;

18-0815 Wednesday “Daily Bugle”

18-0815 Wednesday “Daily Bugle”

Wednesday, 15 August 2018

TOP
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 
here for free subscription. Contact us
for advertising inquiries and rates.

  1. President Adjusts Imports of Steel into the U.S. from Turkey 
  2. State/DDTC Seeks Comments on Statement of Political Contributions, Fees, and Commissions Relating to Sales of Defense Articles and Defense Services 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: Alex Bryukhov of Morrisville, PA, Denied Export Privileges for Ten Years
  3. DoD/DSS Knowledge Center Temporarily Experiences Issues
  4. OMB/OIRA Reviews of Proposed Ex/Im Regulations
  5. State/DDTC: (No new postings.)
  6. Hong Kong Posts Lists of Officers Authorized to Sign Strategic Commodities Licenses
  1. AppleInsider: “Defense Bill Signed into Law, Bans Government Use of ZTE, Huawei Technology”
  2. Defense News: “Japan’s Defense Industry Continues to Grow. but Is It in for Rough Seas?”
  3. Expeditors News: “China Imposes Additional Tariffs on U.S. Goods in Response to U.S. Section 301 Tariffs”
  1. D.R. Johnson & D.J. Gerkin: “President Signs Export Controls Legislation Subjecting Emerging and Foundational Technologies to Enhanced Controls”
  2. P Carvalho: “Identifying Antidumping and Countervailing Duty Order from Third Country in ACE”
  3. Stephen Heifetz: “Three-and-a-Half CFIUS Issues Needing Immediate Attention: Why Thinking “Big Whoop” Could Lead to Big Trouble”
  1. CompTIA Presents “12th Annual CompTIA Global Trade Compliance Best Practices Conference” on 18 Sep in San Diego, CA
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (12 Jun 2018), DOD/NISPOM (18 May 2016), EAR (6 Aug 2018), FACR/OFAC (29 Jun 2018), FTR (24 Apr 2018), HTSUS (14 Aug 2018), ITAR (14 Feb 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1
. President Adjusts Imports of Steel into the U.S. from Turkey

(Source: Federal Register, 15 Aug 2018.)
 
83 FR 40429-40432: Adjusting Imports of Steel Into the United States
 
By the President of the United States of America
 
A Proclamation
 
  (1) On January 11, 2018, the Secretary of Commerce (Secretary) transmitted to me a report on his investigation into the effect of imports of steel articles on the national security of the United States under section 232 of the Trade Expansion Act of 1962, as amended (19 U.S.C. 1862). The Secretary found and advised me of his opinion that steel articles are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States.
 
  (2) In Proclamation 9705 of March 8, 2018 (Adjusting Imports of Steel Into the United States), I concurred in the Secretary’s finding that steel articles, as defined in clause 1 of Proclamation 9705, as amended by clause 8 of Proclamation 9711 of March 22, 2018 (Adjusting Imports of Steel Into the United States), are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States, and decided to adjust the imports of these steel articles by imposing a 25 percent ad valorem tariff on such articles imported from most countries.
 
  (3) In Proclamation 9705, I also directed the Secretary to monitor imports of steel articles and inform me of any circumstances that in the Secretary’s opinion might indicate the need for further action under section 232 with respect to such imports.
 
  (4) The Secretary has informed me that while capacity utilization in the domestic steel industry has improved, it is still below the target capacity utilization level the Secretary recommended in his report. Although imports of steel articles have declined since the imposition of the tariff, I am advised that they are still several percentage points greater than the level of imports that would allow domestic capacity utilization to reach the target level.
 
  (5) In light of the fact that imports have not declined as much as anticipated and capacity utilization has not increased to that target level, I have concluded that it is necessary and appropriate in light of our national security interests to adjust the tariff imposed by previous proclamations.
 
  (6) In the Secretary’s January 2018 report, the Secretary recommended that I consider applying a higher tariff to a list of specific countries should I determine that all countries should not be subject to the same tariff. One of the countries on that list was the Republic of Turkey (Turkey). As the Secretary explained in that report, Turkey is among the major exporters of steel to the United States for domestic consumption. To further reduce imports of steel articles and increase domestic capacity utilization, I have determined that it is necessary and appropriate to impose a 50 percent ad valorem tariff on steel articles imported from Turkey, beginning on August 13, 2018. The Secretary has advised me that this adjustment will be a significant step toward ensuring the viability of the domestic steel industry.
 
  (7) Section 232 of the Trade Expansion Act of 1962, as amended, authorizes the President to adjust the imports of an article and its derivatives that are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.
 
  (8) Section 604 of the Trade Act of 1974, as amended (19 U.S.C. 2483), authorizes the President to embody in the Harmonized Tariff Schedule of the United States (HTSUS) the substance of statutes affecting import treatment, and actions thereunder, including the removal, modification, continuance, or imposition of any rate of duty or other import restriction.
 
NOW, THEREFORE, I, DONALD J. TRUMP, President of the United States of America, by the authority vested in me by the Constitution and the laws of the United States of America, including section 232 of the Trade Expansion Act of 1962, as amended, section 301 of title 3, United States Code, and section 604 of the Trade Act of 1974, as amended, do hereby proclaim as follows:
 
  (1) In order to establish increases in the duty rate on imports of steel articles from Turkey, subchapter III of chapter 99 of the HTSUS is modified as provided in the Annex to this proclamation. Clause 2 of Proclamation 9705, as amended by clause 1 of Proclamation 9740 of April 30, 2018 (Adjusting Imports of Steel Into the United States), is further amended by striking the last two sentences and inserting in lieu thereof the following three sentences: “Except as otherwise provided in this proclamation, or in notices published pursuant to clause 3 of this proclamation, all steel articles imports specified in the Annex shall be subject to an additional 25 percent ad valorem rate of duty with respect to goods entered for consumption, or withdrawn from warehouse for consumption, as follows: (a) on or after 12:01 a.m. eastern daylight time on March 23, 2018, from all countries except Argentina, Australia, Brazil, Canada, Mexico, South Korea, and the member countries of the European Union; (b) on or after 12:01 a.m. eastern daylight time on June 1, 2018, from all countries except Argentina, Australia, Brazil, and South Korea; and (c) on or after 12:01 a.m. eastern daylight time on August 13, 2018, from all countries except Argentina, Australia, Brazil, South Korea, and Turkey. Further, except as otherwise provided in notices published pursuant to clause 3 of this proclamation, all steel articles imports from Turkey specified in the Annex shall be subject to a 50 percent ad valorem rate of duty with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on August 13, 2018. These rates of duty, which are in addition to any other duties, fees, exactions, and charges applicable to such imported steel articles, shall apply to imports of steel articles from each country as specified in the preceding two sentences.”.
   (2) The text of U.S. note 16(a)(i) to subchapter III of chapter 99 of the HTSUS is amended by deleting “Heading 9903.80.01 provides” and inserting the following in lieu thereof: “Except as provided in U.S. note 16(a)(ii), which applies to products of Turkey that are provided for in heading 9903.80.02, heading 9903.80.01 provides”.
   (3) U.S. note 16(a)(ii) to subchapter III of
chapter 99 of the HTSUS is re-designated as U.S. note 16(a)(iii) to subchapter III of chapter 99 of the HTSUS.
   (4) The following new U.S. note 16(a)(ii) to subchapter III of chapter 99 of the HTSUS is inserted in numerical order: “(ii) Heading 9903.80.02 provides the ordinary customs duty treatment of iron or steel products of Turkey, pursuant to the article description of such heading. For any such products that are eligible for special tariff treatment under any of the free trade agreements or preference programs listed in general note 3(c)(i) to the tariff schedule, the duty provided in this heading shall be collected in addition to any special rate of duty otherwise applicable under the appropriate tariff subheading, except where prohibited by law. Goods for which entry is claimed under a provision of chapter 98 and which are subject to the additional duties prescribed herein shall be eligible for and subject to the terms of such provision and applicable U.S. Customs and Border Protection (“CBP”) regulations, except that duties under subheading 9802.00.60 shall be assessed based upon the full value of the imported article. No claim for entry or for any duty exemption or reduction shall be allowed for the iron or steel products enumerated in subdivision (b) of this note under a provision of chapter 99 that may set forth a lower rate of duty or provide duty-free treatment, taking into account information supplied by CBP, but any additional duty prescribed in any provision of this subchapter or subchapter IV of chapter 99 shall be imposed in addition to the duty in heading 9903.80.02.”.
  (5) Paragraphs (b), (c), and (d) of U.S. note 16 to subchapter III of chapter 99 of the HTSUS are each amended by replacing “heading 9903.80.01” with “headings 9903.80.01 and 9903.80.02”.
  (6) The “Article description” for heading 9903.80.01 of the HTSUS is amended by replacing “of Brazil” with “of Brazil, of Turkey”.
  (7) The modifications to the HTSUS made by clauses 2 through 6 of this proclamation and the Annex to this proclamation shall be effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on August 13, 2018, and shall continue in effect, unless such actions are expressly reduced, modified, or terminated.
  (8) The Secretary, in consultation with U.S. Customs and Border Protection of the Department of Homeland Security and other relevant executive departments and agencies, shall revise the HTSUS so that it conforms to the amendments directed by this proclamation. The Secretary shall publish any such modification to the HTSUS in the Federal Register.
  (9) Any provision of previous proclamations and Executive Orders that is inconsistent with the actions taken in this proclamation is superseded to the extent of such inconsistency.
 
IN WITNESS WHEREOF, I have hereunto set my hand this tenth day of August, in the year of our Lord two thousand eighteen, and of the Independence of the United States of America the two hundred and forty-third.
              
(Presidential Sig.)

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

EXIM_a2

2
. State/DDTC Seeks Comments on Statement of Political Contributions, Fees, and Commissions Relating to Sales of Defense Articles and Defense Services

(Source: Federal Register, 15 Aug 2018.) [Excerpts.]
 
83 FR 40618-40619: 30-Day Notice of Proposed Information Collection: Statement of Political Contributions, Fees, and Commissions Relating to Sales of Defense Articles and Defense Services
* ACTION: Notice of request for public comments. …
* DATES: Submit comments directly to the Office of Management and Budget (OMB) up to September 14, 2018.
* ADDRESSES: Direct comments to the Department of State Desk Officer in the Office of Information and Regulatory Affairs at the Office of Management and Budget (OMB). You may submit comments by the following methods:
  – Email: oira_submission@omb.eop.gov. You must include the DS form number, information collection title, and the OMB control number in the subject line of your message.
  – Fax: 202-395-5806. Attention: Desk Officer for Department of State.
* FOR FURTHER INFORMATION CONTACT: Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed collection instrument and supporting documents, to Andrea Battista, SA-1, 12th Floor, Directorate of Defense Trade Controls, Bureau of Political Military Affairs, U.S. Department of State, Washington, DC 20522-0112, via phone at (202) 663-3136, or via email at battistaal@state.gov.
* SUPPLEMENTARY INFORMATION:
  – Title of Information Collection: Statement of Political Contributions, Fees, and Commissions Relating to Sales of Defense Articles and Defense Services.
  – OMB Control Number: 1405-0025.
  – Type of Request: Extension.
  – Originating Office: Directorate of Defense Trade Controls (DDTC).
  – Form Number: No Form.
  – Respondents: Persons requesting a license or other approval for the export, reexport, or retransfer of USML-regulated defense articles or defense services valued in an amount of $500,000 or more that are being sold commercially to or for the use of the armed forces of a foreign country or international organization or persons who enter into a contract with the Department of Defense for the sale of defense articles or defense services valued in an amount of $500,000 or more under section 22 of the AECA. …
  – Abstract of proposed collection: DDTC regulates the export and temporary import of defense articles and services enumerated on the USML in accordance with the Arms Export Control Act (AECA) (22 U.S.C. 2751 et seq.) and the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130). In accordance with section 39 of the AECA, the Secretary of State must require, in part, adequate and timely reporting of political contributions, gifts, commissions and fees paid, or offered or agreed to be paid in connection with the sales of defense articles or defense services licensed or approved under AECA sections 22 and 38. Pursuant to ITAR Sec. 130.9(a), any person applying for a license or approval required under section 38 of the AECA for sale to the armed forces of a foreign country or international organization valued at $500,000 or more must inform DDTC, and provide certain specified information, when they have paid, offered to, or agreed to pay, (1) political contributions in an aggregate amount of $5,000 or greater; or (2) fees or commissions in an aggregate amount equaling or exceeding $100,000. Similarly, ITAR Sec. 130.9(b) requires any person who enters into a contract with the Department of Defense under section 22 of the AECA, valued at $500,000 or more, to inform DDTC and provide the specified information, when they or their vendors, have paid, or offered or agreed to pay, in respect to any sale (1) political contributions in an aggregate amount of $5,000 or greater; or (2) fees or commissions in an aggregate amount equaling or exceeding $100,000. Respondents are also required to collect information pursuant to Sections 130.12 and 130.13 prior to submitting their report to DDTC. …
 
  Anthony M. Dearth, Chief of Staff (Acting), Directorate of Defense Trade Controls, U.S. Department of State.

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

OGSOTHER GOVERNMENT SOURCES

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

[No items of interest noted today.]

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

(Source:
Commerce/BIS, 15 Aug 2018.)
 
* Respondent: Alex Bryukhov, Morrisville, PA
* Charges On 6 April 2016, in the U.S. District Court for the Southern District of New York, Alex Bryukhov (“Bryukhov”) was convicted of violation Section 38 of the Arms Export Control Act (22 U.S.C. § 2778 (2012)) (“AECA”), among other crimes. Specifically, Bryukhov was convicted of knowingly and willfully exporting and attempting to export, from the United States to Russia, a FLIR T-60 Thermal Camera, gun parts, and an OASYS Night Vision Sight, which are items designated as defense articles on the United States Munitions List, without the required U.S. Department of State licenses. Bryukhov was sentenced to 15 months in prison, three years of supervised release, and a $100 assessment. Bryukhov is also listed on the U.S. Department of State Debarred List.
  BIS has received notice of Bryukhov’s conviction for violating Section 38 of the AECA, and has provided notice and an opportunity to Bryukhov to make a written submission to BIS, as provided in section 766.25 of the EAR. BIS has not received a submission from Bryukhov.
* Debarred: As a result, Bryukhov will be denied export privileges under the Export Administration Regulations (“EAR”) for a period of 10 years from the date of of Bryukhov’s conviction, until 6 April 2026. In addition, all export licenses issued under the EAR in which Bryukhov had an interest at the time of his conviction are revoked.
* Date of Order: 13 August 2018.

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

(Source:
DoD/DSS, 15 Aug 2018.)
 
The Knowledge Center is temporarily unable to answer Personnel Clearance questions or pin resets/unlock capabilities due to the Joint Personnel Adjudication System (JPAS) experiencing technical issues.
We apologize for any inconvenience this may cause.

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

(Source:
OMB/OIRA, 14 Aug 2018.)   
 
* International Traffic in Arms Regulation: Modification of USML Category XI
  – AGENCY: State
  – STAGE: Final Rule
  – RECEIVED DATE: 14 Aug 2018
  – RIN:
1400-AE70
  – STATUS:
Pending Review

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

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

(Source:
Hong Kong Trade and Industry Department, 15 Aug 2018.)
 
The list of Officers Authorized to Sign on Strategic Commodities Licences and Delivery Verification Certificates under Import and Export Ordinance, Cap 60 Import and Export (Strategic Commodities) Regulations can be found
here.
 

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

NWSNEWS

(Source:
AppleInsider, 14 Aug 2018.) [Excerpts.]
 
President Trump has signed the $716 billion “John S. McCain National Defense Authorization Act” into law, and while the legislation stopped short of a full-on ban on mobile phones from the Chinese manufacturers, it did block government agencies from purchasing devices from ZTE, Huawei, and other Chinese entities.
 
H.R. 5515, also known as the John S. McCain National Defense Authorization Act, is now law after President Donald Trump signed it on Monday. The legislation appropriates $716 billion in defense funding, while also putting new restrictions in place on government purchase of communications devices from ZTE and other Chinese manufacturers. 

One section of the bill, titled “Prohibition on Certain Telecommunications and Video Surveillance Services or Equipment,” states that government agencies may not procure “telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities).”

The legislation also bars the executive acquisition of “video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities).” …  

 
U.S. vs. ZTE


According to a report last month by Vox, an earlier version of the bill contained a full-on ban on U.S. companies selling parts to ZTE, but Republicans in Congress watered down the language to a government ban. 

In March 2017, ZTE was fined over a billion dollars by the Department of Justice for, over a six-year period, violating sanctions on selling parts to Iran and North Korea. …

In April of this year, the FCC instituted what amounted to a ban on ZTE’s operations in the U.S., by blocking its access to parts and software. 

The president tweeted in May that he and China’s President Xi were “working together to give massive Chinese phone company, ZTE, a way to get back into business, fast.” The Commerce Department, per Trump’s instructions, lifted the ban in July, while continuing to monitor ZTE’s actions. 

The newly enacted defense bill keeps those Chinese products available to the general consumer market, while blocking the companies from potentially lucrative government contracts, as the administration’s trade war with China continues to escalate. …

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

(Source:
Defense News, 15 Aug 2018.) [Excerpts.]
 
Japan’s homegrown defense industry continues to secure significant amounts of contracts from the U.S. government, but concerns linger over the high level of spending on big-ticket items acquired via the U.S. Foreign Military Sales program, and the outlook for Japan’s push into the global arms market remains cloudy. …
 
Among ongoing programs in which Japanese companies are participating are new wheeled, self-propelled artillery; armored fighting vehicles; and infantry fighting vehicles for the country’s Ground Self-Defense Force, while its Maritime Self-Defense Force is due to receive more ballistic missile defense-capable destroyers, multipurpose destroyers and submarines.
 
However, with concerns over China’s burgeoning military might and the continued threat of North Korea’s nuclear and ballistic missile programs, there is unease that Japan’s increasing reliance on the FMS program for big-ticket defense articles, such as the Lockheed Martin F-35 Joint Strike Fighter and ballistic missile defense-related systems, will reduce the share of the defense budget available for homegrown companies.
 
According to Defense Ministry figures, Japan’s spending on FMS purchases has climbed more than tenfold from $390 million in fiscal 2011 to a record high of $4.4 billion in fiscal 2016, although that figure is expected to drop slightly to $3.6 billion in the current fiscal year, according to the ministry.
 
The increasing spending on FMS has put pressure on Japan’s policy of building up its domestic defense industry to attain a level of autonomy in meeting its defense needs. The policy has been in place since the 1970s, and yet FMS acquisitions typically have minimal local industry participation.
 
This policy of autonomy has seen Japanese industry build all of the Japan Maritime Self-Defense Force’s ships in service today, and until recently the country was able to build its own fighter aircraft, although that run ended when production of the Mitsubishi F-2, which is a heavily modified and enlarged Lockheed Martin F-16 Fighting Falcon, ended in 2011.
 
In the long term, however, Japan will need to look at how much autonomy it wants to maintain over its own defense-industrial base, given geopolitical and industrial realities, according to Corey Wallace, an Einstein postdoctoral fellow in the Graduate School of East Asian Studies at Freie Universitat in Berlin, Germany. He said the best approach for Japan is for domestic industry to “be better integrated into any foreign purchase programs” and to accept cross-national cooperation in the development of certain systems, in effect being selective in the amount of industrial autonomy Japanese companies retain.
 
One of the hurdles affecting Japan’s drive toward industrial autonomy is the cost of acquisition and sustainment of indigenous products, which is higher due to Japan’s small, niche defense market and its unique requirements. For example, Bloomberg reported that the country’s Finance Ministry had recommended abandoning production of the Mitsubishi C-2 airlifter in favor of buying the Lockheed C-130J Hercules, which costs half of its Japanese counterpart and is better able to operate from semi-developed airfields, although it carries less cargo and operates at slower speeds.
 
Still, the Japanese government is keen to support its industrial base. For example, Mitsui and Japan Marine United Corporation managing to secure contracts to build part of eight multipurpose destroyers, despite both companies losing the overall contract to Mitsubishi Heavy Industries.
 
The government of Japanese Prime Minister Shinzo Abe has also relaxed laws regarding Japanese defense exports, making it easier for Japanese companies to sell defense articles overseas. However, some restrictions remain over which countries Japanese companies can sell to, and Japan has yet to conclude a successful defense export sale since the laws were relaxed in 2014.
 
This is partly due to Japanese defense companies’ lack of experience with the global arms market, which, combine with associated costs, has meant Japanese companies struggle to market their products against more savvy Western firms and are unable to compete on price for more budget-conscious potential customers.

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

(Source:
Expeditors News, 14 Aug 2018.)
 
On August 8, 2018, the Chinese Ministry of Finance announced additional tariffs on goods of U.S. origin in Taxation Committee Announcement [2018] No. 7.
 
The product list of 333 tariff lines listed in the annex of the announcement will go into effect on August 23, 2018. The implementation details will be in accordance to the Announcement of the Taxation Committee [2018] No. 5
 
Taxation Committee Announcement [2018] No. 7 may be found
here.
 
The Annex may be found here.
 
Taxation Committee Announcement [2018] No. 5 may be found
here.

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

COMMCOMMENTARY

COMM_a0
12. D.R. Johnson & D.J. Gerkin: “President Signs Export Controls Legislation Subjecting Emerging and Foundational Technologies to Enhanced Controls”
(Source: Vinson & Elkins LLP, 14 Aug 2018.)
 
* Authors: David R. Johnson, Esq.,
drjohnson@velaw.com, +1 202-639-6706; and Daniel J. Gerkin, Esq.,
dgerkin@velaw.com, +1 202-639-6654. Both of Vinson & Elkins LLP.
 
The President has signed the National Defense Authorization Act of 2019 (“NDAA”), which, in addition to expanding the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”) to review foreign direct investment, [FN/1] implements the Export Control Reform Act of 2018 (“ECA”), which sharpens the focus of the U.S. government on emerging and foundational technologies that are deemed not to have been adequately addressed by the prevailing U.S. export control regimes. The NDAA also places limits on the procurement of equipment and services from certain Chinese entities, though certain Members of Congress had adamantly advocated for much more stringent restrictions.
 
Export Controls Act of 2018
 
Permanent Statutory Authority for U.S. Export Controls
.
 
With limited exceptions, the ECA repeals the Export Administration Act of 1979, which lapsed several years ago and has been statutorily authorized each year since pursuant to Executive Orders issued under the International Emergency Economic Powers Act (“IEEPA”). Accordingly, the ECA now serves as the permanent statutory authority for the U.S. Export Administration Regulations (“EAR”), which generally govern the export, reexport, and in-country transfer of commercial and dual-use commodities, software and technology, and which are administered by the Bureau of Industry and Security, U.S. Department of Commerce (“BIS”). [FN/2]
 
Treatment of Emerging and Other Types of Critical Technologies
.
 
In addition to ensuring permanent statutory authority for the existing commercial and dual-use export controls regime, the ECA directs the President, in coordination with the Departments of Commerce, Defense, State, and Energy to develop a “regular and robust process to identify the emerging and other types of critical technologies of concern and regulate their release to foreign persons as warranted regardless of the nature of the underlying transaction.” Specifically, these agencies are tasked by the ECA with identifying “emerging and foundational technologies” that are essential to the national security of the United States, but which are not currently controlled for export purposes. [FN/3]
 
The process for identifying such technologies will be informed by publicly available information, classified information, information arising out of the CFIUS review process, and information generated by the various BIS advisory committees, and will take into account the development of such technologies in foreign countries, the effect export controls might have on continuing U.S. development efforts, and the effectiveness of export controls with respect to limiting the proliferation of such technologies to foreign countries.
 
The identified technologies will, following a notice and comment period, be subjected to enhanced U.S. export controls, possibly to include licensing requirements, and will be proposed for inclusion in multilateral export control regimes. At a minimum, licenses will be required for countries subject to a U.S. embargo, including those that solely are arms embargoed, such as China. [FN/4] Please note that license applications submitted by or on behalf of a joint venture, joint development agreement, or similar collaborative arrangement may require the identification of any foreign person with a significant ownership interest in a foreign person participating in the arrangement.
 
The following activities will be excepted from any licensing requirements:
 
  – The sale or lease of a finished item and the provision of associated technology if such items and technology are generally made available to customers, distributors, or resellers;
  – The sale or license to a customer of a product and the provision of integration or similar services if such services generally are made available to customers;
  – The transfer of equipment and provision of associated technology to operate the equipment if the foreign person could not use the equipment to produce critical technologies;
  – The procurement by a U.S. person of goods or services, including manufacturing services, from a foreign person if the foreign person has no rights to exploit any technology contributed by the U.S. person other than to supply the procured goods or services; and
  – Contributions and associated support provided by a U.S. person to an industry organization related to a standard or specification, whether in development or declared, including any license of, or commitment to license, intellectual property in compliance with the rules of any standards organization.
 
The ECA requires reporting to Congress and to CFIUS every 180 days regarding actions taken to identify and control emerging and foundational technologies.
 
Changes to Licensing Process
.
 
The ECA mandates that applications for licenses address “the impact of a proposed export of an item on the United States defense industrial base” and an assessment of whether “the denial of an application for a license or a request for an authorization of any export that would have a significant negative impact on such defense industrial base.” By significant negative impact, the ECA will mean:
 
  – “A reduction in the availability of an item produced in the United States that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States, or for the production of an item in the United States for the Department of Defense . . . for the advancement of the national security of the United States.”
  – “A reduction in the production in the United States of an item that is the result of research and development carried out, or funded by, the Department of Defense . . . to advance the national security of the United States, or a federally funded research and development center.”
  – “A reduction in the employment of United States persons whose knowledge and skills are necessary for the continued production in the United States of an item that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States.”
 
Criminal and Civil Penalties
.
 
Like the IEEPA, the ECA authorizes criminal penalties of up to $1 million and imprisonment for not more than 20 years. However, the ECA increases the current inflation-adjusted maximum civil penalty to the greater of $300,000 or twice the value of the underlying transaction. These also are the criminal and civil penalties set forth in the Anti-Boycott Act of 2018.
 
Treatment of Certain Chinese Telecommunications Equipment Manufacturers and Service Providers
 
Over the objections of Sen. Marco Rubio, among others, the NDAA ultimately did not reimpose sanctions on Chinese telecommunications equipment manufacturer and service provider, Zhongxing Telecommunications Equipment Corporation (“ZTE Corporation”), and certain of its affiliates, which were subject to a BIS denial order arising out of U.S. export control violations stemming from transactions involving Iran and North Korea. That denial order was terminated, effective July 13, 2018. The ECA does, however, prohibit federal agencies from procuring or obtaining, or entering into contracts with entities using, equipment, systems, or services that, in turn, use Chinese-origin telecommunications equipment or services deemed to be a “substantial or essential component of any system” or “critical technology as part of any system.” The targeted Chinese-origin telecommunications equipment or services are:
  – Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation or any subsidiary or affiliate of such entities;
  – For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Technology Company, Dahua Technology Company, or any subsidiary or affiliate of such entities;
  – Telecommunications or video surveillance services provided by any of the above-named entities or using the above-described equipment; and
  – Telecommunications or video surveillance equipment or services produced or provided by an entity reasonably believed to be owned or controlled by, or otherwise connected to, the Chinese government.
 
————-
  [FN/1] The changes to the CFIUS review process are discussed in greater detail
here.

  [FN/2] The EAR also encompass the regulations that govern the participation of U.S. persons in unsanctioned foreign boycotts. These regulations now are permanently authorized by the Anti-Boycott Act of 2018.

  [FN/3] Please note that the EAR currently allow for the imposition of temporary controls on items in accordance with their interim classification within Export Control Classification Number 0Y521.

  [FN/4] The ECA also requires a review of the current controls on exports, reexports, and in-country transfers for military end uses and military end users in U.S. and United Nations arms-embargoed countries, as well as a review of the Commerce Control List of items that currently are not subject to any licensing for U.S. arms-embargoed countries.

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

COMM_a01
13. P Carvalho: “Identifying Antidumping and Countervailing Duty Order from Third Country in ACE”
(Source: Shap Talk, 15 Aug 2018.)
 
* Author: Patricia Carvalho, LCB, Samuel Shapiro & Company, Inc., +1 410-539-0540
 
Pursuant to CSMS Message 18-000421, CBP released guidelines for identifying third country antidumping and countervailing duty (AD/CVD) case numbers in the Automated Commercial Environment (ACE) system. The system features a searchable list of all AD/CVD cases for users.
 
Generally, AD/CVD orders cover products from the country identified in the AD/CVD order, and in some cases, merchandise produced in the country of the AD/CVD order may undergo further processing in a third country and remain subject to the AD/CVD order. Regardless of the further transformation that occurs in the third country, the merchandise may remain subject to the AD/CVD order from the original country. When this happens, for AD/CVD purposes, these goods fall under the scope of the original country; however, for CBP purposes these goods could be classified under the CBP country of origin of the third country where the further processing occurred.
 
The following guidelines help importers identify subject merchandise entering the U.S. from a third country. The third country case name and short description in ACE are consistent with the Case Name and Short Description of the relevant AD/CVD order. For the third country case number, at the end of the Short Description and Official Case Name there is also a reference to the country of the relevant AD/CVD order. The chart below shows an example of third county case.
 
ACE AD/CVD Case Header Information
AD/CVD Order
Third Country Case
Country Name
People’s Republic of China
Lithuania
Case Number
A-570-979
A-451-988
Official Case Name
Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into Modules
Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into Modules (People’s Republic of China)
Short Description
Solar Cells
Solar Cells (China)
 
In this example, merchandise produced in China is further processed in Lithuania. After the additional processing, the merchandise still falls under the antidumping duty order on solar cells from China, but for CBP purposes, now has a CBP country of origin of Lithuania. For importers to properly report the import of this merchandise to CBP, Commerce created the third country case number A-451-988 to correspond to the antidumping duty order on solar cells from China, and the CBP country of origin of Lithuania.

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

COMM_a3
14. Stephen Heifetz: “Three-and-a-Half CFIUS Issues Needing Immediate Attention: Why Thinking “Big Whoop” Could Lead to Big Trouble”
(Source: Wilson Sonsini Goodrich & Rosati, 13 Aug 2018.)
 
* Author: Stephen Heifetz, Esq., Wilson Sonsini Goodrich & Rosati, sheifetz@wsgr.com, +1 202-973-8802.
 
So you’ve heard a lot about CFIUS reform and the changes that may result from FIRRMA, perhaps from our prior pieces. While the President just signed FIRRMA into law on August 13, you probably know that many key FIRRMA provisions aren’t yet effective because they require implementing regulations, which could take many months. That timeframe might push the casual observer toward a “big whoop” attitude-i.e., “when the precise rules come into focus, I’ll start paying attention.” That would be a mistake for at least three-and-a-half reasons.
 
First
, if you work with private equity or other capital funds-as an investor or investee-CFIUS is about to start minding your business. Because of FIRRMA, even U.S. funds with foreign limited partners may become subject to CFIUS jurisdiction, and in some cases may even be required to make CFIUS filings. These funds will need to consider, as soon as possible, whether and how to insulate their foreign LPs so as to minimize the risk of CFIUS jurisdiction. These structural decisions made now will carry potentially significant consequences when rules implementing FIRRMA are finalized.
 
With respect to certain types of portfolio companies-those involved with “critical technologies,” “critical infrastructure,” or U.S. citizen personal data-CFIUS may have jurisdiction over an indirect investment by a foreign LP through a U.S. fund, even in cases where that foreign LP represents a relatively small percentage of the equity in the fund. Such an investment may be subject to CFIUS review if the foreign LP: (i) has access to “material non-public technical information” from the portfolio company; (ii) has board membership or equivalent status; or (iii) can be involved in decision-making regarding the sensitive aspects of the portfolio company.
 
FIRRMA does permit foreign LPs to participate in a limited partner advisory committee (LPAC) without triggering CFIUS jurisdiction, although additional requirements must be satisfied. In particular, among other requirements, the fund must: (i) be managed exclusively by a general partner that is not a foreign person; (ii) not grant control over decision-making of the fund to a foreign person or any committee on which a foreign person sits; and (iii) not grant the foreign person access to material nonpublic technical information.
 
In addition, if a foreign government has a “substantial stake” in the fund, or if there is an investment involving “critical technology,” then at least some fund transactions may be subject to mandatory CFIUS review.
 
Insulating foreign LPs now, so as to minimize the risk of CFIUS jurisdiction, is accordingly a “now” task. Funds that take a “big whoop” view now may be in for a big whupping down the road.
 
Second
, if you’re planning a big transaction, be aware that the game may change under your feet. While the mandatory filing rules will not become effective for a while, transactions with long lead times need to consider the possibility that the mandatory triggers will apply before the deal closes. Transaction parties might choose to forego a CFIUS filing now, prepare for closing nine months from now, and then find that they cannot close because they have become subject to a mandatory CFIUS filing and clearance process that could extend closing by many months. That mandatory extension could cause financing to fall through or create unanticipated havoc in other ways, potentially sinking the deal.
 
Second and a half
, there is a reasonable likelihood of mandatory filing triggers being set soon, particularly for transactions where there is a Chinese or Russian government stake.
 
Several weeks ago, the Trump administration considered, but decided to forego wholesale restrictions on Chinese investment into certain segments of the U.S. economy. President Trump stated that this decision was a reflection of progress made toward enactment of FIRRMA, and that upon enactment, he would direct the Administration “to implement it promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies.”
 
This emphasis on quickly implementing FIRRMA provisions regarding foreign government-directed investment may cause utilization of a type of ‘fast track’ authority in FIRRMA. CFIUS is authorized to implement “pilot programs” on a temporary basis until formal rulemakings yield permanent regulations. A pilot program can be implemented with just 30 days’ advance publication in the Federal Register.
 
For investments with foreign government stakes, particularly Chinese or Russian government stakes, it would be foolish to assume that the mandatory triggers are merely on the distant horizon. The possibility of a mandatory CFIUS filing in the offing-via a “pilot program” rule-may affect decision-making regarding whether to submit a voluntary filing now. If there is a good chance that a filing will be required down the road, making a voluntary filing now might be more attractive.
 
Third
, if you’re inclined not to make a CFIUS filing-a decision that still may be reasonable for many transactions-be sure you’ve considered how FIRRMA alters the risk. Where CFIUS has jurisdiction, the risks from not filing are already increasing, in advance of implementing rules being finalized. FIRRMA infuses CFIUS with far greater resources than ever before, and much of the resource infusion will enable CFIUS to hunt for transactions that are not filed voluntarily.
 
Before FIRRMA, CFIUS generally did not have the capacity to track down more than a couple dozen of these “non-notified” transactions. But FIRRMA authorizes at least $20 million for CFIUS operations and requires a significant increase in the amount of sustained political energy devoted to CFIUS: two new assistant secretaries (i.e., political appointees) from the Treasury Department, by itself, must be involved in CFIUS as well as the involvement of similar level political appointees from other agencies. An assistant secretary in any administration generally has a large staff, and it is highly unusual to have a regulatory process overseen by the number of political appointees who soon will be involved routinely in CFIUS matters.
 
That means, almost certainly, that we will see far more examples of CFIUS compelling filings for transactions where the parties chose not to file. As CFIUS observers know, CFIUS-compelled filings often have unhappy results, sometimes including forced divestments.
 
Transactions hunted by CFIUS previously were like shark attacks: rare but sometimes fatal. They may soon become more like jellyfish stings: common, usually painful, and occasionally fatal. That’s something to consider, even this summer, as you consider the inviting investment waters.

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

TECEX/IM TRAINING EVENTS & CONFERENCES

 
* What: 12th Annual CompTIA Global Trade Compliance Best Practices Conference
* When: Tuesday, September 18, 2018
* Where: Qualcomm, 10155 Pacific Heights Boulevard, San Diego, California 92121
* Sponsor: CompTIA
* Contact: Ken Montgomery, 

kmontgomery@comptia.org
  
* Information & Registration: 

HERE
.

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

ENEDITOR’S NOTES

Napoleon Bonaparte (15 Aug 1769 – 5 May 1821; was a French statesman and military leader who rose to prominence during the French Revolution and led several successful campaigns during the French Revolutionary Wars. He was Emperor of France from 1804 until 1814, and again briefly in 1815.)
  – “The people to fear are not those who disagree with you, but those who disagree with you and are too cowardly to let you know.”
  – “The first virtue in a soldier is endurance of fatigue; courage is only the second virtue.”
* * * * * * * * * * * * * * * * * * * *

EN_a317
. 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 Jun 2018: 83 FR 27380-27407: Air Cargo Advance Screening (ACAS)
 
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 Amendments: 3 Aug 2018: 83 FR 38021-38023: Revision of Export and Reexport License Requirements for Republic of South Sudan Under the Export Administration Regulations; and 83 FR 38018-38021: U.S.-India Major Defense Partners: Implementation Under the Export Administration Regulations of India’s Membership in the Wassenaar Arrangement and Addition of India to Country Group A:5

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

  – Last Amendment: 29 June 2018: 83 FR 30541-30548: Global Magnitsky Sanctions Regulations; and 83 FR 30539-30541: Removal of the Sudanese Sanctions Regulations and Amendment of the Terrorism List Government Sanctions Regulations 

 
*
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:
14 Aug 2018: Harmonized System Update 1812, containing 27 ABI records and 6 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.  

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

EN_a0318
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

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

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.  If you would to submit material for inclusion in the The Export/Import Daily Update (“Daily Bugle”), please find instructions here.

* 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.


* SUBSCRIPTIONS: Subscriptions are free.  Subscribe by completing the request form on the Full Circle Compliance website

* BACK ISSUES: An archive of Daily Bugle publications from 2005 to present is available HERE.

* TO UNSUBSCRIBE: Use the Safe Unsubscribe link below.

Scroll to Top