On September 25, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Federal Register notice reopening the public comment period for its Section 232 national security investigation of imports of vanadium. BIS initially opened the investigation into vanadium imports on June 2, 2020 (see Update of June 3, 2020) as a result of a petition filed by U.S. producers AMG Vanadium LLC (Cambridge, Ohio) and U.S. Vanadium LLC (Hot Springs, Arkansas). However, in requesting public comments at that time, BIS failed to make available the petition and any relevant supporting documentation. While not clearly stating that this was the reason for reopening the comment period, BIS has now made the petition available “in the interests of transparency” and reopened the docket for public comment.

A public version of the petition, and its accompanying 43 exhibits, is available at www.regulations.gov under docket no. BIS-2020-0002. Any additional comments on the pending investigation must be filed no later than October 9, 2020, on this same docket.

On September 24, 2020, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a Federal Register notice amending the Cuban Assets Control Regulations (CACR) in order “to further implement the President’s foreign policy to deny the Cuban regime sources of revenue.” The changes will restrict: (1) lodging at certain properties in Cuba; (2) importing Cuban-origin alcohol and tobacco products; (3) attending or organizing professional meetings or conferences in Cuba; and (4) participating in and organizing certain public performances, clinics, workshops, competitions, and exhibitions in Cuba. These amendments to the CACR are effective immediately and continue President Trump’s roll back of former President Obama’s easing of sanctions toward Cuba.  According to Treasury Secretary Steven Mnuchin, “The Cuban regime has been redirecting revenue from authorized U.S. travel for its own benefit, often at the expense of the Cuban people ….This Administration is committed to denying Cuba’s oppressive regime access to revenues used to fund their malign activities, both at home and abroad.”

In brief, the amendments to the CACR include:

  • Cuba Prohibited Accommodations List – persons subject to U.S. jurisdiction are prohibited from lodging, paying for lodging, or making any reservation for or on behalf of a third party to lodge at any property that the Secretary of State has identified as owned or controlled by the Cuban government, a prohibited official of the Government of Cuba, a prohibited member of the Cuban Communist Party, a close relative of a prohibited official of the Government of Cuba, or a close relative of a prohibited member of the Cuban Communist Party.  The State Department has created the “Cuba Prohibited Accommodations List,” to identify the names, addresses, or other identifying details of properties subject to this OFAC prohibition.  The initial list includes 433 properties.
  • Cuban-Origin Alcohol and Tobacco – importation into the United States of Cuban-origin alcohol and tobacco products will be removed from several general authorizations. Previously, the importation of Cuban-origin alcohol and tobacco products as accompanied baggage was authorized for non-commercial use under certain circumstances.
  • Professional Meetings and Conferences – elimination of the general authorization of travel-related and other transactions incident to attendance at, or organization of, professional meetings or conferences in Cuba. Going forward, such transactions will only be authorized by specific licenses on a case-by-case basis to the extent not authorized under other travel-related authorizations.
  • Public Performances, Clinics, Workshops, Competitions, and Exhibitions – elimination of the general authorization related to public performances, clinics, workshops, other athletic or non-athletic competitions, and exhibitions. Going forward, these activities will only be authorized by specific licenses on a case-by-case basis. As a result of this amendment, according to OFAC, the only remaining general license for participation in and organization of athletic competitions in Cuba will be the general license for athletic competitions by amateur or semi-professional athletes or athletic teams.

On September 24, 2020, the U.S. Department of Commerce published a Federal Register notice listing prohibited transactions with ByteDance Ltd. and its subsidiaries including TikTok, Inc., pursuant to President Trump’s August 6, 2020 Executive Order declaring TikTok a national security threat and directing Commerce to define the scope of prohibited “transactions” with TikTok by September 20, 2020. The notice was published after a myriad of legal activity that took place from September 18 through September 21, 2020, with respect to mobile applications, WeChat and TikTok including, but not limited to, actions taken by Commerce against WeChat and TikTok, announcements by Walmart and Oracle of their new deal with TikTok to form TikTok Global, and a federal court injunction enjoining Commerce’s intended action against WeChat. For more information on these issues, see update dated September 22, 2020.

In its September 24 notice, Commerce has reiterated that it would no longer allow certain transactions between U.S. parties and the Chinese parent company, ByteDance Ltd. or its subsidiaries, including TikTok, Inc. The notice does not include WeChat, as the federal injunction enjoining Commerce’s actions was specific to WeChat. Absent an interim injunction for TikTok, as of September 27, 2020, the following transactions will be prohibited:

Any provision of services to distribute or maintain the TikTok mobile application, constituent code, or application updates through an online mobile application store, or any online marketplace where mobile users within the land or maritime borders of the United States and its territories may download or update applications for use on their mobile devices.

As of November 12, 2020, the following transactions will also be prohibited:

  1. Any provision of internet hosting services enabling the functioning or optimization of the TikTok mobile application within the land and maritime borders of the United States and its territories;
  2. Any provision of content delivery network services enabling the functioning or optimization of the TikTok mobile application within the land and maritime borders of the United States and its territories;
  3. Any provision of directly contracted or arranged internet transit or peering services enabling the functioning or optimization of the TikTok mobile application within the land and maritime borders of the United States and its territories; and
  4. Any utilization of the TikTok mobile application’s constituent code, functions, or services in the functioning of software or services developed and/or accessible within the land and maritime borders of the United States and its territories.

The notice exempts the following transactions from the categories of prohibited activity, which will continue to be authorized:

  1. Payment of wages, salaries, and benefit packages to employees or contractors;
  2. The exchange between or among TikTok mobile application users of personal or business information using the TikTok mobile application;
  3. Activities related to mobile applications intended for distribution, installation or use outside of the United States by any person, including but not limited to any person subject to U.S. jurisdiction, and all ancillary activities, including activities performed by any U.S. person, which are ordinarily incident to, and necessary for, the distribution, installation, and use of mobile applications outside of the United States; and
  4. The storing of TikTok mobile application user data in the United States.

Finally, the notice goes on to identify a sixth category of transactions that may be prohibited at a later future date, specifically,  “any other transaction by any person, or with respect to any property, subject to the jurisdiction of the United States, with ByteDance Ltd., or its subsidiaries, including TikTok Inc., in which any such company has any interest.”

On September 18, 2020, the U.S. Department of Commerce announced prohibitions on transactions relating to the mobile applications WeChat and TikTok in order to “safeguard the national security of the United States” that were to become effective on September 20 and November 12, 2020. This announcement followed President Trump’s August 6, 2020 executive orders declaring TikTok and WeChat national security threats and directing Commerce to define the scope of prohibited “transactions” by September 20, 2020. (For more information on these executive orders, see update of August 7, 2020.) However, the Federal Register notices that were meant to be published with respect to the TikTok and WeChat orders listing the scope of prohibited transactions were subsequently withdrawn by Commerce following the Walmart and Oracle deal with TikTok and the Northern District Court of California’s preliminary injunction order enjoining implementation of the August 6 executive order against WeChat. The next day, on September 19, 2020, Commerce announced that it would “delay the prohibition of identified transactions related to TikTok” that would have been effective on September 20, 2020 until September 27, 2020.

Commerce Actions on Hold

In the September 18 announcement, Commerce stated that it would no longer allow certain transactions between U.S. parties and the Chinese parent companies ByteDance Ltd. and Tencent Holdings or their subsidiaries. Specifically, as of September 20, 2020, the following transactions were to be prohibited:

  1. Any provision of service to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or application updates through an online mobile application store in the U.S.; and
  2. Any provision of services through the WeChat mobile application for the purpose of transferring funds or processing payments within the U.S.

Pursuant to the delay announcement on September 19 by Commerce, these prohibitions against TikTok will instead become effective on September 27, 2020. Additionally, as of September 20, 2020 for WeChat and as of November 12, 2020 for TikTok, the following transactions were to be prohibited:

  1. Any provision of internet hosting services enabling the functioning or optimization of the mobile application in the U.S.;
  2. Any provision of content delivery network services enabling the functioning or optimization of the mobile application in the U.S.;
  3. Any provision directly contracted or arranged internet transit or peering services enabling the function or optimization of the mobile application within the U.S.; and
  4. Any utilization of the mobile application’s constituent code, functions, or services in the functioning of software or services developed and/or accessible within the U.S.

CFIUS and the TikTok Deal

Commerce’s seven-day delay of the prohibitions against TikTok followed the September 19, 2020 announcements of Walmart and Oracle’s deal with TikTok to form a new entity called TikTok Global, which will be headquartered in the United States. This deal was given President Trump’s “blessing” at a White House news briefing. The new deal comes after a unanimous recommendation by the Committee on Foreign Investment in the United States (CFIUS) and President Trump’s August 14, 2020 Executive Order directing that the already completed transaction that resulted in the acquisition of Musical.ly, now known as TikTok, by the Chinese company ByteDance Ltd. be unwound. This order directed ByteDance to divest all interests and rights in any assets or property used to enable or support the operation of TikTok in the United States, and any data obtained or derived from TikTok or Musical.ly users in the United States. (For more information on the CFIUS action, see update of August 17, 2020.) Although a deal has been announced, there are likely many steps to be taken to finalize an agreement that will satisfy CFIUS’s national security concerns with respect to TikTok.

WeChat Lawsuit

Commerce has been enjoined by a federal court in California from implementing these prohibitions against WeChat. On August 21, 2020, U.S. WeChat Users Alliance and other individual users of WeChat (“WeChat Plaintiffs”) filed a complaint in the Northern District of California seeking declaratory and injunctive relief against Trump, Secretary of Commerce Wilbur Ross and the Commerce Department in an effort to prevent the government from banning its mobile application pursuant to the August 6, 2020 Executive Order against WeChat. On September 19, 2020, the Northern District Court of California issued an order granting WeChat Plaintiffs’ motion for a nationwide preliminary injunction enjoining the implementation of the August 6 Executive Order against WeChat, including enforcement of Commerce’s September 18 list of prohibited transactions.

TikTok Lawsuit

Like the WeChat Plaintiffs, on August 24, 2020, TikTok Inc. and its Chinese parent, ByteDance, Ltd., filed a separate complaint in the Central District of California against the same parties seeking the same relief in order to prevent the government from using the August 6, 2020 Executive Order against TikTok to ban its application. Following the Walmart and Oracle deal announcement, on September 20, 2020, the TikTok complaint was voluntarily dismissed without prejudice and on September 21, 2020, TikTok and ByteDance filed a similar complaint for injunctive and declaratory relief against Trump and Commerce in U.S. District Court for the District of Columbia alleging that the administration’s proposed ban on transactions violated due process rights and freedom of speech.

On September 19, 2020, the United States announced that virtually all United Nations (UN) sanctions on Iran were being re-imposed. President Donald Trump and Secretary of State Mike Pompeo have taken the position that the United States can trigger the “snapback” provisions of UN sanctions under UN Security Council resolution 2231 pursuant to the Joint Comprehensive Plan of Action (JCPOA) that was implemented by Iran and the P5+1 countries (China, France, Germany, Russia, the United Kingdom and the United States) on July 14, 2015. The United States, however, withdrew from the JCPOA on May 8, 2018. Nevertheless, on August 20, 2020, the United States notified the President of the UN Security Council of Iran’s “significant non-performance of its JCPOA commitments,” thus claiming to have triggered the 30-day process leading to the snapback of previously terminated UN sanctions. On September 19, 2020, the United States unilaterally announced the snapback of the UN sanctions and Secretary Pompeo released a press statement stating that:

The United States took this decisive action because, in addition to Iran’s failure to perform its JCPOA commitments, the Security Council failed to extend the UN arms embargo on Iran, which had been in place for 13 years. The Security Council’s inaction would have paved the way for Iran to buy all manner of conventional weapons on October 18. Fortunately for the world, the United States took responsible action to stop this from happening. In accordance with our rights under UNSCR 2231, we initiated the snapback process to restore virtually all previously terminated UN sanctions, including the arms embargo. The world will be safer as a result. The United States expects all UN Member States to fully comply with their obligations to implement these measures.

The remaining parties to the JCPOA have taken the position that the United States cannot trigger the snapback provision of UN sanctions under the JCPOA given that it withdrew from – and is no longer a party to – the agreement.

In addition, on September 21, 2020, the State Department announced a series of new sanctions against Iran. The sanctions include:

  • Issuance of a new Executive Order targeting Iran-related conventional arms transfers, claiming that the UN arms embargo on Iran “is re-imposed indefinitely” and that the United States “will ensure that it remains in place until Iran changes its behavior.”
  • Designation on the Department of the Treasury’s Office of Foreign Assets Control (OFAC) SDN List of Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL), Iran’s Defense Industries Organization (DIO) and its Director, Mehrdad Akhlaghi-Ketabchi, pursuant to the new Iran Conventional Arms Executive Order noted above.
  • Designation on the SDN List of Nicolas Maduro, the leader/ruler of Venezuela, for conventional arms-related activities and assisting Iran in circumventing the UN arms embargo pursuant to the new Iran Conventional Arms Executive Order noted above.
  • Designation on the SDN List of six individuals and three entities associated with the Atomic Energy Organization of Iran (AEOI) pursuant to earlier implemented Executive Order 13382 pertaining to WMD proliferators. These entities and persons are involved in Iran’s nuclear research and development.
  • Addition of five individuals affiliated with the AEOI to the Department of Commerce’s Entity List, and imposing export control restrictions on these individuals. Each individual is associated with Iran’s JHL Laboratory, and AEOI, and have been involved in Iran’s nuclear weapons development program.
  • Designation on the SDN List of three individuals and four entities associated with Iran’s liquid propellant ballistic missile organization, the Shahid Hemmat Industrial Group (SHIG) pursuant to Executive Order 13382. These entities are responsible for the integration, final assembly, testing of liquid propellant ballistic missiles and space launch vehicles.

The Department of State has issued a detailed Fact Sheet on these actions.

The Department of the Treasury’s Office of Foreign Assets Control (OFAC), as noted above, added certain persons and entities to its Specially Designated Nationals (SDN) List, available here. As a result, all property and interests in property of the identified persons and entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. OFAC’s regulations generally prohibit all dealings by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of blocked or designated persons. In addition, persons that engage in certain transactions with the Iranian individuals and entities designated may themselves be exposed to sanctions or subject to an enforcement action. Furthermore, OFAC has made clear that unless an exception applies, any foreign financial institution that knowingly facilitates a significant transaction for any of the individuals or entities designated today could be subject to U.S. sanctions.

The Department of Commerce’s Bureau of Industry and Security (BIS), as noted above, added certain individuals to its Entity List, available here. As a result, BIS has now imposed a license requirement for all items subject to the Export Administration Regulations (EAR), with a license review policy of presumption of denial. No license exceptions are available for exports, reexports, or transfers (in-country) to the entities being added to the Entity List.

Secretary Michael R. Pompeo, Treasury Secretary Steven Mnuchin, Defense Secretary Mark Esper, Commerce Secretary Wilbur Ross, U.S. Representative to the United Nations Kelly Craft, and National Security Advisor Robert O’Brien held a brief press conference to discuss these actions toward Iran. A transcript is available here.

The Thompson Hine SmarTrade Blog will continue to closely monitor today’s actions and report on any official responses issued by Iran and the parties remaining in the JCPOA.

In a Federal Register notice, the Department of Commerce’s Bureau of Industry and Security (BIS) has announced that effective September 22, 2020, it is adding 47 entities to its Entity List after determining these companies and persons to be acting contrary to the national security or foreign policy interests of the United States. The entities are located under the destinations of Canada, China, Hong Kong, Iran, Malaysia, Oman, Pakistan, Thailand, Turkey, United Arab Emirates (UAE), and the United Kingdom.

Numerous Chinese entities and the Hong Kong entities are being listed due to involvement in the diversion of U.S.-origin unmanned aerial vehicle parts to Iran. Certain entities in Iran, Turkey and the UAE are being listed due to activities and support for nuclear-related activities, some involving violations of the Iranian Transactions and Sanctions Regulations. The Pakistan and other UAE entities are being listed due to activities and contributions to unsafeguarded nuclear activities. Other entities from several countries are being listed due to their involvement in a scheme to illicitly procure Bell 412 helicopters on behalf of FARSCO Aviation MRO, an entity in Iran.

The Entity List is used by BIS to restrict the export, reexport and transfer (in-country) of items subject to the Export Administration Regulations (EAR) to persons (individuals, organizations, companies) reasonably believed to be involved, or to pose a significant risk of becoming involved, in activities contrary to the national security or foreign policy interests of the United States. When placed on the list, additional license requirements apply to any business transactions involving such entities, and the licensing policy of BIS is often a policy of denial. The list of all companies is available in a Federal Register notice to be published on, and effective as of, September 22, 2020.

Shipments of items to any of these listed entities that were en route aboard a carrier to a port of export or reexport as of September 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).

The Office of the U.S. Trade Representative (USTR) has issued two Federal Register notices announcing the extension of numerous product exclusions from the Section 301 tariffs for imports from China appearing on List 1 (products from China with an annual trade value of $34 billion) and List 2 (products from China with an annual trade value of $16 billion).

USTR is extending 62 product exclusions from  List/Tranche 1, including: certain submersible centrifugal pumps; certain tabletop water fountains; certain rotary compressors; certain thermal roll laminators; parts of swimming pool vacuum cleaners; certain types of shovel loaders; certain animal feeding machinery and parts; certain lathes and numerically-controlled milling machines; certain types of valve bodies and valve parts; certain types of ball bearings of various sizes; certain electrical AC and DC motors; numerous types of electrical switches, connectors and terminals; certain four-wheel off-road vehicles; various medical devices and accessories; certain X-ray tables, tubes and parts; and certain thermostats and covers.

USTR is extending 17 product exclusions from List/Tranche 2, including: Acrylic acid-2-acrylamido-2-methylpropanesulfonic acid-acrylic ester; certain molded acrylonitrile-butadiene-styrene (ABS) tubes; certain electrical tape of polyvinyl chloride; certain transparent tape; certain rolls of polyethylene and polyvinyl chloride film coated with a solvent acrylic adhesive; certain sheets and strips consisting of both cross-linked polyethylene and ethylene vinyl acetate; certain polyethylene sheet and film; certain girders of iron or steel and certain pipes of iron or steel meeting various ASTM standard; certain monopolar conductors; and, certain electric motorcycles.

The product exclusion extensions will apply until December 31, 2020. These exclusions continue to apply to any product that satisfies the description in the annexes of these Federal Register notices, regardless of whether the company using the exclusion filed the request. Each exclusion is governed by the scope of the HTS subheading and the product description appearing in the annexes; they are not governed by the description set out in any particular exclusion request.

On September 15, 2020, a dispute settlement panel of the World Trade Organization (WTO) ruled that President Donald Trump’s tariffs against China violate the General Agreement on Tariffs and Trade (GATT) because they are prima facie inconsistent with Articles I:1 (Most-favored Nation Treatment) and certain of the GATT’s schedules and concessions, and the United States has not met its burden of demonstrating that the tariff measures it took under Section 301 of the Trade Act of 1974) are justified under GATT provisions for exceptions and necessary “to protect public morals.”

China filed the WTO complaint in 2018 when the Trump administration, under U.S. Trade Representative Robert Lighthizer, determined that the acts and policies of China related to technology transfer, intellectual property and innovation were unreasonable and discriminatory and implemented 25 percent tariffs on more than $200 billion worth of Chinese goods imported into the United States on an annual basis. China argued that  under the most-favored nation clause, the United States could not impose tariffs unilaterally against another WTO member country. The three-person WTO dispute panel agreed and stated: “China has demonstrated that the additional duties apply only to products from China and thus fail to accord to products originating in China an advantage granted to the like product originating in all other WTO Members.”

While this ruling is the first report from a WTO dispute settlement panel to address the Trump administration’s wide use of tariffs as a retaliatory trade action, it will have little immediate impact. The panel’s ruling is certain to be appealed by the United States to the WTO’s appellate body. Since the Trump administration has refused  to agree to the appointment of new appellate judges at the WTO to fill vacancies, the appellate body no longer has a quorum and is unable to issue any final and actionable decisions. Upon learning of the decision, President Trump stated to the press that “we’ll have to do something about the WTO because they’ve let China get away with murder….  But I’m not a big fan of the WTO — that, I can tell you right now.” Ambassador Lighthizer added in a press statement: “This panel report confirms what the Trump Administration has been saying for four years: The WTO is completely inadequate to stop China’s harmful technology practices…. The United States must be allowed to defend itself against unfair trade practices.”

On September 15, 2020, the Office of the United States Trade Representative (USTR) issued a statement that it will “modify the terms of the 10% tariff imposed in August on imports of Canadian non-alloyed unwrought aluminum.” The United States will resume duty-free treatment of the Canadian aluminum retroactive to September 1, 2020, based on the expectations that trade will “normalize” in the last four months of 2020 after earlier surges. However, tariffs could be imposed again retroactively for September-December, if shipment volumes exceed 105% of the stated volumes.

On August 6, 2020, President Donald Trump issued a proclamation reimposing the 10% ad valorem tariff on imports of non-alloyed unwrought aluminum products from Canada and stating that imports of this form of aluminum had “increased substantially” and were “principally responsible for the 27 percent increase in total aluminum imports from Canada during June 2019 through May 2020.” After the U.S. proclamation, the Canadian government issued a notice of intent to impose countermeasures against the United States in response to the tariffs. For more information on these actions, please see previous updates dated March 8, 2018,  August 7, 2020 and August 10, 2020.

The USTR’s most recent statement was announced as Canada was set to impose retaliatory measures against imports of U.S. aluminum and aluminum-containing products. The USTR’s statement establishes monthly targets for the volume of aluminum imports the United States will accept from Canada without a tariff, and the USTR noted that it will monitor export volumes six weeks after the end of every month through December 2020 to ensure duty-free treatment remains warranted.

On September 15, 2020, the Department of the Treasury published in the Federal Register a final rule to modify certain regulations of the Committee on Foreign Investment in the United States (CFIUS) pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). As discussed in our previous update dated May 26, 2020, on May 21, 2020, the Treasury Department had issued the initial proposed rule seeking public comment on the changes to the CFIUS disclosure requirements. The final rule implements the proposed rule’s changes and modifies the mandatory declaration provisions for certain transactions involving critical technologies and amends the definition of “substantial interest.” The final rule will become effective 30 days after publication, on October 15, 2020.

Previously, CFIUS mandated the filing of a declaration in connection with a covered transaction involving a U.S. business that develops, manufactures or produces “critical technology,” where a foreign government has a “substantial interest” in a foreign person that will invest in one or more of the 27 industries identified by reference to the North American Industry Classification System (NAICS) codes. Like the proposed rule, the new final rule will narrow the mandatory declaration requirement and align it more closely with U.S. export controls instead of NAICS codes.

Under the new rule, a declaration would only be mandated if certain U.S. government authorizations would be required to export, re-export, transfer (in country), or retransfer the critical technology or technologies produced, designed, tested, manufactured, fabricated, or developed by the U.S. business to certain foreign parties to the transaction. The foreign parties would trigger a declaration mandate if the foreign person would control the U.S. business, have a covered investment in the U.S. business, and or in simplified terms, a direct or indirect voting interest of more than 25% in a person that would have a controlling or covered investment interest in the U.S. business. There is a carve-out to the declaration requirement if the export would be covered by certain license exceptions under the Export Administration Regulations (EAR).

Additionally, the new rule sets forth how to determine the percentage interest held indirectly by one entity in another for purposes of determining whether a foreign person obtains a “substantial interest” in a U.S. business where a foreign government in turn holds a “substantial interest” in the foreign person. FIRRMA also requires notifications for certain covered transactions in which a foreign government has a “substantial interest” in a foreign person that will acquire a substantial interest in certain types of U.S. businesses. Under the rule, a foreign government will be considered to have a substantial interest in an entity whose activities are primarily directed, controlled, or coordinated by or on behalf of a general partner, managing member, or equivalent, only if they hold 49% or more of the interest in that general partner, managing member, or equivalent.