On March 23, 2022, the Office of the U.S. Trade Representative (USTR) announced that it was reinstating certain previously granted and extended product exclusions in the China Section 301 investigation. Per the Federal Register notice, USTR has reinstated 352 of the 549 eligible exclusions identified in the October 8, 2021 USTR Federal Register notice seeking public comment on renewing these previously granted but expired product exclusions. The reinstated product exclusions will be applied retroactively from October 12, 2021, through December 31, 2022. The notice states that the USTR may consider further extensions “as appropriate.”

Certain reinstated exclusions cover entire Harmonized Tariff Schedule of the United States (HTSUS) subheadings, while the remaining exclusions cover a multitude of HTSUS subheadings with specific product descriptions. These reinstated exclusions are set forth in an Annex to the Federal Register notice and are available for any product that meets the description in the product exclusion.

On March 22, 2022, the United States and the United Kingdom reached agreement on allowing “sustainable volumes” of UK steel and aluminum products to enter the U.S. market without the application of Section 232 tariffs. The Joint Statement notes that both the United States and UK will monitor steel and aluminum trade between the countries and cooperate on non-market excess capacity “to address issues relating to unfairly traded imports and surges in imports of products, and to ensure domestic industries operate in market-oriented conditions.”

Under the framework of the agreement, effective on June 1, 2022, the United States will replace the existing Section 232 25% tariff on UK steel products with a tariff-rate quota (TRQ). For steel, historically-based volumes of UK steel products will enter the U.S. market without the application of Section 232 tariffs as follows:

  • The aggregate annual import volume under the TRQ is set at 0.5 million metric tons (MMT) for 54 product categories and allocated in line with the 2018-2019 historical period. Steel products from the UK subject to the Section 232 tariff that are within the quota will enter free of any Section 232 tariff, while all steel products subject to the Section 232 tariff entering above the quota will continue to be subject to the 25% tariff.
  • Imports of derivative articles of steel will not be subject to the Section 232 tariff.
  • To be eligible for Section 232 duty-free treatment under the quota, steel imports must be “melted and poured” in the UK according to current U.S. requirements.
  • The United States will maintain its steel product exclusion process.

For aluminum, historically-based volumes of UK aluminum products will enter the U.S. market without the application of Section 232 tariffs as follows:

  • The aggregate annual import volume under the TRQ is set at 0.9 thousand metric tons (TMT) for unwrought aluminum under two product categories and at 11.4 TMT for semi-finished (wrought) aluminum under 12 product categories. The import volumes will be allocated in line with the 2018-19 historical period, with the exception of foil (7607), where 2021 annualized data will be utilized. Aluminum products subject to the Section 232 tariff from the UK that are within the quota will enter free of any Section 232 tariff, while all aluminum products subject to the Section 232 tariff entering above the quota will continue to be subject to the 10% tariff.
  • Imports of derivative articles of aluminum will not be subject to a Section 232 tariff.
  • An importer must provide a certificate of analysis for each aluminum product entered into the United States, as required by current U.S. law.
  • The United States will maintain its aluminum product exclusion process.

Further details on the application of these TRQs and the 54 steel product categories and 14 aluminum product categories are available here.

The agreement also requires that any UK steel company owned by a Chinese entity must undertake an audit of its financial records to assess influence from the Chinese government. The results of such audits must be shared with the United States.

In addition, on March 21-22, U.S. Trade Representative Katherine Tai and UK Secretary of State for International Trade Anne-Marie Trevelyan hosted the first joint U.S./UK “Dialogues on the Future of Atlantic Trade.”   This meeting discussed advancing mutual international trade priorities.  During these discussions, the following commitments were reached:

  • Reestablishing the UK-US SME dialogue to continue to bring together SMEs from both sides of the Atlantic to identify ways to further support trade and investment;
  • Harnessing the benefits of an open and competitive digital economy, with appropriate safeguards for workers, consumers and businesses;
  • Building on the G7’s first ever set of Digital Trade Principles during the UK presidency, such as working toward the digitization of paper-based customs and other border agency requirements to cut red tape;
  • Building strong, durable supply chains that can withstand future global shocks;
  • Supporting the protection of labor rights and the environment, with one another and our other trading partners;
  • Tackling forced labor globally;
  • Creating incentives through trade to transition to a decarbonized economy and protecting our environment;
  • Advancing trade policy to consider gender, underserved and marginalized communities as workers, consumers, entrepreneurs, and producers; and
  • Addressing third party market-distorting practices.

For additional details, see the full Joint Statement on the U.S./UK Dialogues on the Future of Atlantic Trade.

On March 18, 2022, the Department of the Commerce’s Bureau of Industry and Security (BIS) identified nearly 100 commercial and private aircraft that have allegedly “flown into Russia in apparent violations of the Export administration Regulations (EAR).” The list identifies planes owned by Russian airlines Aeroflot, AirBridgeCargo and Utair as well as Russian oligarch Roman Abramovich. In its notice, BIS stated that it is “notifying the public that providing any form of service to these aircraft requires authorization. Absent such authorization, any person anywhere—including within Russia—risks violating the EAR and would be subject to BIS enforcement actions.” A detailed listing of each airplane, the aircraft type, the tail number and the serial number is provided in BIS’ notice.

Also on March 18, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued under its Ukraine-related sanctions and pursuant to Executive Order 14065, General License (GL) No. 24. This GL authorizes the provision of certain civil maritime services performed by individuals who are ordinarily resident in the so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions of Ukraine, so long as the services are performed outside of these regions and are not performed on behalf of any entities located or organized under the laws of these regions of Ukraine.

On March 11, 2022, President Joseph Biden issued an Executive Order (EO) announcing further prohibitions on imports, exports and new investments related to Russia. This announcement was made at the same time that the president and the other G7 leaders of Canada, France, Germany, Italy, Japan and the United Kingdom, as well as the European Union, announced new economic actions which will revoke Russia’s “Most Favored Nation” status (see Update of March 12, 2022) and efforts to deny borrowing privileges from multilateral financial institutions. The EO prohibits the following:

  • the importation into the United States of the following Russian products: fish, seafood and preparations thereof; alcoholic beverages; non-industrial diamonds;
  • the exportation, reexportation, sale or supply, directly or indirectly, from the United States or by a U.S. person, of luxury goods;
  • new investment in any sector of the Russian Federation economy;
  • the exportation, reexportation, sale or supply, directly or indirectly, from the United States or by a U.S. person, of U.S. dollar-denominated banknotes to the government of the Russian Federation or any person located in Russia; and
  • any approval, financing, facilitation or guarantee by a U.S. person of a transaction by a foreign person where the transaction by that foreign person would be prohibited by the above prohibitions if performed by a U.S. person or within the United States.

The EO authorizes the Departments of Commerce, State and the Treasury to impose additional import and export restrictions as well as new investment bans as may be appropriate. Further, the Department of the Treasury issued initial guidance, in the form of a Frequently Asked Question (FAQ 1,021), on the scope of these sanctions to make clear that all U.S. persons must comply with sanctions regulations “regardless of whether a transaction is denominated in traditional fiat currency or virtual currency.”

Relevant OFAC Actions

To implement aspects of the import prohibitions of the EO, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) released several General Licenses (GL). GL 17 authorizes the import of existing purchases of prohibited Russian products covered by the EO pursuant to written contracts entered into prior to March 11 until March 25, 2022. OFAC also issued Russia-related GL 18 authorizing certain activities regarding U.S. dollar-denominated banknote noncommercial, personal remittances from the United States or a U.S. person to an individual in Russia. GL 19 authorizes individuals who are U.S. persons located in the Russian Federation to engage in all transactions that are ordinarily incident and necessary to their personal maintenance within Russia, including payments such as housing expenses, goods for personal use, payment of taxes or fees, etc.

OFAC has also stated that the EO does not prohibit transactions such as the unwinding of contracts or other business-related activities by U.S. persons to comply with the import ban, nor does it prohibit U.S. persons from engaging in transactions to sell or re-direct shipments outside the United States of prohibited imports previously destined for the United States. New FAQs pertaining to the March 11 EO are available here.

OFAC has designated additional “Russian and Kremlin elites, oligarchs, and Russia’s political and national security leaders who have supported Russian President Vladimir Putin’s” invasion of Ukraine. These persons have been placed on OFAC’s Specially Designated Nationals (SDN) List and include members of the Russian State Duma; another Russian billionaire (and his aircraft and yacht); and VTB Banks’ entire management board. Detailed information on these SDN listings is available here.

Given the recently increased sanctions in the so-called Donetsk People’s Republic (DPR) and the Luhansk People’s Republic (LPR) regions of Ukraine, OFAC has also issued GL 23 authorizing various transactions that are in support of non-governmental organization (NGO) activities in these areas, including support of humanitarian projects and needs.

Relevant BIS Actions

To implement aspects of the export restrictions of the EO, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Final Rule effective March 11, 2022, amending the Export Administration Regulations (EAR) to restrict the export, reexport, or transfer (in-country) to or within Russia or Belarus of the following categories of “luxury goods”:

  1. tobacco and tobacco products;
  2. luxury watches;
  3. high-end luxury apparel and fashion items, cosmetics, perfumes and designer clothing;
  4. various decorative items, such as rugs, fine china and tableware, crystal, works of art, antiques and collectible items;
  5. jewelry with pearls, gems, precious and semi-precious stones or precious metals;
  6. electronic items such as televisions, video monitors, DVD players, personal digital assistants, music players and computer laptops;
  7. luxury transportation items, including yachts, automobiles, racing cars, snowmobiles, motorcycles;
  8. certain recreational items, such as musical instruments, recreational sports equipment; and
  9. alcoholic beverages including wine, beer, ales, and liquor.

The Final Rule provides a detailed listing of the Schedule B numbers and descriptions from the Bureau of the Census’s Schedule B concordance of exports 2022. Two new license requirements have been implemented to apply these restrictions: one that applies to “luxury goods” subject to the EAR that are destined for Russia or Belarus regardless of end use, and another that applies to such items “that are destined for Russian and Belarusian oligarchs and malign actors, regardless of their geographical location, who have been designated by OFAC under certain Russia- or Ukraine-related Executive orders.” BIS has stated that very few license exceptions will be available for these restrictions (and none will be available for persons designated by OFAC) and that when an export license is required, they will be subject to a “policy of denial.”

While effective as of March 11, 2022, BIS has stated that exports of items impacted by the rules that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on March 11, 2022, pursuant to actual orders for reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under any previous eligibility for a License Exception or reexport or transfer (in-country) without a license (NLR).

On March 11, 2022, President Biden called on Congress to pass legislation that will revoke normal trade relations (NTR) with Russia, and announced that the administration “will work closely with Congress to deny Russia the benefits of its WTO membership and ensure that Russian imports do not receive most favored nation treatment” in the U.S. economy. Several bills aimed at revoking NTR with Russia and/or Belarus have been introduced in Congress during the last two weeks. These include the No Most Favored Nation Trading with Russia Act, No Trading with Invaders Act, and another bipartisan bill suspending NTR with Russia and Belarus (text of the bill is not available).

NTR refers to nondiscriminatory treatment of imports from a country, consistent with the WTO rules. Currently, only two countries – Cuba and North Korea – do not have NTR status. Permanent NTR status was granted to Russia in 2012 following the passage of the Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012 (“Magnitsky Act”) and Russia’s accession to the WTO. In practice, revocation of NTR status for Russia and Belarus will mean that the imports from these countries will not benefit from non-discriminatory treatment, and be subject to the higher rates of duty under the Harmonized Tariff Schedule of the United States (HTSUS) set forth in column 2 of the HTSUS.

Key Notes:

  • OFAC implemented blocking and other sanctions against major Russian and Belarusian financial institutions.
  • OFAC implemented blocking and other sanctions against state-owned enterprises, prominent government officials and other persons or entities.
  • OFAC implemented blocking sanctions targeting involvement in the Nord Stream 2 pipeline.
  • OFAC implemented sanctions related to Russian government debt.
  • The United States extended its comprehensive sanctions of Crimea to the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.
  • This bulletin provides an overview of the current financial sanctions imposed against Russia and embargo of certain regions in Ukraine. Additional sanctions have been imposed through export controls and targeted sanctioning of the military industry in Russia. These measures are not covered in this bulletin.

Since the Russian invasion of Ukraine, the United States has imposed a variety of unprecedented sanctions and export controls against Russia and the two regions of Ukraine that Russia has recognized as the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR). Many of these sanctions have also been imposed on Belarus for its support of the invasion. The European Union, the United Kingdom and other nations have also engaged in a major effort to cut Russia off from global capital markets and limit its access to certain technologies. The sanctions have primarily targeted the financial, defense and intelligence sectors of Russia and Russian-backed regions of Ukraine. In this update, we provide an overview of the first tranche of these sanctions. A bulletin covering export controls and sanctions targeting Russia’s defense and oil and gas industries is forthcoming.

View this full client update in HTML or PDF format.

On March 1, 2022, the Office of the U.S. Trade Representative (USTR) released President Joe Biden’s 2022 Trade Agenda and 2021 Annual Report.  The trade agenda highlights President Biden’s continued focus on a “worker-centered trade policy” by “promoting a broader agenda of fair competition to ensure that workers are competing on the basis of skills and creativity” and to “establish new, high-standard commitments on labor rights under our current and new frameworks for trade.”  The agenda also summarizes USTR’s efforts to promote sustainable environmental practices in trade policy, to better enforce existing trade agreements, to create new opportunities for U.S. agriculture, to strengthen global supply chains, and to continue to combat the COVID-19 pandemic.

The annual agenda acknowledges that the U.S.-China trade relationship is “complex and competitive” and summarizes how the United States is realigning its trade policies to counter China’s unfair economic practices.  These efforts include raising concerns directly with China and working more closely with U.S. allies to address shared challenges.  The agenda specifically addresses China’s use of forced labor as an “extreme form of unfair competition” and states that the Biden administration “will continue holding China accountable for its use of state-sponsored forced labor and working with our trading partners to eradicate the use of forced labor throughout global supply chains. This includes continued implementation and enforcement of the Uyghur Forced Labor Prevention Act.”

The 2022 agenda and the 2021 report both discuss USTR’s efforts to increase engagement with partners, allies, multilateral institutions and organizations to repair “strained relationships” and recommit the United States to international trade organizations.  The report emphasizes the critical importance of bilateral trade agreement enforcement and the Biden administration’s actions so far to utilize trade policy as a tool to defend U.S. economic interests.  The report specifically references continued implementation and enforcement of the United States–Mexico–Canada Agreement (USMCA) and its rapid response mechanism (RRM) process as an enforcement tool. It further notes that the United States has engaged with Canada and Mexico on a number of other trade issues, including efforts to ensure that U.S. agricultural products receive fair treatment, that the regulatory environment is fair and transparent, and that U.S. goods receive fair treatment.  The report focuses on both the status of various trade agreements as well as a summary of recent trade enforcement activities.

The annual report also contains a lengthy section outlining the work of the World Trade Organization (WTO) in 2021, including the WTO Standing Committees and their subsidiary bodies, the WTO Negotiating Groups, the implementation and enforcement of the WTO Agreement, and accessions of new WTO members. The report specifically notes that the United States is “committed to the WTO” but supports much needed reform of the organization.

A fact sheet outlining key highlights of the report is available here.

 

On March 8, 2022, President Joseph Biden signed an Executive Order banning the import into the United States of Russian oil, liquefied natural gas, and coal. The Executive Order bans:

  • The importation into the United States of Russian-origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;
  • New investment in Russia’s energy sector by a U.S. person, wherever located; and,
  • Any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited if performed by a U.S. person or within the United States.

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued a related Russia General License (GL) 16, which authorizes until April 22, 2022 certain imports of these oil, LNG and coal products of Russian origin so long as such imports are pursuant to written contracts or written agreements entered prior to March 8, 2022. GL 16 does not authorize entry into new contracts. OFAC also issued several FAQs to aid in the wind-down of deliveries of existing purchases that have already been contracted for.

On March 3, 2022, the State Department announced that the United States was sanctioning certain Russian companies deemed to design, develop, and produce items that the Russian military is using to attack Ukraine. Specifically, the following 21 entities are being designated pursuant to E.O. 14024, because “they are persons who operate or have operated in the defense and related materiel sector of the Russian Federation economy”:

  • Izhevsk Unmanned Systems Research and Production Associated Limited Liability Company is a Russian defense company that makes unmanned aerial vehicles (UAVs) for Russia’s military. Russian-backed forces involved in the destabilization of Ukraine have used these UAVs in their military operations.
  • JSC Research and Production Association Kvant is a Russian defense company that produces electronic warfare systems whose electronic warfare systems have been used by Russian-backed forces involved in the destabilization of Ukraine.
  • Kurganmashzavod is a Russian defense company that develops and produces infantry fighting vehicles. Kurganmashzavod infantry fighting vehicles have been used by Russian-backed forces involved in the destabilization of Ukraine.
  • Joint Stock Company Research and Production Corporation Konstruktorskoye Byuro Mashynostroyeniya is a Russian defense company that develops missiles, air-defense systems, anti-tank weapons, and other military equipment for the Russian military.
  • Joint Stock Company Federal Scientific and Production Center Titan Barrikady is a Russian defense entity that produces missiles for the Russian military.
  • Komsomolsk-on-amur Aviation Plant is a Russian defense entity that produces fighter aircraft for Russia’s military.
  • Makeyev State Missile Center is a Russian defense entity that produces missiles for Russia’s military.
  • JSC Central Research Institute of Automation and Hydraulics is a Russian defense entity that develops and produces missiles for Russia’s military.
  • UEC-Saturn is a Russian defense entity that produces engines for Russia’s military, including for military aviation and frigates.
  • Design Bureau of Special Machine Building is a Russian defense entity that develops military equipment for Russia’s military, including missile and missile-defense systems.
  • Joint Stock Company Salavat Chemical Plant manufactures products for the enterprises of the Russian Ministry of Defense and has described itself as a leading chemical enterprise of Russia’s defense industrial complex.
  • Joint Stock Company Avangard is a Russian defense industry organization that has been involved in the production of Russian armored vehicles for Russia’s defense sector and the development of Russian missiles.
  • Radioavtomatika is an entity that specializes in procuring foreign items for Russia’s defense industry.
  • JSC Novosibirsk Aircraft Production Association Plant Named After V.P. Chkalov is a Russian defense entity that produces military unmanned aerial vehicles and bomber aircraft for the Russian military.
  • Irkutsk Aviation Plant is a Russian defense entity that produces fighter aircraft for the Russian military.
  • ODK-UMPO Engine Building Enterprise is a Russian defense entity that produces engines for fighter aircraft for the Russian military.
  • Nizhny Novgorod Aviation Plant Sokol is a Russian defense entity that develops fighter aircraft for the Russian military.
  • All-Russian Scientific Research Institute of Aviation Materials is a Russian defense entity that provides specialized materials for Russian military weapons systems, including attack helicopters and missiles.
  • Aviastar-SP Aircraft Manufacturing Enterprise is a Russian defense entity that manufacturers military aircraft for Russia’s military.
  • Public Joint-Stock Company ODK-Kuznetsov is a Russian defense entity that manufacturers engines for bomber aircraft for the Russian military.
  • Joint Stock Company ODK-Klimov is a Russian defense entity that produces engines for attack helicopters for the Russian military.

In addition, the State Department is designating The Planar Company, which provides high-technology solutions for Russian industrial enterprises specializing in additive technologies and 3-D printing. According to the State Department, it specializes in procuring foreign technology for Russia’s military programs, including Russia’s military space programs, and its primary customer is the Izhevsk Radio Plant, which develops items and technologies for Russia’s military.

As a result of the State Department’s determinations on these Russian companies the Department of the Treasury’s Office of Foreign Assets Control (OFAC) will add these entities to the Specially Designated Nationals (SDN) List. Further identifying information on these entities is available here. All property and interests in property of the individuals and entities 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 otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt.

On March 4, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) announced further sanctions to target Russia’s strategic oil/gas and military/defense sectors. BIS stated that the actions are intended to further restrict access to U.S. commodities, software, and technology in order to limit Russia’s “ability to raise revenue from the sale of refined products, including gasoline,” and to enhance “ongoing efforts to degrade Russia’s ability to acquire the items it needs to sustain its military aggression.”

Tightening Export Restrictions on Russian Deep-water Oil and Gas Exploration

The first Final Rule builds on existing restrictions BIS put in place on the Russian deep-water oil and gas exploration and extraction industries in 2014 (e.g., after Russia’s illegal annexation of the Crimea region of Ukraine) by imposing a policy of denial on such items and applying similarly stringent restrictions on a wide variety of items necessary for refining oil. These new export restrictions expand the scope of the Russian industry sector sanctions by adding a new general prohibition that will apply to additional Harmonized Tariff Schedule (HTS)-6 codes and Schedule B numbers for all exports, reexports, and transfers (in-country) to or within Russia. BIS has revised and updated Supplement No. 4 to Part 746 of the Export Administration Regulations (EAR) to incorporate these additional HTS codes and Schedule B numbers for items necessary needed for oil refining. These new restrictions will apply a more restrictive “policy of denial” during any export license review process.

Additions to the Entity List

BIS has also issued a Final Rule adding 91 entities to the Entity List under the destinations of Belize, Estonia, Kazakhstan, Latvia, Malta, Russia, Singapore, Slovakia, Spain and United Kingdom. These entities have been determined by the U.S. government to be acting contrary to the foreign policy or national security interests of the United States by assisting the Russian military.

Both Final Rules became effective on March 3, 2022. BIS, however, has stated that exports of items impacted by the rules that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on March 26, 2022, pursuant to actual orders for reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under any previous eligibility for a License Exception or reexport or transfer (in-country) without a license (NLR).