On January 15, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published in the Federal Register final regulations to implement a July 14, 2020 Hong Kong-related Executive Order. In Executive Order 13936, President Donald Trump determined that Hong Kong was no longer sufficiently autonomous from the People’s Republic of China (China) to justify differential treatment under various U.S. laws and regulations due to increasingly denied autonomy and freedoms that China promised to the people of Hong Kong. For additional background, see International Trade Update of July 16, 2020.

The Hong Kong-related Sanctions Regulations are now codified at 31 C.F.R. part 585 (the ‘‘Regulations’’), and implement the provisions of Executive Order 13936. OFAC states that the Regulations are being published “in abbreviated form at this time for the purpose of providing immediate guidance to the public. OFAC intends to supplement this part 585 with a more comprehensive set of regulations, which may include additional interpretive and definitional guidance, general licenses, and statements of licensing policy.” As published, the Regulations set forth prohibitions, general definitions, and initial interpretations and license authorizations. The Regulations are effective as of January 15, 2021.

On January 14, 2021, President Donald Trump issued a Presidential Proclamation announcing that the United States was extending safeguard measures, in the form of tariff-rate quotas (TRQs), on imports of large residential washers and various washer parts for an additional two years. Pursuant to Section 201 of the Trade Act of 1974, President Trump implemented TRQs on Harmonized Tariff Schedule (HTS) subheadings 8450.11.00 and 8450.20.00 for washers and on HTS subheadings 8450.90.20 and 8450.90.60 for certain washer parts. For background on the original Section 201 investigation and the implementation of TRQs, see Update of January 23, 2018. See also the U.S. Trade International Trade Commission’s report on the U.S. domestic washer industry, “Large Residential Washers: Monitoring Developments in the Domestic Industry,” Investigation No. TA-204-013).

The TRQs were schedule to expire in February 2021. However, under the Presidential Proclamation, the TRQs — which range from 16% to 50%, depending on import volumes and the year — will remain in effect for another two years (except for such products and parts from Canada and certain WTO-member developing countries). President Trump determined that “the action continues to be necessary to prevent or remedy the serious injury to the domestic washers industry” as it makes a positive adjustment to import competition.

The Office of the U.S. Trade Representative (USTR) has issued findings in three more Section 301 investigations of Digital Service Taxes (DSTs) adopted by Austria, Spain and the United Kingdom. In the reports, the USTR found that each of the DSTs  “discriminates against U.S. companies, is inconsistent with prevailing principles of international taxation, and burden or restricts U.S. commerce.” Ambassador Robert Lighthizer stated, “The taxation of companies that engage in international trade in goods and services is an important issue …. The best outcome would be for countries to come together to find a solution.”

The findings for these three countries determined that:

  • DSTs, “by [their] structure and operation, discriminate[ ] against U.S. digital companies, including due to the selection of covered services and the revenue thresholds.”
  • DSTs are “unreasonable because [they are] inconsistent with principles of international taxation, including due to [their] application to revenue rather than income, extraterritoriality, and retroactivity.”
  • DSTs “burden[ ] or restrict[ ] U.S. commerce.”

DSTs are taxes on revenue that certain companies generate from providing covered digital services to, or aimed at, users in that particular jurisdiction. For example, DSTs may affect multinational businesses providing online advertising services, selling consumer data, or running online intermediary platforms. The findings on each of the DSTs are supported by comprehensive reports, which are available here – Austria, Spain and the United Kingdom.

Despite these findings, the USTR has stated that it will not currently take any specific actions but will continue to evaluate all available options and address matters in future proceedings under Section 301 of the Trade Act of 1974. For additional information on the initiation of these investigations, see Update of June 4, 2020. See also Update of January 7, 2021, for information pertaining to similar investigations into DSTs by India, Italy and Turkey and Update of January 6, 2021, for information regarding the status of the USTR’s investigation into France’s DSTs. USTR investigations remain ongoing for Brazil, the Czech Republic, the European Union and Indonesia. For these four, the DSTs have not yet been imposed and remain under consideration by those countries; as such, USTR also released a brief report providing an update on these investigations.

On January 13, 2021, U.S. Customs and Border Protection (CBP) issued a new regional withhold release order (WRO) on all cotton and tomato products grown and produced by entities operating in China’s Xinjiang Uyghur Autonomous Region. Through its investigation, CBP found reasonable indications of the use of detainee or prison labor or other situations of forced labor. Specifically, CBP identified forced labor factors including debt bondage, restriction of movement, isolation, intimidation and threats, withholding of wages, and abusive living and working conditions.

The order directs CBP personnel at all U.S. ports of entry to detain cotton products and tomato products grown or produced by entities operating in Xinjiang. These products include apparel, textiles, tomato seeds, canned tomatoes, tomato sauce, and other goods made with cotton and tomatoes.

CBP had issued a company-specific WRO in early December that covered only the Xinjiang Production and Construction Corps. This WRO, CBP’s fourth since the beginning of fiscal year 2021, targets an entire area instead of one specific company, which broadens the scope CBP can work under. All WROs are publicly available and listed by country on CBP’s Forced Labor WROs and Findings web page.

The goal of the WRO is to stop these shipments to the United States and push China to abandon the harmful practice of slave labor, CBP Acting Commissioner Mark A. Morgan said. “DHS will not tolerate forced labor of any kind in U.S. supply chains,” said Acting DHS Deputy Secretary Ken Cuccinelli. Morgan added, “CBP will not tolerate the Chinese government’s exploitation of modern slavery to import goods into the United States below fair market value.”

Federal statute 19 U.S.C. 1307 prohibits the importation of merchandise produced, wholly or in part, by convict labor, forced labor and/or indentured labor, including forced or indentured child labor. CBP detains shipments of goods suspected of being imported in violation of this statute. Importers are responsible for ensuring the products they are attempting to import do not exploit forced labor at any point in their supply chain, including the production or harvesting of the raw material. Importers of detained shipments, however, have the opportunity to demonstrate that the merchandise was not produced with forced labor in order to secure release of a shipment.

Impact of the 2020 Election on U.S. Trade Policy: Trump Transformation to Biden Restoration?

Addressing a key 2016 campaign promise, President Trump transformed decades of U.S. trade policy by weaponizing tariffs, ramping up enforcement and focusing on bilateral trade in goods. Will President-elect Biden continue any of these policies or attempt to restore the multilateral trade approach of past presidential administrations?

Please join us for the trade policy session of our webinar series examining what the shift in presidential power could mean for U.S. businesses.

Tuesday, January 19, 2:00 – 3:00 p.m. ET

Presenters:

Please click here to register and receive instructions on how to join the webinar.

CLE credit will be requested.

On January 11, 2020, Secretary of State Michael Pompeo announced that the United States was re-designating Cuba as a State Sponsor of Terrorism for “repeatedly providing support for acts of international terrorism in granting safe harbor to terrorists.”  In a press release, the State Department noted that with this action, “we will once again hold Cuba’s government accountable and send a clear message: the Castro regime must end its support for international terrorism and subversion of U.S. justice.”

Cuba was removed from this list (which includes Iran, North Korea and Syria) in 2015 when the administration of President Barack Obama reinstituted diplomatic relations with the country and sought to lessen the impact of the U.S. embargo and sanctions on the Cuban people.  It’s re-designation is initially expected to have a limited impact as the administration of President Donald Trump has reimposed many of the sanctions and other restrictions which had been removed or lessened under President Obama.

The re-designation as a State Sponsor of Terrorism will: (i) subject Cuba to sanctions that penalize persons and countries engaging in certain trade with Cuba; (ii) restrict U.S. foreign assistance; (iii) ban defense exports and sales;  and, (iv) impose certain controls on exports of dual use items.

On January 11, 2021, the Department of Commerce published in the Federal Register adjustments for each civil monetary penalty under which its bureaus and agency operate by law.  The Federal Civil Penalties Inflation Adjustment Act of 1990 authorizes such adjustments “to ensure that [civil monetary penalties] continue to maintain their deterrent value and that [such monetary penalties] due to the Federal Government were properly accounted for and collected.”  While over 40 monetary penalty levels have been adjusted, the following are specifically highlighted for international trade compliance purposes:

  • False Claims Act violation:  minimum increased to $11,803, maximum increased to $23,607.
  • Bureau of Economic Analysis, International Investment and Trade in Services Act failure to furnish information:  minimum increased to $4,876, maximum increased to $48,762.
  • Bureau of Industry and Security, International Emergency Economic Powers Act violation:  maximum increased to $311,562.
  • Bureau of Industry and Security, Export Control Reform Act of 2018 violation:  maximum increased to $308,901.
  • Census Bureau, Collection of Foreign Trade Statistics violation:  maximum increased to $14,362.
  • International Trade Administration, Foreign Trade Zone violation:  maximum increased to $3,011.

These adjusted civil monetary penalties will become effective on January 15, 2021.

The Commerce Department’s Bureau of Industry and Security (BIS) issued an interim final rule (“Rule”) extending the temporary 0Y521 series export controls on software specially designed to automate the analysis of geospatial imagery, issued in January 2020. The Rule, which applies to geospatial imagery software specially designed for training a “Deep Convolutional Neural Network” to automate the analysis of geospatial imagery and point clouds (“Geospatial AI Software”), is effective from January 6, 2021 through January 6, 2022. A license is required for the export, reexport and in-country transfers of those items to all destinations, except Canada.

On January 6, 2020, BIS amended the Export Administration Regulations (EAR) with an interim final rule to add the Geospatial AI Software to the 0Y521 Temporary Export Control Classification Numbers (ECCN) Series as 0D521, because “it may provide a significant military or intelligence advantage to the United States or because foreign policy reasons justify control.” The U.S. government intended to raise its proposal for multilateral controls at the Wassenaar Arrangement in 2020 but the annual plenary was not held due to the pandemic.

Items classified under the 0Y521 series are controlled for regional stability (RS) Column 1 reasons, with a case-by-case license application review policy. The only license exception available for these items at this time is for exports, reexports, and transfers (in-country) made by or consigned to a department or agency of the U.S. Government (License Exception GOV), as specified.

The Office of the U.S. Trade Representative (USTR) has issued findings in its Section 301 investigations of Digital Service Taxes (DSTs) adopted by India, Italy and Turkey.  In each report, the USTR found that the DSTs: (i) create “a significant new tax burden for U.S. companies, [and] taxes an unusually broad array of digital services”; (ii) are “inconsistent with prevailing international tax principles”; (iii) force U.S. companies to “undertake costly compliance measures”; (iv) impose a wide range of burdens and “subject U.S. companies to multiple layers of taxation”; and, (v)  potentially expose “U.S. companies to unusually harsh penalties for non-compliance.”  As a result, the USTR determined that:

  • DSTs, “by [their] structure and operation, discriminate[ ] against U.S. digital companies, including due to the selection of covered services and [their] applicability only to non-resident companies.”
  • DSTs are “unreasonable because [they are] inconsistent with principles of international taxation, including due to [their] application to revenue rather than income, extraterritorial application, and failure to provide tax certainty.”
  • DSTs “burden[ ] or restrict[ ] U.S. commerce.”

DSTs are taxes on revenue that certain companies generate from providing covered digital services to, or aimed at, users in that particular jurisdiction. For example, DSTs may impact multinational businesses providing online advertising services, selling consumer data, or running online intermediary platforms.  The findings on each of the DSTs are supported by comprehensive reports, which are available here – India, Italy and Turkey.

Despite these findings, the USTR has stated that it will not currently take any specific actions but will continue to evaluate all available options and address matters in future proceedings under Section 301 of the Trade Act of 1974.  For additional information on the initiation of these investigations, see Update of June 4, 2020.

In light of these ongoing investigations, USTR has also suspended the implementation of retaliatory taxes in a related France DSTs investigation.  See Update of January 6, 2021.  USTR investigations also continue into DSTs implemented or under consideration by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain and the United Kingdom.

Key Notes:

  • The ban is effective January 11, 2021.
  • Executive Order 13959 bans U.S. persons from transacting in publicly traded securities or derivatives or similar securities of publicly traded Chinese companies designated by the U.S. Department of Defense as enabling Chinese military aims.
  • OFAC has identified, and will continue to add, subsidiaries of the named companies, which will be subject to the same restrictions.
  • Divestiture of securities is permitted until November 11, 2021 or 60 days after listing of the company, whichever comes last.

On November 12, 2020, President Trump issued Executive Order 13959, prohibiting U.S. persons from transacting in publicly traded securities or derivatives or similar securities of publicly traded Chinese companies designated by the U.S. Department of Defense as enabling Chinese military aims. The ban is effective January 11, 2021. Since issuance of the order, the DoD and the U.S. Department of the Treasury have added a number of companies to the list of designated entities released by the Office of Foreign Assets Control, and OFAC has prepared guidance in the form of a series of Frequently Asked Questions.

View this full client update in HTML or PDF format.