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20-0915 Tuesday “Daily Bugle”

20-0915 Tuesday “Daily Bugle”

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Tuesday, 15 September 2020

  1. Treasury/OFAC: “Blocking or Unblocking of Persons and Properties”
  2. State/DDTC: “Certification Related to Foreign Military Financing Under the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2020: Egypt”
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State/DDTC: (No new postings)
  4. UK OFSI: “Financial sanctions, Ukraine (Sovereignty and Territorial Integrity)”
  1. Atlantic Council: “Regulatory Combat: Export Controls as Ammunition Against National Security Threats”
  1. Husch Blackwell: “Court of International Trade Receives its First Complaint Against Section 301 China Tariffs”
  2. Thompson Hine: “U.S. Importer Sues U.S. Trade Representative for “Unlawful Escalation” of Section 301 Tariffs Against China”
  1. ECS Presents: 21-22 Oct; “3rd Annual ITAR/EAR Symposium and Managing ITAR/EAR Complexities”
  2. FCC Academy Presents 4 Webinars: U.S. Export Controls: ITAR & EAR | FMS | Designing and Implementing an ICP
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here. 
  3. Weekly Highlights of the Daily Bugle Top Stories 
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load to your laptop to keep you updated on the latest amendments, and contain over 800 footnotes of section history, key cases, practice tips & tricks, and extensive Tables of Contents. The ITAR amendments to the ITAR that took effect on 9 March and 25 March are included in the current edition of the BITAR.  Subscribers receive updated editions every time the regulations are amended (usually within 24 hours) so you will always have the current versions of the regulations. Subscribe to the BITAR now to guarantee you have an up-to-date ITAR!    
 

Bartlett’s Annotated ITAR and Bartlett’s Annotated FTR are Word documents to down-

load to your laptop to keep you updated on the latest amendments, and contain over 800 footnotes of section history, key cases, practice tips & tricks, and extensive Tables of Contents. The ITAR amendments to the ITAR that took effect on 9 March and 25 March are included in the current edition of the BITAR.  Subscribers receive updated editions every time the regulations are amended (usually within 24 hours) so you will always have the current versions of the regulations. Subscribe to the BITAR now to guarantee you have an up-to-date ITAR!    
 

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EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11. Treasury/OFAC: “Blocking or Unblocking of Persons and Properties”

(Source: Federal Register) [Excerpts]
 
85 FR 57293: Notice
 
* AGENCY: Office of Foreign Assets Control (OFAC), Treasury.
* ACTION: Notice.
* SUMMARY: The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is publishing the names of one or more persons that have been placed on OFAC’s Specially Designated Nationals and Blocked Persons List based on OFAC’s determination that one or more applicable legal criteria were satisfied. All property and interests in property subject to U.S. jurisdiction of these persons are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.
* DATES: See SUPPLEMENTARY INFORMATION section for applicable dates.

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EXIM_a22. State/DDTC: “Certification Related to Foreign Military Financing Under the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2020: Egypt”

(Source: Federal Register) [Excerpts]
 
85 FR 57286: Notice
 
* AGENCY: Directorate of Defense Trade Controls State Department.
* ACTION: Notice.
* SUMMARY: By virtue of the authority vested in me as Secretary of State pursuant to section 7041(a)(l) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2020 (Div. G, Pub.L. 1 16-94), I hereby certify that the Government of Egypt is sustaining the strategic relationship with the United States and meeting its obligations under the 1979 Egypt-Israel Peace Treaty. … 

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OGS OTHER GOVERNMENT SOURCES

(Source: Federal Register
 
* Treasury/OFAC; NOTICES; Blocking or Unblocking of Persons and Properties; [Pub. Date: 16 Sep 2020]
 
* Commerce/BIS; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Rated Orders Under the Defense Priories and Allocations System; [Pub. Date: 16 Sep 2020]
 
* State/DDTC; NOTICES; Bureau of Political-Military Affairs, Directorate of Defense Trade Controls: Notifications to the Congress of Proposed Commercial Export Licenses; [Pub. Date: 16 Sep 2020]
 
* USTR; NOTICES; Product Exclusion:China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation; [Pub. Date: 16 Sep 2020]

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OGS_a24. Commerce/BIS: (No new postings)

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(Source: UK OFSI, 14 Sep 2020) [Excerpts]
 
Financial sanctions imposed by the European Union are currently in place against those undermining or threatening the sovereignty and territorial integrity of Ukraine. This page contains a current list of designated persons and information on relevant regulations.

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COM NEWS

(Source: Atlantic Council, 14 Sep 2020)
 
Although trade and economic sanctions are often the go-to regulatory device to address national security and foreign policy objectives, the US government has increasingly wielded its export controls arsenal-including targeted strikes against perceived bad actors-for similar purposes.  The US Department of Commerce’s (“Commerce”) recent actions aimed at Huawei Technologies and a high number of its non-US affiliates demonstrate this toolkit. These actions could deliver a significant blow to Huawei’s ability to procure certain US-indigenous parts, components, software, and technology, but they also merit attention for the resulting compliance challenges and burdens facing industry, particularly given the technical intricacies of certain new rules.
 
Bringing Commerce’s power to bear
The United States government administers and enforces a wide range of controls-issued pursuant to different legal authorities and implemented through a variety of regulatory regimes-relating to cross-border trade, transactions, and investments. Of the many agencies involved, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) is likely the most publicly well-recognized. Primarily responsible for administering the United States’ myriad sanctions programs, OFAC’s actions often make headlines. In recent years OFAC has been involved in high profile actions in relation to the implementation of and subsequent withdrawal from the Joint Comprehensive Plan of Action, the sanctioning of a number of high profile Russian oligarchs, government officials, and entities, and the blocking of the Government of Venezuela and its state-owned and -controlled entities. Though varied, many of OFAC’s sanctions programs are effectively full-blown prohibitions on dealings with particular countries, entities, and individuals; further, OFAC sanctions can have broad extraterritorial reach, and are generally aggressively enforced. In these respects, OFAC sanctions are powerful tools for promoting US national security and foreign policy objectives.
 
Increasingly, however, Commerce has proven itself to be a formidable force in serving similar goals. Commerce, through the Bureau of Industry and Security (BIS), administers and enforces the US Export Administration Regulations (EAR), which principally regulate commercial and dual-use items that (1) originate or are otherwise located in the United States (including in transit); (2) are developed outside the United States but comprise de minimis amounts of US-origin controlled content (in most cases, 25 percent or more of the end item’s fair market value); or (3) are the direct product of certain US-origin technology and software. Certain exports, reexports, or transfers-which collectively refer to various cross-border transactions or releases to non-US persons-of items subject to the EAR trigger licensing requirements (an analysis which requires technical and fact-specific evaluation of several factors, including the nature of the item, and the country or countries, end-users, and end-uses involved).
 
Beyond the EAR’s standard export restrictions, BIS maintains various restricted parties lists. The Entity List comprises entities, organizations, research institutes, individuals, and other legal persons-designated on the grounds that they present a threat to US national security and/or foreign policy interests-that are subject to license requirements independent of, and in addition to, license requirements set forth elsewhere in the EAR. The Entity List restrictions can range from requiring licensing only for particular items to precluding the listed party from receiving all items subject to the EAR. Further, BIS may adopt a range of licensing policies with respect to the listed parties, including case-by-case review or a more restrictive policy of presumption of denial, meaning that export licenses are not likely to be issued.
 
Taking aim at Huawei. In recent months, BIS has deployed, and even expanded, its regulatory powers against Huawei in the following noteworthy actions.
 
Entity List designationsIn May 2019, BIS added Huawei to the Entity List (with subsequent Huawei-related additions in May and August). In making the original designation, BIS indicated “that there is reasonable cause to believe that [Huawei] has been involved in activities determined to be contrary to the national security or foreign policy interests of the United States,” citing as a consideration Huawei’s indictment in the Eastern District of New York for various violations of US law, including with respect to the International Emergency Economic Powers Act.
 
As a result of the listing, no person may export, reexport, or transfer any EAR-regulated items to Huawei, absent a specific license from BIS. As noted, items subject to the EAR are not limited to those originating in the United States, but under the EAR’s de minimis rule, include certain foreign-developed or produced items. Accordingly, certain items that have never been within the territorial bounds of the United States are still captured, and transfers of such items-by any person, regardless of location or nationality-to Huawei without a BIS license would result in a violation of the EAR. Importantly, BIS recently clarified that the Entity List restrictions are triggered regardless of whether Huawei actually takes delivery of the item, but rather when Huawei acts as the purchaser, intermediate or ultimate consignee, or end-user. Applications for authorization to export, reexport, or transfer EAR-regulated items to Huawei are subject to a licensing policy of presumption of denial.
 
Foreign Direct Product Rule:  In May 2020 and again in August 2020, BIS expanded the EAR to cover additional items that are the direct product of certain US-origin technology and software (“Foreign Direct Product Rule”). Previously, the Foreign Direct Product Rule subjected to the EAR items that were developed or manufactured outside the United States based on US-origin technology and software controlled for National Security reasons only, or developed within a plant or major component of a plant that is itself the direct product of the same. Effective May 15, 2020, BIS issued an interim Direct Foreign Product Rule extending coverage to items that are the direct product of technology and software subject to the EAR and described under a wider swath of Export Control Classification Numbers (3E001, 3E002, 3E003, 4E001, 5E001, 3D001, 4D001, 5D001, 3E991, 4E992, 4E993, 5E991, 3D991, 4D993, 4D994, or 5D991, collectively “Covered ECCNs”), or that are produced from plants or major components of plants that are themselves the direct product of the same, when there is a Huawei nexus in the design, development, or production of such items.
 
Based in part on comments to the interim rule, BIS subsequently further expanded the Direct Foreign Product Rule effective August 17, 2020. Notably, the expanded rule eliminated the requirement that covered items be produced, developed, or designed by Huawei. Now, if a foreign-produced item is the direct product of technology or software subject to the EAR and described in a Covered ECCN, or if the item is produced by a plant or major component of a plant that is the direct product of the same, then a person cannot, without a BIS license, engage in a transaction involving that item when the person has knowledge (which includes actual knowledge as well as reason to know) that such item: (1) will be incorporated into, or will be used in the “production” or “development” of any “part,” “component,” or “equipment” produced, purchased, or ordered by Huawei; or (2) Huawei is a party to a transaction involving a foreign-produced item, as purchaser, intermediate consignee, ultimate consignee, or end-user. The expanded rule adopts a licensing policy of presumption of denial in most cases, but a case-by-case review for qualifying items that support the “development” or “production” of telecommunications systems, equipment, and devices that fall below the 5G level.
 
The primary impact of the expanded Foreign Direct Product Rule, which is intended to further cripple Huawei’s critical supply chain, is that it now reaches off-the-shelf products not previously captured (due to the absence of a design or production nexus to Huawei). Such products will now trigger a license requirement in connection with transactions knowingly involving Huawei. 
 
The cost on industry
Although a close parsing of these actions may reveal certain limitations on potential impact, it nonetheless seems likely that they will be effective in hamstringing Huawei’s supply chain as intended, at least with respect to more technologically advanced items. This prediction is predicated in part on what seems like reasonable anticipation of a resulting chilling effect on industry, which is effectively responsible for implementing these rules through its compliance response. Indeed, Huawei’s suppliers and other counterparties must now undertake the technically challenging, time- and resource-consuming, and costly process of determining whether the items they provide or otherwise make available to Huawei are subject to the EAR. For many, sufficient product evaluation work may be impracticable or otherwise deterring, and may therefore induce an even deeper bruising of Huawei’s supply chain than the restrictions contemplate.
 

BIS’s Huawei-related actions demonstrate the ways in which export controls can be levied-with respect to both particular items and parties-as an effective weapon in furtherance of national security and foreign policy strategies. Because the EAR are a property-based regime implicated when any person engages in transactions involving covered items, these regulations have the force of widespread impact-on both their intended targets as well as industry. After all, although BIS calls the regulatory shots, industry is the real foot soldier of implementation.

COM COMMENTARY

(Source: Husch Blackwell, 14 Sep 2020)
 
* Principal Author: Nithya Nagarajan, Esq., 1-202-378-2409, Husch Blackwell
 
On September 10, 2020, HMTX Industries LLC, along with Halstead New England Corporation, and Metroflor Corporation (importers of vinyl tile) filed a complaint (Ct. No. 20-00177) at the Court of International Trade (CIT) challenging both the substantive and procedural processes followed by the United States Trade Representative (USTR) when instituting Section 301 Tariffs on imports from China under List 3. The List 3 tariffs went into effect on September 24, 2018. This is the first challenge of its kind filed against the administration’s use of Section 301 Tariffs in the ongoing trade war between the United States and China.
 
The complaint alleges that USTR’s institution of List 3 tariffs violated the Trade Act of 1974 on the grounds that USTR failed to make a determination or finding that there was an unfair trade practice that required a remedy and moreover, that List 3 tariffs were instituted beyond the 12 month time limit provided for in the governing statute (19 U.S.C. § 2414). The complaint also argues that the manner in which in the List 3 tariff action was implemented violated the Administrative Procedures Act (APA). According to the complainants, USTR failed to provide adequate opportunity for comments, failed to consider relevant factors when making its decision (e.g. no analysis of increased burden on U.S. commerce from unfair trade practices), and failed to connect the record facts to the choices it made by not explaining how the comments received by USTR came to shape the final implementation of List 3.

(Source: Smart Trade, 14 Sep 2020)
 
* Principal Author: Scott E. Diamond, Esq., 1-202-263-4197, Thompson Hine
On September 10, 2020, HMTX Industries LLC and two of its subsidiaries (“complainants”) filed a complaint at the U.S. Court of International Trade (“CIT”) alleging an unlawful escalation of the ongoing trade war with China through the imposition of a third round of tariffs on imports covered under List/Tranche 3.  Arguing that the Trade Act of 1974 did not confer authority on the Office of the U.S. Trade Representative (USTR) “to litigate a vast trade war for however long, and by whatever means, they choose”, the complaint states that  the USTR had a limited time to determine any actions to take and that the “arbitrary manner” in which the List 3 tariff actions were implemented violates the Administrative Procedure Act (APA).  The complainants seek to set aside these unlawful actions and obtain a refund of any duties paid on imports of List 3 products from China.
 
The complaint acknowledges that Section 301 of the Trade Act of 1974 authorizes the USTR to investigate a foreign country’s trade practices and that the USTR may take “appropriate” action, such as imposing tariffs on imports from the country that administered the unfair practice, if “unreasonable or discriminatory” practices are present.   The complainants argue, however, that Section 304 of the Trade Act of 1974 requires the USTR to determine what action to take, if any, within 12 months after the initiation of the investigation and that the USTR failed to issue additional tariffs for Chinese products on List 3 (or subsequently List 4) within this 12-month window.  The complaint further argues that Section 307 of the Trade Act of 1974 “does not permit USTR to expand the imposition of tariffs to other imports from China for reasons untethered to the unfair intellectual property policies and practices it originally investigated under Section 301 of the Trade Act.”  Nevertheless, in the months following the conclusion of the Section 301 investigation and the initial implementation of List 1 and 2 tariff actions, the complaint states, the USTR “wildly expanded the scope of the tariffs imposed under Section 301 of the Trade Act to cover imports worth more than $500 billion-ten times the amount it had deemed ‘commensurate’ with the findings of USTR’s original investigation.”  The complaint argues that Section 307 only allows the USTR to “delay, taper, or terminate-not ratchet up-the actions it has already taken.”
In support of their allegations that the USTR was arbitrary and capricious in its implementation of List 3 tariffs under the APA, the complainants claim that the USTR failed to: (1) provide sufficient opportunity for public comment; (2) consider relevant factors when making its decision; and (3) connect the record facts to the choices it made.  According to the complaint, “despite receiving over 6,000 comments, USTR said absolutely nothing about how those comments shaped its final promulgation of List 3” and USTR’s “preordained decision-making preordained decision-making resulted in the unlawful imposition of tariffs on imports covered by List 3 whose value equals $200 billion.”
 
The complainants request that the CIT: (i) declare the USTR’s actions resulting in tariffs on List 3 products are unauthorized by, and contrary to, the Trade Act of 1974; (ii) declare the USTR arbitrarily and unlawfully promulgated List 3 in violation of the APA; (iii) vacate the China Section 301 List 3 rulemaking; (iv) order a refund, with interest, on any duties paid by the complainants; and, (v) permanently enjoin USTR from applying List 3 and collecting any duties pursuant to List 3.  The case is captioned HMTX Industries LLC, Halstead New England Corporation, and Metroflor Corporation vs. United States of America; Office of the United States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; Mark A. Morgan, U.S. Customs & Border Protection Acting Commissioner; Court No. 20-00177.

TE EX/IM TRAINING EVENTS & CONFERENCES

(Source: ECS)
 
*What:  ITAR/EAR Controls for Non-U.S. Companies
*When:  15-16 Oct
*Where:  Your Computer
*Sponsor: Export Compliance Solutions & Consulting (ECS)
*ECS Speakers:  Suzanne Palmer, Mal Zerden
*Register: here or write to liz@exportcompliancesolutions.com or call 1-866-238-4018
* * * * * * * * * * * * * * * * * * * *

The ABC of Foreign

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

EN EDITOR’S NOTES

EN_a112. Bartlett’s Unfamiliar Quotations

(Source: Editor)
 

* Francois de La Rochefoucauld (François VI, Duc de La Rochefoucauld, Prince de Marcillac; 15 Sep 1613 – 17 Mar 1680) was a noted French author of maxims and memoirs. He is part of the literary movement of classicism and best known for his maxims.)
 – “Gratitude is merely the secret hope of further favors.”
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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. 
27 Aug 2020: 85 FR 52898Additions of Entities to the Entity List and Revisions of entries 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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