On December 28, 2021, Presidential Proclamation 10326 directing the modification of the Harmonized Tariff Schedule of the United States (HTSUS) was published in the Federal Register, triggering the 30-day implementation process.  As previously reported — see Update of November 23, 2021 — the recommended HTSUS modifications will primarily update the HTSUS to conform to amendments adopted by the World Customs Organization (WCO) in its recommendation of June 28, 2019.  The modifications will affect approximately 350 products and product groups that are classified in various chapters and will also  make conforming changes to the HTSUS nomenclature, including modifications of article descriptions and heading/subheading numbers.  Some modifications will modify section notes, chapter notes, additional U.S. notes and the general notes to the HTSUS.  Others will replace existing HTSUS headings and subheadings.  With publication of the proclamation in the Federal Register, these modifications will become effective on January 27, 2022.

In coordination with publication of the proclamation, the U.S. International Trade Commission (USITC) also published its final report on these HTSUS modifications.  The report, “Modifications to the Harmonized Tariff Schedule of the United States under Section 1206 of the Omnibus Trade and Competitiveness Act of 1988 and for Other Purposes”, Publication No.: 5240, provides details on all of the HTSUS modifications and should be carefully reviewed by importers.

The proclamation also directs HTSUS changes to allow for the: (i) continuation of duty-free access through December 31, 2022 for certain agricultural products of Israel; (ii) continuation of duty treatment as to actions taken pursuant to section 301 of the Trade Act of 1974; (iii) correction of  certain technical errors to provide for the intended tariff treatment accorded to certain goods from Colombia and Singapore;  and (iv) continuation of staged duty reductions for goods under free trade agreements with the Dominican Republic-Central America, Peru, South Korea, Columbia, Panama, Canada and Mexico.

Notably, but as expected, the proclamation removes, effective January 1, 2022, Ethiopia, Guinea, and Mali as beneficiary sub-Saharan African countries under the African Growth and Opportunity Act (AGOA). The Biden administration had previously notified Congress that it would be terminating these designations as these countries are no longer eligible for these reasons:  (i) Ethiopia – for gross violations of internationally-recognized human rights; (ii) Guinea – for not having established, or not making continual progress toward establishing, the protection of the rule of law and of political pluralism; and (iii) Mali – for not having established, or not making continual progress toward establishing, the protection of the rule of law, political pluralism and internationally-recognized worker rights and for not addressing gross violations of internationally-recognized human rights.  See Letter to Congress dated November 2, 2021.

 

On December 28, 2021, President Joseph Biden issued two proclamations – Adjusting Imports of Steel into the United States and Adjusting Imports of Aluminum into the United States.  In each proclamation, the president acknowledged that:

“the United States has successfully concluded discussions with the EU [European Union] on behalf of its member countries on satisfactory alternative means to address the threatened impairment of the national security posed by [steel and aluminum] articles imports from the EU.  The United States and the EU have agreed to expand coordination involving trade remedies and customs matters, monitor bilateral steel and aluminum trade, cooperate on addressing non-market excess capacity, and annually review their arrangement for alternative means and their ongoing cooperation.”

The proclamations also state that the United States and the EU will continue negotiations on global steel and aluminum arrangements “to restore market-oriented conditions and support the reduction of carbon intensity of steel and aluminum across modes of production.”  These negotiations should conclude by October 31, 2023.  For additional details on the U.S.-EU agreement on the removal of Section 232 duties on steel and aluminum imports, see Update of November 1, 2021.

Notably, the proclamations formalize the implementation of a tariff-rate quota (TRQ) that will restrict the quantity of steel and aluminum articles imported into the United States from the EU without the application of the Section 232 tariffs imposed previously by the Trump administration.  The proclamations also clarify that steel articles melted and poured in the EU are eligible for in-quota treatment and that aluminum articles accompanied by a certificate of analysis are eligible for in-quota treatment.

The TRQs on steel and aluminum imports from the EU will remain in place through December 23, 2023, and the United States will monitor the implementation and effectiveness of the TRQs.  The approved aggregate TRQ volume for steel articles is 3.3 million metric tons annually; the approved aggregate TRQ volume for aluminum articles is 18,000 metric tons of unwrought aluminum and 366,040 metric tons of semi-finished wrought aluminum.  Imports of steel and aluminum articles from member countries of the EU in excess of the TRQ quantities will remain subject to the Section 232 duties.  The TRQ process will also apply to imports of derivative steel and aluminum articles previously identified under Proclamation 9980.

The proclamations also state that the United States has agreed to renew for two calendar years all exclusions that were granted and utilized to import steel products tariff-free from the EU in FY2021 (October 1, 2020 through September 30, 2021).  The renewed exclusions will be for “an annual volume equal to that volume imported from a member country of the EU pursuant to the exclusion in Fiscal Year 2021.”  This allowable renewal does not preclude an importer from seeking additional exclusions under the Section 232 product exclusion process.  Also, while steel articles from a member country of the EU imported under a product exclusion do not count against the TRQ under the agreement in place between the United States and the EU for steel articles, the aluminum proclamation clearly states that aluminum articles from a member country of the EU imported under a product exclusion will count against the in-quota volume of the aluminum TRQ.

The Cargo Systems Messaging Service (CSMS) of U.S. Customs and Border Protection (CBP), CSMS #50533999, currently states that only EU steel and aluminum products subject to TRQs on January 1, 2022 will enter the U.S. market without the application of Section 232 tariffs.  CSMS #50533999 refers users to the two proclamations for further details.  The proclamation pertaining to adjusting steel imports does note that “[o]n a regular basis, the Department of Commerce shall publish on its website the volume of steel articles imported” under exclusions and the TRQ.  While the proclamation pertaining to aluminum imports is silent on tracking the volume of aluminum imports, it is hoped that the Department of Commerce will also publish this data.

The proclamations direct the Department of Commerce to issue a notice in the Federal Register no later than February 10, 2022, seeking comments from interested parties on the Section 232 steel and aluminum exclusion processes.  Issues for comment include the responsiveness of the exclusion process to market demand and enhanced consultation with U.S. firms and labor organizations.  Within 60 days after the close of the comment period of this notice, the Department of Commerce must issue a proposed regulation revising the exclusion process as deemed appropriate following consideration of such comments.  A Thompson Hine SmarTrade post will be published upon the issuance of this Federal Register notice.

On January 1, 2022, the Food and Drug Administration (FDA) will open the Voluntary Qualified Importer Program (VQIP) for FY 2023. Participants in the fee-based program receive expedited review of animal and human foods entering the United States. Specifically, an import screening tool will be used to recognize and typically immediately release shipments that are part of the program. The FDA will expedite import entry into the United States of all foods included in an approved VQIP application and will limit in most situations examination and/or sampling of VQUIP food entries.

Importers interested in applying should start an application by setting up an account through the FDA Industry Systems website. Once an account has been created, selecting “VQIP” under the Food Safety Modernization Act (FSMA) programs options will bring users to the VQIP application page and an option to submit a Notice of Intent to Participate. Importers interested in applying should also review the VQIP Portal User Guide. A list of approved VQIP Importers for FY 2022 is posted to FDA’s website and is available here.

Food importers must meet certain eligibility requirements and pay a user fee to participate in the program.

On December 21, 2021, the Office of the U.S. Trade Representative (USTR) released its annual report submitted to Congress assessing Russia’s implementation and enforcement of its World Trade Organization (WTO) commitments. In keeping with the tone of past annual USTR reports on this topic, Ambassador Katherine Tai, the USTR, stated that the 2021 report “provides an overview of Russia’s continued departure from the guiding principles of the World Trade Organization, such as non-discriminatory practices, more open trade, predictability, transparency, and fair competition.”  The report notes that Russia “maintains restrictive at-the-border measures, institutes behind-the-border measures to inhibit trade, and implements an industrial policy seemingly driven by the guiding principles of import substitution and forced localization.”

The 2021 report notes that Russia in the past year had extended its control over the Russian economy and tightened restrictions on trade.  The report highlights the following :

  • Russia maintains tariffs ranging from 25 to 40 percent on various industrial products imported from the United States in retaliation against U.S. tariffs imposed on steel and aluminum articles from Russia under Section 232 of the Trade Expansion Act of 1962.
  • Russia continues to maintain a near-complete ban on imports of agricultural goods from the United States and other WTO members.
  • Russia maintains outmoded import licensing requirements and a mandatory labeling regime.
  • Russia maintains non-science-based import restrictions and refuses to recognize other countries’ guarantees on exporting facilities.
  • Russia continues to adopt and implement localization measures to provide preferential treatment to both domestically-produced goods and services.
  • Russian continues to lack transparency in its trade regime and policies by, for example, refusing to notify the WTO of any state trading enterprises and refusing to answer questions about its import substitution policies.
  • Russia’s enforcement of intellectual property rights remains weak and the pirating of websites and movies and other online pirating activities there continue to proliferate.

The report states that the WTO is “premised on the belief that an open and fair multilateral trading system is built and sustained on transparency, predictability and the rule of law” but that “Russia appears to be taking a divergent path, erecting barriers and stifling competition.”

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

On December 16, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced it was placing another eight Chinese technology firms on its Non-SDN Chinese Military-Industrial Complex Companies List (CMIC List). This action was taken pursuant to Executive Order 13959 (as amended by Executive Order 14032), which prohibits U.S. persons from conducting any transaction in publicly traded securities, or securities that are derivative of, or are designed to provide investment exposure to such securities of any companies placed on the CMIC List. According to OFAC, the eight companies being added to the list “actively support the biometric surveillance and tracking of ethnic and religious minorities in China, particularly the predominantly Muslim Uyghur minority in Xinjiang.” The Chinese companies are:

  • Cloudwalk Technology Co., Ltd.
  • Dawning Information Industry Co., Ltd.
  • Leon Technology Company Limited
  • Megvii Technology Limited
  • Netposa Technologies Limited
  • SZ DJI Technology Co., Ltd.
  • Xiamen Meiya Pico Information Co., Ltd.
  • Yitu Limited

Additional details on each of these companies are available here. As a result of these listings, U.S. persons will be prohibited from purchasing or selling certain publicly traded securities connected with these entities, and U.S. persons or companies holding securities in these companies must divest themselves from holdings in the CMIC listed companies no later than December 15, 2022. For additional information and details on the underlying Executive Order “Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China,” see Update dated June 9, 2021.

Note that these eight companies were already on the Department of Commerce’s Bureau of Industry and Security (BIS) Entity List. Placement on the Entity List means that all exports, re-exports, or transfers of items subject to U.S. Export Administration Regulations (EAR) require a license from BIS, regardless of whether a U.S. person is involved in the transaction or whether the transaction involves the U.S. financial system.

On December 9, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that it was amending the Export Administration Regulations (EAR) to apply more restrictive treatment to exports and reexports to, and transfers within, Cambodia of items subject to the EAR.  BIS stated that it is taking this action “to address recent actions by the Government of Cambodia that are contrary to the national security and foreign policy interests of the United States, “ which include increasing Chinese military influence in the country as well as growing corruption and human rights abuses.

In the final rule published by BIS, the Country Group designation for Cambodia has been modified to reflect the country’s identification by the State Department as subject to a United States arms embargo with a designation under Country Group D:5.  Cambodia has also been added to the list of countries subject to military end use and end user controls and restrictions (i.e., MEU List), and to the list of countries subject to military intelligence end use and end user (i.e., MIEU) controls and restrictions.  Going forward, all license applications for export to Cambodia will be reviewed to determine the risk of diversion to a military end user or military end use.  In such a review, BIS has stated that there will be a “general policy of approval for license applications to export, reexport, or transfer items determined to be for civil end users for civil end uses;” however, there will be a “presumption of denial” for license applications involving transactions that “would make a material contribution to the development, production, maintenance, repair, or operation of weapons systems, subsystems, and assemblies.”

Also effective December 9, 2021, the Department of State’s Directorate of Defense Trade Controls (DDTC) amended the International Traffic in Arms Regulations (ITAR) to add Cambodia to its list of proscribed countries. As a result, it is now the policy of the United States to deny licenses and other approvals for exports and imports of defense articles and defense services destined for or originating from Cambodia. The Federal Register notice states that this action is being taken in response to “significant credible evidence of corruption, human rights abuses, and an exclusive agreement with the People’s Republic of China (PRC) on military expansion in Cambodia by the Cambodian government.”

On December 15, 2021, President Joseph Biden signed “Executive Order on Imposing Sanctions on Foreign Persons Involved in the Global Illicit Drug Trade,” an order finding that “the trafficking into the United States of illicit drugs, including fentanyl and other synthetic opioids, is causing the deaths of tens of thousands of Americans annually, as well as countless more non-fatal overdoses with their own tragic human toll.” Noting that drug cartels, transnational criminal organizations, and their facilitators “are the primary sources of illicit drugs and precursor chemicals that fuel the current opioid epidemic, as well as drug-related violence that harms our communities,” the president declared a national emergency to deal with the threat. The executive order authorizes the Department of the Treasury to target any foreign person engaged in drug trafficking activities, and to sanction foreign persons who knowingly receive property that constitutes, or is derived from, proceeds of illicit drug trafficking activities.

Immediately following issuance of the executive order, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 25 actors (10 individuals and 15 entities) in four countries determined to be involved in the global illicit drug trade for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production. According to OFAC, these designations target individuals and drug trafficking organizations located in Brazil, China, Colombia and Mexico and are “individuals who traffic fentanyl, and its precursor chemicals, methamphetamine, cocaine, and heroin, as well as organizations that pose the greatest drug threat to the United States.” As a result of these sanctions, all property and interests in property of the designated persons 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 percent or more by one or more designated persons are also blocked. Unless authorized by a license or exemption issued by OFAC, 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.

In addition to designating persons and entities engaged in illicit drug trade and blocking property, the executive order also authorizes the Treasury Department to select one or more other sanctions, including:

  • prohibit any transfers of credit or payments between financial institutions, or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of the sanctioned person;
  • prohibit any U.S. financial institution from making loans or providing credit to the sanctioned person;
  • prohibit any transactions in foreign exchange that are subject to the jurisdiction of the United States and in which the sanctioned person has any interest;
  • prohibit any U.S. person from investing in or purchasing significant amounts of equity or debt instruments of the sanctioned person; or
  • impose on the principal executive officer or officers of the sanctioned person, or on persons performing similar functions and with similar authorities as such officer or officers, any of these sanctions.

In addition, under the executive order, the Department of State has announced the formal establishment of the U.S. Council on Transnational Organized Crime (USCTOC) to combat transnational organized crime more effectively. The State Department has also suspended the visas for the individuals designated by OFCA, thus prohibiting them from entering the United States.

On December 10, 2021, the United States joined Australia, Denmark and Norway in announcing the Export Controls and Human Rights Initiative in recognition that “advanced technologies are a vital part of global economic growth and communication, helping people become more interconnected, share knowledge, and advance freedom, democracy, and opportunity” while also acknowledging that authoritarian governments are using such technologies “in connection with serious human rights abuses, both within their countries and across international borders.” In the joint statement announcing the initiative, these countries stated that “legitimate trade in these technologies, and responsible use, is essential for the well-being of our future generations.” The countries announced that over the next year they would commit to working to establish a voluntary, nonbinding written code of conduct “around which like-minded states could politically pledge, to use export control tools to prevent the proliferation of software and other technologies used to enable serious human rights abuses.”

The Export Controls and Human Rights Initiative will seek to address export controls and human rights by:

  • Developing a voluntary written code of conduct intended to guide the application of human rights criteria to export licensing policy and practice.
  • Building policy alignment with likeminded partners that leads to common action, and concrete and practical outcomes.
  • Bringing together policy makers, technical experts, and export control and human rights practitioners to ensure that critical and emerging technologies work for, and not against, democratic societies.
  • Exploring how best to strengthen domestic legal frameworks; share information on threats and risks; share, develop and implement best practices; and improve others’ capacity to do the same.

A Fact Sheet on the initiative is available here. While not signing the joint statement, Canada, France, the Netherlands and the United Kingdom did express support for the Initiative.

On December 10, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned 15 individuals and 10 entities in several countries for their connection to human rights abuse and repression. In addition, OFAC imposed investment restrictions on one Chinese company in connection with the surveillance technology sector

In China, OFAC has placed on the Specially Designated Nationals (SDN) List: (i) Shohrat Zakir, who served as the Chairman of the Xinjiang Uyghur Autonomous Region of China (XUAR) from at least 2018 until 2021; and (ii) Erken Tuniyaz, who currently serves as the acting Chairman of the XUAR. OFAC states that during their tenures, “more than one million Uyghurs and members of other predominantly Muslim ethnic minority groups have been detained in Xinjiang. The Department of State has also placed visa restrictions on these two individuals.”

OFAC also identified Chinese company SenseTime Group Limited (SenseTime), as a Non-SDN Chinese Military-Industrial Complex Company (CMIC). According to OFAC, this company owns or controls, directly or indirectly, Shenzhen Sensetime Technology Co. Ltd., “which has developed facial recognition programs that can determine a target’s ethnicity, with a particular focus on identifying ethnic Uyghurs. When applying for patent applications, Shenzhen SenseTime Technology Co. Ltd. has highlighted its ability to identify Uyghurs wearing beards, sunglasses, and masks.”

OFAC has also sanctioned the Rapid Action Battalion (RAB) in Bangladesh and certain of its officers who OFAC indicated are responsible for more than 600 disappearances since 2009, nearly 600 extrajudicial killings since 2018, and torture. In addition, several North Korean-related entities and individuals have been placed on the SDN List for generating revenue in foreign countries that could have been used to support North Korea’s weapons of mass production programs. And, finally, OFAC has designated several state agencies and their officers in Burma (Myanmar) for the military regime’s ongoing attacks on democracy and brutal repression.

The full list of these SDN List designations is available here. All property and interests in property of the SDNs 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 percent or more by one or more blocked persons are also blocked. Unless authorized by a license or exemption, all transactions by U.S. persons or within the United States that involve blocked persons or their property are prohibited.

The CMIC identification of SenseTime Group Limited prohibits the purchase or sale by U.S. persons of any publicly traded securities of such CMIC entity, or any derivative of such securities. For additional background on CMIC listings, see Update of June 9, 2021.

On December 9, 2021, the Office of Foreign Assets Control (OFAC) announced sanctions on two individuals for corruption involving procurement during the pandemic. The Department of the Treasury stated that “Corruption involving procurement of life-saving medical supplies represents a profound betrayal of public trust and a waste of critically needed resources.” Government officials in El Salvador and Guatemala were sanctioned for allegedly being involved in suspicious procurement, directing suspicious pandemic-related purchases, reselling personal protective equipment and other medial aid at significant markup and for personal gain, and/or for favoring companies where family members were officers. The actions continue the use of the Global Magnitsky sanctions to target global corruption and the inter-agency focus of the U.S. government on pandemic-related fraud.

The OFAC announcement also identifies individuals and entities in several other countries in Central America, Africa, and Europe for various other corrupt practices. As a result of these sanctions, all property and interests in property of the designated persons 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 percent or more by one or more designated persons are also blocked. Unless authorized by a license or exemption, 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.