Key Notes:

  • Tighter requirements for domestic content under consideration.
  • New Made in America Office to be established and Made in America director to be appointed.
  • Waivers to domestic preference laws subject to heightened scrutiny.

As part of his “Build Back Better” initiative, President Biden issued an executive order (EO) Tuesday that tightens Buy American requirements by enhancing enforcement efforts, increasing domestic content requirements for U.S. goods, and making it more difficult to obtain waivers. The EO, “Executive Order on Ensuring the Future is Made in All of America by All of America’s Workers,” also establishes a centralized Made in America office within the Office of Management and Budget (OMB) to track compliance with the policy.

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On January 25, 2021, President Joe Biden issued an Executive Order (EO) stating that the “United States Government should, whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.”  The EO tightens Buy American requirements by enhancing enforcement efforts, increasing domestic content requirements for U.S. goods, and making it more difficult to obtain waivers. The EO, “Executive Order on Ensuring the Future is Made in All of America by All of America’s Workers,” also establishes a centralized Made in America office within the Office of Management and Budget (OMB) to track compliance with the policy. It refers to domestic preferences related to federal procurement, federal grants and other forms of federal assistance, and implements the following actions:

  • Requires the Federal Acquisition Regulatory Council (FAR Council) to consider proposing amendments to the Federal Acquisition Regulations (FAR) for tighter requirements for domestic content.
  • Appoints a new senior leader in the Executive Office of the President in charge of the government’s Made in America policy approach.
  • Increases oversight of potential waivers to domestic preference laws.
  • Connects new businesses to contracting opportunities by requiring active use of supplier scouting by agencies.
  • Reiterates the President’s support for the Jones Act.
  • Directs a cross-agency review of all domestic preferences.

For additional details on these points, see the related White House Fact Sheet. Perhaps, the most immediate impact of the Executive Order is the establishment of a Made in America Office in the Office of Management and Budget (OMB) that will centralize the review of federal agencies’ waivers of the Buy American requirements. Before an agency may grant a waiver, the agency must provide the Made in America Office with a description of its proposed waiver “and a detailed justification for the use of goods, products, or materials that have not been mined, produced, or manufactured in the United States.” Before proceeding further, the relevant agency must await notice from the OMB Director, through the Made in America Office, either that (i) issuing the proposed waiver would be consistent with the applicable law and policy, or (ii) issuing the proposed waiver would not be consistent with the applicable law or the policy and that the proposed waiver is being returned for further consideration. To the extent permitted by law, any disagreements or conflicts between the Made in America Office and the head of any agency regarding proposed waivers will undergo further review toward a resolution of the matter. Such information will also be published by the General Services Administration (GSA) in order that manufacturers and other interested parties can identify proposed waivers and whether those waivers have been granted.

Within the next six months, the head of each federal agency must submit to the Made in America Office a report detailing its implementation of, and compliance with, Made in America laws, and any ongoing use of longstanding or nationwide waivers of any Made in America laws, with a written description of the consistency of such waivers. Thereafter, on a bi‑annual basis, each federal agency must submit a report on the agency’s: (i) ongoing implementation of, and compliance with, Made in America laws; (ii) analysis of goods, products, materials and services not subject to Made in America laws or where requirements of the Made in America laws have been waived; and (iii) analysis of spending as a result of waivers issued pursuant to the Trade Agreements Act of 1979.

In brief remarks to the press, President Biden stated: “The federal government every year spends approximately $600 billion in government procurement to keep the country going safe and secure. And there’s a law that’s been on the books for almost a century now: to make sure that that money was spent … to support American jobs and American businesses. But the previous administration didn’t take it seriously enough. Federal agencies waived the Buy American requirement without much pushback at all.” He added, “That is going to change on our watch.”

This EO lays the groundwork for the eventual further tightening of restrictions regarding domestic preferences and “loopholes” that allow agencies to buy foreign-made end products. Practically, these proposed changes may be somewhat limited for contractors whose contracts are exempt from Buy American restrictions based on the Trade Agreement Act (TAA) and other international obligations as they are not specifically targeted in the EO. For government contractors and U.S. manufacturers that are subject to the BAA, these proposed changes could potentially have a significant impact on existing supply chains that were developed in reliance on long-standing Buy American rules.

The Department of State’s Directorate of Defense Trade Controls (DDTC) has announced that it will be adjusting the review policy to ensure U.S. partners receiving such items can employ them in a manner that will “minimize collateral damage and mitigate harm to civilians.”

The announcement notes that the “responsible and effective employment of PGMs requires advanced target development (ATD) capabilities including weaponeering, collateral damage estimation (CDE), and target coordinate mensuration (TCM, also referred to as Precision Point Mensuration or PPM) for coordinate-seeking weapons.” Going forward, any licenses for the export of such items will continue to be reviewed on a case-by-case basis. However, DDTC will now also confirm that the “foreign end-user government possesses or is in the process of procuring sufficient U.S., indigenous, or third-party ATD capabilities with respect to the PGMs considered for transfer.” The announcement provides a listing of covered PGMs and critical components, noting that such items likely fall under U.S. Munitions List Categories III, IV, V, and XI.

On January 20, 2021, Ronald Klain, President Joseph Biden’s Chief of Staff, issued a memorandum to the current heads of all executive branch departments and agencies placing a freeze on the implementation of any new federal regulations, a typical move at the start of a new president’s term. This hold on further action will allow a Biden-appointed/designated department or agency head to review and approve any new rules. Accordingly:

  • For rules that former President Donald Trump’s administration proposed but have not yet been published in the Federal Register, departments and agencies have been instructed to immediately withdraw them from the Office of the Federal Register (OFR) for review and approval, unless there is an emergency situation or other urgent circumstances requiring implementation.
  • For rules that have been published in the Federal Register or rules that have been issued in any manner but have not taken effect, the departments and agencies have been requested to postpone the rules’ effective dates for 60 days from January 20, 2021, to allow for the review of any questions of fact, law, and policy the rules may raise. For rules postponed in this manner, the memo suggests that, as appropriate, a 30-day comment period be opened to allow interested parties to provide comments and any petitions for reconsideration involving such rules.

This freeze will place a hold on many regulatory actions proposed in the final month of President Trump’s term. For example, the State Department’s Directorate of Defense Trade Controls (DDTC) has withdrawn its rulemaking to consider making permanent the temporary exception to allow for continued telework operations (see Update of December 10, 2020) and the Department of Commerce’s Bureau of Industry and Security (BIS) has paused implementation of its interim final rule expanding certain controls on the activities of U.S. persons (see Update of January 20, 2021). While not confirmed, it is believed that the Department of Commerce’s final rule adopting the Aluminum Import Monitoring and Analysis (AIM) system scheduled to be effective January 25, 2021, has been delayed also.

Thompson Hine international trade attorneys and professionals will continue to monitor and report on any other significant delays or withdrawals of pending regulatory actions.

On January 15, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule implementing further provisions of the Export Control Reform Act of 2018 by: (i) imposing additional export license requirements under the Export Administration Regulations (EAR) in connection with certain military-intelligence end uses and end users; (ii) clarifying that license requirements under the EAR apply even when the items at issue are not subject to the EAR; (iii) establishing restrictions on transactions intended to circumvent license requirements for listed entities; and, (iv) expanding the scope of activities subject to chemical and biological weapons and rocket systems and unmanned aerial vehicles end-use controls. Overall, these regulations implement new controls on any U.S. technologies and specific activities of U.S. persons who may be supporting foreign military-intelligence end uses and end users in China, Cuba, Russia, and Venezuela, as well as in terrorist-supporting countries. They also enhance controls to prevent U.S. persons from supporting unauthorized weapons of mass destruction (WMD) programs including weapons delivery systems and production facilities.

These controls are intended to prevent U.S. persons from supporting certain foreign military-intelligence services through activities such as brokering the sale of foreign-origin items or providing maintenance, repair, or overhaul services. BIS will also expand license requirements for military-intelligence end uses and end users in China, Russia, and Venezuela beyond specifically listed items subject to existing military end-use and end-user (MEU) controls to apply to all items subject to the EAR. BIS is adding a new restrictions for exports, reexports, and transfers (in-country) to certain military-intelligence end uses or end users, specifically targeting the following foreign military-intelligence organizations:

  • Cuba’s Directorate of Military Intelligence (DIM) and Directorate of Military Counterintelligence (CIM)
  • China’s Intelligence Bureau of the Joint Staff Department
  • Iran’s Islamic Revolutionary Guard Corps Intelligence Organization (IRGC-IO) and Artesh Directorate for Intelligence (J2)
  • North Korea’s Reconnaissance General Bureau (RGB)
  • Russia’s Main Intelligence Directorate (GRU)
  • Syria’s Military Intelligence Service
  • Venezuela’s General Directorate of Military Counterintelligence (DGCIM)

The interim final rule also establishes license requirements for specific activities of U.S. persons even when the items at issue are not subject to the EAR. For example, the new regulation has a general prohibition on U.S. persons offering, without a license, support for the design, development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of nuclear explosive devices in or by any country subject to certain nuclear end-use restrictions. Similar restrictions on specific activities of U.S. persons have been added to cover “support” (a defined term in the regulations) for missiles, chemical or biological weapons, chemical weapons precursors and the aforementioned military-intelligence end use or a military-intelligence end user. No license exceptions will apply to these new prohibitions, and BIS will deny any export licenses if such support “would make a material contribution to the end uses and end users” identified as prohibited. License applications for a U.S. person to support a military-intelligence end use or end user will be reviewed with a presumption of denial.

Under the new regulations BIS may also inform persons that an export license is required because there is an “unacceptable risk that the export, reexport, or transfer (in-country) is intended to circumvent the license requirement imposed on an entity listed [on the Entity List], or because the transaction involves an “unacceptable risk that the party is acting as an agent, front, or shell company.” Finally, BIS is also revising end-use controls related to chemical and biological weapons, rocket systems, and unmanned aerial vehicles (UAVs) to ensure that any U.S. activity related to the operation, installation, maintenance, overhaul, repair, or refurbishing of such weapons, rocket systems, or UAVs triggers a catch-all export license requirement under the EAR.

This interim final rule will become effective on March 16, 2021. Public comments on the rule may be submitted via the Federal rulemaking portal (www.regulations.gov) on Docket No. BIS-2020-0044.

On January 19, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned and placed on the Specially Designated Nationals (SDN) List three individuals, fourteen entities, and six vessels for their involvement in a network attempting to evade U.S. sanctions on Venezuela’s oil sector.  According to a press release, the “illegitimate Maduro regime has continued to use Petroleos de Venezuela, S.A. (PdVSA) as its primary conduit for corruption to exploit and profit from Venezuela’s natural resources.”  This action continues OFAC’s efforts to block entities and vessel operating in Venezuela’s oil and shipping sectors (see Update of June 19, 2020).

The persons designated include Alessandro Bazzoni, Francisco Javier D’Agostino Casado, and Philipp Paul Vartan Apikian for coordinating and facilitating the illicit sale of PdVSA oil through entities such as Elemento Ltd. (Malta) and Swissoil Trading SA (Geneva).  In addition to Elemento and Swissoil Trading, nine other entities related to Messrs. Bazzoni, Casado and Elemento Ltd. have been placed on the SDN List, as well as three shipping companies and six vessels for engaging in the carriage of Venezuelan oil and facilitating continued sanctions evasion and related activities for PdVSA and the illegitimate regime of Nicolas Maduro.  For additional details on all of the sanctioned persons, entities and vessels, click here.

As a result of these designations, all property and interests in property of these individuals and entities that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC.  In addition, any entities that are owned, directly or indirectly, 50 percent or more by the designated individuals and entities, are also blocked.

On January 15, 2020, the Office of the U.S. Trade Representative (USTR) released its annual reports submitted to Congress that assess China’s and Russia’s implementation of their World Trade Organization (WTO) commitments. In keeping with past annual USTR reports during the administration of President Donald Trump, the reports note that these countries’ records of compliance with the terms of their WTO membership have been poor.

China Report

As noted in past reports, the 2020 USTR report highlights that China’s trade regime has generated many WTO compliance concerns. The United States, for example, has brought nearly two dozen cases against China at the WTO covering a wide range of important policies and practices, such as:

  • local content requirements in the automobile sector;
  • discriminatory taxes in the integrated circuit sector;
  • prohibited subsidies in a wide range of manufacturing sectors;
  • inadequate intellectual property rights (IPR) enforcement in the copyright area;
  • significant market access barriers in copyright-intensive industries;
  • severe restrictions on foreign suppliers of financial information services;
  • export restraints on numerous raw materials;
  • a denial of market access for foreign suppliers of electronic payment services;
  • excessive domestic support for key agricultural commodities;
  • the opaque and protectionist administration of tariff-rate quotas for key agricultural commodities; and
  • discriminatory regulations on technology licensing.

The report also notes China’s retaliatory use of trade remedies and continued lack of transparency. Given all of these problems, and consistent with President Trump’s “more aggressive approach to China,” the report states that USTR has used “domestic trade remedies, bilateral negotiations, WTO litigation, and strategic engagement with like-minded trading partners – to respond to the unique and very serious challenges presented by China. But, the goal for the United States remains the same. The United States seeks a trade relationship with China that is fair, reciprocal and balanced.”  For more details, see the full 2020 China WTO Compliance Report.

Russia Report

The 2020 report notes that the “past year has brought very few, if any, positive developments in terms of Russia’s implementation of a WTO compliant trade regime. On a positive note, consistent with its WTO commitments, Russia has implemented all of its final tariff bindings. However, in most other areas, Russia continues to reject the market-opening goals of the WTO.” The report points out that the majority of Russia’s trade-restrictive measures remain non-tariff import barriers. For example:

  • a cumbersome, opaque and outdated import licensing regime on products with cryptographic capabilities;
  • unjustified non-tariff barriers to U.S. agricultural exports, and subsidies to support its agricultural industry;
  • lack of transparency in the development of technical regulations;
  • expansion of general localization/domestic content policies well beyond government procurement to apply to Russia state-owned  enterprises and to the private sector;
  • continued weak intellectual property rights enforcement;
  • lack of clear regulations governing customs valuation, creating uncertainty and additional paperwork;
  • continued requirements for an activity license as a precondition for obtaining an import license for some products (e.g., alcohol, encryption products and pharmaceuticals);
  • lack of harmonization of regulatory measures between Russia and the Eurasian Economic Union (EAEU); and
  • significant and ongoing concerns about the completeness of Russia’s notifications pursuant to it obligations as a WTO member.

The report notes that “in the past year Russia has done little to change its reliance on protectionist policies, import-substitution schemes, and domestic content requirements.” It concludes that the United States “will continue to encourage Russia to adopt a free, fair, non-discriminatory, transparent, predictable, and stable trade environment based on the rule of law. Yet it is only Russia that can make the decision to comply with the spirit as well as the letter of the WTO rules.” For more details, see the full 2020 Russia WTO Compliance Report.

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

Key Notes:

  • U.S. persons must divest their holdings of publicly traded securities, derivatives and similar instruments of CCMCs by November 11, 2021.
  • Holdings in mutual funds and other pooled investment vehicles are subject to the divestment requirements.

On January 13, President Trump amended his previously issued Executive Order to address confusion over whether U.S. persons must divest publicly traded securities in certain “Communist Chinese Military Companies” (CCMCs).

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On January 15, 2021, barely two weeks after holding a public hearing into the matter and just over three months after initiating an investigation under Section 301 of the Trade Act of 1974, the Office of the U.S. Trade Representative (USTR) issued its findings regarding Vietnam’s currency valuation. USTR found that “Vietnam’s acts, policies, and practices related to currency valuation, including excessive foreign exchange market interventions and other related actions, taken in their totality, are unreasonable and burden or restrict U.S. commerce.” In particular, the Notice of Determination states:

  • Vietnam’s acts, policies and practices as to currency valuation “are unreasonable in light of U.S. and international norms that exchange rate policy should not be undertaken to gain an unfair competitive advantage in international trade, should not artificially enhance a country’s exports and restrict its imports in ways that do not reflect the underlying competitiveness, should not prevent exchange rates from reflecting underlying economic and financial conditions, and should not prevent balance of payments adjustment;”
  • Vietnam’s actions in support of this currency valuation contribute to undervaluation of its currency through excessive foreign exchange market interventions and other related actions that burden or restrict U.S. commerce; and
  • The acts, policies and practices are actionable under Section 301 of the Trade Act.

USTR also released a report in support of this determination. Despite this ruling, USTR announced that the United States will take no action at this time and these matters will be addressed in the future. Ambassador Robert Lighthizer stated, “Unfair acts, policies and practices that contribute to currency undervaluation harm U.S. workers and businesses, and need to be addressed. … I hope that the United States and Vietnam can find a path for addressing our concerns.”

See Update of October 6, 2020, for additional background information on the investigation. The investigation into Vietnam’s possible import and use of illegal timber remains ongoing.

On January 14, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Federal Register notice announcing the addition and removal of certain Chinese and Russian entities from the Entity List and the Military End-User (MEU) List.

Notably, BIS added China National Offshore Oil Corporation Ltd. to the Entity List for its involvement in China’s “efforts to assert its unlawful maritime claims in the South China Sea, as well as efforts to intimidate and coerce other South China Sea coastal states from accessing and developing  offshore marine resources.” This listing affects all exports subjects to the Export Administration Regulations (EAR) except for crude oil, condensates, aromatics, natural gas liquids, hydrocarbon gas liquids, natural gas plant liquids, refined petroleum products, liquefied natural gas, natural gas, synthetic natural gas, and compressed natural gas under various Harmonized System Tariff (HTS) subheadings. All other exports are under a license review policy of a presumption of denial.

Further, BIS added Beijing Skyrizon Aviation Industry Investment Co., Ltd. to the MEU List. As a result, a license is now required for specific exports, reexports, or transfers (in-country) of certain items listed in Supplement no. 2 to 15 C.F.R. part 744 because BIS has determined that “there is an unacceptable risk of use in or diversion to a ‘military end use’ or ‘military end user’ in China.”

Finally, BIS removed Korporatsiya Vsmpo Avisma OAO (Russia) and Molot Oruzhie (Russia) from the MEU List, though Molot Oruzhie remains on the Entity List.

These updates were effective as of January 14, 2021. However, certain shipments of items that are no longer eligible for export without a license as a result of this regulatory action that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) prior to January 14 may proceed to their destination under the previous eligibility.