On April 12, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) again extended previous Russia-related General License (GL) 13 by issuing a revised GL 13I, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024,” which states that U.S. persons are authorized to pay taxes, fees, or import duties and purchase or receive permits, licenses, registrations, or certifications, to the extent such transactions are prohibited by Directive 4, provided such transactions are ordinarily incident and necessary to such persons’ day-to-day operations in the Russian Federation. Directive 4 prohibits any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.

Previous GL 13H was set to expire on April 17, 2024; the revised GL 13I is set to expire on July 11, 2024. Please see our prior blog posts on this general license: January 18, 2024, November 7, 2023, and May 21, 2023.

On April 12, 2024, the Office of Foreign Assets Control (OFAC) signed a new determination under section 1(a)(i)(A) of Executive Order 14068 of March 11, 2022 as amended by Executive Order 14114 of December 22, 2023. According to this determination, the importation and entry into the United States, including importation for admission into a foreign trade zone located in the United States, of aluminum, copper, and nickel of Russian Federation origin is prohibited, except to the extent provided by law, or unless licensed or otherwise authorized by OFAC. However, this prohibition does not apply to aluminum, copper, and nickel that was produced in the Russian Federation before April 13, 2024.

On that same day, OFAC signed another determination under section 1(a)(ii) of Executive Order 14071, dated April 6, 2022, which imposes prohibitions on certain services related to the acquisition of aluminum, copper, or nickel of Russian Federation origin. Specifically, the determination targets warranting services for aluminum, copper, or nickel of Russian Federation origin on a global metal exchange and services to acquire aluminum, copper, or nickel of Russian Federation origin as part of physical settlement of a derivative contract (collectively, “Covered Metals Acquisition Services”). According to this determination, the following activities are prohibited, except to the extent provided by law, or unless licensed or otherwise authorized by the OFAC: the exportation, reexportation, sale or supply, directly or indirectly, from the United States or by a United States person, wherever located, of any of the Covered Metals Acquisition Services to any person located in the Russian Federation. This determination excludes Covered Metals Acquisition Services related to aluminum, copper, or nickel that was produced prior to April 13, 2024.

In addition, OFAC released new FAQs (1168-1172) clarifying prohibitions and definitions relating to Russian Federation origin metals, particularly aluminum, copper, and nickel, in response to ongoing Russian aggression. Importantly, OFAC clarified that the term “Russian Federation origin” excludes “any Russian Federation origin good that has been incorporated or substantially transformed into a foreign-made product.”

These actions were taken in coordination with action taken by the United Kingdom. As stated in OFAC’s press release, “[a]s a result of today’s collective actions, metal exchanges, like the London Metal Exchange (LME) and Chicago Mercantile Exchange (CME), will be prohibited from accepting new aluminum, copper, and nickel produced by Russia. Metal exchanges provide a central role in facilitating the trading of industrial metals around the globe. By taking joint action, the United States and UK are depriving Russia and its metals producers of an important source of revenue.”

On April 15, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 5O, “Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After August 13, 2024,” which continues to delay U.S. persons’ ability to enforce bondholder rights to the CITGO shares serving as collateral for the Petróleos de Venezuela, S.A. (PdVSA) 2020 8.5% bond until on or after August 13, 2024.  The previous deadline had been April 16, 2024.  Effective April 15, 2024, this General License replaces GL 5N.

With this revised General License, U.S. persons remain prohibited from engaging in any transactions related to the sale or transfer of CITGO shares in connection with the PdVSA 2020 8.5% Bond unless specifically authorized by OFAC. In FAQ 595, OFAC continues to note a favorable licensing policy toward those seeking to apply for a specific license in an effort to reach an agreement on proposals to “restructure or refinance payments due to the holders of the PdVSA 2020 8.5% bond.” 

On April 4, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) released another Interim Final Rule (IFR) offering clarification and correcting inadvertent errors made in earlier rulemakings regarding the implementation of significant export controls on certain advanced computing items and supercomputer and semiconductor end use. This latest rule is effective April 4, 2024.

Background

On October 7, 2022, IFR titled “Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification,” made critical changes to the Export Administration Regulations (15 CFR parts 730–774) (EAR) in two areas to address U.S. national security concerns. Among its numerous provisions, the Rule restricted exports to China of high-end chips and semiconductor manufacturing equipment, including foreign made items that are the product of U.S. technology. It also restricted the export of a wide range of items that would support certain supercomputing or integrated circuit production end-uses in China. For additional details, see Thompson Hine Update of October 31, 2022.

On October 25, 2023, BIS published two IFRs updating the October 7, 2022 rulemaking that notably: (1) revised export controls on semiconductor manufacturing items by removing certain Export Control Classification Numbers (ECCNs) and revising license requirements; and (2) placing additional export controls on certain advanced computing items.

April 2024 Interim Final Rule

The latest April 4, 2024 IFR corrects inadvertent errors contained in the earlier rules and continues to make additional updates and clarifications. While numerous technical corrections and clarifications are addressed in this rulemaking, the most notable updates are:

  • Revisions to § 740.8 Notified Advanced Computing (NAC) and Advanced Computing Authorized (ACA) that make these separate licenses exceptions. Among other things, the NAC license exception will authorize exports and reexports of specified items to Macau and destinations in Country Group D:5 and entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, wherever located, that require a notification to BIS. The ACA license exception will authorize exports, reexports, and transfers (in-country) of specified items to destinations in Country Group D:1 or D:4 (except Macau and destinations specified in Country Group D:5) that do not require a notification to BIS. License Exception ACA will also authorize transfers (in-country) to Macau and destinations in Country Group D:5, and entities headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5, that do not require a notification to BIS.
  • Revisions to § 744.6.  Restrictions on specific activities of “U.S. persons” in which BIS’ license review standards have been clarified and modified.
  • Restoring controls for ECCNs that contain .z paragraphs. The IFR restores controls in the license requirement table of ECCNs 3A001, 3D001, 3E001, 4A003, 4A004, 4A005, 4D001, 4E001, 5A002, 5A004, 5D002, and 5E002, by removing the exceptions for .z paragraphs from the national security (NS), missile technology, nuclear proliferation, and/or crime control license requirement paragraphs. BIS notes that it is making these changes “to ensure the .z paragraphs will not be used to circumvent regime controls under the respective .z ECCNs (for instance, by inserting a chip to make the item a .z item and thereby eligible for License Exceptions NAC or ACA, provided the export, reexport, or transfer (in-country) also otherwise meet the applicable terms and conditions of License Exceptions NAC or ACA).”
  • Revisions to 3A001. This rule adds four new .z paragraphs to ECCN 3A001 to make a distinction of those paragraphs controlled for NS:1, RS:1, MT:1, and NP:1 reasons.
  • Numerous revisions to various ECCNs, including ECCN 3B001, 3B991, 3D001, 3E001, 4E001, 5D002, 5D992, 5E002 and 5E992.
  • Revision of § 744.23(a)(4). Adding a new paragraph (4)(ii) to distinguish between direct exports, reexports, and transfers (in-country) in (a)(4)(i) and indirect exports, reexports, transfers (in-country) in (a)(4)(ii) for the “development” or “production,” by an entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination specified in Country Group D:5. BIS notes that this revision is being done “to address concerns about continued support for indigenous ‘development’ and ‘production’ of front-end integrated circuit ‘production’ equipment in Macau and destinations in Country Group D:5 countries – and by companies headquartered in those countries.”

Finally, the April 2024 IFR provides clarification to BIS responses to certain public comment topics it addressed in the October 2023 semiconductor manufacturing items IFR.

BIS continues to invite public comments for revisions, corrections, and clarifications in this most recent rule. Comments must be received by BIS no later than April 29, 2024 and should be filed using the Federal rulemaking portal (www.regulations.gov). The Docket ID No. for this interim final rule is BIS-2023-0016; commenters should also reference RIN 0694-AJ23 in all comments.

These interim final rules are technical, lengthy, and complex, and Thompson Hine’s Updates provide only an overview of the major provisions of the revised export controls targeting semiconductor manufacturing equipment, software, and technology and access to advanced computing. Companies impacted by these rules must continue to review their scope and potential impact not only on U.S. production but also how the increased scope impacts foreign-produced items that are direct products of U.S.-origin software or technology.

On March 7, the Department of Justice (DOJ) announced a new department-wide whistleblower pilot program, which aims to incentivize whistleblowers to come forward with information related to corporate misconduct. By offering monetary rewards to whistleblowers, the program seeks to enhance enforcement efforts and promote transparency in the business world.

DOJ’s new pilot program is designed to complement existing programs. While other agencies already have whistleblower programs for specific types of misconduct under the jurisdictions of those agencies, the DOJ’s focus will be on significant corporate fraud and financial misconduct of which the government is not already aware and which is not covered by those programs.

View the entire client update in HTML or PDF format.

The Office of the U.S. Trade Representative (USTR) released on March 29, 2024, its annual National Trade Estimate Report on Foreign Trade Barriers (NTE Report) that addresses the status of foreign trade and investment barriers to U.S. exports worldwide. This is the U.S. government’s major annual report on the barriers to U.S. exports of goods and services, investment and electronic commerce that U.S. exporters and other businesses encounter globally. This year’s NTE Report covers significant foreign trade barriers in 59 markets.

The NTE Report notes that trade barriers “elude fixed definitions, but may be considered government measures that unduly impede the international exchange of goods and services.” This year, the NTE Report classifies foreign trade barriers in 14 categories:

  • Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing, customs barriers and shortcomings in trade facilitation, and other market access barriers).
  • Technical barriers to trade (e.g., unnecessarily trade restrictive standards, conformity assessment procedures, or technical regulations, including unnecessary or discriminatory technical regulations or standards for telecommunications products).
  • Sanitary and phytosanitary measures (e.g., trade restrictions implemented through unwarranted measures not based on scientific evidence).
  • Government procurement (e.g., “buy national” policies and closed bidding).
  • Intellectual property protection (e.g., inadequate patent, copyright, and trademark regimes and inadequate enforcement of intellectual property rights).
  • Services barriers (e.g., prohibitions or restrictions on foreign participation in the market, discriminatory licensing requirements or regulatory standards, local presence requirements, and unreasonable restrictions on what services may be offered).
  • Barriers to digital trade (e.g., barriers to cross-border data flows, including data localization requirements, discriminatory practices affecting trade in digital products, restrictions on the provision of internet-enabled services, and other restrictive technology requirements).
  • Investment barriers (e.g., limitations on foreign equity participation and access to foreign government-funded research and development programs, local content requirements, technology transfer requirements and export performance requirements, and restrictions on repatriation of earnings, capital, fees and royalties).
  • Subsidies, especially export subsidies (e.g., export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third country markets) and local content subsidies (e.g., subsidies contingent on the purchase or use of domestic rather than imported goods).
  • Anticompetitive practices (e.g., government-tolerated anticompetitive conduct of state-owned or private firms that restricts the sale or purchase of U.S. goods or services in the foreign country’s markets or abuse of competition laws to inhibit trade).
  • State-owned enterprises (SOEs) (e.g., requirements for SOEs to purchase domestically manufactured products whenever available; monopoly over private companies; and control of key economy sectors, such as electricity, mining, and telecommunications sectors).
  • Labor (e.g., barriers related to labor law enforcement such as prohibitions of forced labor, promotion of acceptable conditions of work, rights to freedom of association, rights to organize and bargain collectively, violence against unionists, and impunity for the perpetrators of the violence, etc.).
  • Environment (e.g., restrictions on import and use of illegal timber; and restrictions on imports of unprocessed scrap and recyclable materials); and,
  • Other barriers (barriers that encompass more than one category, e.g., bribery and corruption).

The NTE Report discusses key export markets for the United States. It states that “omission of particular countries and barriers does not imply that they are not of concern to the United States.” It contains lengthy sections pertaining to continuing trade barriers with China and Russia.

In the USTR’s press statement, the USTR Katherine Tai stated, “The NTE Report has received unprecedented attention this year because we are taking steps to return it to its stated statutory purpose. We respect that each government—including our own—has the sovereign right to govern in the public interest and to regulate for legitimate public policy reasons. Over the years, the NTE Report expanded from its statutory purpose to include measures without regard to whether they may be valid exercises of sovereign policy authority. Examples include efforts by South Africa to render its economy more equitable in the post-Apartheid era; import licensing requirements for narcotics and explosives; and restrictions on imports of endangered species. By carefully editing and returning the NTE Report to the statute’s intent, USTR is making it a more useful document that enumerates significant trade barriers that could be addressed to expand market opportunities and help our economy grow.”

William Reinsch, the Scholl Chair in International Business at the Center for Strategic and International Studies, criticized the USTR’s new approach in its NTE Report. He argues that the USTR’s decision to consider whether foreign policies are valid exercises of sovereign policy authority, rather than focusing on whether they constitute barriers to U.S. trade, deviates from the report’s statutory purpose as outlined in Section 181 of the Trade Act of 1974. Mr. Reinsch contends this shift overlooks the NTE Report’s core aim: to identify practices that significantly impede U.S. exports, foreign investment, and electronic commerce, regardless of their legitimacy in the eyes of their implementing countries. This change, he warns, could harm the U.S. economy by neglecting significant barriers to trade, especially in the digital sector, and by potentially encouraging discriminatory practices against U.S. companies and workers.

On March 28, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) announced a new resource to help identify boycott-related requests U.S. persons and companies may receive during the regular course of conducting business. The resource is a public list of entities identified as making a boycott-related request in reports received by the BIS and follows the BIS July 2023 policy memo implementing efforts to enhance enforcement and compliance with U.S. antiboycott regulations. See Thompson Hine Update of July 28, 2023. The list is posted on the BIS Office of Antiboycott Compliance webpage. 

The antiboycott provisions set forth in Part 760 of the Export Administration Regulations (EAR) discourage, and in certain circumstances prohibit, U.S. persons from taking certain actions in furtherance or support of a boycott maintained by a foreign country against a country friendly to the United States (an unsanctioned foreign boycott). In releasing the list, Assistant Secretary for Export Enforcement Matthew S. Axelrod stated, “By publishing this list, we aim to raise awareness of the sources of past boycott requests, facilitate fulfillment of the antiboycott reporting requirements, and deter foreign parties from imposing – and U.S. parties from acquiescing to – boycott-related requests and conditions.” Each entity on this list has been recently reported to the BIS as making a boycott-related request in connection with a transaction in the interstate or foreign commerce of the United States. The BIS indicated that the list is not exhaustive and will be updated quarterly.

Together, the Department of the Treasury (via the 1976 Tax Reform Act) and the BIS Office of Antiboycott Compliance oversee efforts to counteract the participation of U.S. persons and companies in other countries’ economic boycotts or embargoes.

On March 25, 2024, the Department of Commerce published new regulations in the Federal Register formalizing major changes to U.S. trade remedy regulations, 19 C.F.R. part 351, which include noteworthy clarifications and new provisions. The extensive changes were first proposed in May 2023 (see Update of May 15, 2023), and follow a public comment period that yielded more than 50 responses. With the publication of the March 25, 2024 final rule, the regulations will take effect in 30 days on April 24, 2024.

Commerce’s sweeping changes include:

  • Investigation of transnational subsidies: In 1998, because it did not believe that governments would spend their own taxpayer funds to subsidize the production and exportation of goods of another country, Commerce restricted its ability to investigate transnational subsidies. More than 25 years later, Commerce has reversed course, recognizing governments now “provide cross-border equity infusions, fundings, loans, etc., and [such benefits] are no longer limited to foreign aid. Rather, they are provided to promote the grantor country as well as the recipient’s country manufacturing capacities for a particular industry.” In the Federal Register notice, Commerce referenced projects funded worldwide by China’s Belt and Road Initiative as examples.
  • Clarity for a Particular Market Situation (PMS): Commerce’s recent PMS findings have faced a myriad of legal challenges prompting differing judicial standards for Commerce to consider when determining whether a PMS exists in an antidumping proceeding. (A PMS determination allows Commerce to reject cost and sales prices due to distortions in the exporting market.) The new regulations incorporate the 2022 U.S. Court of Appeals for the Federal Circuit ruling clarifying what criteria Commerce should consider, and when, in a PMS determination.
  • Consideration of an exporting country’s “nonexistent, weak, or ineffective” labor, environmental, human rights, and intellectual property protections: In its trade remedy analyses, Commerce will now consider how an exporting country’s inadequate legal and regulatory infrastructure related to labor, environmental, human rights, and intellectual property protections distorts costs and prices. The change reflects longstanding criticisms from U.S. companies that certain foreign competitors do not face the same or similar compliance costs as they do. As Commerce noted, “it is standard practice for Commerce to consider arguments based on real-world factors that can affect the cost of production, and to reject the use of prices or costs which Commerce has determined to be distorted or potentially distorted.” This acknowledgement “is not, despite the criticism of some of the commenters, a judgment on the social welfare policies, priorities, and laws of different countries. Instead, it is a recognition of economy reality—the lack of enforcement of certain protections granted in other countries, or the nonexistence of those productions under law entirely, can have a notable impact on a company’s or industry’s costs of production.” Commerce repudiated arguments that it must define what constitutes “weak” or “ineffective” protections and laws and must codify certain international standards, stating that “such decisions are fact-specific and made on a case-by-case basis.”
  • Expanded meaning of “subsidy” to include an uncollected fee, fine, or penalty: According to Commerce, when a government issues a financial sanction against a company but never collects the payment in full, the government has effectively foregone revenue, benefitting the specific company and thus qualifying as a financial contribution under the Tariff Act of 1930. Such a “payment [that] was otherwise required [but] was not made, in full or in part” is distortive in nature and can be considered a countervailable subsidy.

While Commerce routinely tweaks and updates its U.S. trade remedy regulations “to improve, strengthen, and enhance the enforcement and administration” of antidumping and countervailing duty laws, it is unusual for the agency to institute a major overhaul of these regulations as it did here. Commerce “recognizes that in the year 2024, there are complexities and challenges in international trade which did not exist, or did not exist in the same manner or to the same degree, when previous regulations were issued. Accordingly, Commerce has determined that revisions and updates to Commerce’s trade remedy regulations are warranted.”

On March 20, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule implementing restrictions under the Export Administration Regulations (EAR) on persons who have been designated and placed on the Specially Designated Nationals (SDN) List maintained by the Department of the Treasury’s Office of Foreign Assets Control (OFAC). Under Secretary of Commerce for Industry and Security Alan Estevez stated that this “action will further our already strong coordination with the Treasury Department to prevent foreign actors from obtaining the items and financing they seek to conduct activities that threaten U.S. national security and foreign policy interests.”

The majority of the revisions and amendments to the EAR to implement this cross-coordination with OFAC sanctions regulations occur under 15 C.F.R. part 744 concerning end-user and end-use based export controls. Specifically, § 744.8 has been significantly revised to implement these new restrictions when certain persons designated on the list of SDN List are a party to the transaction. The final rule ensures that persons and entities blocked under the following 14 OFAC sanctions programs will also automatically be subject to the license requirements for items subject to the EAR and relevant export, reexport, and transfer (in-country) controls under the EAR if they are a party to the transaction:

  • Seven Executive Orders (EO) related to Russia’s harmful foreign activities, including its aggression in Ukraine dating back to its 2014 annexation of Crimea as well as the recent further invasion in 2022 and the undermining of democratic processes or institutions in Belarus (EOs 13405, 13660, 13661, 13662, 13685, 14024, and 14038);
  • Two programs related to terrorism (Foreign Terrorist Organizations Sanctions Regulations and Global Terrorism Sanctions Regulations);
  • The Weapons of Mass Destruction Proliferators Sanctions Regulations; and
  • Four programs related to narcotics trafficking and other criminal networks (EOs 13581 and 14059, the Narcotics Trafficking Sanctions Regulations, and the Foreign Narcotics Kingpin Sanctions Regulations).

BIS states that no license exceptions overcome these new license requirements. However, to avoid imposing a duplicative license requirement, the final rule notes that “transactions specified in [§ 744.8] do not require separate EAR authorization if the transactions are authorized under an OFAC specific or general license or are exempted under OFAC’s regulations” unless other parts of the EAR are implicated. With these revisions to § 744.8, it should be noted that Sections BIS has removed and reserved §§744.10, 744.12 through 744.14, 744.18, and 744.20 of the EAR.

According to the final rule, “The imposition of these EAR license requirements allows for the EAR controls to act as a backstop for activities over which OFAC does not exercise jurisdiction, including deemed exports and deemed reexports, and for reexports and transfers (in-country) that would otherwise not involve U.S. persons (e.g., U.S. financial institutions). Notably, the new license requirements allow for controls on items outside the United States, complementing the existing authority in many OFAC programs to impose blocking sanctions on persons who materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to or in support of, SDNs, even outside of U.S. jurisdiction.”

On March 18, 2024, U.S. Customs and Border Protection (CBP) published a final rule to implement procedures to investigate claims of evasion of antidumping and countervailing duty (AD/CVD) orders in accordance with Title IV of the Trade Facilitation and Trade Enforcement Act of 2015 (known as the Enforce and Protect Act or EAPA). This final rule will be effective on April 17, 2024.

With the passage of the EAPA, CBP was required to establish a formal process to investigate allegations of evasion of AD/CVD orders. In August 2016, CBP published an interim final rule establishing procedures for such investigations and allowed for public comment. In operating under the interim rules in conducting investigations, CBP notes in this final rule that it “has gained considerable expertise processing EAPA allegations and has continued to ensure that EAPA proceedings are transparent and that all parties are afforded an opportunity for full participation and engagement during the investigation.” This final rule adopts the 2016 interim rules with several modifications. 

The final rule addresses numerous submitted public comments involving various aspects of the EAPA process, from the initiation of an investigation to the administrative review of a determination as to evasion. In doing so, CBP has included some clarifications where needed “to ensure a transparent investigation process.” This includes various revisions under 19 C.F.R. § 165.1 to clarify and update some of the existing definitions and to add definitions. 

Notably, the final rule addresses the July 2023 U.S. Court of Appeals of the Federal Circuit decision in Royal Brush Mfg. v. United States (Fed. Cir. 2023) concerning the issuance of an administrative protective order (APO) for the disclosure of business confidential information during an EAPA investigation. For additional details on this court decision, see Thompson Hine Update of August 2, 2023. CBP has amended 19 C.F.R. § 165.4 and added language stating that if the requirements are satisfied and the information is privileged or confidential in accordance with 5 U.S.C. § 552(b)(4), CBP will grant business confidential treatment and issue an APO. This will likely allow counsel of interested parties granted access under the APO to view all the business confidential information on the record and not only the business confidential information of their own clients. CBP notes in this final rule that it will publish guidance to provide additional information on this new APO process and indicated that it is also considering whether to initiate a separate rulemaking for purposes of further codifying an APO process.

The final rule also provides information and data on the costs involved in EAPA investigations.  In fiscal years 2020 and 2021, CBP notes that it assessed approximately $1.8 billion and $2.4 billion in AD/CVD duties, respectively. In fiscal year 2021, CBP notes that the EAPA process prevented the evasion of over $375 million in AD/CVD duties, and proposes that this amount will grow as domestic producers and legitimate importers make further use of the EAPA process.

In addition to finalizing EAPA investigation procedures with this final rule, CBP in April 2021 created an EAPA Portal, an electronic case management system in one centralized location for the filing, tracking, and adjudicating of EAPA allegations and the maintenance of the administrative records.