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20-0414 Tuesday “Daily Bugle”

20-0414 Tuesday “Daily Bugle”

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Tuesday, 14 April 2020

  1. State/DDTC Announces Meeting of Defense Trade Advisory Group (DTAG)
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP: “Section 301 China – Extension of Certain Product Exclusions”
  4. State/DDTC: (No new postings.)
  1. Export Compliance Daily: “Mexico Should Align Essential Business Guidelines With US, Canada in Pandemic, Trade Group Says”
  2. ST&R Trade Report: “DEA Actions on Import and Export Controls”
  3. UNODA: “Programme of Action on Small Arms and its International Tracing Instrument”
  1. Arent Fox: “Reference Guide: Worldwide Export Controls on Face Masks and Other Medical Personal Protective Equipment”
  2. CATO Institute: “U.S.-China Tech Battle Threatens Pandemic Containment and More”
  3. Kelley Drye: “COVID-19 – Four Key International Trade Compliance Considerations”
  4. Miller & Chevalier: “Trade Compliance Flash: Q&A on Export Restrictions on Personal Protective Equipment (PPE)”
  5. Volokov Law: “Videoconferencing and Export Controls”
  6. TLR: “Planning VS. Forecasting – Keys to Maintaining Supply Chain Flow”
  1. FCC Academy Presents Webinar: “An Introduction to EU/Dutch Dual-use and Military Export Controls”; 12 May
  1. Bartlett’s Unfamiliar Quotations
  2. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here.
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EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11
.
State/DDTC Announces Meeting of Defense Trade Advisory Group (DTAG)

(Source:
Federal Register, 14 Apr 2020) [Excerpts]
 
85 FR 20804: Defense Trade Advisory Group; Notice of Open Meeting
 
The Defense Trade Advisory Group (DTAG) will meet in open session from 1:00 p.m. until 5:00 p.m. on Thursday, May 14, 2020. Based on federal and state guidance in response to the Covid19 pandemic, the meeting will be held virtually. The virtual forum will open at 12:00 p.m. The membership of this advisory committee consists of private sector defense trade representatives, appointed by the Assistant Secretary of State for Political-Military Affairs, who advise the Department on policies,regulations, and technical issues affecting defense trade. The DTAG was established as an advisory committee under the authority of 22 U.S.C. Sections 2651a and 2656 and the Federal Advisory Committee Act, 5 U.S.C. App. The purpose of the meeting will be to discuss current defense trade issues and topics for further study.  
 
The following agenda topics will be discussed and final reports presented:  
   (1) Prioritizing Defense Export Control and Compliance System (DECCS) enhancements.  
   (2) Improving compliance guidelines for companies and universities.  
   (3) Exploring options for improving reporting on political contributions, gifts, commissions, and fees (commonly referred to as ITAR ”Part 130” reporting) pursuant to 22 U.S.C. 2779, and where appropriate making recommendations for improvement.  
   (4) Exploring types of ”open” or other flexible export authorizations administered by other countries, and in the member’s experience what works well when operating within such authorizations.  
 
The meeting will be held in WebEx. There will be one WebEx invitation for each attendee, and only the attendee should use the invitation. In addition, each attendee should access the virtual meeting from a private location. Please let us know if you need any of the following accommodations: live captions, digital/text versions of webinar materials, or other (please specify).  
 
Members of the public may attend this virtual session and will be permitted to participate in the question and answer discussion period following the formal DTAG presentation on each agenda topic in accordance with the Chair’s instructions. Members of the public may also submit a brief statement (less than three pages) to the committee in writing for inclusion in the public minutes of the meeting. Virtual attendance is limited to 125 persons, so each member of the public that wishes to attend this session must provide.

 
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OGSOTHER GOVERNMENT SOURCES

OGS_a12
.
Items Scheduled for Future Federal Register Editions 
(No items of interest today.)

 
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OGS_a23. 
Commerce/BIS: (No new postings.)

 
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OGS_a3
4
.
DHS/CBP: “Section 301 China – Extension of Certain Product Exclusions”

(Source:
DHS/CBP, 13 Apr 2020)
 
BACKGROUND
On April 10, 2020, the U.S. Trade Representative (USTR) published Federal Register (FR) Notice 85 FR 20332 to extend for 12 months certain product exclusions covered by the April 18, 2019 notice (see 84 FR 16310) for Section 301 duties on China ($34B Action – Tranche 1).
 
These product exclusions relate to the imposed additional duties on Chinese goods with an annual trade value of approximately $34 billion, apply retroactive to the July 6, 2018 effective date of the $34 billion action, and will extend to April 18, 2021.
 
The scope of each exclusion is governed by the scope of the HTSUS 10-digit classification and product descriptions in the Annex per FR notice 85 FR 20332; not by the product descriptions set out in any particular request for exclusion. A link to the Federal Register Notice is embedded in this message.
 
The functionality for the acceptance of the extended product exclusions will be available in the Automated Commercial Environment (ACE) by 7am, Eastern Standard Time on April 14, 2020.
 
GUIDANCE
For reference, instructions for importers, brokers, and filers on submitting entries to CBP containing certain product exclusions that were extended are set out below:
 
In addition to reporting the regular Chapters 84 and 90 classifications of the HTSUS for the imported merchandise, importers shall report the HTSUS classification 9903.88.07 (Articles, the product of China, as provided for in U.S. note 20(j) to this subchapter, each covered by an exclusion granted by the USTR for imported merchandise subject to the exclusion).
  • Importers shall not submit the corresponding Chapter 99 HTS number for the Section 301 duties when HTS 9903.88.07 is submitted.
Product Exclusions granted a 12-month extension under HTS 9903.88.07:
  • 8420.10.9080, 8425.39.0100, 8431.20.0000, 8479.90.9496, 8481.90.9040 and 9030.33.3800
ADDITIONAL INFORMATION
Imports which have been granted a product exclusion from the Section 301 measures, and which are not subject to the Section 301 duties, are not covered by the Foreign Trade Zone (FTZ) provisions of the Section 301 Federal Register notices, but instead are subject to the FTZ provisions in 19 CFR part 146.
 
Duty exclusions granted by the USTR are retroactive for imports on or after the initial July 6, 2018 effective date of the Tranche 1, $34B Action, of the China Section 301 trade remedies. To request a refund of Section 301 duties paid on previous imports of products granted duty exclusions by the USTR, importers may file a Post Summary Correction (PSC) if within the PSC filing timeframe. If the entry is beyond the PSC filing timeframe, but within 180 days of the liquidation action, importers may protest the liquidation.
 
Reminder: When importers, brokers, and/or filers are submitting an entry summary in which a heading or subheading in Chapter 99 is claimed on imported merchandise, please reference CSMS 39587858 (Entry Summary Order of Reporting for Multiple HTSUS when 98 or 99 HTSUS are required).
 
For ease of reference, a summary of Section 301 duties and product exclusion notifications are provided as an attachment.
 
Questions from the importing community concerning ACE entry rejections involving product exclusions should be referred to their CBP Client Representative. Questions related to Section 301 entry-filing requirements, please refer to CSMS message #40969690 (Information on Trade Remedy Questions and Resources) https://content.govdelivery.com/accounts/USDHSCBP/bulletins/27125da
 

 
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COMNEWS

NWS_a16.
Export Compliance Daily: “Mexico Should Align Essential Business Guidelines With US, Canada in Pandemic, Trade Group Says”
(Source: Export Compliance Daily, 14 Apr 2020) [Excerpts]  
 
The Border Trade Alliance is urging Mexico to align its guidelines on essential industries allowed to stay open during the COVID-19 pandemic with similar directives from the U.S. and Canada. In an April 9 letter to Mexican Health Minister Jorge Alcocer Varela, the trade group voiced concern that “a lack of clarity and alignment over what private sector industries and services are deemed by Mexico as ‘essential’ is proving increasing[ly] problematic for firms whose manufacturing operations and supply chains are partially or wholly dependent on output from Mexico. Discrepancies between countries in the identification of essential services and industries are likely to cause increased disruptions to cross-border supply chains at a time when ensuring and preserving efficient cross-border trade and commerce is more important than ever,” it said. Mexico should adopt “guidelines aligned to the extent possible with the U.S. Department of Homeland Security guidelines for critical infrastructure industries and the newly issued federal guidelines from the Canadian federal government,” the letter said.

NWS_a27.
ST&R Trade Report: “DEA Actions on Import and Export Controls”

(Source: Sandler, Travis & Rosenberg Trade Report, 14 Apr 2020) [Excerpts]
 
The Drug Enforcement Administration has issued an interim final rule placing the sedative lemborexant, including its salts, isomers, and salts of isomers whenever their existence is possible, into schedule IV of the Controlled Substances Act. Comments are due no later than May 7.
 
This rule imposes the regulatory controls and administrative, civil, and criminal sanctions applicable to schedule IV-controlled substances on persons who import, export, manufacture, distribute, reverse distribute, dispense, or engage in research, instructional activities, or chemical analysis with respect to this substance. These include the following.
 
– all importation and exportation of these substances must continue to be in compliance with 21 USC 952, 953, 957, and 958 and in accordance with 21 CFR part 1312
 
– any activity involving this substance that is not authorized by, or is in violation of, the CSA or its implementing regulations continues to be unlawful and may subject the person to administrative, civil, or criminal sanctions
 
– any person who handles or desires to handle this substance must be registered with the DEA to conduct such activities
 
– all labels, labeling, and packaging for commercial containers of this substance must comply with 21 USC 825 and 958(e) and be in accordance with 21 CFR part 1302
 
Separately, the DEA is accepting through June 8 comments on a proposed rule that would place 4,4′-DMAR (4,4′-dimethylaminorex), along with its salts, isomers, and salts of isomers, into schedule I of the CSA. This rule would impose the regulatory controls and administrative, civil, and criminal sanctions applicable to schedule I substances on the importation, exportation, manufacture, distribution, reverse distribution, and conduct of research, instructional activities, and chemical analysis of this substance. Comments are due no later than June 8.

NWS_a38.
UNODA: “Programme of Action on Small Arms and its International Tracing Instrument”

(Source, United Nations, 13 Apr 2020) [Excerpts]
 
Under the Programme of Action to Prevent, Combat and Eradicate the Illicit Trade in Small Arms and Light Weapons in All Its Aspects (PoA), governments agreed to improve national small arms laws, import/export controls, and stockpile management – and to engage in cooperation and assistance.
 
In 2005 they also adopted the International Tracing Instrument (ITI), which requires States to ensure that weapons are properly marked and that records are kept. Moreover, it provides a framework for cooperation in weapons tracing – fulfilling one of the commitments governments made in the Programme of Action. Improving weapons tracing is now part of the 2030 Agenda for Sustainable Development.
 
Meetings and national reports on PoA and ITI are always combined…

COMCOMMENTARY

COM_a19. Arent Fox: “Reference Guide: Worldwide Export Controls on Face Masks and Other Medical Personal Protective Equipment”

(Source:
Arent Fox, 13 Apr 2020)
 
* Principal Author:
Kay C. Georgi, Esq., 1-202-857-6293, Arent Fox
 
As the COVID-19 pandemic has expanded exponentially, so too has the demand by hospitals and other healthcare providers for masks and other medical personal protective equipment (PPE) to protect doctors, nurses, and other healthcare workers. A number of governments have imposed export controls on the export of a variety of medical (and industrial) PPE. In other words, if you want to import face masks into the US from a European country, you need a license to export them from the EU first.
 
This alert has been updated with new information as of April 14, 2020.
Today, April 14th, we updated the chart we previously circulated on April 3rd, March 27th, and March 24th with a listing of governments that have (and have not) imposed export controls on the export of a variety of medical (and industrial) PPE.
 
New Countries
We have added information from Albania, Algeria, Cote D’Ivoire, Georgia, Honduras, Kazakhstan, Lebanon, Moldova, and Paraguay..
 
New Restrictions
We have also updated the chart with new restrictions and updated guidance from US Customs and Border Protection and FEMA, as well as with modified restrictions in India.

COM_a210.
CATO Institute: “U.S.-China Tech Battle Threatens Pandemic Containment and More”

(Source:
CATO Institute, 13 Apr 2020)
 
* Principal Author:
Dan J. Ikenson, Director, 1-202-789-5200, Cato Herbert A. Stiefel Center for Trade Policy Studies

 

Reuters reports that the Trump administration is planning to tighten export controls “to prevent China from obtaining advanced U.S. technology for commercial purposes and then diverting it to military use.” That sounds unobjectionable. After all, one purpose of U.S. export control laws is to ensure that dual-use items-articles that have both commercial and military applications-are exported for commercial use only, unless explicitly licensed for military use. But closer scrutiny of the fine print is needed to assess whether the expected national security benefits of these new rules will be significantly outweighed by their commercial, geopolitical, and human costs.
 
The Export Control Reform Act of 2018 (“ECRA”) grants the administration broad jurisdiction over “the export, reexport, and in-country transfer” of dual-use items, such as “accelerometers,” which are devices that measure the movement of objects and are used in commercial aircraft navigation systems, as well as in missile guidance systems. The ECRA requires the secretary of commerce to establish and maintain a list of controlled items, and a list of foreign persons and end uses deemed threatening to national security.
 
Under the law, licenses are required to export those items and to export to those persons, but exceptions apply under certain conditions. Some of those exceptions are on the chopping block. According to Reuters, three major changes are in store:
 
One change would do away with the civilian or “civ” exemption, which allows for the export of certain U.S. technology without a license, if it is for a non-military entity and use… Another change would stop China’s military from obtaining certain items without a license even if they were buying them for civilian use, such as scientific equipment like digital oscilloscopes, airplane engines and certain types of computers…A final change would force foreign companies shipping certain American goods to China to seek approval not only from their own governments but from the U.S. government as well.
 
Forestalling the Chinese military’s access to advanced technology seems like a legitimate aim of U.S. policy, and the first two rule changes identified above might help achieve that outcome at an acceptable cost. It seems reasonable that U.S. exporters of certain advanced technology to non-military entities in China should require licenses so that elicit channels of technology transfer can be better monitored and shut down. Likewise, given Beijing’s own blurring of lines between military and civilian activities-President Xi speaks of a “civil-military” fusion in the area of technology adoption-why should that distinction be preserved under U.S. export control laws?
 
It’s prudent to require U.S. exporters of dual-use items to the Chinese military to have a license-even when those items are designated for civilian use. Of course, those changes would make exporting to China more burdensome. But most of the added costs would be borne by the parties to the transaction-U.S. exporters and Chinese importers-and would probably justify the national security benefit obtained.
 
The last measure (or set of measures) under consideration, however, is problematic because it is less surgical than the others and threatens collateral damage to the technology ecosystem, U.S. commercial interests, broader relations with China and other countries, and international efforts to contain and defeat a global pandemic.
 
U.S. export controls apply directly to products made in the United States, but also extra-territorially to products made in third countries with “controlled” U.S. equipment, which contain a certain minimum percentage of controlled U.S. content. Exporters of these products from third countries require U.S. approval. The new rule would lower (and maybe eliminate) the content threshold so that licenses would be required by more producers in third countries, including all foreign companies producing semiconductors with U.S. chip-making equipment that are sold to China’s Huawei Technologies.
 
Sales of U.S.-made goods to Huawei have been restricted since last May, when the company was put on a Commerce Department blacklist for reasons of national security. But up until now, foreign suppliers of U.S. technology to Huawei have been beyond the full reach of U.S. authorities. The new rule would extend that reach, giving the U.S. government veto power over sales of even basic commodity semiconductors to Huawei from producers in Taiwan, South Korea, and elsewhere, wreaking havoc, in the near term, on Huawei’s capacity to plan, produce, and profit.
 
It isn’t hard to believe these new rules are intended primarily to thwart Huawei’s success-an objective many policymakers in Washington seem to support. But before pulling the pin, the administration should solicit stakeholder feedback and conduct an honest analysis of the likely costs and broader impact of the rule changes on the technology ecosystem, which includes industries up and down the supply chain from companies doing research to commercial innovation to semiconductor manufacturing to the production of everything called information and communications technology.
 
What might they learn? The following, if this U.S. technology industry coalition letter is a guide:
 
Abrupt changes to the export controls regulations for semiconductors will create uncertainty for the entire technology industry. Semiconductors are the foundation of modern electronics, information technology, cloud services, critical infrastructure and the defense industrial base. In addition to playing a critical role in sectors throughout the economy, semiconductors play an essential role addressing the COVID-19 public health emergency. Semiconductors drive the functionality in advanced medical equipment used by health professionals to treat the public, and they enable the products and services that allow telework, remote learning, telemedicine, and other aspects of our economy and daily life. Semiconductors will also play a pivotal role in driving the industries of the future and the economic recovery once the public health emergency is defeated.
 
Changes to the export control regulations under consideration have the potential to result in significant impacts on the semiconductor industry, its global supply chain, and the broader technology sector that relies on predictable access to semiconductors. Given the importance of this industry – and in light of the unprecedented public health crisis and economic disruption – it is imperative that any regulatory changes be narrowly tailored and minimize damage to industry. Subjecting such regulatory changes to public comment would help ensure that Commerce benefits from the industry’s views and avoids unintentionally exacerbating an already difficult economic situation.
 
A letter to President Trump by the president of SEMI, an association representing the semiconductor and electronics manufacturing supply chain, warned that the new rules would “serve as a disincentive for further investments and innovation in the U.S. and lead to the design-out of U.S. technology and components.” Indeed, companies such as Taiwan Semiconductor Manufacturing Corporation, a long-time consumer of U.S. chip-making equipment and the world’s largest producer of commercial chips, which obtains 17 percent of its revenue from sales in China, will look to other countries for their capital equipment needs.
 
Likewise, the move would encourage China to expedite development of its own chip-making capacity and to source more semiconductors from South Korea, which would hasten a decline in revenues and market shares of U.S. chip and chip-making equipment firms. The damage to U.S. commercial interests would go beyond the semiconductor supply chain, as Beijing looked to deploy retaliatory measures to frustrate the efforts of U.S. businesses in China and elsewhere. Ultimately, disruptions in semiconductor supply chains could impede production and increase the costs of various kinds of smart medical equipment and devices relied upon by health professionals in the battle against COVID-19 and other diseases.
 
Controlling exports of cutting-edge technologies that have military or intelligence applications is probably a prudent aim of policy. But the new export controls go beyond that and seem unnecessarily provocative, especially during a time when U.S.-China cooperation is sorely needed. Most concerning is that the accumulated weight of the measures and countermeasures that have burdened relations for several years may soon prove too hard to bear, resulting in a total collapse in the bilateral relationship. The specter of the world’s two largest economies refusing to cooperate to contain the pandemic and repair the global economy is a worry to take very seriously.

COM_a311.
Kelley Drye: “COVID-19 – Four Key International Trade Compliance Considerations”

(Source:
Kelley Drye & Warren, 10 Apr 2020)
* Principal Author:
Eric McClafferty, Esq., 1-202-342-8841, Kelley Drye & Warren LLP
 
Even as companies make rapid changes to respond to business challenges posed by the COVID-19 pandemic, executives and compliance team leaders must protect their company and employees by continuing to comply with critical U.S. international trade laws and regulations (including those addressing customs, anti-corruption, export controls, and economic sanctions). Trade regulations are not suspended, and it is important to not make assumptions or conclude that the law does not apply during this difficult time with all of the issues competing for attention, not least family and employee health and company survival. With the need to move so quickly, we have seen clients inadvertently come close to trade compliance violations that would not pose a problem for them in normal times. The following suggestions are intended to help companies reduce the risk of certain significant federal international trade law violations and avoid inbound and outbound shipment delays – while continuing to operate.
 
Trade rules and surrounding circumstances are changing quickly. For example, the Administration very recently appeared to be seriously considering suspending or lowering certain import tariffs, but backed away from that approach given the complexity of administering a revised system on short notice, among other problems. You are likely also seeing reports about various countries’ restrictions on exports of medicine, medical equipment (including protective equipment and ventilators), and food, among other products. How do you keep up with what is actually happening that may affect your company and what is just rumor that you do not need to react to?
 
One step companies are taking is to include key personnel from their trade compliance and legal teams in the decision processes related to changing international transactions. You need to move quickly, but including a team member who knows trade rules can help keep things on track and help avoid clear compliance errors.
 
Here are four substantive areas of U.S. trade regulation that should continue to be part of international transaction diligence: U.S. anti-corruption, export controls, and sanctions laws (that permit most exports of medicines, medical devices, and food to sanctioned locations), and U.S. Customs rules on personal protective equipment and medical devices (among other imported items).
 
Foreign Corrupt Practices Act (FCPA):
Due to the pandemic and disruptions in supply chains, companies should be on high alert regarding potentially illegal and/or unethical activities by brokers, freight forwarders, and other agents who may be suggesting or paying bribes or taking other similar steps to move products in the face of delays caused by the pandemic. Payments to or otherwise providing anything of value to a government official outside the United States in order to receive an improper commercial advantage could result in a violation of the federal FCPA [FN/1] and/or other applicable anti-bribery laws. For example, companies need to watch for unusual requests for fees, surcharges, extra commissions, unusually large discounts, or other payments – particularly to third parties – that could be shared with foreign officials, including Customs personnel in the form of a side payment or bribe intended to preferentially move product. It can be tempting to authorize such payments in this context. Consult with counsel for guidance if this comes up.
 
Importation, Exportation or Re-exportation of Controlled Pathogens and Medical Equipment
Although the U.S. Commerce Department’s Bureau of Industry and Security (BIS) has stated that COVID-19, including virus samples, is not generally controlled for export and re-export under the Export Administration Regulations (EAR),[FN/2] a license for a variety of associated activities could be required depending on the end-user, end-use, and destination country. For example, exporting a virus sample from the United States to Iran would require a license, as would any export creating potential biological weapons proliferation concerns. Additionally, U.S. persons are prohibited from exporting a virus sample to an individual or company on BIS’s Entity List.
 
Moreover, certain “equipment capable of use in handling biological materials” (e.g., those used for manufacturing vaccines) and “protective and detection equipment and components” related to biological threats may also require a license for export or re-export. [FN/3] There are also potential licensing requirements for software specially designed or modified to enable such biological detection systems.
 
Next, companies should be aware of potential licensing requirements to export “technology” related to controlled items. Controlled technology includes information related to the production, development or use of controlled items, such as vaccines. For example, technology related to the production of certain protective gear to prevent against controlled pathogens or for manufacturing a vaccine might also require a license. Additionally, releasing controlled technology to a foreign person (e.g., foreign person working in a U.S. laboratory on a vaccine) would be considered a “deemed export” under the EAR and may require a license. There might be a license exception or license available, but, even in an emergency, it is necessary to check to ensure compliance with applicable laws.
 
Finally, many countries, like the European Union countries,[FN/4] have imposed stringent export control restrictions on certain medical supplies due to COVID-19.[FN/5] While the United States has not yet imposed similar measures on such items as respirators and face masks, they may do so in the future so it is necessary to monitor U.S. policy as the response to the pandemic evolves.
 
Office of Foreign Assets Control (OFAC) Sanctions Concerns, including humanitarian exports of food, medicine and medical devices
It is important to comply not only with export control laws but also the laws and regulations administered by the Office of Foreign Assets Control (OFAC). Most of the comprehensive sanctions programs have a general license (GL) or other authorization for exporting certain medicines or medical supplies, but each license is different and must be reviewed in its entirety to ensure compliance.[FN/6] Additionally, many of the general licenses have exclusions as well as reporting requirements that must be followed.
 
Note that there are certain medicines and medical devices that are not covered by the GLs, and would require a specific license.[FN/7] Before exporting to a sanctioned country, companies need to evaluate whether a particular general license is applicable in its entirety or whether they need to request a specific license.
 
Finally, transactions with, including exports to, any individual or entity on OFAC’s Specially Designated National List remain generally prohibited, so it is important for companies to continue their general denied party screening processes.
 
Remote Work Arrangements
As companies have moved toward increased remote work arrangements, they should also consider potential export and deemed export issues in light of these changes. As noted above, the export or re-export of controlled technology is subject to export controls. Because many employees are now working from home, the places from which controlled technology may be accessed, or to which controlled technology may be sent, may change. This situation may arise with respect to U.S. persons who are temporarily abroad, or for individuals who typically work inside the United States but are now working from a place outside of the United States, such as individuals who live near the Mexican or Canadian border. Non-U.S. persons may have been granted access to databases that they require a license to access. In assessing compliance risk, companies should seek to ensure that working at alternative locations, use of technology and software, and access to information comport with all regulatory requirements and that companies continue to adhere to their Technology Control Plan, even in this environment.
 
As companies are struggling to maintain normal business operations due to the numerous disruptions created by the COVID-19 pandemic, it is important to ensure that any necessary adjustments do not compound these difficulties by creating violations with strict liability U.S. international trade compliance laws and regulations. Because of the constantly changing circumstances, companies could very easily commit inadvertent violations in an attempt to solve business challenges as they arise. As companies develop strategies to cope with the disruptions caused by the pandemic, international trade compliance must be an element of those discussions.
 
[FN/1] 15 U.S.C. §§ 78dd-1, et seq.


[FN/3] Examples include fermenters, centrifugal separators, freeze-drying equipment, aerosol challenge chambers, cross-flow filtration equipment and components, among others. These items can be subject to very restrictive controls, such as “Chemical and Biological Weapons” (CB) controls, and require an authorization for export to most destinations. Note that some related items could be controlled for export under the International Traffic in Arms Regulations, see, e.g., Category XIV of the U.S. Munitions List at 22 C.F.R. § 121.1.


[FN/6] For example, see our March 11, 2020 post on Iran General License 8, which authorizes transactions involving the Central Bank of Iran where such transactions involve the authorized export of food, medicine, and medical devices to Iran.

COM_a412.
Miller & Chevalier: “Trade Compliance Flash: Q&A on Export Restrictions on Personal Protective Equipment (PPE)”

(Source:
Miller & Chevalier, 13 Apr 2020)
 
* Principal Author: Brian J. Fleming, Esq., 1-202-626-5871, Miller & Chevalier
 
In response to the COVID-19 epidemic in the United States, the Federal Emergency Management Agency (FEMA) issued a temporary final rule (the Rule) restricting the export of five categories of personal protective equipment (Covered PPE) from the United States. On April 9, 2020, U.S. Customs and Border Protection (CBP) issued internal guidance (the CBP Guidance) on the application of the Rule. The Rule implements the Presidential Memorandum dated April 3, 2020, in which the president directed the Department of Homeland Security (DHS) to take action under the Defense Production Act (DPA) to prevent the diversion of necessary medical materials abroad.
 
Specifically, the Rule requires CBP to temporarily detain any shipment of Covered PPE until FEMA determines whether to permit the shipment or allocate the Covered PPE for domestic use. FEMA’s determination will be based on a number of factors, explained below, including any need to ensure that “scarce or threatened” items used to treat or prevent COVID-19 are allocated for domestic use. Further, the CBP Guidance provides a list of exports that are excluded from the Rule’s application.
 
The Rule is effective immediately and will remain in effect for 120 days from the date of the Rule’s publication in the Federal Register-i.e., until August 8, 2020. Members of the public may be able to provide comments if the Rule is extended or made permanent.
 
Our answers to the most important questions relating to the Rule are set forth below, including those regarding the products covered, FEMA’s review process, and applicable penalties.
 
What are the Covered PPE Subject to the Rule?
The five categories of Covered PPE listed in the Rule are:
 
– 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 per 42 CFR 84.181
– 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
 
These categories of PPE are the same as those described in the Presidential Memorandum under the DPA. However, they are only five of the 15 categories of products previously designated as “scarce or threatened” in connection with the COVID-19 epidemic in a Department of Health and Human Services Notice (HHS Notice). The HHS Notice also included certain ventilators, ventilator accessories, sterilization services, disinfecting devices, and other products which are not currently restricted for export but may become so in the future.  
 
To Whom Does the Rule Apply?
The Rule is applicable to all persons involved in the export of Covered PPE. The Presidential Memorandum and the Rule both state that “it is the policy of the United States to prevent domestic brokers, distributors, and other intermediaries from diverting” Covered PPE overseas. Further, FEMA may apply for injunctions or restraining orders against “any person” that FEMA believes has engaged or is about to engage in a violation of the Rule and that “any person” who willfully violates the Rule is subject to penalties and imprisonment.
 
Are There Any Exclusions or Exemptions to the Rule?
Both FEMA and CBP have emphasized that they do not view the purpose of the Rule as prohibiting all exports of Covered PPE outside of the United States. Rather, the focus is on restricting commercial exports of a certain character and volume. Accordingly, the Rule issued by FEMA, the CBP Guidance, and informal guidance provided by FEMA/CBP provide for certain exclusions and exemptions that may (a) prevent shipments from being detained by CBP in the first instance, or (b) allow for the release of any detained shipments. If the Covered PPE falls within an exclusion, then it should not be a target for detention so long as the shipment’s documentation properly reflects that an exclusion applies. If the Covered PPE falls within the exemption, then the shipment will be subject to detention pending FEMA’s review of whether the shipment meets the exemption’s criteria.
 
We summarize the exclusions and the exemption below:
 
Non-commercial shipments: The CBP Guidance confirms that the focus of the Rule will be shipments in “commercial quantities,” defined to mean shipments valued at $2,500 or more and containing more than 10,000 units of Covered PPE. Shipments below this threshold are not likely to be detained by CBP or, at worst, are likely to be released from detention by CBP without the need for FEMA’s review.
Intra-company transfers: Informally, FEMA has confirmed that the purpose of the Rule is not to stop intra-company transfers of Covered PPE that are not for sale to a third party. Such Covered PPE may have legitimate non-medical use in oil and gas, construction, and other industries. FEMA has informally recommended that exporters include a “letter of attestation” when this exclusion applies.
Exports to Canada or Mexico
Exports to U.S. government entities such as U.S. military installations overseas
– Exports by U.S. government agencies
– Exports by U.S. charities
– Exports by critical infrastructure industries for the protection of their workers
– Exports by the 3M Company
– In-transit shipments
– Exemption for certain U.S. manufacturers: The Rule provides an explicit exemption for shipments where the (a) shipment is made by or on behalf of U.S. manufacturers that have had continuous export agreements with foreign customers since at least January 1, 2020, and (b) 80 percent of the manufacturer’s products covered by the Rule (on a per item basis) were distributed within the United States over the preceding 12 months. After FEMA determines that the shipment falls within the exemption, the Covered PPE may be exported without further review. However, FEMA retains the ability to waive the exemption and fully review the shipment if FEMA determines that doing so “is necessary or appropriate to promote the national defense.”
 
When issuing the Rule, FEMA made clear that it may announce new exemptions in the Federal Register if FEMA determines that a new exemption is “necessary or appropriate to promote the national defense.” FEMA may also develop additional guidance on which exports are covered by the current exemption and encourages manufacturers to contact FEMA with specific information about their eligibility for the exemption.
 
What is the Review Process When Covered PPE Is Presented for Export?
As noted above, the Rule requires CBP to temporarily detain any shipment of Covered PPE until FEMA determines whether to permit the shipment of such products or to allocate them for domestic use. The CBP Guidance provides that U.S. port personnel will determine whether a shipment contains Covered PPE based on information and documents disclosed in the relevant Electronic Export Information (EEI), which must be filed through CBP’s Automated Export System (AES) for most exports. Physical examination of the shipment is also possible.
 
After the shipment is detained, CBP will inform FEMA about the shipment’s intended export and FEMA will conduct a review. FEMA’s review will determine whether:
 
– The shipment will be returned for domestic use;
– FEMA will use the authorities granted under the DPA to issue a rated order for all or part of the shipment (i.e., require that some or all the Covered PPE be sold to FEMA); or
– FEMA will allow the export of all or part of the shipment.
 
The Rule requires FEMA to reach a determination “within a reasonable timeframe after notification of an intended export.” FEMA’s review will consider the totality of the circumstances, including the following factors:
  • The need to ensure that scarce or threatened items are appropriately allocated for domestic use
  • Minimization of disruption to the supply chain, both domestically and abroad
  • The circumstances surrounding the distribution of the materials and potential hoarding or price-gouging concerns
  • The quantity and quality of the materials
  • Humanitarian considerations


  • International relations and diplomatic considerations


The Rule does not specify compensation exporters may receive if their products are allocated for domestic use. The Rule provides two types of allocation for domestic use. First, FEMA may determine to “return [the shipment] for domestic use,” which implies that the exporter will be able to sell the products in the domestic market. Second, FEMA may “issue a rated order for part or all of the shipment, pursuant to” the DPA, meaning that compensation of the required sale to FEMA will be governed by the DPA.
 
Although the export requirements for Covered PPE are generally minimal, it is important to note that the Rule does not impact existing economic sanctions and export controls, which may continue to apply even if FEMA allows a shipment of Covered PPE. Exporters should remain cognizant of the applicability of such laws and ensure compliance for any outbound shipments of Covered PPE.
 
What are the Penalties for Not Complying with the Rule?
Under Sections 705 and 706 of the DPA, FEMA is authorized to (a) conduct investigations, request information or testimony, and inspect records or premises, and (b) seek permanent or temporary injunctions, restraining orders, or other orders to enforce compliance with the Rule. We anticipate that FEMA is likely to use these authorities not only with regard to manufacturers and exporters, but also “domestic brokers, distributors, and other intermediaries” – parties specifically mentioned in the Presidential Memorandum under the DPA.
 
In addition, any person who willfully violates the Rule is subject to a penalty of up to $10,000 and can be imprisoned for up to one year under Section 103 of the DPA. Further, under 18 U.S.C. § 554 (Smuggling Goods from the United States), anyone who fraudulently or knowingly exports anything from the United States contrary to U.S. law, or who facilitates such a transaction, can face fines and/or up to 10 years of imprisonment.
 
As events around the COVID-19 crisis unfold, and the government continues to act in response, affected and potentially affected companies and individuals would be advised to proactively consider how to respond and prepare.

COM_a513.
Volokov Law: “Videoconferencing and Export Controls”

(Source:
Volkov Law , 9 Apr 2020)
 
* Author:
Janet Longo, Regulatory Compliance Analyst, Volkov Law Group
 
As the Covid-19 virus is proliferating, so is the practice of conducting business through videoconferencing from home. While many commentators have discussed the serious data privacy and security problems associated with video conferencing, we’ve been thinking about the export control implications for our clients, including telecommunications and electronics companies, chemical companies, government contractors, drug, medical device and biotech companies and any entity that exports controlled products and technology.
 
To be sure, some workers regularly used videoconferencing long before we all moved into our living rooms and home offices. But for new users, videoconferencing presents a new and distinct opportunity for an unexpected export control violation to occur. The exposure of controlled technology or information to a single video conference participant sitting in front of a computer screen in a foreign country, or to a foreign national seated at a computer in the U.S. (a “deemed export”), can cause a company to violate U.S. export regulations, leading to possible criminal and civil penalties, reputational damage, revocation of export licenses, debarment, and/or incarceration for individuals involved in the violation.
 
A surprising number of products and technologies are controlled for export under the Export Administration Regulations (“EAR”) and the International Traffic in Arms Regulations (“ITAR”). And the government interprets the release of controlled technology and information broadly, to include a simple visual inspection or view of the controlled data. It can be very easy to share or display a drawing or other document that contains controlled technology or technical data during a video conference through screen-sharing. And in the absence of face-to-face discussions, it may be more tempting than ever to use a visual aid. Yet, now, everything seems more relaxed, and export requirements may be a thought your employees left at the office.
 
Before holding drawings, technical specifications, plans, blueprints or similar documents up to the screen or sharing your screen with others, ensure that you have an export authorization for the release of technology to the non-U.S. person sitting in front of the other computer screen. This authorization may be in the form of a U.S. Government agency issued export license, a license exception or exemption, or a general license. Companies that export controlled products and technology should consider issuing guidelines regarding appropriate use of video conference and screen-sharing technology for remote workers. Companies alternatively should consider sending remote workers a reminder that they must follow their organization’s procedures for exporting technology and technical data.
 
In sum, export control violations generally are strict liability, meaning that an individual need not intend to violate the law and in fact need not even know that the released technology was controlled. Yet, the dramatic increase in videoconferencing and screen-sharing by new users without IT support has made it easier and more likely that someone may unwittingly disclose controlled technology. Employees should be properly trained and made aware of the risks.

The Covid-19 pandemic continues to wreak havoc on the logistics industry, with experts estimating a 30% decline in the global shipping market through May. Supply chains are crawling.  Numerous steamship lines have cancelled entire lanes and announced blank sailings. Experts say even more shipping disturbances could happen with very short notice during Q2 2020. There is a possibility that the decline will continue into Q3 2020, and perhaps even longer. 
 
Businesses, from large corporations to individual family operations, are searching for ways to insulate their companies and maximize opportunities in this uncertain time.  However, statistics show a frightening 75% of companies are reporting supply chain disruptions. Even more disturbing, an estimated 40% of companies don’t have a backup supply chain plan in place. Without an adaptable supply chain, even the best plans will fail. 
 
New quarantines, limitations, and diversified plans are being announced every day, which makes forecasting industry movement very difficult. Even if the forecasting prediction is slightly off, it can lead to tremendous losses for a company.   The greater the forecasting miss, the larger the deficit the company will face.
 
Today, experts say the best way to protect a company is planning, not forecasting.  While forming a plan varies by industry and company, there are some common best practice principles which can help every business succeed:
 
Protect Your People

It has been said since the beginning of commerce that people are a company’s best asset.  This has never before been more evident than in today’s environment.  Do everything you can to make sure your employees are protected – get the best PPE available, heed governmental warnings, and sanitize all equipment on a frequent basis.
 
Assess the Demand of Your Products

What are the products the consumers are saying they want?  Set your focus on these offerings and they will generate positive cash flow.  Think outside the box and see if there is an opportunity to enhance a product that isn’t in demand.  Freeze non-critical costs until the market dictates they are needed and focus on the cash positive products.
 
Analyze the Current Supply Chain

As different countries impose various restrictions on cargo movement, it is increasingly critical to understand each part of the supply chain.  Monitor every leg and stop of the shipping lane for potential pitfalls (e.g. mandatory quarantines, force majeure possibilities, suspension of transit locations).  Be aware that the shipping route normally used for your product could be altered or become a blank sailing.  The best defense against disruptions is being familiar with and tracking your entire supply chain.
 
Allow the Supply Chain to Evolve

Many shippers and importers have already begun adapting their process by looking to other origins for sourcing materials and products.  Your company should look for alternate materials and products from areas that have not been as affected by the pandemic.  Consider multiple LCL shipments or trucking to varying ports to spread out the potential for inventory volume disruption.
 
Locate or relocate on-hand and in-transit critical inventory as close to the major consumer bases as possible.
 


It is almost a certainty that it will be 2021 before the global shipping community returns to normal operations. Prepare for a post-Covid-19 environment by having a fluid and flexible supply chain.  As always, gather as much data and information pertinent to your specific company and create a plan. Taking these steps will help provide stability and maximize cash flow during this unprecedented time.

TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a1
15.
FCC Academy Presents Webinar: “An Introduction to EU/Dutch Dual-use and Military Export Controls
“; 12 May 

(Source: FCC Academy)
 
*What: Introduction to EU / Dutch Dual-Use and Military Export Controls
*When: May 12, 2020
*Where:  Online
*Sponsor: FCC Academy 
*Presenter: Marco F.N. Crombach MSc (Director)
*Register:

here
, or email
 events@fullcirclecompliance.eu

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

ENEDITOR’S NOTES

EN_a116. Bartlett’s Unfamiliar Quotations

(Source: Editor)

   

 

* James Branch Cabell (14 Apr 1879 – 5 May 1958; was an American author of fantasy fiction and belles-lettres. (Belles lettres is a category of literature that are beautiful and pleasing in an artistic way, rather than being serious, factual, or informative.) Cabell was well-regarded by his contemporaries, including H. L. Mencken, Edmund Wilson, and Sinclair Lewis. His works were considered escapist and fit well in the culture of the 1920s, when they were most popular. For Cabell, veracity was “the one unpardonable sin, not merely against art, but against human welfare.”)
– “People marry for a variety of reasons and with varying results. But to marry for love only is to invite inevitable tragedy.”
– “There is not any memory with less satisfaction than the memory of some temptation we resisted.”  

 

* Arnold J. Toynbee
(Arnold Joseph Toynbee; 14 Apr 1889 – 22 Oct 1975; was a British historian, a philosopher of history, an author of numerous books, and a research professor of international history at the London School of Economics and King’s College in the University of London. He is best known for his 12-volume A Study of History.)
– “As human beings, we are endowed with freedom of choice, and we cannot shuffle off our responsibility upon the shoulders of God or nature. We must shoulder it ourselves. It is our responsibility.
“America is a large friendly dog in a small room. Every time it wags its tail it knocks over a chair.” 

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

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

10 Apr 2020:
85 FR 20158:

North Korea Sanctions Regulations. 

 
 
 
 
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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