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20-0826 Wednesday “Daily Bugle”

20-0826 Wednesday “Daily Bugle”

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Wednesday, 26 August 2020

(No items of interest posted) 

  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: “Commerce Department Adds 24 Chinese Companies to the Entity List for Helping Build Military Islands in the South China Sea”
  3. State/DDTC: (No new postings)
  1. EU Sanctions: “Third Countries Extend Alignment with EU Restrictive Measures Concerning the Crimea and Sevastopol”
  1. Arent Fox: “CBP Extends Transition Period for Companies to Comply with New Hong Kong Marking Requirements”
  2. Husch Blackwell: “USTR Announces New Section 301 Product Exclusions for List 3”
  3. Kelley Drye: “Expansion of U.S. Huawei Restrictions: More Foreign-Made Items Are Caught by U.S. Export Controls”
  4. Steptoe: “Assessing the Impacts of Executive Order 13936 on Hong Kong’s Status, One Month Later”
  5. Thompson Hine: “TikTok Files Suit to Prevent U.S. Ban of its Mobile Application”
  1. ECS Presents: “ECS ITAR/EAR Webinar Series”
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  3. Webinar on 8 Sep: “Intro to ITAR/EAR from a Non-US Perspective”
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EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

[No relevant items for today]
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OGS OTHER GOVERNMENT SOURCES

(Source: Federal Register)
 
* Commerce/BIS; RULES; Addition of Entities to the Entity List, and Revision of Entries on the Entity List; [Pub. Date: 27 Aug 2020] (PDF)
 
* Commerce/BIS;PROPOSED RULES; Identification and Review of Controls for Certain Foundational Technologies; [Pub. Date: 27 Aug 2020] (PDF)
 
* Commerce/BIS; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals:End-User, Delivery Verification Certificates and Firearms Entry Clearance Requirements; [Pub. Date: 27 Aug 2020] (PDF)

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(Source: Commerce/BIS, 26 Aug 2020) [Excerpts]
 
The Bureau of Industry and Security (BIS) in the Department of Commerce (Commerce) added 24 Chinese companies to the Entity List for their role in helping the Chinese military construct and militarize the internationally condemned artificial islands in the South China Sea. Despite protests from the United States and other countries, the government of the People’s Republic of China (PRC) has been rapidly building the artificial islands since 2013, enabling the Communist Chinese Party’s (CCP) militarization of disputed outposts in the South China Sea to undermine the sovereign rights of U.S. partners in the region.

“The United States, China’s neighbors, and the international community have rebuked the CCP’s sovereignty claims to the South China Sea and have condemned the building of artificial islands for the Chinese military,” said Commerce Secretary Wilbur Ross. “The entities designated today have played a significant role in China’s provocative construction of these artificial islands and must be held accountable.”

Since 2013, the CCP has dredged and constructed more than 3,000 acres across seven features in the South China Sea, which include air defense and anti-ship missile features. In addition, the PRC’s dredging and construction of certain outposts violates the sovereign rights of the Republic of the Philippines, as determined by the Permanent Court of Arbitration in its July 2016 award in a case brought by the Philippines against the PRC. In the Entity List additions, Commerce determined these entities enabled China to construct and militarize disputed outposts in the South China Sea.

The Entity List is a tool utilized by BIS to restrict the export, re-export, and transfer (in-country) of items subject to the Export Administration Regulations (EAR) to persons (individuals, organizations, companies) reasonably believed to be involved, or to pose a significant risk of becoming involved, in activities contrary to the national security or foreign policy interests of the United States.  Additional license requirements apply to exports, re-exports, and transfers (in-country) of items subject to the EAR to listed entities, and the availability of most license exceptions is limited. 

These companies were placed on the Entity List for enabling the People’s Republic of China to reclaim and militarize disputed outposts in the South China Sea. …

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COM NEWS

(Source: EU Sanctions, 26 Aug 2020)
 
As previously reported, the EU adopted Council Decision (CFSP) 2020/850 which extended existing sanctions against Russia for 1 year in response to the annexation of Crimea and Sevastopol.

The EU announced that the following countries have aligned themselves with the Crimea and Sevastopol sanctions until 23 June 2021: Montenegro, Albania, Iceland, Norway, Ukraine, and Georgia. Declaration. Therefore, except for Iceland, these countries are simply extending measures for 

COM COMMENTARY

(Source: Arent Fox, 25 Aug 2020)
 
* Principal Author: Teresa M. Polino, Esq., 1-202-350-3745, Arent Fox
 
On August 21, 2020, CBP issued new guidance providing an additional 45-day transition period for compliance with new marking requirements for goods produced in Hong Kong that are imported into the United States. This extends the transition period for companies to comply with the requirements from September 25 to November 9, 2020.
 
What Is Happening?
As previously reported, on July 14, 2020, the President signed Executive Order 13936 on Hong Kong Normalization. As a result, CBP has issued a new marking requirement for goods that are produced in Hong Kong which enter United States customs territory. Currently, such goods are marked as “Made in Hong Kong.” However, according to an August 11, 2020, CBP Federal Register Notice, goods produced in Hong Kong will be required to be marked with China as their country of origin pursuant to 19 U.S.C.A § 1304 and 19 C.F.R. Part 134. Specifically, the notice stated that goods produced in Hong Kong, which are entered or withdrawn from warehouse for consumption into the United States will have to be marked country of origin “China” starting 45 days after the notice was published in the Federal Register. However, with CBP’s updated guidance, this transition period has effectively been doubled.
Why Compliance Matters and How Importers Can Comply With the New Marking Rule
Given the time necessary to mark goods, it is important that importers of goods produced in Hong Kong act quickly to ensure that they come into compliance with the marking requirements. Marking under 19 U.S.C.A. § 1304 requires that unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a many as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Further, a 10% ad valorem duty will be applied to articles that are not properly marked in accordance with the requirements of 19 U.S.C.A. § 1304 and 19 C.F.R. Part 134.
One significant clarification that CBP has provided on this new rule is that although goods imported from Hong Kong will soon have to be marked country of origin China, this change in marking requirements will not affect country of origin determinations for purposes of assessing (1) duties under Chapters 1-97 of the Harmonized Tariff Schedule of the United States (HTSUS), or (2) temporary or additional duties under Chapter 99 of the HTSUS, such as the China Section 301 duties. Despite this clarification, it is important to note that goods produced in Hong Kong that are imported into the United States should continue to report the International Organization for Standardization country “HK” as the country of origin when required. Thus, Hong Kong-produced goods will need to be physically marked country of origin “China,” but entry documentation should continue to report Hong Kong as the country of origin.
How Will the New Marking Requirement Affect Country of Origin Determinations?
Currently, the Executive Order only applies to marking requirements under 19 U.S.C § 1304. CBP has also explained that there is no change regarding Hong Kong Outward Processing Arrangements (OPA). Thus, even when goods are produced under an OPA, CBP will independently review the processes conducted in Hong Kong and the OPA country to determine the origin of the product under the applicable CBP rules. Significantly, CBP has issued several textile and apparel rulings involving Hong Kong’s OPA arrangement and, in at least one, HQ 959425 (August 21, 1996) China was determined to be the country of origin under the applicable origin rules for textile and apparel products in 19 CFR 102.21. Such a finding could create significant duty liability. According to CBP, these are case-specific findings, so stakeholders should seek advice regarding complex situations where significant portions of raw materials and processing occur outside of Hong Kong.
Next Steps
CBP is expected to begin enforcing the marking requirements, on or around November 9, 2020. Further, because the United States has continued a high-pressure campaign against Hong Kong and CBP has extended the timeline for application of the new rule, it is imperative that importers act to comply within the allotted timeframe, as CBP may be expected to strictly enforce the rule.

(Source: Husch Blackwell, 25 Aug 2020)
 
* Principal Author: Camron J. Greer, Assistant Trade Analyst, 1-202-378-2413, Husch Blackwell
 
The Office of the U.S. Trade Representative (“USTR”) issued two (2) new product exclusions pertaining to the Section 301 List 3 tariffs.  The current tariff is 25%.  The new exclusions include 2 specific product descriptions that together cover 2 separate exclusion requests.  According to the USTR, the product exclusions apply retroactively from September 24, 2018 through August 7, 2020.
 
The 2 new exclusions are for the following products:
  • Wallets, whether or not with wrist straps, of reinforced plastics, each measuring at least 17.5 cm long by 2 cm wide by 11 cm high and not more than 19 cm long by 2 cm wide by 11 cm high (described in statistical reporting number 4202.32.1000)
  • Mixtures containing N,Ndimethyldodecan-1-amine (CAS No. 112-18-5) and N,N-dimethyltetradecan-1-amine (CAS No. 112-75-4) (described in statistical reporting number 3824.99.9297)

(Source: Kelley Drye, 25 Aug 2020)
 
* Principal Author: Robert Slack, Esq., 1-202-342-8622, Kelley Drye
 
On August 20, the Bureau of Industry and Security (“BIS”) published a final rule (“final rule”) amending the Export Administration Regulations (“EAR”) to expand restrictions on transactions involving Huawei entities that are included on BIS’s Entity List (“designated Huawei entities”).  The newly expanded rule applies to a broader range of items produced outside of the United States, including certain generic, commercial off-the-shelf items, and is the most recent step in a series of U.S. trade control actions targeting China.
At a high level, the new rule prohibits the export, re-export, or transfer of certain items produced outside the United States if you know that the foreign-made item will be incorporated into or used in the “production” or “development” of an item intended for a designated Huawei entity or if the foreign-made item will be provided to a designated Huawei entity.  The rule also applies to shipments involving certain foreign-made items where Huawei plays any role, including as a purchaser, intermediate consignee, ultimate consignee, or end-user.
 
The following foreign-made items are subject to the new rule:
  • Foreign-made items that are direct products of technology or software subject to the EAR and that are classified under Export Control Classification Numbers (ECCNs) 3D001, 3D991, 3E001, 3E002, 3E003, 3E991, 4D001, 4D993, 4D994, 4E001, 4E992, 4E993, 5D001, 5D991, 5E001, or 5E991; or
  • Foreign-made items that are produced by a non-U.S. plant or major component of a non-U.S. plant if that plant or major component is itself a direct product of U.S.-origin technology or software classified under those ECCNs.[FN/1]
This is the second time BIS has expanded the EAR’s “Direct Product Rule” for shipments involving Huawei.  A previous version of the rule, which was issued on May 15, 2020, was more limited in scope, and only applied to: 1) items that were produced using specified equipment that was the direct product of certain U.S. software or technology; and 2) items that were the direct product of software or technology produced or developed by a Huawei entity included on the Entity List.
The August 20 rule also adds 38 additional Huawei companies to the Entity List and replaces a temporary general license with an authorization that allows parties to provide limited security cybersecurity research to designated Huawei entities.  Other transactions involving Huawei that are subject to the new rule require a license from BIS.  Such license requests will generally be reviewed pursuant to a “policy of denial,” unless the transaction involves items that are only capable of supporting equipment at below the 5G level (e.g., 4G and 3G technology).
 
[FN/1] The new rule contains a savings clause excluding from control certain foreign-made items that were in production prior to August 17, 2020 until September 14, 2020.  The savings clause is narrow in scope and

(Source: Steptoe, 25 Aug 2020) [Excerpts]
 
* Principal Author: Alexandra Baj, Esq., 1-202-429-6478, Steptoe
 
On July 14, the president issued Executive Order (EO) 13936, directing US federal agencies to revoke or suspend the Hong Kong Special Administrative Region’s (HKSAR) special status from mainland China under select laws and regulations. EO 13936 specifies a wide range of differential treatment historically granted to Hong Kong by regulation and program inclusion, implemented by various US government agencies, from economic sanctions and export controls, to immigration and academic exchanges. As of August 15, several agencies have announced rule changes or proposed changes to implement the president’s directive.
After one month, what are the major impacts of EO 13936 on individuals and companies doing business or investing in Hong Kong?
 
Background
On May 28, Secretary of State Mike Pompeo submitted the 2020 Hong Kong Policy Act Report to Congress, certifying that the HKSAR “does not continue to warrant treatment under US laws in the same manner as US laws were applied to Hong Kong before July 1997.” The secretary’s certification was pursuant to section 301 of the United States-Hong Kong Policy Act of 1992 (HKPA), as amended, which requires the Department of State to certify to Congress annually whether Hong Kong continues to warrant differential treatment under US law.
On May 29, the president announced that his administration would “begin the process” of revoking the HKSAR’s separate treatment from mainland China under US laws, a status afforded to the HKSAR under the Hong Kong Policy Act of 1992. Furthermore, he said that his administration would sanction Chinese and Hong Kong officials “directly or indirectly involved in eroding” the HKSAR’s autonomy.
On July 2, Congress passed the Hong Kong Autonomy Act (HKAA), authorizing sanctions on foreign persons responsible for certain actions in Hong Kong and financial institutions that knowingly engage in significant transactions with them. On July 14, the president signed the HKAA into law and issued EO 13936.
 
Scope of EO 13936
Section 3 of EO 13936 directs the heads of relevant agencies to “commence all appropriate actions [within 15 days] to further the purposes” of EO 13936 on 11 topics including export controls, immigration, and extraditions. Section 3 will also end Hong Kong’s separate participation in the Fulbright exchange program and training of members of Hong Kong’s Police Force at the State Department’s International Law Enforcement Academies, among other actions.
The order excludes mutual legal assistance, civil aviation, and financial services regulation, and a handful of other areas where the HKSAR differs from mainland China. However, section 3 also directs agencies to recommend “further actions deemed necessary and prudent to end special conditions and preferential treatment for Hong Kong,” leaving the door open to further changes.
Section 4 of EO 13936 authorizes the Treasury and State Departments to impose blocking sanctions on foreign persons in relation to certain events in Hong Kong. For discussion of economic sanctions under EO 13936, refer to Steptoe’s July 15 client alert, “US Executive Order Implements, Strengthens Hong Kong Sanctions” and Steptoe’s August 14 International Compliance Blog post, “Financial Institutions Watch and Wait as OFAC Sanctions Top Hong Kong Officials.”
This client alert provides a summary of EO 13936’s impact on export controls, arms controls, investigations and white-collar defense, immigration, and trade, with contributions from Steptoe’s cross-border teams based in Washington, DC, New York, and Hong Kong.

(Source: Trump and Trade, 25 Aug 2020)
 
On August 24, 2020, TikTok Inc. and its Chinese parent, ByteDance, Ltd., filed suit in the Central District of California against President Donald J. Trump, Secretary of Commerce Wilbur Ross and the U.S. Department of Commerce, in an effort to prevent the government from banning its video-sharing mobile application pursuant to the Executive Order issued on August 6, 2020, which broadly prohibits transactions by any person related to TikTok, ByteDance and any of its subsidiaries.  The president’s order had determined that the “spread in the United States of mobile applications developed and owned by companies in the People’s Republic of China (China) continues to threaten the national security, foreign policy, and economy of the United States.”  In the filed complaint, TikTok and ByteDance seek injunctive and declaratory relief and argue that the Executive Order violates their constitutional rights, and is not authorized by the International Emergency Economic Powers Act (“IEEPA”), upon which it is based.
More specifically, Tiktok and ByteDance maintain that the app does not present “an unusual and extraordinary threat,” as required by law, and that the “executive order is not rooted in bona fide national security concerns,” making it ultra vires or an act beyond the authority granted to the president by IEEPA.  Instead, the complaint states that the ban was issued by the president “for political reasons rather than because of an ‘unusual and extraordinary threat’ to the United States.”  The complaint contains seven counts against the defendants, two for violations of the Fifth Amendment’s due process and takings clauses, one for violation the First Amendment’s freedom of speech clause, and four for violations of IEEPA.  Tiktok has issued a statement in support of its lawsuit explaining its previous efforts to cooperate with the Committee on Foreign Investment in the United States (CFIUS).
The complaint comes 10 days after another Executive Order issued on August 14, 2020 directing the 2017 transactions that resulted in the acquisition of Musical.ly, now TikTok, by ByteDance be unwound for similar national security reasons.  For more information on the August 14, 2020 Executive Order or the August 6, 2020 Executive Order, please see our updates dated August 17, 2020 and August 7, 2020, respectively.

TE EX/IM TRAINING EVENTS & CONFERENCES

(Source: ECS)
 
*What:  ECS ITAR/EAR Webinar Series
*When:  Webinars Each Week Through December 2020
*Where:  Your Computer
*Sponsor: Export Compliance Solutions & Consulting (ECS)
*ECS Speakers:  Suzanne Palmer
*Register: here for individual webinars, herefor a 4-pack, here for an 8-pack, or write to liz@exportcompliancesolutions.com or call 1-866-238-4018
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Intro to ITAR & EAR from a non-US Perspective
Tuesday, 8 September 2020
More Info
Special Offer: $199
The ABC of Foreign Military Sales (FMS)
Tuesday, 29 September 2020
Designing and Implementing an ICP
Tuesday, 6 October 2020 More Info
Wednesday, 7 October
More Info
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EN_a112. Webinar on 8 Sep: “Intro to ITAR & EAR from a Non-US Perspective”

* What: “Intro to ITAR & EAR from a Non-US Perspective”
* Where: Zoom Webinar
* When: Tuesday, 8 Sep, 3-6 pm CEST (Amsterdam), 9-noon EDT (NY); 6-9 am PDT (LA)
* Instructors:
   – Jim Bartlett, JD, LLM, author of Bartlett’s Annotated ITAR (the “BITAR”) and co-author of textbook, United States Export Controls
   – Marco Crombach, MSc, COO, Full Circle Compliance
* Prerequisite knowledge: None. This is an introductory class.
* The courses will answer the questions:
  • How are US export controls enforced outside the United States?
  • What US-origin articles and technology are subject to US laws?
  • How do you tell whether the ITAR, the EAR, or no regulations apply to US-origin products?
  • What actions by non-US persons are subject to US export controls?
  • What should you do if you suspect you have violated the ITAR or EAR?
  • How can your company avoid US export controls?
* Tuition: $199 (volume discounts available). Attendees will receive training certificates.
* Register here or contact Jim Bartlett at 1-202-802-0646 or JEBartlett@FullCircleCompliance.eu.

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EN EDITOR’S NOTES

EN_a213. Bartlett’s Unfamiliar Quotations

(Source: Editor)
 

* Earl Long (Earl Kemp Long; 26 Aug 1895 – 5 Sep 1960; was an American Democratic party politician and the 45th Governor of Louisiana, serving three nonconsecutive terms. Known as “Uncle Earl”, he connected with voters through his folksy demeanor and colorful oratory.  He was the younger brother of former Governor of Louisiana and U.S. Senator, Huey “The Kingfish” Long.)
  – “The kind of thing I’m good at is knowing every politician in the state and remembering where he itches. And I know where to scratch him.” (2020)
  – “I can make them voting machines sing Home Sweet Home.”
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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. 
20 Aug 2020: 85 FR 51335 and  51596: Additions to the Entity List, removal of Huawei’s temporary general license, and supplemental license requirements for parties listed on the Entity List.
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. 

29 Jul 2020: 85 FR 45513 Extension to Certain Temporary Suspensions, Modifications, and Exceptions due to Corona Virus.  The latest edition of the BITAR is 29 July 2020.  

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

17 Jul 2020: 85 FR 43436: Nicaragua 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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