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20-0930 Wednesday “Daily Bugle”

20-0930 Wednesday “Daily Bugle”

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Wednesday, 30 September 2020

  1. Justice/ATF: “Federal Firearms License Renewal Application”
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State Dept: Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities
  4. DHS/CBP: “GUIDANCE: Section 301 Tranche 1 – $34B Action Extension of Product Exclusions from China”
  1. The Diplomat: “Why US Export Control Policy Matters”
  2. The Star: “Export Control among New Laws to be Tabled at China’s Parliament Oct 13-1”
  1. Husch Blackwell: “D.C. District Court Judge Blocks Commerce’s TikTok Ban”
  2. Kelley Drye: “OFAC Extends Authorization for Wind Down and Divestment Activities Involving Xinjiang Production and Construction Corps (XPCC) Subsidiaries”
  3. ST&R Trade Report: “Cuban Entities Subject to Export Restrictions Updated”
  4. Steptoe: “New CFIUS “Critical Technology” Mandatory Filing Rules Increase Importance of Export Controls Analysis”
  1. FCC Academy Presents: 6-7 Oct; “Designing an ICP” & “Implementing an ICP”
  1. Bartlett’s Unfamiliar Quotations 
  2. A New BITAR is Available 
  3. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here. 
  4. Weekly Highlights of the Daily Bugle Top Stories 
  5. Submit Your Job Opening and View All Job Openings 
  6. Submit Your Event and View All Approaching Events 

EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

(Source: Federal Register) [Excerpts]
 
Notice: 85 FR 61770
 
* AGENCY:Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION:30-day notice.
* SUMMARY:The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
* DATES:Comments are encouraged and will be accepted for an additional 30 days until October 30, 2020.

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OGS OTHER GOVERNMENT SOURCES

 
* Treasury/OFAC; RULES;International Criminal Court-Related Sanctions Regulations; [Pub. Date: 1 Oct 2020]
 
* Treasury/OFAC; RULES; Weapons of Mass Destruction Proliferators Sanctions Regulations and Iranian Transactions and Sanctions Regulations; [Pub. Date: 1 Oct 2020]

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OGS_a23. Commerce/BIS: (No new postings)

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Today, the U.S. Department of State released guidance to assist U.S. companies seeking to prevent their products or services with surveillance capabilities from being misused by foreign government end-users to commit human rights abuses.
Too often, products or services with surveillance capabilities are misused by foreign governments to stifle dissent; harass human rights defenders; intimidate minority communities; discourage whistle-blowers; chill free expression; target political opponents, journalists, and lawyers; or interfere arbitrarily or unlawfully with privacy.  Governments employ these items as part of a broader state apparatus of oppression that violates and abuses human rights and fundamental freedoms, including freedoms of expression, religion or belief, and association, and the right of peaceful assembly.
To help minimize this risk, the U.S. Department of State developed voluntary human rights due diligence guidance to help U.S. businesses conduct a human rights impact assessment on relevant products or services, and to provide them with a series of considerations to weigh prior to engaging in transactions with governments.  The guidance – a first-of-its-kind tool to implement the UN Guiding Principles on Business and Human Rights on this issue – is intended to be particularly helpful for U.S. businesses that want to undertake a human rights review when the U.S. government does not require an authorization for export.
The full guidance document can be found HERE  

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(Source: DHS/CBP, 28 Sep 2020) [Excerpts]
 
BACKGROUND
On September 22, 2020, the U.S. Trade Representative (USTR) published Federal Register (FR) Notice 85 FR 59587 to extend through December 31, 2020 certain product exclusions previously covered by the September 20, 2019 notice (see 84 FR 49564) for Section 301 duties on China (Tranche 1 – $34B Action).
 
This product exclusion extension relates to the imposed additional duties on Chinese goods with an annual trade value of approximately $34 billion.  Duty exclusions granted by the USTR for the extension are effective with respect to entries on or after September 20, 2020 and extend through December 31, 2020. 
The exclusions listed are available for any product that meets the description as set out in the Annex to 85 FR 59587, regardless of whether the importer filed an exclusion request.  Further, the scope of each exclusion is governed by the scope of the 10-digit HTSUS headings and product descriptions provided in the Annex to 85 FR 59587, not by the product descriptions set out in any particular request for exclusion.
The functionality for the acceptance of the extended product exclusions will be available in ACE as of 7 am eastern standard time, September 29, 2020.
 
GUIDANCE
Instructions for importers, brokers, and filers on submitting entries to CBP containing granted exclusions by the USTR from the Section 301 measures are set out below:
  • Per 85 FR 59587, in addition to reporting the regular Chapters 84, 85, 87, and 90 classifications of the HTSUS for the imported merchandise, importers shall report the HTSUS classification 9903.88.58 (Articles, the product of China, as provided for in U.S. note 20(kkk) 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 9903.88.58 is submitted.

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COM NEWS

(Source: The Diplomat, 30 Sep 2020) [Excerpts]
 
To what extent can the United States control the global spread of technology, and under what circumstances should it do so? A recently established project at the Center for New American Security (CNAS) has begun to examine the theory and practice of U.S. export control policy. Although export controls have been around for a long time, this is an overdue and promising avenue of analysis into one of the most important tools of U.S. economic and defense statecraft.
 
A raft of legislation before and after World War II clarified the legal authority behind export controls, targeting the Axis first and then the Soviet Union. During the Cold War, export controls were critical to maintaining and extending the West’s technological edge over the Soviet Union. More recently, in 2018 the Export Control Reform Act gave the executive branch the broad authority to impose export controls directed at China’s military and dual-use technology industries. 

(Source: The Star, 30 Sep 2020) [Excerpts]
 
The Standing Committee of the 13th National People’s Congress will convene its 22nd session from Oct 13 to 17 in Beijing.
The decision was made on Tuesday at a meeting of the Council of Chairpersons of the NPC Standing Committee, which was presided over by Li Zhanshu, chairman of the NPC Standing Committee.
According to the proposed agenda, lawmakers will review at the session a draft biosecurity law, a draft export control law, a draft Yangtze River conservation law, a draft support for veterans law, a draft personal information protection law and a draft coast guard law.
They are expected to deliberate a draft amendment to the Patent Law, a draft revision to the Law on the Protection of Minors, draft amendments to the National Flag Law and the National Emblem Law, a draft amendment to the Criminal Law and a draft revision to the Administrative Penalty Law.

COM COMMENTARY

COM_a18. Husch Blackwell: “D.C. District Court Judge Blocks Commerce’s TikTok Ban”

(Source: Husch Blackwell, 29 Sep 2020)
 
* Principal Author: Camron J. Greer, Assistant Trade Analyst, 1-202-378-2413, Husch Blackwell
 
A federal judge from the U.S. District Court for the District of Columbia granted TikTok’s motion for preliminary injunction, resulting in a nationwide temporary suspension of an order from the U.S. Department of Commerce (“Commerce”) for Apple and Google to remove TikTok from its U.S. app stores.  Last week, Chinese social media app WeChat was separately granted a similar injunction by a federal judge from the U.S. District Court for the Northern District of California.  The two China-based smartphone apps are facing impending bans pursuant to Executive Orders (“E.O.”) 13942 (for TikTok) and 13943 (for WeChat), issued by the President on August 6, 2020.
Following the court’s ruling, Commerce issued a statement that it intends to comply with the injunction, but that it also “intends to vigorously defend the E.O. and the Secretary’s implementation efforts from legal challenges.”  The preliminary injunction effectively grants TikTok’s parent company, ByteDance Ltd. (“ByteDance”), more time to finalize and obtain approval of its agreement with Oracle and Walmart.  The pending deal over TikTok will still need to be reviewed and approved by both the Committee on Foreign Investment in the U.S. (“CFIUS”) and the Chinese authorities.
The court denied TikTok’s request for an additional preliminary injunction against the implementation of the second set of restrictions, which take effect on November 12, 2020. These restrictions would prevent the provision of internet hosting, content delivery networks, or other internet transit services to TikTok.

(Source: Kelley Drye, 29 Sep 2020)
 
* Principal Author: Robert Slack, Esq., 1-202-342 8622, Kelley Drye
 
Last week OFAC extended its general license authorizing U.S. persons to wind down and divest from certain transactions with subsidiaries of the Xinjiang Production and Construction Corps (XPCC) until November 30, 2020.  OFAC extended the general license to give U.S. persons more time to exit dealings involving XPCC’s many subsidiaries, which play a significant role in the economy of the Xinjiang region of China.  The general license does not authorize direct dealings with XPCC, which was designated as an Specially Designated National by OFAC in July.
Subject to certain limitations, the general license authorizes U.S. persons to engage in activities that are ordinarily incident and necessary to:
  • Wind down transactions involving any entity in which XPCC owns a 50% or greater interest;
  • Divest or transfer of debt, equity ,or other holdings in an XPCC subsidiary to a non-U.S. person; or
  • Facilitate the transfer of debt, equity, or other holdings in an XPCC subsidiary by a non-U.S. person to another non-U.S. person.
OFAC also issued separate guidance indicating that non-U.S. persons would not be targeted by OFAC for engaging in wind down and divestment activities that are consistent with the general license.  Companies subject to U.S. jurisdiction with dealings directly or indirectly involving the Xinjiang region or with companies linked to XPCC should carefully review the general license and determine how to exit those relationships in compliance with OFAC’s regulations.

 
* Contact: messages@strtrade.com, 1-305-894-1035
 
The State Department has published an updated list of entities and sub-entities that are under the control of, or act for or on behalf of, the Cuban military, intelligence, or security services or personnel and with which direct financial transactions would disproportionately benefit such entities at the expense of the Cuban people or private enterprise in Cuba. This update includes one additional sub-entity and an alias thereof.
Persons subject to U.S. jurisdiction are generally prohibited from engaging in direct financial transactions with entities and sub-entities on the Cuba restricted list. In addition, the Bureau of Industry and Security will generally deny applications for licenses to export or reexport items for use by such entities or sub-entities.

(Source: Steptoe, 29 Sep 2020)
 
* Principal Author: Brian Egan, Esq., 1-202-429-8009, Steptoe
 
On September 15, 2020, the Committee on Foreign Investment in the United States (CFIUS), the inter-agency U.S. government body responsible for reviewing certain forms of inbound investment for national security risks, published a final rule, effective October 15, making important changes to the rules defining “critical technology” transactions subject to mandatory filing requirements.
CFIUS has traditionally allowed, but not required, parties to “covered transactions” to submit a filing to CFIUS to seek approval of their transaction.  However, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) authorized CFIUS to mandate filings for certain types of transactions.  Transactions subject to mandatory filings under FIRRMA fall into two categories: certain investments involving “critical technology” and certain investments involving foreign governments.  (See our prior International Law Advisory on FIRRMA’s implementing regulations here).
The final rule changes the circumstances in which a “critical technology” investment will trigger a mandatory filing requirement.  The rule ends the use of North American Industry Classification System (NAICS) codes to identify specific industries subject to mandatory “critical technology” filings, in favor of a filing requirement based on U.S. export controls.  A mandatory “critical technology” filing requirement is triggered under the final rule when a “U.S. regulatory authorization” would be required for the export, reexport, or transfer (in country) of the U.S. target company’s goods or technologies to the foreign investor or certain other foreign persons involved in the transaction.  The final rule also makes modest clarifications to the second category of transactions involving foreign government interests.  (See our prior blog post on the proposed version of the rule here).
 
Critical Technology Mandatory Filings
The new rule mandates filings for covered transactions involving a U.S. business that “produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies” where a “U.S. regulatory authorization” would be required for the export, reexport, or transfer of such critical technologies to a foreign person that:
  • Could directly control such a business as a result of the transaction;
  • Is directly acquiring an interest that is a “covered investment” in such a business;
  • Has a direct interest in such a business and whose rights are changing in a manner that constitutes a covered transaction;
  • Is a party to a transaction or similar dealing designed or intended to evade or circumvent the CFIUS process; or
  • Individually or as part of a group of foreign persons holds a “voting interest for purposes of critical technology mandatory declarations” in one of the above described persons.
 
The term “voting interest for purposes of critical technology mandatory declarations” will be defined at Section 800.256 to mean “a voting interest, direct or indirect, of 25 percent or more.”  The rule adds that for entities directed, controlled, or coordinated by a general partner or equivalent, “a person will be considered to have a voting interest for purposes of critical technology mandatory declarations in such entity only if it holds 25 percent or more of the interest in the general partner, managing member, or equivalent of the entity.”  For purposes of determining voting interests held indirectly, any interest of a “parent,” as defined in Section 800.235 of the current CFIUS regulations (generally entities with a 50% or greater interest), “will be deemed to be a 100 percent interest in any entity of which it is a parent.”
The term “U.S. regulatory authorization includes:”
  • A license or other approval issued by the Department of State under the International Traffic in Arms Regulations (ITAR);
  • A license from the Department of Commerce under the Export Administration Regulations (EAR);
  • Certain authorizations from the Department of Energy related to assistance to foreign atomic energy activities; or
  • A specific license from the Nuclear Regulatory Commission under its regulations governing the export or import of nuclear equipment and material.
 
Importantly, under Section 800.401(c)(2)(i) whether a U.S. regulatory authorization is required must be determined “without giving effect to any license exemption available under the ITAR or license exception available under the EAR,” subject to limited exceptions for three EAR license exceptions: (1) Technology and Software Unrestricted (TSU); (2) paragraph (b) of Encryption, Commodities, Software, and Technology (ECN); and (3) paragraph (c)(1) of Strategic Trade Authorization (STA).
The shift away from NAICS codes and toward U.S. export controls will have important implications for whether certain transactions are subject to the mandatory filing requirements of CFIUS.  As a general matter, the shift should result in a reduced number of mandatory filings for transactions involving U.S. allies and countries participating in multilateral export control regimes such as the Wassenaar Arrangement, and relatively more transactions involving countries subject to higher levels of U.S. export controls such as China.
The change also underlines the importance of U.S. companies and foreign investors conducting a careful export controls analysis of the U.S. target company’s products and technologies before closing on a given transaction, including determining the appropriate classification of all relevant items, including technology; reviewing the applicable controls for such items and whether a license is required for export to foreign persons involved in the transaction; and whether one of the enumerated license exceptions, noted above, is applicable.
 
Mandatory Filings for Transactions Involving Foreign Governments
The CFIUS regulations also mandate filings for transactions in which a foreign person is acquiring a “substantial interest” in a U.S. critical technology, critical infrastructure, or sensitive personal data company, as defined in CFIUS’s current regulations, and a foreign government has a “substantial interest” in that foreign person.  The new CFIUS rule makes two modest changes to the definition of “substantial interest.”  The first change applies to Section 800.244(b), the provision calculating substantial interest in situations in which there is a “general partner, managing member, or equivalent.”  The new rule clarifies that the provision applies only in situations in which an entities’ activities are “primarily directed, controlled, or coordinated by or on behalf” of a general partner, managing member, or equivalent.  The second change adjusts the term “voting interest” to just “interest” in Section 800.244(c), which outlines how to calculate the interest of a parent entity in a subsidiary.

TE EX/IM TRAINING EVENTS & CONFERENCES

EN EDITOR’S NOTES

EN_a113. Bartlett’s Unfamiliar Quotations

(Source: Editor)

 
* Rumi (Jalāl ad-Dīn Muhammad Rumī; 30 Sep 1207 – 17 Dec 1273; was a poet, faqih, Islamic scholar, theologian, and Sufi mystic originally from Greater Khorasan in Greater Iran.  His poems have been widely translated into many languages. His “Masnavi” composed in Konya, is considered one of the greatest poems of the Persian language.)

  – “Listen! Clam up your mouth and be silent like an oyster shell, for that tongue of yours is the enemy of the soul, my friend. When the lips are silent, the heart has a hundred tongues.”

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EN_a214. A New BITAR is Available

(Source: Editor)

 
The International Traffic in Arms Regulations (ITAR), section 126.1(r), was amended Monday (by 85 FR 60698 of 28 Sep 2020) to update defense trade policy toward Cyprus.  That amendment is contained in the new 28 Sep 2020 edition of Bartlett’s Annotated ITAR (the BITAR), now available as a Word document for download to BITAR subscribers. In addition to the verbatim regulation, the BITAR contains nearly a thousand footnotes of section histories, key cases, practice tips & tricks, FAQs, and extensive Tables of Contents.   Subscribers receive updated editions every time the regulations are amended (usually within 24 hours) so you will always have the current version of the ITAR.  The BITAR is the ultimate ITAR practitioner’s tool. If you consider yourself an ITAR expert (or want to become one), you MUST have a copy of the BITAR!  
 
Subscribe to the BITAR here to guarantee you have the up-to-date ITAR.   
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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. 
22 Sep 2020: 85 FR 59419 Additions of Entities to the Entity List and Corrections 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. 

28 Sep 2020:  85 FR 60874: Temporary Amendment for Republic of Cyprus. The latest edition of the BITAR is 28 Sep 2020. 

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