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17-0131 Tuesday “The Daily Bugle”

17-0131 Tuesday “Daily Bugle”

Tuesday, 31 January 2017

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 
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No items of interest noted today.] 

  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.) 
  3. DHS/CBP Announces ACE Certification Outage on 1 Feb
  4. State/DDTC: (No new postings.)
  5. EU Announces International Agreement with U.S. Concerning Protection of Personal Information 
  6. EU Posts Correction Concerning the Dual-Use Regulation 
  1. ST&R Trade Report: “Executive Order to Reduce Federal Regulations Could Affect Trade”
  1. C.T. Cherniak: “Ten Compliance Problems Canadian Companies Face In Complying With Canada’s Economic Sanctions Laws” 
  2. R.C. Thomsen II, A.D. Paytas & M.M. Shomali: “New Requirements for Exports/Re-exports to Hong Kong”
  3. Gary Stanley’s ECR Tip of the Day
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (20 Dec 2016), DOD/NISPOM (18 May 2016), EAR (23 Jan 2017), FACR/OFAC (17 Jan 2017), FTR (15 May 2015), HTSUS (1 Jan 2017), ITAR (11 Jan 2017) 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

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OGS
OTHER GOVERNMENT SOURCES

OGS_a11. Ex/Im Items Scheduled for Publication in Future Federal Register Editions

(Source: Federal Register)
 
* Commerce; Industry and Security Bureau; RULES; Commerce Control List: Removal of Certain Nuclear Nonproliferation Column 2 Controls [Publication Date: 1 February 2017.]
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OGS_a22. Commerce/BIS: (No new postings.)

(Source: Commerce/BIS)
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OGS_a33. DHS/CBP Announces ACE Certification Outage on 1 Feb

(Source:
CSMS# 17-000044, 31 Jan 2017.)
 
There will be an ACE CERTIFICATION outage Wednesday (tomorrow) evening, February 1, 2017 from 1700 ET to 2000 ET for ACE Infrastructure maintenance activities.
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OGS_a44. State/DDTC: (No new postings.)

(Source: State/DDTC)

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OGS_a55. EU Posts International Agreement with U.S. Concerning Protection of Personal Information

 
International Agreements:
  – Information concerning the entry into force of the Agreement between the United States of America and the European Union on the protection of personal information relating to the prevention, investigation, detection, and prosecution of criminal offences
  – Commission statement regarding the EU/US Agreement on the protection of personal information relating to the prevention, investigation, detection, and prosecution of criminal offenses (“Umbrella Agreement”)

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OGS_a66. EU Posts Correction Concerning the Dual-Use Regulation

 
Corrigenda:
  – Corrigendum to Commission Delegated Regulation (EU) 2016/1969 of 12 September 2016 amending Council Regulation (EC) No 428/2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items (OJ L 307, 15.11.2016)

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MSNEWS

 
President Trump issued Jan. 30 an executive order on reducing federal regulations that could affect the trade community. This order appears to be part of Trump’s avowed goal of eliminating “a little more than 75 percent” of existing regulations.
 
The order states that “unless prohibited by law, whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.” In addition, “any new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.” The elimination of existing regulations must also be done via notice and comment, which can take months if not longer.
 
The order directs the head of the Office of Management and Budget to provide federal agencies with guidance addressing issues such as processes for standardizing the measurement and estimation of regulatory costs; standards for determining what qualifies as new and offsetting regulations; standards for determining the costs of existing regulations that are considered for elimination; processes for accounting for costs in different fiscal years; methods to oversee the issuance of rules with costs offset by savings at different times or different agencies; and emergencies and other circumstances that might justify individual waivers of the order’s requirements. The order also requires OMB to consider phasing in and updating these requirements.
 
Further, the order requires OMB to notify each federal agency each year of the total amount of incremental costs it will be allowed in issuing and repealing regulations for the next fiscal year. No regulations exceeding the agency’s allowance will be permitted in that fiscal year unless required by law or approved in writing by OMB. For fiscal year 2017, which runs through Sept. 30, the total incremental cost of all new regulations is zero.
 
This order does not apply to regulations associated with national security or foreign affairs functions; regulations related to agency organization, management, or personnel; or any other category of regulations exempted by OMB.
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COMMCOMMENTARY

COMM_a18. C.T. Cherniak: “Ten Compliance Problems Canadian Companies Face In Complying With Canada’s Economic Sanctions Laws”
(Source: Canada-US Blog)
 
* Author: Cyndee Todgham Cherniak, Esq, LexSage PC, cyndee@lexsage.com, 416-307-4168
 
Canadian companies are required to comply with Canada’s economic sanctions laws – and it is not an easy task. Currently, Canada imposes multi-lateral economic sanctions pursuant to the United Nations Act against 16 countries (Central African Republic, Democratic Republic of Congo, Eritrea, Ivory Coast, Iran, Iraq, Lebanon, Liberia, Libya, North Korea, Sierra Leone, Somalia, South Sudan, Yemen, and Al Quaida/Taliban/Terrorist Entities).  Canada also imposes unilateral economic sanctions (somewhat coordinated with major trading partners such as the United States, the European Union, Australia) pursuant to the Special Economic Measures Act against 9 countries (Burma/Myanmar, North Korea, Iran, Libya, Russia, South Sudan, Syria, Ukraine and Zimbabwe). Canada also freezes the assets of certain corrupt foreign officials from two countries (Ukraine and Tunisia) pursuant to the Freezing Assets of Corrupt Foreign Officials Act. Canada also has also imposed broad based sanctions against North Korea by adding North Korea to the Area Control List.
 
For the most part, Canada imposes targeted sanctions. Canada imposes a number of different forms of economic sanctions that are layered in some cases.  Types of economic sanctions include:
 
  (1) Country-based or territory sanctions;
  (2) Targeted individual sanctions;
  (3) Targeted sector of government (such as military, nuclear);
  (4) Targeted sectors of the economy, including private business (e.g., petroleum exploration and production, financial, etc.); and
  (5) Comprehensive embargoes.
 
Often the types of sanctions are layered, which means that more than one type of sanction can apply.  For example, a regulation implementing Canada’s sanctions can include a country based sanction (Iran), targeted individual sanctions against persons in the regime, targeted sanctions to address nuclear non-proliferation concerns and targeted sectoral sanctions against various industries within the country. Canadian companies, large and small, are required to know about the laws (and the targets) and implement internal controls to ensure that they do not engage in prohibited activities.
 
Ten Compliance Problems For Canadian Businesses:
 
There are many more than 10 problems with Canada’s economics sanctions regime.  However, let’s start with some of the basics.
 
  (1) Many Canadian companies do not know where to find information about Canada’s economic sanctions laws. This is a problem because if businesses are not aware of the laws, they are more likely to not comply with the laws.  The best place to look for information is on the Global Affairs website.  I will make it easy for you to find the list of Canada’s sanctions – here is a link to the current sanctions list.  Please refer to Canada-US Blog and the LexSage website for more information. We try to post relevant information regularly.
 
  (2) Even if Canadian businesses can find the laws, the Government of Canada does not publish guidance with respect to the interpretation of the laws.  While there are announcements about the implementation of new regulations (new sanctions), there is little else.  Global Affairs has published a few Frequently Asked Questions  and answers. Canada does not have a consolidated list of announcements. Instead, each country that is subject to sanctions has a separate listing of announcements.
 
  (3) Canada does not publish regular guidance to assist companies in understanding what business activities are prohibited and what business activities that would otherwise be considered to be legal are risky.  There are no “red flags” guidance documents.
 
  (4) When Canada implements a list of designated/listed persons, the Government of Canada publishes a list of names as a schedule to a Regulation published in the Canada Gazette.  Birth dates, addresses, businesses and other information that would be helpful for risk assessment is not provided.  Canadian businesses must look to information published by other jurisdictions for guidance.  SMEs have limited resources (and knowledge) to look elsewhere.
 
  (5) Canada does not publish a single consolidated list of designated/listed persons under Canada’s economic sanctions laws. As a result, it is necessary to review all the regulations promulgated under the Special Economic Measures Act, United Nations Act and Freezing of Assets of Corrupt Foreign Officials Act separately. People are added and removed from the lists – as a result, it is necessary to revisit the lists regularly.
 
  (6) Canada imposes different penalties under different sanctions laws and does not use definitions consistently across its sanctions regimes.  For example, the definition of “property” is different in the various economic sanctions laws/regulations.
 
  (7) Canada has not prepared resources for Canadian businesses that cover concepts such as re-exports and re-transfers. Canadian businesses are expected to ensure that foreign agents, distributors, representatives and even customers do not re-transfer goods in a manner that is contrary to Canadian economic sanctions laws.
 
  (8) Canada does not offer resources to assist Canadian companies in compliance with Canada’s economic sanctions laws. Unlike the United States and the European Union, Global Affairs does not have resources dedicated to answering questions of Canadian businesses.
 
  (9) One due diligence tool is an End-Use Certificate. However, Canada has not posted a precedent End-Use Certificate or guidance on what should be contained in an End-Use Certificate.  We prepare company specific End-Use Certificates (and accompanying compliance programs) for clients that are based on our experience in the area of Canada’s export controls and economic sanctions.
 
  (10) Due to uncertainty, Canadian companies may avoid doing business with persons in sanctioned countries.  As a result, Canadian businesses miss opportunities or lose business to companies in foreign jurisdictions (e.g. the United States) which offer more guidance and assistance to their businesses.
 
This article is not intended to suggest that Canada does not have robust laws.  The problems discussed above have been identified as a result of actual work for clients in the area of economic sanctions laws. The problems are discussed to convey that it is not easy for businesses to comply with economic sanctions laws in Canada without assistance.  Sanctions are a complicated concept and the targeted nature of sanctions puts their effectiveness on the shoulders of business.  Businesses must refrain from engaging in otherwise legal business activities so that the sanctions have teeth.
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COMM_a29. R.C. Thomsen II, A.D. Paytas & M.M. Shomali: “New Requirements for Exports/Re-exports to Hong Kong”
* Authors: Roszel C. Thomsen, Esq., Roz@t-b.com; Antoinette D. Paytas, Esq., Toni@t-b.com; and Maher M. Shomali, Esq., maher@t-b.com. All of Thomsen & Burke, LLP.
 
INTRODUCTION
 
The U.S. Commerce Department’s Bureau of Industry and Security (BIS) recently published new documentation requirements (82 FR 6216) for transactions involving Hong Kong. The new requirements become effective April 19, 2017; however, those companies impacted may need to make preparations well in advance.
 
REQUIREMENT TO OBTAIN COPIES OF HONG KONG IMPORT/EXPORT LICENSES
 
What items are covered?
 
The new rule covers any item with an ECCN subject to controls based on National Security (NS), Missile Technology (MT), Nuclear Nonproliferation (NP) column 1, or Chemical and Biological Weapons (CB) reasons. This includes, for example:
 
  – Encryption items controlled under ECCN 5×002;
  – Electronics controlled under ECCN 3A001;
  – Chemicals, pathogens, toxins, and genetically modified materials controlled under ECCN 1C350, 1C351, or 1C353
  – Medical, analytical, diagnostic, and food testing kits controlled under 1C395
  – Reaction vessels, storage tanks, equipment for processing biological materials, and other equipment controlled under ECCNs 2B350 or 2B352
 
The new rule also covers software and technology ECCNs, such as ECCNs 5D002 and 5E002.
 
What are the new requirements?
 
Use of License Exceptions to Export to Hong Kong: A new provision at Section 740.2(a)(19) will require that an exporter or re-exporter of a covered item (see above) to Hong Kong under a US license exception (e.g., ENC, GBS, TMP, TSR, TSU) must now obtain a copy of the matching Hong Kong import license that authorizes import into Hong Kong. In cases where no Hong Kong import license is required, the exporter or re-exporter must obtain a copy of a written statement issued by the Hong Kong authorities stating that no import license is required. This documentation must be obtained prior to export/re-export, and is subject to the 5-year recordkeeping requirement under the EAR.
 
For example, this new requirement can apply to:
 
  – Shipments of equipment classified under ECCN 5A002 to a Hong Kong reseller using License Exception ENC
  – Downloads of software classified under ECCN 5D002 by a customer/user in Hong Kong using License Exception ENC
  – Transfers of technology controlled under ECCN 5E002 to a contract manufacturer in Hong Kong under License Exception ENC
  – Transfers of sales technology or software updates to a customer in Hong Kong under License Exception TSU
  – Internal transfers of equipment or software classified under ECCN 5A002/5D002 from a US office to a Hong Kong office or data center under License Exception ENC
 
Use of Export Licenses to Export to Hong Kong: A new provision at Section 748.13 will require that an exporter or re-exporter of a covered item (see above) to Hong Kong under a US export license must obtain the same documentation as described above for use of license exceptions. This documentation must be obtained prior to export/re-export, and is subject to the 5-year recordkeeping requirement under the EAR.
 
Re-exports From Hong Kong: New provisions at Section 740.2(a)(20) and Section 748.13 will require a re-exporter of a covered item (see above) from Hong Kong to any other location to obtain either (1) a Hong Kong export license or (2) a copy of a written statement issued by the Hong Kong authorities stating that no export license is required. This documentation must be obtained prior to export/re-export, and is subject to the 5-year recordkeeping requirement under the EAR.
 
For example, this new requirement can apply to:
 
  – A regional distribution facility located in Hong Kong
  – A regional reseller located in Hong Kong
  – A Hong Kong customer who returns products previously imported into Hong Kong

COMMENTS
 
For those companies dealing in covered items, this new documentation requirement could impact a wide range of activities (e.g., production shipments, non-production shipments, software downloads, infrastructure operations and outsourced development/production). We suggest that companies impacted should:
 
  (1) Conduct a survey of those situations that give rise to an import into Hong Kong or export from Hong Kong of a covered item.
  (2) Amend existing processes to account for the new documentation requirement and train the relevant personnel.
  (3) Work with partners in Hong Kong who are likely responsible for obtaining the licenses (e.g., distributors and resellers) and explore whether they could obtain an import license or formal pre-classification review by Hong Kong TID prior to export or re-export in order to satisfy the documentation requirement.
 
ONLINE RESOURCES
 
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COMM_a310. Gary Stanley’s ECR Tip of the Day
(Source: Defense and Export-Import Update; available by subscription from
gstanley@glstrade.com
)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com
 
The Commerce Control List (CCL) is divided into 10 categories. Each category is subdivided into five groups, designated by the letters A through E: (A) Equipment, assemblies and components; (B) Test, inspection and production equipment; (C) Materials; (D) Software; and (E) Technology.
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ENEDITOR’S NOTES

(Source: Editor)

* Anna Pavlova (Anna Matveyevna Pavlova, 31 Jan 1881 – 23 Jan 1931, was a Russian prima ballerina.  She was a principal artist of the Imperial Russian Ballet. Pavlova is most recognized for the creation of the role The Dying Swan and, with her own company, became the first ballerina to tour ballet around the world.)
  – “Success depends in a very large measure upon individual initiative and exertion, and cannot be achieved except by a dint of hard work.”
 
* Tokugawa Ieyasu (31 Jan 1543 – 1 Jun 1616, was the founder and first shogun of the Tokugawa shogunate of Japan, which effectively ruled Japan from the Battle of Sekigahara in 1600 until the Meiji Restoration in 1868.)
  – “Let thy step be slow and steady, that thou stumble not.” 

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EN_a212
. 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: 20 Dec 2016: 81 FR 92978-93027: Regulatory Implementation of the Centers of Excellence and Expertise 

* 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: 23 Jan 2017: 82 FR 7641-7642: Updated Statements of Legal Authority for the Export Administration Regulations 

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 17 Jan 2017: 82 FR 4793-4794: Sudanese Sanctions Regulations 
 
*
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 (9 Mar 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.
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jan 2017: 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: 1 Jan 2017: 2017 Basic HTS  
  – 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: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
 – The only available fully updated copy (latest edition 24 Jan 2017) 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, plus a large Index, 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 subscribers to inform 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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