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20-0622 Monday “Daily Bugle”

20-0622 Monday “Daily Bugle”

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Monday, 22 June 2020

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  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State/DDTC: (No new postings)
  1. Export Compliance Daily: “BIS Military Exports Rule Will Lead to ‘Uncertainty’ for US Universities, AUECO Says”
  1. BakerMcKenzie: “USA: Government Extends Huawei Temporary General License to 13 August 2020 and Revises the EAR’s Foreign-Produced Direct Product Rule to Target Huawei’s Acquisition of Semiconductors”
  2. ST&R Trade Report: “Update on U.S. Trade Agreement Talks”
  3. Thompson Hine: “OFAC Issues General License 37 After Blocking Entities and Vessels Operating in Venezuela’s Oil and Shipping Sectors”
  1. Monday List of Ex/Im Job Openings: 66 Jobs Available -6 New Job Openings This Week
  1. ECTI Presents: Foods, Supplements, Cosmetics, Devices…Oh My: How the FDA Regulates More Than You May Think! Webinar; 24 Jun
  1. Bartlett’s Unfamiliar Quotations 
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OGS OTHER GOVERNMENT SOURCES

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OGS_a22. Commerce/BIS: (No new postings)

 
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COM NEWS

(Source:
Export Compliance Daily, 22 Jun 2020) [Excerpts]

 
U.S. universities may be forced to turn down research activities — including COVID-19 research — due to the Bureau of Industry and Security’s increased restrictions on shipments to military end-users (see 2004270027), the Association of University Export Control Officers said in comments to the agency. The restrictions are so broad that they could severely restrict academic activities that benefit the U.S. despite those activities having “no military or defense application,” the AUECO said.

COM COMMENTARY

 
* Principal Author: Nicholas F. Coward, Esq., 1-202-452-7021, BakerMcKenzie
 
In brief
 
On 19 May 2020, the US Commerce Department’s Bureau of Industry and Security (BIS) published an interim final rule effective on 15 May 2020 amending the Export Administration Regulations’ (EAR) General Prohibition Three (the foreign-produced direct product rule) and Entity List to impose new controls on the reexport, export from abroad, and transfer (in-country) of certain foreign-produced semiconductor-related items when such items are the direct product of certain designated US technology or software and are destined to Huawei Technologies Co. Ltd. and 114 of its non-US affiliates designated on the BIS Entity List (collectively, Huawei). BIS is seeking comments on the interim final rule, which must be submitted on or before 14 July 2020.
 
Contents
 
Concurrently, effective 15 May 2020, BIS issued a final rule extending through 13 August  2020 the validity of the Temporary General License (TGL) authorizing certain transactions involving the export, reexport, and transfer of items subject to the EAR to Huawei. BIS noted in the final rule that it is in the process of reviewing submissions received in response to its request for comments on future extensions of the TGL, which may be submitted until 22 April 2020. Please see our prior blog posts on the initial designation of Huawei and sixty-eight of its non-US affiliates to the Entity List on 16 May 2019 here; on the issuance of the original TGL on 20 May 2019 here; on the designation of forty-six additional non-US affiliates of Huawei to the Entity List and on the TGL updates issued on 19 August 2019 here; on BIS’s publication of Huawei-related FAQs on 9 September 2019 here; on BIS’s previous extensions of the TGL here and here; and on BIS’s request for comments on future extensions here and here.
 
The Expanded Foreign-Produced Direct Product Rule in General Prohibition Three. The final rule expands General Prohibition Three’s existing controls on foreign-produced items that are the direct products of certain designated US technology or software by adding a new control in § 736.2(b)(3)(vi). This new control prohibits the reexport, export from abroad, or transfer (in-country) of (1) certain foreign-produced items controlled under the new footnote 1 to the Entity List (2) when there is “knowledge” (as defined in the EAR) that the foreign produced item is destined for an entity on the Entity List with a footnote 1 designation. Currently, the footnote 1 designation has been added to the Entity List entries for Huawei and its listed affiliates only.
The new footnote 1 to the Entity List imposes a licensing requirement for the reexport, export from abroad, or transfer (in-country) by any person of foreign-produced items destined for a footnote 1 Entity List party when the foreign-produced item is either:
 
(1)
The direct product of designated “technology” or “software” (as defined in the EAR) subject to the EAR, i.e., the foreign-produced item is both:
(a)         
produced or developed by an entity with a footnote 1 designation on the Entity list, and
(b)         
direct product of designated “technology” or “software” that is “subject to the EAR” (note that such a direct product can include designated technology that is itself newly subject to the EAR through the new control, such as a design developed by an entity with a footnote 1 designation from designated technology or software that is subject to the EAR); or
 
(2)
The direct product of a plant or major component of a plant, i.e., the foreign-produced item is both:


(a) 
produced by a plant or major component of a plant that is itself a direct product of designated U.S.-origin “technology” or “software”, and


(b) 
a direct product of “technology” or “software” produced or developed by an entity with a footnote 1 designation on the Entity list, regardless of whether such “technology” or “software” is itself subject to the EAR.
 
The interim rule clarifies that a “major component of a plant located outside the United States” means “equipment that is essential to the ‘production’ of an item to meet the specifications of any design produced or developed by the designated entities, including testing equipment.”
Designated “technology” and “software” is the “technology” or “software” specified in Export Control Classification Numbers (“ECCN”) 3E001, 3E002, 3E003, 4E001, 5E001, 3D001, 4D001, or 5D001; “technology” specified in ECCN 3E991, 4E992, 4E993, or 5E991; or “software” specified in ECCN 3D991, 4D993, 4D994, or 5D991. In other words, this targeted expansion of the rule applies not only to “technology” or “software” controlled for National Security (NS) reasons, but also to “technology” or “software” controlled under the designated Anti-Terrorism (AT) ECCNs.
 
The new control captures, for example, a foreign-produced integrated circuit that is produced by a third party pursuant to designs developed by Huawei using designated technology or software, such as Electronic Design Automation software, subject to the EAR. One important effect of the new control may be its application to items produced by foreign companies outside the United States using equipment subject to the EAR pursuant to designs developed by Huawei. For example, as noted by BIS in the Federal Register Notice, integrated circuits produced in a foundry outside the United States through the use of equipment, which is subject to the EAR and essential to the production of the integrated circuit, will be subject to the new control if the design of the integrated circuit is produced or developed from Huawei “technology” or “software.” In that scenario, there is no additional requirement that the Huawei-developed technology or software must be subject to the EAR.  As such, the new control will likely have a significant impact on US semiconductor equipment manufacturers as well as their foreign semiconductor manufacturer customers.
 
Savings Clause
 
The interim final rule provides that foreign-produced items, which are the direct products of designated “technology” or “software” subject to the EAR (i.e., items falling within the scope of the first category of covered items above), that were in transit on May 15, 2020 pursuant to actual orders for exports from abroad, reexports, or transfers (in-country) to a foreign destination or to the consignee/end-user, may proceed to that destination under the previous license exception eligibility or without a license.
 
In addition, the interim final rule provides that foreign-produced items in production prior to May 15, 2020, which are the direct products of a plant or major component of a plant (i.e., items falling within the scope of the second category of covered items above), are not subject to the new control and may proceed as not being subject to the EAR, if applicable, or under the previous license exception eligibility or without a license, so long as they are exported from abroad, reexported, or transferred (in-country) by midnight on September 14, 2020. BIS described this savings clause as a measure intended to prevent adverse economic impacts on foreign foundries utilizing US semiconductor manufacturing equipment that may have initiated production for items based on Huawei design specifications as of May 15, 2020.
 
The Response from China. The Ministry of Commerce of the People’s Republic of China (“MOFCOM”) raised objection to the new BIS rule targeted at Huawei in a media interview on May 17, 2020. Huawei also made an announcement on the next day and mentioned that it expected to work with customers and suppliers to reduce the adverse impact brought by this “discriminatory” rule. Some Chinese news media commented that the Chinese government was ready to put US companies on an “unreliable entities list,” as part of countermeasures in response to the new limits on Huawei. Having said that, at this moment, whether and how the Chinese government would take countermeasures remains unclear and uncertain. Since MOFCOM announced the introduction of an “unreliable entity list” regime on May 31, 2019, little progress has been made in terms of the implementing rules such as the list itself and relevant restrictive measures. Understandably, the issuance of the “unreliable entities list” may have substantial implications on not only multinational companies but also Chinese companies, and could be very controversial in the international community. Having said that, it is possible that the Chinese government may tighten up enforcement actions against US-headquartered multinational companies in response to the new control on other grounds, e.g., violation of antitrust law, cybersecurity law and national security law, etc.

 
* Contact: 
messages@strtrade.com, 1-305-894-1035
 
The U.S. is conducting or exploring negotiations on bilateral trade agreements with a number of trading partners. U.S. Trade Representative Robert Lighthizer provided the following updates on these talks in June 17 hearings before the Senate Finance and House Ways and Means committees.
 
China
 
Senate Finance Ranking Member Ron Wyden, D-Ore., said the phase one trade agreement the U.S. and China concluded in January 2020 did not sufficiently address U.S. concerns about intellectual property theft and forced technology transfers and “is already coming apart” because China is falling behind on its commitments. Lighthizer acknowledged that China is not currently on pace to buy the agreed amounts of U.S. agricultural and energy products, due at least in part to the economic ramifications of the COVID-19 pandemic. However, he said, “every indication is that … they are going to do what they say,” and additional purchases are expected later this year. Secretary of State Mike Pompeo added that in a June 18 conversation China’s top foreign policy official “recommitted to completing and honoring all of the obligations of Phase 1 of the trade deal between our two countries.” The U.S. and China have said they plan to negotiate a phase two agreement, which Lighthizer said will focus on issues of overcapacity, subsidization, disciplines on China’s state-owned enterprises, and cyber theft, but no date for the initiation of those talks has yet been announced.
 
European Union
 
A U.S. trade agreement with the EU is “not looking good in the short term,” Lighthizer said, citing the EU’s policies on agricultural biotechnology as particularly problematic. According to Inside US Trade, he added that he is considering a Section 301 investigation of those policies that could lead to tariffs on imports of EU goods if necessary “to get a fair shake for American businesses.” He also said that “with recent changes in EU leadership, the United States is hopeful for more progress in the coming year.”
 
United Kingdom
 
The U.S. and the UK are currently conducting a second (virtual) round of talks on a bilateral trade agreement that would come into force after the UK officially leaves the EU. According to press reports, Lighthizer said the White House wants this to be “a full-blown agreement” but downplayed the prospects of concluding it before the end of 2020. “These things will take time,” the National Association of Farm Broadcasters quoted him as saying, “both because they’re complicated but also because each of us has to wrap ourselves around the fact that there is going to be a compromise in reaching a major trade deal.” For example, he indicated that the U.S. will be pushing for the UK to ease current restrictions and expand market access for U.S. agricultural products.
 
Japan
 
Lighthizer said the U.S. and Japan, which concluded a limited trade agreement in September 2019, intend to enter into further negotiations on customs duties, barriers to trade in services and investment, and other trade restrictions. Talks are expected to begin in a few months.
 
Kenya
 
USTR recently issued a summary of the specific objectives the U.S. has in negotiating a trade agreement with Kenya, and Lighthizer said he expected talks to get underway soon. However, Kenyan President Uhuru Kenyatta said recently that negotiations will be delayed until after the African Continental Free Trade Area takes effect. That had been set for July 1 but appears to have been delayed indefinitely due to the effects of the COVID-19 pandemic.
 
Brazil
 
USTR previously announced plans to conclude this year an agreement with Brazil on trade rules and transparency, including trade facilitation and good regulatory practices. According to press sources, Lighthizer clarified in the Ways and Means hearing that this agreement is designed to resolve “specific problems” with Brazil and that the U.S. has no plans at the moment for a bilateral free trade agreement.


(Source: Trump and Trade, 19 Jun 2020)
 
* Principal Author:
David M. Schwartz
, Esq., , 1-202-263-4170, Thompson Hine
 
The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced that it has issued General License (“GL”) 37  (Authorizing the Wind Down of Transactions Involving Delos Voyager Shipping Ltd, Romina Maritime Co Inc, and Certain Vessels), which expires on July 21, 2020.   Additionally, OFAC issued frequently asked question (“FAQ”) 834 addressing the scope of GL 37, and designated 18 individuals, entities and vessels to the Specially Designated Nationals and Blocked Entity (“SDN”) List pursuant to Executive Order (“EO”) 13850.
On November 1, 2018, President Trump issued EO 13850, which authorized the Secretary of the Treasury in consultation with the Secretary of State to block all property and interests in property of, among other things, any person:
   (1)
operating in the gold sector of Venezuela or the Venezuelan economy;
   (2)
involved in or with corruption or deceptive practices and the Venezuelan government or its projects; or
   (3)
materially assisting, sponsoring, or providing financial, material or technological support to persons falling into categories (1)-(2).
 
The EO authorized the blocking of any person owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person blocked under this EO.
On June 18, 2020, OFAC blocked 3 individuals, 8 entities and 2 vessels, for materially assisting entities that fell under parts 1 and 2 of the EO.   Among them were Delos Voyager Shipping Ltd, the Delos Voyager vessel (collectively, “Delos”), Romina Maritime Co. Inc., and the Euroforce vessel (collectively, “Romina”).  Pursuant to OFAC’s 50% rule, entities in which Delos or Romina owns a 50% or greater interest are also blocked.
Until July 21, 2020, GL 37 authorizes all transactions and activities otherwise prohibited by the Venezuela Sanctions Regulations, 31 C.F.R. Part 591 (“VSR”) “that are ordinarily incident and necessary to the wind down of transactions involving” Delos or Romina, and entities in which Delos or Romina owns a 50% or greater interest.  FAQ 834 provides that the following activities and transactions are authorized by GL 37:
(i)  
completion of ongoing voyages, including discharge of cargo aboard such vessels as of June 18, 2020;
(ii) 
docking or anchoring of the vessels at third-country, non-sanctioned ports;
(iii)
transactions related to the safety and maintenance of the vessels, such as entering into contracts and paying for insurance coverage, flagging, and safety and compliance inspections; and
(iv)
transactions related to the health and safety of any crew, including the provision and processing of wages or other employee benefits, or other provision of crewing services.
 
However, GL 37 does not authorize any new contracts with Delos or Romina or any debit to a Delos or Romina on the books of a U.S. account.  Non-U.S. persons are encouraged to seek guidance from OFAC if they are unable to meet the July 21, 2020 deadline for winding down their transactions with these entities.
OFAC also delisted two companies and two vessels from its SDN List after they committed to “enhanced risk-based sanctions compliance programs” and stopped their activities in Venezuela’s oil sector.


TE EX/IM MOVERS & SHAKERS

 

    

A well-known company in San Diego, CA, needs a Senior Export licensing Specialist with strong ITAR experience. Relocation assistance is possible.  Contact Jim Bartlett, JEBartlett@JEBartlett.com or 1-202-802-0646.

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TE EX/IM TRAINING EVENTS & CONFERENCES

TE_a1
9.
ECTI Presents: 
Foods, Supplements, Cosmetics, Devices…Oh My: How the FDA Regulates More Than You May Think! 
Webinar; 24 Jun
 
* What: 
Foods, Supplements, Cosmetics, Devices…Oh My: How the FDA Regulates More Than You May Think!
* When: 24 Jun; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: Shelly Garg, Attorney

* Register:
here 
or contact
Ashleigh Foor
, 1-540-433-3977

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EN EDITOR’S NOTES

EN_a110. Bartlett’s Unfamiliar Quotations

(Source: Editor)
  

* Karl Paul Reinhold Niebuhr
 (21 Jun 1892 – 1 June 1971; was an American theologian, ethicist, commentator on politics and public affairs, and professor at Union Theological Seminary for more than 30 years. Historian Arthur Schlesinger Jr. described Niebuhr as “the most influential American theologian of the 20th century.”)
  – “Forgiveness is the final form of love.” 
 
 
* Wilhelm von Humboldt
(22 Jun 1767 – 8 April 1835) was a Prussian philosopher, linguist, government functionary, and diplomat.)
  – “How a person masters his fate is more important than what his fate is.” (2020)
  – “I am more and more convinced that our happiness or our unhappiness depends far more on the way we meet the events of life than on the nature of those events themselves.” (2020)
 
Monday is pun day
* England doesn’t have a kidney bank, but it does have a Liverpool.
* Chemists know that alcohol is always a solution.
* Jill broke her finger today, but on the other hand, she was completely fine.
* The furniture store keeps calling me to come back. But all I wanted was one night stand.
* When everything is coming your way, you’re in the wrong lane.

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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. 
DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   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. 
6 May 2020: 85 FR 26847: Notice (not an amendment) temporarily reducing the registration fee schedule in ITAR 122.3 until April 30, 2021. 
 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

5 Jun 2020:
85 FR 84510:

Syria Sanctions Regulations. 

 
 
 
USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA), Revision 8.

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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