After several months of negotiations in the Committee on Foreign Relations, the full Senate on June 15, 2017 considered and passed a bipartisan bill by a vote of 98-2 seeking to hold both Iran and Russia accountable for their recent destabilizing activities in world affairs. S. 722 at Title I contains the Iran component of the legislation and was authored by Senators Corker (R-Tenn.), Menendez (D-N.J.), Rubio (R-Fla.), Cardin (D-Md.), Cotton (R-Ark.) and Casey (D-Pa.). It expands sanctions on Iran for ballistic missile development, support for terrorism, transfers of conventional weapons and human rights violations. The Countering Iran’s Destabilizing Activities Act of 2017 contains the following key provisions:

  • New mandatory ballistic missile sanctions: imposes mandatory sanctions on persons involved with Iran’s ballistic missile program and those that transact with them.
  • New terrorism sanctions: applies terrorism sanctions to the Islamic Revolutionary Guard Corps and codifies individuals who are currently sanctioned due to Iranian support for terrorism.
  • Enforcement of arms embargo: requires the president to block the property of any person or entity involved in specific activities related to the supply, sale, or transfer of prohibited arms and related material to or from Iran.

The text of Title II of S. 722 maintains and substantially expands sanctions against the government of Russia in response to the violation of the territorial integrity of the Ukraine and Crimea, its cyber-attacks and interference in elections, and its continuing aggression in Syria. This portion of the bill will:

  • Provide for a mandated congressional review if sanctions are relaxed, suspended or terminated.
  • Codify and strengthen existing sanctions contained in executive orders on Russia, including the sanctions’ impact on certain Russian energy projects and on debt financing in key economic sectors.
  • Impose new sanctions on: corrupt Russian actors; those seeking to evade sanctions; those involved in serious human rights abuses; those supplying weapons to the Assad regime; those conducting malicious cyber activity on behalf of the Russian government; those involved in corrupt privatization of state-owned assets; and those doing business with the Russian intelligence and defense sectors.
  • Allow broad new sanctions on key sectors of Russia’s economy, including mining, metals, shipping and railways.
  • Require a study on the flow of illicit finance involving Russia and a formal assessment of U.S. economic exposure to Russian state-owned entities.

S. 722 will shortly cross over to the House of Representatives, where it will be assigned to the appropriate committee(s) for consideration. As such, this legislation, while significant, is not yet a law.

Groups of Senate and House Republicans have sent letters to President Donald Trump urging him not to reverse Obama administration policies that began to relax longstanding economic sanctions and open up the country for limited trade. Seven House Republicans wrote Trump stating, “Reversing course would incentivize Cuba to once again become dependent on countries like Russia and China. Allowing this to happen could have disastrous results for the security of the United States.” The letter also argued that reversing course would “threaten” efforts to combat human trafficking, illicit drug trade, cybercrime and fraud identification. Reps. Tom Emmer (MN), Rick Crawford (AR), Ted Poe (TX), Darin LaHood (IL), Roger Marshall (KS), James Comer (KY) and Jack Bergman (MI) signed that letter.

Similarly, Republican Senators John Boozman (AR), Mike Enzi (WY) and Jeff Flake (AZ) wrote to Secretary of State Rex Tillerson and National Security Adviser H.R. McMaster, strongly urging them to “weigh carefully any rollback of policies that would endanger” benefits such as the growth in Cuban entrepreneurs, expanded opportunity for U.S. businesses and the national security benefit of preventing the island nation from becoming “a client state of nations that view US interests as counter to their own.”

It is expected that during a trip to Miami later this week, Trump will announce the results of his administration’s inter-agency review of existing Cuba policy. Many reports are indicating that he may tighten some restrictions on travel and business activities.

As comments in the ongoing Section 232 investigation into steel imports are being filed, we highlight two recent submissions that reflect the dichotomy of views on this trade issue. Both the American Iron and Steel Institute (AISI) and the National Foreign Trade Council (NFTC) filed comments with the Department of Commerce on May 31, 2017. AISI represents members of the steel industry that account for nearly 70 percent of U.S. steelmaking capacity. NFTC represents more than 200 U.S. companies with over $3 trillion in worldwide sales, including companies that rely on the steel industry.

AISI Comments:

“[T]he U.S. steel industry has relied on our trade laws to seek to address the impact of unfairly traded steel imports in our market. While the antidumping and countervailing duty laws have provided some relief … they leave openings for steel products not subject to orders to continue to surge into our market. … The U.S. steel industry has been severely impacted by repeated surges in dumped and subsidized imports that have flooded the U.S. market in recent years. These surges are the result of foreign government interventionist policies in the steel sector that have fueled massive and growing global overcapacity in steel, particularly in China. If left unaddressed, this global steel crisis will threaten the very viability of the U.S. steel industry, and therefore will threaten the national security of the United States.” AISI urges the Department of Commerce to use the Section 232 investigation to implement a “more comprehensive and broad-based” solution to safeguard national security. See AISI’s full comments.

NFTC Comments:

“We are … extremely concerned about the notion of seeking to remedy unfair trade or global overcapacity through an overly broad definition of ‘national security’ and the use of sweeping trade restrictions under Section 232. We do not believe that this is the proper role of a ‘national security’ related remedy, which should be more narrowly focused on two considerations: (a) what specific national security needs are not being met; and (b) whether a targeted remedy that is not unduly disruptive to the rest of our national economy can ensure essential supply to our defense sector. If the focus is something different, such as to remedy unfair trade practices, we believe the proper course of action is for the industry to seek relief under the laws established for those purposes, such as the antidumping and countervailing duty laws. These laws have well-established procedural requirements for determining injury and assessing the appropriate scope and level of remedies.” NFTC urges the Department of Commerce to balance the interests of steel consuming industries “against the advisability of restrictions for national security reasons,” the uncertainty that could be introduced if any “broad-based” or “sweeping” restrictions or trade barriers are created, and the potential for retaliation. See NFTC’s full comments.

On May 24, 2017, the non-partisan Congressional Research Service (CRS) released a report on the North American Free Trade Agreement (NAFTA). In addition to providing a short history of the trade agreement and an overview of certain key provisions, this timely report provides insight into certain trade trends and the agreement’s economic effects on the three member countries. The report also sets forth potential topics for any NAFTA renegotiation, including Automotive Sector; Services; E-Commerce, Data Flows and Data Localization; Intellectual Property Rights; State-Owned Enterprises; Investment; Dispute Settlement; Labor; Environment; Energy; Customs and Trade Facilitation; and Sanitary and Phytosanitary Standards.

On May 24, 2017, the Department of Commerce held a public hearing as part of its investigation under Section 232 of the Trade Expansion Act of 1962 into the impact of steel imports on national security (see our previous client update for more information). In opening remarks, Commerce Secretary Wilbur Ross stated that the purpose of the investigation is to “determine if the steel being imported into this country impairs our national economic and military security” and that the key question is, “Does the problem rise to the level of crisis sufficient to warrant action beyond existing countervailing duty and antidumping cases?” Ross said the investigation will further seek to recommend what action(s) the president should take in response if the investigation concludes that steel imports are threatening to impair U.S. national security: “Should it cover all steel from everywhere? What do we do in terms of the 20+ percent of steel imports from our NAFTA partners? Should all products be covered? Is some sort of tariff rate quota appropriate? Or a more broadly based tariff? Are there products or countries that should be excluded? Is there some more innovative solution? If we go the tariff route, should it be broadly applied or a tariff schedule for groups of products?”

Under the Section 232 law, if the Commerce secretary determines that imports threaten to impair U.S. national security, the president will then have 90 days to decide whether to support that determination and to take any necessary action to adjust imports or take other non-trade-related actions to protect national security. While this investigation was only initiated in April 2017 and the Department of Commerce has 270 days to complete the investigation (i.e., by mid-January 2018), Ross indicated that he hopes to submit a report to Trump by the end of June.

The panel hearing the testimony yesterday consisted of officials from the Department of Commerce’s Bureau of Industry and Security (BIS), the International Trade Administration, the U.S. Geological Survey, the Department of Defense and the Defense Logistics Agency. Approximately 37 individuals and company officials testified at the hearing, including Rep. Marcy Kaptur (D-Ohio), Chinese and Russian government officials, U.S. steel industry representatives, the president of the United Steelworkers union, and representatives from various U.S. companies that rely heavily on steel in the manufacturing of their products. While not yet available, the hearing transcript as well as submitted written hearing statements and other public comments will be posted on the BIS Electronic FOIA web page. Written comments will be accepted until May 31, 2017 and should be submitted to Brad Botwin, Director, Industrial Studies, Office of Technology Evaluation, Bureau of Industry and Security, U.S. Department of Commerce, 1401 Constitution Avenue NW, Room 1093, Washington, D.C. 20230 or by email to Steel232@bis.doc.gov. For those who wish to view the nearly four-hour hearing, it is available on YouTube.

Press reports have confirmed that Iran’s president Hassan Rouhani, a moderate who negotiated the joint nuclear deal and who has sought more positive relationships with western powers, won re-election over the hard-right conservative challenger, cleric Ebrahim Raisi. Rouhani reportedly received 57 percent of the vote to Raisi’s 38.5 percent, with the remaining votes split among other minor candidates. While this result is being viewed by many as a positive outcome for Iran’s ongoing efforts to engage with the rest of the world, it remains to be seen if Iran’s Supreme Leader Ayatollah Ali Khamenei, who has final say over all state issues and limits the president’s power, will limit any further efforts by Rouhani in this area. In response to the election results, U.S. Secretary of State Rex Tillerson stated:

“What we hope – what I would hope – is that Rouhani now has a new term, and that he use that term to begin a process of dismantling Iran’s network of terrorism, dismantling its financing of the terrorist network, dismantling of the manning and the logistics and everything that they provide to these destabilizing forces that exist in this region. That’s what we hope he does. We also hope that he puts an end to [Iran’s] ballistic missile testing. We also hope that he restores the rights of Iranians to freedom of speech, to freedom of organization, so that Iranians can live the life that they deserve. That’s what we hope this election will bring. I’m not going to comment on my expectation. But we hope that if Rouhani wanted to change Iran’s relationship with the rest of the world, those are the things he could do.”

Stating that “trade is critical to the economic strength of our country,” President Trump has proclaimed this week to be World Trade Week. In issuing this proclamation, the president stated that the United States will:

  • promote economic growth by strengthening the manufacturing base and expanding exports in manufacturing, agriculture, and the service industries;
  • challenge unfair trade practices that leave American workers, farmers, and businesses competing in global markets at a disadvantage;
  • commit to breaking down trade barriers and opening new markets for American exports; and
  • negotiate future trade agreements that ensure that all Americans reap the benefits of global commerce.

The Trump administration has renewed a necessary waiver regarding U.S. sanctions on Iran’s crude oil exports. This will allow Iran to continue to sell its oil in the international market despite existing U.S. sanctions that must be periodically waived under the terms of the 2015 nuclear deal with Iran.

The Treasury Department’s Office of Foreign Assets Control (OFAC), however, has placed two senior Iranian defense officials on OFAC’s Specially Designated Nationals (SDN) List for their involvement in Iran’s solid-fueled ballistic missile program. Morteza Farasatpour, a senior defense official with Iran’s Defense Industries Organization (DIO) and Rahim Ahmadi, a senior official serving as the Director of Iran’s Shahid Bakeri Industries Group (SBIG), along with Iran-based company Matin Sanat Nik Andishan, have been placed on the SDN List for activities in support of Iran’s ballistic missile program.

These actions were taken in conjunction with the State Department’s release of its semi-annual report to Congress detailing sanctions imposed on persons responsible for or complicit in human rights abuses committed against citizens of Iran or their family members.

As a reminder to our readers, on Friday, May 19, Iran will hold its presidential vote that could also have a major impact on the status of the nuclear deal. Current President Hassan Rouhani, considered a moderate who oversaw the negotiation and implementation of the nuclear deal, is running for re-election. While he faces competition from several other candidates, his principal challenger is hardline conservative cleric Ebrahim Raisi.

The Trump administration formally notified Congress of its intent to renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico, starting a 90-day clock for statutorily required consultations. This notification means that NAFTA negotiations with Canada and Mexico can begin no earlier than August 16, 2017. In the letter from U.S. Trade Representative Robert Lighthizer, the administration indicated it would consult closely with Congress to develop negotiating positions. The letter notes that while NAFTA was negotiated 25 years ago, the U.S. economy and businesses have changed, resulting in outdated provisions in the agreement. In particular, negotiations will include “new provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, environment, and small and medium enterprises.”

In very brief comments, Lighthizer stated, “Today, President Trump fulfilled one of his key promises to the American people … USTR will now continue consultations with Congress and American stakeholders to create an agreement that advances the interests of America’s workers, farmers, ranchers, and businesses.” The Office of the U.S. Trade Representative in the near future will publish a notice in the Federal Register requesting public input on the direction, focus and content of the NAFTA negotiations.

After months of delays and requiring a waiver allowing him to serve as the U.S. trade representative (USTR), Robert Lighthizer was finally confirmed by the Senate on a vote of 82-14.

The delays in this vote were for a multitude of reasons. First and foremost, a section of the Trade Act of 1974 excludes anyone who has “directly represented, aided or advised a foreign entity … in any trade negotiation, or trade dispute” from serving as USTR. Lighthizer had represented Brazilian and Chinese entities in past trade disputes. Senate Democrats also delayed action on his confirmation by demanding concessions to address a shortfall in pension funding for miners. More recently, several Republican senators, including Sen. Jon McCain, questioned Lighthizer’s position on agricultural trade and his stance on the North American Free Trade Agreement.

Lighthizer was a deputy USTR during the Reagan administration and has been representing U.S. corporations for the last three decades in international trade remedy litigation as a partner at the law firm Skadden, Arps, Slate, Meagher & Flom LLP.