On February 17, 2023, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a notice in the Federal Register seeking public comments on the effectiveness of the licensing procedures for the export and reexport of agricultural commodities to Cuba under the Export Administration Regulations (EAR). Specifically, the notice indicates that pursuant to section 906(a) of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), BIS authorizes such exports and reexports and the procedures are set forth under 15 C.F.R. § 740.18. Persons submitting comments are asked to be as specific as possible.

Comments must be received by BIS no later than March 20, 2023, and must be submitted via the Federal rulemaking portal, www.regulations.gov, under docket no. BIS-2023-0004. BIS will include a description of any comments it receives in its biennial report to the Congress, as required by the TSRA. 

On February 17, 2023, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a statement indicating that it will expedite the processing of export license applications for items needed to assist in ongoing relief efforts in Turkey and Syria in response to the massive earthquake on February 6, 2023.

Turkey and Syria are subject to different licensing requirements under the Export Administration Regulations (EAR). As a NATO ally, Turkey is subject to less stringent export controls and BIS notes that “most items needed to aid the Turkish people do not require an export license, but BIS will expedite any necessary license applications it receives.” Regarding Syria, BIS maintains broad government sanctions. BIS, however, has stated, “These export and reexport license requirements should not prevent or otherwise impede the shipment of aid and recovery-related items intended directly for the Syrian people or through nongovernmental humanitarian organizations (NGOs) in-country, including in areas under the control of the Assad regime and non-state actors.”

In addition to BIS’s statement, on February 19, 2023, Secretary of State Antony Blinken announced an additional $100 million in assistance in response to the earthquake and indicated the United States “will continue working with the international community to provide lifesaving aid to earthquake affected areas.” See also State Department Fact Sheet regarding U.S. assistance.

Pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the Committee on Foreign Investment in the United States (CFIUS) established the concept of “excepted foreign state[s],” defined as those states with compliance laws, orders and regulations similar to those of the United States concerning foreign investments assessed for national security purposes.  See Update of January 22, 2020.  Under such a designation, an excepted foreign state qualifies, in certain circumstances, for an exemption from the two mandatory CFIUS filings established under the FIRRMA (i.e., non-controlling covered investments and certain real estate transactions). 

In 2020, CFIUS initially identified Australia, Canada, the United Kingdom (including Northern Ireland), and later, New Zealand as excepted foreign states due to their “robust intelligence sharing and defense industrial base integration mechanisms with the United States.”  This designation required that within a two-year period, CFIUS make a determination that these foreign states had satisfied the criteria reflecting they had established and were effectively utilizing a robust process to analyze foreign investments for national security risks.  On January 5, 2022, CFIUS confirmed that Austria and Canada had met all necessary criteria.  See Update of January 7, 2022.

On February 13, 2023, CFIUS announced that both the United Kingdom and New Zealand “have established and are effectively utilizing a robust process to analyze foreign investments for national security risks and to facilitate coordination with the United States on matters relating to investment security.”  With these determinations, both countries will remain excepted foreign states and excepted real estate foreign states under the relevant CFIUS regulations at 31.C.F.R. Part 800.  These determinations are effective as of February 10, 2023.

On February 10, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Syria General License (GL) 23 that authorizes until August 8, 2023 all transactions related to earthquake relief efforts in Syria that would otherwise be prohibited by the Syrian Sanctions Regulations under 31 C.F.R. Part 542.  The GL makes clear that it covers the processing or transfer of funds, and in a related press release, OFAC clearly states that, “U.S. and intermediary financial institutions should have what they need in GL23 to immediately process all earthquake relief transactions.”

While general authorizations already existed for most activities in support of humanitarian assistance in Syria, OFAC stated that GL 23 “provides the broad authorization necessary to support immediate disaster relief efforts in Syria.”  The press release also notes that the Department of the Treasury “will continue to monitor the situation in Syria and engage with key humanitarian and disaster assistance stakeholders, including [nongovernmental organizations, international organizations], and key partners and allies, to understand emerging challenges they may face in delivery of services.”

It should be noted that while GL 23 does authorize transactions with the Government of Syria, it otherwise continues to prohibit any transactions with persons or entities who are blocked and on OFAC’s Specially Designated Persons (SDN) List.

As a reminder, 31 C.F.R. Part 569 under the separate Syria-Related Sanctions Regulations at § 569.510 already authorizes the official business of certain international organizations and certain transactions in support of nongovernmental organizations‘ activities. 

On February 7, 2023, the three-judge panel of the U.S. Court of International Trade (CIT) heard oral arguments on the USTR’s remand explanation and the plaintiff group’s reply comments.  The hearing addressed the CIT’s earlier finding that the U.S. Trade Representative (USTR) failed to respond adequately to comments it received during the rulemaking process when it proposed China Section 301 tariffs on List 3 and List 4A products but did not adhere to Administrative Procedure Act (APA) requirements.   Specifically, the CIT stated in its remand order that, while a detailed comment-by-comment response “is not the standard required by the APA,” the USTR “was required to address comments regarding any duties to be imposed, the aggregate level of trade subject to the proposed duties, and the products covered by the modifications, all in light of Section 301’s statutory purpose to eliminate the burden on U.S. commerce from China’s unfair acts, policies, and practices.”

In his opening argument, the plaintiff group’s counsel acknowledged that the USTR did a “great job” on addressing in its remand explanation the public comments submitted on specific Harmonized Tariff Schedule (HTS) subheadings, spending most of its 90-page explanation on this issue.  The plaintiff group, he said, is not challenging this part of the remand explanation.  For the other two categories raised in the CIT’s remand order (i.e., any alternative courses of action other than the imposition of duties and the aggregate level of the trade action), however, he argued, the USTR’s remand explanation offered little other than post hoc reasoning unsupported by any record evidence and flimsy claims that it followed the “specific direction of the president” and exercised its discretion.  In the USTR’s remand explanation, the plaintiff group’s counsel stated that the USTR offered no analysis of specific objections raised by commentors, such as concerns that the imposition of the tariffs would lead to a spike in inflation, employee layoffs, or major supply chain issues.  While acting at the “specific direction of the president” is a significant factor, the plaintiff group’s counsel argued that the USTR has to exercise some judgment as to whether the ultimate action is “appropriate”.  The USTR has to consider and weigh comments and any potential consequences; “whatever the president says, goes” is not appropriate.  The term “appropriate” is different than “any means necessary”, and the trade action cannot do significantly more harm than good.  Even with a directive from the president, he explained, the USTR still had minimal APA obligations to fulfill.

The USTR’s claim that it may rely on “reasoned decision making” does not mean, according to the plaintiff group’s counsel, that the agency did not have to consider and address reasonable alternative actions.  The record provided by the USTR, he said, is absent any contemporaneous documentation and discussion of the potential harms raised by commentors and consideration of any alternative actions.  Instead, the final section of the remand explanation, is “purely conclusory and post hoc argument”.  In arguing that the USTR failed to adequately address two of the three  issues covered by the CIT’s remand order, the plaintiff group’s counsel repeatedly highlighted that the USTR’s remand explanation failed to prove that the agency’s responses and explanations to interested parties’ comments during the underlying Section 301 process were adequate enough to satisfy USTR’s burden under the APA.   When the CIT asked him for the appropriate action to be taken at this stage of the litigation, the plaintiff group’s counsel stated that unless the government defendants “announce today” they have located additional documents, they have “put their best foot forward” after all of the briefing in this litigation and there was “no use in further remanding”.  The plaintiff group’s counsel argued that this is not an unwillingness by the USTR to provide responses and additional record evidence; it is an “inability to do so”.  The APA is designed on record-based decision making; such records and evidence have to be provided and considered at the time the agency makes the decision; and such records do not exist.

During their oral argument, the government defendants’ counsel argued that the remand explanation was sufficient and should be sustained.  Referencing various legal precedent, she argued that the “decision maker is presumed to have considered all alternatives” and that, in this instance, all Section 301 Committee members were present at all public hearings where concerns were raised as to the aggregate level of the trade action, the potential harm to U.S. industries and the economy, and alternative courses of action.  She noted that the vast majority of submitted public comments (97%) concerned specific HTS subheadings and were not about these broader issues.  The government defendants’ counsel argued that USTR had “no obligation to respond in the manner that plaintiffs seek”:  The USTR engaged in “reasonable decision making”,  comments regarding the overall effect on the U.S. economy were adequately addressed in the discussions of the individual tariff subheadings remand explanation, and “this is sufficient.”  When asked about reasonable alternatives, the government defendants’ counsel indicated that the Trump administration wanted to negotiate with China, that Section 301 is a statute about tariffs and that the USTR “struck the best balance it could” under Section 301, which addresses the implementation of tariffs or a negotiated agreement.  The government defendants’ counsel argued that the USTR did explain how its action was appropriate and pointed out that “the statute does not state that USTR has to explain why” an action is appropriate or inappropriate.   When asked by a judge if these tariffs should be vacated, the government defendants’ counsel argued that this would be inappropriate and that, if necessary, the USTR has shown a willingness to respond further and will continue to do so.  She stated that it is not unusual for CIT actions to go through several remands and that, if deemed necessary, any remaining deficiencies could be addressed on remand, particularly in light of the consequences.

Amici counsel argued very briefly that the USTR indicated it had “limited flexibility” due to the president’s specific directive but that consideration of the details of a particular action “remain with USTR” and, as the plaintiff group’s counsel argued, the USTR has not offered a sufficient explanation.  Regarding whether individual HTS subheadings remained on a list or were removed, amici counsel noted that it had a product that was removed from List 3 but then placed on List 4 with no explanation.

The CIT should decide within the next six months whether there will be another remand, a vacatur or an affirmation.  Regardless of the ruling, the losing side is expected to appeal the final CIT decision to the U.S. Court of Appeals for the Federal Circuit.

For additional details on the CIT’s remand order, see Update of April 6, 2022.  For additional information on the content of the USTR’s remand explanation, see Update of August 2, 2022.  SeeUpdate of September 15, 2022 for details on the plaintiff group’s comments in response to the USTR’s remand explanation.

On February 3, 2023, the Department of the Treasury (Treasury) issued multiple determinations related to the price cap to be set on Russian-origin petroleum products. Treasury also published finalized guidance on the broader price cap policy implemented by the “Price Cap Coalition” – an international coalition that includes the United States, the G7, the European Union, and Australia – that aims to prohibit certain services for the transportation of Russian crude oil and petroleum products. Such restrictions are intended to reduce Russia’s substantial revenues from the global energy sector and, in doing so, reduce Russia’s ability to fund its ongoing war of aggression against Ukraine. See Update of September 6, 2022 for additional details on the original announcement of the price cap.

Treasury issued a Determination pursuant to Executive Order 14071 of April 6, 2022 imposing a price cap of $45 per barrel on Discount to Crude petroleum products of Russian origin and a price cap of $100 per barrel on Premium to Crude petroleum products of Russia origin, respectively, effective February 5, 2023.

In accordance with a second Determination issued by Treasury, companies can purchase and/or provide services related to the maritime transport of Russian-origin petroleum products only if the petroleum product is traded at or below the per barrel price cap without being potentially subject to sanctions by Treasury’s Office of Foreign Assets Control (OFAC). OFAC has defined “petroleum products” as items listed under the Harmonized Tariff Schedule of the United States (HTSUS) heading 2710. The second Determination does, for a limited wind-down period, exempt either type of Russian petroleum product from the policy cap if it was loaded onto a vessel before February 5, 2023 and will be unloaded before April 1, 2023.

To accommodate the two Determinations related to the price cap on Russian petroleum products, Treasury also issued amended Russia General Licenses 56A and 57A that authorize certain services related to imports for the European Union and allows for providing services to address vessel emergencies.

The price cap on Russian petroleum products follows Treasury’s similar price cap on Russian oil (see Update of December 5, 2022). As a reminder, these price caps do not remove the separate prohibition on the importation of Russian petroleum and petroleum products into the United States that went into effect pursuant to Executive Order 14066 of March 8, 2022 (see Update of March 9, 2022).

Treasury also published finalized guidance on how the United States will implement the broader price cap policy. The finalized guidance supersedes all preliminary guidance OFAC has previously published for both crude oil and petroleum products of Russian origin (see Update of January 4, 2023, Update of September 19, 2022, and Update of November 29, 2022).

On February 7, 2023, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit (CAFC) issued an opinion in PrimeSource Building Products, Inc. v. United States et al., Case No. 2021-2066, reversing a lower court decision and upholding the imposition of additional Section 232 national security tariffs on derivatives of certain imported steel articles implemented by former President Donald Trump. In April 2021, the U.S. Court of International Trade (CIT) issued an opinion invalidating Presidential Proclamation 9980 that imposed 25% tariffs on these derivative steel products pursuant to Section 232 of the Trade Expansion Act of 1962. The CIT found in favor of plaintiff PrimeSource Building Products, Inc., a U.S. importer, which argued that the proclamation was issued after a key statutory deadline had passed that required presidential action. See Updates of April 6, 2021 and January 28, 2021 for additional background on the case and CIT’s dismissal of other claims.

In the CAFC opinion, the judges 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.’” The judges noted that President Trump utilized “a tool that he could have used in the initial set of measures and later found important to address a specific form of circumvention Congress recognized when it authorized coverage of derivatives of the articles whose imports the Secretary found to threaten national security.” The judges determined “[t]here is no textual basis for a specific time limit on adjustments under a timely adopted plan” and that former President Trump had the authority to impose the tariff on steel derivatives. The judges noted that impositions under Section 232 “have on numerous occasions been modified many years after they were first adopted.”

The opinion relies on and references frequently the CAFC’s decision in Transpacific Steel LLC v. United States, in which it upheld “a presidential proclamation that increased tariffs on steel beyond Proclamation 9705’s rate, concluding that when the President, within the § 232 time limits at issue, adopts a plan of action that contemplates future contingency-dependent modifications, those time limits do not preclude the President from later adding to the initial import impositions in order to carry out the plan to help achieve the originally stated national-security objective where the underlying findings and objective have not grown stale.” (For additional details on the Transpacific ruling, see Update of July 13, 2021). In upholding Proclamation 9980 in this PrimeSource appeal, the judges found that there was no staleness or other reason for “overriding the President’s judgment” and that, in fact, the Department of Commerce had been instructed to continue monitoring imports of steel articles and report any circumstances that might require further action. Once informed that steel derivative imports had increased in an apparent effort to circumvent Section 232 duties, the president had the authority to extend the duties. The opinion concludes that Proclamation 9980 “comes within the [CAFC’s] interpretation of § 232 we adopted in Transpacific.”

Key Notes:

  • The GAO publicly released an audit to address concerns that domestic industries “may sometimes file [AD/CVD] petitions without merit to obstruct domestic market competition.”
  • In its audit, the GAO analyzed the process administered by federal agencies to impose AD/CVD orders.
  • The GAO concluded that the agency process for obtaining these orders, as well as its features, impose sufficient controls to ensure petitions are not meritless and contain accurate and complete information.

On January 9, 2023, the U.S. Government Accountability Office (GAO) publicly released a performance audit scrutinizing the “process design” for the imposition of antidumping and/or countervailing duty (AD/CVD) tariffs jointly administered by the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (USITC). The audit addressed concerns from critics claiming that domestic industries “may sometimes file petitions without merit to obstruct domestic market competition.”

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Trade

In February 2021 and pursuant to Executive Order 14017, “America’s Supply Chains,” President Joe Biden directed a review across all federal agencies to address vulnerabilities in the supply chains for critical goods. See Update of February 25, 2021. Subsequent federal agency reviews and a White House report found five key U.S. supply chain vulnerabilities, acknowledged the need to strengthen international trade rules, and recommended steps to strengthen supply chain resilience, including increased international coordination. See Update of June 11, 2021.  The Government Accountability Office (GAO) recently released a report, “Supply Chain Resilience – Agencies Are Taking Steps to Expand Diplomatic Engagement and Coordinate with International Partners,” highlighting additional federal government steps to expand diplomatic engagement and coordination with trade partners to strengthen supply chains.

The report notes, as of October 2022,  that “the agencies have initiated over a dozen dialogues, working groups, forums, and other channels to coordinate with allies and partners on supply chain resilience. The agencies have coordinated with allies and partners to develop supply chain principles and plans for action to strengthen supply chain resilience. These efforts aim to address challenges including disruptions from the pandemic and war in Ukraine.” Among the issues covered in the report, the Office of the U.S. Trade Representative (USTR) found that “current U.S. trade agreements generally were not designed to address supply chain disruptions or build resiliency,” but instead have “historically focused on trade liberalization and maximizing economic efficiency.” While trade agreements and trade preference programs “can serve as tools for addressing supply chain resiliency concerns,” the USTR is attempting to identify ways to use free trade agreements to strengthen collaboration and cooperation on supply chain challenges. However, the USTR noted that this may require renegotiating current agreements, negotiating new agreements, or modifying trade preference programs.

The report also notes that the Departments of Commerce and State, as well as the USTR, continue to address data collection challenges that will assist in diplomatic coordination on supply chain resilience. In their FY 2023 budget request, these agencies have requested authorization for additional personnel and increased funding for these efforts.

On February 3, 2023, the Office of the U.S. Trade Representative (USTR) announced that it is extending for 75 days China Section 301 tariff exclusions for 81 medical products. The medical products were previously deemed as needed for the COVID-19 pandemic and granted exclusions from additional tariffs. The current exclusions were scheduled to expire on February 28, 2023; they will now be extended through May 15, 2023.

The 75-day deadline extension will allow the USTR to seek public comment on whether these particular exclusions should be extended beyond May 15, 2023. In its notice, the USTR stated that “the rates of infection of COVID in the United States continue to fluctuate. … Domestic production of certain products covered by these exclusions also has increased.” The  USTR is seeking public comment on whether to extend any of the China Section 301 tariff exclusions for these 81 Chinese-origin COVID-19 products up to another six months. Public comments will be accepted from February 6 through March 7, 2023, and must be submitted through USTR’s online portal at https://comments.ustr.gov/ under Docket No. USTR-2023-0001.

For more details on past China Section 301 tariff exclusion extensions for COVID-19 products, see Update of November 28, 2022.