On February 15, 2022, the Office of the U.S. Trade Representative (USTR) released its annual 2021 Report To Congress on China’s WTO Compliance. Upon the release of the report, USTR Katherine Tai said:  “China has not moved to embrace the market-oriented principles on which the WTO and its rules are based … [but] has instead retained and expanded its state-led, non-market approach to the economy and trade. It is clear that in pursuing that approach, China’s policies and practices challenge the premise of the WTO’s rules and cause serious harm to workers and businesses around the world, particularly in industries targeted by China’s industrial plans.”

After 20 years of WTO membership, the report notes, “China still embraces a state-led, non-market approach to the economy and trade, despite other WTO members’ expectations – and China’s own representations – that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO.”   According to the report, China has continued its poor record of WTO compliance and observing the fundamental principles upon which WTO agreements are based – non-discrimination, openness, reciprocity, fairness and transparency.  The report states, “Too often, China flouts the rules to achieve industrial policy objectives. In addition, and of more serious concern to the United States and other WTO members, China has not made sufficient progress in transitioning toward a market economy.”

A section of the report focuses on the effectiveness of the various strategies that have been pursued over the years to address the unique problems China poses and concludes that, despite both bilateral dialogues and WTO enforcement measures, “[o]ver time, … commitments from China became more difficult to secure.”  Even when China did change specific practices, the report notes that underlying policies did not change and meaningful reforms were elusive, and since China is the largest trader among WTO members, “the harm caused by these problems is significantly magnified.”  As a result, the USTR indicates there is a  “critical need for new and more effective strategies – including taking actions outside the WTO where necessary” – to address problems with China.  Accordingly, the report states that the United States is “pursuing a multi-faceted strategic approach that accounts for the current realities in the U.S.-China trade relationship and the many challenges that China poses for the United States and other trading partners, both now and likely in the future.”

The final section of the report details certain problematic Chinese policies and practices, such as non-tariff measures, state-owned and state-invested enterprises, intellectual property rights and infringement, industrial subsidies, excess capacity, agriculture domestic support, food safety laws, services sector issues (such as banking, telecommunications and insurance), and concerns over China’s transparency obligations under the WTO.

In raising these concerns and discussing China’s poor WTO compliance, the USTR nevertheless acknowledges that “we cannot build a wall between the United States and China and assume that it will address the problems posed by China. That would ignore China’s importance to, and integration in, the world economy and would only change the mode of its impact on the United States, but not the ultimate result. We therefore must work to strengthen our economy, our supply chains, our infrastructure, our workers, our farmers and our businesses and to lay a solid foundation for us to continue to innovate and maintain our technological edge.”

To compare recent past USTR annual reports, please see the Updates of January 19, 2021,  March 10, 2020 and February 6, 2019.

 

On February 14, 2022, the Department of State’s Directorate of Defense Trade Controls (DDTC) released Revision 5.0 of its Guidelines for Preparing Agreements. Under the International Traffic in Arms Regulations (ITAR), an “agreement” approved by the Office of Defense Trade Controls Licensing (DTCL) is required for the provision of a defense service, transfer of manufacturing know-how or production rights, or establishment of a distribution point abroad. There are three types of agreements: Technical Assistance Agreements (TAAs), Manufacturing License Agreements (MLAs) and Warehouse and Distribution Agreements (WDAs). Activities that frequently require an agreement are:

  • Supporting Direct Commercial Sales to Foreign Parties
  • Providing Overseas Maintenance or Training Support
  • Technical Studies, Evaluations, Demonstrations or Consultations with Foreign Parties
  • Release of Manufacturing Data or Rights
  • Efforts to Import Technology from Abroad
  • Supporting a Foreign Military Sales Case (Beyond scope of LOA)
  • Supporting U.S. Government-Sponsored Foreign Contracts

For this 2022 update (Revision 5.0), DDTC notes that while “the majority of the text remains unchanged,” the revisions restructure the Guidelines in a more logical and orderly fashion, and that duplicative guidance has been removed or consolidated.

On February 16, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published in the Federal Register a final rule adding formal regulations to implement previously announced sanctions regarding Chinese Military-Industrial Complex companies. These formal regulations are the result of a November 12, 2020, Executive Order (EO) 13959 issued by former President Donald Trump which banned U.S. persons from transacting in publicly traded securities or derivatives or similar securities of any Chinese companies designated by the U.S. government as enabling Chinese military aims. See Update of November 24, 2020. On June 3, 2021, President Joseph Biden issued EO 14032 amending (and in part superseding) the November 2020 EO and expanding the restrictions on investments in Chinese defense and surveillance technology firms.

Currently effective EO 14032 prohibited, as of August 2, 2021, U.S. persons from engaging in the purchase or sale of any publicly traded securities of any persons listed in the Annex of the EO or the NS-CMIC List, or any persons added in the future. However, under the EO, there is essentially a “wind-down” period allowing divestment from holdings in NS-CMIC entities listed in the EO before 12:01 a.m. EDT on June 3, 2022. The EO also granted U.S. persons a one-year divestment period for securities of all Chinese entities added to the NS-CMIC list in the future. See Update of June 9, 2021.

OFAC has issued the Chinese Military-Industrial Complex Sanctions Regulations, 31 C.F.R. part 586, to implement EO 13959, as amended by EO 14032. OFAC notes that these regulations are being published in abbreviated form at this time for the purpose of providing guidance to the public and that a more comprehensive set of regulations will supplement part 586 in the future, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions.

The Executive Office of the President, via the National Science and Technology Council, has released an updated list of advanced technologies that are potentially significant to U.S. national security. This list updates and revises the initial critical technologies list identified in the October 2020 report, “National Strategy for Critical and Emerging Technologies.” See Update of October 19, 2020. For the purposes of the national strategy, critical and emerging technologies (CET) are defined as “those technologies that have been identified and assessed by the National Security Council (NSC) to be critical, or to potentially become critical, to the United States’ national security advantage, including military, intelligence, and economic advantages.”

The report identifies the following CET areas:

  • Advanced Computing
  • Advanced Engineering Materials
  • Advanced Gas Turbine Engine Technologies
  • Advanced Manufacturing
  • Advanced and Networked Sensing and Signature Management
  • Advanced Nuclear Energy Technologies
  • Artificial Intelligence
  • Autonomous Systems and Robotics
  • Biotechnologies
  • Communication and Networking Technologies
  • Directed Energy
  • Financial Technologies
  • Human-Machine Interfaces
  • Hypersonics
  • Networked Sensors and Sensing
  • Quantum Information Technologies
  • Renewable Energy Generation and Storage
  • Semiconductors and Microelectronics
  • Space Technologies and Systems

Perhaps most importantly for industry review and consideration is that this 2022 updated list expands on the original CET list by identifying subfields under each sector that describe the intended scope in more detail and, where possible, focuses on core technologies rather than on technology application areas or performance characteristics.

This list may be used by the U.S. government for the development of multilateral and unilateral export controls as well as to identify sensitive foreign direct investment. The direct regulatory impact, however, is still to be established.

Key Notes:

  • Several federal agencies recently released a business advisory emphasizing the heightened risk of doing business in Burma.
  • Four key areas of risk were identified: (1) state-owned enterprises (SOEs); (2) gems and precious metals; (3) real estate and construction projects; and (4) arms, military equipment, and related activities.
  • U.S. businesses with supply chains tied to the Burmese military regime, other SOEs, or key Burmese sectors should be wary of reputational, financial, and legal risks, including violations of U.S. sanctions.
  • U.S. anti-money-laundering and forced labor laws present other significant legal risks of doing business with or having supply chains connected to the Burmese individuals/entities.

On January 26, several U.S. agencies published a Burma Business Advisory focused on heightened risk associated with doing business in the country. The business advisory follows Executive Order 14014 (February 11, 2021) authorizing blocking sanctions against certain entities and individuals involved in the military coup that took place on February 1, 2021, and OFAC’s subsequent designations of various Burmese entities and individuals in the Specially Designated Nationals and Blocked Persons list.

View this full client update in HTML or PDF format.

Effective February 11, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) will remove the from the Code of Federal Regulations (C.F.R.) the Burundi Sanctions Regulations at 31 C.F.R. Chapter 31, Part 554.  This removal results from an earlier action by President Joseph Biden in issuing Executive Order 14054 which terminated the national emergency on which the regulations were based.  In that Executive Order, President Biden stated that “the situation in Burundi had been significantly altered by events of the past year, including the transfer of power following elections in 2020, significantly decreased violence, and President Ndayishimiye’s pursuit of reforms across multiple sectors.”

On February 10, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) published in the Federal Register a Request for Public Comments seeking comments on the Section 232 product exclusion process, including the responsiveness of the process to market demand and enhanced consultation with U.S. firms and labor organizations.  The request for comments notes that the current average processing time for product exclusion requests that do not receive objections is 43 days and that the current average processing time for exclusion requests that receive objections is 98 days.  BIS seeks comments on potential changes to the Section 232 forms and required information; the request, objection, rebuttal and surrebuttal process; the standards of review; criteria for general approved exclusions (GAEs); and the overall transparency of the process.  Specific topics of interest include:

  • How to reduce the volume of submission errors and rejected filings in the Section 232 exclusions portal;
  • How to address the time for processing exclusion requests, including but not limited to reducing the length or type of attachments;
  • Requiring public summaries of any confidential business information in exclusion requests and objections, similar to the existing requirement for rebuttal and surrebuttals;
  • Requiring public disclosure of delivery times on the exclusion request and objection forms;
  • Requiring recent (i.e., from the last quarter or 90 days) evidence supporting claims made in a request or an objection;
  • Streamlining the online forms or otherwise reducing administrative burden; and
  • Assessing the GAEs’ criteria and identification of specific products.

This request for comments is pursuant to President Joseph Biden’s Proclamation 10328 on December 27, 2021, which adjusted the imports of steel and aluminum into the United States based on the agreement reached with the European Union.  See Update of December 29, 2022.

Interested parties must submit any comments no later than March 28, 2022 via the Federal eRulemaking Portal at https://www.regulations.gov on docket number BIS–2021–0042.  Within 60 days of the close of the comment period, BIS will issue a proposed regulation revising the product exclusion process as needed based upon the consideration of such comments.

On February 7, 2022, the United States and Japan announced an agreement to allow “historically-based sustainable volumes of Japanese steel products to enter the U.S. market without the application of Section 232 tariffs.” Under the agreement, the United States will implement a tariff-rate quota (TRQ) on steel imports from Japan, effective April 1, 2022. Under the TRQ, the aggregate annual import volume is set at 1.25 MMT under 54 product categories (set forth in an annex to the Agreement) and allocated in line with the 2018-2019 historical period. In order to be eligible for duty-free treatment under the TRQ, steel imports must be “melted and poured” in Japan; the agreement also allows that imports of derivative articles of steel from Japan will not be subject to Section 232 duties.

Steel products from Japan within the quota import limits will enter the United States free of any Section 232 duties, while all impacted steel products entering the United States above the quota limits will continue to be subject to the Section 232 25% duty rate. The Department of Commerce will continue the exclusion process for steel products imported from Japan. Beginning in July 2022, the United States will evaluate the utilization and administration of the TRQ  on a quarterly basis and will conduct an annual review to calculate the level of U.S. steel demand to either increase or decrease the TRQ volume.

In addition to the TRQ agreement, the United States and Japan released a Joint Statement noting that the countries will:

  • Cooperate on trade remedy and customs matters by sharing public information and best practices on topics including how detection of fraud/evasion and circumvention of duties is approached and possible self-initiation of such investigations.
  • Monitor steel and aluminum trade between the countries.
  • Cooperate on non-market excess capacity in which Japan will implement appropriate domestic measures, such as antidumping, countervailing duty and safeguard measures or other measures of at least equivalent effect. Japan will confer with the United States on such potential domestic measures to address non-market excess capacity and on the current state of global steel and aluminum markets, including market trends and price differences between markets, domestic industry conditions, and analysis of import and export data.
  • Annually review this arrangement and ongoing cooperation, including any changes in the global steel and aluminum markets, U.S. demand and imports.

In a brief press statement, U.S. Trade Representative Katherine Tai stated, “This agreement, combined with last year’s resolution with the European Union, will help us work together with Japan to combat China’s anti-competitive, non-market trade actions in the steel sector, while helping us reach President Biden’s ambitious global climate agenda.”

Effective February 8, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) has added 33 Chinese companies to its Unverified Listed. The Unverified List contains the names and addresses of foreign persons who are or have been parties to a transaction involving the export, reexport, or transfer (in-country) of items subject to the Export Administration Regulations (EAR), and whose bona fides could not be verified (i.e., BIS could not verify the legitimate end use and end user of items subject to the EAR).

The use of license exceptions is suspended for transactions involving companies that are on the Unverified List. Additionally, exporters, reexporters, and transferors must obtain a UVL statement from a party or parties to the transaction who are listed on the UVL before proceeding with exports, reexports, and transfers (in-country) to such persons.

The full list of Chinese companies – appearing mostly to be optical, electronic and other technology companies – is available for review here.

On February 2, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued new Frequently Asked Questions (FAQs) “designed to provide clarity” and further facilitate humanitarian aid and commercial activity in Afghanistan. These FAQs supplement and support the December 2021 Fact Sheet, Provision of Humanitarian Assistance to Afghanistan and Support for the Afghan People, issued by OFAC to “ensure that humanitarian assistance and other support to the Afghan people … can continue to flow directly to Afghanistan through legitimate and transparent channels.” The Fact Sheet notes that OFAC has issued six General Licenses to date authorizing certain transactions and activities that are “ordinarily incident and necessary to allow for the continued flow of humanitarian assistance and other activities to support the people of Afghanistan.” It further notes that although the Taliban and the Haqqani Network are designated as Specially Designated Global Terrorists (SDGTs), there are currently no broad OFAC sanctions that prohibit the export or reexport of goods or services to Afghanistan, moving or sending money into and out of Afghanistan, or activities in Afghanistan, provided that such transactions or activities do not involve sanctioned individuals, entities, or property in which sanctioned individuals and entities have an interest.

The additional FAQs released on February 2 are intended to provide additional clarity to help nongovernmental organizations (NGOs) efforts to deliver their services and for financial institutions to process those legitimate transactions. The seven new Frequently Asked Questions are available at the below links: