The Department of Commerce’s Bureau of Industry and Security (BIS) has issued an Interim Final Rule amending General Prohibition Three, also known as the foreign-produced direct product reexport rule, so that this General Prohibition applies to certain additional foreign-made items destined for certain persons designated with a new footnote on BIS’ Entity List. Specifically, this new rule targets Huawei Technologies Co., Ltd. and its non-U.S. affiliates listed on the Entity List and is intended to impose controls on their access to foreign-produced semiconductor chips produced outside the United States using U.S.-origin software or technology.

Key Notes:

  • Commerce amends provisions of the Export Administration Regulations to tighten “foreign-produced direct product” reexport rule.
  • Transactions involving Huawei Technologies Co., Ltd. and numerous non-U.S. affiliates will be significantly impacted as these entities’ ability to acquire semiconductors with ties to U.S. technology and software will be substantially reduced.
  • Interim Final Rule was effective as of May 15, but public comment is allowed until July 14, 2020.
  • Continued shipment of certain items already in production may continue until September 14, 2020.

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

On May 19, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) published a Federal Register notice seeking public comment, data analyses, and other relevant information pertaining to Commerce’s May 11 initiation of a national security investigation into imports of certain components for incorporation into transformers, electrical transformers and transformer regulators pursuant to Section 232 of the Trade Expansion Act of 1962 (see Thompson Hine International Trade Update, “Recent Executive Actions Focus on Bulk-Power System Grid Security and Supply Chain”). Public comments must be filed no later than June 9, 2020, and rebuttal comments will be due by June 19, 2020.

The investigation has been undertaken to determine the effect on the national security of imports of Laminations for Stacked Cores for Incorporation into Transformers, Stacked Cores for Incorporation into Transformers, Wound Cores for Incorporation into Transformers, Electrical Transformers, and Transformer Regulators (hereinafter ‘‘Products’’). BIS is particularly interested in comments and information on the following issues:

(i) Quantity of, or other circumstances related to, the importation of the Products;

(ii) Domestic production and productive capacity needed for the Products to meet projected national defense requirements;

(iii) Existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce the Products;

(iv) Growth requirements of Products’ industries to meet national defense requirements and/or requirements for supplies and services necessary to assure such growth including investment, exploration, and development;

(v) The impact of foreign competition on the economic welfare of the Products’ industries;

(vi) The displacement of any domestic production of the Products causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;

(vii) National defense supporting uses of the Products including data on applicable contracts or sub-contracts, both past and current;

(viii) Country of manufacture for the Products;

(ix) Relevant factors that are causing or will cause a weakening of our national economy; and

(x) Any other relevant factors, including the use and importance of the Products in critical infrastructure sectors identified in Presidential Policy Directive 21 (Feb. 12, 2013) (for a listing of those sectors see https://www.dhs.gov/cisa/critical-infrastructure-sectors).

Written Submissions and Public Hearing

All comments must be addressed Section 232 Electrical Steel Investigation and filed via the Federal eRulemaking portal at http://www.regulations.gov on Docket No. BIS–2020–0015. While the docket will allow users to provide comments by filling in the “Comment” field, submitters are encouraged to provide comments in an attached document, including any exhibits, annexes, or other attachments, which can be uploaded and filed as part of the submission.

Submitted comments will be made available for public inspection, except information determined to be confidential. Anyone submitting business confidential information should clearly identify the business confidential portion at the time of submission, file a statement justifying nondisclosure, and file a public version.

As noted, comments must be filed by June 9, 2020, with rebuttal comments due no later than June 19, 2020. Rebuttal comments can only address issues raised in comments filed on or before the original June 9 deadline.

Commerce has not yet announced whether a public hearing will be held for this investigation. If such a hearing is held, a separate Federal Register notice will be issued.

The Federal Emergency Management Agency (FEMA) has announced that it will convene a virtual meeting  via teleconference and web conference on Thursday, May 21, 2020 from 2:00 to 3:30 p.m. to discuss the terms of a voluntary agreement with industry aimed at “maximizing the effectiveness of the distribution of critical medical resources nationwide to respond to pandemics in general, and COVID-19 specifically.” Comments to be considered at the meeting must be submitted by noon EST May 20, 2020. The meeting is open to the public and advance registration is recommended.

The Defense Production Act, 50 U.S.C. §(c)(1) (DPA), authorizes the president to make voluntary agreements and plans of action with representatives of industry and business to address circumstances posing a threat to its preparedness programs.  This power and other powers under the DPA have been delegated by President Donald Trump to FEMA through executive orders, including the authority to restrict exports of personal protective equipment (PPE) during the COVID0-19 pandemic as discussed in a previous Thompson Hine client update.

What Is the Purpose of the Meeting?

FEMA’s announcement explains that “in light of the unprecedented nature of COVID-19 and subsequent response requirements,” and the likelihood of a “future pandemic, or resurgence of COVID-19,” FEMA will begin consultations with “manufacturers, suppliers and distributors” of PPE, pharmaceuticals, and other critical medical resources to develop a voluntary agreement under the DPA. The agreement will establish the terms, conditions, and procedures under which participants will agree voluntarily to contribute and facilitate medical resource production and distribution capacity as requested by FEMA and other federal government entities. The goal of the agreement is to maximize the effectiveness of the distribution of critical medical resources nationwide to respond to pandemics, and COVID-19 specifically, and establish a unified effort between participants and the federal government.

What Is the Meeting Agenda?

The meeting objectives are two-fold:

  1. To identify agreement participants. FEMA proposes to invite major manufacturers, suppliers, and distributers of critical health and medical resources to identify appropriate manufacturers, suppliers, distributors, and any other stakeholders for inclusion in the voluntary agreement.
  2. To gather technical advice on the scope and substance of the draft agreement. FEMA proposes that voluntary agreement include: “technical advice; collective sharing of information; identification and validation of places and resources of the greatest need for medical resources; projection of future distribution demands; collective identification and resolution of allocation of scarce resources among all public and private domestic needs; sharing of vendor, manufacturer and distribution information; and inclusion of any other necessary collective actions to maximize the timely national distribution of health and medical resources necessary to respond to a pandemic.”

FEMA requests stakeholder evaluation of the objectives outlined above, and requests that stakeholders provide additional recommendations for objectives of the voluntary agreement. By Friday, May 22, 2020, FEMA will determine if a second meeting on May 27, 2020 is necessary.

How to Submit Written Comments?

FEMA encourages interested parties to make written submissions in advance of the meeting on May 21 and as a follow-up to one or both meetings consistent with the instructions for submitting comments below. Follow-up comments must be received by FEMA within three business days of the last meeting held.

Written comments for consideration at the meeting must be submitted and received by noon EST on May 20, 2020, identified by Docket ID FEMA-2020-0016, and submitted by one of the following methods:

For access to the docket to read comments received by FEMA, go to http://www.regulations.gov, and search for Docket ID FEMA-2020-0016. Comments received will appear unaltered and with personal information included.

How to Register for the Meeting?

It is recommended that attendees register with FEMA by noon on May 20, 2020, by providing their name, telephone number, email address, title, and organization to Harold Lucie, Joint DPA Office, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472-3184, telephone (202) 212-2900 and email FEMA-DPA@fema.dhs.gov.

Due to continuing concerns with Huawei Technologies and its non-U.S. affiliates accessing and using U.S. technology and software to design and manufacture its semiconductors, the Department of Commerce (Commerce) announced that it will further tighten export restrictions on the Chinese conglomerate. Commerce’s  Bureau of Industry and Security (BIS) will amend its foreign-produced direct product rule and the Entity List “to narrowly and strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology”, according to the Commerce press release. Secretary of Commerce Wilbur Ross stated, “Despite the Entity List actions the Department took last year, Huawei and its foreign affiliates have stepped-up efforts to undermine these national security-based restrictions through an indigenization effort. However, that effort is still dependent on U.S. technologies.” (See Trump and Trade Update of May 16, 2019). He added, “This is not how a responsible global corporate citizen behaves. We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national security and foreign policy interests.”

The forthcoming regulatory change will make the following foreign-produced items subject to the Export Administration Regulations (EAR):

  • Items, such as semiconductor designs, when produced by Huawei and its affiliates on the Entity List (e.g., HiSilicon), that are the direct product of certain U.S. Commerce Control List (CCL) software and technology; and
  • Items, such as chipsets, when produced from the design specifications of Huawei or an affiliate on the Entity List (e.g., HiSilicon), that are the direct product of certain CCL semiconductor manufacturing equipment located outside the United States. Such foreign-produced items will only require a license when there is knowledge that they are destined for reexport, export from abroad, or transfer (in-country) to Huawei or any of its affiliates on the Entity List.

To prevent any immediate adverse economic impact resulting from these Commerce actions, foreign foundries utilizing U.S. semiconductor manufacturing equipment that have initiated any production step for items based on Huawei-design specifications as of May 15, 2020, will not have such foreign-produced items subject to these new licensing requirements as long as they are reexported, exported from abroad, or transferred (in-country) within 120 days from the effective date of the final rule. Trump and Trade will report further on the rulemaking and any opportunity for public comment upon publication of the notice in the Federal Register.

Extension of Temporary General License

The existing temporary general license to Huawei Technologies Co., Ltd. (Huawei) and its 114 non-U.S. affiliates on the Entity List has been revised and extended. The temporary general license, which was set to expire on May 15, 2020, has been extended until August 13, 2020, for exports, reexports, and transfers (in-country) of items subject to the EAR to any of the listed Huawei entities. See Trump and Trade Update of May 21, 2019 for more details on this temporary general license. This is reportedly the final time BIS will extend this license.

On May 14, 2020, the U.S. Departments of State and Treasury and the U.S. Coast Guard issued a global advisory to alert the maritime industry and those active in the energy and metals sectors to deceptive shipping practices used to evade U.S. economic sanctions.  It is intended to provide exporters, shippers and others utilizing the maritime industry for trade with information and tools “to counter current and emerging trends in sanctions evasion related to shipping and associated services.”  The advisory includes “best practices” to assist in mitigating any exposure to sanctions risks and highlights common deceptive shipping practices used with countries like Iran, North Korea and Syria.

According to the advisory, 90 percent of global trade involves maritime transportation and “malign actors” are always seeking illicit ways to exploit this global supply chain.  The advisory is intended primarily to provide guidance to ship owners, managers, operators, brokers, ship chandlers, flag registries, port operators, shipping companies, freight forwarders, classification service providers, commodity traders, insurance companies, and financial institutions.  The advisory is also recommended for entities and persons involved in the supply chains of trade in the energy and metals sectors, including trade in crude oil, refined petroleum, petrochemicals, steel, iron, aluminum, copper, sand, and coal, to ensure that necessary appropriate actions can be taken.

The advisory provides brief descriptions of common deceptive shipping practices, including but not limited to physically altering vessel identification, falsifying cargo and vessel documents, false flags, and establishing complex ownership or management structures.  General practices for identifying efforts at sanctions evasion are also discussed, including the implementation of an effective corporate sanctions compliance program.  The advisory also provides detailed annexes offering guidance to the various sectors involved in the maritime trade cargo supply chain.

 

The Office of the U.S. Trade Representative (USTR), after seeking comments on whether to extend for up to 12 months exclusions from the Section 301 tariffs granted in May 2019 for certain imports from China (see Trump and Trade Update of March 2, 2020), has approved 13 extensions covering the following Harmonized Tariff Schedule (HTS) subheadings and product descriptions:

  • 8481.10.0090 – Taps, cocks, valves and similar appliances, for pipes, boiler shells, tanks, vats or the like, including pressure-reducing valves and thermostatically controlled valves; parts thereof: Pressure-reducing valves: Other
  • 8483.50.9040 – Transmission shafts (including camshafts and crankshafts) and cranks; bearing housings, housed bearings and plain shaft bearings; gears and gearing; ball or roller screws; gear boxes and other speed changers, including torque converters; flywheels and pulleys, including pulley blocks; clutches and shaft couplings (including universal joints); parts thereof: Flywheels and pulleys, including pulley blocks: Other:  Grooved pulleys
  • Filtering or purifying machinery or apparatus of a kind used for waste water treatment (described in statistical reporting number 8421.21.0000)
  • Air purification equipment, electrically powered, weighing less than 36 kg (described in statistical reporting number 8421.39.8015)
  • Armatures designed for use in hydraulic solenoid valves (described in statistical reporting number 8481.90.9040)
  • C-poles, of steel, designed for use in hydraulic solenoid control valves (described in statistical reporting number 8481.90.9040)
  • Metering spools, of aluminum, designed for use in hydraulic solenoid control valves (described in statistical reporting number 8481.90.9040)
  • Metering spools, of steel, designed for use in hydraulic solenoid control valves (described in statistical reporting number 8481.90.9040)
  • Poles, of steel, designed for use in hydraulic solenoid control valves (described in statistical reporting number 8481.90.9040)
  • Push pins, of steel, designed for use in hydraulic solenoid control valves (described in statistical reporting number 8481.90.9040)
  • Retainers, of steel, designed for use in hydraulic solenoid control valves (described in statistical reporting number 8481.90.9040)
  • Stereoscopic microscopes, not provided with a means for photographing the image, valued not over $500 per unit (described in statistical reporting number 9011.10.8000)
  • Adapter rings, tubes and extension sleeves, stands and arm assemblies, stages and gliding tables, eyeguards and focusing racks, all the foregoing designed for use with compound optical microscopes (described in statistical reporting number 9011.90.0000)

These HTS subheadings and products are currently subject to the Section 301 25 percent tariff covering Chinese products imported into the United States worth approximately $34 billion (List 1), and their exclusions to the tariff were set to expire on May 14, 2020. With these extensions, such products entering the United States for consumption, or withdrawn from warehouse for consumption, on or after July 6, 2018 and before December 31, 2020, will continue to be excluded from the additional duty. All other Section 301 exclusions granted in May 2019 will expire as of midnight, May 14, 2020 (see Trump and Trade Update of May 10, 2019).

On May 13, 2020, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC (USW), a union on behalf of the domestic industry employees, filed petitions with the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (ITC) seeking antidumping (AD) duties on imports of passenger vehicle and light truck (PVLT) tires from South Korea, Taiwan, Thailand and Vietnam, and countervailing duties (CVD) on imports of PVLT tires from Vietnam. According to the petitions, PVLT tires from South Korea, Taiwan, Thailand and Vietnam are being sold at less than fair value in the United States and PVLT tires from Vietnam benefit from countervailable subsidies, causing material injury and threatening further material injury to the U.S. industry if trade remedy duties are not imposed.

PVLT tires are new pneumatic tires, of rubber, with a passenger vehicle or light truck size designation that may be tube-type, tubeless, radial, or non-radial and may be intended for sale to original equipment manufacturers or the replacement market. Please contact us for a copy of the proposed scope of these investigations.

USW filed AD and CVD petitions on PVLT tires from China in 2014, resulting in Commerce’s imposition of AD and CVD orders in 2015 that remain in place today.  PVLT tires from China are also subject to an additional 25 percent China Section 301 duty the Trump administration imposed. In its CVD petition, the USW alleges that the Vietnamese PVLT tire producers are benefiting from approximately 19 subsidy programs.  In its AD petitions, USW alleges that the following antidumping duties should be imposed:

  • 21 to 147 percent on subject imports from Taiwan, depending on the calculation methodologies;
  • 106.4 to 217.5 percent on subject imports from Thailand;
  • 42.95 to 195.20 percent on subject imports from South Korea; and
  • 14.73 to 33.06 percent on subject imports from Vietnam.

Commerce will determine by June 3, 2020, whether to formally initiate the antidumping investigation and, if Commerce does, the ITC will decide 25 days after that whether there is a reasonable indication of existing material injury or threat of material injury to the domestic PVLT tires industry and whether the investigation should continue or terminate.

Thompson Hine LLP is monitoring this matter closely. For additional information or to obtain a copy of the petition, please contact us.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced its revocation of general license 13E and issuance of general licenses 3H (“Authorizing Transactions Related to Dealings in Certain Bonds”) and 9G (“Authorizing Transactions Related to Dealings in Certain Securities”) to remove references to Nynas AB. Nynas is no longer being blocked pursuant to the Venezuela Sanctions Regulations, 31 C.F.R. Part 591 (VSR). These updates are also reflected in two Frequently Asked Questions about these general licenses.

In a previous Trump and Trade post, we discussed OFAC’s temporary extension of general license 13E to provide additional time for Nynas to complete its proposed corporate restructuring, which would result in, according to OFAC, “significant changes to Nynas’s ownership and control.” OFAC’s announcement confirms that the restructuring of Nynas is now complete, and consequently Nynas is no longer blocked pursuant to the VSR.

The restructuring has removed control by blocked persons of Nynas and has reduced the interest of blocked persons in Nynas below 50%. Accordingly, U.S. persons are no longer prohibited from engaging in transactions or activities with Nynas, and do not require authorization from OFAC to do so. Notably, absent authorization from OFAC, all U.S. persons continue to be prohibited from engaging in any dealings with Petróleos de Venezuela, S.A. (PdVSA), or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest.

General licenses 3H and 9G replaced general licenses 3G and 9F, respectively. The only changes made to these licenses were the removal of references to Nynas.

Two recent federal government actions have highlighted national security concerns related to the nation’s power grid. First, on May 1, 2020, President Donald Trump issued an executive order that will likely lead to restrictions on the procurement and use of electric equipment from certain foreign adversaries for use in the U.S. power grid. Second, on May 4, 2020, Secretary of Commerce Wilbur Ross announced the initiation of a Section 232 investigation into whether certain transformer components used in electrical power grids are being imported in quantities that threaten national security.

Key Notes:

  • By executive order, the secretary of energy is now authorized to review and block any acquisition, importation, transfer or installation of any bulk-power system electric equipment in which a foreign country or foreign person has an interest.
  • A list of prohibited suppliers of electric equipment may be forthcoming.
  • In addition, a Section 232 investigation has been initiated into transformers and certain components, which may result in increased tariffs on these items.

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

The Office of the U.S. Trade Representative (USTR) has issued a Federal Register notice excluding certain List/Tranche 4 products (imports from China with an annual trade value of $300 billion) from China Section 301 tariffs. The exemptions cover three 10-digit Harmonized Tariff System (HTS) subheadings and five specially-prepared product descriptions, which cover 27 separately submitted exclusion requests. Three of the product-specific exclusions are related to hospital/medical products involved in the response to the COVID-19 pandemic.

The excluded HTS subheading are: (1) 3306.20.0000 – Preparations for oral or dental hygiene, including denture fixative pastes and powders; yarn used to clean between the teeth (dental floss), in individual retail packages: Yarn used to clean between the teeth (dental floss); (2) 6506.10.6030 – Other headgear, whether or not lined or trimmed: Safety headgear: Other – Motorcycle helmets; and (3) 8512.10.4000 – Electrical lighting or signaling equipment (excluding articles of heading 8539), windshield wipers, defrosters and demisters, of a kind used for cycles or motor vehicles; parts thereof: Lighting or visual signaling equipment of a kind used on bicycles: Visual signaling equipment.

The exclusions with specially-prepared product descriptions include but are not limited to: tumblers or disposable graduated liners for plastic pitchers of a type used in healthcare facilities; certain disposable identification wristbands of plastics, designed to be worn by patients during medical procedures; certain manually operated pill or tablet crushers of plastics for capturing and storing the resulting powders; certain tracking devices designed to be attached to other devices for Bluetooth connections; and certain wireless communication apparatus for receiving audio data to be played on wireless speakers.

These exclusions will apply from September 1, 2019, through September 1, 2020. 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 product description set out in any particular exclusion request. U.S. Customs and Border Protection will soon issue instructions on entry guidance and implementation. The USTR will continue to issue determinations on pending requests on a periodic basis.

An exclusion can apply to any product that fits within a description provided in the annex of the Federal Register notice, regardless of which company submitted the original request. Please contact us to discuss whether we can assist in determining if your product might fit within one of these exclusions.