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16-1117 Thursday “The Daily Bugle”

16-1117 Thursday “Daily Bugle”

Thursday, 17 November 2016

TOPThe Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, Customs, NISPOM, EAR, FACR/OFAC, FTR/AES, HTSUS, and ITAR), plus news and events. Subscribe here for free subscription. Contact us for advertising inquiries and rates

  1. Justice/ATF Seeks Comments on Form ATF F 8620.65, Request for ATF Background Investigation Information 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.) 
  3. State/DDTC: (No new postings.) 
  4. White House: “Eligibility of the Multinational Force and Observers to Receive Defense Articles and Defense Services” 
  1. Defense News: “US Senate to Take Up Iran Sanctions Extension”
  2. Expeditors News: “House Passes Syria Sanctions Bill”
  3. Reuters: “U.S., Iran Clash over Tehran’s Testing of Limit in Nuclear Deal”
  1. De Brauw Blackstone Westbroek: “DOJ Introduces New Guidance On Voluntary Self-Disclosure Of Export Control And Sanctions Violations”
  2. M. Miller Proctor: “Don’t Forget: The New Export Destination Control Requirements Are Now In Effect”
  3. T. Feddo, J. Burnett & J.M. Waite: “Previewing Trade Policy in the Trump Administration, Part 1: International Trade Agreements”
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (28 Oct 2016), DOD/NISPOM (18 May 2016), EAR (4 Nov 2016), FACR/OFAC (4 Nov 2016), FTR (15 May 2015), HTSUS (30 Aug 2016), ITAR (12 Oct 2016)

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1. Justice/ATF Seeks Comments on Form ATF F 8620.65, Request for ATF Background Investigation Information
(Source: Federal Register) [Excerpts.]
 
81 FR 81156-81157: Agency Information Collection Activities; Proposed eCollection eComments Requested; Request for ATF Background Investigation Information (ATF F 8620.65)
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 60-Day notice. …
* DATES: Comments are encouraged and will be accepted for 60 days until January 17, 2017.
* FOR FURTHER INFORMATION CONTACT: Renee Reid, Chief, Personnel Security Branch, either by mail at Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), Washington, DC 20226, or by email at Renee.Reid@atf.gov.
* SUPPLEMENTARY INFORMATION: …
   – The Title of the Form/Collection: Request for ATF Background Investigation Information.
   – Form number (if applicable): ATF F 8620.65
   – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice.
   – Abstract: This form is necessary to maintain a record of another agency’s official request for an individual’s background investigation record. The documented request will assist the ATF in ensuring that unauthorized disclosures of information do no occur. …
 
   Dated: November 14, 2016.
Jerri Murray, Department Clearance Officer for PRA, U.S. Department of Justice.

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OGSOTHER GOVERNMENT SOURCES

OGS_a12. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

* Commerce; RULES; Temporary General Licenses: Extension of Validity [Publication Date: 18 November 2016.]

* Commerce; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals:
  – Foreign Availability Procedures
  – Voluntary Self-Disclosure of Violations of the Export Administration Regulations
 
* Commerce; NOTICES; Denials of Export Privileges:
  – Daniel Miranda-Mendoza
  – Hassan Jamil Salame
  – Javier Nenos Rea
  – Jorge Santana, Jr.
  – Julio Cesar Solis-Castilleja
  – Luis Alberto Najera-Citalan

* Treasury; Foreign Assets Control Office; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 18 November 2016.]

* U.S. Customs and Border Protection; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Record of Vessel Foreign Repair or Equipment Purchase [Publication Date: 18 November 2016.]

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MEMORANDUM FOR THE SECRETARY OF STATE
 
SUBJECT: Eligibility of the Multinational Force and Observers to Receive Defense Articles and Defense Services Under the Foreign Assistance Act of 1961 and the Arms Export Control Act
 
By the authority vested in me as President by the Constitution and the laws of the United States, including section 503(a) of the Foreign Assistance Act of 1961 and section 3(a)(1) of the Arms Export Control Act, I hereby find that the furnishing of defense articles and defense services to the Multinational Force and Observers will strengthen the security of the United States and promote world peace.
 
By the authority vested in me as President by the Constitution and the laws of the United States, including section 503(a) of the Foreign Assistance Act of 1961 and section 3(a)(1) of the Arms Export Control Act, I hereby find that the furnishing of defense articles and defense services to the Multinational Force and Observers will strengthen the security of the United States and promote world peace.
 
You are authorized and directed to transmit this determination and the accompanying memorandum of justification to the Congress and publish this determination in the Federal Register.

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NWSNEWS

NWS_a16
. Defense News: “US Senate to Take Up Iran Sanctions Extension”

 
The US Senate will take up a 10-year extension of American sanctions on Iran after the US House overwhelmingly passed the measure, Senate Majority Leader Mitch McConnell said Thursday.
 
With the sanctions, lawmakers would signal to President-elect Donald Trump that whatever his foreign policy, they intend to take a hard line against Tehran. For his part, Trump has criticized the controversial Iran nuclear deal and promised on the campaign trail to renegotiate it. That’s a complex proposition, as it involves seven nations and was endorsed by a UN Security Council resolution.
 
  “This bipartisan bill, which provides the basis for any sanctions which may be re-imposed on Iran, is critical given the belligerent behavior exhibited by Tehran since the signing of the Joint Comprehensive Plan of Action,” McConnell said. “I expect we’ll pass it on an overwhelming bipartisan basis here too.
 
Supporters of an extension of the Iran Sanctions Act argue that extending it ensures that a “snap back” of sanctions adds leverage for Iran to abide by the Joint Comprehensive Plan of Action (JCPOA), particularly as it exerts influence in Iraq, sends arms to rebels in Yemen and supports the group Hezbollah.
 
The White House has argued the extension is unnecessary because it has the ability to punish Iran under the JCPOA for any breaches, but there has been no veto threat. Tehran, however, has argued renewing the sanctions would nullify the JCPOA.
 
The extension applies to longstanding American sanctions that were intended to deter Iran’s illicit weapons programs and ballistic missiles development. Unless the Senate and president Obama approve an extension, they will expire at year’s end.
 
Senate Foreign Relations Chair Bob Corker, R-Tenn., told reporters Wednesday that next year he would introduce still more punitive measures against Iran, predicting he would have more support from more Democrats than he would have under a Democratic president.
 
  “There is a sense of freedom by many of them to push back against missile testing, conventional weapons purchases, those kinds of things,” Corker said.
 
The Senate Foreign Relations Committee’s top Democrat, Sen. Ben Cardin, of Maryland, said that beyond the extension, “Congress is prepared to take a stronger role” to ensure Iran complies with the terms of the Iran nuclear deal and to respond to Iran’s “non-nuclear nefarious actions.”
 
Though the JCPOA faced opposition, Cardin said lawmakers felt that “it was much better than the military option” to end Iran’s nuclear program. In assessing the deal, he said, Trump should consult with the signatories about its worth, suggesting it would be tough tear up without damaging US relations with those counties.
 
  “I think the president should talk with the coalition partners, the group involved with the JCPOA,” Cardin said. “Go talk to our European allies, because they are more aligned with us. Talk to the French, talk to the Germans, talk to the Brits. Then talk to Russia, China and ultimately Iran.”
 
For its part, Germany will try to ensure the JCPOA survives, Reuters reported Wednesday. “You can be sure that we will try to convince this (Trump) administration that what we agreed one-and-a-half years ago and have since implemented, both in words and deeds, remains, from our point of view, the right policy,” a foreign ministry spokesman reportedly said at a news conference.
 
On Monday, 76 foreign policy experts recommended that Trump should signal he would veto any sanctions that endanger the JCPOA and use the deal to reduce tensions and deepen ties with Iran on other issues. The recommendations were part of a report published by the National Iranian American Council.
 
Trump, during a debate with Democratic opponent Hillary Clinton this summer, called the agreement “one of the worst deals ever made by any country in history.”
 
It’s unclear whether Trump will try to make good on his promise to dismantle the deal or how his administration might tackle its implementation differently from President Obama’s. Conservative lawmakers have questioned how aggressively the Obama administration is penalizing Iran for its destabilizing activities in the Middle East and how strictly it is enforcing the deal.
 
Cardin, who has voted with Republicans against the Iran nuclear deal, cautioned the Trump camp against unraveling it.
 
  “You talk about unraveling the [Iran deal] to do what, to allow Iran to move forward on a nuclear weapons program,” Cardin said. “What are you replacing it with, and do you have the support of the international community … that’s something the Trump administration will have to weigh, and the support in Congress will depend on what they do.”
 
Another Democrat on the Senate Foreign Relations Committee, Sen. Patrick Murphy, of Connecticut, said that now that the deal is in place, he has heard from Iran deal opponents who say that they want it left alone.
 
  “There are a lot of people who opposed the deal who have watched its successful implementation who are worried about it unraveling,” Murphy said.
 
  “I think it’s more than a little naive to think that the Europeans and the supreme leader [of Iran] are going to want to come back and re-negotiate the deal with president Trump.”

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NWS_a2
7. Expeditors News: “House Passes Syria Sanctions Bill”

(Source: Expeditors News)
 
On November 15, 2016 the House of Representatives voted on and passed H.R. 5732, titled “The Caesar Syria Civilian Protection Act of 2016.” This bill, while seeking to impose additional sanctions on human rights abusers, also encourages negotiations to create an enduring political solution to the region.
 
According to the Press Release from the Foreign Affairs Committee, additional sanctions must be imposed by the President on those who take any of the following actions:
 
  – “Does business with or provides financing to the Government of Syria, including Syrian intelligence and security services, or the Central Bank of Syria;
  – Provides aircraft or spare parts for aircraft to Syria’s airlines (including financing);
  – Does business with transportation or telecom sectors controlled by the Syrian government; or
  – Supports Syria’s energy industry.”
 
The text of the Bill can be accessed here.
 
Press Release from the Foreign Affairs Committee is available here.

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NWS_a3
8. Reuters: “U.S., Iran Clash over Tehran’s Testing of Limit in Nuclear Deal”

(Source: Reuters)
 
The United States and Iran on Thursday clashed openly at the U.N. atomic watchdog for the first time since they signed a landmark nuclear deal last year, differing over Tehran’s repeated testing of one of the deal’s less strictly defined limits.
 
The International Atomic Energy Agency (IAEA), which is policing the deal, said Iran’s overstepping of the limit on its stock of a sensitive material for the second time this year risked undermining countries’ support for the agreement.
 
The victory of Donald Trump – a vocal critic of the deal – in the U.S. presidential election also raised the question of whether his country would continue to support the accord, which restricts Iran’s nuclear activities in exchange for the lifting of sanctions against the Islamic Republic.
 
  “Iran must strictly adhere to all commitments and technical measures for their duration,” U.S. ambassador to the IAEA Laura Holgate said in a statement to the agency’s quarterly Board of Governors meeting.
 
The dispute centers on the part of the deal between Tehran and six major powers that limits Iran’s stock of heavy water, a material used as a moderator in reactors like the unfinished one it has at Arak that has been put out of use.
 
In contrast to strict limits elsewhere in the deal on materials including enriched uranium, the text says Iran should not have more heavy water than it needs, adding that those needs are estimated to be 130 tonnes. Western countries see it as a hard limit, and Iran argues it is not.
 
  “We note with concern Iran’s accumulation of heavy water in excess of the limit set forth in the JCPOA of 130 metric tonnes,” Holgate said, using the abbreviation for the deal’s full name, the Joint Comprehensive Plan of Action.
 
The IAEA said Iran was preparing to ship some heavy water out of the country to come back under the 130-tonne limit, but Holgate said Iran would not be in compliance until it had been delivered to a foreign buyer as the deal requires.
 
  “Simply notifying states that this heavy water is for sale without removing it from Iran does not fulfill this JCPOA commitment,” she said.
 
Iran said the issue was not that clear-cut.
 
  “Where is (the) limit?” Iran’s envoy to the IAEA, Reza Najafi, told reporters on the sidelines of the board meeting, adding that the country was preparing to export more than the 5 tonnes of heavy water it originally informed the IAEA of.
 
  “The JCPOA is very clear,” he added. “It says that the needs of Iran are estimated (to be) 130 tonnes. Who is the native English speaker to tell me what estimated means?”

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COMMCOMMENTARY

COMM_a19. De Brauw Blackstone Westbroek: “DOJ Introduces New Guidance On Voluntary Self-Disclosure Of Export Control And Sanctions Violations”

 
On 2 October 2016, the U.S. Department of Justice released new guidance regarding voluntary self-disclosure, cooperation and remediation in export controls and sanctions investigations. The purpose of the guidance is to encourage companies to self-report potential violations by the company or its employees, to cooperate in subsequent investigations and to implement remediation measures in return for favourable treatment. The DOJ also wants to use the guidance to increase its ability and that of other authorities to prosecute individual wrongdoers for their role in the unlawful conduct. Yet, the guidance may have some unintended effects. Voluntary self-disclosure to the DOJ may be interpreted as an admission that the misconduct was wilful, and this may have severe consequences for both the company and individuals involved. In addition, the guidance’s requirement to hand over information about culpable individuals may diminish the level of cooperation of individuals in corporate internal investigations. This, in turn, may reduce a company’s ability to live up to the agency’s requirements and to benefit from any purported cooperation credit. Although the guidance sheds new light on aspects of US enforcement policy of sanctions and export controls violations, the question “to self-report or not to self-report” still requires careful consideration and a weighing of all pros and cons.
 
The new guidance from the DOJ’s National Security Division (NSD) states that “when a company voluntarily self-discloses criminal violations of export controls and sanctions, fully cooperates and appropriately remediates in accordance with the standards set out in the guidance, the company may be eligible for a significantly reduced penalty, to include the possibility of a non-prosecution agreement, a reduced period of supervised compliance, a reduced fine and forfeiture, and no requirement for a monitor”. In some cases, when aggravating circumstances are present, the resolution may still be stringent. Nevertheless, the guidance intends to reassure companies that they would still find themselves in a better position than if they had not chosen to self-disclose, cooperate and remediate.
 
Voluntary self-disclosure is defined as the disclosure of conduct prior to an imminent threat of disclosure or government investigation, within a reasonably prompt time after becoming aware of the offence. The disclosure must further consist of all relevant facts known to the company, including about the individuals involved in any export control or sanctions violation.
 
Full cooperation requires a set of actions to be taken, including:
 
  – cooperating proactively rather than reactively;
  – disclosing relevant documents, providing all facts relevant to potential criminal conduct by third party companies and third party individuals;
  – making available for interviews those company officers and employees who possess relevant information; and
  – disclosing all relevant facts gathered during the company’s independent investigation where this does not violate the attorney-client privilege.
 
Timely and appropriate remediation generally requires companies to implement an effective compliance programme, to take appropriate disciplinary measures against employees responsible for the criminal conduct and to take any additional steps that demonstrate recognition of wrongdoing and that attempt to prevent any recurrence.
 
Strikingly, the NSD guidance also names several potentially aggravating circumstances that could result in harsher penalties against companies, rather than more lenient treatment. Examples include exporting products to “hostile” foreign powers or terrorist organisations, or exporting items which are subject to restrictive measures to prevent nuclear proliferation.
 
The guidance seems to borrow from the previously launched FCPA Pilot Programme (See In context May 2016) and is in line with the Yates Memo of September 2015 (See In Context October 2015). Similarly to the Pilot Programme and the enforcement strategies unfolded in the Yates Memo, there is an increased focus on the role of individuals and special emphasis is put on the importance of companies to self-report potentially non-compliant behaviour of employees. The Yates memo indicates that if companies want to receive credit for cooperating with the authorities, they need to hand over all relevant facts on individuals involved in the misconduct, regardless of their position at the company. This information should be provided before a settlement is reached. In addition, corporate settlements may no longer include individuals, unless extraordinary circumstances justify it.
 
There are, however, some noteworthy differences between the newly released guidance by the NSD and the FCPA Pilot Programme. Whereas the FCPA Pilot Programme specifically mentions that discounts on the fines can amount up to 50%, the guidance released by the NSD makes no particular mention of potential discount levels. In addition, although the NSD guidance mentions that self-reporting companies are eligible for settlement agreements such as deferred and non-prosecution agreements, it does not discuss the option of a declination, which is the most attractive reward.
 
We cannot yet determine the effects of the guidance. One thing that companies might be induced to change is how they self-report export controls and sanctions violations. Where they would previously report first to authorities such as the Office of Foreign Assets Control (OFAC) or to other, non-criminal regulatory authorities, companies may now feel pressure to disclose to the DOJ simultaneously, fearing that not doing so would deprive them of favourable treatment by the DOJ.
 
Yet it remains to be seen if companies will actually start self-reporting potential violations to the DOJ. The DOJ only investigates criminal export controls and sanctions violations. An export controls or sanctions violation is criminal under US law if the violation is wilful. It is usually practically and legally difficult to establish if a violation was wilfully committed. But if a company follows the new guidance and voluntarily self-discloses to the DOJ, the mere act of disclosing certain facts to the DOJ may be interpreted as a company admitting willfulness in respect of those facts. This may have negative effects on the willingness of companies to voluntarily self-disclose.
 
Companies have many factors and risks to take into consideration when weighing the decision about whether to voluntarily disclose to the DOJ. In principle, the guidance aims to encourage companies to decide that the potential benefits outweigh the risks. Yet, although the new NSD guidance intends to stress the potential benefits of self-disclosing, cooperating and remediating, assessing if this will truly be in the company’s best interest still requires careful consideration of all relevant circumstances, in order to make an informed decision.

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COMM_a210. M. Miller Proctor: “Don’t Forget: The New Export Destination Control Requirements Are Now In Effect”

(Source: Polsinelli PC)
 
* Author: Melissa Miller Proctor, Esq., Polsinelli PC, mproctor@polsinelli.com, 602-650-2002.
 
Yesterday, the new export Destination Control Statement requirements under the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) went into effect which required U.S. exporters to make adjustments to their invoices, shipping documents, airway waybills, other documents, and their export compliance programs. Earlier this summer, the Commerce Department’s Bureau of Industry and Security (BIS) and the State Department’s Directorate of Defense Trade Controls (DDTC) harmonized the Destination Control Statement requirements under both the EAR and the ITAR. U.S. exporters are required to insert Destination Control Statements on commercial documentation to inform their foreign customers that they are receiving goods which are subject to U.S. law, and that any subsequent reexport or retransfer may require them to obtain prior authorization from the U.S. Government.
 
Under the previous rules, Destination Control Statements were to be placed on commercial invoices, air waybills, bills of lading and other shipping documents for certain export shipments from the United States. The EAR, which generally applies to purely commercial items, dual-use items and certain munitions items, required the Destination Control Statement to be applied to commercial and shipping documents for goods classified under Export Control Classification Numbers (ECCNs)-five-character alphanumeric codes in the Commerce Control List. The EAR did not require Destination Control Statements to be used for goods classified as EAR99, the catch-all basket provision for goods that are not classified in any ECCNs. Destination Control Statements were also not required for exports made under License Exception BAG, which authorizes travelers and crew members leaving the United States to take personal baggage to any destination without an export license. The previous Destination Control Statement language under the EAR read as follows:
 
These commodities, technology, or software were exported from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. law is prohibited.
 
The ITAR applies to defense articles, related technical data and defense items (i.e., items and services designated on the U.S. Munitions List or that are specially designed for such items or articles classified in 600-series ECCNs under the EAR). The ITAR previously required that Destination Control Statements be inserted into the bill of lading, air waybill or other shipping documents, as well as the purchase documentation or invoice for all exports and reexports of defense articles. The ITAR’s Destination Control Statement language differed from that of the EAR, and provided as follows:
 
These commodities are authorized by the U.S. Government for export only to [country of ultimate destination] for use by [end-user] under [license or other approval number or exemption citation]. They may not be resold, diverted, transferred, or otherwise be disposed of, to any other country or to any person other than the authorized end-user or consignee(s), either in their original form or after being incorporated into other end-items, without first obtaining approval from the U.S. Department of State or use of an applicable exemption.
 
Thus, the ITAR required exporters to insert transaction-specific data into each Destination Control Statement. In addition, where a single shipment contained goods that were subject to the EAR and other that fell under the ITAR, both Destination Control Statements were required to appear on the commercial documents for that shipment.
 
As part of the U.S. export control reform effort, the BIS and the DDTC decided to harmonize the Destination Control Statement requirements and require that they only be inserted into commercial invoices. That is, as of November 15th, the Destination Control Statements are no longer required to appear on the bills of lading, air waybills or other shipping documents. In addition, the Destination Control Statement language under the EAR and ITAR was changed to the following:
 
These items are controlled by the U.S. government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s) either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations.
 
The EAR continues to require the Destination Control Statement to be used only for shipments of goods that are classified under ECCNs-the requirement still does not apply to shipments of goods classified as EAR99. However, as a best practice and to simplify compliance with the Destination Control Statement rules, companies should consider placing the Destination Control Statement on ALL commercial invoices for their export shipments. The Destination Control Statement requirements can be found in 15 C.F.R. Section 758.6 of the EAR and 22 C.F.R. Section 123.9(b) of the ITAR. The BIS and DDTC Final Rules can be found at: 81 Federal Register 54721 (August 17, 2016); and, 81 Federal Register 54732 (August 17. 20160).

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COMM_a311. T. Feddo, J. Burnett & J.M. Waite: “Previewing Trade Policy in the Trump Administration, Part 1: International Trade Agreements”

(Source: Alston & Bird LLP)
 
* Authors: Thomas Feddo, Esq., thomas.feddo@alston.com, 202-239-3521; James Burnett, Esq., james.burnett@alston.com, 202-239-3364; and Jason M. Waite, Esq., jason.waite@alston.com, 202-239-3455. All of Alston & Bird LLP.
 
Throughout Donald Trump’s campaign, a prominent theme was the candidate’s willingness to address perceived shortcomings in the United States’ trade policies and dealings with foreign countries. Trump’s campaign proposals ranged from the revocation of existing and pending free trade agreements (FTAs) to significant changes in U.S. trade relations with several major economies, including Mexico and China. Several of Trump’s proposed trade policies are slated to be implemented during his first 100 days in office. These reforms, should they come to pass, would have a significant impact on U.S. trade relations and are likely to invite legal challenges at the World Trade Organization (WTO) and under other agreements. For companies engaged in international trade activities, Trump’s proposals have the potential to disrupt global supply chains, investment decisions and business operations in multiple markets.
 
In the first of a three-part series, we explore how the Trump Administration could tackle current trade agreements. Part 2 will analyze his potential China policy. Part 3 will discuss sanctions regimes on Iran, Cuba and Russia.
 
ELECTION RESULTS AND A TRADE POLICY PLATFORM
 
Donald Trump won the 2016 presidential election with at least 290 electoral votes, defeating Hillary Clinton in the Electoral College. Down ballot, Republicans maintained control of both the Senate and House of Representatives. All of the Republican Senators on the present Finance Committee (which has jurisdiction over trade matters) whose seats were up for election, including Chuck Grassley (IA), Richard Burr (NC), Pat Toomey (PA), Johnny Isakson (GA) and Rob Portman (OH), won their elections.
 
The 2016 election was the first since 1992, when Ross Perot was a candidate, in which trade policy was a meaningful election issue. Since World War II, the U.S. has consistently championed global trade liberalization and has more recently entered several FTAs with the view that lower tariffs and the opening of U.S. and foreign markets would benefit U.S. business and advance U.S. influence and strategic interests. Most recently, the Obama Administration pursued this agenda with the passage of FTAs with Colombia, Panama and South Korea and the negotiation of the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). However, there has generally been an undercurrent of dissent within the U.S., traditionally led by Democrats and labor unions, that argues that free trade and FTAs disproportionately benefit big business, send jobs overseas, compromise the environment and exploit poor people in foreign countries. Further, dissenters in both parties complained of other countries’ currency manipulation and other unfair or distortive trade practices.
 
During the 2016 presidential primaries, Senator Bernie Sanders (D-VT) blamed U.S. trade policy and FTAs for exacerbating income inequality. Trump, appealing to disaffected middle class voters, echoed this sentiment in the general election and also argued that U.S. FTAs were poorly negotiated. Trump promised that he would renegotiate or withdraw from NAFTA, impose 35 percent duties on automobiles and air conditioners imported from new plants in Mexico, and penalize U.S. companies that move manufacturing abroad.
 
TRADE AGREEMENTS AND RELATED MEASURES
 
Withdrawal from the World Trade Organization
 
During the 2016 campaign, Trump threatened a 45 percent tariff on goods imported from China. Responding to a challenge that such a tariff might violate the WTO, he suggested renegotiating the United States’ commitment to the WTO or pulling out altogether, stating that the WTO was a “disaster.” While it is unlikely that the Trump Administration will withdraw from the WTO, a party, in fact, can withdraw from the WTO on six months’ notice, and the President likely has the authority to do so without congressional approval. The relevant WTO implementing legislation authorizes, but does not direct, the President to give effect to the WTO agreement. The WTO implementing legislation allows Congress to adopt a joint resolution, even over a presidential veto, withdrawing its approval of the WTO, which would presumably require the President to withdraw. However, the legislation authorizing the WTO is silent on whether the President has the authority to withdraw in the absence of congressional action, which implies that the President may have authority to do so.
 
Withdrawal from the WTO would have serious ramifications. The U.S. would revert to the international trade status of North Korea, Syria and the few other countries that remain outside the WTO. Withdrawal from the WTO would allow the U.S. to raise tariffs against goods from other countries; however, such e orts would likely trigger retaliatory tariffs against the U.S., which other countries would be free to impose against the U.S. as a non-WTO member. The U.S. would also lose the benefit of the binding dispute resolution process, where the U.S. often prevails. It would also lose protection against nontariff trade barriers and certain protection afforded its intellectual property.
Proposed NAFTA withdrawal or renegotiation
 
Trump’s plan for his first 100 days in office includes the pledge that he will “announce my intention to renegotiate NAFTA or withdraw from the deal under Article 2205.” Withdrawal is possible, though it cannot be accomplished immediately by the Trump Administration.
 
NAFTA is a congressional-Executive agreement that was negotiated by the President and submitted to Congress under what is colloquially known as “fasttrack” legislation. The implementing legislation passed by Congress approved NAFTA in its entirety, and it authorized the President to exchange notes with Mexico and Canada to cause the agreement to enter into force. NAFTA’s implementing legislation speaks in terms of the authority of the President to proclaim and, with some limitations, even to modify the rules or origin and to proclaim other changes (including “such additional duties as the President determines to be necessary or appropriate”) subject to prescribed “consultation and layover” procedures that give certain congressional committees, the International Trade Commission (ITC) and other bodies the opportunity to review the proposal (though not to change it).
 
Article 2205 of NAFTA allows any party to withdraw from the agreement after providing six months’ written notice to the other parties. Based on Article 2205, the authorizing, rather than mandatory, nature of most of the key provisions of the NAFTA implementing legislation and precedents indicating that the courts would be hesitant to intervene, the President likely does have the legal authority to withdraw from NAFTA. One of the consequences of such a withdrawal would be that products imported from Mexico and Canada would return to normal trade relations duty treatment (assuming the U.S., Canada and Mexico remain WTO members and assuming the absence of trade remedy measures).
 
As a practical and political matter, we believe Trump is likely to consult with Congress before changing or withdrawing from NAFTA and that he is much more likely to seek to renegotiate the terms of NAFTA than to withdraw from the agreement unilaterally. The fact that the Trump Administration could arguably withdraw as a legal matter may provide leverage for renegotiation. Additionally, given the age of the agreement, there are numerous administrative changes that the U.S., Canada and Mexico could agree on to modernize the agreement.
 
On November 11, 2016, Canadian Prime Minister Justin Trudeau announced Canada’s willingness to revisit NAFTA, while Mexican Foreign Minister Claudia Ruiz Massieu stated that Mexico would be willing to “modernize” it, but not to renegotiate. While these statements were not made directly in response to Trump’s statements regarding NAFTA, they likely signal Canada’s and Mexico’s recognition that the U.S. could withdraw from NAFTA and that such a withdrawal would significantly curtail U.S. trade with the remaining member states. Both countries have discussed plans to meet Trump’s transition team in the coming months and have expressed a willingness to talk about these improvements, which may or may not include the kinds of changes that will interest the Trump Administration.
 
Any renegotiation among the members will present both opportunities and threats to companies (in all three countries) that are engaged in NAFTA trade and investment. Companies engaged in NAFTA trade should evaluate and develop plans for addressing the potential impact (both positive and negative) of the renegotiation of NAFTA, including potential engagement with the Legislative and Executive branches. Any renegotiated provisions of NAFTA that would change U.S. tariffs or revenues would require legislative action by Congress. To the extent the Trump Administration seeks to raise duty rates (which are presently “free” for goods meeting NAFTA’s preferential origin rules) or to make preferential origin rules more di cult to meet, it will be responsive to input from U.S. industry seeking to restrict competition from duty-free NAFTA imports. U.S. businesses importing goods of relatively low trade sensitivity from Canada or Mexico might seek more liberal origin rules for those goods in the renegotiation process. There is room to streamline or improve some of the administrative features of NAFTA, such as the cumbersome origin verification process or the inflexible certificate of origin form and rules for its use.
 
Should Canada and Mexico refuse to enter into new negotiations, or should renegotiation fail, the Administration would then presumably invoke the withdrawal process under Article 2205 of NAFTA. Withdrawal may not be executed sooner than six months after notification is made.
 
Additional aspects of trade relations with Mexico
 
Throughout the campaign, Trump addressed the need for the U.S. to get tough on trade with Mexico, including various comments regarding trade-related taxation. In support of these comments, Trump has proposed placing a 35 percent border tax on imports of goods manufactured by American companies in Mexico and a 20 percent border tax on all imports to the U.S. market from Mexico. Both of these proposed taxes would likely be illegal under the WTO and would likely spur legal disputes under both the WTO and NAFTA. We note that any imposition of new taxes on imports would also require congressional action since, with few exceptions, the President does not have the authority to impose taxes unilaterally. Congressional action would also be required for the 15 percent tax on outsourcing jobs proposed by Trump at various times during the campaign.

Among Trump’s most vociferous arguments against trade with Mexico has been Mexico’s use of the value added tax (VAT). In his campaign white paper on economics, Trump directly addresses his view of the VAT:
 
Under current rules, the WTO allows America’s trading partners to effectively create backdoor tariffs to block American exports and backdoor subsidies to penetrate US markets…. Under WTO rules, any foreign company that manufactures domestically and exports goods to America (or elsewhere) receives a rebate on the VAT it has paid. This turns the VAT into an implicit export subsidy. At the same time, the VAT is imposed on all goods that are imported and consumed domestically so that a product by the US to a VAT country is subject to the VAT. This turns the VAT into an implicit tariff on US exporters over and above the US corporate income taxes they must pay.
 
While Mexico is not the only country with a VAT, the expected negotiations with Mexico may serve as a laboratory for the new Administration to challenge the fairness of VAT policies of our trading partners.
 
In addition, in the context of such negotiations or separately, the Trump Administration may utilize other statutory tools to impose tariffs on Mexican products. For example, under Section 122 of the Trade Act of 1974, the President may impose a 15 percent increase of tariffs for 150 days without congressional approval to “deal with large and serious United States balance-of-payments deficits.”
 
Observers have also cited Section 232 of the Trade Expansion Act of 1962 as a potential means for the Trump Administration to impose tariffs on imported goods from Mexico or elsewhere. Specifically, under Section 232(b), the President has the authority to “take such action, and for such time, as he deems necessary to adjust the imports of [the] article and its derivatives so that … imports [of the article] will not so threaten to impair the national security” if the Secretary of the Treasury finds that “article is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.”
 
Proposed withdrawal from the Trans-Pacific Partnership FTA
 
Another FTA item for Trump’s 100-day plan is to announce the U.S. withdrawal from the TPP, which has yet to be ratified. The TPP was once seen by its proponents as the next logical step in a progression of U.S. FTAs designed to advance U.S. trade interests in the Asia-Pacific region. Late in 2016, the Obama Administration signed the agreement, publicized its text and presented a draft statement of administrative action to Congress consistent with the requirements of last year’s Trade Promotion Authority (TPA) legislation. Both houses of Congress must now approve the TPP and authorize the President to proclaim its entry into force. Both Donald Trump and Hillary Clinton opposed the TPP during the 2016 campaign.
 
It is unlikely the TPP will be adopted during the lame-duck session of Congress. Both Senate Majority Leader Mitch McConnell (R-KY) and House Speaker Paul Ryan (R-WI) have stated that there are not enough votes and that there is no point to bring it up in either chamber only to have it voted down.
Adoption of the TPP is also unlikely in the early stages of Trump’s term of office. McConnell correctly observed that Trade Promotion Authority will remain in effect through the Administration – it will expire in 2018, but the President can renew it for a further three years through 2021 – and that there is no hurry to enact the TPP. This gives Trump time to renegotiate the TPP to his liking sometime during his term and increases the likelihood of adoption after doing so, although he has maintained that he prefers to negotiate bilateral trade agreements separately with TPP members without adopting the TPP.
 
The probability of the TPP’s passage will increase later in Trump’s term. China is negotiating an FTA, the Regional Comprehensive Economic Partnership, with several Asian states. TPP member states have suggested placing the TPP in effect without the United States’ participation. As time passes, U.S. business interests will probably argue to both their representatives and the White House that the U.S. cannot afford to be left on the sidelines in that important part of the world. It is therefore possible that the U.S. will finally adopt the TPP sometime near the 2018-midterm elections.
 
Proposed withdrawal from TTIP and an FTA with the UK
 
Substantive negotiations between the U.S. and EU toward the Transatlantic Trade and Investment Partnership slowed throughout 2016 due to considerable distance between each side’s negotiating objectives, as well as domestic opposition in the EU. It is unlikely a Trump Administration will feel pressured to take up the negotiations anew in 2017.
 
Trump’s campaign, however, did include appeals to the possibility of a bilateral trade deal with the UK following the Brexit vote. Yet a potential UK FTA will face considerable headwinds from U.S. industry until the precise terms of the UK’s post-Brexit trade relationship with the EU are known. The British government itself remains wholly focused on Brexit and is in the process of establishing a new governmental department of international trade whose first priority will be the negotiation of Brexit once any remaining legal/parliamentary issues are cleared. The UK would be unlikely to have the policy resources at hand to tackle a negotiation with Washington until Brexit is resolved.
 
Actions to end unfair trade practices by foreign countries
 
Trump pledged to use every tool available under U.S. and international law to stop foreign countries from harming U.S. workers. Rigorous trade remedy and enforcement actions against other countries, particularly China, likely will take center stage in the trade policy of the new Administration. The U.S. aluminum and steel industries have expressed their belief that the Trump Administration will expand the use of trade remedies generally and be more willing to use creative enforcement measures.
 
The U.S. currently enforces more than 300 antidumping and countervailing duty orders. More than 60 investigations were initiated in 2015 alone, representing the largest number of investigations in 14 years. The Obama Administration instituted several significant regulatory changes to the Department of Commerce’s administrative practice that have become major antidumping duty margin drivers for foreign exporters, including the requirement for cost of production information in all market economy cases and separate rate treatment of Chinese state-owned companies. We anticipate that the Trump Administration will continue to pursue aggressive policies and agency practice, such as continuation of the nonmarket economy methodology in cases against China, applying “adverse facts available” to “non-cooperating” foreign respondents and tightening deadlines in antidumping and countervailing duty investigations.
 
We also anticipate increasingly aggressive joint enforcement actions by the Department of Commerce and Customs and Border Protection (CBP) under the Trump Administration. The recently implemented Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) represents a major update in the U.S. trade enforcement legal framework and provides CBP significant power in enforcing evasion of antidumping and countervailing duty orders. Commerce and CBP are currently in the process of drafting and finalizing the implementing regulations. We anticipate that Commerce and CBP will take an extremely aggressive approach in actual implementation of the regulations and that allegations and investigations of antidumping and countervailing duty evasions will ensue. Steel will continue to be a significant enforcement target. This new trade enforcement era will present significant compliance challenges.
 
Trade enforcement under the new law presents various legal and practical challenges. The new statutory provisions are intertwined with other sections of the Tariff Act of 1930. Expansive use of the duty evasion law likely will create some tension with prior law and judicial precedents. Possible legal issues include clear separation of administrative powers between Commerce and CBP in determining whether a product falls within the scope of an antidumping or countervailing duty order and CBP’s choice of remedies when importers are accused of duty evasion and could potentially be penalized under both the duty evasion provision and Section 592 of the Tariff Act of 1930.
 
Additionally, the number of requests with Commerce for investigation of circumvention of antidumping and countervailing duty orders under 19 U.S.C. §1677j is on the rise. The U.S. steel and aluminum industries recently brought several anticircumvention proceedings to enforce the antidumping and countervailing duty orders on extruded aluminum, cold-rolled steel and corrosion-resistant steel from China. The number of anticircumvention inquiries may increase under a Trump Administration that seems poised to take a more aggressive stance than the Obama Administration on such actions.
 
Another tool that could be used by the Trump Administration is the safeguard measure under Section 201 of the Trade Act of 1974, which temporarily restricts imports of a product through higher tariffs or other measures. Safeguard measures apply to all imports and not just those from a particular country. Steel is the primary target of potential U.S. safeguard measures. More than a dozen countries, including Chile, China, Egypt, India, Indonesia, Jordan, Kyrgyzstan, Malaysia, Morocco, the Philippines, South Africa, Ukraine, Vietnam, Zambia and the Gulf Cooperation Council have imposed safeguard measures on steel in recent years. There is an increasing concern that more countries, including the U.S., would resort to safeguard measures to address the global steel overcapacity issue. The last U.S. safeguard measure on steel was imposed by President George W. Bush in 2002. It was terminated in 2003 following a successful WTO challenge brought by the EU, China and several other countries. In light of Trump’s pledge to strengthen the U.S. steel industry on the campaign trail, the U.S. steel industry could push the new Administration for additional safeguard measures. However, the Trump Administration would likely face challenges by China and other trading partners as before. To withstand WTO scrutiny, the U.S. must demonstrate that there is an increase in imports and the increased imports are the result of unforeseen developments.

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ENEDITOR’S NOTES

EN_a112. Bartlett’s Unfamiliar Quotations

(Source: Editor)

* Shelby Foote (Shelby Dade Foote, Jr., 17 Nov 1916 – 27 Jun 2005, was an American historian and novelist who wrote The Civil War: A Narrative, a three-volume history of the war.)
  – “If you want to study writing, read Dickens. That’s how to study writing, or Faulkner, or D.H. Lawrence, or John Keats. They can teach you everything you need to know about writing.”
  – “I’ve never shown anybody a draft of anything.” 

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EN_a213. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  Changes to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment:
15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment:
28 Oct 2016: 81 FR 74918: New Mailing Address for the National Commodity Specialist Division, Regulations and Rulings, Office of Trade; Technical Correction

* DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M
  – Last Amendment: 18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and canceled Supp. 1 to the NISPOM  (Summary here.)

* EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774 
  – Last Amendment: 4 Nov 2016: 81 FR 76859-76861: Amendments to the Export Administration Regulations: Update of Arms Embargoes on Cote d’Ivoire, Liberia, Sri Lanka and Vietnam, and Recognition of India as Member of the Missile Technology Control Regime 

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 4 Nov 2016: 81 FR 76861-76863: Amendments to OFAC Regulations To Remove the Former Liberian Regime of Charles Taylor Sanctions Regulations and References to Fax-on-Demand Service 
 
*
FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30
  – Last Amendment: 15 May 2015; 80 FR 27853-27854: Foreign Trade Regulations (FTR): Reinstatement of Exemptions Related to Temporary Exports, Carnets, and Shipments Under a Temporary Import Bond 
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (15 Nov 2016) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and footnotes containing case annotations, practice tips, and Census/AES guidance.  Subscribers receive revised copies every time the FTR is amended.  The BAFTR is available by annual subscription from the Full Circle Compliance website.  BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR.  Please contact us to receive your discount code. 
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jul 2016: 19 USC 1202 Annex.  (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment: 30 Aug 2016; Harmonized System Update (HSU) 1612, containing 4,692 ABI records and 935 harmonized tariff records. 
  – HTS codes for AES are available
here
.
  – HTS codes that are not valid for AES are available
here.
 
*
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR)
: 22 C.F.R. Ch. I, Subch. M, Pts. 120-130
  – Latest Amendment: 12 Oct 2016 (effective 15 Nov 2016): 81 FR 70340-70357: Amendment to the International Traffic in Arms Regulations: Revision of U.S. Munitions List Category XII and associated sections.
  – The only available fully updated copy (latest edition 15 Nov 2016) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III.  The BITAR contains all ITAR amendments to date, footnotes to amendments that took effect on 15 November and will take effect on 31 December, plus a large Index and over 750 footnotes containing case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text.  Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.  The BITAR is available by annual subscription from the Full Circle Compliance website.  BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please contact us to receive your discount code.  

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., edited by James E. Bartlett III and Alexander Bosch, and emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOJ/ATF, DoD/DSS, DoD/DTSA, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.

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