On and effective April 8, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Final Rule that expands upon prior export control restrictions placed on Russian and Belarus in response to Russia’s invasion of Ukraine. This rule expands restrictive license requirements to include Commerce Control List (CCL) categories 0-2, which include materials and equipment relevant to nuclear, chemical, and materials processing. It applies additional export restrictions established under previous Russia and Belarus rules to now include the three remaining categories of controlled technology on the Commerce Control List (CCL) which had previously not been applied to Russia and Ukraine. For past BIS actions see Updates of March 4, 2022 and February 25, 2022.

While BIS noted that the vast majority of items in CCL categories 0-2 already required a license for Russia and Belarus (or are subject to the licensing authorities of other agencies), this Final Rule imposes new license requirements for items including certain composite materials, medical products containing certain toxins or genetically modified organisms, hydraulic fluids, pumps, valves, and lower-level machine tools. The rule also applies the foreign “direct product” rule for Russia/Belarus to apply to all items in categories 0-9 of the CCL. In reviewing any license application, BIS has stated they it will typically apply a “policy of denial.”

This Final Rule also limits certain provisions of the license exception for aircraft (AVS) for aircraft registered in, owned or controlled by, or under charter or lease by Belarus or a national of Belarus.

BIS has stated that for these expanded CCL controls, shipments of items removed from eligibility for a License Exception or export or reexport without a license (NLR) as a result of these new export restrictions that were en route aboard a carrier to a port of export or reexport, on May 9, 2022, pursuant to actual orders for export or reexport to Burma, may proceed under their previous eligibility.

On April 8, 2022, President Joseph Biden signed into law H.R. 7108, the Suspending Normal Trade Relations with Russia and Belarus Act, and H.R. 6968, the Suspending Energy Imports from Russia Act. Both pieces of legislation passed the Senate and House of Representatives on April 7, 2022.

The Suspending Normal Trade Relations with Russia and Belarus Act (now Public Law No. 117-110) suspends the United States’ granting of permanent normal trade relations (PNTR) with Russia and Belarus. The removal of PNTR status includes the withdrawal of “most favored nation” tariffs and will result in higher tariffs on the import of goods imported from Russia and Belarus. The law also gives the president authorization to increase the duties applicable to products imported from these two countries.

The Ending Importation of Russian Oil Act (now Public Law No. 117-109) suspends imports of Russian petroleum products that are classified under Chapter 27 of the Harmonized Tariff Schedule of the United States (HTSUS) and as set forth in Executive Order 14066.

Provisions in both laws allow for the restoration of normal trade relations and resumption of imports of petroleum products upon certification to Congress that Russia and Belarus:

  • have reached an agreement relating to the respective withdrawal and cessation of military hostilities that is accepted by the free and independent government of Ukraine;
  • pose no immediate military threat of aggression to any North Atlantic Treaty Organization (NATO) member; and
  • recognize the right of the people of Ukraine to independently and freely choose their own government.

Upon signature by President Biden, the White House released a statement available here. These new laws codify previous executive actions taken by President Biden. See Updates of March 12, 2022 and March 9, 2022.

On April 6, 2022, President Joseph Biden issued Executive Order, “Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression” (the “April 6, 2022 EO”) , further expanding sanctions against Russia, including measures to ban new investments in Russia and authorizations to prohibit the provision of services in Russia.  On the same date, the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced blocking sanctions against additional Russian banks (including Sberbank and Alfa-Bank), as well as blocking of several of Russia’s most critical state-owned enterprises (SOEs) and Russian government officials and their family members.

The April 6, 2022 EO prohibits the following activities:

  • new investment in the Russian Federation by a U.S. person, wherever located;
  • the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, of any category of services as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to any person located in the Russian Federation; and
  • any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person involving the foregoing prohibited activities where the transaction by that foreign person would be prohibited if performed by a U.S. person or within the United States.

The Secretary of the Treasury has not yet identified categories of services prohibited under this EO’s authority.

Blocking Sanctions

As noted, OFAC designated Russia’s largest financial institution Sberbank (and 24 of its subsidiaries) and Russia’s largest private bank, Alfa-Bank (and 6 of its subsidiaries) to the Specially Designated Nationals and Blocked Persons (“SDN”) List.  Several other Russian banks were also placed on the SDN List.  Notably, Sberbank and its subsidiaries were  previously only subject to Non-SDN Menu-Based Sanctions pursuant to EO 14024 Directive 2 but are now fully blocked.

In addition, OFAC has designated family members of President Vladimir Putin and Foreign Minster Sergey Lavrov, as well as former President and Prime Minister of Russia Dmitry Medvedev and other Russian Security Council members.  Several additional vessels have also been placed on the SDN List.  For full identifying details on these banks, entities and persons click here.

As a result of these actions, all property and interests in property of these individuals and entities 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 otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt.

General Licenses

OFAC has issued three new Russia-related General Licenses (GL) to authorize all transactions ordinarily incident and necessary to the wind down of certain activities involving Sberbank CIB USA, Inc. (GL 21, authorizing certain activities until June 7), PJSC Sberbank of Russia (GL 22, authorizing certain activities until April 13), and JSC Alfa-Bank (GL 23, authorizing certain activities until May 6).  The authorization for wind down activities includes any entities in which these three entities own, directly or indirectly, a 50% or greater interest.

OFAC also issued an updated GL 8B, updating the prior GL 8A to include some newly designated entities and authorize certain energy related transactions until June 24, 2022.  In addition, OFAC issues GLs 9B and 10B to add newly designated entities to authorizations permitting certain divestment related activity and wind-down of derivative contracts.

A White House Fact Sheet summarizing these additional sanctions is available here.

The Department of Commerce’s Bureau of Industry and Security (BIS) issued a Final Rule adding 120 Russian and Belarusian companies to the Entity List. Ninety-five companies (24 Belarusian entities and 71 Russian entities) are being added as they have been determined to be “military end users.” These entities will also be subject to the Russia/Belarus foreign “direct product” (FDP) rule. Another 25 Russian entities are being added to the Entity List for acquiring, and attempting to acquire, items subject to the EAR in support of Russia’s military modernization efforts. Their addition to the Entity List means these entities are subject to a license requirement – currently under a “policy of denial,” with no license exceptions available – for the export, reexport, export from abroad (as described under Russia/Belarus FDP rule), or transfers (in-country) of all items subject to the EAR destined to these entities. In addition to this Final Rule, BIS issued a press statement further discussing the designations and continuing efforts to “detect, identify, and restrict parties in Russia, Belarus, or elsewhere that seek to support” Russia’s military efforts in Ukraine.

This Final Rule was effective as of April 1, 2022, with formal publication in the Federal Register scheduled for April 7, 2022. BIS has stated that shipments of items subject to the Final Rule that, pursuant to actual orders that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on April 1, 2022 may proceed to that destination under the previous export eligibility without a license (NLR).

On March 31, 2022, President Joseph Biden issued Presidential Determination No. 2022-11 invoking the Defense Production Act of 1950 (DPA) to ensure a sufficient and sustainable domestic industrial base for the production of large-capacity batteries. Stating that the United States “depends on unreliable foreign sources for many of the strategic and critical materials necessary for the clean energy transition – such as lithium, nickel, cobalt, graphite, and manganese for large-capacity batteries,” President Biden directed the Secretary of Defense to address this concern as essential to the national defense.

The Secretary of Defense is tasked by the determination “to create, maintain, protect, expand, or restore sustainable and responsible domestic production capabilities of such strategic and critical materials by supporting feasibility studies for mature mining, beneficiation, and value-added processing projects; by-product and co-product production at existing mining, mine waste reclamation, and other industrial facilities; mining, beneficiation, and value-added processing modernization to increase productivity, environmental sustainability, and workforce safety.” In addition, the Secretary of Defense will conduct a survey of the domestic industrial base for the mining, beneficiation, and value-added processing of strategic and critical materials used in the production of large-capacity batteries for the automotive, e-mobility, and stationary storage sectors. The results of this survey will be reported annually to the president and Congress.

The Department of Defense released a press statement indicating that it will continue “to work with key stakeholders to use DPA Title III authorities to address risks and challenges across supply chains for large-capacity batteries. These authorities expand options and opportunities to accelerate and scale critical investments across key markets.”

On April 1, 2022, the three-judge panel at the U.S. Court of International Trade (CIT) issued its opinion in the China Section 301 tariff refund litigation regarding the government defendants’ motion to dismiss and the plaintiffs’ cross-motion for judgment on the record. The CIT found that: (1) the Office of the U.S. Trade Representative (USTR) had the authority and discretion to modify the tariffs first implemented as a result of the USTR’s determination regarding China’s intellectual property (IP) practices and to implement additional tariffs on imported products from China included in Lists 3 and 4A; and (2) the USTR failed to respond adequately to comments it received during the rulemaking process when it proposed tariffs on these additional products and thus did not adhere to the standards set forth in the Administrative Procedure Act (APA). In its remand order, the CIT instructed the USTR to correct deficiencies in the agency’s record. The opinion affords the USTR 90 days, until June 30, 2022, to respond and also orders the plaintiffs and the government defendants to submit a joint status report 14 days thereafter, including a proposed schedule on “the further disposition of this litigation.”

In its opinion, the CIT rejected the government defendants’ arguments in their motion to dismiss that the USTR’s Section 301 determination was not reviewable because it was a “presidential action” — and not an agency action — and also rejected their argument that the matter was a “political question” not suitable to judicial review. The CIT, however, found that the USTR was within its authority to apply additional tariffs to products on Lists 3 and 4A after the conclusion of the original investigation due to China’s retaliatory tariff actions. The CIT stated that the investigation “covered China’s conduct related to the identified matters and not simply, as Plaintiffs contend, the acts constituting the identified matters.” “[B]y directly offsetting the duties on the $50 billion in trade with its own duties on $50 billion in trade from the United States,” the CIT wrote, “China directly connected its retaliation to the U.S. action and to its own acts, policies and practices that the U.S. action was designed to eliminate.” This “link between the subject of the original Section 301 action and China’s retaliation is plain on its face.” The opinion details USTR’s authority under Section 307 of the Trade Act of 1974. Ultimately, the CIT held that the “USTR properly found an increased burden on U.S. commerce arising from the acts that formed part of the subject of the original action” and that Section 307 allows modification of the USTR’s Section 301 actions.

Regarding APA non-compliance, the CIT first dismissed the government defendants’ argument that the promulgation of Lists 3 and 4A fell under the “foreign affairs” exemption of the APA. Next, in addressing the merit of the plaintiffs’ APA claims, the CIT found that USTR failed to respond adequately to the roughly 10,000 comments filed by U.S. stakeholders challenging the imposition of these tariffs. Though a detailed comment-by-comment response “is not the standard required by the APA,” the CIT stated that 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.” While the CIT acknowledged that the USTR’s “statements of basis and purpose” for its action and reasons it “deemed China’s ongoing and retaliatory conduct actionable” are both present, it found that “those statements fail to apprise the court how the USTR came to its decision to act and the manner in which it chose to act, taking account of the opposition and support for the increased duties and the inclusion or exclusion of particular subheadings, the concerns raised about the impact of the duties on the U.S. economy, and the potential availability of alternative courses of action, within the context of the specific direction provided by the President.” “Having requested comments on a range of issues, the USTR had a duty to respond to the comments in a manner that enables the court to understand ‘why the agency reacted to them as it did.’”

During the February 1, 2022 oral argument (see Update of February 2, 2022), plaintiffs’ counsel argued that vacating the tariffs on Lists 3 and 4A products was a proper remedy while the government’s counsel argued that remand under the APA was the proper standard. With this opinion, the CIT found that USTR’s “failure to explain its rationale in the context of the comments it received leaves room for doubt as to the legality of its chosen courses of action.” However, the CIT declined to vacate the tariffs, indicating that such action “would disrupt a complex and evolving process” and that the APA allows other action “when it was possible for the relevant agency to cure the defect.” In remanding the action to the USTR, the CIT noted that the USTR may only rely upon evidence that existed before its List 3 and List 4A decisions and that any expanded explanations the USTR provides must be based on the same rationales it originally offered. The USTR “may not identify reasons that were not previously given unless it wishes to ‘deal with the problem afresh’ by taking new agency action.”

On March 31, 2022, Secretary of the Treasury Janet Yellen released a Determination expanding the scope of Section 1(a)(i) of Executive Order 14024 to include aerospace, electronics and marine sectors of the Russian economy as being within the scope of the Executive Order.  This Executive Order has been relied upon extensively to implement sanctions against Russia since its invasion of Ukraine as a manner in which to designate and block property and assets of certain Russian persons and entities.  Specifically, Section 1(a)(i) allows for the blocking of any person determined by the Treasury Secretary to “operate or have operated in the technology sector or the defense and related materiel sector of the Russian Federation economy, or any other sector of the Russian Federation economy as may be determined by the Secretary of the Treasury.”  With this designation it is anticipated that the Department of the Treasury’s Office of Foreign Assets Control (OFAC) will begin designating and blocking additional Russian entities in the aerospace, marine, and electronics industry sectors.

In addition, OFAC designated 21 Russian entities and 13 individuals, including one of Russia’s  largest exporters of microelectronics and chips and several Russian government malicious cyber actors to the Specially Designated Nationals (SDN) List.  These designations also include entities which have been determined to be attempting to obfuscate Russian military and intelligence as the ultimate-end users and evade U.S. sanctions.  Detailed information on these entities and persons is available here.  All property and interests in property of the identified individuals and entities 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 otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt.

On March 30, 2022, U.S. Trade Representative Katherine Tai appeared before the House Ways & Means Committee to discuss President Joseph Biden’s 2022 trade agenda. In Ambassador Tai’s written testimony, she primarily focused on the U.S.-China trade relationship. Ambassador Tai highlighted ongoing talks with China over trade distortions and imbalances, including China’s failure to fulfill its purchase commitments detailed in the “Phase One Agreement” and its continuing state-centered and non-market practices. In these discussions, it became clear, Ambassador Tai stated, that China will only comply with its trade obligations when it “fits its own interests”  and that meaningful “follow-through or real change remains elusive.” She indicated that it was time to “turn the page on the old playbook with China, which focused on changing its behavior. Instead, our strategy must expand beyond only pressing China for change and include vigorously defending our values and economic interests from the negative impacts of [China’s] unfair economic policies and practices.” To do so, Ambassador Tai said that the United States “must develop new domestic tools targeted at defending our economic interests, and make strategic investments in our economy,” while also working closely with allies that are similarly adversely affected by China’s practices.

Noting that much of the past year was spent repairing “strained relationships” and “recommit[ing] the United States to the world’s institutions,” Ambassador Tai noted work on new and existing bilateral, plurilateral and multilateral agreements. This includes economic engagement with partners in the Indo-Pacific and a clear commitment to the World Trade Organization (WTO). While negotiation and cooperation are preferred, she noted that trade policy can fail to deliver on its promises, and when that happens, the United States will pursue formal dispute settlement and other enforcement options. Ambassador Tai added that “many of our existing trade tools were crafted decades ago” and no longer “adequately address the challenges posed by today’s economy.”  The Biden administration, she explained, is reviewing “existing trade tools and will work with Congress to develop new tools as needed.”

Ambassador Tai reminded the committee that the president’s agenda “begins with a commitment to putting workers at the center of our trade policy” and that the administration in 2021 obtained numerous “wins.” She pointed out that an important part of the trade agenda is “promoting trade policy that is equitable, inclusive, and durable for all Americans.”

Video of the entire March 30, 2022 Ways & Means Committee hearing on President Biden’s trade agenda is available here. See also Update of March 9, 2022, “USTR Releases President Biden’s 2022 Trade Agenda and 2021 Annual Report.”

On March 24, 2022, the Office of Foreign Assets Control (OFAC) issued two amended general licenses (GL) and two new GLs involving Russia-related sanctions programs. OFAC has also updated its FAQs 1,023 and 1,024 to reflect the changes in GL 17A.

  • General License 6A: GL 6 authorized transactions prohibited by the Russian Harmful Foreign Activities Sanctions Regulations that are ordinarily incident and necessary to, among other things, the exportation or reexportation of agricultural commodities, medicine and medical devices to, from, or transiting Russia. Amended GL 6A contains an additional subsection that clarifies that any debit to an account of a U.S. financial institution of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation, or any transaction otherwise prohibited by EOs 14066 or 14068, are not authorized by GL 6A.
  • General License 17A: The original GL 17, which expired on March 25, 2022, authorized transactions ordinarily incident and necessary to the importation of certain Russian-origin items otherwise prohibited by EO 14068 pursuant to contracts entered into prior to March 11, 2022. Amended GL 17A extends this authorization for Russian-origin seafood pursuant to contracts entered into prior to March 11, 2022 until June 23, 2022.
  • General License 20: GL 20 authorizes U.S. persons to engage in transactions ordinarily incident and necessary to the official business of third-country diplomatic or consular missions located in Russia that are otherwise prohibited by EOs 14024 and 14068, which prohibits direct or indirect supply of U.S. dollar-denominated banknotes to the government of Russia or any person located in Russia.
  • General License 25: GL 25 under the Ukraine-related sanctions authorizes journalistic activities and the establishment of news bureaus in the Crimean region and the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.

On March 24, 2022, President Joseph Biden announced further sanctions toward Russia involving more than 400 individuals and entities, including the Russian Duma and its members, several additional Russian oligarchs, and numerous Russian defense companies.  The sanctions were carried out pursuant to Executive Order 14024 which authorizes sanctions against Russia for its harmful foreign activities.  The sanctions include:

  • All 328 members of the Russian Duma (i.e., Russia’s legislative assembly), and sanctioning the Duma as an entity.
  • The head of Russia’s largest financial institution Sberbank (a Russian bank previously sanctioned).
  • Several Russian oligarch known to be close to Vladimir Putin, their companies and family members.
  • Seventeen board members of Russian financial institution PJSC Sovcombank (a Russian bank previously sanctioned).
  • Forty-eight Russian defense state-owned enterprises that are part of Russia’s defense-industrial base and produce weapons that have been used in Russia’s invasion of Ukraine.

As a result, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) has blocked and placed on the Specially Designated Nationals (SDN) List these Russian officials, oligarchs and companies.  OFAC’s press release provides a  background on the sanctions.  For detailed identifying information on the individuals and entities blocked and sanctioned, see here.  All property and interests in property of these designated individuals and entities 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 otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt.

OFAC has also issued a new FAQ to address issues regarding gold-related transactions involving Russia in an effort to provide guidance in avoiding in engaging in any transactions or measures to circumvent prohibited banking/financial transactions or otherwise evade U.S. sanctions.

In a brief statement, the White House also announced the establishment of a European Union and G7 (i.e., the Group of Seven, consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) initiative which will focus on sanctions evasion.  These countries will “share information about and coordinate responses related to evasive measures intended to undercut the effectiveness and impact of our joint sanctions actions.”  The statement notes that they will engage other governments on adopting sanctions similar to those already imposed by the U.S., EU and other G7 partners.