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18-0523 Wednesday “Daily Bugle”

18-0523 Wednesday “Daily Bugle”

Wednesday, 23 May 2018

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The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, DOE/NRC, Customs, NISPOM, EAR, FACR/OFAC, FAR/DFARS, FTR/AES, HTSUS, and ITAR), plus news and events.  Subscribe 
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  1. Commerce/BIS Reminds U.S. Firms of Requirement to Annually Report Defense Offset Agreements 
  2. State Releases Determinations under the Arms Export Control Act 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  1. American Shipper: “EU, India File Retaliatory Tariffs on U.S. Goods”
  2. Expeditors News: “China to Amend Advance Cargo Manifest Information Requirements Effective 1 Jun”
  3. Handelsblatt Global: “German Banks Stand by Iran Despite ‘Strongest Sanctions in History'”
  4. ST&R Trade Report: “Export Procedures, ITDS, Food Facilities, Seafood Trade Among Topics of Upcoming Rules”
  5. Techrunch: “U.S. and China Reportedly Working on a Deal to Save ZTE”
  6. Washington Examiner: Senators Warn Trump: Don’t Give China ‘Access to U.S.-Made Military Technologies'”
  7. The Washington Post: “China’s ZTE Has Long Been on Washington’s Radar, For Quite a Few Reasons. Here’s the Story”
  1. J. Schmidt, A. Gutermuth & S. Jungermann: “UK Mergers, Military, and Technology”
  2. K.C. Georgi: “CBP Issues Instructions for Steel and Aluminum Products Granted Section 232 Exclusions”
  3. L. Luo: “Minefields in the U.S. Export Control System” (Part I of II)
  1. ECTI Presents “Export Controls 101: Starting at the Beginning,” Webinar on 19 Jun
  2. The Massachusetts Export Center Presents: “Export Regulatory Compliance Update”, 14 Jun in Boston
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (12 Apr 2018), DOD/NISPOM (18 May 2016), EAR (17 May 2018), FACR/OFAC (19 Mar 2018), FTR (24 Apr 2018), HTSUS (4 May 2018), ITAR (14 Feb 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1.
Commerce/BIS Reminds U.S. Firms of Requirement to Annually Report Defense Offset Agreements 
(Source: 
Commerce/BIS, 23 May 2018.) [Excerpts.] 
 
83 FR 23885: Reporting for Calendar Year 2017 on Offsets Agreements Related to Sales of Defense Articles or Defense Services to Foreign Countries or Foreign Firms
 
* AGENCY: Bureau of Industry and Security, Department of Commerce.
* ACTION: Notice; annual reporting requirements.
* SUMMARY: This notice is to remind the public that U.S. firms are required to report annually to the Department of Commerce (Commerce) information on contracts for the sale of defense articles or defense services to foreign countries or foreign firms that are subject to offsets agreements exceeding $5,000,000 in value. U.S. firms are also required to report annually to Commerce information on offsets transactions completed in performance of existing offsets commitments for which offsets credit of $250,000 or more has been claimed from the foreign representative. This year, such reports must include relevant information from calendar year 2017 and must be submitted to Commerce no later than 
June 15, 2018. … 
* SUPPLEMENTARY INFORMATION: … Section 723(a)(1) of the Defense Production Act of 1950, as amended (DPA) (50 U.S.C. 4568 (2015)) requires the President to submit an annual report to Congress on the impact of offsets on the U.S. defense industrial base. Section 723(a)(2) directs the Secretary of Commerce (Secretary) to prepare the President’s report and to develop and administer the regulations necessary to collect offsets data from U.S. defense exporters.
  The authorities of the Secretary regarding offsets have been delegated to the Under Secretary of Commerce for Industry and Security. The regulations associated with offsets reporting are set forth in part 701 of title 15 of the Code of Federal Regulations (Offsets Regulations). Offsets are compensation practices required as a condition of purchase in either government-to-government or commercial sales of defense articles and/or defense services, as defined by the Arms Export Control Act (22 U.S.C. 2778) and the International Traffic in Arms Regulations (22 CFR 120-130). Offsets are also applicable to certain items controlled on the Commerce Control list (CCL) and with an Export Control Classification Number (ECCN) including the numeral “6” as its third character. The CCL is found in Supplement No. 1 to part 774 of the Export Administration Regulations.
  An example of an offset is as follows: A company that is selling a fleet of military aircraft to a foreign government may agree to offset the cost of the aircraft by providing training assistance to plant managers in the purchasing country. Although this distorts the true price of the aircraft, the foreign government may require this sort of extra compensation as a condition of awarding the contract to purchase the aircraft. As described in the Offsets Regulations, U.S. firms are required to report information on contracts for the sale of defense articles or defense services to foreign countries or foreign firms that are subject to offsets agreements exceeding $5,000,000 in value. U.S. firms are also required to report annually information on offsets transactions completed in performance of existing offsets commitments for which offsets credit of $250,000 or more has been claimed from the foreign representative.
  Commerce’s annual report to Congress includes an aggregated summary of the data reported by industry in accordance with the offsets regulation and the DPA (50 U.S.C. 4568 (2015)). As provided by section 723(c) of the DPA, BIS will not publicly disclose individual firm information it receives through offsets reporting unless the firm furnishing the information specifically authorizes public disclosure. The information collected is sorted and organized into an aggregate report of national offsets data, and therefore does not identify company-specific information.
  To enable BIS to prepare the next annual offset report reflecting calendar year 2017 data, affected U.S. firms must submit required information on offsets agreements and offsets transactions from calendar year 2017 to BIS no later than June 15, 2018.
 
  Dated: May 18, 2018.
Richard E. Ashooh, Assistant Secretary for Export Administration. 

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EXIM_a2

2.
State Releases Determinations under the Arms Export Control Act
(Source: 
Federal Register, 23 May 2018.) 
 
83 FR 23988: Determination and Certification Under Section 40A of the Arms Export Control Act
 
  Pursuant to section 40A of the Arms Export Control Act (22 U.S.C. 2781), and Executive Order 13637, as amended, I hereby determine and certify to the Congress that the following countries are not cooperating fully with United States antiterrorism efforts: Eritrea, Iran, Democratic People’s Republic of Korea (DPRK, or North Korea), Syria, and Venezuela.
  This determination and certification shall be transmitted to the 
Congress and published in the Federal Register.
 
    Dated: May 5, 2018.

Michael Pompeo, Secretary of State.

* * * * * * * * * * * * * * * * * * * * 

OGSOTHER GOVERNMENT SOURCES

OGS_a13. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

* President; EXECUTIVE ORDERS; Venezuela; Prohibiting Additional Transactions (EO 13835) [Publication Date: 24 May 2018.]
 
* Commerce; Industry and Security Bureau; PROPOSED RULES; Control of Firearms, Guns, Ammunition and Related Articles the President Determines No Longer Warrant Control under the United States Munitions List [Publication Date: 24 May 2018.]
 
* State; PROPOSED RULES; International Traffic in Arms Regulations: U.S. Munitions List Categories I, II, and III [Publication Date: 24 May 2018.]
 
[Editor’s Note: The Commerce and State notices were included in the 15 May 2018 Daily Bugle, items #4 and #5, respectively.]

* * * * * * * * * * * * * * * * * * * *

(Source: 
Commerce/BIS
)

* * * * * * * * * * * * * * * * * * * *

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NWSNEWS

(Source: 
American Shipper, 22 May 2018.) [Excerpts.] 
 
The planned tariffs on more than $7 billion in exports from the United States are in response to recently announced U.S. duties on steel and aluminum.
 
The European Union and India have filed separate lists of planned tariffs with the World Trade Organization that would target more than $7 billion in annual exports from the United States.

The move is a direct response to recently announced of 25 percent and 10 percent, respectively, on U.S. imports of steel and aluminum, as both the EU and India seek to recoup the expected revenue that will be lost upon imposition of those tariffs by the United States.

The EU, which has been outspoken in its opposition to the U.S. tariffs since President Donald Trump announced them in early March, said the U.S. measures would affect at least $7.2 billion in imports of steel and aluminum products from the bloc into the United States and, therefore, would constitute an addition $1.6 million in duties based on 2017 figures. … 

* * * * * * * * * * * * * * * * * * * * 

NWS_a027. 
Expeditors News: “China to Amend Advance Cargo Manifest Information Requirements Effective 1 Jun” 

(Source: 
Expeditors News, 22 May 2018.) 
 
On 1 June 2018, the General Administration of Customs of the People’s Republic of China (“GACC”) will amend its advance cargo information requirements for imports and exports according to GACC Announcement No. 56.
 
The notice requires additional data elements to be communicated related to Inbound and Outbound Transportation by Air and Sea. The purpose of this announcement per the GACC is to “enhance the control over inbound/outbound vessels, aircrafts and the goods thereon by means of data declaration….”
 
Some of the additional data elements required are:
 
  – Consignor Contact Number
  – Consignor Specific Contact Name
  – Consignor Enterprise Registration Code or Unified Social Credit Code
  – Consignee Contact Number
  – Consignee Specific Contact Name
  – Consignee Enterprise Registration Code or Unified Social Credit Code
  – Notifier Contact Number (if consignee is TO ORDER)
  – Notifier Specific Contact Name (if consignee is TO ORDER)
  – Notifier Registration Code or Unified Social Credit Code (if consignee is TO ORDER)
  – Complete and accurate brief description of goods
  – Manifest data must be transmitted to the GACC prior to arrival or departure within the timeframes prescribed per mode of transportation.
 
The notice may be found 
here in Chinese. An English translation may be found 
here.

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NWS_a38. 
Handelsblatt Global: “German Banks Stand by Iran Despite ‘Strongest Sanctions in History'”

(Source: 
Handelsblatt Global, 22 May 2018.) 
 
Six small credit unions in southern Germany are still processing payments to Iran, undaunted by the wrath of Trump.
 
While Germany’s big banks are studiously avoiding Iran-related deals for fear of US reprisals, six credit unions, or 
Volksbanken, from southern Germany are appear unafraid and are continuing to provide trade finance.
 
Patrizia Melfi, head of the International Competence Center, which was set up by the banks to handle foreign business, said the supervisory board “gave us the green light on Thursday.” Days later, the US’ Secretary of State Mike Pompeo threatened to impose “the strongest sanctions in history” after the United States pulled out of the 2015 nuclear deal this month.
 
Despite Washington’s hard line on Tehran, the center will keep handling transactions for companies that export goods and services to Iran. Their affairs will likely continue unimpeded until early August, when the United States’ new rules come into effect. For now, the US has yet to enact legally-binding sanctions.
 
Basically, as long as companies and banks stick to the requirements and regulations of the current export controls of the EU and the US, nothing can happen to them, Ms. Melfi said. She added it was essential “to be well informed and conduct detailed checks of the companies’ deals.” … 

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NWS_a49. 
ST&R Trade Report: “Export Procedures, ITDS, Food Facilities, Seafood Trade Among Topics of Upcoming Rules” 

(Source: 
Sandler, Travis & Rosenberg Trade Report, 23 May 2018.) 
 
New rules on seafood trade as well as proposed and final rules on topics such as the International Trade Data System, export procedures, and food facility registration are among the regulations set forth in the semiannual regulatory agendas recently issued by a number of federal agencies. These online resources list the following regulations affecting international trade that could be issued within the next year, with the expected timeframes indicated in parentheses.
 
Upcoming Regulations
 
– a State Department final rule clarifying when exports may be made to or on behalf of a U.S. government agency without a license and expanding this exemption to allow for permanent exports (May 2018; previously December 2017) … 
  – a State Department final rule clarifying the requirements for the licensing and registration of U.S. persons providing defense services while in the employ of foreign persons (December 2018) … 
  – a proposed rule from the Justice Department’s Bureau of Alcohol, Tobacco, Firearms, and Explosives to replace the term “specifically designed” with the term “specially designed” in 27 CFR Part 447 to make terminology consistent between the U.S. Munitions Import List, the International Traffic in Arms Regulations, and the Commerce Control List (December 2018; previously September) … 
 
Completed Rulemakings
 

  – a State Department final rule adding South Sudan to the regulations on prohibited exports, imports, and sales to and from certain countries

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NWS_a510. 
Techrunch: “U.S. and China Reportedly Working on a Deal to Save ZTE”

(Source: 
Techrunch, 22 May 2018.) [Excerpts.] 
 
The United States and China are said to be working on a deal that would keep ZTE from going out of business. 
According to the Wall Street Journal, the two countries have agreed on a “broad outline” of a deal to settle a trade dispute sparked when the Commerce Department banned American companies from selling to ZTE for seven years after it violated sanctions against Iran and North Korea.
 
If the deal goes through, the U.S. would lift the ban. In return, ZTE would have to make major leadership changes and also potentially face heavy fines. The deal would enable its business to survive, however, since many of its most important suppliers, including Qualcomm, are American and the ban has the potential to cause irreversible damage to its business. ZTE is also the fourth-largest vendor of mobile phones in the U.S.
 
As part of the deal, China reportedly offered to remove tariffs that impact billions of dollars in U.S. farm products, though one of the WSJ’s sources said “the White House was meticulous in affirming that the case is a law enforcement matter and not a bargaining chip in negotiations.” … 

* * * * * * * * * * * * * * * * * * * * 

NWS_a611. 
Washington Examiner: Senators Warn Trump: Don’t Give China ‘Access to U.S.-Made Military Technologies'”

(Source: 
Washington Examiner, 22 May 2018.) [Excerpts.] 
 
China must not be granted “access to U.S.-made military technologies and advanced dual-use technologies” in exchange for better trade relations, more than two dozen senators warned President Trump’s economic team.
 
  “We strongly support these critical negotiations to rebalance the U.S.-China economic relationship, but U.S. national security must remain the paramount consideration,” Senate Majority Whip John Cornyn, R-Texas, and Florida Republican Sen. Marco Rubio wrote in a letter signed by 25 other lawmakers. 
“Therefore, we strongly urge you to reject any proposal by China to loosen existing restrictions on the export or other transfer of these sensitive U.S. technologies.”
 
  “Any such move would bolster China’s aggressive military modernization and significantly undermine long-term U.S. national security interests,” the lawmakers continued. …  
 

Trump’s team is split between free-trade advocates and protectionists. The free-traders, led by Treasury Secretary Steven Mnuchin, reportedly have considered making it easier for Chinese companies to purchase “militarily sensitive products,” according to the New York Times. … 

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(Source: 
The Washington Post, 22 May 2018.) [Excerpts.] 
 
What is ZTE, and what’s the backstory on this Chinese telecom infrastructure and cellphone company? On May 13, President Trump 
tweeted that he was at work with China’s leader to save ZTE jobs.
 
A day later, amid criticism over why Chinese jobs were a priority during trade and investment negotiations with China, Trump 
tweeted: “ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”
 
Republicans and Democrats continued to question Trump’s actions, and much of the discussion has blended two separate – but related – struggles ZTE has experienced with the U.S. government. … 
 
ZTE has long drawn scrutiny in Washington as a possible partner of Chinese intelligence or military agencies. U.S. officials believe ZTE products could help Chinese authorities gather information or interfere with U.S. networks. … 

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COMMCOMMENTARY

COMM_a0
13. 
J. Schmidt, A. Gutermuth & S. Jungermann: “UK Mergers, Military, and Technology”

(Source: 
Arnold & Porter, 17 May 2018.) 
 
* Authors: John Schmidt, Esq., 
john.schmidt@arnoldporter.com; Axel Gutermuth, Esq., 
axel.gutermuth@arnoldporter.com; and Sebastian Jungermann, Esq., 
sebastian.jungermann@arnoldporter.com. All of Arnold & Porter, London, Brussels, and Frankfurt, respectively. 
 
The UK’s merger control regime is changing as of 11 June 2018 in industries that are sensitive to national security concerns. The main aim is to allow political intervention in even very small acquisitions by non-UK companies where there might be a concern around non-UK ownership and use of such technology.  
 
Two statutory instruments were made yesterday introducing lower thresholds to capture smaller transactions in three areas of heightened national interest: (1) military or dual use products subject to export control (2) quantum technology and (3) computing processing units (hardware and software). For such deals the target’s turnover of £1 million is sufficient to trigger CMA jurisdiction or, alternatively, the share of supply test of 25 percent can be met by the target alone without the need for an increment.
 
Filings in those sectors will remain voluntary and there is no waiting period before completion, unless the CMA imposes interim hold separate obligations pending any investigation. The main aim of the lower thresholds is to allow the Secretary of State to intervene in cases of national (security) interest where the company is acquired by non-UK entities. Links to the two statutory instruments are provided here and here.
 
In parallel, the German and Austrian competition authorities are consulting on draft Guidelines on the new lower transaction thresholds. The authorities there seem to be targeting particularly big data, digital and pharma and biotech companies as well as medical engineering.  Partners John Schmidt in London Axel Gutermuth in Brussels and Sebastian Jungermann in Frankfurt can give you more details on this. 

* * * * * * * * * * * * * * * * * * * * 

(Source: Author, 22 May 2018.) 
 
* Authors: Kay C. Georgi, Esq., 
kaygeorgi@arentfox.com, Arent Fox LLP.
 
On March 8, 2018, President Trump formally announced and signed the proclamations to impose tariffs on steel and aluminum imports pursuant to Section 232 of the US Trade Expansion Act of 1962. In those Proclamations, the President indicated that a process would be established by the Department of Commerce (DOC), whereby requests for product exclusions from the Section 232 duties could be requested.
 
On March 19, 2018, the DOC published in the Federal Register (FR) the process for parties to submit requests for exclusions from Presidential Proclamations 9704 and 9705 on Adjusting Imports of Steel and Aluminum into the United States under section 232 of the Trade Expansion Act of 1962. See 
83 FR 12106. In that FR notice, the DOC also provided that the effective date of any exclusion requests that were granted would be the date on which the request was posted by the DOC for public comment. As of May 18, 2018, over 3,700 requests for steel product exclusions, and over almost 300 requests for aluminum product exclusions, have been posted, with more being added on a daily basis.
 
Although the DOC has not yet issued any product exclusions, Customs and Border Protection (CBP) issued a notice on May 21, 2018, providing guidance on the manner in which imports whose exclusion requests are approved by the DOC should be entered in order to avoid the Section 232 duties. See 
CSMS #18-000352. This notice provides the following key points:
 
General Process for Imports Subject to Exclusions 
 
  – The process to claim exclusions will be available starting 
June 1.
    • Prior to that, one must make a post summary correction (PSC) to apply the exemption.
  – Importers and filers importing products granted an exclusion should submit the product exclusion number based on the last six digits of the product exclusion docket number (e.g., BIS-XXXX-XXXX-XXXX) found in the 
steel and 
aluminum exclusion request docket folders.
  – The product exclusion number should be submitted in the Importer Additional Declaration Field (54 record) of the entry summary data, based on the following format, where “XXXXXX” represents the last six digits of the BIS docket number (see links above):
    • For excluded steel mill articles = STLXXXXXX
    • For excluded aluminum articles = ALUXXXXXX
      Note: Do not include spaces or special characters, such as hyphens. For example, according to CBP, exclusion number BIS-2018-0009-9002 should be submitted as “STL099002.”
  – Only products from importer(s) designated in the product exclusion approved by the DOC are eligible for the exclusion from the Section 232 measures.
    • Steel importers are reminded to submit mill certificates with their import data as required by 19 CFR 141.89.
  – Do not submit the corresponding Chapter 99 HTS number for the Section 232 duties when the product exclusion number is submitted.
 
Additional Information
 
  – Effective Date of Exclusions: Exclusions granted by DOC are retroactive on imports to the 
date the request for exclusion was posted for public comment.
  – Refund Requests: To request an administrative refund for previous imports of excluded products granted by DOC, importers may file a PSC and provide the product exclusion number in the Importer Additional Declaration Field.
  – GSP and AGOA-eligible Goods: Once products are excluded from the Section 232 measures, importers may claim Generalized System of Preferences (GSP) or African Growth and Opportunity Act (AGOA) duty preferences on GSP and AGOA-eligible goods.
    • If importers did not receive GSP or AGOA duty preferences on previous imports, and those imports are now covered by a retroactive exclusion, importers may request a refund of the duties subject to GSP or AGOA preferences through a PSC.
 
For further information on the product exclusion process, please see our 
earlier alert.

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COMM_a2
15.
L. Luo: “Minefields in the U.S. Export Control System” (Part I of II)

(Source: 
King & Wood Mallesons, 14 May 2018.) 
 
* Author: Laura Luo, Partner, 
Laura.Luo@us.kwm.com, King & Wood Mallesons, New York.
 
[Editor’s Note: due to space limitations, this item has been divided into two parts.  The parts will be published in the Daily Bugle of Wednesday, 23 May 2018, and Thursday, 24 May 2018, respectively.]
 
On 15 April 2018, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a denial order against a Chinese telecommunications company (hereinafter referred to as “Company Z”), and added the company to the “Denied Persons List.” The case of Company Z’s violation of U.S. export control, which has lasted for years, again came into the spotlight and raised public concern over the U.S. export control system in China.
 
The Export Administration Act (hereinafter referred to as “EAA”) came into force in 1979. Since then, the U.S. has adopted the most rigorous export control system in the world. Meanwhile, for a long time, many Chinese enterprises lacked awareness of the U.S. export control system, which made them key subjects of U.S. export control investigations. In the United States, China became the second target country of criminal investigation on export control as early as in 2014, just after Iran. [FN/1] In view of this, the Customs and Trade Compliance Team of King & Wood Mallesons (hereinafter referred to as “KWM”) will enumerate key issues in the U.S. export control system that concern Chinese enterprises based on the in-effect statutes of U.S. export control and published PRC-related cases. As the first of a series of articles, we will review the “minefields” in U.S. export control frequently encountered by PRC enterprises.
 
“Minefields” Detection
 
Minefield One: Export Control Applies to the Activities Beyond Actual Export
Who Stepped into the Minefield: Mr. Ho
 
Case Introduction
 
On April of 2016, U.S. Ministry of Justice accused an American citizen, Mr. Ho conspired to engage or participate in the development or production of special nuclear material in China, without specific authorization to do so from the U.S. Secretary of Energy, as required by law. It was claimed that Ho identified, recruited and executed contracts with U.S.-based experts from the civil nuclear industry who provided technical assistance related to the development and production of special nuclear material for a PRC company in China. Ho and the PRC Company also facilitated the travel to China and payments to the U.S.-based experts in exchange for their services. Ho was convicted guilty in violation of the relevant export control acts and statutes and was sentenced 24 months in prison and one year of supervised release eventually. [FN/2]
 
Comments
 
Pursuant to the Export Administration Regulation (hereinafter referred to as “EAR”), any U.S. origin items (including goods, software and technology), engaged in the activities of export, re-export (transmit U.S. origin items from one foreign country to another foreign country without U.S.) or transfer (transmit U.S. origin items within the same foreign country), shall subject to EAR. [FN/3] Moreover, in different from the common understanding on the definition of export that an export shall have an actual shipment out of the country, the definition of export is much wider subject to EAR. Other than the actual shipment or transmission of goods or technologies out of U.S., the sending information or even temporary transit will be deemed as export, re-export or transfer of U.S. items and such activities shall be subject to EAR. The following activities will be deemed as export, re-export or transfer under EAR, and was required to apply for a validated license in advance:
 
  (1) Actual shipment or transmission of goods or technologies;
  (2) Release information of controlled items to abroad through phone call;
  (3) Release information of controlled items to abroad through email;
  (4) Release information of controlled items to abroad through providing access authority of Cloud software or FTP;
  (5) Providing technical drawings of the controlled items to abroad;
  (6) Sending or taking information of controlled items to abroad
  (7) Providing encryption source code and objective source code of controlled items to abroad;
  (8) Providing proprietary courses regarding controlled items to abroad; and
  (9) Under special circumstances (i.e. special controls of Cuba), temporary sojourn of the vessel and aircraft and in-transit shipments and items to be unladen from vessels or aircraft.
 
In practice, many Chinese enterprises just consider about the export issues on actual shipment or transmission of goods and technology, while overlook the fact that information release to abroad of controlled items is also deemed as export activities subject to EAR. In consideration of that it is one of the main causes for Chinese enterprise to be punished under EAR; we understand it is a main “Minefield” in U.S. export control.
 
Minefield Two: Export Control Applies to the Transmission and Release of Controlled Items to Foreign Persons within the United States
Who Stepped into the Minefield: Company M
 
Case Introduction 
 
On September of 2005, Company M, which is located in California, released controlled technology for the development of electronic components classified as ECCN 3A001, to a Chinese national employee without the required BIS license. This case resulted from an investigation conducted by OEE, and on October 3, 2008, Company M agreed to pay a $192,000 civil penalty. [FN/5]
 
Comments
 
Pursuant to the relevant regulations of EAR, other than the cross-border shipment, transmission and information release, releasing or otherwise transferring the controlled items to a foreign person in U.S. is also deemed to be an export to a foreign country and may subject to the license requirement under EAR. [FN/5] Pursuant to the regulations of EAR, any foreign natural person within U.S. who is not a lawful permanent resident of U.S. or any other protected individual (in general as political asylum) shall be defined as foreign person. [FN/6] In common, the following activities will be defined as deemed export:
 
  (1) Releasing information, materials, encryption source code and objective source code of controlled items to foreign employees
  (2) Providing access or authorization of controlled items to foreign employees;
  (3) Providing proprietary causes to foreign employees or non-U.S. citizens which may result in the release of information of controlled items;
  (4) Releasing information of controlled items to overseas personnel who came to U.S. on business trip;
  (5) Transferring the registration, control or ownership of certain controlled items to non-U.S. citizens in U.S.
 
Subject to the statistics of BIS, more than 60% export license application for deemed export occasion are issued to Chinese citizens or Chinese organizations which locate in the U.S. In other word, to Chinese enterprises, their business activities in U.S., such as the interpersonal communication with U.S. affiliates, certain investment and acquisition activities or employ a non-U.S. citizen technical personnel who used to work in the U.S., etc., may trap into  the minefield of “deemed export”, any carelessness will result a smash crisis. 
 
Minefield Three: Export Control Applies to Non-Listed Items
Who Stepped into the Minefield: A Construction Co., Ltd (Hereinafter referred to as “Company A”), B Paint Trading Co., Ltd (Hereinafter referred to as “Company B”)
 
Case Introduction
 
In 2006, Company A was involved in a Nuclear Power Construction Project in Pakistan (“Pakistan Project”). In this regard, Company A entered into a contract with Company B to procure non-special controlled item (EAR 99), epoxy coating from U.S. for use in construction Pakistan Project Construction.  Since Pakistan Project is a project of the Pakistan Atomic Energy Commission (“PAEC”), while PAEC and its subordinate nuclear reactors are on BIS’s Entity List. U.S.-origin epoxy coatings are not permitted to be exported, re-exported, or transferred for use in the construction of Pakistan Project without an export license from BIS. However, Company A and Company B colluded to circumvent the license requirement by means of procuring the epoxy coatings through a third party distributor, then transfer to Company A for Pakistan Project-use purpose. In December 2010, Company B in together with its U.S. parent company pleaded guilty and paid 3.75 million USD in criminal and civil fines. Thereafter, on December 3, 2012, Company A entered into a settlement agreement with BIS and a plea agreement with DOJ, which required Company A to pay 3 million USD in criminal and civil fines, implement an export control compliance program, and accept a five-year probationary period. In exchange, BIS would not put Company A into the entity list. The case is believed to be the first time that a Chinese company has pleaded guilty to violating U.S. export control laws. 
 
Comments
 
Pursuant to EAR and its enclosed Commerce Control List (CCL), U.S. have classified all the U.S. items by ECCN code, which consists of 5 characters. The types of control of certain items could be determined by cross-checking on CCL and the Commerce Country Chart (CCC). In general, non-sensitive items (EAR 99) do not require a validated license, i.e., such items could export directly under the general license by declaring the general license information during export declaration. However, subject to EAR, the key concern of U.S. export control is dependent upon the knowledge of the end-use and end-user relating to a transaction of certain U.S. items, which is called Catch-All Rules. [FN/7] Even though there is no special requirement on the items, a special license may still be required for the export, re-export or transfer of the items, provided that a risk of proliferation exists on the end-user or end-use. Recently, BIS releases three lists to identify the end-user reasonable believed to be involved a risk of proliferation and sets up different control requirement separately:
Denied Persons List Unverified List Entity List
Any activities regarding export, re-export or transfer overseas of any U.S. items with such person and entities listed in the list are prohibited. The export, re-export or transfer overseas with person and entities listed thereof shall enjoy license exception and before proceeding with any export, re-export or transfers, the listed entities must issue a written statement which shall be made in accordance with EAR. No export, re-export , or transfer items to the listed entities without a license from BIS is permitted.
 
Furthermore, in the event any circumstance of  “red flags” [FN/8] as listed in EAR occurred in the transactions of non-listed U.S. items with non-listed entities, such as : the client is reluctant to offer information about the end-user, the client has little or no business background, the shipping route is abnormal for the product and destination etc., BIS requires the enterprise to fulfil the responsibilities of end-user and end-use verification, inquire BIS and apply for validated license if it is necessary. 
 
Moreover, it shall be noted that U.S. items defined by EAR is not just the items located within U.S., such as:
  (1) U.S. origin items located out of U.S.;
  (2) Foreign-made commodities that incorporate controlled U.S. origin commodities in quantities exceeding the de minims levels (based on the characteristics and categories of the commodities, there are three de minims Rules, 0%, 10% and 25%);
  (3) Foreign-made direct products of U.S. origin technology or software;
  (4) Certain activities of U.S. persons related to the proliferation of nuclear explosive devices, no matter such items are origin from U.S.;
 
For Chinese enterprises, misjudgment on whether the business activities shall apply for an export license becomes the main cause for being punished by U.S. export control regulations, especially in the following circumstances:
  (1) Negligence on the confirmation of end-user and end-use of non-listed items for re-export or transfer in-country;
  (2) Erroneous understanding on the definition of U.S. items, misjudging some PRC origin commodities don’t need to subject to the U.S. export control system; 
 
Such erroneous judgement could be entitled as the biggest minefield for Chinese enterprise. 
 
Minefield Four: Assistance from Non-U.S. Entity on Transaction Shall Applies to U.S. Export Control and Sanction Management
Who Stepped into the Minefield: Bank K
 
Case Introduction
 
On 31 July 2012, the Office of Foreign Assets Control (“OFAC”) announced the imposition of sanctions against Bank K under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), claiming that Bank K provided hundreds of millions of dollars’ worth of financial services to Iran banks, including holding accounts, making transfers, and paying their letters of credit. OFAC bared Bank K from directly accessing the U.S. financial system, and financial institutions may not open correspondent or payable-through accounts for Bank K in the United States. The other Chinese bank had to cease their business operation with Bank K to avoid being sanctioned by U.S. [FN/9]
 
Comments
 
In general, the main enforcement organizations of U.S. export control are BIS, which is responsible of controlling the export of dual-item and civil items, and Directorate of Defense Trade Controls (“DDTC”), which is responsible of controlling military items, on the export activities by U.S. persons and non-U.S. persons.  The definition of U.S. persons generally includes the following:
  (1) Any individual in the U.S.;
  (2) Any individual who is a citizen of U.S., no matter where he is located;
  (3) Any permanent resident alien of U.S., or a protected individual of U.S.;
  (4) Any U.S. enterprises and their foreign branches;
  (5) Any foreign enterprises which are controlled de facto by U.S. citizens or U.S. enterprises.
 
Pursuant to the relevant regulations of BIS and DDTC, U.S. persons are not allowed to engage in any activities may violating the export control regulations, while the non-U.S. persons are not allowed to provide facilitation or take advantage of U.S. persons to engage in any activities may violating the export control regulations directly. Otherwise, apart from being punished by BIS and DDTC accordingly, the violators will be subject to OFAC’s sanctions in further. However, since the adoption of CISADA in 2010, OFAC is eligible to implement a long-arm jurisdiction to the activities of violation of U.S. controls and sanction measures on Iran conducted by non-U.S. persons and without the jurisdiction of U.S., which is known as secondary sanction. OFAC could implement the sanctions as follow once the violation of U.S. sanction and export control by non-U.S. persons is detected:
  (1) Freezing or confiscation property in U.S.;
  (2) Prohibited from entering of U.S.;
  (3) Access denied of U.S. financial service system;
  (4) Deprivation of the qualification of signing contract with U.S. government;
  (5) Criminal Charges.
 
In the most recent sanction cases on North Korea Sanctions [FN/10], the secondary sanction methods have been expanded to the sanction against North Korea in further.
 
For Chinese enterprises, especially for the I/E agencies and financial institutions, it is not a good sign that OFAC is tending to expand the application scope of secondary sanction. A newly “Minefield” is laid in the middle of the trade route between Chinese enterprises and regions which are sanctioned by U.S.
 
———– 
  [FN/1] See 
here.
  [FN/2] See 
here.
  [FN/3] See 
here.
  [FN/4] See 
here.
  [FN/5] 15 C.F.R. Part 734
  [FN/6] 15 C.F.R. Part 734.2
  [FN/7] 15 C.F.R. Part 732, supplement No.3
  [FN/8] 15 C.F.R. Part 732, supplement No.3
  [FN/9] See 
here.
  [FN/10] See 
here.

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TECEX/IM TRAINING EVENTS & CONFERENCES

TEC_a116.
ECTI Presents “Export Controls 101: Starting at the Beginning,” Webinar on 19 Jun
(Source: Danielle Hatch, 
danielle@learnexportcompliance.com.)
 
* What: Export Controls 101: Starting at the Beginning
* When: June 19, 2018; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: Felice Laird
* Register: 
Here or Danielle Hatch, call 540-433-3977, or email

* * * * * * * * * * * * * * * * * * * *

TEC_a217
The Massachusetts Export Center Presents: “Export Regulatory Compliance Update”,
 14 Jun in Boston
(Source: Kathleen Newell, kathleen.newell@massexport.org.) 
 
* What: Export Regulatory Compliance Update – Featuring Deputy Assistant Secretary of Commerce for Export Administration, Matt Borman.
* When: Thursday, 14 June 2018; 9:00 a.m. – 4:30 p.m.
* Where: 155 Seaport Blvd., Boston, MA
* Contact: Kathleen Newell, 617-973-8664
* Register: Click here for additional information and registration

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ENEDITOR’S NOTES

 


Thomas Hood (23 May 1799 – 3 May 1845; was an English poet, author, and humorist, best known for poems such as 
“The Bridge of Sighs” and 
“The Song of the Shirt”. William Michael Rossetti in 1903 called him “the finest English poet” between the generations of Shelley and Tennyson.)
  
– “Lives of great men oft remind us as we o’er their pages turn, That we too may leave behind us – Letters that we ought to burn.”

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EN_a319
. 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.  The latest amendments 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: 12 Apr 2018: 83 FR 15736-15740: CBP Decision No. 18-04; Definition of Importer Security Filing Importer (ISF Importer)
 
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 cancelled Supp. 1 to the NISPOM (Summary 
here
.)


EXPORT ADMINISTRATION REGULATIONS (EAR)
: 15 CFR Subtit. B, Ch. VII, Pts. 730-774

  – Last Amendment: 17 May 2018: 83 FR 22842-22846: Revisions to the Unverified List (UVL)

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

  – Last Amendment: 19 Mar 2018:
83 FR 11876-11881: Inflation Adjustment of Civil Monetary Penalties 

 
*
FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30
  – Last Amendment: 24 Apr 2018: 3 FR 17749-17751: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (30 Apr 2018) 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 approximately 250 footnotes containing case annotations, practice tips, Census/AES guidance, and explanations of the numerous errors contained in the official text. Subscribers receive revised copies in Microsoft Word every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance websiteBITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR. Government employees (including military) and employees of universities are eligible for a 50% discount on both publications at www.FullCircleCompiance.eu.  
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jan 2018: 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: 4 May 2018: Harmonized System Update 1807, containing 289 ABI records and 60 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.

  – Last Amendment: 14 Feb 2018: 83 FR 6457-6458: Amendment to the International Traffic in Arms Regulations: Addition of South Sudan [Amends ITAR Part 126.] 

  – The only available fully updated copy (latest edition: 25 Apr 2018) 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 800 footnotes containing amendment histories, 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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EN_a0320
Weekly Highlights of the Daily Bugle Top Stories

(Source: Editor) 

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published 
here

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, John Bartlett. The Ex/Im Daily Update is 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, DOE/NRC, DOJ/ATF, DoD/DSS, DoD/DTSA, FAR/DFARS, 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, provided attribution is given to “The Export/Import Daily Bugle of (date)”. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents of this newsletter 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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