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19-0515 Wednesday “Daily Bugle”

19-0515 Wednesday “Daily Bugle”

Wednesday, 15 May 2019

TOPThe 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. Contact us for advertising  

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  1. President Continues National Emergency with Respect to Yemen
  2. Commerce/BIS Seeks Comments on National Security and Critical Technology Assessment of the U.S. Industrial Base
  3. Commerce/BIS Seeks Comments on Import Certificate Procedure
  4. USTR Implements Modification to Section 301, Increased tariff of List 3 Goods from 10 Percent to 25 Percent 
  5. U.S.- China Economic and Security Review Commission Announces Public Hearing on Jun 7 in Washington DC
  1. Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.) 
  3. State/DDTC: (No new postings.)
  1. Deutsche Welle: “U.S. Warns EU Over €13-Billion Defense Spending” 
  2. Josh Hawley: “Sen. Hawley Introduces Bill to Stop the Chinese Military’s Acquisition of Sensitive American Technology” 
  3. Reuters: “Exclusive: Trump Expected to Sign Order Paving Way for U.S. Telecoms Ban on Huawei” 
  4. Reuters: “U.S. Senators Offer Bill Targeting Russia-Germany Pipeline” 
  5. The Moscow Times: “Russia Eases Arms Resale Rules to Avoid Sanctions – Reports” 
  1. D. W. Layton, J. Zhang & T. C. Lee: “U.S. Prepares to Hit All Chinese Imports with Tariffs, as China Retaliates and Launches a Product Exclusion Process” 
  2. M. Miller, B. Murphy & S. Murray: “Recommendations re China Section 301 List 3 Trade Remedy Rate Increase from 10% to 25%” 
  3. M. Volkov: “OFAC Framework for Sanctions Compliance Programs – Testing and Auditing and Training (Part III of IV)” 
  4. R. Burke, N. Erb & C. A. DeLelle: “Iran Threatens Partial JCPOA Suspension; US Imposes Sanctions on Certain Iranian Metals Sectors” 
  5. R. Fayhee, O. Dorgans & A. G. Kashdan: “The U.S. Issues New Iran Secondary Sanctions, Placing Europe in the Cross-Fire” 
  1. FCC Presents “The ABC of FMS”, 28 Nov in Bruchem, the Netherlands 
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: DHS/Customs (5 Apr 2019), DOC/EAR (14 May 2019), DOC/FTR (24 Apr 2018), DOD/NISPOM (18 May 2016), DOE/AFAEC (23 Feb 2015), DOE/EINEM (20 Nov 2018), DOJ/ATF (14 Mar 2019), DOS/ITAR (19 Apr 2019), DOT/FACR/OFAC (29 Apr 2019), HTSUS (13 May 2019) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1
.
President Continues National Emergency with Respect to Yemen

(Source:
Federal Register, 15 May 2019.) [Excerpts.]
 
On May 16, 2012, by 
Executive Order 13611, the President declared a national emergency pursuant to the International Emergency Economic Powers Act (
50 U.S.C. 1701
-1706) to deal with the unusual and extraordinary threat to the national security and foreign policy of the United States constituted by the actions and policies of certain former members of the Government of Yemen and others that threaten Yemen’s peace, security, and stability. These actions include obstructing the political process in Yemen and blocking implementation of the agreement of November 23, 2011, between the Government of Yemen and those in opposition to it, which provided for a peaceful transition of power that meets the legitimate demands and aspirations of the Yemeni people.
 
The actions and policies of certain former members of the Government of Yemen and others in threatening Yemen’s peace, security, and stability continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. For this reason, the national emergency declared on May 16, 2012, to deal with that threat must continue in effect beyond May 16, 2019. Therefore, in accordance with section 202(d) of the National Emergencies Act (
50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency declared in 
Executive Order 13611. … 

 
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(Source:
Federal Register, 15 May 2019.) [Excerpts.]
 

84 FR 21751: Submission for OMB Review; Notice
 
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).

Agency: Bureau of Industry and Security.

Title: National Security and Critical Technology Assessments of the U.S. Industrial Base.

OMB Control Number: 0694-0119.

Type of Review: Regular submission.

Needs and Uses: The Department of Commerce, in coordination with the Department of Defense and other Federal agencies, conducts survey assessments of U.S. industrial base sectors deemed critical to U.S. national security. The information gathered is necessary to determine the health and competitiveness as well as the needs of these critical market segments in order to maintain a strong U.S. industrial base.

Affected Public: Business or other for-profit organizations.

Respondent’s Obligation: Mandatory.
 
This information collection request may be viewed at 
reginfo.gov http://www.reginfo.gov/public. Follow the instructions to view Department of Commerce collections currently under review by OMB.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to 
OIRA_Submission@omb.eop.gov.
 
Sheleen Dumas,Departmental Lead PRA Officer, Office of the Chief Information Officer, Commerce Department.
 
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EXIM_a3
3
. Commerce/BIS Seeks Commentson Import Certificate Procedure

(Source:
Federal Register, 15 May 2019.) [Excerpts.]
 
84 FR
21751: Agency Information Collection Activities:
* AGENCY: Bureau of Industry and Security, Department of Commerce.
* ACTION: Notice.
* ADRESSES: Direct all written comments to Jennifer Jessup, Departmental Paperwork Clearance Officer, Department of Commerce, 1401 Constitution Avenue NW, Room 6616, Washington, DC 20230 (or via the internet at 
docpra@doc.gov.)
* FOR FURTHER INFORMATION CONTACT: Requests for additional information or copies of the information collection instrument and instructions should be directed to Mark Crace, BIS ICB Liaison, (202) 482-8093 or at 
mark.crace@bis.doc.gov.
* SUPPLEMENTARY INFORMATION:…
– OMB Number: 0694-0017.
– Form Number: BIS-645P.
– Abstract: The United States and several other countries have increased the effectiveness of their respective controls over international trade in strategic commodities by means of an Import Certificate procedure. For the U.S. importer, this procedure provides that, where required by the exporting country, the importer submits an international import certificate to the U.S. Government to certify that he/she will import commodities into the United States and will not reexport such commodities, except in accordance with the export control regulations of the United States. The U.S. Government, in turn, certifies that such representations have been made.
– Request for Comments: Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency’s estimate of the burden (including hours and cost) of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.
 
Sheleen Dumas, Departmental Lead PRA Officer, Office of the Chief Information Officer, Commerce Department.

 
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EXIM_a44
. USTR Implements Modification to Section 301, Increased Tariff of List 3 Goods from 10 Percent to 25 Percent 

 

(Source: Federal Register, 15 May 2019.) [Excerpts.] 
 
84 FR 21892: Notice of implementing modification of Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
 
* AGENCY:
Office of the United States Trade Representative.
* ACTION: Notice of implementing modification.
* SUMMARY:
In a notice published on May 9, 2019 (May 9 Notice), the U.S. Trade Representative (Trade Representative) increased the rate of additional duty from 10 percent to 25 percent for the products of China covered by the September 2018 action that are (i) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (ii) exported to the United States on or after May 10, 2019. This notice provides that products of China that are covered by the September 2018 action and that were exported to the United States prior to May 10, 2019, are not subject to the additional duty of 25 percent, as long as such products are entered into the United States prior to June 1, 2019. Such products remain subject to the additional duty of 10 percent for this interim period.
* DATES: HTSUS heading 9903.88.09, which is set out in the Annex to this notice, applies to products of China covered by the September 2018 action that were exported before May 10, 2019, and entered into the United States on or after May 10, 2019, and before June 1, 2019.
* FOR FURTHER INFORMATION CONTACT: For questions about this notice, contact Associate General Counsel Arthur Tsao or Assistant General Counsel Juli Schwartz, or Director of Industrial Goods Justin Hoffmann at (202) 395-5725. For questions on customs classification or implementation of additional duties on products covered in the supplemental action, contact traderemedy@cbp.dhs.gov.
* SUPPLEMENT INFORMATION:
 
In the May 9 Notice, the Trade Representative modified the action being taken in the Section 301 investigation by increasing the rate of additional duty from 10 percent to 25 percent for the products of China covered by the September 2018 action in this investigation. The “September 2018 action” refers to the additional duties on products of China with an annual trade value of approximately $200 billion, published at 83 FR 47974 (Sep. 21, 2018), as subsequently modified by the notice published at 83 FR 49153 (September 28, 2018). The increase in the rate of additional duty became effective on May 10, 2019.
 
Under this implementing modification, and as specified in the Annex to this notice, products of China that are covered by the September 2018 action that were exported prior to May 10, 2019, are not subject to the additional duty of 25 percent as long as such products are entered into the United States prior to June 1, 2019. Such products remain subject to the additional duty of 10 percent for a transitional period of time before June 1, 2019. The covered products of China that are entered into the United States on or after June 1, 2019, are subject to the 25 percent rate of additional duty.
 
To distinguish between covered products of China subject to the 10 percent rate of additional duty from those subject to the 25 percent rate, the Annex to this notice creates a new heading in Chapter 99 of the HTSUS (9903.88.09) for products of China covered by the September 2018 action that were exported before May 10, 2019, and entered into the United States on or after May 10, 2019 and before June 1, 2019. HTSUS heading 9903.88.09 is limited to covered products of China entered into the United States during this period of time to account for customs enforcement factors and the average transit time between China and the United States by sea.
 
The products of China covered by the September 2018 action that are admitted into a foreign-trade zone (FTZ) in “Privileged Foreign” status shall retain that status consistent with 19 CFR 146.41(e) and will be subject, at the time of entry for consumption, to the additional duty rate that was in effect at the time of FTZ admission of said product.
 
U.S. Customs and Border Protection will issue instructions on entry guidance and implementation.
 
Annex … 

 
Joseph Barloon, General Counsel, Office of the U.S. Trade Representative.

 
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EXIM_a55
. U.S.- China Economic and Security Review Commission Announces Public Hearing on 7 Jun in Washington DC

(Source:
Federal Register, 15 May 2019.)[Excerpts.]
 
84 FR 21905: Notice of Open Public Hearing
 
* AGENCY: U.S.-China Economic and Security Review Commission.
* ACTION: Notice of open public hearing.
* SUMMARY: Notice is hereby given of the following hearing of the U.S.-China Economic and Security Review Commission.
The Commission is mandated by Congress to investigate, assess, and report to Congress annually on “the national security implications of the economic relationship between the United States and the People’s Republic of China.” Pursuant to this mandate, the Commission will hold a public hearing in Washington, DC on June 7, 2019 on “Technology, Trade, and Military-Civil Fusion: China’s Pursuit of Artificial Intelligence, New Materials, and New Energy.”
* DATES: The hearing is scheduled for Thursday, June 7, 2019 at 9:30 a.m.
* ADDRESSES: TBD, Washington, DC. A detailed agenda for the hearing will be posted on the Commission’s website at 
www.uscc.gov. Also, please check the Commission’s website for possible changes to the hearing schedule. 
Reservations are not required to attend the hearing.
* SUPPLEMENTARY INFORMATION: … This is the fifth public hearing the Commission will hold during its 2019 report cycle. This hearing will examine China’s development of artificial intelligence, new materials, and energy storage, renewable energy, and nuclear power. It will assess China’s capabilities in producing and commercializing these technologies vis-à-vis the United States and its ambitions to export these technologies and shape their global governance in ways that disadvantage the United States. The hearing will also consider China’s potential military application of these technologies and strategic implications for the United States. The hearing will be co-chaired by Vice Chairman Robin Cleveland and Commissioner Thea Lee. Any interested party may file a written statement by June 7, 2019 by mailing to the contact above. A portion of each panel will include a question and answer period between the Commissioners and the witnesses. …
 
Dated: May 10, 2019.
 
Daniel W. Peck, Executive Director, U.S.-China Economic and Security Review Commission.

 
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OGSOTHER GOVERNMENT SOURCES

OGS_a16
. Items Scheduled
for Publication in Future Federal Register Editions

(Source:
Federal Register
)
 

* Commerce/BIS; NOTICE;
Requests for Nominations: Technical Advisory Committees; [Pub. Date: 16 May 2019.]
 
* State/DDTC; NOTICE;
Determination on Imposition and Waiver of Sanctions under Sections 603 and 604 of the Foreign Relations Authorization Act, Fiscal Year 2003; [Pub. Date: 16 May 2019.]
 
* Treasury; Foreign Assets Control Office; NOTICE; Blocking or Unblocking of Persons and Properties [Pub. Date: 16 May 2019.] 

 
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OGS_a27
. Commerce/BIS: (No new postings.)

(Source: Commerce/BIS)

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NWSNEWS

NWS_a01
9. Deutsche Welle: “U.S. Warns EU Over €13-Billion Defense Spending” 

(Source: Deutsche Welle, 15 May 2019.) [Excerpts.]
 
The US has warned the European Union that plans to boost defense cooperation within the EU could undo decades of trans-Atlantic cooperation and damage NATO. The EU’s foreign policy chief said US concerns were unfounded.
 
The United States has decried “poison pills” embedded in proposed rules which could shut third country allies such as the United States out of European defense projects.
 
US Ambassador to the EU Gordon Sondland emphasized the point in a letter and warned of possible US sanctions: “I hope we can avoid contemplating similar courses of action,” he said. The EU has been asked to respond to the letter by June 10.
 
Speaking after EU defense ministers met in Brussels on Tuesday, High Representative of the European Union for Foreign Affairs and Security Policy Federica Mogherini said the US concerns were unfounded.
 
“The EU is actually at the moment much more open than the US procurement market is for the European Union companies and equipment,” Mogherini said in Brussels. “In the EU there is no ‘buy European’ act and around 81% of international contracts go to the US firms in Europe today.” …
 
Self-Reliance in the EU
 
The US concerns are focused on the seven-year, €13-billion ($14.6-billion) European Defense Fund (EDF) approved by the European Parliament in April, and the EU defense pact Permanent Structured Cooperation (PESCO). The plans would see EU states cooperate on projects to develop new military equipment such as fighter planes and drones, and on support systems such as military hospitals and training centers.
 
German Defense Minister Ursula von der Leyen said Europeans were doing what the Americans had been demanding for many years: building up their defense capabilities. She said it was necessary to trust that NATO would benefit from their collective efforts.
 
However, the US had written of its suspicions: “The draft EDF regulation and PESCO general conditions represent a dramatic reversal of the last three decades of increased integration of the trans-Atlantic defense sector,” US Undersecretary of Defense Ellen Lord and US arms control negotiator Andrea Thompson, wrote in their May 1 letter to Mogherini.
 
NATO Secretary-General Jens Stoltenberg has publicly backed the pact, as long as it does not lead to duplication.
 
Mogherini met with EU defense ministers on Tuesday to discuss how to involve non-EU states, including the UK and the US, in the bloc’s defense projects.
 
According to the Stockholm International Peace Research Institute think tank, the US is the world’s largest arms exporter with a 36% share, followed by Russia, France and Germany. In terms of imports it sits at 16th on the list, with Germany, the Netherlands and France being the three top sources.
 
New Projects
 
France and Germany are planning to develop a European fighter jet as part of a project to achieve improved strategic autonomy and end the historic reliance on the US to guarantee regional security.
 
In 2011, a Franco-British mission in Libya ran out of munitions and equipment and was obliged to turn to the US. The French response has been guided by that experience. 
EU governments claim surveys indicate a majority of citizens want the bloc to provide security.

 

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(Source: Hawley Senate, 14 May 2019.)
 
Today Senator Josh Hawley introduced the China Technology Transfer Control Act of 2019 to stop the Chinese military’s acquisition of sensitive American technology and formally admonish China for its predatory trade practices.
 
In recent years, China has aggressively acquired sensitive U.S. technology through intellectual property theft and unfair trade practices. Once China has the technology, it invariably finds its way to the Chinese military.
 
“It’s time to acknowledge that China acts more like an adversary than a friend,” said Senator Hawley. “For too long, China has exploited American innovation to undermine our values and threaten our security. This legislation is an important step toward keeping American technology out of the hands of the Chinese government and its military.”
 
Background
 
In recent years, China has aggressively acquired sensitive U.S. technology to advance its military capabilities through intellectual property theft and unfair trade practices. China seeks to surpass the U.S. in high tech manufacturing through its state-sponsored “Made in China 2025” initiative and has exploited American technology to advance its military capabilities in two major ways:
 
“Trade-Technology-for-Market”
 
– The “Trade-Technology-for-Market” policy requires American companies to form joint ventures Chinese state-owned partners and share strategic technology in order to gain access to the Chinese market. This strategic technology inevitably finds its way to the Chinese military.
 
– A prominent example of this is Google attempting to gain access to the Chinese market by building a censored search engine in partnership with a Chinese company.
 
Working around U.S. laws designed to confront China’s military buildup
 
– China has worked to find and exploit loopholes in American laws designed to protect sensitive American technology from falling into the hands of the Chinese military.
 
– A prominent example of this is a Chinese state-controlled entity renting bandwidth on American satellites that it would be forbidden from purchasing under U.S. law. These satellites could be used to aid China in a military conflict.
 
The China Technology Transfer Control Act of 2019
 
Formally admonishes China for intellectual property theft and manipulation of lawful transfer and uses of technology in ways that directly support its military objectives and threaten the United States.
 
Places all “core technologies” from China’s “Made in China 2025” strategy on the Department of Commerce’s Export Control List.
– Once a technology is placed on the Export Control List, companies must obtain licenses to export that technology to China.
– “Core technologies” include nearly 15 different technologies such as artificial intelligence, robotics, semiconductors, advanced construction equipment and lithium battery manufacturing.
 
Imposes sanctions on foreign entities and individuals that violate these export controls through transfer of these “core technologies” to China.

 

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NWS_a311.
Reuters: “Exclusive: Trump Expected to Sign Order Paving Way for U.S. Telecoms Ban on Huawei” 
 

(Source: Reuters, 15 May 2019.) [Excerpts.]
 
President Donald Trump is expected to sign an executive order this week barring U.S. companies from using telecommunications equipment made by firms posing a national security risk, paving the way for a ban on doing business with China’s Huawei, three U.S. officials familiar with the plan told Reuters.
 
The order, which will not name specific countries or companies, has been under consideration for more than a year but has repeatedly been delayed, the sources said, asking not to be named because the preparations remain confidential. It could be delayed again, they said.
 
The executive order would invoke the International Emergency Economic Powers Act, which gives the president the authority to regulate commerce in response to a national emergency that threatens the United States. The order will direct the Commerce Department, working with other government agencies, to draw up a plan for enforcement, the sources said. … 

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(Source:
Reuters, 14 May 2019.) [Excerpts.]
 
A group of Republican and Democratic U.S. senators introduced legislation on Tuesday seeking sanctions targeting the Nord Stream 2, a planned gas pipeline from Russia to Germany under fire from the United States and some European Union countries.
 
The bill introduced by Republican Senators Ted Cruz, John Barrasso and Tom Cotton and Democrat Jeanne Shaheen, seeks to impose travel and financial sanctions on companies and individuals involved in constructing the pipeline.
 
The legislation reflects continued U.S. concerns over Russian influence in Europe, but the measure is many steps from becoming law. It would need to pass both the Senate and House of Representatives and be signed by President Donald Trump to go into effect.
 
The Nord Stream 2 project is led by the Russian state-owned gas company Gazprom, with funding from Germany’s Uniper and BASF unit Wintershall, Anglo-Dutch firm Shell, Austria’s OMV and France’s Engie. …

 

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(Source:
The Moscow Times, 15 May 2019.)
 
Russia has eased its weapons resale rules to alleviate secondary buyers’ fears of U.S. sanctions, according to an unpublished government decree cited by the Vedomosti business daily Wednesday.
 
Reports found that Russia sold the second-most weapons in 2018 despite five years of declining sales. Countries trading with Russia’s defense and intelligence sectors currently face secondary sanctions under U.S. measures imposed in August 2017 over Moscow’s actions that include alleged election interference.
 
The new decree relaxes export control rules that required secondary arms buyers to inform Russia in writing that it was the final buyer, Vedomosti reported. These countries can now avoid direct contact with Russia by making the primary arms buyer responsible for informing Moscow that the secondary buyer vows not to resell the weapons.
 
“Foreign states voice interest in buying Russian military products but, fearing sanctions, refuse to purchase them,” an explanatory note was quoted as saying.
 
Russia’s relaxed regulations will free up Sub-Saharan African, Latin American and certain Southeast Asian states to purchase small arms and light weapons from Russia without fear of secondary sanctions, according to arms expert Konstantin Makienko.
 
The measures do not target China, India, Egypt, Algeria and Vietnam, which either ignore U.S. sanctions or negotiate exceptions for themselves, Vedomosti cited Makienko as saying.
Last September, the Trump administration imposed sanctions on the Chinese military for buying 10 Su-35 aircraft from Russia.

 

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COMCOMMENTARY

COM_a014
.
D. W. Layton, J. Zhang & T. C. Lee: “U.S. Prepares to Hit All Chinese Imports with Tariffs, as China Retaliates and Launches a Product Exclusion Process” 
(Source: Mayer Brown, 14 May 2019.)
 
* Authors: Duane W. Layton, Esq., dlayton@mayerbrown.com, +1 202 263 3811; Jing Zhang, Esq., jzhang@mayerbrown.com, +1 202 263 3385; and Timothy C. Lee, Esq., tlee@mayerbrown.com, +1 202 263 3055. All of Mayer Brown.
 
On May 13, 2019, the Office of the United States Trade Representative (“USTR”) released a draft Federal Register notice beginning the process to subject virtually all remaining imports from China (the so-called “Tranche IV”) to tariffs pursuant to Section 301 of the Trade Act of 1974. [FN/1] This announcement follows closely on the heels of an announcement by USTR that tariffs on approximately $200 billion worth of imports from China (the so-called “Tranche III”) would increase from 10 to 25 percent. [FN/2] The US government has clarified that Chinese products that were exported to the United States prior to May 10, 2019, are not subject to the increase from 10 to 25 percent as long as they are entered for “consumption” prior to June 1. [FN/3]
 
The May 13 draft notice requests comments on a proposed 25 percent ad valorem duty on additional imports from China, 3,805 products that are collectively valued at approximately $300 billion. [FN/4] A list of the products, organized by tariff subheadings, was included in an annex to USTR’s notice. [FN/5] As expected, the list is comprehensive and includes consumer items such as smartphones, computers and textiles, as well as industrial products such as iron and steel pipes. However, imports of pharmaceuticals, certain pharmaceutical inputs, certain medical devices, rare earth materials and critical minerals are not included in the annex. [FN/6]
 
The draft notice provides details on the deadlines for submitting comments on the proposed tariffs and the schedule for public hearings. Specifically, the deadline for submitting requests to appear at the public hearing, along with a summary of expected testimony, is June 10, 2019. [FN/7] The deadline for submitting written comments is June 17, 2019, when the Section 301 Committee will also convene the public hearing on the proposed tariffs. [FN/8] Any post-hearing rebuttal comments must be submitted seven days after the last day of the public hearing. [FN/9
 
China’s Response to Tranche III
 
For its part, China responded to the US increase in tariffs on Tranche III by announcing on May 13, 2019, an increase in the tariffs applicable to three of the four lists that make up China’s version of Tranche III countermeasures. [FN/10] Specifically, the tariff applicable to (a) List 1 of China’s Tranche III will increase from 10 to 25 percent; [FN/11] (b) List 2 of China’s Tranche III will increase from 10 to 20 percent; [FN/12] and (c) List 3 of China’s Tranche III will increase from 5 to 10 percent. [FN/13] The tariff imposed on US goods appearing on China’s List 4 will remain for the time being at 5 percent. [FN/14] All tariff increases by China will take effect June 1, 2019.
 
List 1 of China’s Tranche III consists of 2,493 tariff codes, covering, inter alia, sheep, horse meat, honey, starch, sugar, mango juice, lime, liquefied natural gas, calcium, sodium sulfate, toluene, methanol, glutamic acid, urea, perfume, lip cosmetics, ophthalmic cosmetics, laser printers and tablets. List 2 of China Tranche III consists of 1,078 tariff codes, covering, inter alia, linseed, vodka, mineral water, toothpaste, plastic toilet seats and covers, toilet paper, rivets, springs, thermal printers, shredders and bearings. List 3 of China Tranche III consists of 974 items, covering, inter alia, frozen sweet corn, roasted peanuts, sodium acetate, first aid kits, electrical blankets, vehicle rearview mirrors, fire extinguishers, painting robots and diapers. List 4 maintained by China consists of 595 tariff codes, covering, inter alia, magnesium chloride, xylitol, ether, fireworks, firecrackers, solar water heaters, parts for oil or gas drilling machines, 3D printers, stethoscopes and dentures.
 
China’s Launch of a Product Exclusion Process
 
Amid all the talk of tariffs and retaliation, the Customs Tariff Commission of China’s State Council announced on May 13, 2019, that the country will soon launch a product exclusion process related to its Section 301 countermeasures. US products covered by China Tranches I – III are eligible for exclusion as long as there is no revocation or suspension in place. Products for which China’s countermeasures (e.g., tariffs) have been revoked or suspended (e.g., certain automobiles and auto parts) are not eligible. [FN/15]
 
For products on China Tranches I [FN/16] and II, [FN/17] the Ministry of Finance will start accepting applications for exclusion on June 3, 2019, with a deadline of July 5. For products on China Tranche III, the process will start on September 2, 2019, with a deadline of October 18.
 
Escalating Trade Tensions
 
The tariff increases announced by the United States and China, together with the release of the proposed US Tranche IV, reflect an escalation of trade tensions between the two countries. Meanwhile, both countries have granted a grace period for their respective tariff increases. As noted previously, the United States exempts Chinese products that were exported prior to May 10, 2019, and entered (or withdrawn) for consumption prior to June 1 from its tariff increase. China’s tariff increases will not take effect until June 1. In addition, whether the United States will actually impose Section 301 tariffs on additional Chinese imports (i.e., those on US Tranche IV) remains a question. President Trump indicated on the same day of the May 13 draft notice that he has yet to make a final decision on that issue. Based on the timeline discussed above, the earliest that US Tranche IV could go into effect would be June 24, 2019, which leaves open the possibility that the two sides could come to an agreement beforehand.
 
Prospects for a trade deal between the two countries remain uncertain. According to Larry Kudlow (director of the US National Economic Council), China has invited US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin for additional talks in Beijing, but neither government has confirmed a date for those talks. [FN/18] President Trump has stated that he will meet with China’s President Xi at the G20 Summit from June 28 to 29 in Osaka, Japan. [FN/19]
 
Takeaways for Business
 
Interested parties should continue to closely monitor developments in this matter and take timely actions to avail themselves of duty avoidance opportunities offered by either side, including participation in the US public comment and/or the Chinese product exclusion process. Additionally, parties that are exploring potential changes to their Chinese production supply chain should carefully consider the complex US customs rules and judicial precedent that govern this area of the law.
 
[FN/1] 19 U.S.C. §§ 2411-2420 (collectively, “Section 301”).
[FN/2] Mayer Brown Legal Update, US Tariff Increase on $200 Billion Chinese Imports Kicks In Today, available here (“Mayer Brown May 10 Legal Update”).
[FN/3] Our May 10 Legal Update explained that “in order to retain the 10 percent rate in this situation, importers will need to follow certain special filing procedures yet to be announced.” US Customs and Border Production (“CBP”) has issued instructions for the special filing procedures. CBP, CSMS #19-000238, UPDATE- Section 301 (Tranche 3) Duties as of May 10, 2019, available here.
[FN/4] USTR, Request for Comments Concerning Proposed Modification of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, available here (“May 13 Draft Notice”).
[FN/5] May 13 Draft Notice at 7.
[FN/6] May 13 Draft Notice at 3.
[FN/7] May 13 Draft Notice at 1.
[FN/8] Id.
[FN/9] Id.
[FN/10] http://gss.mof.gov.cn/zhengwuxinxi/zhengcefabu/201905/t20190513_3256788.html.
[FN/11] List 1 of China Tranche III may be found here.
[FN/12] List 2 of China Tranche III may be found here.
[FN/13] List 3 of China Tranche III may be found here.
[FN/14] List 4 of China Tranche III may be found here.
[FN/15] See here;
[FN/16] China Tranche I may be found here.
[FN/17] China Tranche II may be found here.
[FN/18] Wall Street Journal, China Invites U.S. Negotiators to Continue Trade Talks, White House Economics Adviser Says (May 12, 2019), available here.

[FN/19] Wall Street Journal, Trade Fight Escalates as China Hits U.S. With Higher Tariffs (May 13, 2019), available here.

 

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COM_a115
. M. Miller, B. Murphy & S. Murray: “Recommendations re China Section 301 List 3 Trade Remedy Rate Increase from 10% to 25%” 
 

(Source: Editor, 15 May 2019.)
 
Authors: Marshall Miller, Esq., mmiller@millerco.com; Brian Murphy, Esq., bmurphy@millerco.com, and Sean Murray, Esq., Smurray@millerco.com, all of Miller & Company P.C., Kansas City, MO, (816) 561-4999.
 
The USTR Federal Register notice was published on 9 May 2019, and Customs followed with CSMS message CSMS #19-000236 on the same day.  We have a number of recommendations related to the additional duties which increased on May 10, 2019, for China goods subject to China Section 301 List 3:
 
(1) FTZs provide multiple opportunities to continue to use the 10% rate, not the 25% rate.  
The “exported to the United States” language allows a window of opportunity for in-transit goods at a 10% rate.
(2) PF Status On-Hand Inventory
.  Current FTZ on-hand inventory which is in Privileged Foreign (PF) status with a PF election date before May 10, 2019 will be assessed at the time of Entry Summary with the current 10% rate of duty. 
(3) NPF Status On-Hand Inventory
.  Note the following regarding current FTZ on-hand inventory subject to China Section 301 List 3 which is in Non-Privileged Foreign (NPF) status and is being warehoused only in the FTZ:
(a) For China goods admitted into the FTZ before the September 24, 2018 effective date, clients should file a status change (Admission Type C) e214 to change these goods to Privileged Foreign (PF) status today.
(b) For China goods admitted into the FTZ after the September 24, 2018 effective date, clients should (i) file a status change (Admission Type C) e214 zone to change these goods to Privileged Foreign (PF) status today, and (ii) immediately contact the firm to assist in filing of a Prior Disclosure and Voluntary Notification related to the failure to properly admit the China goods in PF status.
(4) FTZ-Bound China Goods (Exported May 9 or Earlier.)
(a) E214s
.  Special attention should be paid to ensure that the correct “export date” is utilized on the e214 FT 20 record as outlined in the CATAIR.  Clients should consider filing separate CBPF e214s for China Section 301 List 3 goods to better manage these goods.
(b) PF Status CBP Entry Summary Reporting
.  Customs entries must report the date of export at the line level for Privileged Foreign (PF) goods.  Reporting of the date of export is mandatory per entry line in order for CBP to validate eligibility for the 10% duty rate.  Customs is working on programming with an uncertain timetable.  Clients should ensure their FTZ software is able to report date of export from e214s to Entry Summary.
(c) Zone-to-Zone Transfers.  
Date of export information must be obtained from the transferring FTZ for China Section 301 List 3 goods.
(d) NAFTA Duty Deferral.  
The export date must be secured for entry purposes.
(e) Customs Entry.  
The option of Customs entry should be considered for China goods exported May 9 or earlier.

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

COM_a216. M. Volkov: “OFAC Framework for Sanctions Compliance Programs – Testing and Auditing and Training (Part III of IV)” 
(Source: Volkov Law Group Blog, 13 May 2019. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
OFAC’s new Framework for Sanctions Compliance Programs incorporates a number of important principles from Justice Department and US Sentencing Guideline requirements for effective compliance programs.
 
Today, I am going to review the requirements relating to Testing and Audits and Training.
 
Testing and Audits
 
OFAC requires companies to assess the effectiveness of current processes and check for inconsistencies between these and day-to-day operations. A comprehensive and objective testing or audit function within an SCP ensures that an organization identifies program weaknesses and deficiencies, and it is the organization’s responsibility to enhance its program, including all program-related software, systems, and other technology, to remediate any identified compliance gaps. Such enhancements might include updating, improving, or recalibrating SCP elements to account for a changing risk assessment or sanctions environment. Testing and auditing can be conducted on a specific element of an SCP or at the enterprise-wide level.
 
Under this element a company has to implement three specific elements:
 
(1) The organization ensures that the testing or audit function is accountable to senior management, is independent of the audited activities and functions, and has sufficient authority, skills, expertise, resources, and authority within the organization.
(2) The organization employs testing or audit procedures appropriate to the level and sophistication of its SCP and that this function, whether deployed internally or by an external party, reflects a comprehensive and objective assessment of the organization’s OFAC-related risk assessment and internal controls.
(3) The organization ensures that, upon learning of a confirmed negative testing result or audit finding pertaining to its SCP, it will take immediate and effective action, to the extent possible, to identify and implement compensating controls until the root cause of the weakness can be determined and remediated.
 
Training
 
OFAC observed that “[a]n effective training program is an integral component of a successful SCP.” A training program should be “tailored to an entity’s risk profile and all appropriate employees and stakeholders.” Companies have to conduct training for relevant employees and personnel on a periodic basis (and at a minimum, annually).
 
To meet this requirement, companies have to satisfy five basic criteria:
 
(1) An organization ensures that its OFAC-related training program provides adequate information and instruction to employees and, as appropriate, stakeholders (for example, clients, suppliers, business partners, and counterparties). Such training should be further tailored to high-risk employees within the organization.
(2) The organization commits to provide OFAC-related training with a scope that is appropriate for the products and services it offers; the customers, clients, and partner relationships it maintains; and the geographic regions in which it operates.
(3) The organization commits to providing OFAC-related training with a frequency that is appropriate based on its OFAC risk assessment and risk profile.
(4) The organization commits to ensuring that, upon learning of a confirmed negative testing result or audit finding, or other deficiency pertaining to its SCP, it will take immediate and effective action to provide training to or other corrective action with respect to relevant personnel.

(5) The organization’s training program includes easily accessible resources and materials that are available to all applicable personnel.

 

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COM_a317. R. Burke, N. Erb & C. A. DeLelle: “Iran Threatens Partial JCPOA Suspension; US Imposes Sanctions on Certain Iranian Metals Sectors”
 
 
 


* Authors: Richard Burke, Esq., rburke@whitecase.com, +1 202 626 3687; Nicole Erb, Esq., nerb@whitecase.com, +1 202 626 3694; Claire A. DeLelle, claire.delelle@whitecase.com, +1 202 626 6485. All of White & Case LLP.
 
On May 8, 2019, following Iran’s announcement that it intends to suspend certain nuclear proliferation-related commitments under the Joint Comprehensive Plan of Action (JCPOA), the United States issued a new Executive order (EO) imposing sectoral sanctions targeting the Iranian iron, steel, aluminum, and copper sectors. [FN/1] In response, the current parties to the JCPOA (after US withdrawal from the JCPOA precisely one year ago)-including the European Union (EU), China and Russia-reiterated their support for the JCPOA and the importance of avoiding escalation.
 
Hours after Iranian President Hassan Rouhani announced that Iran intends to resume certain nuclear proliferation activities if the remaining parties to the JCPOA [FN/2] do not “fulfil their obligations” under the JCPOA in the next 60 days, the White House and the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions that supplement the existing sanctions provided for in the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA). [FN/3] These new sanctions, which target Iran’s second largest industry sector, were issued exactly one year after the United States’ withdrawal from the JCPOA on May 8, 2018. [FN/4] A White House press statement issued in connection with the new sanctions warns other nations that the United States will not tolerate trade in Iranian industrial metals. [FN/5] As of May 10, 2019, no sanctions have been imposed against specific parties under this EO.
 
Iran announces intent to increase nuclear-related activities following key US sanctions-related actions
On May 8, 2019, the Iranian Ministry of Foreign Affairs announced Iran’s issuance of a statement to certain parties to the JCPOA stating that it may take actions that contravene its nuclear commitments under the JCPOA. [FN/6] As of May 8, Iran announced that it “stops some of its measures under the JCPOA,” specifically measures on stockpiling of enriched uranium and heavy water reserves. Iran further stated that “the remaining [JCPOA] countries will be given sixty days to fulfil their obligations, especially in banking and oil fields. If they fail to meet [Iran’s] demands in the time given, then the Islamic Republic of Iran will suspend compliance with the uranium enrichment limits and measures to modernize the Arak Heavy Water Reactor. Whenever our demands are met, we will resume the same amount of suspended commitments, but otherwise, the Islamic Republic of Iran will suspend the implementation of other obligations step by step.” [FN/7]
 
This development comes days after the United States took several key sanctions-related actions relating to Iran as part of the US campaign of “maximum pressure:” [FN/8]
 
– On May 2, the United States allowed the “Significant Reduction Exception” waivers to expire, which previously allowed China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey to purchase Iranian petroleum and petroleum products without violating the US sanctions reimposed as part of US withdrawal from the JCPOA, among other things. [FN/9]
 
– On May 3, the US State Department announced sanctions targeting the provision of assistance to the expansion of Iran’s Bushehr Nuclear Power Plant and involvement in transferring enriched uranium out of Iran in exchange for natural uranium, and prohibiting the storage of heavy water produced by Iran in excess of current limits. [FN/10] The State Department specifically “permitted” several nonproliferation activities for a renewable “duration” of 90 days, including the redesign of the Arak nuclear reactor to prevent it from becoming a weapons-grade plutonium factory, among other enumerated activities.
 
– Additionally, on May 5, the United States deployed a carrier group and bomber task force to the Persian Gulf in response to indications of an Iranian threat to US operations in the Middle East. [FN/11]
 
New US Executive Order
 
The new EO issued on May 8, “Imposing Sanctions with Respect to the Iron, Steel, Aluminum, and Copper Sectors of Iran,” authorizes:
 
(1) Blocking sanctions on certain persons determined to be involved with Iran’s iron, steel, aluminum, and copper sectors,
 
(2) Correspondent and payable-through account sanctions on foreign financial institutions (FFIs) determined to have knowingly conducted or facilitated certain significant financial transactions involving Iran’s iron, steel, aluminum, and copper sectors.
 
The EO “supplements” existing menu-based sanctions related to steel and aluminum under the IFCA, but does not draw legal authority from the IFCA. IFCA § 1245 authorizes the imposition of five or more menu-based sanctions on persons determined to have knowingly sold, supplied, or transferred to or from Iran, directly or indirectly, graphite, raw or semi-finished metals such as steel and aluminum, coal, and software for integrating industrial processes. [FN/12] The EO is separate and distinct from the IFCA.
 
On May 8, OFAC also issued six Frequently Asked Questions (FAQs) on the new sectoral sanctions. [FN/13] These FAQs state that there is a 90-day wind-down period for taking the necessary steps to wind down transactions that could be sanctioned under the EO. OFAC emphasizes that entering into new business that would be sanctionable under the EO will not be considered “wind down activity” and could be sanctioned during the wind-down period. This 90-day wind-down is not stated in the EO, nor has OFAC issued a general license to that effect as of May 10.
 
These FAQs also clarify that the EO became effective upon signing on May 8, and that the sanctions do not apply to transactions for the conduct of official business of the United States Government or the United Nations-including its specialized agencies, programs, funds, and related organizations-by employees, grantees, or contractors thereof. The inclusion of this exemption is unusual for an EO of this nature, given that such exemptions typically appear in more expansive EOs, such as those instituting trade bans.
 
Blocking Sanctions
 
The EO authorizes designation to the List of Specially Designated Nationals and Blocked Persons (SDN List) and the blocking of the property and interests in property located in the United States or in the possession or control of a US person [FN/14] of any person-including non-US persons-determined by the Secretary of the Treasury in consultation with the Secretary of State:
 
– To operate in the iron, steel, aluminum, or copper sector of Iran;
– To be a person that owns, controls, or operates an entity that is part of the iron, steel, aluminum, or copper sector of Iran; [FN/15]
– To have knowingly engaged in a significant transaction for the sale, supply, or transfer to Iran of significant goods or services used in connection with the iron, steel, aluminum, or copper sector of Iran on or after the date of this EO; and
– To have knowingly engaged in a significant transaction for the purchase, acquisition, sale, transport, or marketing of iron, iron products, aluminum, aluminum products, steel, steel products, copper, or copper products from Iran on or after the date of this EO.
 
Especially relevant for non-US persons are the following two derivative designation grounds, which accompany most blocking sanctions. First, any person determined to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of any person blocked pursuant to the EO may be subject to designation and blocking. In addition, any person deemed to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person blocked pursuant to this EO may be subject to designation and blocking. The EO also prohibits transactions that evade or avoid, have the purpose of evading or avoiding, cause a violation of, or attempt to violate any of the prohibitions set forth in the EO, including any conspiracy to violate any of the prohibitions.
 
Any property of the persons blocked under this EO located in the United States or within the possession or control of a US person, wherever located, are considered blocked. US persons are prohibited from engaging in transactions with such property or interests in property absent a specific license from OFAC, and from engaging in transactions with entities that are owned 50 percent or more in the aggregate, directly or indirectly, by designated persons. The EO also imposes a travel ban on designated individuals by suspending their entry into the United States.
 
FFI Correspondent and Payable-Through Account Sanctions
 
The EO also authorizes sanctions prohibiting the opening of, and prohibiting or imposing strict conditions on maintaining, correspondent accounts or payable-through accounts in the United States by FFIs determined by the Secretary of the Treasury in consultation with the Secretary of State to have knowingly conducted or facilitated any significant financial transactions on or after the date of this EO:
 
– For the sale, supply, or transfer to Iran of significant goods or services used in connection with the iron, steel, aluminum, or copper sector of Iran;
– For the purchase, acquisition, sale, transport, or marketing of iron, iron products, aluminum, aluminum products, steel, steel products, copper, or copper products from Iran; and
– For or on behalf of any person blocked pursuant to this EO.
OFAC could amend the newly-created List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (the CAPTA List) to include any FFIs sanctioned under this EO. [FN/16] The CAPTA List superseded the Part 561 List and includes all FFIs for which the opening or maintaining of a correspondent account or payable-through account in the United States is prohibited or subject to one or more strict conditions pursuant to an enumerated list of US sanctions laws and regulations. [FN/17] At present, the only FFI on the CAPTA List is Bank of Kunlun.
 
Significant transactions, goods and services, and financial transactions
 
For purposes of this EO, OFAC anticipates adopting the interpretation of “significant” set out in the Iranian Financial Sanctions Regulations (IFSR), as used for the IFCA and certain other Executive orders. [FN/18] Under the IFSR, in determining whether specific transactions, financial services, or financial transactions are “significant,” the Department of the Treasury may consider the totality of the facts and circumstances, including a list of eight factors. These factors include:
 
– The size, number, and frequency of transactions and services;
– The nature of such transactions and services, including their type, complexity, and commercial purpose;
– The level of awareness of management and whether the transactions are part of a pattern of conduct;
– The nexus of the transactions and services with blocked persons;
– The impact of the transactions and services on statutory objectives;
– Whether the transactions and services involve deceptive practices; [FN/19]
– Whether the transactions solely involve the passive holdings of Central Bank of Iran (CBI) reserves or repayment by the CBI of official development assistance or the transfer of funds required as a condition of Iran’s membership in an international financial institution; and
– Other relevant factors that the Secretary of the Treasury deems relevant. [FN/20]
International Support for the JCPOA under Pressure
 
The EU, and particularly France, Germany, and the United Kingdom, face a difficult decision given Iran’s threat to contravene certain of its JCPOA commitments, and the United States’ imposition of new sanctions that could target the activity of European economic operators. A general EU statement issued following the Iranian and US developments on May 8 expressed support for the JCPOA, while calling on Iran and the United States to exercise restraint. [FN/21] In a press conference, the UK Foreign Secretary urged Iran not to take further escalatory steps and to adhere to its JCPOA commitments, stating that there would be consequences should Iran cease to observe the JCPOA. [FN/22] However, it is too early to tell at this stage what the potential impact of Iran’s statement could be on EU sanctions, for example, as the JCPOA parties have seemingly so far adopted a “wait and see” attitude.
 
Previously, following the United States’ withdrawal from the JCPOA and re-imposition of sanctions on Iran, the EU responded by updating Council Regulation (EC) No. 2271/96 (the “Blocking Regulation”) in an effort to reduce the impact on Iran and preserve the JCPOA commitments. [FN/23] The updated Blocking Regulation forbids EU natural and legal persons from complying with any requirement or prohibition based on or resulting from any of the statutes and regulations set out in its annex [FN/24] where these apply extraterritorially, unless exceptionally authorized to do so by the European Commission.
 
Also in an effort to give effect to the JCPOA and protect European-Iranian business, France, Germany, and the UK implemented a special purpose vehicle on January 31, 2019, called INSTEX SAS, to enable payments related to “legitimate” trade between European economic operators and Iran that might otherwise be subject to US sanctions. [FN/25] However, the general impact of this mechanism, and especially whether it could help ensure that payments to and from Iran are made despite certain US sanctions imposed on Iran-related financial transactions, remains unclear.
 
China reiterated its support for the JCPOA following the Iranian announcements, stating that the JCPOA should continue to be implemented fully despite the United States’ JCPOA withdrawal. [FN/26] China called on all involved parties to exercise restraint and to engage in discussion to prevent escalation. A Kremlin spokesperson stated on May 8 that Russian President Vladimir Putin sees no alternative to the JCPOA, and expressed Russia’s intention to continue international discussions on these issues. [FN/27]
 
Conclusion
 
The United States advises that it will implement these new sanctions on Iran, which are effective as of May 8, 2019, including by adding offenders to the SDN List and enforcing against prohibited non-wind-down activities during the 90-day wind-down period. Companies involved in business activities related to Iran should carefully consider their obligations under both US and EU law (and any other applicable laws), as the ramifications of these conflicting rules can vary depending on a company’s particular circumstances. Companies considering engaging in Iran-related business should exercise caution to ensure compliance with all applicable sanctions, including sanctions relating to persons designated on the SDN List pursuant to this Executive order. Foreign Financial Institutions face the particular compliance challenge of determining which financial transactions relate to targeted activities.
 
——-
[FN/1] Executive order, Imposing Sanctions with Respect to the Iron, Steel, Aluminum, and Copper Sectors of Iran, available here; OFAC, Recent Action, Issuance of Executive Order of May 8, 2019, “Imposing Sanctions with Respect to the Iron, Steel, Aluminum, and Copper Sectors of Iran,” available here.
[FN/2 ]The current parties to the JCPOA are the so-called “E3/EU+3”, i.e., China, France, Germany, Russia, and the United Kingdom, plus the EU as represented by the High Representative of the EU for Foreign Affairs and Security Policy. The JCPOA has been endorsed at UN level through UN Security Council Resolution 2231.
[FN/3] Iran Freedom and Counter-Proliferation Act of 2012 (IFCA), Pub. L. 112-239.
[FN/4] Our previous alert on the United States withdrawal from the JCPOA is available here.
[FN/5] White House, Statements & Releases, Statement from President Donald J. Trump Regarding Imposing Sanctions with Respect to the Iron, Steel, Aluminum and Copper Sectors of Iran, available here; State Department, Remarks, After the Deal: a New Iran Strategy, available here.
[FN/6] Islamic Republic of Iran Ministry of Foreign Affairs, Latest News, SNSC in a statement addressing nuclear deal parties: Iran stops some of its measures under JCPOA, available here.
[FN/7] Islamic Republic of Iran Ministry of Foreign Affairs, Latest News, SNSC in a statement addressing nuclear deal parties: Iran stops some of its measures under JCPOA, available here.
[FN/8] White House, Fact Sheet, President Donald J. Trump is Cutting Off Funds the Iranian Regime Uses to Support its Destructive Activities Around the World, available here.
[FN/9] State Department, Fact Sheet, Advancing the US Maximum Pressure Campaign on Iran, available here.
[FN/10] State Department, Fact Sheet, Advancing the Maximum Pressure Campaign by Restricting Iran’s Nuclear Activities, available here.
[FN/11] White House, Statements & Releases, Statement from the National Security Advisor Ambassador John Bolton, available here. This deployment was to the US Central Command region, which includes the Persian Gulf.
[FN/12] IFCA § 1245(a)(1)(B-C).
[FN/13] OFAC FAQs 666-671, available here.
[FN/14] US person is defined to include US citizens and permanent resident aliens, wherever located, entities organized under US law (including foreign branches), and individuals and entities located in the United States.
[FN/15] Other OFAC sanctions targeting economic sectors do not include language including “persons that own, control, or operate” entities, such as EO 13661 and 13662 on certain sectors of the Russian economy, and EO 13850 on certain sectors of the Venezuelan economy.
[FN/16] OFAC Press Bulletin, Introduction of the Correspondent Account or Payable-Through Account Sanctions (the “CAPTA List”) and Removal of the List of Foreign Financial Institutions Subject to Part 561 (the “Part 561 List”), available here; OFAC Recent Actions, Introduction of the Correspondent Account or Payable-Through Account Sanctions (the “CAPTA List”) and Removal of the List of Foreign Financial Institutions Subject to Part 561 (the “Part 561 List”), available here.
[FN/17] OFAC Recent Actions, Introduction of the Correspondent Account or Payable-Through Account Sanctions (the “CAPTA List”) and Removal of the List of Foreign Financial Institutions Subject to Part 561 (the “Part 561 List”), available here; OFAC, List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions, available here.
[FN/18] 31 C.F.R. § 561.404; OFAC FAQs 671, 289.
[FN/19] Deceptive practices include attempts to obscure or conceal the actual parties or true nature of the transactions or services, or attempts to evade sanctions. 31 C.F.R. § 561.404(f).
[FN/20] 31 C.F.R. § 561.404; OFAC FAQ 289.
[FN/21] EEAS, Joint statement by High Representative of the European Union and the Foreign Ministers of France, Germany and the United Kingdom on the JCPoA [sic], available here.
[FN/22] State Department, Remarks by Secretary of State, Press Availability with British Foreign Secretary Jeremy Hunt, available here.
[FN/23] Our previous alerts on the EU revisions to the Blocking Regulation are available here and here, and here.
[FN/24] The EU Blocking Regulation annex lists the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA); the Iran Sanctions Act of 1996; the National Defense Authorization Act for Fiscal Year 2012; the Iran Threat Reduction and Syria Human Rights Act of 2012; and the Iranian Transactions and Sanctions Regulations (ITSR) (as well as two statutes containing US sanctions against Cuba).
[FN/25] Our previous alert on INSTEX is available here.
[FN/26] Ministry of Foreign Affairs of the People’s Republic of China, Spokesperson’s Remarks, Foreign Ministry Spokesperson Geng Shuang’s Regular Press Conference on May 8, 2019, available here.

[FN/27] Washington Post, Iran announced it will stop complying with parts of landmark nuclear deal, available here.

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COM_a418. R. Fayhee, O. Dorgans & A.G. Kashdan: “The U.S. Issues New Iran Secondary Sanctions, Placing Europe in the Cross-Fire”
 
 
 
 
 

(Source:
Hughes Hubbard, 13 May 2019.)
 
* Authors: Ryan Fayhee, Esq.,
ryan.fayhee@hugheshubbard.com, +1 (202) 721-4691; Olivier Dorgans, Esq.,
olivier.dorgans@hugheshubbard.com,+33 (0) 1 44 05 79 68, and Alan G. Kashdan,
alan.kashdan@hugheshubbard.com, +1 (202) 721-4630. All of Hughes Hubbard.
 
On May 8, 2019, the Trump Administration announced sanctions against the industrial-metals sector of Iran’s economy, leaving European countries caught in the middle as tensions escalate between the United States and Iran. The new Executive Order, in pertinent part, authorizes secondary sanctions on persons determined to have “knowingly engaged” in “significant transactions” involving Iranian-origin iron, steel, aluminum, or copper, or goods or services used in connection with those sectors of Iran’s economy. The sanctions also include a 90-day period for companies and countries to wind down their business with Iran.
 
The sanctions potentially
i
mpact nearly $5 billion of Iranian exports, which is about 10% of Iran’s total exports. While the new round of sanctions may not be as commercially significant as existing sanctions on the oil industry, it illustrates the United States’ ongoing strategy to apply economic pressure on Iran through a comprehensive and severe sanctions regime. The new round of sanctions is even more sweeping than sanctions imposed on Iran’s metal industry by the United States in the years prior to the 2015 Joint Comprehensive Plan of Action (“JCPOA”), from which the U.S.
withdrew almost exactly one year ago. Further, the new sanctions come only a few weeks after the United States
ended sanctions waivers that had allowed certain countries to continue importing Iranian oil.
 
The sanctions come on the same day that Iranian President Hassan Rouhani announced that Iran would begin walking away from its commitments under the JCPOA if it did not receive relief from severe U.S. sanctions in the next 60 days. President Rouhini warned that, without assistance from European countries still party to the agreement, Iran would disregard the 3.67% cap on uranium enrichment established by the JCPOA and possibly resume construction of the Arak nuclear reactor.
 
In the months leading up to Iran’s ultimatum, European countries
have tried to rescue the JCPOA and find a mechanism to bypass U.S. sanctions in Iran, but European companies are reluctant to risk the steep fines imposed by the United States if they violate sanctions. Europe has also
consistently opposed the U.S. withdrawal from the JCPOA and imposition of unilateral sanctions. The European Union has repeatedly emphasized its commitment to the JCPOA, recently issuing a
press release disapproving of the United States’ re-imposition of sanctions. However, even though the EU’s objective is to preserve the deal, EU leaders
have rejected President Rouhani’s ultimatum and have urged Iran to continue adhering to the terms of the agreement.
 
Through these increasingly severe and broad sanctions, the United States aims to apply maximum pressure on Iran to meet a
variety of demands, including dismantling its uranium enrichment programs, halting Iran’s military support for the Houthi militia, ceasing support to paramilitary groups, and recognizing the sovereignty of Iraq. According to
some experts, Iran might incrementally breach its commitments in the JCPOA but not fully withdraw, potentially giving the country more leverage for a future deal if there is a new U.S. president after 2020. If Iran does pursue that strategy, the Trump Administration could respond with additional measures to further isolate Iran from the world economy.

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_1
19
. FCC Presents “The ABC of FMS”, 28 Nov in Bruchem, the Netherlands

 
This training course is specifically designed for compliance professionals and those in a similar role working for government agencies or companies (temporarily) obtaining U.S. export-controlled articles and technology procured through government-to-government Foreign Military Sales (FMS), and authorized by the Arms Export Control Act (AECA) (22 U.S.C. 2751,
et. seq.).
 
The course will cover multiple topics relevant for organizations outside the U.S. working with U.S. export-controlled articles and technology procured through FMS, including: the U.S. regulatory framework, with a special focus on the AECA, key concepts and definitions, and practical compliance tips to ensure the proper handling of FMS-acquired articles and technology. Participants will receive a certification upon completion of the training.
 
Details
* What: The ABC of Foreign Military Sales (FMS)
* When: Thursday, 28 Nov 2019
– Welcome and Registration: 9.00 am – 9.30 am
– Training hours: 9.30 am – 4.00 pm
* Where: Full Circle Compliance, Landgoed Groenhoven, Dorpsstraat 6, Bruchem, the Netherlands
* Information & Registration:
here or contact FCC at
events@fullcirclecompliance.eu or + 31 (0)23 – 844 – 9046
* This course can be followed in combination with “U.S. Export Controls: The International Traffic in Arms Regulations (ITAR) from a non-U.S. Perspective” (26 Nov 2019), and/or “U.S. Export Controls: The Export Administration Regulations (EAR) from a non-U.S. Perspective” (27 Nov 2019). Please, see the
event page for our combo deals.

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ENEDITOR’S NOTES

EN_a120
. Bartlett’s Unfamiliar Quotations

(Source: Editor)

 

* L. Frank Baum (Lyman Frank Baum; May 15, 1856 – May 6, 1919; was an American author chiefly famous for his children’s books, particularly The Wonderful Wizard of Oz and its sequels. He wrote 14 novels in the Oz series, plus 41 other novels, 83 short stories, over 200 poems, and at least 42 scripts for plays.)
– “I can’t give you a brain, but I can give you a diploma.”
 
* Katherine Anne Porter (15 May 15, 1890 – 18 Sep 1980; was an American journalist, essayist, short story writer, novelist, and political activist. Her 1962 novel Ship of Fools was the best-selling novel in America that year, but her short stories received much more critical acclaim. She is known for her penetrating insight; her work deals with dark themes such as betrayal, death and the origin of human evil.)
– “I shall try to tell the truth, but the result will be fiction.”

 

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EN_a223. 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.
 

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DHS CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199.  Implemented by Dep’t of Homeland Security, U.S. Customs & Border Protection.
  – Last Amendment: 5 Apr 2019:
 
5 Apr 2019: 84 FR 13499-13513: Civil Monetary Penalty Adjustments for Inflation
 

DOC EXPORT ADMINISTRATION REGULATIONS (EAR)
: 15 CFR Subtit. B, Ch. VII, Pts. 730-774. Implemented by Dep’t of Commerce, Bureau of Industry & Security.

  – Last Amendment: 14 May 2019:
84 FR 21233-21238: Addition of Certain Entities to the Entity List, Revision of an Entry on the Entity List, and Removal of an Entity From the Entity List

 
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DOC FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30.  Implemented by Dep’t of Commerce, U.S. Census Bureau.
  – Last Amendment: 24 Apr 2018: 
83 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 (1 Jan 2019) 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 
website
.  BITAR 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
.  
 

DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM)
: DoD 5220.22-M. Implemented by Dep’t of Defense.
  – 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
.) 
 

DOE ASSISTANCE TO FOREIGN ATOMIC ENERGY ACTIVITIES
: 10 CFR Part 810; Implemented by Dep’t of Energy, National Nuclear Security Administration, under the Atomic Energy Act of 1954.
  – Last Amendment: 23 Feb 2015:

80 FR 9359
, comprehensive updating of regulations, updates the activities and technologies subject to specific authorization and DOE reporting requirements. This rule also identifies destinations with respect to which most assistance would be generally authorized and destinations that would require a specific authorization by the Secretary of Energy.
 

DOE EXPORT AND IMPORT OF NUCLEAR EQUIPMENT AND MATERIAL
; 10 CFR Part 110; Implemented by Dep’t of Energy, U.S. Nuclear Regulatory Commission, under the Atomic Energy Act of 1954.
  – Last Amendment: 20 Nov 2018, 10 CFR 110.6, Re-transfers.
 
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DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War.  Implemented by Dep’t of Justice, Bureau of Alcohol, Tobacco, Firearms & Explosives.
  – Last Amendment: 14 Mar 2019:
 
84 FR 9239-9240
: Bump-Stock-Type Devices
 

DOS INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR)
: 22 C.F.R. Ch. I, Subch. M, Pts. 120-130. Implemented by Dep’t of State, Directorate of Defense Trade Controls.
  – Last Amendment: 19 Apr 2019: 84 FR 16398-16402: International Traffic in Arms Regulations: Transfers Made by or for a Department or Agency of the U.S. Government 
  – 
The only available fully updated copy (latest edition: 19 Apr 2019) of the ITAR with all amendments is contained in 
Bartlett’s Annotated ITAR 
(“BITAR”), by James E. Bartlett III. The BITAR is a 361-page Word document containing 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 download, 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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 DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders. Implemented by Dep’t of Treasury, Office of Foreign Assets Control.

  – Last Amendment: 29 Apr 2019:
84 FR 17950-17958: Foreign Interference in U.S. Elections Sanctions Regulations [amendment of 31 CFR Part 579 to implement EO 13848]

  
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USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA), 1 Jan 2019: 19 USC 1202 Annex. Implemented by U.S. International Trade Commission. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment:
13 May 2019: Harmonized System Update (HSU) 1907

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EN_a324
. Weekly Highlights of the Daily Bugle Top Stories
(Source: Editor)
 

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

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* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Vincent J.A. Goossen and Alex Witt; and Events & Jobs Editor, Sven Goor. The Ex/Im Daily Update is emailed every business day to approximately 7,000 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.

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

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