On September 10, 2020, HMTX Industries LLC and two of its subsidiaries (“complainants”) filed a complaint at the U.S. Court of International Trade (“CIT”) alleging an unlawful escalation of the ongoing trade war with China through the imposition of a third round of tariffs on imports covered under List/Tranche 3. Arguing that the Trade Act of 1974 did not confer authority on the Office of the U.S. Trade Representative (USTR) “to litigate a vast trade war for however long, and by whatever means, they choose,” the complaint states that the USTR had a limited time to determine any actions to take and that the “arbitrary manner” in which the List 3 tariff actions were implemented violates the Administrative Procedure Act (APA). The complainants seek to set aside these unlawful actions and obtain a refund of any duties paid on imports of List 3 products from China.

The complaint acknowledges that Section 301 of the Trade Act of 1974 authorizes the USTR to investigate a foreign country’s trade practices and that the USTR may take “appropriate” action, such as imposing tariffs on imports from the country that administered the unfair practice, if “unreasonable or discriminatory” practices are present. The complainants argue, however, that Section 304 of the Trade Act of 1974 requires the USTR to determine what action to take, if any, within 12 months after the initiation of the investigation and that the USTR failed to issue additional tariffs for Chinese products on List 3 (or subsequently List 4) within this 12-month window. The complaint further argues that Section 307 of the Trade Act of 1974 “does not permit USTR to expand the imposition of tariffs to other imports from China for reasons untethered to the unfair intellectual property policies and practices it originally investigated under Section 301 of the Trade Act.” Nevertheless, in the months following the conclusion of the Section 301 investigation and the initial implementation of List 1 and 2 tariff actions, the complaint states, the USTR “wildly expanded the scope of the tariffs imposed under Section 301 of the Trade Act to cover imports worth more than $500 billion—ten times the amount it had deemed ‘commensurate’ with the findings of USTR’s original investigation.” The complaint argues that Section 307 only allows the USTR to “delay, taper, or terminate—not ratchet up—the actions it has already taken.”

In support of their allegations that the USTR was arbitrary and capricious in its implementation of List 3 tariffs under the APA, the complainants claim that the USTR failed to: (1) provide sufficient opportunity for public comment; (2) consider relevant factors when making its decision; and (3) connect the record facts to the choices it made. According to the complaint, “despite receiving over 6,000 comments, USTR said absolutely nothing about how those comments shaped its final promulgation of List 3” and USTR’s “preordained decision-making preordained decision-making resulted in the unlawful imposition of tariffs on imports covered by List 3 whose value equals $200 billion.”

The complainants request that the CIT: (i) declare the USTR’s actions resulting in tariffs on List 3 products are unauthorized by, and contrary to, the Trade Act of 1974; (ii) declare the USTR arbitrarily and unlawfully promulgated List 3 in violation of the APA; (iii) vacate the China Section 301 List 3 rulemaking; (iv) order a refund, with interest, on any duties paid by the complainants; and, (v) permanently enjoin USTR from applying List 3 and collecting any duties pursuant to List 3. The case is captioned HMTX Industries LLC, Halstead New England Corporation, and Metroflor Corporation vs. United States of America; Office of the United States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; Mark A. Morgan, U.S. Customs & Border Protection Acting Commissioner; Court No. 20-00177.

Our International Trade practice group has been blogging about a wide range of trade-related news and activities since November 2016, and in June 2018 we officially launched the “Trump and Trade” blog. However, our purview has always been broader than the executive branch; we also provide timely updates on legislation, trade remedy litigation, customs matters, WTO issues, anticorruption and antibribery compliance, foreign investment regulations and actions, and more.

In order to align our name more closely with our mission – providing client-focused updates on the full breadth of trade-related activities, developments and trends – we have rebranded our blog as SmarTrade.

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If you have any questions, please contact any member of the SmarTrade team. Thank you for your interest in our blog!

On September 3, 2020, the Department of State and the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned numerous entities and persons for their reported involvement with the petroleum or petroleum sector of Iran. According to a press statement from Secretary of State Michael Pompeo,  the targeted entities and persons have “continued to facilitate Iran’s export of petroleum, petroleum products, and petrochemicals contrary to U.S. sanctions” and are being sanctioned pursuant to Executive Order 13846 issued in August 2018 when the United States re-imposed certain sanctions on Iran (see Update of August 6, 2018). A press statement from Secretary of the Treasury Steven Mnuchin noted that, “The Iranian regime uses revenue from petrochemical sales to continue its financing of terrorism and destabilizing foreign agenda.”

The sanctioned entities and their country of location are: (i) Abadan Refining Company (Iran); (ii) Zhihang Ship Management Co. Ltd. (China); (iii) New Far International Logistics LLC (China); (iv) Sino Energy Shipping Ltd. (China); (v) Chemtrans Petrochemicals Trading LLC (UAE); (vi) Zagros Petrochemical Company (Iran); (vii) Petrotech FZE (UAE); (viii) Trio Energy DMCC (UAE); (ix) Jingho Technology Co. Limited (Hong Kong); (x) Dynapex Energy Limited (Hong Kong); and (xi) Dinrin Limited (Hong Kong).

Three officials of these entities have also been sanctioned: (i) Min Shi, employee of New Far International; (ii) Zuoyou Lin, employee of Sino Energy Shipping; and (iii) Alireza Amin, employee of Abadan Refining.

All of these entities and persons have been designated and placed on the Specially Designated Nationals (SDN) List; additional identifying information is available here. As a result of being designated, all property and interests in property of these entities and persons subject to U.S. jurisdiction are blocked, and U.S persons are generally prohibited from engaging in transactions with them. In addition, foreign financial institutions that knowingly facilitate significant transactions for, or persons that provide material or certain other support to, the designated entities and persons risk exposure to sanctions that could sever their access to the U.S. financial system or block their property and interests in property under U.S. jurisdiction.

On August 28, 2020, President Donald Trump issued a Presidential Proclamation No. 10064 to adjust U.S. imports of steel from Brazil for national security reasons. In May 2018, President Trump granted an exemption for Brazilian steel products from additional tariffs imposed under Section 232 of the Trade Expansion Act of 1962, which provides the president with authority to adjust imports entering the United States in quantities or under circumstances that threaten to impair national security. Through negotiations, certain countries – including Brazil – agreed to restrict their U.S. shipments and, in turn, have those quota restrictions exempt from the 25 percent additional tariff implemented by the Department of Commerce. While this exemption was maintained in 2019 for Brazil, U.S. Trade Representative (USTR) Robert Lighthizer indicated in a press statement that in 2020, “in light of recent deterioration in market conditions brought on by the COVID-19 pandemic affecting domestic steel producers, the United States has deemed it necessary to reduce the remaining quota for Brazilian semi-finished steel products for the remainder of 2020.” Pursuant to the proclamation, the United States will reduce semi-finished steel imports from Brazil to 60,000 metric tons (60,000,000 kilograms), down from 350,000 metric tons for the remainder of calendar year 2020, but will maintain existing quotas for other steel imports from Brazil.

The proclamation continues to provide relief from the quota “in certain limited circumstances” for blooms, billets and slabs, semi-finished, provided for in HTS subheadings 7207.11.00, 7207.12.00, 7207.19.00, 7207.20.00 or 7224.90.00 (except for statistic reporting number 7224.90.0015, 7224.90.0025 and 7224.90.0035). In order to be eligible for this relief, the party requesting relief must have entered into a contract for the production of such Brazilian steel articles before August 28, 2020; must have an agreement that specifies the quantity of the steel and provides for a shipment date prior to December 31, 2020; must use the steel in the United States and the steel article cannot be procured from another supplier to meet necessary specifications and the delivery schedule; and must certify that the lack of relief from the quota limitation would significantly disrupt production activity in the United States. The proclamation states that the volume of imports that will be granted relief may not exceed 60,000,000 kilograms in the aggregate

Beginning with calendar year 2021, “the annual aggregate limit for Brazil shall revert to the aggregate limit for Brazil set forth in the Annex to Proclamation 9759” (i.e., the original import quota announced on May 31, 2018). The proclamation also notes, however, that the United States and Brazil will hold further consultations about the semi-finished steel quota for 2021 in December 2020 and discuss “the state of the steel trade between the two countries in light of then-prevailing market conditions.”

On September 1, 2020, the Department of State’s Bureau of International Security and Nonproliferation, the Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint advisory to alert persons to the Democratic People’s Republic of Korea’s (North Korea) ballistic missile procurement activities. The advisory identifies key North Korean procurement entities, examples of certain materials and equipment North Korea likely imports, and deceptive techniques employed by North Korean proliferators and procurement networks in support of the regime’s ballistic missile program.  The advisory also provides an overview of U.S. sanctions authorities related to North Korea proliferation, and lists North Korea-related sanctions enforcement resources.

The joint advisory indicates that North Korea’s ballistic missile procurement activities “expose the electronics, chemical, metals, and materials industries as well as the financial, transportation, and logistics sectors to the risk of possibly violating United Nations (UN) and U.S. sanctions.”  It further highlights that to obtain these materials, North Korea uses an extensive overseas network of procurement agents, including officials who operate from North Korean diplomatic missions or trade offices, as well as third country nationals and foreign companies.  This network includes collaboration with foreign-incorporated companies, such as Chinese and Russian entities, to acquire foreign-sourced basic commercial components and then consolidate and repackage them for onward shipment to North Korea, concealing the true end-user from the manufacturers and distributors of the materials and equipment.

The advisory notes that individuals and entities producing or trading in these products, or providing related financial or other services must be “vigilant regarding any involvement in the transfer of sensitive technology to North Korean entities” and are “encouraged to ensure they understand fully all sanctions obligations and risks that pertain to their activities.”  Persons should make informed decisions about providing products or services to customers based on the risks associated with those specific customers; implement appropriate Know-Your-Customer (KYC) policies and procedures; and conduct other sufficient due diligence in business transactions.

 

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published in the Federal Register on August 27, 2020 an advance notice of proposed rulemaking (ANPRM) for foundational technologies. BIS is soliciting public comments until October 26, 2020 to help identify foundational technologies essential to U.S. national security (“Foundational Technologies ANPRM”). This long-awaited ANPRM marks the start of an intra-agency review process implementing a key provision of the Export Control Reform Act of 2018 (ECRA) (see 50 U.S.C. Chapter 58 at § 4817), in which Congress directed BIS to establish controls on the export, re-export and in-country transfers of “foundational technologies.” In this bulletin, we summarize what you can expect next from BIS and the key takeaways from this recent action.

Key Notes:

  • The long-awaited advanced notice of proposed rulemaking (ANPRM) kicks off an intra-agency review process authorized by the Export Control Reform Act to determine what additional export controls should be implemented on foundational technologies essential to U.S. national security.
  • The ANPRM signals a change in strategy from BIS’s previous issuance of a similar ANPRM for emerging technologies, relying more on industry for guidance on the definition and categories of foundational technologies.
  • BIS is accepting public comments until October 26, 2020.

Continue reading: view this client update in HTML or PDF format.

On August 28, 2020, the Office of the U.S. Trade Representative (USTR) issued a Federal Register notice announcing the extension of numerous product exclusions from the Section 301 tariffs for imports from China appearing on List 4A (products from China with an annual trade value of $300 billion). The exemptions include 14 10-digit Harmonized Tariff Schedule (HTS) subheadings and 73 specially prepared product descriptions, which cover various product exclusions issued in eight prior USTR notices for List/Tranche 4A.

These product exclusion extensions will apply until December 31, 2020. These exclusions continue to apply to any product that satisfies the description in the annex of the Federal Register notice, regardless of whether the company using the exclusion filed the request. Each exclusion is governed by the scope of the HTS heading and the product description appearing in the annex of the exclusion notice; it is not governed by the description set out in any particular exclusion request.

The fourteen excluded HTS subheadings are:

  • 0505.10.0050
  • 0505.10.0055
  • 3401.19.0000
  • 3926.90.9910
  • 4015.19.0510
  • 4015.19.0550
  • 4818.90.0000 prior to July 1, 2020; 4818.90.0020 or 4818.90.0080 effective July 1, 2020
  • 5210.11.4040
  • 5210.11.6020
  • 5504.10.0000
  • 6210.10.5000
  • 6307.90.6090
  • 6307.90.6800
  • 6506.10.6030

The 73 specially prepared product descriptions include: cynomolgus macaques; certain feathers used for stuffing; sodium alginate resins; certain shower heads of plastic; certain surgical molded plastic bowls; certain plastic coverings for wound sites; certain sterile pads, covers and plastics for medical purposes; certain wallpaper; certain women’s, men’s and children’s bath robes; various baby fabrics and sleep items; certain blankets, dust covers; certain cold packs and hot packs; disposable shoe covers; face masks and particulate facepiece respirators; certain medical masks; certain single-use medical items; certain sewing machines; certain gas powered augers; certain tracking devices and other wireless communication devices; certain watch cases and dials; certain acoustic upright and grand pianos; parts of child safety seats; arrowheads of metal; certain brushes and hair bristles; certain painting; postage stamps; and collectors’ pieces of mineralogical interest.

U.S. Customs and Border Protection (CBP) will soon issue instructions on entry guidance and implementation. The USTR will continue to issue determinations on pending requests on a periodic basis.  If other List 4A product exclusions issued since October 2019 are not included in this current list of extensions, the exclusions will expire on September 1, 2020.

On August 26, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that it was adding 24 Chinese companies to the Entity List for their role in helping the Chinese military construct and militarize the internationally condemned artificial islands in the South China Sea. “The United States, China’s neighbors, and the international community have rebuked the [China’s] sovereignty claims to the South China Sea and have condemned the building of artificial islands for the Chinese military,” said Commerce Secretary Wilbur Ross while noting that the newly listed companies “have played a significant role in China’s provocative construction of these artificial islands and must be held accountable.”

The notice also identifies and designates another 36 entities in France, Hong Kong, Indonesia, Malaysia, Oman, Pakistan, Russia, Switzerland and the United Arab Emirates (U.A.E.) for a range of activities, including: (1) attempted diversion of controlled U.S.-origin aircraft parts to Iran; (2) contributions to unsafeguarded nuclear activities; (3) involvement in a scheme to falsify information submitted in support of BIS license applications in order to divert U.S.-origin items to Iran; (4) representing an unacceptable risk that U.S.-origin items exported, reexported, or transferred (in-country) to certain listed entities will be used in military end-use activities in China and/or in support of programs for the People’s Liberation Army; (5) involvement with the Russian military and/or with Russia’s biological weapons program; and (6) engaging in activities contrary to U.S. national security or foreign policy interests.

The Entity List is used by BIS to restrict the export, re-export 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 published on, and effective as of, August 27. 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 August 27, 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).

On August 27, 2020, the Department of Commerce’s Bureau of Industry and Security (“BIS”) published in the Federal Register an advance notice of proposed rulemaking (ANPRM) for foundational technologies and asked for public comment on the categories of technologies for which BIS should issue controls. Specifically, BIS is soliciting public comments through October 26, 2020, on the definition of foundational technology and the criteria for identifying foundational technology. BIS is focused on items subject to the EAR and controlled for anti-terrorism reasons (AT) or currently considered EAR99.

In August 2018, Congress enacted the Export Control Reform Act of 2018 (ECRA), directing the Commerce Department to conduct an interagency review process to identify “emerging and foundational technologies” and to impose controls on the export, reexport or in-country transfer of such technologies. On November 19, 2018, BIS released an ANPRM soliciting comments on the definition and criteria to be used to identify “emerging technologies,” and on January 6, 2020 issued a related interim final rule. For more information on the emerging technologies ANPRM, please see Update of November 19, 2018.

Items controlled as emerging and foundational technologies under ECRA also qualify as “critical technologies” under the Foreign Investment Risk Review Modernization Act (FIRRMA). Under FIRRMA, the Committee on Foreign Investment in the United States (CFIUS) has expanded jurisdiction to review a wider range of foreign investment transactions involving critical technologies, and requires mandatory filings under some circumstances. For more information on CFIUS’s expanded jurisdiction to review critical technologies, please see Update of January 22, 2020.

Interested parties may submit public comments on the foundational technologies ANPRM until October 26, 2020, as follows:

  • Through the Federal eRulemaking Portal: http://www.regulations.gov, referencing the rulemaking identification number BIS-2020-0029; or
  • By mail or delivery to: Regulatory Policy Division, Bureau of Industry and Security, U.S. Department of Commerce, Room 2099B, 14th Street and Pennsylvania Avenue NW, Washington, D.C. 20230, referencing RIN 0694-AH80.

On August 24, 2020, TikTok Inc. and its Chinese parent, ByteDance, Ltd., filed suit in the Central District of California against President Donald J. Trump, Secretary of Commerce Wilbur Ross and the U.S. Department of Commerce, in an effort to prevent the government from banning its video-sharing mobile application pursuant to the Executive Order issued on August 6, 2020, which broadly prohibits transactions by any person related to TikTok, ByteDance and any of its subsidiaries. The president’s order had determined that the “spread in the United States of mobile applications developed and owned by companies in the People’s Republic of China (China) continues to threaten the national security, foreign policy, and economy of the United States.” In the filed complaint, TikTok and ByteDance seek injunctive and declaratory relief and argue that the Executive Order violates their constitutional rights, and is not authorized by the International Emergency Economic Powers Act (IEEPA), upon which it is based.

More specifically, TikTok and ByteDance maintain that the app does not present “an unusual and extraordinary threat,” as required by law, and that the “executive order is not rooted in bona fide national security concerns,” making it ultra vires or an act beyond the authority granted to the president by IEEPA. Instead, the complaint states that the ban was issued by the president “for political reasons rather than because of an ‘unusual and extraordinary threat’ to the United States.” The complaint contains seven counts against the defendants, two for violations of the Fifth Amendment’s due process and takings clauses, one for violation the First Amendment’s freedom of speech clause, and four for violations of IEEPA. TikTok has issued a statement in support of its lawsuit explaining its previous efforts to cooperate with the Committee on Foreign Investment in the United States (CFIUS).

The complaint comes 10 days after another Executive Order issued on August 14, 2020 directing the 2017 transactions that resulted in the acquisition of Musical.ly, now TikTok, by ByteDance be unwound for similar national security reasons. For more information on the August 14, 2020 Executive Order or the August 6, 2020 Executive Order, please see our updates dated August 17, 2020 and August 7, 2020, respectively.