In a forthcoming Federal Register Notice, the State Department’s Directorate of Defense Trade Controls (DDTC) is announcing that it is extending until June 30, 2021 the temporary exception provision under the International Traffic in Arms Regulations (ITAR) to allow for continued telework operations during the current COVID-19 public health emergency. DDTC announced this extension “[b]ased upon continued public health recommendations and … [since] it is apparent to DDTC that regulated entities will continue to engage in social distancing measures for the foreseeable future.”

In announcing this extension, DDTC is extending certain license exceptions initiated in May 2020 (see Update of April 27, 2020). Specifically, the following temporary suspensions, modifications and exceptions are being extended as follows:

  1. A temporary suspension, modification and exception to the requirement that a “regular employee”, for purposes of ITAR § 120.39(a)(2), work at the company’s facilities, to allow the individual to work at a remote work location so long as the individual is not located in Russia or a country listed in ITAR § 126.1.
  2. A temporary suspension, modification and exception to authorize regular employees of licensed entities who are working remotely in a country not currently authorized by a technical assistance agreement, manufacturing license agreement, or exemption to send, receive, or access any technical data authorized for export, reexport, or retransfer to their employer via a technical assistance agreement, manufacturing license agreement, or exemption so long as the “regular employee” is not located in Russia or a country listed in ITAR § 126.1.

While both extensions are scheduled to expire on June 30, 2021, DDTC also announced that this extension would provide time for the agency to consider a permanent revision to the ITAR provisions relating to remote work. This proposed rule was reportedly sent for interagency review recently and DDTC has stated that it intends to provide notice of and solicit comments related to any proposed permanent revisions to the ITAR provisions related to remote work.

The Office of Foreign Assets Control (OFAC) has revised Iran-related frequently asked questions (FAQs) to clarify that the sanctions authorized against the Iranian construction, mining, manufacturing and textiles sectors, among others, will not target Iranian manufacturers of medicines, medical devices, or products used for sanitation or hygiene or as personal protective equipment, solely for use in Iran. Specifically, FAQs 830, 831, 832 and 847 provide that OFAC sanctions will not target persons engaging in significant transactions in goods or services in any of these sectors “that ensure the protection of life and prevention of injuries” in Iran.

President Trump’s January 10, 2020 Executive Order 13902 authorized sanctions against any persons or entities that knowingly engage in a significant transaction for the sale, supply or transfer to or from Iran of significant goods or services used in connection with Iranian entities designated by OFAC in these sectors of the Iranian economy, as well as any persons or entities who may materially assist, sponsor or provide financial, material or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to OFAC. For more information on this Executive Order, see update dated January 13, 2020.

In FAQ 830, OFAC provides that EO 13902 sanctions will not target the following as long as it is solely for use in Iran and not for export from Iran:

  1. Iranian manufacturers of medicines, medical devices, or products used for sanitation, hygiene, medical care, medical safety, and manufacturing safety, including soap, hand sanitizer, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment, and manufacturing safety system; or
  2. Persons conducting or facilitating transactions for the provision of such items to Iran, even if the transactions involve persons designated pursuant to EO 13902.

Similarly, FAQ 831 defines the sectors targeted by EO 13902 and excludes such persons and activity from the definition of the “manufacturing sector of the Iranian economy” and FAQ 832 excludes them from the definition of “goods or services used in connection with” the construction, mining, manufacturing and textile sectors of Iran.

With respect to transactions or activities by foreign financial institutions (FFIs) and other non-U.S. persons involving Iranian financial institutions sanctioned solely pursuant to EO 13599, FAQ 847 provides that the following categories are “non-sanctionable”:

  1. The sale, supply, or transfer of goods and services to Iran – as well as intermediate goods used for manufacturing of such goods in Iran – solely for use in Iran and not for export from Iran, to ensure the protection of life, health, and safety, such as: products used for sanitation, hygiene, medical care, medical safety, and manufacturing safety, including soap, hand sanitizer, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment, manufacturing safety systems, safety devices, alarm systems, and ventilation systems.
  2. Arrangement and facilitation of travel into, out of, and within Iran, by air, sea, or land, including travel service providers and air carrier services;
  3. The provision of medical or healthcare services to persons in Iran or ordinarily resident in Iran; and
  4. The provision of educational services by academic institutions outside Iran to persons in Iran or ordinarily resident in Iran.

Nevertheless, these transactions and activities may be sanctionable if they involve persons designated on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) in connection with Iran’s support for international terrorism or proliferation of weapons of mass destruction (WMD), unless exempt or otherwise permitted.

On December 8, 2020, the United States and Ecuador signed a new Protocol on Trade Rules and Transparency that updates the U.S.-Ecuador Trade and Investment Council Agreement (TIC Agreement).  The Protocol adds four new annexes on (i) Customs Administration and Trade Facilitation, (ii) Good Regulatory Practices, (iii) Anticorruption and (iv) Small and Medium-Sized Enterprises.  In a brief press release, U.S. Trade Representative Robert Lighthizer stated, “Today’s Protocol builds on the existing TIC Agreement to establish high standards for efficient customs procedures, transparency in regulatory development, anti-corruption policies, and cooperation and information sharing to benefit small and medium-sized enterprises.  This Protocol is an important step in establishing closer economic ties between our countries.”

On customs administration and trade facilitation, the Protocol includes, for example, provisions on advance rulings, penalties and automation, which go well beyond the baseline of the WTO Trade Facilitation Agreement. On good regulatory practices, the Protocol includes, for example, provisions for the online publication of draft regulations, regulatory impact analyses and transparency, and the assessment of the effectiveness of regulations. On anti-corruption, the Protocol expands both countries’ frameworks to include provisions addressing money laundering, effective sanctions, the accountability of public officials, and additional protections for whistleblowers. Regarding small and medium sized enterprises (SMEs), the Protocol recognizes the importance of small businesses, including micro-sized businesses, to the economies of both countries, and includes provisions promoting cooperation to increase trade and investment opportunities for SMEs.  A Fact Sheet on the four annexes is available here.

The Protocol will go into effect once each party has notified the other that it has completed the internal procedures required for the entry into force.

On December 3, 2020, the Department of Defense (DOD) released the names of four additional “Communist Chinese military companies” operating directly or indirectly in the United States in accordance with the statutory requirement of Section 1237 of the National Defense Authorization Act (NDAA) for Fiscal Year 1999, as amended. The companies are:

  • China Construction Technology Co. Ltd. (CCTC)
  • China International Engineering Consulting Corp. (CIECC)
  • China National Offshore Oil Corp. (CNOOC)
  • Semiconductor Manufacturing International Corp. (SMIC)

This list follows two other listings since June 2020 of Chinese companies with “military-civil” functions and development strategies, which according to the State Department support the modernization goals of the People’s Liberation Army (PLA) “by ensuring its access to advanced technologies and expertise acquired and developed by even those PRC companies, universities, and research programs that appear to be civilian entities.” See also Tranche 1 and Tranches 2-3.

These four companies will be affected by President Donald Trump’s November 12, 2020, Executive Order (E.O. 13959 that prohibits U.S. investment in “Communist Chinese Military Companies.”  The investment ban directed under E.O. 13959 takes effect on January 11, 2021. See International Trade Update of November 24, 2020 for more details on this Executive Order.

Section 1237 of the NDAA also authorizes the president to impose sanctions under the International Emergency Economic Powers Act (IEEPA) in the case of any commercial activity in the United States by a person/entity who is on the list published by DOD.  While formal sanctions other than the investment ban under E.O. 13959 have not yet been imposed on these listed companies, placement on the list should serve as a “red flag” for U.S. persons conducting business with these companies for potential future sanctions and export restrictions.

On December 4, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that it was terminating its Section 232 national security investigation into imports of mobile cranes.  The announcement notes that petitioner Manitowoc Company, Inc. requested on September 8, 2020, that its petition be withdrawn due to “a changing economic environment due to the effects of the COVID-19 pandemic.”  See Update of May 8, 2020, for details on the initiation of the investigation.

On November 30, 2020, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned and placed on the Specially Designated Nationals (SDN) List China National Electronics Import and Export Corporation (CEIEC). The Treasury Department indicated in a press release that this designation was due to CEIEC’s support for “the illegitimate Maduro regime’s efforts to undermine democracy in Venezuela, including its efforts to restrict internet service and conduct digital surveillance and cyber operations against political opponents. Chinese technology companies, including CEIEC, continue to challenge democratic values of freedom and transparency by developing and exporting tools to monitor, censor, and surveil citizens’ activities on the internet.” A State Department press release added that “CEIEC has provided software, training, and technical expertise to the [Maduro] regime’s entities. It provides cyber support and technical experts to state-run telecommunications provider Venezuelan National Telephone Company (CANTV) which controls 70 percent of internet service in Venezuela and frequently blocks online independent newspapers and speeches by opposition members.”

According to OFAC, CEIEC has over 200 subsidiaries and offices around the world. Thus, CEIEC’s designation on the SDN List could have far reaching implications with the application of OFAC’s “50% Rule,” which states that property of entities directly or indirectly owned 50% or more by one or more blocked persons are also considered blocked, even if not listed on the SDN List. As a result of CEIEC’s placement on the SDN List, all property and interests in property of CEIEC, or any entity in which it owns, directly or indirectly, a 50% or greater interest, that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. In announcing this action, OFAC issued General License No. 38 under the Venezuela Sanctions Regulations, which authorizes until January 14, 2021 all transactions and activities otherwise prohibited that are ordinarily incident and necessary to the wind-down of transactions involving CEIEC. The license does not authorize “any debit to an account” of CEIEC or any entity that CEIEC owns by more than 50%. Entering into new business with CEIEC “will not be considered wind-down activity” according to OFAC pursuant to a newly posted frequently asked questions.

On November 25, 2020, the State Department issued a Federal Register Notice announcing the imposition of nonproliferation measures against certain Chinese and Russian entities for the transfer of goods, services, or technology controlled under multilateral control lists (Missile Technology Control Regime, Australia Group, Chemical Weapons Convention, Nuclear Suppliers Group, Wassenaar Arrangement) or otherwise having the potential to make a material contribution to the development of weapons of mass destruction (WMD) or cruise or ballistic missile systems.  Such actions permit the imposition of export restrictions and other measures under the Iran, North Korea, and Syria Nonproliferation Act.  The State Department has identified the following entities:

  • Chengdu Best New Materials Co Ltd. (China);
  • Zibo Elim Trade Company, Ltd. (China);
  • Aviazapchast (Russia);
  • Joint Stock Company Elecon (Russia);
  • Nilco Group (aka Nil Fam Khazar Company; aka Santers Holding) (Russia).

Accordingly, as of November 6, 2020, the following measures have been imposed on these entities and any successor, sub-unit, or subsidiary thereof:

  1. No department or agency of the U.S. government may procure or enter into any contract for the procurement of any goods, technology, or services from these Chinese and Russian companies;
  2. No department or agency of the U.S government may provide any assistance to these companies, and these Chinese and Russian companies are not be eligible to participate in any assistance program of the U. S. government;
  3. No U.S. government sales to these companies of any item on the United States Munitions List (USML) are permitted, and all sales to these persons of any defense articles, defense services, or design and construction services under the Arms Export Control Act are terminated; and
  4. No new export licenses will be granted for the transfer to these companies of products, technology or software controlled under the Export Administration Regulations (EAR), and any existing such licenses are suspended.

The announcement states that these measures will remain in place for two years, except to the extent that the Secretary of State may determine otherwise.

On November 25, 2020, the Office of the U.S. Trade Representative (USTR) issued a Federal Register notice announcing that it will hold a virtual public hearing on December 28, 2020, in its ongoing investigation into Vietnam’s acts, policies and practices related to its import and use of illegally harvested or traded timber.  See Update of October 6, 2020.  A written request to appear at the hearing must be submitted no later than December 10, 2020, and must include a summary of the testimony.  The USTR is specifically interested in testimony regarding:

  • The extent to which illegal timber is imported into Vietnam.
  • The extent to which Vietnamese producers, including producers of wooden furniture, use illegal timber.
  • The extent to which products of Vietnam made from illegal timber, including wooden furniture, are imported into the United States.
  • Vietnam’s acts, policies or practices relating to the import and use of illegal timber.
  • The nature and level of the burden or restriction on U.S. commerce caused by Vietnam’s import and use of illegal timber.
  • The determinations required under section 304 of the Trade Act, including what action, if any, should be taken in the investigation.

The hearing “will not involve testimony regarding specific products or services that might be affected by an action in the investigation.”  If necessary, the USTR will offer another opportunity for public comment should it later consider actions affecting specific products or services.  After the hearing, the USTR will accept rebuttal comments until January 6, 2021, which will be limited to raising “errors of fact or analysis” in any written submissions or hearing testimony.

All written submission must be filed via the Federal eRulemaking portal at www.Regulations.gov on docket number USTR–2020–0036.

On November 25, 2020, the Office of the U.S. Trade Representative (USTR) issued a Federal Register notice announcing that it will hold a virtual public hearing on December 29, 2020, in its ongoing investigation into Vietnam’s currency valuation.  See Update of October 6, 2020.  A written request to appear at the hearing must be submitted no later than December 10, 2020, and must include a summary of the testimony.  USTR is specifically interested in testimony regarding:

  • Whether Vietnam’s currency is undervalued, and the level of the undervaluation.
  • Vietnam’s acts, policies or practices that contribute to undervaluation of its currency.
  • The extent to which Vietnam’s acts, policies or practices contribute to the undervaluation.
  • Whether Vietnam’s acts, policies and practices are unreasonable or discriminatory.
  • The nature and level of burden or restriction on U.S. commerce caused by the undervaluation of Vietnam’s currency.
  • The determinations required under section 304 of the Trade Act, including what action, if any, should be taken.

The hearing “will not involve testimony regarding specific products or services that might be affected by an action in the investigation.”  If necessary, the USTR will offer another opportunity for public comment should it later consider actions affecting specific products or services.  After the hearing, the USTR will accept rebuttal comments until January 7, 2021, which will be limited to raising “errors of fact or analysis” in any written submissions or hearing testimony.

All written submission must be filed via the Federal eRulemaking portal at www.Regulations.gov on docket number USTR–2020–0037.

Key Notes:

  • Executive Order 13959 bans U.S. persons from transacting in publicly traded securities or derivatives or similar securities of any publicly traded Chinese companies designated by the U.S. Department of Defense as enabling Chinese military aims.
  • It also authorizes the secretary of the treasury to identify subsidiaries of the named companies, which will be subject to the same restrictions.
  • Ban takes effect on January 11, 2021.

On November 12, President Donald Trump signed Executive Order 13959, “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” which prohibits U.S. persons (companies and individuals) from investing in certain Chinese firms found to be enabling the Chinese military. This is the latest effort to pressure China over what the Trump administration describes as abusive business practices in the United States.

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