The Office of the U.S. Trade Representative (USTR) has announced that it is extending until March 31, 2021, Section 301 tariff exclusions for imports of certain Chinese medical care products needed to address the COVID-19 pandemic. Effective January 1, 2021, Section 301 tariff exclusions have been extended for a variety of Chinese medical care products, including but not limited to: face shields; certain sterile drapes and covers; gloves; face masks; hot and cold packs; otoscopes; certain woven gauze sponges; certain non-woven fabrics; certain microscopes; certain dispensers and hand pumps for liquids; certain plastic aprons for personal protection; certain molded acrylonitrile-butadiene-styrene (ABS) tubes; certain adhesive polyethylene films, sheets and strips; and certain parts and components for X-ray and MRI equipment.

These exclusions are available for any product that meets the description in the annexes accompanying the USTR announcement. The scope of each exclusion is determined by the scope of the 10-digit Harmonized Tariff Schedule subheadings and the product descriptions in the annexes.

On December 22, 2020, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) formally added the Central Bank of Syria (CBoS) to the Specially Designated Nationals (SDN) List. While OFAC notes that the bank is “already blocked as meeting the definition of the Government of Syria in [Executive Order] 13582 and the Syrian Sanctions Regulations, 31 C.F.R. Part 542,” this formal listing serves to highlight its blocked status. According to OFAC, CBoS oversees monetary policy in Syria, issues the national currency, regulates the operations of private sector banks and money services businesses, and acts as the fiscal and depository agent of the government of Syria. The CBoS has deep banking ties to Iran, the world’s largest state sponsor of terrorism, and has been an integral part of the regime’s efforts to increase public revenues and prop up the Syrian currency. The Department of the Treasury stated that formal placement on the SDN List “aims to discourage future investment in government-controlled areas of Syria, force the regime to end its atrocities against the Syrian people, and compel its commitment to the United Nations-facilitated process in line with UN Security Council Resolution 2254.”

In addition, OFAC sanctioned a high-ranking official in the Syrian government whose husband is a member of the Syrian People’s Assembly and their business entities.

As a result of this action, all property and interests in property of these entities and persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. Unless authorized by a general or specific license issued by OFAC or otherwise exempt, OFAC’s regulations generally prohibit all dealings 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. In addition, non-U.S. persons that engage in certain transactions with the persons designated may be exposed to designation. However, OFAC has updated FAQs 867 and 868 pertaining to Syria, stating that despite the placement of CBoS on the SDN List, U.S. and non-U.S. persons may continue to engage with the bank in connection with humanitarian assistance and other authorized trade (i.e., under general and specific licenses).

On December 23, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Federal Register notice in which it amends the Export Administration Regulations (EAR) by adding a new Military End User (MEU) List. This list identifies entities that BIS has determined are military end users for purposes of the “military end user” export control restrictions set forth in the EAR (i.e., 15 C.F.R. § 744.21) that apply to specified items for exports, reexports, or transfers (in-country) to the People’s Republic of China (China) and Russia when such items are destined for a military end user. This final rule adds 102 “military end users” to the newly created MEU List, consisting of 57 under China and 45 under Russia.

BIS notes that it created the list after continuing requests by U.S. companies and exporters for clarity (over 80 requests for advisory opinions have been submitted since the April 2020 MEU rule has been published – see Update of April 28, 2020), and to “inform all potential exporters, reexporters, and transferors that all exports, reexports, or transfers (in-country) of designated items to these entities represent an unacceptable risk of use in or diversion to a ‘military end use’ or a ‘military end user’ for purposes of § 744.21, and therefore require a license.” (Emphasis added.) BIS notes, however, that the establishment of this MEU List “does not imply that other parties, not included on the list, are not subject to the ‘military end-use’ and ‘military end user’ controls under the EAR.” U.S. exporters continue to be expected to conduct sufficient due diligence regarding transactions involving exports to China and Russia.

BIS clearly states in this final rule that “compliance remains the obligation of the exporter, reexporter or transferor” and that exclusion from the MEU list is not indicative of whether or not an export license is required. As such, 15 C.F.R. § 744.21(a) continues to set forth a license requirement for items identified in Supplement No. 2 for transactions involving China, Russia and Venezuela, when the exporter, reexporter, or transferor has “knowledge” that the item is destined for a “military end use” (as defined in § 744.21(f)) or “military end user” (as defined in § 722.21.(g)). Continued due diligence, screening parties against the necessary U.S. denied/restricted party lists, application of BIS’ “Know Your Customer” guidelines and “Red Flag” indicators, as well as obtaining necessary end-use certifications remain important compliance tools.  BIS also highlighted that, for China, exporters should also be screening against Department of Defense’s Section 1237 list of the National Defense Authorization Act (see Update of December 7, 2020).

For those Chinese and Russian “military end users” placed on this first MEU List, no EAR license exceptions are available for transactions involving the listed entities for items specified in Supplement No. 2 to part 744, except license exceptions for items authorized under the provisions of License Exception GOV (i.e., exports to U.S. government agencies and recognized international organizations). Further, BIS’s license review policy for license applications where a military end use or military end user is known, will be a presumption of denial.

In the future, additional parties may be added or deleted from the MEU List as determined by BIS, and consultations with the Departments of Defense, Energy, State and the Treasury.

On December 21, 2020, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned three entities it has identified are controlled by the Cuban military and that have “strategic roles in the Cuban economy.” OFAC has placed the following three entities on the Specially Designated Nationals (SDN) List: (1) Grupo de Administración Empresarial S.A. (GAESA) and two of its subsidiaries, (2) Financiera Cimex S.A. (FINCIMEX) and (3) Kave Coffee, S.A. According to OFAC, GAESA is a Cuban military-controlled umbrella enterprise with interests in the tourism, financial investment, import/export, and remittance sectors of Cuba’s economy. GAESA’s portfolio includes businesses incorporated in Panama to bypass CACR-related restrictions. Although Cuba is an embargoed country under U.S. sanctions, the listing of these companies also targets their operations in Panama and clearly states the U.S. government’s position that these companies are ultimately Cuban state-owned businesses under which no license exceptions would generally apply.

GAESA and FINCIMEX are also listed on the State Department’s List of Restricted Entities and Subentities Associated with Cuba (Cuba Restricted List). This list identifies entities and subentities under the control of, or acting for or on behalf of, the Cuban military, intelligence, or security services or personnel with which direct financial transactions would disproportionately benefit such services or personnel at the expense of the Cuban people or private enterprise in Cuba. Although the SDN listing is more broadly restrictive, being placed on the State Department’s Cuba Restricted List means that direct financial transactions with such listed entities are restricted and certain license exceptions do not apply.

On December 22, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued formal notification in the Federal Register of its addition of 77 entities to its Entity List. BIS determined that these entities are “engaging in or enabling activities contrary to U.S. national security and foreign policy interests.”  While these listings were effective as of December 18, this notice provides further details on the entities and the rationale for their placement on the Entity List.

Of particular interest, Semiconductor Manufacturing International Corporation Incorporated (SMIC) has been added to the Entity List as a result of China’s military-civil fusion efforts and “evidence of activities between SMIC and entities of concern in the Chinese military industrial complex.” The Entity List designation limits SMIC’s ability to acquire certain U.S. technology by requiring exporters, reexporters, and in-country transferors of such technology to apply for a license to sell to the company. BIS notes that items uniquely required to produce semiconductors at advanced technology nodes 10 nanometers or below will be subject to a presumption of denial to prevent such key enabling technology from supporting China’s military modernization efforts. SMIC and the following 10 related companies have been added to the Entity List:

  • Semiconductor Manufacturing International (Beijing) Corporation;
  • Semiconductor Manufacturing International (Tianjin) Corporation;
  • Semiconductor Manufacturing International (Shenzhen) Corporation;
  • SMIC Semiconductor Manufacturing (Shanghai) Co., Ltd.;
  • SMIC Holdings Limited;
  • Semiconductor Manufacturing South China Corporation;
  • SMIC Northern Integrated Circuit Manufacturing (Beijing) Co., Ltd.;
  • SMIC Hong Kong International Company Limited;
  • SJ Semiconductor; and
  • Ningbo Semiconductor International Corporation (NSI).

In addition, BIS has added the following entities to the Entity List for enabling “widescale human rights abuses in China through abusive genetic collection analysis or high-technology surveillance, and/or facilitated the export of items by China that aid repressive regimes around the world”: (i) AGCU Scientech; (ii) China National Scientific Instruments and Materials (CNSIM); (iii) DJI; and (iv) Kuang-Chi Group. The additions to the Entity List also include China Communications Construction Company Ltd. for enabling China to “reclaim and militarize disputed outposts in the South China Sea, which has been detrimental to U.S. national security.” BIS has listed numerous Chinese shipbuilding companies involved in China’s efforts to “assert its unlawful maritime claims in the South China Sea, as well as efforts to intimidate and coerce other coastal states from accessing and developing offshore marine resources.”

Other Chinese companies have been added to the Entity List for their efforts to acquire and attempting to acquire U.S.-origin items in support of programs for the People’s Liberation Army, or efforts to impair U.S. efforts to counter illicit international trafficking in nuclear and other radioactive materials. While these new listings mostly comprise Chinese companies, it should be noted that several entities located in Bulgaria, France, Germany, Hong Kong, Italy, Malta, Pakistan, Russia, and the United Arab Emirates (UAE) have also been added to the Entity List for various actions contrary to the national security of the United States.

BIS has clarified that shipments of items removed from eligibility for a License Exception or export or reexport without a license (NLR) to these newly listed entities as a result of this action “that were en route aboard a carrier to a port of export or reexport, on December 22, 2020, pursuant to actual orders for export or reexport to a foreign destination, may proceed to that destination under the previous eligibility for a License Exception or export or reexport without a license (NLR).”

See also Update of December 18, 2020 for further details and links pertaining to SMIC.

We continue to collaborate with our foreign law firm partners to monitor and report on the most relevant government measures worldwide addressing the COVID-19 pandemic. The newest version of the chart, which can be accessed at the link below, includes a concise, corporate-focused and user-friendly list of government measures and covers such areas as tax, insolvency/restructuring, business immigration, government contracts and international trade. Please contact us or the firms listed on the chart directly with any questions.

View/Download (PDF): Country-by-Country Guide 2.0: Government Measures Taken in Response to COVID-19

This update includes new information through the end of November 2020 for Australia, Belgium, Brazil, Canada, Chile, China, Costa Rica, Czech Republic, El Salvador, European Union, France, Germany, Guatemala, Honduras, Hungary, India, Indonesia, Israel, Japan, Mexico, Netherlands, Panama, Philippines, Poland, Republic of Korea, Russia, Spain, Thailand, Turkey, United Kingdom, United States and Vietnam.

Many countries continue to re-introduce health and safety measures previously implemented in March 2020 to restrict public gatherings or movement of persons to address the rising number of COVID-19 cases. In Europe, some country-wide lockdowns have been extended until the end of December 2020 and January 2021. Many other countries continue to keep social distancing requirements in place and have introduced new regional curfews or lockdown requirements based on the numbers of infections within local populations. In the United States, states and counties continue to differ in their approaches to both business closures/reopenings and face mask requirements. In Asia and the Americas, the general trend indicates that countries have adopted a risk-based system to identify high-risk populations and to restrict their activities accordingly. In Asia, international travel restrictions have been eased in some countries, with a focus on workers.

Most governments continue to support their workers and employers affected by the economic instability caused by the pandemic. Most governments have taken various measures, including tax exemptions and loan facilities, to address the difficulties endured by businesses affected by the pandemic-related economic instability. Measures include short-term compensation procedures, social security benefits or other regulations to ensure that workers receive personal protection equipment or do not face discrimination.

As to government contracts, some governments issued measures to address COVID-19-related economic difficulties, including easing the termination of contracts for force majeure or introducing emergency procurement regimes to speed up the procurement process. Additionally, there is an increased attention on investment and regulations involving critical infrastructure in the Americas and Europe to support COVID-19 efforts.

In the area of international trade, some countries continue to restrict exports of certain personal protective equipment and have introduced new measures to subject foreign investments to increased scrutiny, especially investments linked to public health emergencies. Foreign investment in healthcare and related infrastructure continue to be regulated around the world.

Please see our update of April 7, 2020 for a discussion of this initiative tracking pandemic-related measures taken by governments worldwide.

On December 18, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a brief press statement announcing that it has “added” more than 60 entities to the Entity List, including Chinese company Semiconductor Manufacturing International Corporation (SMIC), in order to “protect U.S. national security.” The Chinese companies include entities that enable human rights abuses, supported the militarization and unlawful maritime claims in the South China Sea, acquired U.S.-origin items in support of the People’s Liberation Army’s programs, and engaged in the theft of U.S. trade secrets. Regarding SMIC, BIS noted that the listing “stems from China’s military-civil fusion (MCF) doctrine and evidence of activities between SMIC and entities of concern in the Chinese military industrial complex.” BIS also stated that the United States “will not allow advanced U.S. technology to help build the military of an increasingly belligerent adversary.” U.S. exporters will be required to apply for a license in order to sell and ship items, software and technology to SMIC and these other entities on the BIS Entity List. BIS specifically stated that “[i]Items uniquely required to produce semiconductors at advanced technology nodes—10 nanometers or below—will be subject to a presumption of denial to prevent such key enabling technology from supporting China’s military-civil fusion efforts.”

SMIC’s has come under scrutiny by U.S. export enforcement and national security agencies for the past few months. The Department of Defense recently announced that the company operates as one of many “Communist Chinese military companies” (see Update of December 7, 2020) and on November 12, 2020 President Trump issued an Executive Order prohibiting U.S. investment in such companies (see Update of November 24, 2020).

Thompson Hine LLP will report further on this development once BIS issues a formal Federal Register notice regarding this action.

On December 11, 2020, the Treasury Department submitted its first report to Congress under the Hong Kong Autonomy Act, stating that to date it has not identified any foreign financial institutions (FFIs) that have knowingly conducted a significant transaction with an identified foreign person under the Hong Kong Autonomy Act (HKAA). The Department of the Treasury’s Office of Foreign Assets Control (OFAC) notes that it continues to monitor for any activity that meets reportable criteria, and states that it will continue to engage foreign governments and FFIs to “ensure they understand the reporting requirements and sanctions risks under the HKAA.”

Under the HKAA, enacted on July 14, 2020 (see Update of July 16, 2020), the State Department must review and determine if any foreign person “is materially contributing to, has materially contributed to, or attempts to materially contribute to the failure of the government of China to meet its obligations under the Sino-British Joint Declaration (‘Joint Declaration’) or Hong Kong’s Basic Law.” Once so identified, the State Department must notify Congress and OFAC of the foreign person and provide a description of the activity that resulted in the identification. On October 14, 2020, the Secretary of State issued such a report, see Update of October 15, 2020. OFAC had previously sanctioned most of these persons and placed them on the Specially Designated Nationals (SDN) List, see Update of August 10, 2020. However, the Department of the Treasury is further tasked with then attempting to identify any foreign financial institution that knowingly conducts a significant transaction with a foreign person identified by the State Department.

On December 14, 2020, the State Department announced that the United States was rescinding Sudan’s designation as a State Sponsor of Terrorism. The brief statement indicated that this removal “represents a fundamental change in our bilateral relationship toward greater collaboration and support for Sudan’s historic democratic transition. This achievement was made possible by the efforts of Sudan’s civilian-led transitional government to chart a bold new course away from the legacy of the Bashir regime.”

From a U.S. export control and sanctions perspective, this announcement should set the stage for the removal of Sudan from the anti-terrorism (AT) list under the Export Administration Regulations (EAR) and remove the Department of Commerce’s Bureau of Industry and Security’s (BIS) general policy of denial for issuing any export licenses for U.S. exporters seeking to do business in Sudan. While the Treasury Department’s Office of Foreign Assets Control (OFAC) relaxed its sanctions program toward Syria in 2017 (see OFAC – Sudan Sanctions), this action should also lead to further changes to OFAC’s Sudanese sanctions regulations.

In a Federal Register interim rule to be published on December 14, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that it was revising certain aspects of the process for requesting exclusions from the additional duties and quantitative limitations implemented on imports of aluminum and steel under Section 232 of the Trade Expansion Act of 1962. This interim rule is the result of BIS’s effort to revamp the exclusion request process after continued criticism from the public and Congress. In May 2020, BIS sought public comment on the process; see Update  of May 26, 2020 for additional details. Because it is an interim rule, a final public comment period will be available.

The interim rule makes three key changes to the 232 exclusion process:

  1. It establishes a “more efficient method for approving exclusions where objections have not been received in the past for certain steel or aluminum articles.” BIS will create “General Approved Exclusions” (GAEs) that may be used by any importing entity. BIS estimates that this change will result in a decrease of 5,000 exclusion requests annually. The issuance of GAEs covering certain steel or aluminum articles will be determined by BIS, in consultation with other agencies as necessary. BIS states that the public will not be involved in requesting new or revised GAEs but that BIS “will use the information provided in exclusion requests to inform its review.” Generally, GAEs will provide blanket exemptions for articles that previously received individual exclusions unopposed by domestic steel and aluminum producers. In establishing GAEs, BIS makes clear in the interim rule that (i) there will be no retroactive relief available when using GAEs; (ii) relief is only available to steel or aluminum articles that are entered for consumption, or withdrawn from warehouse for consumption, on or after the effective date of a GAE; and (iii) these GAEs are indefinite in length, but may be removed, revised or added to at any time by BIS via a Federal Register notice.
  2. It acknowledges that certain exclusion requesters may have requested more volume than needed and that “submitting large numbers of unneeded exclusion requests decreases the efficiency” of the exclusion process and creates issues for potential objectors. In response, the interim rule establishes a new certification for importers seeking an exclusion that will include the volume of imports required to ensure that the request “is consistent with the past use of steel or aluminum by an exclusion requester.” The interim rule also reminds parties of the prohibition against making false statements.
  3. It addresses complaints by U.S. objectors that they faced a higher standard than foreign suppliers because of BIS’s prior interpretation of the term “immediately,” which required an objector to provide the steel or aluminum articles within eight weeks but allowed the foreign supplier much longer than eight weeks to provide the same steel or aluminum articles. The interim rule retains the term “immediately” but has been modified to apply the same time standard to U.S. objectors and foreign suppliers.

The interim rule reduces the allowable length for exclusion requests, objections, rebuttals and surrebuttals. The rule removes the 25-page limit for exclusions and objections and replaces it with a 5,000-word limit and removes the 10-page limit for rebuttals and replaces that with a 2,500-word limit.

Public comments on this interim rule will be accepted until February 12, 2021. Any comments must be submitted electronically via the Federal eRulemaking website: http://www.regulations.gov on Docket number BIS-2020-0022 or RIN 0694-AH55.