20-1117 Tuesday ” Daily Bugle “

20-1117 Tuesday “Daily Bugle”

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Tuesday, 17 November 2020

  1. Commerce: “Identification of Prohibited Transactions to Implement EO 13942 and Address the Threat Posed by TikTok – Preliminary Injunction Order by a Federal District Court”
  2. Executive Office of the President Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies
  3. USCC: “Notice of Open Public Event”
  4. USITC: “Recommended Modifications in the Harmonized Tariff Schedule”
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State/DDTC: (No new postings)
  4. United Nations: “Adopting Resolution 2551 (2020) Security Council Extends Mandate for Expert Panel on Somalia, Renews Partial Lifting of Arms Embargo”
  1. Bits & Chips: “US has backup plan to block export of ASML’s EUV scanner to China”
  2. EUS: “Airbnb Discloses Potential Non-compliance with Sanctions to OFAC & OFSI”
  3. Shine: “Huawei to Sell off Honor Amid ‘Difficult Time'”
  4. Yahoo News:” NGOs Urge France to Give Parliament Control Over Arms Sales”
  1. Baker McKenzie: “EU Agrees New Rules on Trade of Dual-Use Items”
  2. Buckley: “OFAC Sanctions Network for Procuring Goods for Iranian Military Firm”
  3. Freshfields: “US Executive Order Prohibiting US Investment in Chinese Companies: Key Takeaways”
  4. Mayer Brown: “US Takes Action to Bar American Investments in Broad Range of Chinese Companies Deemed Linked to the Chinese Military”
  5. Venable: “The Trade Wars Continue – EU to Impose $4 Billion in Tariffs on U.S. Goods Effective 10 Nov”
  1. ECTI Presents 17 Dec; ITAR Compliance for US Persons Working Outside the United States: What You Need to Know Webinar
  2. FCC Academy Presents: 1 and 3 Dec; “U.S. Export Controls: ITAR/EAR” and “FMS”
  1. Bartlett’s Unfamiliar Quotations 
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(Source: Federal Register, 17 Nov 2020) [Excerpts]
85 FR 73191: Rule
* AGENCY: Office of the Secretary, U.S. Department of Commerce.
* ACTION: Notification of preliminary injunction.
* SUMMARY: The U.S. Department of Commerce (“Department”) is issuing this document to inform the public of a preliminary injunction ordered by a Federal district court on October 30, 2020, preventing the implementation of specific Department actions.
* SUPPLEMENTARY INFORMATION: On September 24, 2020, the Department published the “Identification of Prohibited Transactions to Implement Executive Order 13942 and Address the Threat Posed by TikTok and the National Emergency with Respect to the Information and Communications Technology and Services Supply Chain” (the “Identification”) in the Federal Register at 85 FR 60061. The Identification provided that the following transactions would be prohibited: . . . .
* Preliminary Injunction
On September 18, 2020, Plaintiffs, who are three content creators using the TikTok mobile app, filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania (Douglas Marland et al. v. Trump et al., No. 20-cv-4597), seeking various relief, including a court order to prohibit the Department from implementing Executive Order 13942 or the identified prohibited transactions. Plaintiffs subsequently filed a motion for a preliminary injunction to pursue such relief, limited to the prohibited transactions in Paragraph 1. On September 26, 2020, the District Court denied the Plaintiffs’ motion. However, on October 30, 2020, the District Court issued an Order granting the Plaintiffs’ renewed motion for a preliminary injunction. This Order enjoined the Department from enforcing the Identification and the prohibition on transactions identified in Paragraphs 1-6 above. The Department is complying with the terms of this Order.
Accordingly, this serves as NOTICE that the Secretary’s prohibition of identified transactions pursuant to Executive Order 13942, related to TikTok, HAS BEEN ENJOINED, and WILL NOT GO INTO EFFECT, pending further legal developments. Any further guidance and updates regarding the subject litigation will be posted on the Department website (www.commerce.gov) on an ongoing basis.
* DATES: The court order was effective October 30, 2020.
* FOR FURTHER INFORMATION CONTACT: Kathy Smith, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-1859.
For media inquiries: Meghan Burris, Director, Office of Public Affairs, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4883.

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(Source: Federal Register, 17 Nov 2020) [Excerpts]
  By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code,
  I, DONALD J. TRUMP, President of the United States of America, find that the People’s Republic of China (PRC) is increasingly exploiting United States capital to resource and to enable the development and modernization of its military, intelligence, and other security apparatuses, which continues to allow the PRC to directly threaten the United States homeland and United States forces overseas, including by developing and deploying weapons of mass destruction, advanced conventional weapons, and malicious cyber-enabled actions against the United States and its people.
  Key to the development of the PRC’s military, intelligence, and other security apparatuses is the country’s large, ostensibly private economy. Through the national strategy of Military-Civil Fusion, the PRC increases the size of the country’s military-industrial complex by compelling civilian Chinese companies to support its military and intelligence activities. Those companies, though remaining ostensibly private and civilian, directly support the PRC’s military, intelligence, and security apparatuses and aid in their development and modernization.
  At the same time, those companies raise capital by selling securities to United States investors that trade on public exchanges both here and abroad, lobbying United States index providers and funds to include these securities in market offerings, and engaging in other acts to ensure access to United States capital. In that way, the PRC exploits United States investors to finance the development and modernization of its military.
  I therefore further find that the PRC’s military-industrial complex, by directly supporting the efforts of the PRC’s military, intelligence, and other security apparatuses, constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States. To protect the United States homeland and the American people, I hereby declare a national emergency with respect to this threat.
Accordingly, I hereby order:
Section 1. (a) The following actions are prohibited:
  (i) beginning 9:30 a.m. eastern standard time on January 11, 2021, any transaction in publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities, of any Communist Chinese military company as defined in section 4(a)(i) of this order, by any United States person; and
  (ii) beginning 9:30 a.m. eastern standard time on the date that is 60 days after a person is determined to be a Communist Chinese military company pursuant to section (4)(a)(ii) or (iii) of this order, any transaction in publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities, of that person, by any United States person.Start Printed Page 73186
(b) Notwithstanding subsection (a)(i) of this section, purchases for value or sales made on or before 11:59 p.m. eastern standard time on November 11, 2021, solely to divest, in whole or in part, from securities that any United States person held as of 9:30 a.m. eastern standard time on January 11, 2021, in a Communist Chinese military company as defined in section 4(a)(i) of this order, are permitted.
(c) Notwithstanding subsection (a)(ii) of this section, for a person determined to be a Communist Chinese military company pursuant to section 4(a)(ii) or (iii) of this order, purchases for value or sales made on or before 365 days from the date of such determination, solely to divest, in whole or in part, from securities that any United States person held in such person, as of the date 60 days from the date of such determination, are permitted.
(d) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted before the date of this order.
Sec. 2. (a) Any transaction by a United States person or within the United States that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate the prohibitions set forth in this order is prohibited.
(b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.

Sec. 3. (a) The Secretary of the Treasury, after consultation with the Secretary of State, the Secretary of Defense, the Director of National Intelligence, and the heads of other executive departments and agencies (agencies) as deemed appropriate by the Secretary of the Treasury, is hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, to carry out the purposes of this order. The Secretary of the Treasury may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury. All agencies shall take all appropriate measures within their authority to carry out the provisions of this order.
(b) Rules and regulations issued pursuant to this order may, among other things, establish procedures to license transactions otherwise prohibited pursuant to this order. But prior to issuing any license under this order, the Secretary of the Treasury shall consult with the Secretary of State, the Secretary of Defense, and the Director of National Intelligence.
Sec. 4. Definitions. For purposes of this order:
(a) the term “Communist Chinese military company” means
(i) any person that the Secretary of Defense has listed as a Communist Chinese military company operating directly or indirectly in the United States or in any of its territories or possessions pursuant to section 1237 of Public Law 105-261, as amended by section 1233 of Public Law 106-398 and section 1222 of Public Law 108-375, as of the date of this order, and as set forth in the Annex to this order, until such time as the Secretary of Defense removes such person from such list;
(ii) any person that the Secretary of Defense, in consultation with the Secretary of the Treasury, determines is a Communist Chinese military company operating directly or indirectly in the United States or in any of its territories or possessions and therefore lists as such pursuant to section 1237 of Public Law 105-261, as amended by section 1233 of Public Law 106-398and section 1222 of Public Law 108-375, until such time as the Secretary of Defense removes such person from such list; or
(iii) any person that the Secretary of the Treasury publicly lists as meeting the criteria in section 1237(b)(4)(B) of Public Law 105-261, or publicly lists as a subsidiary of a person already determined to be a Communist Start Printed Page 73187Chinese military company, until the Secretary of the Treasury determines that such person no longer meets that criteria and removes such person from such list.
(b) the term “entity” means a government or instrumentality of such government, partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;
(c) the term “person” means an individual or entity;
(d) the terms “security” and “securities” include the definition of “security” in section 3(a)(10) of the Securities Exchange Act of 1934, Public Law 73-291, as codified as amended at 15 U.S.C. 78c(a)(10), except that currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding 9 months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited, shall be a security for purposes of this order.
(e) the term “transaction” means the purchase for value of any publicly traded security; and
(f) the term “United States person” means any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.
Sec. 5. The Secretary of the Treasury, in consultation with the Secretary of State and, as appropriate, the Secretary of Defense, is hereby authorized to submit the recurring and final reports to the Congress on the national emergency declared in this order, consistent with section 401(c) of the NEA (50 U.S.C. 1641(c)) and section 204(c) of IEEPA (50 U.S.C. 1703(c)).
Sec. 6. General Provisions. 
(a) Nothing in this order shall be construed to impair or otherwise affect:
(i) the authority granted by law to an executive department or agency, or the head thereof; or
(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.
(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.
(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

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(Source: Federal Register, 17 Nov 2020) [Excerpts]
85 FR 73356: Notice
* AGENCY: U.S.-China Economic and Security Review Commission.
* ACTION: Notice of open public event.
* SUMMARY: Notice is hereby given of the following open public event of the U.S.-China Economic and Security Review Commission. The Commission is mandated by Congress to investigate, assess, and report to Congress annually on “the national security implications of the economic relationship between the United States and the People’s Republic of China.” Pursuant to this mandate, the Commission will hold a virtual public release of its 2020 Annual Report to Congress in Washington, DC, on December 1, 2020.
* DATES: The release is scheduled for Tuesday, December 1, 2020 at 10:30 a.m.
* ADDRESSES: This release will be held online. Members of the public will be able to view a live webcast via the Commission’s website at www.uscc.gov. Please check the Commission’s website for possible changes to the event schedule and instructions on how to submit questions or participate in the question-and-answer session. Reservations are not required to attend.
* FOR FURTHER INFORMATION CONTACT: Any member of the public seeking further information concerning the event should contact Jameson Cunningham, 444 North Capitol Street NW, Suite 602, Washington, DC 20001; telephone: 202-624-1496, or via email at jcunningham@uscc.gov. Reservations are not required to attend.
* ADA Accessibility: For questions about the accessibility of the event or to request an accommodation, please contact Jameson Cunningham at 202-624-1496, or via email at jcunningham@uscc.gov. Requests for an accommodation should be made as soon as possible, and at least five business days prior to the event.

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(Source: Federal Register, 17 Nov 2020) [Excerpts]
85 FR 73294: Notice
* AGENCY: U.S. International Trade Commission.
* ACTION: Notice of proposed recommendations and solicitation of public comments.
* SUMMARY: On October 1, 2019, the U.S. International Trade Commission (Commission) instituted Investigation No. 1205-13, Recommended Modifications in the Harmonized Tariff Schedule, 2020. The Commission’s proposed recommendations relating to Investigation No. 1205-13 have been posted on the Commission website. Interested Federal agencies and the public are invited to submit written comments on the proposed recommendations by December 14, 2020.
* DATES: November 16, 2020: Posting of the Commission’s proposed recommendations on the Commission’s website.
December 14, 2020: Interested Federal agencies and the public may file written views with the Commission on the Commission’s proposed recommendations.
March 2021 (actual date to be announced later): Transmittal of the Commission’s report to the President.
* ADDRESSES: All Commission offices, including the Commission’s hearing rooms, are located in the United States International Trade Commission Building, 500 E Street SW, Washington, DC. All written submissions should be addressed to the Secretary to the Commission, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. The public record for this investigation may be viewed on the Commission’s Electronic Docket Information System (EDIS) at https://edis.usitc.gov.
* FOR FURTHER INFORMATION CONTACT: Daniel P. Shepherdson, Attorney-Advisor, Office of Tariff Affairs and Trade Agreements ((202) 205-2598, or Daniel.Shepherdson@usitc.gov) or Vanessa Lee, Nomenclature Analyst, Office of Tariff Affairs and Trade Agreements ((202) 205-2053, or Vanessa.Lee@usitc.gov). The media should contact Margaret O’Laughlin, Office of External Relations ((202) 205-1819, or Margaret.OLaughlin@usitc.gov). Hearing-impaired individuals may obtain information on this matter by contacting the Commission’s TDD terminal at 202-205-1810. General information about the Commission is available by accessing the Commission website at https://www.usitc.gov/. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at (202) 205-2000.

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* Commerce/BIS: RULES; Revision to Export Enforcement Provision [Pub. Date: 18 Nov 2020] (PDF)

* USTR: NOTICES; Product Exclusion: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation [Pub. Date: 18 Nov 2020] (PDF) and (PDF)

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OGS_a26. Commerce/BIS: (No new postings)

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   The Security Council today extended the mandate of the Panel of Experts on Somalia until 15 December 2021, renewed the partial lifting of the arms embargo on the country’s security forces and urged the country to curb terrorist financing as well as illicit exports, including charcoal and explosive ingredients.
   Adopting resolution 2551 (2020) by a recorded vote of 13 in favour to none against, with 2 abstentions (China, Russian Federation), the Council, acting under Chapter VII of the Charter of the United Nations, decided the arms embargo shall exempt deliveries of arms, technical advice, financial assistance or training intended for Somali security forces.  It further prohibited weapons and military equipment supplied to the Somali National Security Forces or Somali security sector institutions from being resold or made available to entities outside the country’ security forces.
  Exceptions to the arms embargo are the United Nations Assistance Mission in Somalia (UNSOM) and other Organization personnel, the African Union Mission in Somalia (AMISOM) or AMISOM’s strategic partners and the European Union Training Mission in Somalia.  The Council further exempted from the embargo international, regional and subregional organizations attempting to suppress acts of piracy and armed robbery at sea off the Somalian coast.
   By other terms, the Council called on the federal Government of Somalia to speed up implementation of the national security architecture, including decisions about the composition, distribution and command of its forces, urging it to update and implement the Somalia Transitional Plan.  It also underscored the responsibility of the Government and Federal Member States to ensure the safe management, storage and security of their stockpiles of weapons, ammunition and other military equipment.
  Expressing concern about Al-Shabaab’s ability to generate revenue and launder resources, the Council called on the Government to work with financial authorities, private sector institutions and the international community to mitigate money-laundering and terrorist financing risks.  Adding that it should also strengthen supervision and enforcement, the Council encouraged the Government to consider implementing a national identification programme to help mitigate financing risks.
   The Council also condemned exports of charcoal from Somalia, which are banned from leaving the country, urging maritime forces in the region to disrupt illicit flows that may finance terrorist activities.  Noting the increase in improvised explosive device attacks undertaken by Al-Shabaab, the Council further encouraged States to prevent the direct or indirect sale or transfer of items that could be used in manufacturing these devices.
   Addressing the adoption, China’s delegate noted that Somalia’s elections are steadily proceeding but that the security situation remains volatile and uncertain.  He abstained from the vote, he said, as the draft fails to take on board China’s proposal to lift the arms embargo on Somalia as well as its inclusion of Djibouti and Eritrea.
   Similarly, the Russian Federation’s delegate said he abstained from the vote because the draft includes a paragraph on Djibouti and Eritrea, when the conflict between the countries has been resolved and sanctions on Eritrea removed.  He also objected to inclusion of human rights issues in the Somalia dossier and to the selective approach in managing illegal trade.
Responding to the Russian Federation, the representative of the United Kingdom agreed that sanctions had been lifted from Eritrea but there has been no progress in resolving outstanding issues between the countries.  She lauded Somalia’s efforts to resolve issues related to the resolution, strongly supporting new measures to curb Al-Shabaab’s finances.
   The speaker for the United States welcomed the renewed sanctions and supported the increased focus on combating Al-Shabaab’s exploitation of Somalia’s financial system.
   Somalia’s delegate expressed regret that important issues were left out of the draft, emphasizing his country’s opposition to continued sanctions.  Stressing that Al-Shabaab remains a huge threat to Somalia, he urged the international community to address root causes as well as assist with security and institution-building.

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(Source: Bits & Chips, 16 Nov 2020) [Excerpts]

   The inauguration of Joe Biden as president won’t end American efforts to block the sale of ASML’s EUV scanners to Chinese companies. Quite to the contrary, Washington sources told NRC Handelsblad (link in Dutch) that new restrictions have been lined up, should the Dutch government decide to grant an export license for the world’s most advanced lithography scanner after all.
   Currently, ASML’s export license is withheld with an appeal on the Wassenaar Arrangement, which controls Western exports of goods and technology that potentially have military uses. Following US diplomatic pressure, the Dutch government didn’t renew the license 1.5 years ago and still hasn’t granted one. If it does, the US will move to block the sale by other means, according to NRC.
The US would pursue the same method it used to cut off Huawei from TSMC’s chip manufacturing services: by enforcing export controls on foreign-produced goods if they contain more than a certain percentage of US-origin technology. Currently, ASML’s EUV scanners don’t qualify as ‘American enough’, but the US could simply lower the percentage.
   On Sunday, ASML CEO Peter Wennink said in the TV program “Buitenhof” (link in Dutch) that he doesn’t expect a big course change in American China policy once Biden takes the helm, although he hopes that the president-elect will be more open to international dialogue.

  Airbnb Inc. has disclosed in a Securities and Exchange Commission filing that since July 2019, it has conducted an internal review, and held discussions with OFAC about activities on its platform by certain users and in certain territories that are subject to US sanctions.
The filing says that:
  1. OFAC has issued cautionary letters and no administrative penalty to Airbnb following self-disclosures relating to US sanctions on the Crimea region of Ukraine, and dealings with specially designated nationals;
  2. OFAC’s review into disclosures regarding potential violations of Cuba sanctions is on-going. Airbnb “could be subject to potentially significant monetary civil penalties and litigation, and [its] brand and reputation could be materially adversely affected”;
  3. Airbnb has reported dealings with people subject to EU/UK sanctions to the UK’s Office of Financial Sanctions Implementation; and
  4. Airbnb may be required to make additional investments in its internal controls as its business grows and regulations change.

(Source: Shine, 17 Nov 2020) [Excerpts]

   Huawei Technologies has decided to sell all of its Honor business assets to Shenzhen Zhixin New Information Technology Co, a decision made in light of “this difficult time,” Huawei said in a statement on Tuesday.
   Founded in 2013, Honor has focused on the youth market by offering phones in the low to mid-end price range, with annual sales exceeding 70 million units.
A monetary figure for the deal was not mentioned, but industry insiders and media estimate the value to hit US$40 billion, a record high in the smartphone industry.
   Shenzhen Zhixin, invested and owned by over 30 dealers and partners of Honor, called it a “market driven” move to ensure Honor’s industry chain survival, the company said in a public statement.
   “Huawei’s consumer business has been under tremendous pressure as of late. This has been due to a persistent unavailability of technical elements needed for our mobile phone business,” Huawei said.
   Huawei has been facing strict US tech export controls which make it difficult for Huawei and Honor to obtain key components and technologies.
   Huawei is facing “its most serious challenge since taking the lead in 2016,” as Huawei was forced to restrict its smartphone shipments following US sanctions, said Canalys Analyst Jia Mo.
   Huawei’s smartphone sales dropped 18 percent year on year in China in the third quarter, according to researcher Canalys.
   Honor’s independence from Huawei is expected to help sustain the brand’s upstream and downstream suppliers, said an industry source who declined to be identified.
   Once the sale is complete, Huawei will not hold any shares or be involved in business management or decision-making activities in the new Honor company.

(Source: Yahoo News, 16 Nov 2020) [Excerpts]

   Fourteen of the world’s top human rights and humanitarian organisations have called on the French government to “end France’s opacity on arms sales”, ahead the publication of a parliamentary fact-finding report on arms export control to be published on 18 November.
   In a joint press release, co-signed by Human Rights WatchAmnesty International, the International Federation for Human Rights FIDHOxfam, and local organisations such as the Cairo Institute for Human Rights and Salam for Yemen say that parliamentary control is “essential since French arms sales have been shown to be responsible for certain serious violations of humanitarian law, particularly in Yemen, where those violations have dramatic consequences for the civilian population.
   In December 2018, the Foreign Affairs Committee of France’s Parliament created a fact-finding mission on arms export control, headed by MPs Michele Tabarot and Jacques Maire, as a result of public opinion and NGO mobilisation against French arms sales to Saudi Arabia and the United Arab Emirates, “likely to be used illegally against civilians in Yemen.”
French weapon sales to Saudi Arabia were first exposed to the public by the investigative website Disclose, in a report “Made in France.”
War in Yemen
   Based on leaked documents of the French Military Intelligence (DRM), Disclose mapped out the scale of French arms sales to Saudi Arabia and the impact the had in the war in Yemen and concluded that the extensive use of French-made Leclerc tanks and Cesar howitzers contributed to the death of dozens of civilians between 2016 and 2018.
   The 14 NGO’s argue that France is an exception among western democracies as its Parliament has no ability to exercise real control over arms sales carried out by the Executive, unlike the United States, the United Kingdom and Germany, where parliamentary control over arms sales is in place.
Top three arms importers 
   They also point out that in 2019 Saudi Arabia was among the top three countries that imported the most French arms, while the United Arab Emirates ordered a record number of French arms.
   “And this despite their alleged responsibility for serious and repeated violations of international humanitarian law in Yemen,” the group says. As a result, “80% of the population is now in need of humanitarian aid. This is a preventable tragedy.”
  “If Germany, the Netherlands and Sweden have suspended some arms contracts to Riyadh, it is not only because of the war in Yemen, but also because they have put in place a democratic control mechanism that allows civil society to be heard by the rulers,” says Tony Fortin, Research officer at the Paris-based Armaments Observatory, one of the co-signatories of the letter.
“Such a system does not exist in France. We must seize the opportunity provided by the Maire-Tabarot report to (finally!) make progress on the subject. This implies questioning the predominant place given to the executive power and the military logic in our society,” he says.


* Principal Author: Mattias Hedwall, 46-8-56617733, Baker McKenzie
  The European Council announced on Monday that it has reached agreement on a new EU regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items.
  The aim of the new regulations is to adapt the Dual-Use Regulation to react to changes in the technological, economic and political situation since the existing rules came into force in 2009.  The new regime is to be based on the Commission’s original 2016 proposal and the European Parliament’s comments thereto, and the Council’s negotiating mandate that was published in 2019 and featured in our previous blog post.
  The proposals are reported to cover the following:
  • stricter controls on cyber-surveillance technology;
  • two new general EU export authorisations for dual-use items;
  • improved cooperation between licensing and customs authorities;
  • a new provision on so-called “transmissible controls” allowing Member States to introduce export controls based upon those established by another Member State;
  • harmonisation at the EU level of rules applicable to technical assistance services; and
  • new reporting rules aimed to create greater transparency.
  The next step will be for Member States’ ambassadors sitting on the Permanent Representatives Committee to endorse the agreement and then for the European Parliament and Council to adopt the regulation. The full agreed text has not yet been published, but we anticipate that it will be available soon.

   On November 10, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against a network of six companies and four individuals for allegedly facilitating the procurement of sensitive goods-including U.S.-origin electronic components-for an Iranian military firm that was previously designated by the U.S. and the European Union for being owned or controlled by Iran’s Ministry of Defense and Armed Forces Logistics. The designations are being taken pursuant to Executive Order 13382, which aims to freeze the assets of proliferators of weapons of mass destruction along with their supporters. As a result, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked, and U.S. persons are also generally prohibited from engaging in transactions with them. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant support to the designated persons may subject them to U.S. sanctions.
   Concurrent with OFAC’s designations, the U.S. Attorney’s Office for the District of Columbia filed a criminal complaint against two of the designated entities and one of the designated individuals for conspiring to violate U.S. export laws and sanctions against Iran.

* Principal Author: Nabeel Yousef, Esq., 1-202-777-4563, Freshfields Bruckhaus Deringer US LLP.
On November 12, 2020, President Trump issued a new executive order: the “Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies” (the EO).  In an apparent aim to escalate the US-China trade war in the Administration’s final months, the EO prohibits US transactions in securities of 31 targeted Chinese companies. The EO’s restrictions will take effect from January 11, 2021, which is 60 days from the date of the EO’s issuance and nine days before the inauguration of President-elect Joe Biden.  Our key takeaways follow.


  1. Which Chinese companies does the EO target?
The EO currently targets 31 Chinese companies that are purportedly owned or controlled by the Chinese military, including many major companies in the energy, technology, telecommunications, and manufacturing sectors. All of these companies were included on lists previously released in June and August 2020 by the US Department of Defense (the DOD) following the DOD’s determination that the companies were owned or controlled by the Chinese military. Because the lists were released under the authority of Section 1237 of the National Defense Authorization Act for Fiscal Year 1999, the lists are commonly referred to as the Section 1237 List (and sometimes also as the “DOD List” or the “Pentagon List”).
Prior to the EO, the Section 1237 List did not impose any restrictions on the 31 companies. The EO references the Section 1237 List now, however, to identify those Chinese companies whose securities are targeted by these new sanctions. This sequencing is similar to how the US government approached the 2018 sanctioning of Russian oligarchs. First, in January 2018, the US Treasury Department published a list identifying Russian oligarchs; thereafter, in April 2018, the Treasury Department’s Office of Foreign Assets Control (OFAC) added several of those individuals to the US list of Specially Designated Nationals (SDN List).
Any additional Chinese companies that the DOD designates on the Section 1237 List at a later date will have their securities targeted by the same sanctions restrictions. A Chinese company’s securities may also be targeted by the EO’s restrictions if the Treasury Secretary publicly lists the Chinese company as meeting the criteria of the Section 1237 List.
At this time, it does not appear that the EO targets subsidiaries of companies on the Section 1237 List, although the EO provides that if the Treasury Secretary “publicly lists” such a subsidiary, it too will be targeted by these new sanctions.
If a Chinese company is removed from the Section 1237 List (or Treasury’s Section 1237-related list), the sanctions on that entity are automatically lifted.
  1. What do the sanctions on targeted Chinese companies prohibit?
US persons are prohibited from engaging in any “transaction” in publicly traded securities – or any securities that are derivative of, or designed to provide investment exposure to securities – of any company on the Section 1237 List.
The EO defines prohibited “transactions” as only “the purchase for value of any publicly traded security,” which at first glance appears to suggest that US persons are prohibited only from purchasing targeted securities but not from selling such securities. Notably, however, the EO’s 60-day grace and 365-day wind-down periods permit “purchases for value or sales” of targeted securities. It is therefore not clear whether the intention of the EO is also to prohibit US persons from selling targeted securities or if the terms of the grace and wind-down are overbroad and purport to authorize an activity that is not prohibited by the EO. Forthcoming guidance may clarify this point.
The scope of “securities” targeted by the EO is based on a relatively broad definition from the US Securities Exchange Act of 1934 and includes, among other things, publicly-traded shares and American depositary receipts (ADRs) of the targeted companies.  As noted above, the EO also targets derivates of such securities, including investments that are indexed to the value of the targeted securities, as well as options, puts and calls on the targeted companies’ shares.
The EO restricts US transactions in targeted securities around the world, regardless of where the securities are issued or traded.
  1. When do the sanctions take effect, and is there a wind-down period?
“Transactions” by US persons in targeted securities will be prohibited starting 60 days from the date of the EO, at 9:30am EST on January 11, 2021.  Similarly, restrictions on securities of entities later added to the Section 1237 List will begin 60 days after such designation.
The EO provides a one-year wind-down period for US persons to divest from targeted securities.  As such, US persons are authorized to engage in purchases or sales of targeted securities until November 11, 2021, provided that the overarching purpose of any such transactions is “solely to divest.” 
The EO does not appear to prohibit US persons from continuing to hold targeted securities even after the wind-down period has expired, as long as US persons do not engage in any “transactions” in those securities.
  1. Are these sanctions similar to “blocking” sanctions?
The EO’s sanctions prohibit US purchases of targeted securities, so these sanctions are more limited than the “blocking” sanctions that typically apply to persons on OFAC’s SDN List.  Under OFAC blocking sanctions for SDNs, US persons are generally required to block (i.e., freeze) all property or interests in property of designated persons, whereas the EO targets only the targeted companies’ securities.
These new sanctions are closer in scope to the US and EU sectoral sanctions on Russian companies.  Under the relevant sectoral sanctions, US and EU persons are prohibited from dealings in certain new equity of targeted Russian companies.  The EO, by comparison, is broader in certain respects because these new sanctions cover both new and existing securities as well as derivatives, but the EO is also more limited in other respects because the EO targets only publicly-traded instruments.
  1. Will these sanctions change under the Biden Administration?
It is possible that President-elect Biden could, when he becomes President on January 20, 2021, rescind or amend the EO. Short of that, a Biden Administration could also issue regulations or guidance on the Section 1237 List sanctions that significantly blunt the potential impact of the EO.  It remains to be seen whether President-elect Biden or his policy team will comment directly on the EO or signal an intent as to how the next Administration will treat these sanctions.
The restrictions take effect nine days before Inauguration, however, so there will likely be at least some period of time where these sanctions will be in effect.
Potential Impact and Conclusion
Until the current or incoming Administration provides further guidance, the potential long-term scope of these new sanctions is not clear. It is also not clear what practical business or market operation challenges these new sanctions will present.
Helpfully, however, the EO provides 60 days for Section 1237 Listed companies, and parties dealing with Section 1237 Listed companies, to assess the implications of these new sanctions on their investments, business arrangements, and agreements.  Companies should use this time to ensure that they are prepared for the sanctions taking effect on January 11, 2021, and continue to monitor developments with the Section 1237 List sanctions.

(Source: Mayer Brown, 16 Nov 2020)
* Principal Author: Tamer A. Solman, 1-202-263-3292, Mayer Brown 
   A new executive order, issued by President Trump on November 12, 2020, will prohibit investments in companies that the US government determines support the military of the People’s Republic of China. The order builds on the US Department of Defense’s (“DoD”) recently released list of “Communist Chinese military companies” by prohibiting US individuals and entities from purchasing these companies’ securities. The executive order is the latest in a series of US government actions to address national security concerns cited by the Trump administration with respect to certain Chinese companies operating in the United States and the export of US-origin technology that benefits the Chinese military. These actions include addressing concerns with the Chinese app WeChat and an executive order addressing the US information and communications technology and services supply chain.
   As with the increased controls imposed earlier this year on exports of US-origin technology and other items that benefit the Chinese military (see our Legal Update here), the new executive order is aimed at what the US government has described as China’s national military-civil integration strategy. The order states that, through this strategy, “the PRC increases the size of the country’s military-industrial complex by compelling civilian Chinese companies to support its military and intelligence activities.” In his own statement about the order, National Security Advisor Robert C. O’Brien said that it “serves to protect American investors from unintentionally providing capital that goes to enhancing the capabilities of the People’s Liberation Army and People’s Republic of China intelligence services, which routinely target American citizens and businesses through cyber operations, and directly threaten the critical infrastructure, economy, and military of America and its allies and partners around the world.”[FN/1] 
   Specifically, the executive order prohibits any US person from any transaction in the publicly traded securities of any “Communist Chinese military company” as well as in any securities that are derivative of or are designed to provide investment exposure to such securities. These prohibitions are effective January 11, 2021, though the order provides an exemption for transactions made through November 11, 2021, that are made solely to divest, in whole or in part, from securities of such companies that a US person held as of January 11, 2021. As a result, US persons have a grace period through November 11, 2021, to divest from the securities of the companies at issue. 
   The order defines the term “Communist Chinese military company” to initially reference determinations made by DoD. In June of this year, DoD publicly released a list of “Qualifying Entities Prepared in Response to Section 1237 of the National Defense Authorization Act for Fiscal Year 1999” (the “DoD List”). This list was supplemented in August with additional entities and at present totals 31 companies, including Huawei, Hikvision and Inspur Group.[FN/2] 
   The DoD List was originally prepared pursuant to a requirement in Section 1237 of the 1999 National Defense Authorization Act (“FY99 NDAA”), which required the Secretary of Defense (in consultation with the Attorney General, the Director of the Central Intelligence Agency and the Director of the Federal Bureau of Investigation) to identify parties “operating directly or indirectly in the United States or any of its territories and possessions that are Communist Chinese military companies.”[FN/3] The FY99 NDAA defines “Communist Chinese military companies” as anyone named on two Defense Intelligence Agency documents that are not publicly available and “any other person that is owned or controlled by the People’s Liberation Army and is engaged in providing commercial services, manufacturing, producing, or exporting.”[FN/4] The FY99 NDAA provides the President with authority to exercise the broad authorities set forth under section 203(a) of the International Emergency Economic Powers Act (“IEEPA”) without declaring a national emergency as required by section 202 of IEEPA, “in the case of any commercial activity in the United States by a person that is on the list.” However, the President declared a national emergency under IEEPA in the executive order, declaring that the “PRC’s military-industrial complex, by directly supporting the efforts of the PRC’s military, intelligence, and other security apparatuses, constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States.” Although the executive order is limited to prohibitions on investments in securities, we note that IEEPA provides extremely broad authority to the President to impose restrictions on a wide range of activities, which could be used to take further actions against the targeted Chinese companies.
   The restrictions of the executive order also apply to companies that the Secretary of Defense and the Secretary of the Treasury determine to be Communist Chinese military companies operating directly or indirectly in the United States-and therefore are to be listed on the DoD List-going forward. Transactions in the publicly traded securities, or any securities that are derivative of or are designed to provide investment exposure to such securities, of such companies are prohibited beginning 60 days after a company is determined to be a Communist Chinese military company. As with companies currently on the DoD List, the executive order provides a wind-down period for transactions that are made solely to divest from the securities of companies that are subsequently determined to be Communist Chinese military companies. However, a significantly longer wind-down period of 365 days is provided for such transactions. 
   The investment restrictions apply to companies that the Secretary of the Treasury publicly determines to meet the criteria of a “Communist Chinese military company” found in the FY99 NDAA and to listed subsidiaries of such companies. In other words, the restrictions do not apply to subsidiaries of companies on the DoD List unless those subsidiaries are also publicly listed by DoD or the Department of the Treasury. 
   The executive order also applies to purchases of securities after the expiration of the grace period pursuant to contracts entered into prior to November 12, 2020 (the date of the executive order). However, the executive order does not explicitly indicate the status of securities merely owned by persons after the expiration of the grace period.
   The executive order could have important impacts for investors, especially if additional companies are listed as Communist Chinese military companies in the future, as it is clearly intended to limit the ability of companies that the US government views as sensitive to raise capital from US investors. We note that the initial impact may be limited as several of the companies on the DoD List, including Huawei, are not publicly listed and therefore would not be affected by the order’s restrictions on investments in securities. The order may also be indicative of further restrictions related to China that may be imposed during the “lame duck” period before President-elect Biden takes office on January 20, 2021. It remains to be seen whether the Chinese government will take retaliatory action or whether the Biden administration will revise or rescind this order upon taking office, so investors should closely monitor developments in this area in the coming weeks.


* What: ITAR Compliance for US Persons Working Outside the United States: What You Need to Know
* When: 17 Dec; 1:00 p.m. (EST)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: Susan Kovarovics and Megan Barnhill
* Register: here or Ashleigh Foor, 1-540-433-3977, ashleigh@learnexportcompliance.com.
 * * * * * * * * * * * * * * * * * * * *

U.S. Export Controls: ITAR & EAR from a non-U.S. Perspective (Tuesday, 1 Dec 2020)
Presenters: Jim Bartlett & Marco Crombach
Register or find more information here

The ABC of Foreign Military Sales (FMS) (Thursday, 3 Dec 2020)
Presenters: Mike Farrell & Jim Bartlett
Register or find more information here
* Register for both and take advantage of our discounted price!
 * * * * * * * * * * * * * * * * * * * *


EN_a120. Bartlett’s Unfamiliar Quotations

(Source: Editor)

*  Louis XVIII of France (Louis Stanislas Xavier; 17 Nov 1755 – 16 Sep 1824; was King of France from 1814 to 1824, except for the Hundred Days in 1815. He spent 23: during the French Revolution and the First French Empire, and during the Hundred Days.)
  – “Punctuality is the politeness of kings.”
* Soichiro Honda (17 Nov 1906 – 5 Aug 1991; was a Japanese engineer and industrialist. In 1948, he established Honda Motor Co., Ltd. and oversaw its expansion from a wooden shack manufacturing bicycle motors to a multinational automobile and motorcycle manufacturer.)
  – “Success is 99 percent failure.”
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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.
Latest Update 


5 Apr 2019: 84 FR 13499:

Civil Monetary Penalty Adjustments for Inflation. 

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

24 Apr 2018: 83 FR 17749: Foreign Trade Regulations (FTR): Kimberley Process Certificates.  The latest edition of the BAFTR is 
9 Nov 2020.

: 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. 

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.


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
Amendment of Cuban Assets Control Regulations.

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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