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20-1016 Friday “Daily Bugle”

20-1016 Friday “Daily Bugle”

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Friday, 16 October 2020

(No items of interest posted) 

  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: “Secretary Ross Highlights Commerce Actions Supporting Strategy for Critical and Emerging Technologies”
  3. State/DDTC: “Outage Notice – Monday 19 Oct; @6-8am”
  4. EU Commission: “Boeing Subsidy Case – WTO Confirms EU Right to Retaliate Against $4 Billion of U.S. Imports”
  5. UK ECJU: “Notice to Exporters 2020/14 – Sign up for the EU Dual-use OGEL”
  1. Greek Reporter: “Assistant US Secretary of State to Visit Greece and Cyprus, Discuss Security, Defense Issues”
  2. WSJ: “U.S. Moves to Protect Technologies Considered Critical to National Security”
  1. Felice Laird: “A New Landscape for Information Technology Export Controls – Export Controls on Telecommunications” (Part II of III)
  2. Steptoe: “Hong Kong Financial Institutions Face U.S. Secondary Sanctions after State Department Issues First Report under Hong Kong Autonomy Act”
  3. Thompson Hine: “New CFIUS Critical Technology Mandatory Filing Requirements Take Effect on 15 Oct”
  4. O. Gonzalez: “What If CBP Had to Pass an Exam to Be Able to Administer the Customs Broker Exam?”
  1. ECS Presents: “ECS ITAR/EAR Webinar Series”
  2. Friday List of Approaching Events: 169 Events Posted This Week, Including 5 New Events
  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 
  4. Submit Your Job Opening and View All Job Openings 
  5. Submit Your Event and View All Approaching Events 

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EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

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OGS OTHER GOVERNMENT SOURCES

 
* Commerce/BIS: NOTICES; Meetings: Information Systems Technical Advisory Committee [Pub. Date: 19 Oct 2020] (PDF)
 
* USTR: NOTICES; Applications: Inclusion on the Binational Panels Roster under the United States-Mexico-Canada Agreement [Pub. Date: 19 Oct 2020] (PDF)

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(Source: Commerce/BIS, 15 Oct 2020)
 
  In support of the National Strategy for Critical and Emerging Technologies, Secretary of Commerce Wilbur Ross said the Department is fully behind the President’s strategy and has already implemented a number of export controls on emerging technologies. Earlier this month, the Bureau of Industry and Security (BIS) in Commerce imposed controls on six more emerging technologies, bringing the total to 37.  
  “The National Strategy for Critical and Emerging Technologies is a critical roadmap to protecting our national security and ensuring the United States maintains its technological leadership in military, intelligence, and economic matters,” said Secretary Ross. “Under President Trump’s leadership, the Department of Commerce has already imposed controls on more than three dozen emerging technologies and we will continue to evaluate and identify technologies that warrant control.” 
  The most recent Commerce controls were implemented under agreements reached at the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies’ December 2019 Plenary meeting. Developing and implementing multilateral controls on emerging technology is consistent with the requirements of the Export Control Reform Act of 2018 (ECRA) to identify emerging and foundational technologies that are essential to U.S. national security. 
  The six emerging technologies now controlled on the Commerce Control List are:  
  1. Hybrid additive manufacturing/computer numerically controlled tools  
  2. Computational lithography software designed for the fabrication of extreme ultraviolet masks   
  3. Technology for finishing wafers for 5 nanometer integrated circuit production 
  4. Digital forensics tools that circumvent authentication or authorization controls on a computer and extract raw data 
  5. Software for monitoring and analysis of communications and metadata acquired from a telecommunications service provider via a handover interface 
  6. Sub-orbital spacecraft   
  This is the fourth set of emerging technology controls imposed by BIS since ECRA’s 2018 enactment. BIS has previously published three Federal Register Notices implementing new controls on 31 specific emerging technologies in the aerospace, biotechnology, chemical, electronics, encryption, geospatial imagery, and marine sectors, most of which were imposed with multilateral support. They include 24 chemical weapons precursors controlled for Chemical/Biological and Anti-Terrorism reasons as well as: 
  1. Discrete microwave transistors 
  2. Continuity of operation software 
  3. Post-quantum cryptography 
  4. Underwater transducers designed to operate as hydrophones 
  5. Air-launch platforms 
  6. Geospatial imagery software (unilateral) 
  7. Single-use biological cultivation chambers   
  Additionally, in accordance with ECRA, BIS requested public comment on the identification of foundational technologies on August 27, 2020, and the public comment period remains open until November 9, 2020.

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  The Defense Export Control and Compliance System (DECCS) Registration and Licensing applications will be unavailable to industry from 6:00 AM through 8:00 AM (EDT) Monday, October 19, for scheduled system maintenance. Please ensure work in progress is saved prior to the scheduled downtime.

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  On the 13th of October, the World Trade Organization (WTO) allowed the EU to raise tariffs up to $4 billion worth of imports from the U.S. as a countermeasure for illegal subsidies to the American aircraft maker, Boeing. The decision builds upon the WTO’s earlier findings recognising the U.S. subsidies to Boeing as illegal under the WTO law. 
  Executive Vice-President for an Economy that Works for People and Commissioner for Trade, Valdis Dombrovskis, said: “This long-awaited decision allows the European Union to impose tariffs on American products entering Europe. I would much prefer not to do so – additional duties are not in the economic interest of either side, particularly as we strive to recover from the Covid-19 recession. I have been engaging with my American counterpart, Ambassador Lighthizer, and it is my hope that the U.S. will now drop the tariffs imposed on EU exports last year. This would generate positive momentum both economically and politically, and help us to find common ground in other key areas. The EU will continue to vigorously pursue this outcome. If it does not happen, we will be forced to exercise our rights and impose similar tariffs. While we are fully prepared for this possibility, we will do so reluctantly.”
In October last year, following a similar WTO decision in a parallel case on Airbus subsidies, the U.S. imposed retaliatory duties that affect EU exports worth $7.5 billion. These duties are still in place today, despite the decisive steps taken by France and Spain in July this year to follow suit Germany and the UK in ensuring that they fully comply with an earlier WTO decision on subsidies to Airbus.
  Under the current economic circumstances, it is in the mutual interest of the EU and the U.S. to discontinue damaging tariffs that unnecessarily burden our industrial and agricultural sectors.
  The EU has made specific proposals to reach a negotiated outcome to the long running transatlantic civil aircraft disputes, the longest in the history of the WTO. It remains open to work with the U.S. to agree a fair and balanced settlement, as well as on future disciplines for subsidies in the civil aircraft sector.
  While engaging with the U.S., the European Commission is also taking appropriate steps and involving EU Member States so that it can use its retaliation rights in case there is no prospect of bringing the dispute to a mutually beneficial solution. This contingency planning includes finalising the list of products that would become subject to EU additional tariffs.
 
Background
  In March 2019, the Appellate Body, the highest WTO instance, confirmed that the U.S. had not taken appropriate action to comply with WTO rules on subsidies, despite the previous rulings. Instead, it continued its illegal support of its aircraft manufacturer Boeing to the detriment of Airbus, the European aerospace industry and its many workers. In its ruling, the Appellate Body:
  • confirmed the Washington State tax programme continues to be a central part of the U.S. unlawful subsidisation of Boeing;
  • found that a number of ongoing instruments, including certain NASA and U.S. Department of Defence procurement contracts constitute subsidies that may cause economic harm to Airbus;
  • confirmed that Boeing continues to benefit from an illegal U.S. tax concession that supports exports (the Foreign Sales Corporation and Extraterritorial Income Exclusion).
  Today’s decision confirming the EU right to retaliate stems directly from that previous decision.
 
  In a parallel case on Airbus, the WTO allowed the United States in October 2019 to take countermeasures against European exports worth up to $7.5 billion. This award was based on an Appellate Body decision of 2018 that had found that the EU and its Member States had not fully complied with the previous WTO rulings with regard to Repayable Launch Investment for the A350 and A380 programmes. The U.S. imposed these additional tariffs on 18 October 2019. The EU Member States concerned have taken in the meantime all necessary steps to ensure full compliance.

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(Source: UK ECJU, 16 Oct 2020)
 
  Check whether you need the new Open General Export Licence (“OGEL”)to continue trading in dual-use controlled items with the EU from 1 January 2021.
  This OGEL will be required if you are exporting dual-use items in Annex 1 of EU Regulation 428/2009 to any EU member state from 1 January 2021. This licence also covers exports to the Channel Islands. For those who have not seen the OGEL – or are yet to register – you are advised to make your registration on SPIRE (the online exporting licencing system) as part of your business preparedness plans.
  Exporters who may not previously have needed a licence to export may now need one.
 
Read the full notice here.

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COM NEWS

(Source: Greek Reporter, 14 Oct 2020) [Excerpts]

 
  According to an announcement issued on Wednesday by the US Department of State, Assistant Secretary of State for Political-Military Affairs R. Clarke Cooper will travel to Greece, Cyprus, and Bulgaria beginning on October 14, 2020, to meet with US allies and partners on expanding the security cooperation and defense trade that enhances the shared security of these nations.
  In Greece, from October 14-18, Assistant Secretary Cooper will hold consultations with senior civilian and military officials in Athens on efforts to promote peace and stability, from the Eastern Mediterranean to the Balkans.
Cooper will then visit the Naval Support Activity at Souda Bay, one of the key locations of U.S.-Greece defense cooperation, where the expanded Mutual Defense Cooperation Agreement  fosters what the State Department called “our ever-growing collaboration with Greece and our NATO Allies.”
  In Cyprus, from October 18-19, Assistant Secretary Cooper will meet with senior government officials in Nicosia to discuss security cooperation and defense trade, including plans to provide International Military Education and Training opportunities for Republic of Cyprus military personnel.
  Cooper will also address the new regulations allowing expanded access to non-lethal US- origin defense articles and services, controlled under the International Traffic in Arms Regulations.
  In Bulgaria, from October 20-22, Assistant Secretary Cooper will consult with senior civilian and military officials in Sofia on security cooperation and defense trade. Military modernization is a priority for Bulgaria, as seen in its historic procurement of eight F-16s in 2019. to improve Bulgaria’s combat effectiveness and interoperability with U.S. forces and other NATO Allies.

(Source: Wall Street Journal, 15 Oct 2020) [Excerpts]

 
  Artificial intelligence, quantum information science and semiconductors are on a new list of advanced technologies that the U.S. is aiming to protect under guidelines being released Thursday.
  The technologies on the list, which is being released by the White House’s National Security Council, are considered critical to the country’s national security position, including military, intelligence and economic interests.
  The list will be accompanied by a report that gives government agencies specific guidelines on how to prevent the technologies from falling into the hands of foreign adversaries, such as China, according to a senior administration official.
  The report, a copy of which was reviewed by The Wall Street Journal, noted that China is spending heavily to overtake the U.S.’s lead in several top innovation areas.
  That includes by “employing means that include stealing technology, coercing companies to disclose intellectual property, undercutting free and fair markets, failing to provide reciprocal access in research and development projects and promoting authoritarian practices that run counter to democratic values,” the report said.
  The new initiative is meant to signal U.S. government departments and agencies to rally around the country’s existing network of researchers, academics and the private sector players that turn ideas into innovations that strengthen U.S. national security, the senior official said.
   The list of 20 technologies also includes advanced computing, biotech and aero-engine technology. It builds upon an earlier list of technologies, including neurotech and quantum encryption, that Commerce Department officials have guarded as they regulate which high-tech U.S. items can be shipped overseas under existing federal export control laws. …
   The release of protected technologies comes as China and Russia are racing to advance their own military capabilities. …

COM COMMENTARY

 
* Author: Felice Laird, Export Strategies LLC [Part III coming soon]
 
  For many years, Category 5 Part 1 remained largely unchanged in the Commerce Control List (CCL). Telecom hardware products (switches, routers, storage devices, etc.) on the market typically use encryption for user authentication and remote management as well as for data transmissions over private and public networks and thus were classified as “encryption products”
instead of “telecom products”. Over the past 10 years or so, some telecom equipment has been decontrolled through Notes in 5A002, that is, specifically carved out of Category 5 Part 2, only to fall back into Category 5 Part 1 (usually 5×991).  Confusing, yes! (We will get into Category 5 Part 2 in the next installment of this article series.)
  Despite no significant changes in the 5×001 ECCNs, the US, along with fellow Wassenaar members, have discussed adding controls to Category 5 Part 1, for many years.  In fact, there has been a control in the Wassenaar Dual Use list Category 5 Part 1 that covers “IP network communications surveillance systems or equipment” (5. A. 1. j.)  The US has never amended the CCL to include this.  However, at the December 2019 Plenary, Wassenaar added a new software control on specially designed or modified surveillance software for law enforcement.  The US did add these new controls (5D001.e.1 and e.2) to the CCL on October 5, 2020.  The “Reason for Control” listed for 5D001 for this type of software is “National Security” (NS) and “Anti -Terrorism”(AT).  

  The intent of the new control is to cover software that can extract data from intercepted communications that use certain words in their content (“hard selectors”) or are sent and received by specific parties (“metadata”) and use the extracted data to build relational databases and track movements of targeted individuals. The concern among Wassenaar members is that this type of software can be used by government agencies to spy on citizens.  There may not be many companies out there that design these systems for law enforcement, so the effect may be limited. However, it’s worth pointing out that the Department of State has the primary role in US policy and is in charge of monitoring human rights violations globally, and that may mean a bigger seat at the table in US export licensing decisions and possibly even classification decisions.

 
 
  On October 14, 2020, the U.S. State Department issued a much-anticipated report pursuant to Section 5(a) of the Hong Kong Autonomy Act (HKAA), identifying ten individuals who were determined by the State Department to be “foreign persons” who “are materially contributing to, have materially contributed to, or attempt to materially contribute to the failure of the PRC to meet its obligations under” the Sino-British Joint Declaration of 1984 or Hong Kong’s Basic Law.
  Under Section 5(b) of the HKAA, the U.S. Treasury Department is now given 30 to 60 days to release a report identifying any foreign financial institution (FFI) “that knowingly conducts a significant transaction with a foreign person identified” in the October 14 report. This report could be released by mid-November or December. Within one year of this Section 5(b) report, the Treasury Department could impose secondary sanctions on the FFIs identified therein, based on a menu of 10 sanctions laid out in Section 7 of the HKAA.
In conjunction with the State Department’s report, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued four Frequently Asked Questions (FAQs) providing additional guidance on how the agency intends to implement the secondary sanctions.
  For additional background on this issue and a description of the secondary sanctions under the HKAA, see our blog post of July 15, 2020, “U.S. Executive Order Implements, Strengthens Hong Kong Sanctions.”
 
Section 5(a) Report 
  The State Department’s October 14 report under Section 5(a) of the HKAA outlines “a number of recent actions by the PRC that have undermined the autonomy of Hong Kong,” in the State Department’s view, in addition to describing the specific actions taken by each of the 10 individuals identified in the report.
  All of the individuals were previously designated by OFAC on August 7, 2020, as Specially Designated Nationals (SDNs), pursuant to Executive Order (EO) 13936. As a result of the August 7 sanctions, all property and interests in property of the individuals is blocked when in the United States or within the possession or control of a U.S. person. U.S. persons are generally prohibited from dealing, directly or indirectly, with the individuals.
  OFAC also updated the entries in the SDN List for each of the 10 individuals to specify that transactions with them could expose an FFI to secondary sanctions risk under the HKAA.
  One individual-a former Hong Kong government official-who was sanctioned on August 7 was not included in the 5(a) report, but continues to be an SDN and is subject to blocking sanctions under EO 13936.
  For more information about the August 7 designations, see our blog post of August 7, 2020, “Financial Institutions Watch and Wait as OFAC Sanctions Top Hong Kong Officials.”
 
Summary of OFAC’s FAQs
  FAQ 848 addresses the implications of the State Department’s October 14 report, including the potential for secondary sanctions on FFIs that conduct significant transactions with the ten individuals. Of note, FAQ 848 clarifies:
  • In its report under Section 5(b), the Treasury Department “will only identify FFIs that knowingly conduct a significant transaction . . . following the person’s listing in the Section 5(a) Report.” In other words, transactions before October 14 would not be captured.
  • “As a general matter, transactions with persons identified in the Section 5(a) Report that constitute a good-faith wind down within 30 days of a person’s identification on such report will not be considered ‘significant.'”
  • The Treasury Department “will reach out to an FFI to inquire about its conduct before identifying it in a Section 5(b) Report.”
  FAQ 849 summarizes the three criteria in Section 5(d)(2) of the HKAA under which an FFI could be excluded or removed from a report under Section 5(b). Exclusion or removal would be considered if a significant transaction that merited inclusion in the report “(A) does not have a significant and lasting negative effect that contravenes the obligations of China under the Joint Declaration and the Basic Law; (B) is not likely to be repeated in the future; and (C) has been reversed or otherwise mitigated through positive countermeasures taken by that FFI.”
  FAQ 850 provides guidance on the meaning of the term “significant transaction” as used in Section 5(b) of the HKAA. As with other sanctions programs, OFAC lays out seven factors that could be considered in determining that a transaction is significant. These are:
  • The size, number, and frequency of the transaction(s);
  • The nature of the transaction(s);
  • The level of awareness of management and whether the transaction(s) are part of a pattern of conduct;
  • The nexus between the transaction(s) and a foreign person identified under Section 5(a) of the HKAA;
  • The impact of the transaction(s) on statutory objectives under the HKAA, including whether the transaction(s) “(A) have a significant and lasting negative effect that contravenes the obligations of China under the Joint Declaration and the Basic Law, (B) are likely to be repeated in the future, and (C) have been reversed or otherwise mitigated through positive countermeasures taken by that FFI;”
  • Whether the transaction(s) involve deceptive practices; and
  • Other factors deemed relevant on a case-by-case basis.
  FAQ 850 notes that “a transaction will not be considered significant if a U.S. person would not require a specific license from OFAC to conduct or participate in the transaction.” At this time, OFAC has not issued any general licenses under the HKAA or EO 13936, so the scope of this carve out is limited in practical terms.
  FAQ 851 reiterates definitions of the terms “financial institution” and “knowingly” provided in the HKAA. The term financial institution is the same as in 31 USC 5312(a)(2) and captures most companies offering services of a financial nature. The term knowingly is defined to mean actual knowledge. (This differs from some other US primary and secondary sanctions where knowingly is defined more broadly to include that a person “should have known” of the conduct, circumstance, or result.)
 
Assessment  
  OFAC states in FAQ 848 that an FFI that conducts a significant transaction with an individual in a report under Section 5(a) of the HKAA “is potentially subject to mandatory secondary sanctions under the HKAA.” (Emphasis added.) A number of questions remain about how the Treasury Department will go about preparing its report under Section 5(b), including the information that will be relied upon to identify significant transactions occurring in Hong Kong or elsewhere. For instance, in reaching out to financial institutions, as suggested in FAQ 848, OFAC could inquire about potentially significant transactions or seek information about transactions about which the agency has partial information.
  Given that the ten individuals were previously named as SDNs on August 7, FFIs have had ample time to perform name screening and identify customer relationships involving the individuals. FFIs that continue to maintain those relationships are advised to consider whether their transactions could be deemed significant and expose the FFI to the risk of secondary sanctions under the HKAA, in anticipation of communication from OFAC prior to the issuance of a report under Section 5(b) within 30 to 60 days of October 14, 2020.
  FFIs that are later included in a report under Section 5(b) may seek to fulfill the criteria in Section 5(d)(2), as summarized in FAQ 849, to avoid the imposition of secondary sanctions which would become mandatory within one year of the report’s issuance.

(Source: SmarTrade, 14 Oct 2020)
 
  Effective [yesterday] October 15, 2020, the Department of the Treasury’s September 15 final rule (“Rule”) modified certain regulations of the Committee on Foreign Investment in the United States (CFIUS) pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). In a previous blog post, we noted that the Rule would change the requirements for making mandatory disclosures to the U.S. government prior to completing certain types of foreign investments in, or acquisitions of, certain types of U.S. businesses. These changes are comprehensive and will require parties entering into these types of transactions to undertake new due diligence efforts to ensure they are in compliance with CFIUS’s strict liability requirements and avoid penalties for noncompliance. This update describes the underlying legislation as well as the legal and practical implications of the Rule.

 

FIRRMA’s Expansion of CFIUS Jurisdiction and Mandatory Filings 
  In 2018, Congress enacted FIRRMA to expand the government’s ability to monitor and mitigate national security risks arising from non-controlling, non-passive foreign investments in and acquisitions of U.S. businesses. Notably, FIRRMA introduced mandatory filing requirements to the CFIUS review process. The first mandatory filings implemented were for foreign investments in “critical technologies” resulting in the transfer of certain rights to the investor under the pilot program in November 2018 (“Pilot Program”). Under the Pilot Program, the “critical technologies” mandatory CFIUS filing was determined through a combination of identifying the covered technology and confirming whether it was designed for use in specific industries. The filings were mandatory regardless of the nationality of the foreign investor. Subsequently, broader regulations implementing FIRRMA  became effective in February 2020. These included additional mandatory filing requirements for certain transactions in which a foreign government-owned investor would obtain a “substantial interest” in a U.S. company involved with (i) critical technologies, (ii) critical infrastructure, or (iii) sensitive personal data. The CFIUS regulations call such companies “TID U.S. businesses” (“T” for technology, “I” for infrastructure and “D” for data).

 

Mandatory CFIUS Filings as of October 15, 2020
Critical Technology Mandatory Filings
  As of October 15, 2020, the new Rule significantly updates the critical technology mandatory filing requirement. The Rule removes and replaces the industry component of the analysis and instead requires the parties to determine whether the foreign investor and other foreign entities in the investor’s ownership chain would require certain U.S. export authorizations to receive or access the U.S. business’s critical technologies. Specifically, Section 800.401(c)(1) of the Rule provides that a mandatory CFIUS filing is required with respect to any covered transaction involving:
  1.  A TID U.S. business that “produces, designs, tests, manufactures, fabricates or develops” one or more “critical technologies”; 
  2. “Critical technologies” that would require a “U.S. regulatory authorization” for export, reexport, transfer (in-country) or retransfer of such critical technology to a foreign person who is a party to the transaction; and
  3. A foreign person who is an “investor” within the five categories of investors identified in Section 800.401(c)(1).
  “U.S. regulatory authorization” includes any license or other approval issued by the Department of State under the International Traffic in Arms Regulations (ITAR), the Department of Commerce’s Bureau of Industry and Security (BIS) under the Export Administration Regulations (EAR), any specific or general authorization from the Department of Energy under foreign atomic energy regulations, or any specific license from the Nuclear Regulatory Commission. Except for some limited EAR license exceptions, a U.S. regulatory authorization is considered to be required even though a license exception or exemption may be available under the EAR or ITAR, respectively.
  A foreign person is an “investor” in a TID U.S. business for purposes of Section 800.401(c)(1) if it:
  1. May directly control the TID U.S. business as a result of the covered transaction;
  2. Is directly acquiring an interest that is a covered investment in such TID U.S. business, such as (i) access to any “material nonpublic technical information” in the possession of the US business; (ii) membership or observer rights on, or the right to nominate an individual to a position on, the board of directors or equivalent governing body of the U.S. business; or (iii) any “involvement,” other than through voting of shares, in “substantive decision-making” of the U.S. business regarding U.S. sensitive personal data, critical technologies or covered investment critical infrastructure;
  3. Has a direct investment in such TID U.S. business, the rights of such person in the TID U.S. business are changing and its rights could result in a covered control transaction or a covered investment;
  4. Is a party to any transaction, transfer, agreement, or arrangement designed to circumvent CFIUS jurisdiction; and
  5. Holds, or is part of a group of foreign persons that in the aggregate holds, a voting interest (direct or indirect) of 25% or more in a foreign investor of the type described in categories 1-4 above.
Foreign Government “Substantial Interest” Mandatory Filings
  This “substantial interest” requirement remains unchanged except that, as explained in our previous blog post, what constitutes a “substantial interest” by a foreign government in a foreign person was defined in the Rule. Under the Rule, a foreign government is considered to have a substantial interest in an entity whose activities are primarily directed, controlled, or coordinated by or on behalf of a general partner, managing member, or equivalent, only if they hold 49% or more of the interest in that general partner, managing member, or equivalent.
 
Summary of Mandatory Filings
A mandatory filing is required when there exists a covered transaction:
  • That results in the acquisition of a substantial interest in a TID U.S. business by a foreign person in which the government of a non-excepted foreign state has a substantial interest; and
  • Involving a TID U.S. business that produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies for which a U.S. export authorization would be required for the export, reexport, transfer (in-country), or retransfer of such critical technology to a foreign “investor” as defined by Section 800.401(c)(1).
Key Legal and Practical Implications of the Rule for U.S. Businesses 
Knowledge of U.S. Export Control Laws and Regulations 
  On its face, changing the CFIUS rules to more closely align with U.S. export controls and regulations makes sense as both regimes are concerned with national security issues and limiting the influence of U.S. adversaries. However, legally and practically, CFIUS rules and U.S. export controls were developed to target different types of transactions, companies and aims. 
  For example, ITAR and the EAR were designed to address national security concerns with real exports of U.S. products and technology in the context of a specific transaction. Determining whether an export authorization is required for actual export involves a complex analysis of various factors specific to each transaction including: export control classification numbers (ECCN) on the Commerce Control List (CCL); types of products, software, technology or services being exported; country destinations of those exports; intended or potential end-uses of those products; and a determination of the actual end-users of the product. Companies that are not exporters or trained in export controls may be at a disadvantage and could easily expose themselves and their potential partners to risk of noncompliance. 
 
Enhanced Due Diligence on Foreign Partners
  In addition to analyzing the regulatory designations of the U.S. business’s products, the new assessment requires diligence on investors. It is often not obvious whether a foreign person is involved in a transaction indirectly. In addition, U.S. companies must ascertain not only whether a foreign investor is involved, but also the identities and nationalities of all foreign persons involved, including parent entities and ownership chains of control, to determine whether mandatory filing requirements apply relative to each specific foreign person.

(Source: Author, 14 Oct 2020)
Author: Oscar Gonzalez, Attorney; 214-720-7720; info@internationaltrade.law
If you took the customs broker exam last week, you know of the resulting havoc and mixed singles from CBP. While the apparent chaos that CBP experiences and inflicts upon exam-takers is predictable, given the consistency of its recent efforts, one must wonder whether CBP is following some secret plan to augment exam-takers’ discomfort. With tongue firmly in cheek, I offer this multiple-choice quiz. It asks, what would a quiz look like if CBP was trying to train its own people to irritate exam-takers and quash their hopes for a brighter future as international trade professionals? I hope I did CBP justice. Instructions Take as long as you want to finish this quiz, but if you wish to identify with those wretched souls who will be sitting for the actual customs broker exam, consider asking someone to pat you down, restrict your bathroom breaks, scold you for not having a perfect credit score, and limit your personal space. If you fail the quiz, you may appeal your quiz score by explaining either why a quiz question is wrong or by explaining why your quiz answer is correct. Do not do both as it will confuse the designers and graders of the quiz. You are not permitted to discuss the contents of this quiz for the first 24 months after you take the quiz (customs broker quiz Santa knows whether you’ve been bad or good, so be good for goodness sake) to allow for the correction of quiz questions outside of anyone’s notice and without having to give credit to every quiz-taker who should benefit from the correction, and to allow the appeal deadline to pass.
1. After CBP repeatedly promised exam-takers that it would release and publish the correct answer sheet the morning after the exam, CBP should: 
a. Not keep its word and keep exam-takers waiting while it manufactures reasons for delay thereby heaping needless angst onto people who are heroically trying to plan their future and livelihoods in the middle of a pandemic. 
b. Not keep its word and inform exam-takers that any delay is somehow their fault, especially because CBP strongly suspects, without actually expending the energy to find out – as if there was even the most remote possibility of ever finding out – that some of the exam-takers actually spoke to others about the exam before midnight. Naughty, naughty. 
c. Not keep its word and tell exam-takers to blame the delay on CBP, not CBP’s IT department, hoping no one notices that CBP’s IT department works for CBP and that CBP would laugh in the face of any customs broker or importer who pleaded for forgiveness with this kind of “my dog ate my homework” excuse. 
d. Not keep its word and encourage exam-takers to consider any delay as a natural consequence of technology devolution because automation in this unique instance, and in the face all of human history, actually slowed down the process, was more expensive, and provided less accurate results. Lucky them. 
e. Keep its word. 
Correct Answer: Any answer from a-d will do. To keep exam-takers guessing (that is CBP’s intention, isn’t it?), CBP should use as many of the a-d answers as possible, shuffling them around for both enjoyment and edification (of CBP, not the exam-takers, of course). Answer “e” is provided only as a joke and to see if you were paying attention. If you answered “e,” you obviously should not be working for CBP. Try Apple Computer, loser.
2. What should CBP do to accommodate the enormous dimensions and weight of the Harmonized Tarif Schedule, the primary and hardcopy text that exam-takers will be tested on? 
a. Provide tabletop space only a diamond-cutter or sweatshop worker could squeeze into and explain that exam-takers in other fields are not granted the kind of accommodations that customs broker examtakers are always whining about and ignore the fact that the examtakers in other fields do not use over-sized books. 
b. Post a practice exam online with electronic materials that look nothing like the electronic materials that will available on exam day. After all, customs brokers should expect the unexpected. 
c. Remind exam-takers that the customs broker exam is provided electronically and they do not need a hardcopy of the HTUS, but harangue exam-takers endlessly about limiting themselves to “basic” searches of the exam’s electronic materials even though no exam questions come even close to being basic. 
d. Reward those forgoing reliance on the hardcopy of the HTSUS by supplying computers as archaic, user-unfriendly, and with as limited memory as possible so as to ensure that at least one exam-taker per exam site will experience a frightening computer crash. Crushing the spirits of exam-takers keeps proctors entertained, which is what the customs broker exam is really all about, when you think about it. 
e. Do not provide separate computer screens/monitors for the exam and for the materials being tested. CBP wants to make sure that future customs brokers become accustomed to performing their duties in the most unrealistic and clunky setting possible. 
Correct Answer: All answers are correct. In fact, you get more points the more answers you choose. As Al Capone urged, vote early and often.
3. How should CBP ensure that each exam site and exam experience meets CBP’s standards? 
a. Pat down each exam-taker as they enter the exam site using the most intrusive methods possible so to maximum the violation of personal space and the damage to bodily integrity even though there are paid proctors in place that, if they paid even a modicum of attention, would easily prevent and discover all cheating without any pat downs. 
b. Make the exam room temperature too hot or too cold and do not allow exam-takers to adjust their clothing because it is established fact that all exam-takers have sewn secret compartments into their clothing that contain electronic devices to communicate with their friends on Twitter and to cheat without being detected by any of the other exam-takers or proctors and without using up all their exam time on convoluted plots to cheat. 
c. Confiscate all time pieces, including sand timers because even the dullest mind and most blundering person can, given the right motivation and opportunity, alter the universe’s immutable laws of physics and during a quick bathroom break transmute a seemingly innocent sand timer into a transceiver of encrypted exam answers. This is how Leonardo da Vinci got his pilot’s license. 
d. All of the above. 
e. None of the above. 

Correct Answer: Again, all answers are correct. You may wonder, “How can answers d and e both be correct when they contradict each other?” You are so naive. CBP has given full credit to either answer in previous exams. How CBP manages this feat of logical incongruity is proprietary information and is revealed only to the inner circle after the dark, painful, and expensive initiation. So, do you really want to know?

TE EX/IM TRAINING EVENTS & CONFERENCES

 
*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, here for a 4-pack, here for an 8-pack, or write to phyllis@exportcompliancesolutions.com or call 1-866-238-4018
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(Sources: Event sponsors)  
 

Submit your event in the Submission section at the end of this newsletter.  
 
[Editor’s note:  This Daily Bugle Event List has grown so large that we have run out of space to display it, so we are displaying here only the new events in the Daily Bugle, while maintaining a LINK HERE to the full list.]
 

Published every Friday or last publication day of the week. Send events to events@fullcirclecompliance.eu, composed in the below format:
 
# * Date: (Location;) “Event Title”; <Weblink>” Event Sponsor;
 
On-Line:

 
* 20 Oct: “Election 2020: Potential Impacts – Trade“; Holland & Knight
* 22 Oct: “DTAG Plenary Meeting

“; State/DDTC (register by 21 Oct) 

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EN EDITOR’S NOTES

EN_a114. Bartlett’s Unfamiliar Quotations

(Source: Editor)

 
Oscar Wilde (Oscar Fingal O’Flahertie Wills Wilde; 16 Oct 1854 – 30 Nov 1900; was an Irish poet and playwright. After writing in different forms throughout the 1880s, the early 1890s saw him become one of the most popular playwrights in London. He is best remembered for his epigrams and plays, his novel The Picture of Dorian Gray, and the circumstances of his criminal conviction for gross indecency for consensual homosexual acts, imprisonment, and early death at age 46.)
  – “This morning I took out a comma and this afternoon I put it back in again.”
  – “Experience is the name everyone gives to their mistakes.”
  – “To get back my youth I would do anything in the world, except take exercise, get up early, or be respectable.”
Friday Funnies:
* “For every ten jokes – thou hast got an hundred enemies…”
   – Laurence Sterne (1713-1768; Irish-born English novelist, author.)
 
* “We never respect those who amuse us, however we may smile at their comic powers.”
   – Marguerite Gardiner Blessington (1789-1849; Irish novelist and journalist.)

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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. 

9 Oct 2020: 
85 FR 64014:  Revisions to the Unverified List (UVL)

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
International Criminal Court-Related 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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