In an early confidential draft of a proposed rule that BIS has shared with a technical advisory committee of industry representatives, trade press is reporting that the Department of Commerce’s Bureau of Industry and Security (BIS) may seek to restrict export transactions with 89 Chinese and 28 Russian companies that are owned or controlled by these countries’ military branches; or at the very least, have military connections.  While the draft may change before being published for comment, several significant foreign companies are reportedly identified in the current draft, including: Commercial Aircraft Corp. of China Ltd. (COMAC), Aviation Industry Corporation of China (AVIC) and ten of its subsidiaries, and Irkut Corporation.  Each of these aviation companies have existing and significant commercial relationships with U.S. companies for aircraft parts and components.

This draft rulemaking appears to be a follow-on to BIS’ April rule expanding military end use/user controls in China, Russia and Venezuela.  That final rule became effective on June 29, 2020, and expanded licensing requirements for these countries where “military end users” or “military end uses” were involved or potentially involved.  See Update of April 28, 2020.  Importantly, the rule broadened the definition of military end use beyond any item for the ‘‘use,’’ ‘‘development,’’ or ‘‘production’’ to now include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, ‘‘development,’’ or ‘‘production,’’ of military items. Significantly, BIS noted at the time that these expansions “will require increased diligence with respect to the evaluation of end users in China, particularly in view of China’s widespread civil-military integration.”  While the full impact of this early draft proposed rule is not known, the listing of these Chinese and Russian companies would likely require U.S. companies to apply for export licenses in order to transact with and export to any listed company.  If treated in a manner similar to how those foreign companies placed on BIS’ Entity List are treated, the result could be an overall “policy of denial” when considering such licenses.

BIS has not commented on the confidential draft.  Thompson Hine trade attorneys and practitioners are closely following this development and will report further on any formal notifications published by BIS.

Since April 2020, we have collaborated with our foreign law firm partners to provide a chart summarizing the economic, labor and employment, health and safety, and export and import measures taken by governments around the world in response to the COVID-19 pandemic. After a short break, we are back with version 2.0 of our chart with substantive changes to reflect the most pressing and interesting government measures concerning the COVID-19 pandemic. The new version of the chart includes a concise, corporate-focused and user-friendly list of government measures and includes areas of interest such as tax, insolvency/restructuring, business immigration, government contracts and international trade.

Please feel free to contact us or the firms listed on the chart directly with any questions.

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

This update includes new information through the first week 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, South Africa, Spain, Thailand, Turkey, United Kingdom, United States and Vietnam.

After a brief period of relaxing restrictions on public gatherings during the summer, many countries recently started re-introducing measures to restrict public gatherings or movement of persons to address the rising number of COVID-19 cases.

In Europe, some countries, including France, imposed country-wide lockdowns at least until the end of November 2020. Many other countries continue to keep social distancing requirements in place and introduced new regional lockdown requirements based on the infection numbers of local populations. In the United States, states and counties continue to differ in their approaches to business closures and reopenings as well as face mask requirements. In Asia and the Americas, the general trend indicates that countries adopted a risk-based system to identify high-risk populations and restrict their activities as such.

Many governments also continue to support workers affected by the economic instability caused by the pandemic with measures including short-time compensation procedures, social security benefits or otherwise introduced regulations to ensure that workers receive personal protection equipment or are not discriminated against.

In connection with economic/corporate measures, most governments have taken various tax measures, including tax exemptions, to address the difficulties endured by businesses affected by the pandemic-related economic instability. Similarly, some governments have introduced new measures to provide more liquidity to support small, medium-sized and large businesses.

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. In the area of international trade, some countries continue to restrict exports of certain personal protection equipment and introduced new measures to subject foreign investments to increased scrutiny, especially investments linked to public health emergencies.

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

On November 17, 2020, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8G, “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities.”  This general license continues to authorize transactions and activities “ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements,” that

i.  are for safety or the preservation of assets in Venezuela;

ii.  involve PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest; and

iii.  were in effect prior to July 26, 2019, for the following entities and their subsidiaries:

    • Chevron Corporation
    • Halliburton
    • Schlumberger Limited
    • Baker Hughes, a GE Company
    • Weatherford International, Public Limited Company

The term “safety or the preservation of assets” covers transactions and activities necessary “to ensure the safety of personnel, or the integrity of operations and assets in Venezuela; participation in shareholder and board of directors meetings; making payments on third-party invoices for transactions and activities authorized” under this general license (or prior to April 21, 2020, if such activity was authorized at that time) as well as “payment of local taxes and purchase of utility services in Venezuela; and payment of salaries for employees and contractors in Venezuela.”  The general license authorizes such activities involving PdVSA and the other listed entities through 12:01 a.m. EST, June 3, 2021.

General License 8G does not authorize any activities related to Venezuelan-origin petroleum or petroleum products; the provision of insurance for such products; the design, construction or work on wells or other facilities or infrastructure in Venezuela; contracting any additional personnel or services (except as required for safety); or, the payment of any dividends to PdVSA.  Further, this General License does not authorize transactions related to the export or re-export of diluents to Venezuela; the issuance of any loans to, or accrual of additional debt by, or subsidization of PdVSA; or, any transactions prohibited by OFAC’s Venezuela Sanctions Regulations (31 C.F.R. part 591) or with any blocked persons other than those identified in this General License.

General License 8G, replaces and supersedes General License 8F.

On November 9, 2020, the EU, pursuant to World Trade Organization (WTO) authorization, applied approximately $4 billion worth of retaliatory tariffs on U.S. goods in the latest chapter of the long-running dispute between the EU and the United States over government subsidies provided to both Boeing and Airbus. This retaliation follows an October 2020 WTO arbitrator ruling allowing the EU to take such countermeasures. See Update of October 15, 2020. The EU’s implementing regulation for the tariffs states: “At present, the amount is considered appropriate to effectively induce compliance and provide relief to EU economic operators because, in the current economic climate, it permits measures to be imposed on U.S. large civil aircraft and other products that are considered sufficiently similar to the countermeasures imposed by the United States.”

According to a European Commission press release, the tariffs “bring the EU equal footing with the U.S., with sizeable tariffs on each side based on two WTO decisions related to aircraft subsidies.” Valdis Dombrovskis, EU Commissioner for Trade, said, “We have made clear all along that we want to settle this long-running issue. Regrettably, due to lack of progress with the U.S., we had no other choice but to impose these countermeasures.” The countermeasures include additional 15% tariffs on U.S. aircraft and 25% tariffs on a range of U.S. agricultural and industrial products, including fresh and frozen fish, fresh and dried fruits and vegetables, cocoa powder and chocolate, nuts and seeds, cotton, orange juice and grapefruit juice, spirits and alcohol, certain polymers, suitcases and handbags, shovel loaders and tractors, and exercise equipment.

The United States has already imposed its own tariffs on approximately $7 billion worth of EU products authorized by the WTO in a related dispute. See Updates of August 13, 2020, February 17, 2020, and October 4, 2020. In response to the EU’s action, Ambassador Robert Lighthizer stated: “The United States is disappointed by the action taken by the EU today. The alleged subsidy [a Washington State tax provision] to Boeing was repealed seven months ago. The EU has long proclaimed its commitment to following WTO rules, but today’s announcement shows they do so only when convenient to them.”

The Bureau of Industry and Security (BIS) has issued a proposed rule to add certain genetic element design software to the Commerce Control List. Specifically, on November 6, 2020, BIS issued a proposal to add “software” for the operation of nucleic acid assemblers and synthesizers already controlled under ECCN 2B352 that is capable of designing and building functional genetic elements from digital sequence data to the Commerce Control List (CCL) under new ECCN 2D352.

The notice stated that “BIS has determined that this “software” is capable of being used … for the purpose of generating pathogens and toxins without the need to acquire controlled genetic elements and organisms. Consequently, the absence of export controls on this “software” could be exploited for biological weapons purposes.” BIS also noted that this software is not currently included on any of the Australia Group (AG) common control lists; therefore, the new controls would be unilateral.

The description of ECCN 2E001 already controls technology for the development of software controlled under Category 2D of the CCL. Therefore, if the proposed rule goes into effect, ECCN 2E001 would control “technology” for the “development” of the “software” that would be controlled under new ECCN 2D352.

BIS requested comment on whether these new controls should be multilateral instead of unilateral.  In addition, BIS specifically requested comment on:

  1. Whether the proposed controls are clear and adequately address “emerging and foundational technologies” within the context of biological weapons related capabilities and developments (to the extent that this is not the case, comments should identify specific control text that would be more appropriate to these ends);
  2. The current capability for the “development” of such “software” in the United States and other countries, including the extent to which the proposed controls would affect “software” that is currently being produced and/or sold, either within or outside the United States (e.g., whether the proposed controls would inadvertently control any “software” that is suitable almost exclusively for legitimate commercial or scientific applications);
  3. The effect that implementation of the proposed controls would have on the future “development” of such “software” and related “technology” in the United States; and
  4. The effectiveness of the proposed controls in terms of limiting the availability of such “software” and related “technology” abroad.

The comment period is open until December 21, 2020. Comments may be filed on the Federal eRulemaking Portal: http://www.regulations.gov on Docket Number BIS-2020-0024.

On November 5, 2020, the United States and Mexico announced that they had concluded consultations pursuant to their Joint Statement of May 17, 2019 to address the transshipment of grain-oriented electrical steel (GOES) from outside North America into the United States through GOES-containing downstream products. The May 2019 Statement committed Mexico (and Canada) to implement measures (1) to prevent the importation of certain steel and aluminum products into the United States that are unfairly subsidized or sold at dumped prices and (2) to prevent the transshipment into the United States of aluminum and steel made outside of Canada, Mexico or the United States. Mexico has now established a strict monitoring regime for exports of electrical transformer laminations and cores made of non-North American GOES. According to the Office of the U.S. Trade Representative (USTR), Mexico will begin monitoring in the fourth quarter of 2020 shipments of these products to the United States. Further, the United States and Mexico will consult at regular intervals on the implementation of these agreed measures and on the state of bilateral trade and market conditions relating to GOES products.

As a result of Mexico’s commitment to such monitoring, Ambassador Robert Lighthizer stated that imports from Mexico will not be subject to any action to adjust imports of electrical transformers and related parts arising from the U.S. government’s ongoing national security Section 232 investigation into imports related to electrical transformers for the bulk-power system grid. Ambassador Lighthizer thanked Mexico for its commitment to monitor these imports, stating: “The resilience of North America’s energy infrastructure is significantly enhanced by having electrical steel production capability within our region.  An influx of low-price steel from third countries imperils this capability.”

For additional background information, please see updates of May 20, 2019 and May 19, 2020.

On October 29, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Federal Register notice announcing further amendments to the Export Administration Regulations (EAR) to revise the license review policy for items controlled for national security reasons destined to the People’s Republic of China (PRC), Venezuela or the Russian Federation (Russia). BIS has increasingly sought to prevent efforts by entities in China, Russia and Venezuela to acquire U.S. technology that could be used in the development of weapons, military aircraft or surveillance technology through civilian supply chains or under civilian-use pretenses. Please see our prior updates of April 28, 2020 and June 26, 2020).

This action amends the license review policy for items that have a national security (NS) reason for export control. Effective October 29, 2020, BIS will determine, “on a case-by-case basis, whether the proposed export, reexport, or in-country transfer of such items will make a material contribution to the weapons systems capability of [China, Russia, and Venezuela].”

In order to do so and to assist exporters in preparing license applications, BIS has prepared an illustrative list of factors that will be considered in reviewing all license applications. This list will include consideration of:

  • The appropriateness of the export for the stated end use;
  • The significance of the item for the weapons systems capabilities of China, Russia or Venezuela;
  • Whether any party is a military end user;
  • The reliability of the parties to the transaction, including whether: (i) an export license application has previously been denied; (ii) any parties are or have been engaged in unlawful procurement or diversion activities; (iii) the parties are capable of securely handling and storing the items; and (iv) end-use checks have been and may be conducted by BIS;
  • The involvement of any party to the transaction in military activities;
  • Government strategies and policies that support the diversion of exports from their stated civil end use and redirection towards military end use; and
  • The scope and effectiveness of the export control system in the importing country.

In addition, BIS will also undertake in any review “an assessment of the impact of a proposed export of an item on the United States defense industrial base” and whether “the denial of an application for a license that would have a significant negative impact.”

BIS notes that license applications for exports destined for a civil end user for civil end uses in China, Russia or Venezuela will continue to be reviewed under a “presumption of approval,” and that there will continue to be a license review policy of a “presumption of denial” for applications to export items that would “make a material contribution to the ‘development,’ ‘production,’ maintenance, repair, or operation of weapons systems, subsystems, and assemblies.”

On October 27, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a final rule in the Federal Register amending the Cuban Assets Control Regulations (CACR) to remove from the scope of generally authorized remittances any transactions involving “entities or subentities” identified on the U.S. Department of State’s Cuba Restricted List. The amendment will restrict these entities’ access to funds obtained in connection with remittance-related activities, including in their role as intermediaries or in their receipt of fees or commissions from processing remittance transactions.  The amendment becomes effective on November 26, 2020.

Specifically, the final rule’s amendment will directly impact the scope of the following general licenses:

  • 31 CFR § 515.570, authorizing certain types of remittances to Cuba from persons subject to U.S. jurisdiction or from blocked accounts;
  • 31 CFR § 515.572(a)(3), authorizing certain travel related and remittance forwarding services; and
  • 31 CFR § 515.587, authoring certain remittances from Cuban nationals to persons subject to U.S. jurisdiction.

The rule will also amend 31 CFR § 515.421 (authorizing certain transactions ordinarily incident to licensed transactions) to make clear that a transaction relating to the “collection, forwarding, or receipt of remittances” involving any entity or subentity identified on the Cuba Restricted List “is not authorized as an ordinarily incident transaction where the terms of the general or specific license expressly exclude any such transactions.”

As a result of these amendments, effective November 26, 2020, persons subject to U.S. jurisdiction will no longer be authorized to process remittances to or from Cuba through FINCIMEX and AIS or any other entity or subentity on the Cuba Restricted List.

On October 20, 2020, U.S. Customs and Border Protection (CBP) issued a finding determining that stevia extracts and derivatives, mined, produced, or manufactured in the People’s Republic of China (China) by the Inner Mongolia Hengzheng Group Baoanzhao Agriculture, Industry, and Trade Co., Ltd. (Baoanzhao) with the use of convict, forced or indentured labor, are being, or are likely to be, imported into the United States. Based upon this determination, U.S. port directors may seize the covered merchandise for violation of 19 U.S.C. 1307 (which prohibits the importation of such goods) and commence forfeiture proceedings. This finding applies to any such merchandise that is imported on or after October 20, 2020; or which has already been imported and has not been released from CBP custody before October 20, 2020.

This finding covers stevia leaf (Stevia rebaudiana) extracts, or glycosides classified under U.S. Harmonized Tariff Schedule subheading 2938.90.0000, that are mined, produced or manufactured wholly or in part by Baoanzhao in China. This entity is also known by the following names: The Inner Mongolia Hengzheng Group Baoanzhao Agriculture and Trade Co., Ltd.; the Inner Mongolia Autonomous Region Prison Administration Bureau Baoanzhao Agriculture and Trade Co., Ltd.; and the Baoanzhao Prison Farm.

On October 19, 2020, the Department of Justice (DOJ) filed a motion before the U.S. Court of International Trade (CIT) in the matter of HMTX Industries LLC, et al. v. United States of America, et al. asking that the CIT adopt case management procedures to administer not only this case but also the approximately 3,600 complaints filed since September 10, 2020. As previously noted on the SmarTrade blog, a complaint was filed on September 10, 2020, with the CIT alleging that President Donald Trump and the Office of the U.S. Trade Representative had unlawfully implemented a third and fourth round of tariffs against China beyond the scope allowable under the Trade Act of 1974 and beyond the stated impact of China’s unfair trade policies and practices. See Update of September 10, 2020. The initial complaint filed by HMTX Industries LLC led to an avalanche of additional cases filed by thousands of affected importers. To date, the DOJ has entered its appearance and responded only to this first-filed complaint but is seeking permission from the CIT, inter alia, to treat certain cases as the lead cases and to treat all submissions in those cases as filed in the others.

The October 19, 2020 DOJ motion asks the CIT stay all related cases, and, if it is not granted by November 9, 2020, that it be deemed a motion for an extension of time in both the HMTX Industries case and all of the related cases.   The DOJ notes that all of the cases challenge tariffs imposed by USTR in the Section 301 investigation concerning China and that plaintiffs in all of the cases contest additional tariffs imposed by “List 3” or “List 4A” (the lists) because the action was allegedly unauthorized by Section 301 of the Trade Act of 1974. The DOJ thus requests the following case management process for all Section 301-related cases before the CIT:

  • Automatic Stay: The DOJ requests that the CIT automatically stay all pending Section 301-related cases identified in an attachment to its motion, except for one or more “test cases.” To be released from this stay, a plaintiff, according to the DOJ, must “make a showing of good cause” and must consult with the Plaintiffs’ Steering Committee before such a release.
  • Plaintiffs’ Steering Committee: The DOJ requests that the CIT appoint a steering committee consisting of several lead counsel for the plaintiffs. While deferring to plaintiffs’ counsel on the composition of this committee, the DOJ has recommended that the attorneys for the first three cases filed be appointed as the Steering Committee.
  • Service/Notice of Filing Mechanism: The DOJ requests that the CIT not require the U.S. government parties to file entries of appearance in each individual case, or to file copies of documents in each individual case. Instead, the DOJ asks the CIT to create “a tab on its website so that all parties and their counsel can have notice of any case management submission or filing in the ‘test case(s)’ and that all filings be made in the ‘test case(s).'”
  • Designation of Test Case(s): The DOJ requests that the CIT designate the HMTX Industries case, the first-filed case, as the test case. It further requests that the CIT establish a deadline of 30 days from the date of the entry of any order on this matter for any plaintiffs that believe their complaints would constitute a better or additional test case to file a request with the CIT.
  • Amicus Curiae Participation: The DOJ requests that the CIT provide for amicus participation in the test case(s) by other plaintiffs. To participate as amicus curiae, the DOJ proposes that plaintiffs be required to file a notice within 30 days of the selection of any additional “test cases” to note that they intend to serve as amicus curiae. Further, the DOJ proposes that amicus curiae briefs be filed after the briefs filed by the test case plaintiffs, that amicus curiae should not be permitted to repeat arguments raised by the test case plaintiffs, and that their briefs be limited to 10 pages.
  • Briefing Schedule: The DOJ requests that a briefing schedule proceed but that the U.S. government parties’ motion to dismiss be briefed and decided first before the CIT proceeds with the merits of the case. The DOJ affirmed that it would be filing a motion to dismiss based on plaintiffs’ “failure to state a claim upon which relief can be granted.”

In its motion, the DOJ acknowledges that plaintiffs have filed a motion asking the CIT to appoint a three-judge panel for any proceeding. The DOJ states that it does not object to this motion and defers to the CIT in determining whether it will appoint such a panel to resolve the substantive claims and defenses raised in these cases. However, the DOJ argues that case management would be better handled by a single judge. This motion is expected to trigger a raft of challenges by plaintiffs’ counsel in all of the Section 301-related cases on such DOJ positions as the composition of the Plaintiffs’ Steering Committee and the designation of appropriate test cases.

Thompson Hine attorneys and trade professionals represent a number of plaintiffs in this matter and will continue to generally report on the litigation status as warranted.