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20-0409 Thursday 9 April 2020

20-0409 Thursday “Daily Bugle”

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Thursday, 09 April 2020

[No items of interest today.] 

  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC Announces DECCS Tips and Tricks WEBINAR
  4. Treasury/OFAC: Implements the Federal Civil Penalties Inflation Adjustment Act
  5. UK ECJU Updates Guidance on Compliance Checks for Open Licences
  6. UK ECJU Publishes Notice to Explain How Processing Licence Applications During Coronavirus
  1. Export Compliance Daily: “Global Export Controls Updates”
  2. STR: “Exports of Some Personal Protective Equipment to Require DHS Approval”
  1. Baker McKenzie: “FEMA Implements Export Restrictions on Certain PPE Products, with Immediate Effect”
  2. Hogan Lovells: “EU Suspends Tariffs on Medical Equipment”
  3. Kirkland & Ellis: “President Trump Invokes Defense Production Act to Halt Certain Exports”
  4. Torres Law: “What to Know about CBP Export Seizures”
  5. Wilmer Hale: “Federal Government Identifies Products as Scarce Materials Subject to Compelled Production and Distribution under the Defense Production Act”
  1. ECTI Presents: COVID-19 Outbreak: Anticipating the Unpredictable and What This Means for the Export World Webinar: April 16, 2020
  1. Bartlett’s Unfamiliar Quotations
  2. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here.
  3. Weekly Highlights of the Daily Bugle Top Stories
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  5. Submit Your Event and View All Approaching Events

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EXIMITEMS FROM TODAY’S FEDERAL REGISTER

 

[No items of interest today.] 

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

OGSOTHER GOVERNMENT SOURCES

OGS_a11.
Items Scheduled for Future Federal Register Editions 
(Source: Federal Register)
 

* Commerce/BIS; NOTICES; MEETINGS; Sensors and Instrumentation Technical Advisory Committee; NOTICES; [Pub. Date: 10 Apr 2020]
 
* Trade Representative/USITC; NOTICES;
Product Exclusion Extensions; China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation; [Pub. Date: 10 Apr 2020]
 
* Treasury/OFAC; RULES; North Korea Sanctions Regulations; [Pub. Date: 10 Apr 2020]

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

OGS_a22. 
Commerce/BIS: (No new postings.)

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

OGS_a3
3
.

State/DDTC Announces DECCS Tips and Tricks WEBINAR

(Source: State/DDTC)
 
Now that DECCS is deployed, find out the tips and tricks to get your company set up for success in the new system. We will go over commonly asked questions, best practices and there will be plenty of time for Q&A.
 
Topics to be discussed:
 
– Updates to Enrollment process & User Management applications
 
– Registration Renewal and Amendment processes
 
– Setting up License Groups
 
– Signing a License as an Empowered Official
 
Login Details are below:
 
Date: April 16th, 2020
 
Time: 2:00 pm – 3:00 pm EST
 
WebEx: Click Here
 
Important – If password is required when entering WebEx, type ‘census’.
 
Dial in for audio: 1-888-469-3185
 

Passcode: 1 6 0 5 2 6 0

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

(Source: Treasury/OFAC, 8 Apr 2020)
 
The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is amending its regulations to implement for 2020 the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 and the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. This regulatory amendment adjusts for inflation the maximum amount of the civil monetary penalties that may be assessed under relevant OFAC regulations. This regulatory amendment is currently available for public inspection with the Federal Register and will take effect upon publication in the Federal Register on Thursday, April 9, 2020.

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

(Source: UK ECJU, 9 Apr 2020) [Excertps] 
 
Notice to Exporters 2020/08 outlined the measures the Export Control Joint Unit (ECJU) is taking to ensure there will be minimum disruption to the export licence application process, as well as the advice we provide during the coronavirus (COVID-19) crisis.
 
We explained that remote compliance checks would be carried out and have been contacting exporters to inform you of these new arrangements.
 
We understand this is a difficult time for exporters. We will take as pragmatic an approach as possible when undertaking remote compliance checks, within the framework of export control legislation.
 
Details of our changes and further clarification can be found in Changes and further clarification on ECJU’s remote compliance checks, which has been published alongside this notice.

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

(Source: UK ECJU, 9 Apr 2020) [Excerpts]
 
Introduction
As the coronavirus (COVID-19) outbreak has led to more remote working for both Export Control Joint Unit (ECJU) staff and exporters alike, this is affecting the ability to manage export licence applications and supporting documentation.
 
We are aware that it is important for you to maintain business operations across the supply chain, including the requirement to ensure export licence approvals are in place. With many employees working from home, there may be constraints on your ability to process export licence documentation consistently.
 
You, your overseas customers and UK suppliers may all be experiencing difficulties in sending and receiving original documents by the post, making it difficult for you to comply with:
 
(i)
supplying ‘wet signatures’ on end user undertakings and similar documents
(ii)
obtaining supporting documentation to respond to requests for further information (RFIs).
 
Interim arrangements
 
The following arrangements will stay in place until further notice:
 
(1)
the response time for RFIs has been increased from 20 to 40 working days
 
(2)
we do not require exporters to obtain original copies of end user and stockist undertakings – we will accept digital/electronic signatures on supporting documentation (including pdf versions of end user undertakings and stockist undertakings)
 
(3)
for exporting firearms and ammunition to EU member states, we are amending the
EC3
and EC4 forms on GOV.UK to an ‘unlocked’ Word document to enable us to add the details in box 9 and 10 electronically – we will email the completed
signed/stamped EC3, but you will not receive a hard copy by post
(4)
you should upload Word versions of EC3 and EC4 forms into SPIRE, not PDFs
(5)
for dual use goods located in another EU member state, and for which we are required to consult those licensing authorities, we will no longer be issuing a hard copy of the licence for presentation to EU member state’s customs – print a copy of the licence from
SPIRE
(with the green tick) for presentation.
 
We will accept the following types of electronic signatures:
 
(a)
simple electronic signatures – these include scanned signatures and tick box, plus declarations
 
(b)
advanced electronic signatures – these are uniquely linked to the signatory, are capable of identifying the signatory, and are linked to data within the signature that can detect any changes made
 
(c)
qualified electronic signatures – an advanced electronic signature created by a qualified electronic signature creation device, based on a qualified certificate for electronic signatures
 

Please also see notice to exporters 2020/08 for further information on export licence handling and notice to exporters 2020/07 about temporary closure of the classroom based training courses. 

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

COMNEWS

NWS_a17. Export Compliance Daily: Global Export Controls Updates”
(Source: 
Export Compliance Daily, 9 Apr 2020) [Excerpts]

China plans to upgrade its online declaration system to allow companies to more easily apply for tariff exemptions for imported U.S. goods, according to an April 7
report
  from Xinhua, China’s state-run news agency. The online system will allow companies to more conveniently submit their “procurement plans” and allow authorities to better process exemption applications, Xinhua said. The system will especially help applications “involving a procurement amount of less than 3,000 U.S. dollars or when the time of import approached,” the report said. …

 
Cuba was unable to receive a recent shipment of medical supplies due to U.S. sanctions, according to an April 3 press release from Cuba’s ambassador to China. Cuba said a U.S. transport company hired to make the delivery on behalf of a donor rejected the shipment “at the last minute” due to “the economic, commercial, and financial blockade” against Cuba. …

NWS_a28. STR: “Exports of Some Personal Protective Equipment to Require DHS Approval”
(Source: Sandler, Travis & Rosenberg, 9 Apr 2020) [Excerpts]
 

The Department of Homeland Security has issued a temporary rule that prohibits exports of the following types of personal protective equipment being used to treat COVID-19 without explicit approval by the Federal Emergency Management Agency:
   – N95 filtering facepiece respirators, including devices that are disposable half-face-piece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth of the wearer to help reduce wearer exposure to pathogenic biological airborne particulates

   – other filtering facepiece respirators (e.g., those designated as N99, N100, R95, R99, R100, P95, P99, or P100), including single-use, disposable half-mask respiratory protective devices that cover the user’s airway (nose and mouth) and offer protection from particulate materials at an N95 filtration efficiency level
   – elastomeric, air-purifying respirators and appropriate particulate filters/cartridges
   – PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials
   – PPE gloves or surgical gloves, including those defined at 21 CFR 880.6250 (exam gloves) and 878.4460 (surgical gloves) and such gloves intended for the same purposes.


This rule became effective April 7 and will remain in force until Aug. 8. …
DHS states that before any shipments of these materials may leave the U.S., U.S. Customs and Border Protection will detain the shipment temporarily, during which time FEMA will determine whether to return for domestic use, issue a rated (purchase) order for, or allow the export of part or all of the shipment. FEMA will make such determinations within a reasonable time of being notified of an intended shipment and will endeavor to minimize disruptions to the supply chain. …

COMCOMMENTARY

COM_a19. Baker McKenzie: “FEMA Implements Export Restrictions on Certain PPE Products, with Immediate Effect”
(Source: Baker McKenzie Blog, 8 Apr 2020) (Excerpts)

* Principal Author: Kerry B. Contini, Esq., Baker McKenzie Law

On Tuesday, April 7, 2020, the Federal Emergency Management Agency (“FEMA”) filed a 
temporary final rule
 (“Rule”) in the Public Inspection issue of the 
Federal Register
 to establish export restrictions on certain types of personal protective equipment products (“PPE Products”) used in the response to the COVID-19 pandemic.  The Rule implemented the order via Presidential Memorandum (“
Order
“) dated April 3, 2020, in which the President directed the US Department of Homeland Security, of which FEMA is a part, to take action under the Defense Production Act (“DPA”) to prevent diversion of the needed materials overseas (see our blog post on that development 
here
). 

Is the Rule Effective Now?
Yes.  Although the rule will not be published in the 
Federal Register
 until this Friday, April 10, it became effectively immediately upon filing in the Public Inspection issue.  The Rule will remain in effect for 120 days from its publication, i.e., until August 8, 2020.
 
Which PPE Products are Subject to the Rule?
The PPE Products covered by the Rule are the same as those addressed in the Order.  They are 5 of the 15 categories of materials that had been identified as “scarce or threatened materials” by the US Department of Health and Human Services (“HHS”) in a 
notice 
issued on March 25, 2020.  Specifically, the PPE Products are: 

 
(1) N-95 Filtering Facepiece Respirators, including devices that are disposable half-face-piece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth of the wearer to help reduce wearer exposure to pathogenic biological airborne particulates;
(2) Other Filtering Facepiece Respirators (e.g., those designated as N99, N100, R95, R99, R100, or P95, P99, P100), including single-use, disposable half-mask respiratory protective devices that cover the user’s airway (nose and mouth) and offer protection from particulate materials at an N95 filtration efficiency level per 42 CFR § 84.181;
(3) Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges;
(4) PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials; and

(5) PPE gloves or surgical gloves, including those defined at 21 CFR § 880.6250 (exam gloves) and § 878.4460 (surgical gloves).

 
As noted in our previous blog post, the Order (and thus the Rule) does not include the other materials that HHS has identified as “scarce or threatened materials,” which could be targeted in future actions.  That includes, among other things, drug products with the active ingredient chloroquine or hydroxychloroquine HC1; ventilators and related materials; certain sterilization services; certain sanitizing and disinfecting products; and medical gowns or apparel.   
Is the Export of the PPE Products Now Prohibited?
Not necessarily, but all shipments of the PPE Products will be temporarily detained by US Customs and Border Protection so that FEMA can determine whether to:  (1) return the shipment for domestic use (i.e., prohibit the export); (2) issue a rated order under the DPA (i.e., FEMA would place an order to purchase the products itself, and the seller would be required to prioritize FEMA’s order); or (3) allow the export of part or all of the shipment.
In reaching a determination about a particular shipment, the Rule states that FEMA will consider the totality of the circumstances, including the following factors:
(1) the need to ensure that scarce or threatened items are appropriately allocated for domestic use;
(2) minimization of disruption to the supply chain, both domestically and abroad;
(3) the circumstances surrounding the distribution of the materials and any potential hoarding or price-gouging concerns;
(4) the quantity and quality of the materials;
(5)
 
humanitarian considerations; and
(6) international relations and diplomatic considerations.
Who Must Comply with the Rule?
Anyone involved in an export of PPE Products from the United States must comply with the Rule.  This includes manufacturers, brokers, distributors, exporters, and shippers. 
Is There Grandfathering of Preexisting Contracts?
There is a narrow exemption for shipments by or on behalf of US manufacturers with continuous export agreements with customers in other countries since at least January 1, 2020.  However, this exemption only applies to US manufacturers with a track record of distributing at least 80% of their supply of the PPE Products, on a per item basis, in the United States during the 12 months.  The Rule notes that FEMA may develop additional guidance about this exemption, encouraging manufacturers to contact FEMA with specific information about their status under the exemption.
 
What are the Penalties for Violations?
Section 103 of the DPA provides for monetary penalties of up to $10,000 and/or imprisonment for no more than one year.  In addition, under 18 U.S.C. § 554, anyone who fraudulently or knowingly exports anything from the United States contrary to US law, or who facilitates such a transaction, can face fines and/or up to 10 years’ imprisonment.
 
The US Government may issue further guidance about these DPA developments in the coming days.

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

COM_a210.
Hogan Lovells: “EU Suspends Tariffs on Medical Equipment”

(Source: Hogan Lovells, 8 Apr 2020)
 
* Principal Author: Lourdes Catrain, Esq., 32-2-505-0933, Hogan Lovells
 
Following requests from numerous Member States, on 3 April the European Commission (“Commission“) adopted Commission Decision (EU) 2020/491 (“the Decision“), which provides for relief from import duties and VAT for goods imported in the EU to combat the COVID-19 outbreak.  Although the Decision does not include a specific list of covered products, it would likely cover items such as personal protective equipment (e.g., protective spectacles and visors, face shields, mouth-nose-protection equipment, protective garments and gloves), and other items to treat the pandemic, including testing kits, ventilators and other medical equipment. Several Member States had already waived customs duties and VAT for such items.
 
The Decision allows Member States to grant an exemption from import duties and VAT to imported goods that fulfil the following conditions:
 
(1) They are intended for (i) distribution free of charge by State organisations, including State bodies, public bodies and other bodies governed by public law or by or on behalf of organisations approved by the competent authorities in the Member States (“State bodies“) to persons affected by or at risk from COVID-19 or involved in combating COVID-19 (“affected persons“); or (ii) are made available free of charge to affected persons while remaining the property of State bodies.
 
(2) They satisfy certain requirements set out in prior EU legislation allowing import duties and VAT relief in cases of disasters (Council Regulation (EC) No 1186/2009 setting up a Community system of reliefs from customs duty; and Council Directive 2009/132/EC determining the scope of Article 143(b) and (c) of Directive 2006/112/EC as regards exemption from VAT on the final importation of certain goods).
 
(3) They are imported for release for free circulation by or on behalf of (i) State bodies or (ii) disaster relief agencies to meet their needs during the period they provide disaster relief to affected persons.
 
The duty relief applies to imports from 30 January 2020 and will be valid until 31 July 2020, unless further extended.

COM_a311
Kirkland & Ellis: “President Trump Invokes Defense Production Act to Halt Certain Exports”

(Source: Kirkland & Ellis, 8 Apr 2020)
 
* Principal Authors: Mario Mancuso, Esq., 1-202-389-5070, Kirkland & Ellis LLP
 
On April 3, President Trump issued a memorandum directing the Secretary of Homeland Security (“DHS”) to “allocate to domestic use” certain types of personal protective equipment (“PPE”) previously identified as scarce by the Secretary of Health and Human Services (“HHS”). The presidential action was issued under the authority of the Defense Production Act (“DPA”), marking the latest in a series of such measures, as the Administration turns to activating a law that confers broad authority. Medical device companies, PPE companies, suppliers to such industries and companies with the capability to produce such items should closely monitor the President’s use of the DPA going forward and consider how their commercial and international contracts could be affected.
 
The View from Washington
The DPA broadly empowers the President to take extraordinary measures to secure the supply of critical items in order to promote the national defense. Since first invoking the DPA on March 18, 2020, to shore up domestic supply of critical items in the face of the COVID-19 crisis, President Trump has issued five executive actions under the DPA, addressing hoarding of supplies, ventilator production and exports of PPE, with the various actions delegating certain responsibilities to the HHS and DHS Secretaries and, in certain cases, calling for certain actions regarding particular companies.
 
In its use of the DPA, the Trump Administration may seek to chart a measured course, given its stated preference for private sector solutions and industry concerns about the U.S. government assuming “command economy” authority over U.S. companies. However, with leaders in Congress and many commentators calling on the President to make full use of his powers under the DPA to help secure the domestic supply chain, it seems reasonable to expect further use of the DPA in response to the pandemic. Given the fast-moving nature of efforts to support the public health system in responding to a surge in outbreaks of the coronavirus, DPA directives are apt to occur with little notice and with immediate effect.
 
Presidential Powers Authorized Under the DPA
The DPA, enacted in 1950 during the Korean War, grants far-reaching powers to the President to intervene in the civilian economy to promote the national defense. Specifically, the DPA empowers the President to:
 
(1) order that government contracts take priority over other contracts with respect to designated “scarce and critical” materials;
(2) allocate materials, services and facilities as appropriate to promote the national defense;
(3) prohibit the hoarding of scarce materials;
(4) implement wage and price controls (only with authorization of a joint resolution of Congress);
(5) authorize loan guarantees for financing extended to contractors supplying essential services;
(6) provide for loans related to the production of essential materials; and
(7) install equipment at, or provide for the modification or expansion of, privately owned plants.
 
Though the DPA is the statutory basis for review of foreign investments by the Committee on Foreign Investment in the United States (“CFIUS”) – which in recent years has taken on increased importance and intensity – subsequent to the Cold War, the DPA has only been seldom used on a targeted basis.
 
President Trump Executive Actions Under the DPA
On March 13, President Trump declared a national emergency with respect to COVID-19, which laid the groundwork for using the authority of the DPA. Since then, President Trump has taken the following actions with respect to the DPA, currently culminating in what amounts to an export ban on items such as N-95 masks and certain PPE masks and gloves:
 
Actions on Items and Companies
March 18
: Issued an executive order identifying “health and medical resources needed to respond to the spread of COVID-19,” including PPE and ventilators, as scarce and critical materials under the DPA, and delegating DPA powers with respect to such materials to the Secretary of HHS.
March 27
: Issued a memorandum directing the Secretary of HHS to require General Motors to prioritize contracts for ventilators as deemed appropriate by the Secretary.
April 2
: Issued a memorandum directing the Secretary of HHS, in consultation with the Secretary of DHS, to take action under the DPA to facilitate the supply of materials to General Electric, Hill-Rom Holdings, Medtronic, ResMed, Royal Philips N.V. and Vyaire Medical for use in the production of ventilators.
April 2
: Issued a memorandum directing the Secretary of DHS to use the DPA to acquire N-95 respirators.
 
The PPE Export Ban
On April 3, President Trump issued a memorandum directing the Secretary of DHS, in consultation with the Secretary of HHS, to use the DPA to “allocate to domestic use” N-95 facepiece respirators, other filtering facepiece respirators, elastomeric air-purifying respirators and related filters and cartridges, PPE surgical masks and PPE gloves or surgical gloves. The memorandum noted:
 
To ensure that these scarce or threatened PPE materials remain in the United States for use in responding to the spread of COVID-19, it is the policy of the United States to prevent domestic brokers, distributors, and other intermediaries from diverting such material overseas.
 
The April 3 memorandum appears to essentially impose an export ban with respect to the identified PPE items. Ordinarily, the U.S. Department of Commerce, Bureau of Industry and Security has authority to control the export of identified “dual-use” items, historically including those considered to be in “short supply.” Though it is not entirely clear how the export ban on PPE items under the DPA will be implemented, pursuant to the authority delegated by the President under the memorandum, DHS in turn may have authority to issue orders to companies prohibiting export of the identified PPE items, and to interdict outgoing shipments.
 
Key Takeaways
(1) It is reasonable to expect continued use of the DPA in response to the COVID-19 pandemic.
(2) The Trump Administration’s approach thus far indicates that the Administration will make use of the DPA not only to designate and allocate critical items, but also will issue orders to, or relating to, specific companies.
(3) Though it remains to be seen how the recent export restrictions regarding PPE will be implemented, future DPA memoranda could identify additional critical items and related components and impose further export restrictions.

(4) Companies should carefully monitor their distribution and fulfillment chains, as the U.S. government is likely to scrutinize where and how health and medical products are being sold. 

COM_a412.
Torres Law: “What to Know About CBP Export Seizures”

(Source: Torres Law, 5 Apr 2020) [Excerpts]
 
* Principal Author: Derrick Kyle, Esq., 1-214-295-8473, Torres Law PLLC
 
Regular readers of our newsletter, and those familiar with U.S. import and export regulations, know that U.S. Customs and Border Protection (“CBP” or “Customs”) generally enforces the U.S. import regulations, while multiple executive government agencies administer regulations related to the export of goods. Such agencies include, but are not limited to, the Department of Commerce Bureau of Industry and Security (“BIS”), the Department of State Directorate of Defense Trade Controls (“DDTC”), the Department of the Treasury Office of Foreign Assets Control, the Drug Enforcement Agency, and the Census Bureau.
 
However, CBP also enforces export regulations at the country’s ports, which can lead to a situation that every exporter hopes to avoid: the seizure by CBP of export merchandise. These seizures can be prompted by violations of regulations administered by multiple agencies and can range from egregious violations of U.S. sanctions laws to forgetting to cite a license or license exception in the Electronic Export Information (“EEI”) of an export shipment.
 
In July 2019, CBP updated its Mitigation Guidelines (the “Guidelines”), specifically the section related to forfeiture remission for export seizures. [FN/1] When property is seized by Customs, interested parties may submit an administrative petition, requesting remittance of the forfeiture and the return of the merchandise. Customs is not required to grant relief in any specific case, but, if CBP does decide to grant relief, it can consult the Guidelines, which include a change in remittance payment structure.
 
To “remit forfeiture,” the exporter typically must pay a “forfeiture remission amount” to have the merchandise released from seizure. Under the Guidelines, the remission amount is a percentage of the value of the merchandise, similar to the structure for the seizure of imports.
 
CBP also abandoned its previous distinction between technical violations and substantive violations of export regulations. The new guidelines acknowledge a difference between License Violations and Non-License Violations, with a recommendation that License Violations should generally necessitate a remission on the higher end of the range of amounts, which range from 10% to 80% of the value of the merchandise.
 
The Guidelines also provide a description of several mitigating and aggravating factors that should be considered when CBP determines the remission amount. The mitigating factors listed by CBP include:
(1) 
Inexperience of the exporter;
(2) 
Prior good record;
(3) 
Voluntary disclosure of the violation to CBP and/or the other concerned agency;
(4) 
Violation caused by the action of another party;
(5) 
Exceptional cooperation with CBP or other agency officials;
(6) 
Evidence of remedial measures;
(7) 
Substantial assistance in the investigation of another person; and

(8)
 P
resence of an active export compliance program. 

 
Aggravating factors include:
(1) 
Related criminal conviction;
(2) 
Intentional violation;
(3) 
Pattern of violations;
(4) S
everal violations in the same export transaction;
(5) 
Multiple violations in previous three-year period;
(6) 
Pattern of disregard of export responsibilities; and
(7) 
Lack of an active export compliance program.

 
The Guidelines provide clarity as to CBP’s actions once export merchandise is seized by the agency, but the underlying truth is that many exporters do not realize CBP’s ability to detain and seize export goods and often think of Customs as only an import agency. An exporter may not be aware of CBP’s enforcement of export regulations until the exporter receives a notice of seizure from Customs.
 
Exporters are generally used to dealing with BIS, DDTC, or other agencies with export responsibility after receiving notice of an audit of their historical EEI or questions related to a particular export months after the export occurred (see our previous article, The STA License Exception by the Numbers, regarding BIS audits of Strategic Trade Authorization exports). Those circumstances, while not ideal, allow for the exporter to gather documentation to provide to the export agency and file a voluntary self-disclosure if necessary, sometimes before suffering any negative economic impact. When products are seized, though, the exporter will likely incur storage and appraisal costs at the very least.
 
Customs has always had this tool available for investigating exports, but it may be using it more frequently these days based on the availability of electronic information for auditing through the Automated Export System.
 
The best strategy to prevent seizure for export violations is an optimized export compliance program to prevent violations – whether of the license or non-license variety – from occurring in the first place. As stated above, having an export compliance program is a mitigating factor and not having a program is an aggravating factor when Customs reviews seizure petitions for relief.
 
If export merchandise is detained, it’s important to attempt to sort the issue out as soon as possible, potentially before CBP seizes the shipment, which will trigger the need for a petition for relief and further complicate issues. In some cases, CBP may coordinate with the exporter after detention but prior to seizing the property. . . .
 
[FN/1] Mitigation Guidelines: Export Control Seizures, U.S. Customs and Border Protection (July 2019), available here.

COM_a513Wilmer Hale: “Federal Government Identifies Products as Scarce Materials Subject to Compelled Production and Distribution Under the Defense Production Act”

(Source: Wilmer Hale, 8 Apr 2020)
 
* Principal Author: Alejandro Mayorkas, Esq., 1-202-663-6221, Wilmer Cutler Pickering Hale and Dorr LLP
 
The Trump Administration has remained hesitant to exercise compulsory powers under the Defense Production Act (DPA), preferring to engage in negotiations with companies to encourage increased production of goods needed for COVID-19 response through a number of formal and informal channels.  But the last two weeks have seen a number of noteworthy developments in the Administration’s supply chain efforts, including use of the DPA. 
 
On March 25, 2020, the Secretary of Health and Human Services (HHS) identified 15 categories of products as “scarce materials or materials the supply of which would be threatened by” improper accumulation, paving the way for the federal government to issue orders under the DPA compelling companies to give priority in the production and distribution of these products to the government or to government-designated recipients. The President has already directed the issuance of DPA orders to eight companies for ventilators and N-95 masks. Companies that manufacture products in any of the 15 designated categories or components needed for their production, and organizations, including hospital and other medical facilities, that use these products should be prepared in case the government issues further orders seeking to control their manufacture and distribution.   
 
The designated products are: (1) N-95 masks; (2) other specified masks and airway protective devices; (3) elastomeric, air-purifying respirators; (4) powered air-purifying respirators; (5) portable ventilators; (6) drug products with the active ingredient chloroquine phosphate or hydroxychloroquine HCl; (7) sterilization services for medical devices and certain sterilizers; (8) disinfecting devices and other sanitizing and disinfecting products suitable for use in a clinical setting; (9) medical gowns or apparel; (10) personal protective equipment (PPE) coveralls; (11) PPE face masks; (12) PPE surgical masks; (13) PPE face shields; (14) PPE gloves or surgical gloves; and (15) ventilators, anesthesia gas machines modified for use as ventilators, and positive pressure breathing devices modified for use as ventilators, ventilator tubing connectors, and ventilator accessories. 
 
Background
The DPA grants the President the power to compel private companies to produce products for the government or specified private buyers, or to divert production to the government or to specified private buyers when necessary “to promote the national defense.”  50 U.S.C. § 4511(a). While these prioritization and allocation authorities are not designed principally to deal with public health crises such as the COVID-19 pandemic, the DPA’s definition of “national defense” is broad enough that the government has treated it as an encompassing response to the pandemic. See id. § 4552(14). President Obama delegated the President’s DPA authorities to various Cabinet Secretaries in 2012, and in the last two weeks President Trump has reaffirmed and revised those delegations in three Executive Orders, concentrating DPA authority concerning “health and medical resources” need for COVID-19 response in the hands of the Secretary of HHS and the Secretary of Homeland Security, the latter of whom has in turn delegated most of his DPA authority to the Director of the Federal Emergency Management Agency (FEMA).
 [FN/
1
]
 
Recent Actions 
Between March 27 and April 2, President Trump issued three memoranda directing the Secretary of HHS, or the Secretary of Homeland Security acting through the FEMA Director, to use their DPA authorities to ensure the production of ventilators and N-95 masks in adequate quantities. The March 27 memo directed the Secretary of HHS to “require General Motors . . . to accept, perform, and prioritize contracts or orders for the number of ventilators that the Secretary determines to be appropriate.” On April 2, the President directed the Secretary of HHS, in consultation with the Secretary of DHS, “to facilitate the supply of materials to” six ventilator manufacturers: General Electric; Hill-Rom Holdings, Inc.; Medtronic; ResMed Inc.; Royal Philips N.V.; and Vyaire Medical, Inc. The same day the President instructed the Secretary of DHS, acting through the FEMA director, “to acquire” from 3M “the number of N-95 respirators that the Administrator determines to be appropriate.”
 
According to press accounts, these directives were designed to boost production, ensure that increased supplies would be used in the United States rather than being sold abroad, and direct products within the United States to recipients the federal government determined were highest priority.
 [FN/
2
]
 News reports indicate that DPA orders are increasingly leading to the diversion of certain products from their original buyers-including state government agencies-to other recipients dictated by the federal government.
 [FN/3]
 
Inside the Trump Administration, responsibility for coordination of efforts to ensure adequate production and appropriate distribution of supplies needed for COVID-19 response-including voluntary agreements, contracts, and DPA orders-has been shared among several individuals and agencies. The Supply Chain Stabilization Task Force, based in FEMA and headed by Rear Adm. John Polowczyk, a senior logistics officer, has taken a lead role in working with many companies. At the White House, Peter Navarro, the Director of the Office of Trade and Manufacturing Policy, has played an important role in DPA matters. According to press accounts, Jared Kushner, senior adviser to the President, and Larry Kudlow, the head of the National Economic Council, have also been involved in supply chain decision-making.   
 
What To Expect Next
The Administration has faced increasing pressure-from Governors, Senators, and some on the medical frontlines-to make more aggressive use of DPA orders to ensure that adequate supplies of essential goods reach medical facilities and other organizations in greatest need.
 [FN/
4
]
 As the number of coronavirus cases continues to rise rapidly and the need for these supplies grows,  companies should be prepared for the possibility that the federal government will make more frequent and extensive use of its powers under the DPA. And companies should also consider how to communicate effectively with the Administration about how they can help alleviate supply and distribution problems and about urgent needs they may have. The 15 categories of products designated as scarce on March 25 are likely to continue to be the focus of Administration efforts.   
 
See the Footnotes here.

TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a1
14. 
ECTI Presents: “COVID-19 Outbreak: Anticipating the Unpredictable and What This Means for the Export World”

(Source: Ashleigh Foor, 
ashleigh@learnexportcompliance.com
)
 
* What: COVID-19 Outbreak: Anticipating the Unpredictable and What This Means for the Export World
* When: April 16, 2020; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: Timothy P. O’Toole, Esq.
* Register: here
 or Ashleigh Foor, 1-540-433 3977.

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

ENEDITOR’S NOTES

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

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 are listed below.
 
Agency 
Regulations 
Latest Update 
DHS CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199.
 
 
 
5 Apr 2019:84 FR 13499: Civil Monetary Penalty Adjustments for Inflation.

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

24 Feb 2020:
85 FR 10274
: Amendments to Country Groups for Russia and Yemen Under the Export Administration Regulations.
 

 

DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   Last Amendment: 24 Apr 2018: 83 FR 17749: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates.

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

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. 

23 Feb 2015: 80 FR 9359, comprehensive updating of regulations, updates the activities and technologies subject to specific authorization and DOE reporting requirements. 
DOE EXPORT AND IMPORT OF NUCLEAR EQUIPMENT AND MATERIAL; 10 CFR Part 110.

15 Nov 2017, 82 FR 52823: miscellaneous corrections include correcting references, an address and a misspelling.

 

DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War.

14 Mar 2019: 84 FR 9239: Bump-Stock-Type Devices.

DOS INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.  26 Dec 2019: 84 FR 70887; 23 Jan 2020: 85 FR 3819: Encryption rule and USML Categories I, II, III, and related sections regarding guns & ammo. 
 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

13 Mar 2020:
85 FR 14572:
General Licenses Issued Pursuant to Venezuela-Related Executive Order 13835.

 
 
 
 
USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA),

1 Jan 2019: 19 USC 1202 Annex.
  – HTS codes for AES are available here.
  – HTS codes that are not valid for AES are available here.
 

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