On April 9, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $639,023,750 settlement with Standard Chartered Bank (SCB), a UK-based financial institution, over potential civil liability related to alleged violations of the now-repealed U.S. economic sanctions on Burma and Sudan and the continuing sanctions on Cuba, Iran and Syria. Separately, SCB agreed to pay $18,016,283 to settle potential liability for alleged sanctions violations involving Zimbabwe. This agreement is part of a $1.1 billion global settlement among SCB, OFAC, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Department of Justice, the U.S. Attorney’s Office for the District of Columbia, the New York County District Attorney’s Office, the New York State Department of Financial Services and the UK’s Financial Conduct Authority.

The alleged violations consisted of a total of 9,335 transactions, worth $437,553,380, processed by SCB to or through the U.S. financial system from June 2009 and June 2014 involving persons from or in the sanctioned countries. A majority of the transactions involved Iran-related accounts maintained by SCB Dubai and processed to or through SCB’s branch in New York or other U.S. financial institutions. SCB also settled alleged violations that the transactions involved persons or entities included on the Specially Designated Nationals (SDN) List.

In addition to several compliance measures taken since 2012, SCB agreed to implement further procedures to guarantee that (1) its management team is committed to a culture of compliance and (2) SCB (a) conducts regular risk assessments, (b) continues to implement internal policies and procedures (internal controls) outlining its sanctions compliance program, (c) conducts regularized testing and audits, (d) provides frequent and adequate OFAC-related training and (e) submits an annual certification confirming the implementation of such measures for a period of five years. For further information see the Settlement Agreement.

SCB issued a press release accepting full responsibility for the violations, which involved “two former junior employees” who conspired with two customers’ Iranian connections to break the law. The statement notes that SCB has undergone a comprehensive and positive transformation since the conduct occurred and cooperated fully with all relevant authorities.

In recent weeks the U.S. government has taken two notable steps to further sanction and pressure the Islamic Republic of Iran. On March 26, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) took action against 25 individuals and entities by placing them on the Specially Designated Nationals (SDN) List. This list includes a network of front companies based in Iran, the United Arab Emirates and Turkey that OFAC stated has transferred over a billion dollars and euros to the Islamic Revolutionary Guard Corps (IRGC) and Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL). As a result of this action, all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons are now blocked and must be reported to OFAC. In addition, U.S. persons are now prohibited from engaging in activities that involve any property or interests in property of these blocked or designated persons. Persons that engage in certain transactions with these individuals and entities may themselves be exposed to sanctions or subject to an OFAC enforcement action. Unless an exception applies, any foreign financial institution that knowingly facilitates a significant transaction for any of these individuals or entities could be subject to secondary U.S. sanctions.

Treasury Secretary Steven Mnuchin stated, “We are targeting a vast network of front companies and individuals … to disrupt a scheme the Iranian regime has used to illicitly move more than a billion dollars in funds …. The IRGC, MODAFL, and other malign actors in Iran continue to exploit the international financial system to evade sanctions, while the regime funds terrorism and other destabilizing activities across the region.” In particular, OFAC stated that Ansar Bank used its Iran-based foreign currency arm, Ansar Exchange, and its network, to convert Iranian rials ultimately to hundreds of millions of dollars and euros. To provide this funding to Ansar Bank, MODAFL and the IRGC, Ansar Exchange relied upon a network of front companies and agents in Turkey and the UAE. OFAC provided a detailed chart describing Ansar Bank’s sanctions evasion scheme.

On April 8, 2019, the White House and Department of State announced that as of April 15, the United States will designate as a Foreign Terrorist Organization (FTO) the Islamic Revolutionary Guard Corps (IRGC) in its entirety, including the Qods Force. The FTO list includes 67 other terrorist organizations including Hizballah, Hamas, Palestinian Islamic Jihad, Kata’ib Hizballah and al-Ashtar Brigades. This designation is the first time that the United States has designated a part of another government as an FTO. According to a State Department spokesperson, the IRGC “has been directly involved in terrorist plotting; its support for terrorism is foundational and institutional, and it has killed U.S. citizens. It is also responsible for taking hostages and wrongfully detaining numerous U.S. persons, several of whom remain in captivity in Iran today.” This designation builds upon previous sanctions, including the sanctioning of more than 900 Iran-related individuals, entities, aircraft and vessels by the Trump administration for human right abuses, censorship, ballistic missile program, malign cyber activities, support to terrorism or associations with the Iranian government.

Both of these actions are intended, per the White House statement, “to increase financial pressure and raise the costs on the Iranian regime for its support of terrorist activity until it abandons its malign and outlaw behavior.”

A World Trade Organization (WTO) dispute settlement panel ruling, Russia – Measures Concerning Traffic in Transit, issued last week on a member’s use of the WTO’s so-called “national security exception” under Article XXI of the General Agreement on Tariffs and Trade (GATT) may have a significant impact on the Trump administration’s application of that exception under U.S. law, Section 232 of the Trade Expansion Act of 1962, to impose tariffs on imports worldwide. Currently, the Trump administration’s Section 232 tariffs on steel and aluminum imports are the subject of nine WTO members’ complaints. This decision is the first time that a WTO dispute settlement panel has opted to examine and adjudicate the WTO’s national security exception. Article XXI of the General Agreement on Tariffs and Trade (GATT) allows a member to take “any action which it considers necessary for the protection of its essential security interests.” This ruling can still be appealed to the WTO’s Appellate Body (AB).

In the report, the panel determined that Russia acted within the scope of Article XXI when it blocked road and rail transport from Ukraine during the countries’ border conflict, finding that Russia acted in “good faith” in its response to an “emergency” situation that was within the parameters of Article XXI and that allowed for the imposition of trade restrictions. The panel rejected Russia’s argument that a WTO member can unilaterally determine what constitutes “national security.”

In its third-party submissions for this proceeding, the U.S. government argued that the national security exception is entirely “self-judging” and that the WTO lacks jurisdiction to conduct that analysis. The panel found, however, that the WTO has jurisdiction to determine whether a WTO member’s use of the national security exception satisfies the requirements of Article XXI of the GATT and to analyze the parameters of the exception. The panel found that an action is within the scope of the exception if it satisfies any of the requirements in the enumerated subparagraphs of Article XXI(b).

In its analysis, the panel provided, “It would be entirely contrary to the security and predictability of the multilateral trading system established by the GATT 1994 and the WTO Agreements, including the concessions that allow for departures from obligations in specific circumstances, to interpret Article XXI as an outright potestative condition, subjecting the existence of a member’s GATT and WTO obligations to a mere expression of the unilateral will of that member,” and “for {an} action to fall within the scope of Article XXI(b), it must objectively be found to meet the requirements in one of the enumerated subparagraphs of that provision.”

The panel’s interpretation of the national security exception may have a major impact on the ongoing WTO challenges to the Trump administration’s Section 232 tariffs on steel and aluminum imports. Although the panel ultimately found that the Russia-Ukraine conflict satisfied certain Article XXI criteria, it remains to be seen how a new panel will view the Trump administration’s decision to consider steel and aluminum imports a national security threat.

The Office of the U.S. Trade Representative (USTR) has released its annual National Trade Estimate Report on Foreign Trade Barriers that addresses the status of foreign trade and investment barriers to U.S. exports around the world. This report is the U.S. government’s major annual report on the barriers to trade, investment and services that U.S. exporters and other businesses encounter around the world. It covers 65 countries, customs territories and regional associations, including each U.S. free trade agreement partner and all of the 50 largest export markets for U.S. goods.

The report classifies foreign trade barriers in 11 categories, covering “government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services, unduly hamper U.S. foreign direct investment or U.S. electronic commerce.” The categories include:

  • Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing, customs barriers and shortcomings in trade facilitation, and other market access barriers);
  • Technical barriers to trade (e.g., unnecessarily trade restrictive standards, conformity assessment procedures, or technical regulations, including unnecessary or discriminatory technical regulations or standards for telecommunications products);
  • Sanitary and phytosanitary measures (e.g., trade restrictions implemented through unwarranted measures not based on scientific evidence);
  • Subsidies, including export subsidies (e.g., export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third country markets) and local content subsidies (e.g., subsidies contingent on the purchase or use of domestic rather than imported goods);
  • Government procurement (e.g., “buy national” policies and closed bidding);
  • Intellectual property protection (e.g., inadequate patent, copyright, and trademark regimes and inadequate enforcement of intellectual property rights);
  • Services barriers (e.g., prohibitions or restrictions on foreign participation in the market, discriminatory licensing requirements or regulatory standards, local-presence requirements, and unreasonable restrictions on what services may be offered);
  • Barriers to digital trade (e.g., barriers to cross-border data flows, including data localization requirements, discriminatory practices affecting trade in digital products, restrictions on the provision of internet-enabled services, and other restrictive technology requirements);
  • Investment barriers (e.g., limitations on foreign equity participation and on access to foreign government-funded research and development programs, local content requirements, technology transfer requirements and export performance requirements, and restrictions on repatriation of earnings, capital, fees and royalties);
  • Competition (e.g., government-tolerated anticompetitive conduct of state-owned or private firms that restricts the sale or purchase of U.S. goods or services in the foreign country’s markets or abuse of competition laws to inhibit trade); and
  • Other barriers (barriers that encompass more than one category, e.g., bribery and corruption, or that affect a single sector).

Fact Sheets:

On March 27, 2019, Cooper Natural Resources, Inc., Elementis Global LLC and Searles Valley Minerals, Inc. filed a petition on behalf of the domestic industry with the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (Commission) seeking antidumping duties on imports of sodium sulfate anhydrous (SSA) from Canada. According to the petition, SSA imports from Canada are being sold at less than fair value in the United States, causing material injury and threatening further material injury to the U.S. industry if antidumping duties are not imposed.

SSA, also known as disodium sulfate, is a white or off-white, granular, crystallized powder containing 43.64 percent sodium oxide and 56.36 percent sulfur trioxide, with a molecular weight of approximately 142.04, which is registered under the Chemical Abstracts Service (CAS) number 7757-82-6. The product subject to this investigation is sodium sulfate (Na2SO4) that does not contain water, regardless of purity, grade, color, production method and form of packaging, in which the percentage of particles between 20 mesh and 100 mesh ranges from 10-95 percent and the percentage of particles over 100 mesh ranges from 5-90 percent. It is used in the production of several products, including, but not limited to, detergents, pulp and paper, glass, textiles, starch, carpet deodorizers and livestock mineral feed. In their petition, the petitioners state that SSA enters the United States under Harmonized Tariff Schedule of the United States (HTSUS) subheadings 2833.11.50.10, 2833.11.10.00, 2833.11.50.50 and (incorrectly classified under) 2833.19.00.00.

According to the petition, imports of Canadian SSA increased from 39,910 short tons (ST) in 2016, to 55,495 ST in 2017, and to 55,819 ST in 2018, while its average unit value declined from $121/ST in 2016 to $109/ST in 2017, and to $107/ST in 2018. As a result, the petitioners claim that unfairly priced SSA imports are having direct, significant adverse effects on the domestic industry, such as price suppression, resulting in lost in sales and revenue to the U.S. industry.

The petition mentions Saskatchewan Mining and Minerals as the only exporter of the product to the United States at allegedly dumped prices from Canada. The petition does not make public the list of U.S. importers known to import SSA from Canada.

Commerce will determine by April 24, 2019, whether to formally initiate the antidumping investigation and, if Commerce does, the Commission will decide 25 days thereafter whether there is a reasonable indication of existing material injury or threat of material injury to the domestic SSA industry that will require continuation of the investigation.

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

On March 25, 2019, the U.S. Court of International Trade (CIT) denied a challenge to the constitutionality of Section 232 of the Trade Expansion Act of 1962 in a lawsuit brought by the American Institute of International Steel and other steel importers. In a 2-1 decision, the three-judge panel in American Institute for International Steel Inc. et al. v. United States et al., case number 1:18-cv-00152, rejected the plaintiffs’ claims that Section 232 “constitutes an improper delegation of legislative authority in violation of Article I, Section 1 of the U.S. Constitution and the doctrine of separation of powers.”

The panel determined that the court is bound by the U.S. Supreme Court’s 1976 decision in Federal Energy Administration v. Algonquin SNG Inc., which concluded that Section 232’s standards are “clearly sufficient to meet any delegation doctrine attack” and easily satisfied the intelligible principle standard for the delegation doctrine established by the Supreme Court in its 1928 J.W. Hampton, Jr., & Co. v. United States decision.

The CIT panel acknowledged, however, that “the broad guideposts of subsections (c) and (d) of section 232 bestow flexibility on the President and seem to invite the President to regulate commerce by way of means reserved for Congress, leaving very few tools beyond his reach,” and added that “[o]ne might argue that the statute allows for a gray area where the President could invoke the statute to act in a manner constitutionally reserved for Congress but not objectively outside the President’s authority, and the scope of review would preclude the uncovering of such a truth.” The panel concluded that “such concerns are beyond this court’s power to address, given the Supreme Court’s decision in Algonquin.”

The CIT decision was accompanied by a dubitante opinion issued by Judge Gary S. Katzmann. In his opinion, Katzmann admitted that the court is bound by the Supreme Court’s 1976 Algonquin decision. Referencing previous Supreme Court decisions involving a delegation question and laying out the “unbridled discretion” of the president under Section 232, he noted, however, that “[i]f the delegation permitted by Section 232, as now revealed, does not constitute excessive delegation in violation of the Constitution, what would?”

The Office of the U.S. Trade Representative issued another list of product exclusions from Section 301 tariffs on imported goods from China, granting full or partial exemptions in response to 87 separate exclusion requests, according to a pre-publication copy of the notice. The exclusions cover a wide range of products, including, inter alia, certain pumps, impellers, water filters/oxidizers/purifiers, rotors, check valves, bituminous pavers, electric motors and transformers, and flat panel display modules.

The exclusions can apply to any product meeting the description in the annex of the notice, regardless of whether the importer filed an exclusion request. The scope of each exclusion is governed by the scope of the 10-digit Harmonized Tariff Schedule of the United States (HTSUS) headings and product descriptions in the annex; it is not governed by the product description set out in any particular exclusion request. The exclusions apply as of July 6, 2018, which was the implementation date for the first list of imported Chinese products, worth $34 billion, subject to these tariffs, and will extend for one year after the formal publication of this notice in the Federal Register. U.S. Customs and Border Protection (CBP) will issue instructions on entry guidance and implementation.

In brief remarks to the press on March 21, 2019, President Donald Trump noted that the Section 301 tariffs will remain in place even once the United States and China enter into a trade deal. He stated, “We’re talking about leaving them and for a substantial period of time, because we have to make sure that if we do the deal with China, that China lives by the deal. Because they’ve had a lot of problems living by certain deals and we have to make sure.” He added that he and Chinese President Xi are friends and the deal is “coming along nicely” but that the United States is “taking in billions and billions of dollars right now in tariff money. And for a period of time, that will stay.”

On March 12, 2019, Robert Lighthizer, U.S. Trade Representative (USTR), testified before the Senate Finance Committee regarding the World Trade Organization (WTO) and President Donald Trump’s desire for a more effective international trading system. In his prepared remarks, Ambassador Lighthizer stated that the United States remains active at all levels of the WTO but has concerns about it. “In many ways, the WTO is not working as expected,” he stated, noting that the negotiating process has “largely broken down” and there has been no new significant multilateral market access agreement in 24 years. He indicated that, “[d]espite all the dramatic changes that have taken place in the last quarter century – the rise of China, the evolution of the Internet, and countless other developments – the WTO is still largely operating under the same old playbook from the early 1990s. It is now out of date.”

Lighthizer also argued that much work needs to be done in terms of lowering tariffs, “primarily in countries that consider themselves developing,” adding that “[n]umerous WTO members continue to have very high ‘bound’ tariff rates that allow them to maintain tariffs significantly above the bound rates that apply to the United States.” He stated that it is no longer reasonable to expect the United States to continue with such disparities in these rates simply because they were agreed to “many years ago,” but that rules on tariffs need to “keep pace with the realities of the global economy.” Lighthizer added that many WTO members are not living up to their obligations, and he specifically criticized members that declare themselves to be “developing countries” for purposes of obtaining special and differential treatment under WTO rules and retain such designations for years (i.e., China, India, Turkey and South Korea).

From the USTR’s testimony, it would appear that the Trump administration is most concerned with the WTO’s dispute settlement process (DSP), which “is being used to create new obligations to which the United States never agreed.” He argued that the DSP was never intended to make new rules but was designed only to resolve specific disputes. Instead, the WTO’s Appellate Body, he said, has repeatedly created new obligations, failed to follow basic rules of operation, and greatly undermined the negotiating process. In concluding his testimony, Lighthizer listed the work the United States has undertaken to negotiate new rules and to raise critical issues, “not to hurt the WTO – but to ensure that it remains relevant to a rapidly changing world.”

Senate Finance Chairman Chuck Grassley (R-Iowa) raised in his opening statement longstanding concerns over the WTO’s Appellate Body, noting that the United States has “refused to consent to new Appellate Body appointments under the Obama administration, and the Trump administration has maintained the same position.” If reform is not forthcoming, he noted, the Appellate Body could lose a minimum quorum needed to function. While the USTR intends to assist President Trump in updating and reforming the WTO, he noted that he will do so “with the understanding that erecting new market barriers with tariffs and quotas cannot be a long-term solution.” Ranking Minority Member Ron Wyden (D-Ore.) also issued an opening statement in which he stated that it is “long past time to fix what’s wrong” with the WTO, arguing that the process must begin with China.

On March 6, 2019, during a meeting of the Foreign Trade Commission of the Mexican Senate, Luz Maria de la Mora-Sanchez, Foreign Trade Undersecretary of Mexico’s Ministry of Economy, announced that the Mexican government is planning to include additional items on its list of U.S. products subject to retaliatory measures, which were originally imposed on June 5, 2018, in response to the U.S. government’s imposition of Section 232 tariffs on certain steel and aluminum imports into the United States (see Trump and Trade Update of June 1, 2018). This additional list of U.S. goods may be finalized by April 2019. On June 5, 2018, the Mexican government published its “Decree modifying Mexico’s Import and Export Tariff, the Decree that establishes the applicable Duty Rate for goods originating in North America and the Sector Promotion Program Decree” (Decree) in the Federal Official Gazette, imposing retaliatory measures with rates ranging from 7 to 25 percent ad valorem on the imports of several U.S. goods as a response to U.S. tariffs imposed on imports of Mexican steel and aluminum products of 25 and 10 percent, respectively. This additional list has been prepared in large part to address the Trump administration’s continuation of these Section 232 tariffs, which both Mexico and Canada expected to be terminated upon the successful conclusion of negotiations last fall among the United States, Mexico and Canada to revise and update the new free trade agreement replacing the NAFTA.

According to the undersecretary, Mexican steel and aluminum exports do not pose a threat to U.S. national security under its Section 232 law, and these U.S. measures were imposed in violation of World Trade Organization rules and harm both regional integration and the development of several North American supply chains. Although Mexican government efforts are focused on the elimination of the Section 232 tariffs on Mexican steel and aluminum and Mexico’s corresponding retaliatory measures, the government of President Andrés Manuel López Obrador is reviewing the list of 71 HTS codes (covering U.S. imports worth approximately $3 billion) currently subject to retaliatory tariffs in order to include new items that could be subject to a 7 to 25 percent ad valorem duty.

On March 6, 2019, the American Kitchen Cabinet Alliance (Alliance) filed antidumping (AD) and countervailing duty (CVD) petitions with the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (Commission) against imports of wooden cabinets and vanities from China. The Alliance consists of U.S. producers of wooden cabinets and vanities: ACProducts, Inc., American Woodmark Corporation, Bellmont Cabinet Co., Bertch Cabinet Manufacturing, The Corsi Group, Crystal Cabinet Works, Inc., Dura Supreme Cabinetry, Jim Bishop Cabinets, Inc., Kitchen Kompact, Inc., Koch & Co., Inc., Kountry Wood Products, LLC, Lanz Cabinets Incorporated, Leedo Cabinetry, Marsh Furniture Company, Master WoodCraft Cabinetry LLC, MasterBrand Cabinets, Inc., Nation’s Cabinetry, Showplace Wood Products, Inc., Smart Cabinetry, Tru Cabinetry, Wellborn Cabinet, Inc., Wellborn Forest Products, Inc., Woodland Cabinetry, Inc., Woodmont Cabinetry, W. W. Wood Products, Inc. and two other undisclosed companies. According to the Alliance, wooden cabinets and vanities imported from China are being sold at less than fair value in the United States and are subsidized, causing material injury and threatening further material injury to the domestic industry if trade remedy duties are not imposed.

Wooden cabinets and vanities consist of a cabinet box (which typically includes a top, bottom, sides, back, base blockers, ends/end panels, stretcher rails, toe kicks and/or shelves) and may or may not include a frame, door, drawers and/or shelves. The products subject to these investigations are designed for permanent installation (including floor mounted, wall mounted, ceiling hung or by attachment of plumbing), and wooden components thereof. These include wooden cabinets and vanities with or without wood veneers, wood, paper or other overlays, or laminates, with or without non-wood components or trim such as metal, marble, glass, plastic, or other resins, whether or not surface finished or unfinished, and assembled, unassembled and/or “ready to assemble” (RTA), also commonly known as “flat packs,” except those covered by other AD and CVD orders. The products covered by these investigations are made substantially of wood products, including solid wood and engineered wood products (including those made from wood particles, fibers or other wooden materials such as plywood, strand board, block board, particle board or fiberboard), or bamboo.

The Alliance states that wooden cabinets and vanities, and their components, enter the United States under Harmonized Tariff Schedule of the United States (HTSUS) subheadings 9403.40.9060, 9403.60.8081 and 9403.90.7080. The proposed scope of the petition also includes wooden cabinets and vanities whether or not they are imported attached to, or in conjunction with, faucets, metal plumbing, sinks and/or sink bowls, or countertops. For such products, the petitions state that only the wooden cabinet or vanity is covered by the scope.

According to the Alliance, from January-November 2016 to January-November 2018, imports of wooden cabinets and vanities from China increased 19.9 percent. The Alliance further alleges that these products are unfairly subsidized by Chinese government programs, including preferential loans and interest rates, grant and tax benefit programs, VAT program and export credit subsidies. As a result, the Alliance claims that subsidized and unfairly priced imports of wooden cabinets and vanities are having significant, negative price effects resulting in lost sales and revenue to the domestic industry, including the closure of at least two U.S. cabinet manufacturers.

The petition lists both a large number of foreign producers/exporters that shipped wooden cabinets and vanities to the United States at allegedly dumped and subsidized prices from China and the U.S. importers of those products.

Commerce will determine by March 26, 2019, whether to formally initiate the investigations and, if Commerce does, the Commission will decide within 25 days after that whether there is a reasonable indication of existing material injury or threat of material injury to the domestic industry that will require continuation of the investigations.

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