On September 6, 2023, the Office of the U.S. Trade Representative (USTR) issued a notice that it was extending certain China-related Section 301 product exclusions until December 31, 2023.  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 and May 15, 2023.  The USTR stated that it has extended these exclusions to “provide a transition period for the expiring exclusions and to allow for further consideration under the [statutory] four-year review.” 

These extended product exclusions remain available for any product that meets the description in the product exclusion.

On August 28, 2023, the Bureau of Industry and Security (BIS) published a proposed rule to revise the Section 232 steel and aluminum tariff exclusion process. The proposed rule responds to public comments received in response to BIS’s February 2022 Request for Public Comments. By proposing further revisions to the exclusion request process, BIS aims to balance the needs of various stakeholders while upholding U.S. national security interests.

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, 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 percent tariff. The August 28 proposed rule builds on previous regulations, aiming to refine the process further. The proposed rule outlines four main amendments designed to make the exclusion process more “transparent, equitable, and streamlined”:

  • Revised Approach to General Approved Exclusions (GAEs). BIS seeks to streamline the process for GAEs by changing the criteria used for them. Instead of focusing on whether any objections have been submitted, the new criteria would hinge on the substance of the objections. Previously, GAEs were identified based on whether Harmonized Tariff Schedule of the United States (HTSUS) codes had received objections. The new proposal shifts the focus to HTSUS codes with very low rates of successful objections, which would discourage objections that lack merit and thereby streamline the exclusion process. This shift toward considering substantiated objections is designed to be a more accurate gauge of industry capabilities and needs. BIS believes this change could result in up to a 20 percent reduction in the total number of exclusion requests, enhancing the efficiency, fairness and effectiveness of the system.
  • Implementation of General Denied Exclusions (GDEs). BIS proposes to add a process for GDEs. To balance the new system for GAEs, the process for GDEs would target HTSUS classification codes that have a high frequency of substantiated objections. By doing so, BIS aims to reduce the number of exclusion requests that have a low likelihood of approval, thereby streamlining the process and reducing the burden on both objectors and requesters. Like GAEs, the identification of GDEs would also be based on the volume and substance of objections received. The implementation of GDEs is anticipated to improve the overall efficiency of the Section 232 exclusions process, although the exact impact on the number of exclusion requests remains uncertain.
  • Modifications in Certification Requirements for Exclusion Requests. BIS is proposing modifications to the existing certification requirements for exclusion requests. These changes would ensure that businesses are genuinely in need of the high volumes of imported steel or aluminum they are requesting and have made reasonable attempts to source these materials from either the United States or countries deemed safe under Section 232 national security measures: Argentina, Australia, Brazil, Canada, the European Union, Japan, Mexico, South Korea, and the United Kingdom. Requesters would be required to submit evidence of their sourcing attempts as part of their exclusion requests. If this evidence is not provided, the request will be rejected. The proposed certification changes are designed to make the exclusion process more efficient and to ensure that the volume requested aligns with real business needs, thereby informing more accurate policy decisions.
  • New Certification Requirements for Objectors. BIS is proposing new certification requirements for objectors. These requirements aim to ensure that objectors can actually supply the same quality and quantity of steel or aluminum that requestors are seeking to import, and can make it “immediately available” in accordance with prior guidelines. Alongside their objections, objectors would have to submit evidence, either of having commercially sold the same product within the last year or of having engaged in relevant sales discussions. Failure to provide this supporting evidence would result in the rejection of the objection. This move aims to eliminate instances where objections are made but not substantiated, thereby streamlining the exclusion process and making it more efficient.

BIS has initiated a 45-day public comment period, ending on October 12, 2023. Comments can be submitted through the federal eRulemaking website under Docket Number BIS-2023-0021 or RIN 0694-AJ27.

In a landmark ruling on August 16, 2023, the World Trade Organization (WTO) determined that the retaliatory tariffs imposed by China on U.S. imports in response to U.S. steel and aluminum tariffs were inconsistent with international trade rules. The decision marks a significant moment in the long-standing trade dispute between the two major economic powers. A full text of the decision is available here.

The trade dispute began in 2018 when the United States imposed a 25% tariff on steel and a 10% tariff on aluminum from China under Section 232 of the Trade Expansion Act of 1962. The tariffs were declared as a necessity to protect the U.S. steel and aluminum industries for national security purposes. In response, China retaliated with additional import duties on 128 U.S. items worth $3 billion, including agricultural goods.

The WTO handed down its ruling on August 16, 2023, focusing on two main aspects:

  • U.S. Tariffs Justified: The WTO panel upheld the U.S. tariffs on steel and aluminum, imposed under Section 232.  These tariffs were justified as necessary for national security purposes, with the U.S. arguing that protecting its steel and aluminum industries was vital to its security interests.
  • China’s Retaliation Violated Trade Rules: The WTO dispute panel stated that China’s retaliatory tariffs were “inconsistent” with various articles of the General Agreement on Tariffs and Trade (GATT). The panel rejected China’s claim that the tariffs were legitimate safeguards and that the U.S.’s actions were safeguard measures that could be “rebalanced.”

The Office of the U.S. Trade Representative (USTR), in response to the ruling, stated it was pleased the WTO upheld the Section 232 tariffs, declaring that China “illegally retaliated with sham ‘safeguard’ tariffs.” According to the USTR, “The WTO does not have the authority to second-guess a WTO member’s response to threats to its security, and WTO reform must ensure that issues of national security cannot be reviewed in WTO dispute settlement.”

China’s response was critical of the ruling. While the country’s Commerce Ministry stated it was studying the case, it also argued that the root of the problem “lies in the unilateralism and protectionism of the U.S.” China called for the removal of the U.S. Section 232 tariffs and emphasized that its actions were a legitimate move to safeguard its rights and interests.

The ruling may have implications on future trade relations between the two countries and the overall global trade landscape. The case brings attention to the complexity of international trade law and the ongoing debates around national security, unilateral actions, and the role of the WTO in settling such disputes.

The U.S. Departments of State, Labor, and Commerce issued a business advisory on August 14, 2023, outlining key risks for U.S. companies operating in South Sudan. Concerns revolve around corruption, transparency, and human rights violations. Businesses are particularly cautioned against engaging with entities connected to South Sudanese government officials, especially in the oil and mining sectors. The main areas of concern noted in the advisory include:

  • Government Tenders: Firms engaging in South Sudanese government tenders may face significant reputational risks, mainly due to perceptions of corruption and resource diversion. The country ranks poorly in public sector corruption indices, with specific allegations of corrupt dealings in oil cargos and the misuse of oil revenue. Transparency International ranked South Sudan as the country with the world’s worst public sector corruption in its 2021 rankings of perception of corruption; South Sudan tied for second-worst in 2022.
  • Oil and Gold: South Sudan’s primary income sectors, oil (over 90%) and gold, are riddled with challenges, including corruption and lack of transparency. There is evidence of substantial leakage and diversion of oil revenue, and gold production is allegedly tied to illicit markets and high-level government officials. This has prompted U.S. regulatory actions and calls for enhanced due diligence.
  • Contracts for Assistance Delivery: South Sudan’s transitional government’s reliance on international aid has created opportunities for corruption and resource diversion. Examples include unnecessary fees, engagement with unqualified companies, and siphoning of funds intended for critical relief. U.S. entities are advised to exercise caution, particularly if engaging directly with government-tied entities.
  • Arms, Military Equipment, and Related Activity: The UN’s embargo on arms and related items in South Sudan is upheld by U.S. in the International Traffic in Arms Regulations (ITAR), which reflects the policy of denial on the export of defense articles and defense services to South Sudan with certain exceptions. Businesses are cautioned against dealings with South Sudanese armed forces due to widespread human rights abuses. Compliance with laws and sanctions is emphasized given the alarming degree of impunity in the region.

Additionally, the advisory includes two annexes:

Annex 1 offers an overview of U.S. Government reports and resources relevant to South Sudan, emphasizing legal measures, sanctions, and monitoring mechanisms concerning human rights, corruption, money laundering, and more. Specifically, U.S. Government Measures include:

  • Department of the Treasury has sanctioned individuals/entities in South Sudan under various sanctions authorities, including Executive Order 13664 and under Executive Order 13818.
  • Department of Commerce can impose licensing for security or policy reasons, adding entities to the Entity List (Supp. No. 4 to Part 744 of the EAR).  March 22, 2018 – 15 South Sudanese Entities Added to the Entity List.
  • Department of Labor maintains lists of goods and countries associated with child and forced labor, including cattle from South Sudan.  They provide tools and reports to help businesses assess risks and ensure compliance with labor standards, and they have assessed South Sudan as making no advancement in eliminating the worst forms of child labor.
  • Department of Homeland Security investigates allegations of forced labor, issuing orders to prevent relevant merchandise from entering U.S. ports, and conducts criminal inquiries into businesses and individuals connected to forced labor.
  • Department of State’s 2022 reports highlight South Sudan’s ongoing challenges with human trafficking, child soldier recruitment, forced labor, and sex trafficking, keeping the country in Tier 3 of the Trafficking in Persons Report and on the Child Soldier Prevention Act List.  Additionally, the Investment Climate Statement underline South Sudan’s dysfunctional legal system, plagued by corruption, unenforced laws, and challenges related to investment.

Annex 2 lists a number of resources for businesses conducting due diligence and establishing compliance programs.

For past SmarTrade Updates on Sudan, see:

Key Notes:

  • A new Executive Order prohibits U.S. investments in semiconductors and microelectronics, quantum information technologies, and artificial intelligence capabilities in China and other countries of concern and imposes certain notification requirements.
  • Certain passive and similar investments will be excepted from the restrictions.
  • An Advanced Notice of Public Rulemaking seeks public comment on the scope of restrictions, notification requirements, and exceptions by September 28.

On August 9 President Biden signed an “Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern” (EO), which authorizes the Secretary of the Treasury to regulate certain U.S. investments into “countries of concern” in entities engaged in activities involving sensitive technologies that are critical to U.S. national security. Currently, the only identified country of concern is the People’s Republic of China (China), including the Special Administrative Regions of Hong Kong and Macau. Simultaneously, the Department of the Treasury (Treasury) released an Advanced Notice of Proposed Rulemaking (ANPRM) setting forth more proposed details on the scope of such investment restrictions and the manner of implementing this requirement and seeking public comment.

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On August 9, 2023, marking the three-year anniversary of the fraudulent August 2020 presidential election in Belarus, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions on eight individuals and five entities, focusing notably on the aviation sector.

Among the designated entities, OFAC has targeted the state-owned flagship carrier of Belarus, Belavia Belarusian Airlines (BELAVIA). Additionally, OFAC has designated Open Joint Stock Company Minsk Civil Aviation Plant 407, a state-owned aircraft component manufacturer. The facility has been highlighted as a key player in Belarusian production to meet Russia’s civil and military aircraft demand. The sanctions also include the designation of Joint Stock Company Byelorussian Steel Works (BSW) and BEL-KAP-STEEL LLC, a joint venture with BSW, which have been pivotal in generating substantial revenue for the Lukashenka regime.

OFAC also issued two Belarus-related General Licenses (GL) to allow for the wind down of activities with certain newly designated entities:

  • General License 8 authorizes all transaction ordinarily incident and necessary to the wind-down of transactions involving Joint Stock Company Byelorussian Steel Works Management Company of Holding Byelorussian Metallurgical Company through 12:01 a.m. EST, October 9, 2023. 
  • General License 9 authorizes all transaction ordinarily incident and necessary to the provision of exports, technology or services to ensure civil aviation safety, and transactions involving the wind-down of any transactions involving BELAVIA, through 12:01 a.m. EST, September 8, 2023.

In addition, sanctions were implemented on members of a Belarusian business and tobacco mogul and close associate of Alyaksandr Lukashenka.  Also, actions were taken against the Department of Financial Investigations of The State Control Committee of the Republic of Belarus and affiliated individuals for their involvement in cracking down on Belarus’s pro-democracy movement and free media.

For additional identifying details on these newly designated individuals and entities, the SDN List is available here.

As a result of these actions, all property and interests in property of the persons placed on OFAC’s SDN List above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

On July 27, 2023, the U.S. Court of Appeals for the Federal Circuit issued a significant decision in a case involving the alleged evasion of antidumping duties assessed on pencils of Chinese origin by Royal Brush Manufacturing, Inc. (Royal Brush) under the Enforce and Protect Act of 2015 (EAPA). The EAPA is a statutory scheme for determining whether “covered merchandise was entered into the customs territory of the United States through evasion,” and in the underlying matter involving Royal Brush, Customs and Border Protection (CBP) found that the pencils had been transshipped from China through another country to the United States. This finding was based in part on evidence that was not supplied to Royal Brush because it was confidential business information provided by a competing U.S. importer of pencils. Royal Brush was also denied the opportunity to rebut this evidence. The Federal Circuit found that the failure to provide access to the redacted information was a violation of due process and that, under the applicable CBP regulation, Royal Brush must be given an opportunity to rebut this information with its own evidence.

The original 2018 EAPA case involved allegations of transshipped pencils from China through the Philippines to the United States, falsely claiming the pencils to be of Philippine origin and thus not subject to the antidumping duties assessed on certain pencils from China. CBP conducted an investigation, including onsite visits to the Philippine facility that resulted in the preparation of a Verification Report. However, Royal Brush was provided with only a redacted version of that report due to certain confidential business information. CBP ultimately issued an affirmative determination finding evasion.

In 2019, Royal Brush appealed the determination to the U.S. Court of International Trade (CIT) that led to a remand decision requiring CBP to issue a summary of the redacted information. Royal Brush again appealed the remand determination by CBP arguing that such summaries were insufficient and that the failure to provide the unredacted information violated the company of due process. The CIT continued to find that CBP had complied with the relevant regulation by providing the summaries.

In issuing its July 27, 2023 ruling, the Federal Circuit made clear that one “‘relatively immutable’ principle of due process is that ‘where governmental action seriously injures an individual, and the reasonableness of the action depends on fact findings, the evidence used to prove the [g]overnment’s case must be disclosed to the individual so that he has an opportunity to show that it is untrue.’” The three-judge Federal Circuit panel ruled that such a principle applies to administrative proceedings, stating that “the law is clear that, in adjudicative administrative proceedings, due process ‘includes the right to know what evidence is being used against one.’” The facts of the case indicate that CBP relied on information not provided to Royal Brush to determine that it had evaded duties, and that “[t]his in and of itself, is a clear violation of due process.” The judges found that all off CBP’s concerns over confidentiality could be addressed by issuing a protective order.

CBP argued before the Federal Circuit that confidential business information cannot not be disclosed absent a statute or regulation authorizing a protective order, and that the EAPA does not provide for such a protective order. CBP relied on both the general language of the Trade Secrets Act and case law supporting the proposition that agencies generally must be able to regulate the conduct of their own proceedings. The Federal Circuit judges, however, responded by stating, “We have no doubt that a release of information is ‘authorized by law’ within the meaning of the Trade Secrets Act if that release is required as a matter of constitutional due process, as is the case here.” The judges strongly emphasized the importance of due process:

… the government asserts, unless a protective order is authorized by law, disclosure is not authorized by law. In other words, the government can avoid compliance with due process requirements by the simple expedient of failing to provide for a protective order in a statute or regulation. We are aware of no case supporting any such extraordinary theory, and it is untenable on its face. The right to due process does not depend on whether statutes and regulations provide what is required by the constitution.

According to the ruling, CBP has the “inherent authority to utilize protective orders in appropriate circumstances” and that the EAPA and associated regulations do not bar protective orders. The judges noted that CBP offered no reason why the use of protective orders would impair the function of the EAPA process. 

The Federal Circuit remanded the case to the CIT with instructions for the CIT to order CBP to provide Royal Brush with the confidential information contained in the Verification Report and to allow it an opportunity for rebuttal.

On August 1, 2023, the Department of Homeland Security (DHS) announced new actions to eliminate the use of forced labor practices in the U.S. supply chain by adding two China (PRC)-based companies to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List due to their participation in business practices involving Uyghur minorities in the Xinjiang region of China. For additional details on the companies, see DHS’ Federal Register Notice. This brings the total number of entities designated on the UFLPA Entity List to 24 companies. Since enforcement of the UFLPA began in June 2022, Customs and Border Protections (CBP) has reviewed more than 4,600 shipments valued at more than $1.64 billion under the UFLPA.

DHS has also released its mandated report to Congress, titled “2023 Updates to the Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China.” The updated UFLPA Strategy highlights enforcement of the UFLPA’s rebuttable presumption, which prohibits goods from being imported into the United States that are either produced in Xinjiang, or by entities identified on the UFLPA Entity List, unless the importer can prove, by clear and convincing evidence, the goods were not produced with forced labor. It also highlights certain additional resources needed for UFLPA strategy implementation and ongoing activities in coordination and collaboration appropriate nongovernmental organizations (NGOs) and private-sector entities.

On July 31, 2023, the Treasury Department, as the lead agency of the Committee on Foreign Investment in the United States (CFIUS), released a public version of its annual report to Congress regarding foreign direct investment in the United States. The report highlights key indicators of the CFIUS process and provides statistics on transactions that were filed in 2022; it also reflects that a record number of filing were submitted in calendar year 2022. Assistant Secretary for Investment Security Paul Rosen stated, “In 2022, the Committee continued to review record numbers of filings. We sharpened due diligence on investors, tackled sophisticated technologies and national security risks, and launched a number of reviews to assess potential non-compliance with CFIUS regulations.”

Key highlights from the 2022 report include the following:

  • CFIUS reviewed a record number of covered transactions with a total of 440 notices and declarations of covered transactions or covered real estate transactions.
    • Parties filed using the short-form declaration process in 154 instances. Of those, 90 were concluded with no action by CFIUS; 50 resulted in a request that the parties file a full written notice; and, CFIUS informed the parties to 14 declarations that it was unable to conclude action.
    • Parties filed using written notices in 286 instances. Of those, CFIUS conducted first-stage “reviews” in all 286 submissions, with 162 notifications moving on to second-stage “investigations.” One notice was rejected by CFIUS; 88 notices were withdrawn by the parties (with some later refiled and in 12 filings the parties abandoning the transaction); no notices were forwarded to the president for review in 2022. Of the remaining that underwent reviews/investigations, CFIUS concluded action on 41 notices after adopting mitigation agreements to resolve national security concerns.
  • The average number of days for CFIUS to complete a review was 46 days, and the average number of days to conclude an investigation was 80 days.
  • In 2022, the notices covered the following industry sectors: Finance, Information and Services (52%), Manufacturing (29%), Mining, Utilities and Construction (13%), and Wholesale/Retail Trade and Transportation (6%).
  • In 2022, the highest number of filings involved Singapore (37), China (36), United Kingdom (18), Canada (17), and Japan (15).

The report also notes that CFIUS is currently monitoring 214 mitigation agreements and any resulting compliance plans, with 44 site visits in 2022. CFIUS notes that it will continue engaging with parties subject to mitigation agreements or conditions and independent monitors to improve compliance, engaging more broadly with industry, advisors, and practitioners to encourage a culture of compliance, and increasing staff resources dedicated to monitoring and enforcement activities. CFIUS will also continue to assess noncompliance on a case-by[1]case basis as it evaluates whether civil penalties or other measures should be implemented.

Finally, CFIUS continues to enhance its focus on non-notified transactions to detect and assess national security risks posed by foreign investment. In 2022, 84 non-notified transactions were identified, with 11 of those resulting in a formal request to the parties for a CFIUS filing.

If desired for comparison purposes, Thompson Hine’s Update on the CFIUS 2021 Report is available here.

On July 21, 2023, PrimeSource Building Products, Inc. filed a Petition for a Writ of Certiorari with the U.S. Supreme Court, after unsuccessfully seeking an en banc hearing before all of the judges at the U.S. Court of Appeals for the Federal Circuit. In that decision, a three-judge panel reversed a lower court decision and upheld the imposition of additional Section 232 national security tariffs on derivatives of certain imported steel articles implemented by former President Donald Trump under Section 232 of the Trade Expansion Act of 1962. The lower court, the Court of International Trade (CIT), ruled in favor of PrimeSource, a U.S. importer, which argued that President Trump’s proclamation on steel derivatives was issued after a key statutory deadline had passed that required presidential action. The Federal Circuit, however, reversed the CIT’s ruling that the government waited too long to act, stating that “the President was making a ‘contingency-dependent choice[] that [is] a commonplace feature of plans of action’” and that there was no “textual basis for a specific time limit.” 

In its petition to the Supreme Court, PrimeSource argues that former President Trump imposed Section 232 steel tariffs on steel derivatives “without complying with the statute’s procedural prerequisites.” It wants the Supreme Court to address whether the “separation of powers principles require courts to resolve ambiguity in statutory limits on delegations of vast legislative power to the Executive in a way that constrains the delegation or, as the Federal Circuit holds, courts must uphold the President’s actions absent ‘a clear misconstruction of the governing statute.’”

Our Updates of April 27, 2023 and February 8, 2023 provide details on PrimeSource’s Petition for a Rehearing En Banc at the U.S. Court of Appeals for the Federal Circuit and on the three-judge panel’s opinion that reversed the CIT decision. See also Updates of April 6, 2021 and January 28, 2021 for additional background on the case and the CIT’s dismissal of other claims.