Effective June 24, 2021, the Bureau of Industry and Security (BIS) will place five Chinese companies on the Entity List for human rights violations and abuses in the implementation of China’s campaign of repression, mass arbitrary detention, forced labor and high-technology surveillance against Uyghurs, Kazakhs, and other members of Muslim minority groups in the Xinjiang Uyghur Autonomous Region. Specifically, BIS has listed (i) Xinjiang GCL New Energy Material Technology, Co. Ltd; (ii) Xinjiang Daqo New Energy, Co. Ltd; (iii) Xinjiang East Hope Nonferrous Metals Co. Ltd.; (iv) Hoshine Silicon Industry (Shanshan) Co., Ltd.; and (v) Xinjiang Production and Construction Corps “for engaging in activities contrary to the foreign policy interests of the United States through participating in the practice of, accepting, or utilizing forced labor.”

The Entity List is used by BIS to restrict the export, reexport and transfer (in-country) of items subject to the Export Administration Regulations (EAR) to persons (individuals, organizations, companies) reasonably believed to be involved, or to pose a significant risk of becoming involved, in activities contrary to the national security or foreign policy interests of the United States. For exports to these five companies, BIS will now impose a license requirement for all items subject to the Export Administration Regulations (EAR) and a license review policy of case-by-case review for Export Control Classification Numbers (ECCNs) 1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983, and 2E983. A policy of case-by-case review will also apply to items designated as EAR99 that are described in the Note to ECCN 1A995, specifically, items for protection against chemical or biological agents that are consumer goods, packaged for retail sale or personal use, or medical products. In light of the ongoing COVID-19 global pandemic, BIS has adopted a policy of case-by-case review for items subject to the EAR that are necessary to detect, identify and treat infectious disease. For all other items subject to the EAR and not referenced above, BIS has adopted a license review policy of presumption of denial. In addition, no license exceptions are available for exports, reexports, or transfers (in-country) to these newly listed Chinese companies.

Shipments of items to any of these listed entities that were en route aboard a carrier to a port of export or reexport as of June 24, 2021 pursuant to actual orders for export or reexport to a foreign destination may proceed to that destination without a BIS export license.

On June 21, 2021, the Office of Foreign Assets Control (OFAC) designated 16 individuals and five entities in response to the Lukashenko regime’s escalating violence and repression. The persons are all closely associated with Belarusian President Alexander Lukashenko and, according to an OFAC press statement, “have harmed the people of Belarus through their activities surrounding the fraudulent August 9, 2020, presidential election in Belarus and the ensuing brutal crackdown on protesters, journalists, members of the opposition, and civil society.” Similarly, the entities are Belarusian government agencies or committees that have relied upon violence against peaceful protesters and that have detained journalists attempting to cover such protests. “The United States and its partners will not tolerate continued attacks on democracy and the ceaseless repression of independent voices in Belarus,” said OFAC Director Andrea Gacki.

As a result of being placed on the Specially Designated Nationals (SDN) List, all property and interests in property of these 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. Further, any entities that are owned 50% or more by them, that are in the United States or in the possession or control of U.S. persons must similarly be blocked and reported to OFAC. Unless authorized by a general or specific license issued by OFAC, or otherwise exempt, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of these designated persons is generally prohibited. Similar sanctions actions were also taken by Canada, the European Union (EU), and the United Kingdom (UK).

OFAC Belarus General License No. 3

While implementing these sanctions, OFAC also issued General License No. 3 under the Belarus sanctions which authorizes certain transactions with the State Security Committee of the Republic of Belarus (the “Belarusian KGB”). This general license authorizes transactions and activities that ‘are necessary and ordinarily incident’ to:

  • Requesting, receiving, utilizing, paying for, or dealing in licenses, permits, certifications, or notifications issued or registered by the Belarusian KGB for the importation, distribution, or use of information technology products in Belarus, provided that (i) the exportation, reexportation, or provision of any goods or technology are licensed or authorized by the Department of Commerce’s Bureau of Industry and Security (BIS); and (ii) the payment of any fees for such licenses, permits, certifications, or notifications does not exceed $5,000 in any calendar year;
  • Complying with law enforcement or administrative actions or investigations involving the Belarusian KGB; and,
  • Complying with rules and regulations administered by the Belarusian KGB.

On June 17, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued three general licenses related to the sanctions programs of Iran (General License N), Syria (General License 21) and Venezuela (General License 39), “Authorizing Certain Activities to Respond to the Coronavirus Disease 2019 (COVID-19) Pandemic.” Along with the general licenses, OFAC also issued related frequently asked questions (FAQs) 906, 907, 908, 909, 910, and 911. The general licenses provide time-limited but broad authorizations for certain COVID-19 related transactions and activities beyond current humanitarian exemptions, exceptions and authorizations in place under these programs. The general licenses expire on June 17, 2022.

Iran General License N

General License (GL) N authorizes the following transactions otherwise prohibited by the Iranian Transactions and Sanctions Regulations (ITSR):

  1. transactions and activities related to the exportation and importation of goods, services and technology for use in connection with the prevention, diagnosis or treatment of COVID-19, including research or clinical studies, to Iran, the Iran government or third persons for resale to Iran or the Iran government;
  2. importation into the United States or other dealings related to goods exported or reexported to Iran or the Iran government pursuant to GL N that are broken, defective or non-operational or connected to recalls, adverse events or safety concerns for routing maintenance or return;
  3. transactions and activities involving the Central Bank of Iran (CBI) or the National Iranian Oil Company (NIOC) and any entity owned 50% or more by NIOC that may otherwise be prohibited by the ITSR, the Global Terrorism Sanctions Regulations, or Executive Order 13224; and
  4. processing of funds transfers or trade finance transactions ordinarily incident and necessary to give effect to the transactions and activities authorized in paragraphs (a) and (b) of the general license.

Transactions involving the export of technology must be designated EAR99 under the Export Administration Regulations or not otherwise subject to multilateral export control regimes. The exportation or reexportation of the following remain prohibited:

  • goods or technology to CBI, NIOC or any entity in which NIOC owns a 50% or greater interest;
  • goods, technology or services to military, intelligence or law enforcement purchasers or importers;
  • goods, technology or services to facilitate the development or production of chemical or biological weapon or weapon of mass destruction.

FAQ 907 lists the covered COVID-19-related goods or technology. The list includes various personal protective equipment (PPE); personal hygiene products and supplies; vaccines and vaccine ingredients or components;  products related to transporting, storing, and administering vaccines; software and technology related to COVID-19 testing kits, equipment and diagnostic imaging tests;  ventilators, oxygen tanks and supplies to deliver oxygen; and medical units. Notably, COVID-19 related medical devices designated as EAR99 on the List of Medical Devices Requiring Specific Authorization do not require a specific license for export to Iran pursuant to GL N.

 Syria General License 21

GL 21 authorizes all transactions and activities related to the exportation of services to Syria related to the prevention, diagnosis or treatment of COVID-19 (including research or clinical studies), including those involving the Syrian government, Polymedics, LLC, Letia Company or any entity in which Polymedics or Letia own, whether individually or in the aggregate, 50% or greater interest. Any exportation or reexportation of items to Syria must be licensed or otherwise authorized by the Department of Commerce. The GL does not authorize the exportation or reexportation of goods, technology or services to military, intelligence or law enforcement purchasers or importers.

Venezuela General License 39

GL 39 authorizes all transactions and activities related to the prevention, diagnosis or treatment of COVID-19 (including research or clinical studies) involving the following entities:

  • the Venezuelan government;
  • Banco Central de Venezuela (BCV);
  • Banco de Venezuela, S.A. Banco Universal (Banco de Venezuela);
  • Banco Bicentenario del Pueblo, de la Clase Obrera, Mujer y Comunas, Banco Universal C.A. (Banco Bicentenario del Pueblo); and
  • any entity owned individually or in the aggregate 50% or greater interest by these banks.

Like FAQ 907, FAQ 909 provides a list of authorized transactions and activities. This general license does not authorize any transactions or activities involving Petróleos de Venezuela, S.A. (PdVSA), Banco de Desarrollo Economico y Social de Venezuela (BANDES), or Banco Bandes Uruguay S.A. (Bandes Uruguay), or with any entity owned individually or in the aggregate 50% or greater interest by these entities.

Related FAQs

FAQ 906 explains that these general licenses are independent of the humanitarian authorizations under each sanctions regime such that any conditions or other requirements thereunder do no apply with the intended transaction or activity is authorized under these licenses. FAQ 908 lists the types of services authorized by Iran GL N and Syria GL 21, including, treatment, training, promotional materials, research, repairs, clinical studies and public education, among others.

FAQ 910 provides that financial institutions may process financial transactions incident to the transactions and activities authorized by the general licenses and barring knowledge of a violation, may rely on the originator of the funds transfer with regard to compliance with the general licenses. Finally, FAQ 911 provides that non-US persons will not be sanctioned for engaging in activities authorized by the general licenses.

On June 15, 2021, the United States and European Union (EU) issued a joint Summit Statement trumpeting a “renewed transatlantic partnership” at the conclusion of President Joseph Biden’s first trip abroad as president.  The statement establishes a Joint Transatlantic Agenda “for the post-pandemic era, and … regular dialogue to take stock of progress.”  The leaders committed to: (i) end the COVID-19 pandemic and “prepare for future global health challenges, and drive forward a sustainable global recovery”; (ii) protect the Earth and foster green growth; (iii) strengthen trade, investment and technological cooperation; and (iv) “build a more democratic, peaceful, and secure world.”  They also committed to uphold and advance “the rules-based international order with the United Nations at its core, reinvigorate and reform multilateral institutions where needed, and cooperate with all those who share these objectives”.

While broadly addressing trade, investment and technology cooperation, the U.S. and EU have committed to “drive digital transformation that spurs trade and investment, strengthens our technological and industrial leadership, boosts innovation, and protects and promotes critical and emerging technologies and infrastructure.”  In doing so, a U.S.-EU Trade and Technology Council will be established to focus on:

  • growing bilateral trade and investment relationships;
  • avoiding new unnecessary technical barriers to trade;
  • coordinating, seeking common ground, and strengthening global cooperation on technology, digital issues and supply chains;
  • supporting collaborative research and exchanges;
  • cooperating on compatible and international standards development;
  • facilitating regulatory policy and enforcement cooperation and, where possible, convergence;
  • promoting innovation and leadership by U.S. and EU firms; and
  • strengthening other areas of cooperation.

Regarding U.S. Section 232 tariffs on steel and aluminum imports implemented under former President Donald Trump and the resulting EU retaliatory tariffs, the statement notes that the United States and EU will engage in discussions to resolve existing differences “before the end of the year” and to “resolve tensions arising from the U.S. application of tariffs on imports from the EU”.  The parties are committed to ensuring the long-term viability of U.S. and EU steel and aluminum industries and to addressing excess global capacity.

On other trade issues, the statement mentions (i) the recent Cooperative Framework addressing the longstanding U.S.-EU World Trade Organization (WTO) dispute involving large civil aircraft (see Update of June 15, 2021); (ii) plans to work cooperatively toward meaningful WTO reform; (iii) efforts to foster a fair and modern international tax system (see Update of June 2, 2021); (iv) coordination on shared concerns regarding China and ongoing human rights violations and respecting international law; (v) a “principled approach” toward Russia and its “repeating pattern of negative behavior and harmful activities”; (vi) opposition to the proliferation of weapons of mass destruction; and (vii) the facilitation of the return of the United States to the Joint Comprehensive Plan of Action (JCPOA) as well as the full and effective implementation of the JCPOA by Iran.

On June 15, 2021, the United States and the European Union (EU) announced a “cooperative framework” to resolve their decades-long World Trade Organization (WTO) dispute involving alleged subsidies in the large civil aircraft industry supporting both Boeing and Airbus. U.S. Trade Representative Katherine Tai stated, “Our goal was clear – to forge a new, cooperative relationship in this sector so that our companies and our workers can compete on a more level playing field. The agreement includes a commitment for concrete, joint collaboration to confront the threat from China’s non-market practices, and it creates a model we can build on for other challenges.” The cooperative framework includes:

  • A Working Group on large civil aircraft led by each side’s respective “minister” responsible for trade. The Working Group will meet on request or at least every six months; the higher-level trade ministers will meet annually. The Working Group will address any disagreements that may arise and will collaborate on and continue discussing and developing the principles reached in the framework agreement.
  • Each side providing “financing to its LCA [large civil aircraft] producer for the production or development of large civil aircraft on market terms.”
  • Each side providing “funding for research and development (R&D) for large civil aircraft to its LCA producer through an open and transparent process and [intending] to make the results of fully government funded R&D widely available, to the extent permitted by law. Each side intends not to provide R&D funding or other support that is specific, to its LCA producer in a way that would cause negative effects to the other side.”
  • Each side intending “to collaborate on jointly analyzing and addressing non-market practices of third parties that may harm their respective large civil aircraft industries.” To that end, the framework agreement has an annex regarding cooperation on non-market economies so that the United States and EU can share information and more effectively address challenges posed by non-market economies (i.e., China).
  • Suspending current WTO-approved retaliatory tariffs for five years, with the expectation that the United States and EU “will contribute to establishing a level playing field and to addressing shared challenges from non-market economies.”
  • Continuing to confer on addressing outstanding support measures.

The full text of the framework is available here.

This latest announcement follows the March 2021 temporary suspension of retaliatory tariffs by each side in order to seek a “comprehensive and durable negotiated solution to the Aircraft disputes.” See Update of March 5, 2021. In this longstanding dispute, the WTO Dispute Settlement Body has authorized the EU to impose $4 billion in retaliatory tariffs annually on U.S. products and authorized the United States to impose $7.49 billion in retaliatory tariffs annually on EU products. For additional background on this dispute and the resulting retaliatory tariffs regarding EU subsidies to Airbus and U.S. subsidies to Boeing, see SmarTrade Updates of October 4, 2019, December 9, 2019, February 17, 2020, August 13, 2020, October 15, 2020 and November 11, 2020.

Key Notes:

  • Proposed rule would allow persons working under a long-term contract to be considered “regular employees” under the International Traffic in Arms Regulations (ITAR) even if they work remotely.
  • Remote work would be permitted so long as people were not working in Belarus, Burma, China, Cuba, Iran, North Korea, Russia, Syria or Venezuela, or any other country subject to a U.S. arms embargo.
  • Persons considered “regular employees” are exempt from various licensing requirements under the ITAR.
  • Public comments must be submitted on or before July 26, 2021.

At the onset of the COVID-19 pandemic, the State Department’s Directorate of Defense Trade Controls (DDTC) announced a temporary suspension of and exception to the ITAR’s requirement that regular employees or long-term contractual personnel must work on-site at a company’s facilities, allowing individuals to telework during the public health emergency. On May 27, DDTC proposed a rule that would amend the ITAR’s definition of “regular employee” to make this change permanent and include (1) persons working under long-term contracts and sufficiently subject to the employer’s control, and (2) contractors not working under long-term contracts but who have active security clearances and are sufficiently under the employer’s control.

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On June 8, 2021, the White House released its report analyzing the risks associated with supply chains for four key U.S. sectors – semiconductor manufacturing and advanced packaging; large capacity batteries; critical minerals and materials; and pharmaceuticals and advanced pharmaceutical ingredients.  The report, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth, was prompted by Executive Order 14017, in which President Joseph Biden directed the U.S. government to undertake a comprehensive review of critical U.S. supply chains to identify risks, address vulnerabilities and develop a strategy to promote resilience.  See Update of February 25, 2021.

The report found five key “inter-related” themes and findings that have contributed to U.S. supply chain vulnerabilities:  (1) insufficient U.S. manufacturing capacity; (2) misaligned incentives and short-termism in private markets that focus on short-term capital returns and not on long-term investment and resilience; (3) industrial policies adopted by allied, partner and competitor nations that advance their own competitiveness; (4) geographical concentration in global sourcing; and, (5) limited international coordination on supply chain security.

As initial steps and realizing that a “whole-of-government effort” is required to strengthen domestic competitiveness and supply chain resilience, the Biden administration will immediately:

  • Support domestic production of critical medicines by having the Department of Health and Human Services work and build on public-private partnerships for the onshore (domestic) production of essential medicine products.
  • Secure an end-to-end domestic supply chain for advanced batteries with the Department of Energy releasing a “National Blueprint for Lithium Batteries” for a 10-year plan to develop a domestic supply chain and offering loans through the Advanced Technology Vehicles Manufacturing Loan Program.
  • Invest in sustainable domestic and international production and the processing of critical minerals by having the Department of Interior establish a working group to identify sites where critical minerals could be produced and processed in the United States, and as necessary, to identify gaps and or provide updates to mining statutes and regulations.
  • Partner with industry, allies, and partners to address semiconductor shortages identified by the Department of Commerce and to strengthen engagement with allies and partners to promote fair semiconductor chip allocations, increase production, and promote increased investment.

A summary of the report and its key findings is available here.  The report also acknowledges that strengthening international trade rules and trade enforcement mechanisms are issues to be addressed.  The Biden administration also announced that it will establish a new Supply Chain Disruptions Task Force to provide the “whole-of-government response” needed to address near-term supply chain challenges to the economic recovery.  This task force will focus on areas where “a mismatch between supply and demand has been evident: homebuilding and construction, semiconductors, transportation, and agriculture and food.”

The second phase of this supply chain review continues as to six critical industrial base sectors: the defense industrial base, public health and biological preparedness industrial base, information and communications technology industrial base, energy sector industrial base, transportation industrial base, and supply chains for production of agricultural commodities and food products.  This report is due to President Biden no later than February 24, 2022.

On June 9, 2021, President Joseph Biden issued an Executive Order (E.O.) to further address the threat posed to the U.S. information and communications technology and services (ICTS) supply chain declared in Executive Order 13873 (the “Telecom Supply Chain E.O.”; see Update of May 16, 2019).  The June 9, 2021 E.O. also revoked and replaced three E.O.s aimed to prohibit transactions with TikTok, WeChat and eight other communications and financial technology software applications (see Update of August 7, 2020).  According to a brief statement from the White House, the new E.O. “directs the use of a criteria-based decision framework and rigorous, evidence-based analysis to address the risks posed by ICTS transactions involving software applications that are designed, developed, manufactured, or supplied by persons that are owned or controlled by, or subject to the jurisdiction of a foreign adversary, including the People’s Republic of China, that may present an undue or unacceptable risk to the national security of the United States and the American people.”

The new E.O. seeks to continue to protect sensitive personal data and directs the Department of Commerce (Commerce) to evaluate foreign adversary-connected software applications and to take action as necessary.  The E.O. continues to apply the criteria established in E.O. 13873 but notes other potential indicators of risk:

ownership, control, or management by persons that support a foreign adversary’s military, intelligence, or proliferation activities; use of the connected software application to conduct surveillance that enables espionage, including through a foreign adversary’s access to sensitive or confidential government or business information, or sensitive personal data; ownership, control, or management of connected software applications by persons subject to coercion or cooption by a foreign adversary; ownership, control, or management of connected software applications by persons involved in malicious cyber activities; a lack of thorough and reliable third-party auditing of connected software applications; the scope and sensitivity of the data collected; the number and sensitivity of the users of the connected software application; and the extent to which identified risks have been or can be addressed by independently verifiable measures.

Commerce is also directed to consult with other federal government departments and agencies in preparing a report with recommendations “to protect against harm from the unrestricted sale of, transfer of, or access to United States persons’ sensitive data, including personally identifiable information, personal health information, and genetic information, and harm from access to large data repositories by persons owned or controlled by, or subject to the jurisdiction or direction of, a foreign adversary.” This report is due in 120 days (i.e., October 7, 2021).  Commerce has further been directed to make any additional recommendations for executive and legislative branch actions to address ICTS risks involving foreign adversaries no later than December 6, 2021.

 

On June 3, 2021, President Biden issued Executive Order 14032, “Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China” (EO). The EO supersedes the executive orders targeting “Communist Chinese Military Companies” that the Trump administration issued. Specifically, it revises Sections 1 through 5 of Executive Order 13959, as amended, and revokes Executive Order 13974. The impact of the EO is to expand the restrictions on investments in Chinese defense and surveillance technology firms by adding 59 Chinese companies to the Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List). It also changes the date by which divestment must be made to June 3, 2022 at the earliest. Note: The previous annex listing Communist Chinese Military Companies has been replaced and superseded in its entirety by the Annex to the June 3, 2021 order.

Effective at 12:01 a.m. eastern daylight time (EDT) on August 2, 2021, the EO prohibits 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, companies may divest themselves from holdings in NS-CMIC entities listed in the EO before 12:01 a.m. EDT on June 3, 2022. Companies will be granted a one-year divestment period for all entities added to the NS-CMIC list in the future.

The EO clarifies that the Treasury Department has final authority in determining which companies are added. Unlike the previous Trump-era executive orders, the designation criteria in this EO have extended to companies that are deemed (1) to operate or have operated in the defense and related materiel sector or the surveillance technology sector of the economy of the PRC, or (2) to own or control, or to be owned or controlled by, directly or indirectly, parties operating in these sectors, and/or designated pursuant to this EO.

Moreover, the EO expands the U.S. government’s ability to “address the threat of Chinese surveillance technology firms that contribute – both inside and outside China – to the surveillance of religious or ethnic minorities or otherwise facilitate repression and serious human rights abuses.”

On June 6, the European Commission adopted new Standard Contractual Clauses (SCCs) to enable organizations to transfer personal data outside the European Union (EU) in accordance with the General Data Protection Regulation (GDPR). The new SCCs are intended to address the complex data processing issues that impact modern businesses, and they impose several novel obligations on organizations. Importantly, the new SCCs address situations where the U.S. government (and other non-EU authorities) request access to personal data, which was the core issue presented in the recent Schrems II decision. In order to comply with the GDPR and SCCs, organizations should consider undertaking the following:

  • identify the circumstances in which they export or import personal data from the EU,
  • determine whether the SCCs are an appropriate data transfer mechanism, and whether they can comply with the onerous requirements set forth in the new SCCs,
  • amend existing third-party contracts and intra-group agreements to account for the new SCCs,
  • incorporate the new SCCs into contracting process flows for new programs and operations, and
  • implement new procedures, where appropriate, and document all policies and assessments for data transfers.

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