On January 18, 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 13H, “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 13G was set to expire on January 31, 2024; the revised GL 13H is set to expire on April 17, 2024.

As a reminder to our readers, the annual encryption self-classification report and semi-annual sales report for certain encryption items are due to be filed by February 1, 2024. 

Annual Self-Classification Report

The self-classification report covers less sensitive items described under the Department of Commerce’s Bureau of Industry and Security (BIS) License Exception ENC (b)(1) (i.e., 15 C.F.R. § 740.17(b)(1)). Depending on the level of encryption, this may include wireless local area network (WLAN) software and equipment, certain disk/drive encryption devices, and many mass market consumer and mobile app items. Exporters may export items described under this License Exception without a license, but are required to take either of two additional steps:

  1. They may self-classify their items as eligible and submit an annual self-classification report, which must be submitted to BIS by February 1 of each year. It must provide details on encryption commodities, software and components exported or reexported during the prior calendar year (i.e., January 1, 2023 through December 31, 2023).
  2. They may choose to obtain a CCATS for their items and are then no longer required to submit the annual report.

Annual reports must include the information outlined in Supplement No. 8 to 15 C.F.R. Part 742. BIS requires that each identified product be reported as it is typically distinguished in inventory, catalogs, marketing brochures and other promotional materials. Volume and details of actual exports are not required to be included in the report. If no information has changed since the previous annual report, exporters must still send an email stating that nothing has changed since the previous report; or submit a copy of the previous report. No self-classification report is required if no exports or reexports of covered encryption items occurred during the prior calendar year. 

Semi-Annual Sales Report

BIS also requires semi-annual reports for exports to all destinations other than Canada, and for reexports from Canada, for items described under 15 C.F.R. § 740.17 paragraphs (b)(2) and (b)(3)(iii). For exports occurring between January 1 and June 30, a report is due no later than August 1 of each year. For exports occurring between July 1 and December 31, a report is due no later than February 1 the following year. 

For these semi-annual reports, BIS requires the reporting of the Commodity Classification Automated Tracking System (CCATS) number and the name of the item(s) exported (or reexported from Canada), and the following information: (i) for sales to distributors or resellers, the identity of the distributor or reseller, the item and the quantity exported or reexported and, if collected, the end user’s name and address; (ii) if a direct sale, the name and address of the recipient, the item, and the quantity exported; or (iii) for export to a foreign developer or manufacturer headquartered in specified countries, the names and addresses of the manufacturers using these encryption items and, if known, when the product is made available for commercial sale, a non-proprietary technical description of the foreign products for which these encryption items are being used.

How to Report

These reports are filed with both BIS and the ENC Encryption Request Coordinator. 

Submissions of the annual self-classification report via email should be sent to BIS at crypt-supp8@bis.doc.gov and to the ENC Encryption Request Coordinator at enc@nsa.gov, as an attachment to an email. Submissions of the semi-annual sales report via email should be sent to BIS at crypt@bis.doc.gov and to the ENC Encryption Request Coordinator at enc@nsa.gov.

Submissions by email are preferred, but submissions may be made by disk or CD and sent to the following addresses:

Attn: Encryption Reports
Department of Commerce, Bureau of Industry and Security
Office of National Security and Technology Transfer Controls
14th Street and Pennsylvania Ave. NW., Room 2099B
Washington, D.C. 20230

and

Attn: ENC Encryption Request Coordinator
9800 Savage Road, Suite 6940
Ft. Meade, MD 20755-6000

If you have questions as to whether you are subject to the self-classification reporting requirements or need assistance in preparing and filing your annual self-classification report, please contact a member of our team.

On January 16, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 5N, “Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After April 16, 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 April 16, 2024.  The previous deadline had been January 18, 2024.  Effective January 16, 2024, this General License replaces GL 5M.

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 January 5, 2024, U.S. Customs and Border Protection (CBP) issued guidance via its Cargo Systems Messaging Service announcing new thresholds for deactivating Section 232 steel and aluminum product exclusions prior to reaching 100% of the allocated quantity under any granted exclusion. CBP has announced that effective February 15, 2024, for certain types of Section 232 exclusions, it will deactivate Section 232 exclusions on a weekly basis “when the imported quantity for each exclusion is greater than or equal to 95 percent of the allocated quantity.”

This is a change from the current practice of deactivating Section 232 exclusions when the imported quantity of each exclusion reaches or exceeds 100% of the allocated quantity and is due, in part, to a recent Government Accountability Office (GAO) report indicating that an estimated $32 million in unpaid duties resulted from invalid exclusion use as of November 2021. The GAO report notes that CBP has to manually deactivate exclusions in the Automated Commercial Environment (ACE) system and that the lag time in doing so “allows importers to overclaim exclusions and not pay duties on the overage.” CBP announced that the following Section 232 exclusions will be deactivated at the 95% threshold:

  • Exclusions for non-quota countries (i.e., those subject to Section 232 duties);
  • Exclusions for European Union (EU) countries that are subject to Section 232 steel tariff rate quotas (TRQs); and
  • Exclusions valid for multiple countries subject to both Section 232 duties and any quotas.

When such Section 232 exclusions are deactivated at the 95% threshold in ACE, importers will no longer be able to use the Section 232 exclusions on new entry summaries and will have to deposit the appropriate Section 232 duties on any new entry summaries. However, these importers will be able to file Post Summary Corrections (PSC) to claim the remaining exclusion amounts up to 100% and request a refund of any Section 232 duties paid.

Section 232 tariffs on steel and aluminum were imposed in 2018 by former President Donald Trump under the Trade Expansion Act of 1962 after investigations into the impact of steel and aluminum imports on U.S. national security. Since then, the Department of Commerce’s Bureau of Industry and Security (BIS) has been responsible for administering the product exclusion process that allows U.S. businesses to request exemptions for specific steel and aluminum imports from the 25% tariff. CBP is the agency that monitors imports, the Section 232 exclusions, and the collection of tariffs.

Trade

The U.S. International Trade Commission released the 2024 Basic Edition of the Harmonized Tariff Schedule of the United States (HTSUS) on January 1, 2024.

The HTSUS sets out the tariff rates and statistical categories for all merchandise imported into the United States and is based on the international Harmonized System, which is the global system of nomenclature applied to most world trade in goods. Proper classification of a commodity being imported into the United States is critical for proper duty assessment, additional tariffs, and reporting other data to CBP and other government agencies.

For the 2024 Basic Edition, the interagency committee authorized under section 484(f) of the Tariff Act of 1930 (19 U.S.C. 1484(f)) and chaired by the Commission made various changes to the HTSUS. The list of 484(f) Committee changes and the full Change Record for 2024, reflecting all changes to the HTSUS since the 2023 Basic Edition, are available as well.

Updates and modifications are made throughout the year to the HTSUS; thus, U.S. importers should periodically review the tariff codes that are used for their goods to ensure that they remain accurate.

On December 20, 2023, nearly eleven months after publishing its finalized guidance on the implementation of the twin price caps on Russian oil and Russian petroleum products, the Department of the Treasury (“Treasury”) published a revised Guidance on Implementation of the Price Cap Policy for Crude Oil and Petroleum Products of Russian Federation Origin. The two price caps stem from the broader “price cap policy” developed by an international coalition consisting of the United States, the G7, the European Union, and Australia not only to prohibit the importation of crude oil and petroleum products of Russian origin, but also to limit the availability of a broad range of services as they relate to the maritime transport of crude oil and petroleum products of Russian origin (see Update of December 5, 2022). The earlier version of the guidance was published on February 3, 2023 (see Update of February 8, 2023).  

The changes in the revised guidance focus on service providers seeking to continue benefiting from the price cap policy safe harbor, which shields providers from strict liability for breach of sanctions by complying, in good-faith, with a recordkeeping and attestation process. Specifically, to ensure the safe harbor’s continuous protection, the revised December 2023 guidance outlines two new expectations for service providers: (1) to receive attestations within a specified timeframe for each lifting or loading of Russian oil or Russian petroleum products, and (2) to retain, provide, or receive itemized ancillary cost information as required.  

Notably, the revised guidance anticipates service providers satisfy these two new expectations differently, depending upon their designation in a novel, three “tier” system of actors:

  • Tier 1 Actors: Actors who regularly have direct access to price information in the ordinary course of business, such as commodities brokers and oil traders. Tier 1 Actors must retain documents to show Russian oil or Russian petroleum products were or will be purchased at or below the relevant price cap, including itemized ancillary cost information (e.g., shipping, insurance, and freight costs);
  • Tier 2 Actors: Actors who are sometimes able to request and receive price information from their customers in the ordinary course of business, such as financial institutions, ship/vessel agents, and customs brokers. To the extent practicable, Tier 2 Actors must retain documentation conveying the same information Tier 1 Actors must preserve. However, when not practicable to request and receive such information, Tier 2 Actors must obtain and retain customer attestations, in which the customer commits that the Russian oil or Russian petroleum products were or will be purchased at or below the relevant price cap, and such attestations should be obtained within 30 days of a counterparty’s lifting or loading of Russian oil or Russian petroleum products; and
  • Tier 3 Actors: Actors who do not regularly have direct access to price information in the ordinary course of business, such as insurers, protection/indemnity clubs, shipowners, and flagging registries. Given their handicap, Tier 3 Actors should obtain customer attestations that Russian oil or Russian petroleum products were or will be purchased at or below the relevant price cap each time a counterparty loads or lifts the Russian oil or Russian petroleum product. Further, Tier 3 Actors should require counterparties to share additional information, including itemized ancillary cost information, especially after gleaning information that raises suspicion of a violation of the price cap policy.

Service providers seeking to continue benefiting from the safe harbor must be in compliance with these new expectations—and the entire, updated guidance in general—by February 19, 2024. 

On December 22, 2023, President Joseph Biden issued Executive Order 14114 (EO) amending EO 14024 by authorizing the imposition of U.S. sanctions on foreign financial institutions that are either facilitating significant transactions on behalf of persons designated for operating in certain key sectors of the Russian economy, or facilitating significant transactions or providing services involving Russia’s military-industrial base. According to Secretary of the Treasury, Janet Yellen, Russia “has increasingly shifted certain trade and financial flows through third countries to evade sanctions and continue its procurement of critical items for their wartime production.”  With these latest prohibitions, she indicated that the United States expects that financial institutions “undertake every effort to ensure that they are not witting or unwitting facilitators of circumvention and evasion. And we will not hesitate to use the new tools provided by this authority to take decisive, and surgical, action against financial institutions that facilitate the supply of Russia’s war machine.”

More specifically, EO 14114 allows Treasury’s Office of Foreign Assets Control (OFAC) to sanction foreign financial institutions that have (i) conducted or facilitated a significant transaction or transactions for any persons designated pursuant to EO 14024 for operating or having operated in the technology, defense and related materiel, construction, aerospace, or manufacturing sectors of the Russian economy; or (ii) conducted or facilitated any significant transaction or transactions, or provided any service, involving Russia’s military-industrial base, including the sale, supply, or transfer, directly or indirectly, to Russia, of any item or class of items as may be determined by the Secretary of the Treasury.  For additional details on such items, see Determination Pursuant to Section 11(a)(ii) of EO 14024, dated December 22, 2023, that includes certain machine tools and manufacturing equipment, materials for semiconductors and certain electronics.

OFAC has issued a Guidance for Foreign Financial Institutions in which it provides examples of activities that could expose such entities to sanctions risks.  The following are examples:

  • Maintaining accounts, transferring funds, or providing other financial services (i.e., payment processing, trade finance, insurance) for any persons designated for operating in the specified sectors.
  • Maintaining accounts, transferring funds, or providing other financial services (i.e., payment processing, trade finance, insurance) for any persons, either inside or outside Russia, that support Russia’s military-industrial base, including those that operate in the specified sectors of the Russian Federation economy.
  • Facilitating the sale, supply, or transfer, directly or indirectly, of the specified items to Russian importers or companies shipping the items to Russia.
  • Helping companies or individuals evade U.S. sanctions on Russia’s military-industrial base. This includes: (i) offering to set up alternative or non-transparent payment mechanisms, (ii) changing or removing customer names or other relevant information from payment fields, (iii) obfuscating the true purpose of or parties involved in payments, or (iv) otherwise taking steps to hide the ultimate purpose of transactions to evade sanctions.

The sanctions that may be imposed under EO 14114 include designation by OFAC on the Specially Designated Nationals (SDN) List and prohibitions or restrictions on foreign financial institutions having correspondent or payable-through accounts (“CAPTA”) in the United States.  OFAC also issued Russia-related General License (GL) 84 that authorizes U.S. financial institutions that maintain correspondent accounts or payable-through accounts for any foreign financial institution to engage in certain wind-down activities involving any sanctioned foreign financial institution.  To date, no sanctions have been imposed on any foreign financial institutions based on the scope of EO 14114 that amended EO 14024.  However, if imposed, under GL 84, U.S. financial institutions will have only a 10-day period to wind-down activities with a sanctioned foreign financial institution.

The above referenced guidelines also provide helpful steps – in addition to undertaking typical customer due diligence – to assist foreign financial institutions in identifying and minimizing exposure. In addition, OFAC has issued FAQS 1148 – 1153 to provide further clarification on the scope these potential sanctions on foreign financial institutions.  Importantly FAQ 1151 sets forth OFAC interpretation of the terms “foreign financial institution,” “Russia’s military-industrial base”, and a “significant transaction(s).”

On December 22, 2023, President Joseph Biden amended, among other things, Executive Order (EO) 14068, by additionally authorizing the prohibition on the importation and entry into the United States, including a foreign trade zone located in the United States, of the following products of Russian Federation origin: fish, seafood, and preparations thereof, as well as diamonds. The scope of this prohibition includes such products that were mined, extracted, produced, or manufactured wholly or in part in the Russian Federation, or harvested in waters under the jurisdiction of the Russian Federation or by Russia-flagged vessels, notwithstanding whether such products have been incorporated or substantially transformed into other products outside of the Russian Federation.

It is important to note that this amendment authorizes the Department of the Treasury via the Office of Foreign Assets Control (OFAC) to prohibit the importation of products that have been processed or substantially transformed in third countries regarding Russian seafood and diamond products. So items may be of a third country of origin for import purposes, but still be captured within the scope of this ban. This EO effectively amends an earlier Executive Order dated March 11, 2022 that did not restrict seafood imports that were processed outside of Russia and allowed Russian rough and polished diamonds to enter the country if they were “substantially transformed” elsewhere. See Update of March 14, 2022.

Seafood Imports

Accordingly, OFAC has issued a Determination Pursuant to EO 14068, that prohibits the importation following categories of Russian fish, seafood, and preparations thereof: salmon, cod, pollock, and crab. In FAQ 1157, OFAC provides further clarifying information on the scope of these categories by setting forth multiple Harmonized Tariff Schedule of the United States (HTSUS) subheadings that are applicable.

These import restrictions are effective as of December 22, 2023, except to the extent provided by law, or unless licensed or otherwise authorized by OFAC. However, OFAC has issued Russia-related General License (GL) 83, authorizing certain transactions that are ordinarily incident and necessary to the importation into the United States of seafood derivative products, pursuant to written contracts or written agreements entered into prior to December 22, 2023 until 12:01 a.m. eastern standard time, February 21, 2024. In FAQ 1156, OFAC also clarifies that individuals and entities may also find new buyers or re-direct such shipments to other countries, as OFAC seafood determination “does not prohibit U.S. persons from engaging in transactions to sell or re-direct shipments outside the United States that were previously destined for the United States.”

Diamond Imports

In amending EO 14068, the White House noted in a Fact Sheet that “[i]n the coming months, the United States and our partners intend to introduce import restrictions on certain diamonds mined, processed, or produced in Russia, building on an existing U.S. ban on the importation of Russian-origin diamonds. Today’s E.O. amends Executive Order 14068 to provide the authority to ban, following a determination from appropriate U.S. departments and agencies, the importation of certain products mined, extracted, produced, or manufactured wholly or in part in Russia, even if these products are then transformed in a third country.”

While the amended EO now authorizes the prohibition of imports of Russian diamonds processed in third countries, OFAC has not yet issued any implementing determination. OFAC has noted that it intends to do so “in the near term” and that such actions will be in support of commitments made in the G7 Leaders’ Statement of December 6, 2023. However, the amended EO, does define the term” diamond” to include “any diamonds classifiable under subheadings 7102.10, 7102.31, and 7102.39” of the HTSUS and “under any other subheadings of the Harmonized Tariff Schedule of the United States specified in determinations made” by the Department of the Treasury.

The temporary trade truce between the United States and European Union (EU) will continue after the EU issued a press release on December 19, 2023 announcing the customs union would suspend the reimposition of certain retaliatory tariffs on U.S. imports until March 31, 2025. The EU’s retaliatory tariffs, which were scheduled to resume January 1, 2024 in accordance with a deadline set in a 2021 temporary suspension agreement with the Biden administration, were initially levied in response to duties the United States, under the Trump administration, had imposed on steel and aluminum imports in 2018 citing the national security provisions of Section 232 of the Trade Expansion Act of 1962. The EU’s implementing regulation to continue the suspension of these tariffs is available here.

On December 28, 2023, President Joseph Biden, noting “substantial progress” in negotiations, reciprocated by signing two Presidential Proclamations to extend the EU’s access to U.S. tariff rate quotas (TRQs) for steel and aluminum for two additional years. This extension, combined with the EU’s continued suspension on tariffs on U.S. goods, will give both sides additional time to negotiate a global arrangement that addresses carbon intensity and non-market capacity in the steel and aluminum industries. The TRQ extension will take effect on January 1, 2024 and last until December 31, 2025. For background information on the Section 232 tariffs and how they relate to steel and aluminum imports from the EU, see Update of November 1, 2021.

The extension of the trans-Atlantic truce is welcome news to U.S. and EU negotiators who hope to produce a standard-setting agreement known as the Global Arrangement on Steel and Aluminum, but whose negotiations over the past two years have stalled as of late. The joint initiative aims to incentivize environmentally sustainable production of steel and aluminum, while also addressing steel overcapacity globally. According to U.S. Trade Representative Katherine Tai: “Our goal [with the EU] is to forge a forward-looking arrangement that will allow us to join forces economically to incentivize fair and clean production and trade in the steel and aluminum sectors…I am glad the EU has announced that it is taking steps to join us in extending the time for these negotiations and will [do so] by continuing to suspend its tariffs on U.S. products.” When the TRQ extensions were announced, Ambassador Tai further noted that, “[b]y extending the European Union’s steel and aluminum TRQs for an additional two years, we can continue negotiations on a forward-looking, high-standard arrangement, while providing predictability and stability to steel and aluminum workers and their families on both sides of the Atlantic.”

On December 29, 2023, the Office of the U.S. Trade Representative (USTR) issued a Federal Register notice further extending certain China-related Section 301 product exclusions through May 31, 2024. This action extends 352 exclusions previously reinstated in December 2022 through September 30, 2023, and 77 COVID-related exclusions previously extended in May 2023 through September 30, 2023. For additional information, see Updates of December 16, 2022, May 15, 2023 and September 7, 2023. The USTR stated that the “extension will enable the orderly review of the exclusions consistent with statutory factors and objectives to identify in which cases additional time would enable shifts in sourcing to the United States or third countries. The extension will also facilitate the alignment of further decisions on these exclusions with the ongoing four-year review.” These extended product exclusions remain available for any product that meets the description in the product exclusion.

The USTR also announced the opening of a docket for public comments on whether to further extend particular product exclusions. This docket will open on January 22, 2024 on the web portal at http://comments.USTR.gov. The focus of the USTR’s evaluation of any comments on exclusions will be on the availability of products covered by the exclusion from sources outside of China, efforts undertaken to source products covered by the exclusion from the United States or third countries, why additional time is needed, and on what timeline, if any, the sourcing of products covered by an exclusion is likely to shift outside of China. Instructions on how to submit a comment on a particular exclusion are detailed in the Federal Register notice.  The comment period will close on February 21, 2024.