The Department of Commerce’s Bureau of Industry and Security (BIS) has issued two final rules and one proposed rule intended to prevent efforts by entities in China, Russia and Venezuela to acquire U.S. technology that could be used in development of weapons, military aircraft or surveillance technology through civilian supply chains or under civilian-use pretenses. In a press release, Secretary of Commerce Wilbur Ross stated, “Certain entities in China, Russia, and Venezuela have sought to circumvent America’s export controls, and undermine American interests in general, and so we will remain vigilant to ensure U.S. technology does not get into the wrong hands.”

The actions taken by BIS are:

  • Elimination of License Exception Civil End Users (CIV) – This final rule removes, effective June 29, 2020, the longstanding license exception CIV. This license exception authorizes exports, reexports, or transfers (in-country) of certain items controlled for national security purposes to civilian end users for civil end uses in certain countries otherwise restricted on the Commerce Control List (CCL) country chart for national security reasons. BIS noted that many countries are seeking to “align civil and defense technology development for many reasons – to achieve greater efficiency, innovation, and growth.” However, according to BIS, such integration makes it harder for U.S. exporters to know or determine whether the end use and end users of an item will or will not be intended for military uses or military end users. BIS determined that certain countries have employed a strategy of obscuring U.S. exporters from being able to readily determine the intended end use. Accordingly, BIS determined that transactions involving the national security-controlled items that have been permitted under CIV license exception should henceforth be reviewed prior to export.
  • Expansion of Military End Use/User Controls in China, Russia or Venezuela – This final rule, effective June 29, 2020, expands licensing requirement controls on China, Russia and Venezuela to cover “military end users” in all three countries, in addition to “military end uses.” It also broadens the list of items controlled and potentially requiring an export license, including items such as semiconductor equipment, sensors, and other technologies sought for military end use or by military end users in these countries. Importantly, this rule broadens 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. BIS clearly notes 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.” Finally, the rule expands Electronic Export Information (EEI) filing requirements by removing two exemptions when the destination is China, Russia or Venezuela: (i) from filing EEI for any shipments valued under $2,500 and (ii) from reporting the Export Control Classification Number (ECCN) when the only reason for control is anti-terrorism (AT).
  • Proposal to Amend License Exception Additional Permissive Reexports (APR) – This proposed rule seeks to eliminate certain provisions of the APR license exception which authorizes certain reexports between and among certain identified countries if the requirements of the country authorizing the reexport are met. BIS proposes to remove the provision in this license exception that authorizes the reexport of certain national security controlled items from Country Group A:1 country or Hong Kong to Country Group D:1. According to BIS, this proposed change is due to evidence that partner countries have different standards and have approved licenses for the reexport of a U.S.-origin items that would have been denied if exported directly from the United States. BIS is requesting comment on how the proposed change would impact persons who currently use or plan to use the APR license exception. Comments on this proposed ruled must be received by BIS no later than June 29, 2020, and must be submitted to the federal rulemaking portal (www.regulations.gov) under Docket No. BIS–2020–0010.

On April 21, 2020, Thyssenkrupp Materials NA, Inc., and several of its related operating divisions filed a complaint in the U.S. Court of International Trade (CIT) against the United States alleging that the federal government’s administration of Section 232 aluminum and steel duties is unconstitutional.  Thyssenkrupp is a Michigan-based importer of aluminum and steel products that has paid additional duties on imports of these articles since President Donald Trump first implemented the tariffs pursuant to Section 232 of the Trade Expansion Act of 1962. On March 8, 2018, Trump issued presidential proclamations imposing an additional 10 percent duty on specific aluminum products and an additional 25 percent duty on certain steel products (see Trump and Trade Update of March 8, 2018). In issuing implementing regulations and instructions for submitting Section 232 exclusion requests, the Department of Commerce (Commerce) stated that “approved exclusions would be made on a product basis and will be limited to the individual or organization that submitted the specific exclusion request” (see Trump and Trade Update of March 16, 2018).

The complaint lists 27 non-exclusive Harmonized Tariff Schedule of the United States (HTSUS) subheadings under which Thyssenkrupp and its operating divisions have imported and paid Section 232 duties on aluminum and steel products corresponding to tariff classifications in exclusions that Commerce has granted to other U.S. parties. The complaint claims that Commerce’s decision to grant exclusions to other parties but to deny Thyssenkrupp relief (even in instances in which it requested no exclusion) “results in an unconstitutional lack of uniformity in the application of tariffs imposed on merchandise in the same HTSUS classification and denies Thyssenkrupp the protection afforded by the Uniformity Clause of Article I, Section 8 of the U.S. Constitution.” The complaint states that the decision to grant exclusions to individual requestors rather than for products based on their HTSUS classification is contrary to the aluminum and steel presidential proclamations and “arbitrary, capricious and not in accordance with law.” Since Thyssenkrupp must pay the additional 10 percent and 25 percent ad valorem duties, the complaint alleges that the company has been placed at a competitive disadvantage with those importers receiving exclusions.

According to  the complaint, the establishment of the exclusion process “produces competitive disadvantages for [Thyssenkrupp] which results in irreparable harm to plaintiff that cannot be remedied by the refund of 232 duties paid and other monetary relief.” Thyssenkrupp concludes by alleging that Section 232 is an unconstitutional delegation of authority from Congress to the executive branch, and that the duties applied to aluminum and steel products under Section 232 are “an unlawful exercise of legislative authority and are void ab initio.” The complaint seeks to have the current requestor-specific Section 232 exclusion process deemed unconstitutional, arbitrary, capricious and an abuse of discretion, and enjoin U.S. Customs and Border Protection from further collection of Section 232 duties.

On April 23, 2020, the Department of State’s Directorate of Defense Trade Controls (DDTC) announced certain measures to mitigate the impact of the pandemic on U.S. companies and supply chains overseas. Key measures from the announcement are summarized below.

Compliance/Registration

  • Effective for registrations originally expiring between February 29 and June 30, 2020, registrations as a manufacturer, exporter, and/or broker of defense articles are extended for two months from the original date of expiration.
  • DDTC Compliance is now granting an additional 30 days for responses to its request for information letters related to voluntary and directed disclosure matters. Extensions for the submission of full voluntary disclosures continue to be on a case-by-case basis. Extension requests should be sent via email to DTCC-CaseStatus@state.gov on company letterhead in PDF format.

Licensing

  • Any licenses under ITAR Parts 120-130 originally expiring between March 13 and May 31, 2020, are extended for six months from the original date of expiration so long as there is no change to the scope or value of the authorization and no name/address changes are required.
  • A temporary change until July 31, 2020, to the definition of “regular employee” under ITAR § 120.39(a)(2) to include long-term contract workers who work at a remote work location, so long as the individual is not located in Russia or a country listed in ITAR § 126.1. Absent this temporary change, the definition requires that contract workers work at a company facility in order to be considered a “regular employee.”
  • A temporary authorization until July 31, 2020, that allows regular employees of licensed entities who are working remotely in a country not currently authorized by a TAA, MLA or exemption to send, receive or access any technical data authorized for export, reexport or retransfer to their employer via a TAA, MLA or exemption so long as the regular employee is not located in Russia or a country listed in ITAR § 126.1.

Procedures

  • DDTC is implementing new procedures for the provision of final action letters for General Correspondence requests and DSP-85s. These will be sent by email if unclassified.
  • DDTC is re-issuing guidance for the expedited authorization of requests submitted in support of U.S. Operations (USOP) at DTCL SOP – USOPS Guidance.
  • DDTC is now also accepting electronic submissions of disclosures via email at DTCC-CaseStatus@state.gov, as well as FMS Part 130 reports via email at DDTC-Part130Notices@state.gov.

In an April 21, 2020, Federal Register notice, the Office of the U.S. Trade Representative (USTR) announced procedures for North American producers of passenger vehicles or light trucks to submit petitions requesting an alternative staging regime: An interested vehicle producer must submit a petition with a draft alternative staging plan no later than July 1, 2020; and a final alternative staging plan, correcting any deficiencies, must be submitted no later than August 31, 2020.

The Federal Register notice states that producers of heavy trucks or other vehicles, although having other rules of origin and regional value content requirements, may also request the alternative staging regime through this process.

Key Notes:

  • Vehicle producers who want to use a different transition plan than the one specified in the USMCA for moving into compliance with the USMCA’s rules of origin for automotive goods must submit petitions by July 1.
  • Passenger vehicles and light trucks are discussed in the USTR procedures, but the procedures note that heavy truck producers may also use this process.

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The Office of the U.S. Trade Representative (USTR) has issued a Federal Register notice exempting Section 301 tariffs for certain List 3 (imports from China with an annual trade value of $200 billion) products. The exemptions cover one 10-digit Harmonized Tariff System (HTS) subheading and 107 specially-prepared product descriptions, which combined cover 157 separately submitted exclusion requests.

The excluded HTS subheading is 8424.90.9080, which covers “Mechanical appliances (whether or not hand operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged;  spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines; parts thereof: Parts: Other.” The exclusions with specially-prepared product descriptions include but are not limited to: seeds of mung beans; certified organic preparations of chopped garlic; various chemical compounds (CAS Nos. are provided); certain wall panels of cellulose PVC ; parking stops of recycled rubber; certain messenger bags, backpacks, duffel bags, garment bags, and toiletry bags; certain padfolios of faux leather or polyester; chinstraps and pads for football helmets; certain fiber optic and glass faceplates; certain railroad pipe fittings; tire chains of iron or nonalloy steel; bismuth metal; certain parts suitable for use solely or principally with spark-ignition internal combustion piston engines; electrical/battery operated axial leaf blowers; certain retail computing and portable shipping scales; certain electric gear motors; certain power supplies for automatic data processing machines; certain robotic residential use vacuum cleaners; certain fan-forced portable heaters; certain closed-loop, digital, video security systems; certain electric power control boards and bases; certain electrical wiring harnesses and insulators; certain heart coils for use with motor vehicles; certain hitch riser plates; certain hitches for use with motor vehicles; certain bicycles and bicycle wheel rims; certain utility levels; various parts and accessories of meteorological instruments; certain kitchen timers; certain toddler beds, bassinets and cradles; certain stainless steel tables, carts and work benches; certain candle-shaped lamps; and, certain tripods of galvanized steel.

These exclusions will apply from September 24, 2018, through August 7, 2020. These exclusions 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 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 the description, 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.

We and our foreign law firm partners continue to update our chart of COVID-19 measures taken by governments around the world. This update includes new information for most countries as noted in the chart: Government Measures Taken in Response to COVID-19 as of April 22, 2020.

Please see our Trump and Trade Update of April 7 for discussion of this initiative.

On April 7, 2020, the U.S. Department of Homeland Security’s Federal Emergency Management Agency (FEMA) issued a temporary final rule (“Rule”) to establish export restrictions on certain types of personal protective equipment (PPE) products and respirators (“Covered Products”) used in the response to the COVID-19 pandemic. The Rule implements the presidential memorandum dated April 3, 2020, in which President Trump directed Homeland Security to take action under the Defense Production Act of 1950 (50 U.S.C. § 4501) to prevent diversion of the necessary materials overseas. The Rule will remain in effect until August 8, 2020.

On April 17, 2020, the Federal Emergency Management Agency’s filed a notification of exemptions (the “Exemptions”) that identifies 10 exemptions for certain types of exports of the Covered Products. (The notice was published in the Federal Register on April 21, 2020 but effective on the date filed, April 17, 2020.)

Key Notes:

  • Effective April 7, 2020, most exports from the United States of certain respirators, masks and gloves require approval from FEMA.
  • Effective April 17, 2020, FEMA announced 10 exemptions to the export restrictions.
  • Exempted exports still require clearance from FEMA.
  • Restrictions continue until August 8, 2020.

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On April 17, 2020, the Federal Emergency Management Agency’s (FEMA) filed a notification of exemptions (the “Exemptions”) that identifies 10 exemptions from the temporary final rule published on April 10, 2020 (the “Rule”), which restricts the export from the United States of certain personal protective equipment (PPE) and respirators in the response to the COVID-19 pandemic. On April 21, 2020 the Exemptions were published in the Federal Register and became effective on April 17.

The Rule, which is described in our Trump and Trade April 7, 2020 post, imposes export restrictions on certain PPE and respirators (“Covered Products”) pursuant to a presidential memorandum dated April 3, 2020. The Rule directs U.S. Customs and Border Protection (CBP) to detain any shipments of the Covered Products pending FEMA’s determination whether to return such shipments for domestic use, issue a rated order for the products, or allow the export of part or all of the shipment.

Previously, the Rule contained only one narrow exemption for shipments by or on behalf of U.S. manufacturers with continuous export agreements with foreign customers since January 1, 2020, and a track record of distributing at least 80% of their supply of the Covered Products, on a per item basis, in the United States during the preceding 12 months. Effective April 17, 2020, the following shipments of Covered Products are also exempt from the Rule:

  1. Shipments to U.S. commonwealths and territories, including Guam, American Samoa, Puerto Rico, U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands (including minor outlying islands).
  2. Exports by non-profit or non-governmental organizations that are solely for donation to foreign charities or governments for free distribution (not sale) at their destination(s).
  3. Intracompany transfers by U.S. companies from domestic facilities to company-owned or affiliated foreign facilities.
  4. Shipments of Covered Products exported solely for assembly in medical kits and diagnostic testing kits destined for U.S. sale and delivery.
  5. Sealed, sterile medical kits and diagnostic testing kits where only a portion of the kit is made up of one or more Covered Products that cannot be easily removed without damaging the kits.
  6. Declared diplomatic shipments from foreign embassies and consulates to their home countries, shipped from and consigned to foreign governments (may be shipped via intermediaries).
  7. Shipments to overseas U.S. military addresses, foreign service posts (e.g., diplomatic post offices,) and embassies.
  8. In-transit merchandise such as shipments in transit through the United States with a foreign shipper and consignee and shipments temporarily entered into a warehouse or temporarily admitted to a foreign trade zone.
  9. Shipments for which the final destination is Canada or Mexico.
  10. Shipments by or on behalf of the U.S. federal government, including its military.

Each of the Exemptions includes additional details on their scope and the basis for each exemption.  Notably, Exemptions (2), (3), (4), (8), and (9) require that exporters submit a letter of attestation to FEMA via CBP’s document imaging system certifying the purpose of the shipment. The letter must also include the following information:

  • a description of which Exemption the exporter is claiming;
  • details regarding the shipment sufficient for CBP and FEMA officials to determine whether the shipment falls under the claimed Exemption(s); and
  • a statement that the information provides is true and accurate to the best of the exporter’s knowledge, and that the exporter is aware that false information is subject to prosecution under the Defense Production Act.

In the Exemptions, FEMA has directed CBP to detain shipments of any manufacturer, broker, distributor, exporter or shipper that CBP believes “is intentionally modifying shipments in a way to take advantage of one or more of these exemptions, diverting materials from the U.S. market or is otherwise trying to circumvent the export restrictions.”

FEMA will make its determination as to each shipment based on the letters of attestation submitted, the Exemptions, and the “totality of the circumstances” described in the Rule.

On April 18, 2020, President Donald Trump signed an Executive Order in an effort to support U.S. businesses that have faced significant financial hardship due to the COVID-19 pandemic response by allowing deferment of duty payments. The order gives the Treasury Department and U.S. Customs and Border Protection (CBP) the flexibility to allow for a 90-day deferment period on certain payments for importers, and will apply to payments for goods imported from March 1 to April 30, 2020.

Pursuant to this authority, the Treasury Department and CBP have issued a joint Temporary Final Rule. This regulation states that “An importer will be considered to have a significant financial hardship if the operation of such importer is fully or partially suspended during March or April 2020 due to orders from a competent governmental authority limiting commerce, travel, or group meetings because of COVID-19, and as a result of such suspension, the gross receipts of such importer for March 13-31, 2020 or April 2020 are less than 60 percent of the gross receipts for the comparable period in 2019.” CBP has indicated that an eligible importer will not need to file additional documentation with CBP to be eligible, but must maintain supporting documents “as part of its books and records establishing that it meets the requirements for relief.”

Treasury and CBP have confirmed that no interest will accrue during this 90-day period, and also that no penalties, liquidated damages claims, or other sanctions will be imposed for the delayed deposits of any estimated duties, taxes and fees. This temporary postponement does not permit return of any deposits of estimated duties, taxes, and/or fees that have been paid. Further, this duty deferment does not apply to imports subject to duties associated with antidumping and countervailing duties (AD/CVD), and Section 201, 232 and 301 trade remedies are not included in this duty relief effort. While CBP has stated that additional details on full implementation are forthcoming, it has released the following two CSMS messages:

While this temporary final rule is effective as of April 22, 2020, Treasury and CBP have opened this rulemaking for a thirty-day public comment period. Comments should be submitted via the Federal eRulemaking Portal at http://www.regulations.gov. Follow the instructions for submitting comments via Docket No. USCBP–2020–0017. CBP specifically invites comments that relate to the economic, environmental, or federalism effects that might result from this regulatory change, and notes that comments that will provide the most assistance “will reference a specific portion of the rule, explain the reason for any recommended change, and include data, information, or authority that support such recommended change.”

On April 16, 2020, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a fact sheet noting that the sanctions programs it administers generally allow for legitimate humanitarian-related trade, assistance or activity under existing laws and regulations. The fact sheet provides consolidated guidance highlighting the most relevant exemptions, exceptions and authorizations for humanitarian assistance and trade under the Iran, Venezuela, North Korea, Syria, Cuba and Ukraine/Russia-related sanctions programs.

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