions and appeals can be considered; 10 hours of debate are allowed; and no motion to recommit will be allowed. If one chamber does not introduced qualifying legislation and the other chamber considers and passes such legislation, that bill once passed over to the other chamber must be considered under the expedited procedures (as previously discussed) under this law.

Stay tuned …

The Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee headed by the Department of the Treasury, is authorized to review transactions that could result in the control of U.S. businesses by foreign persons or companies in order to determine the effect of such transactions on the national security of the United States. Once a little-known committee, CFIUS has become more widely known in the past decade amid growing concern over foreign investment in the United States, and the potential security implications of certain foreign entities owning and controlling U.S. companies and/or technology. In fact, in September 2017, President Trump took the rare step of actually blocking a transaction: the proposed acquisition of Lattice Semiconductor Corporation by Canyon Bridge Capital Partners LLC, a subsidiary of Chinese state-owned China Venture Capital Fund Corporation Limited. Such a move indicates that the parties were unable to allay the national security concerns of CFIUS’s agency members. It further highlights Trump’s “America First” outlook and the likelihood that CFIUS reviews will become more common and stringent under the Trump administration.

The recently released CFIUS 2015 Annual Report indicates the following trends:

  • In 2015, 143 transactions were reviewed by CFIUS, continuing the upward trend in the number of notices filed with CFIUS from 65 in 2009 to 143 in 2015. Further, it is believed that filings increased again in 2016 and that 2017 may be a record year with more than 200 filings.
  • In 2015, 42 percent of reviews were conducted for industries in the Manufacturing sector; 32 percent in the Finance, Information and Services Sector; 18 percent in the Mining, Utilities and Construction industries; and 8 percent in the Wholesale Trade, Retail Trade, and Transportation sectors.
  • For the fourth consecutive year, China has led foreign countries in the number of CFIUS reviews, with 29 conducted in 2015. Over the three-year period from 2013 to 2015, Chinese foreign investment underwent 74 CFIUS reviews; the next closest country was Canada with 49 reviews, followed by the United Kingdom with 47 reviews.
  • While the majority of reviews conclude with approval by CFIUS, in 2015 the parties to 11 transactions had to agree to and adopt mitigation measures to ensure that the parties remained in compliance with various agency requirements to remove any national security risks.
  • The annual report must highlight any “perceived adverse effects” of transactions reviewed by CFIUS, and the 2015 report for the first time indicates there could be national security concerns regarding potential acquisitions of U.S. companies that hold “substantial pools of potentially sensitive data about U.S. persons and businesses that … could be in any number of sectors , including, the insurance sectors, health services, and technology services.”

While not stated in the report, the statistics on the length of time a transaction is under review reveal that in 2015 there was a significant increase in the length of time transactions remained active before CFIUS. By law, CFIUS must complete a review within 90 days, with several triggers that may require a more thorough investigation during that time. Historically, most transactions have concluded within the more informal 30-day review period; however, 2015 data indicate that nearly half of the year’s 143 transactions went into the more formal 45-day investigation period.

Under the Joint Comprehensive Plan of Action (JCPOA), the United States and several other countries agreed to ease certain sanctions on Iran in exchange for Iran’s commitment to limit its nuclear program. This relaxation, however, was limited in scope to any nuclear-related sanctions, and the United States and other parties to the JCPOA continue to have the authority to sanction Iran for any activity related to efforts to further develop its ballistic missile program. The United States may continue to sanction Iran for such activity under Executive Orders 12938 and 13382, and the Departments of State and Treasury continue their efforts to identify sanctionable entities.

The Government Accountability Office released a report September on 28, 2017, examining (1) the extent to which State and Treasury have continued since issuance of the JCPOA to identify entities that are potentially sanctionable and (2) entities that have actually been sanctioned since January 2016. According to the report, State and Treasury have placed 33 entities and 25 individuals on the Specially Designated Nationals List since January 2016.