|  ITEMS FROM TODAY’S FEDERAL REGISTER |
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OTHER GOVERNMENT SOURCES |
| * Commerce/BIS: RULES; Amendment to Country Groups for Ukraine, Mexico, and Cyprus Under the Export Administration Regulations [Pub. Date: 28 Dec 2020] ( PDF) * Treasury/OFAC: NOTICES; Blocking or Unblocking of Persons and Properties [Pub. Date: 28 Dec 2020] ( PDF) and ( PDF) * * * * * * * * * * * * * * * * * * * * |
2. Commerce/BIS: (No new postings) * * * * * * * * * * * * * * * * * * * * |
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| (Source: OMB/OIRA) Commerce Department: RIN: 0694-AI38; Status: Pending Review Title: “Expansion of Certain End-Use and End-User Controls and Controls on Specific Activities of U.S. Persons” Stage: Interim Final Rule Received: 14 Dec 2020 Legal Deadline: None Title: “Modifications to Regulations to Improve Administration and Enforcement of Antidumping and Countervailing Duty Laws” Stage: Final Rule Received: 17 Dec 2020 Legal Deadline: None Title: “Export Administration Regulations: Implementation of Wassenaar Arrangement 2019 Plenary Agreements” Stage: Final Rule Completed: 23 Dec 2020 Completed Action: Consistent with Change State Department: RIN: 1400-AF17; Status: Pending Review Title: “Amendment to the International Traffic in Arms Regulations: Regular Employee” Stage: Proposed Rule Received: 03 Dec 2020 Legal Deadline: None * * * * * * * * * * * * * * * * * * * * |
NEWS |
(Source: Al-Monitor, 24 Dec 2020) [Excerpts] Greece has called for European leaders to apply stronger pressure on Ankara over its actions in the eastern Mediterranean, but the appeals have largely fallen on deaf ears. Germany will not heed a request from Greece to impose an arms embargo against Turkey, German Foreign Minister Heiko Maas said Tuesday. The statement comes as Greece has urged European leaders to apply pressure to Ankara over its actions in disputed waters in the eastern Mediterranean. “We continue to believe that there is a solution to the conflict and that we do not have to permanently remove a NATO partner from the arms cooperation,” Heiko Maas told the German news agency DPA, calling the arms embargo “strategically incorrect.” Germany has a contract to deliver six submarines to Turkey. Greece and Cyprus have been embroiled in tensions with Turkey over disputed maritime boundaries in the eastern Mediterranean. In August, Ankara sent a research vessel into the waters to search for untapped energy reserves. Since then, the countries have exchanged maritime military drills. Ahead of an EU leaders’ summit on Dec. 10-11, Greece called for an EU arms embargo against Turkey, arguing that the weapons could be used against EU members Greece and Cyprus if there is an escalation over contested waters in the eastern Mediterranean. Outside of France, Greece and Cyprus, European leaders have largely dismissed the request for an arms embargo and have taken a softer position in hopes of carving out space for constructive dialogue. … Last year, the United States kicked Turkey out of its F-35 program over its purchase of the S-400 system. Washington followed the move this month by sanctioning the defense arm of its NATO ally. …
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(Source: Vietnam Briefing, 24 Dec 2020) [Excerpts]
- Vietnam recently issued new regulations outlining administrative penalties for customs violations effective December 10, 2020.
- Fines range from late submission of customs documents for tax incentive programs, automotive components, and duty-free goods.
- Import-export businesses should study the decree carefully to avoid being subject to administrative penalties brought by the new regulation.
The Vietnamese government issued Decree 128/2020/ND-CP (Decree 128) regulating administrative penalties resulting from customs violations. The regulation replaces Decree 127/2013/ND-CP and Decree 45/2016/ND-CP and will take effect on December 10, 2020. The decree introduces several new penalties and is expected to make the country’s customs protocols more conducive to international trade. Some notable changes include the addition of new penalties related to the import-export of counterfeit goods and politically sensitive items. Business entities committing violations may be liable to additional sanctions subject to the nature and seriousness of the violation.
These sanctions empower customs to seize material evidence of violations or force the expulsion of law-breaching-goods out of Vietnam within the time limit. For the goods that are sold, dispersed, or destroyed in breach of the law, a penalty equivalent to their cost may be imposed. … |
COMMENTARY |
* Author: Sunny Mann, Esq., 44-20-7919-1397, Baker McKenzie On 7 October 2020, the European Commission adopted the revised Annex I (the “Dual-Use List“) to Regulation 428/2009 (the “Dual-Use Regulation“) (see here). The new Dual-Use List came into force on 15 December 2020. The Dual-Use List is refreshed on an annual basis to take into account updates to international non-proliferation regimes and export control arrangements. The latest updates reflect changes from reviews carried out by the Wassenaar Arrangement in particular, and also from reviews by the Australia Group, the Missile Technology Control Regime and the Nuclear Suppliers Group. For further information on the new Dual-Use List, see the Update Notice and Comprehensive Change Note Summary. Key changes to note including the following: Cyber Security Controls - New entry in respect of systems, equipment and components for defeating, weakening or bypassing “information security” (5A004.b) – including a Technical Note and two related decontrol notes.
- New entry for certain “software” specially designed for monitoring or analysis by law enforcement (5D001.e.1., .2.) including new Technical Notes 1 and 2, and a related decontrol note.
Cryptographic Items Decontrols - A number of important amendments have been made to the cryptography decontrols in 5A002, as follows:
- 5A002.a., Note 2.f. – rewritten to cover items “where the “information security” functionality is limited to wireless “personal area network” functionality, implementing only published or commercial cryptographic standards”.
- 5A002.a., Note 2.h. – entry amended to include “gateways”, where “the “information security” functionality is limited to the tasks of “Operations, Administration or Maintenance” implementing only published or commercial cryptographic standards”.
- 5A002.a. – entry amended to state that control applies where the cryptographic capability “is usable, has been activated, or can be activated by any means other than secure “cryptographic activation””.
Electronics - New Technical Note added for the control on computational lithography software (3D003), which defines computational lithography as “the use of computer modelling to predict, correct, optimise and verify imaging performance of the lithography process over a range of patterns, processes, and system conditions”.
Pharmaceutical - Inclusion of an explicit decontrol note for “vaccines” in 1C353, and the addition of “Middle East respiratory syndrome-related coronavirus” as a new virus in IC351.
Machine Tools - 2B001 – new Note 4 added, stating that machine tools “having an additive manufacturing capability in addition to a turning, milling or grinding capability” must be evaluated against each applicable control entry.
Other Key Changes - New control entry for “sub-orbital craft” (9A004): This is defined as a craft having an enclosure designed for the transport of people or cargo which is designed to operate above the stratosphere, perform a non-orbital trajectory, and land back on Earth with the people or cargo intact.
- Aerospace: Amendment to the entry for turbojet and turbofan engine (9A101.a.1. – .a.2.) and new Technical Note for clarification on determination of specific fuel consumption (9A101.a. – Technical Note 2) and amendment to the control entry in respect of “fan blades” (9E003.a.11).
- Chemicals: New entries for 24 chemicals, including Novichok nerve agent precursors (1C350.66. to 1C350.89).
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*Principal Author: Brian Curran, Hogan Lovells International LLP In the fourth quarter of 2020, the major CFIUS development was the significant revision of one of CFIUS’s two mandatory filing programs. Specifically, on 15 September 15 2020, the Department of Treasury (the Treasury) issued a Final Rule revising CFIUS’s critical technologies mandatory filing program and making certain other clarifying amendments to the other mandatory filing program. The most significant changes in the Final Rule can be summarized as follows: - Replacing certain industry-related criteria in the CFIUS critical technologies mandatory filing program with certain export authorization criteria.
- Defining the scope of foreign persons to be considered when assessing whether the export authorization criteria are satisfied (to include the direct acquirer/investor, as well as persons with a 25 percent or greater voting interest, direct or indirect, in such direct acquirer/investor).
- Expanding the export license exceptions that exclude a transaction from the CFIUS critical technologies mandatory filing program (while also clarifying that to be “eligible” for the use of the license exception the specific requirements of the license exception must be satisfied).
- Clarifying the application of the “substantial interest” definition when assessing foreign government interests in certain entities under the CFIUS foreign government-backed mandatory filing program.
The effective date for the final rule was 15 October 2020. Replacing the Industry Prong with an Export Licensing Prong Under the previous version of the CFIUS regulations, pursuant to the critical technologies mandatory filing program, a foreign investor and a U.S. business were legally obligated to submit a filing to CFIUS if: - The investment would have afforded the foreign person control over the U.S. business or one of three foreign investor rights (the Foreign Investor Rights Prong).
- The investment was in a U.S. business that produced, designed, tested, manufactured, or developed a critical technology (the Critical Technologies Prong).
- The critical technology was used in the Company’s business activities in, or specifically designed for, one of 27 identified industries (the Industry Prong).
The Final Rule replaces the Industry Prong with a test as to whether the Company’s critical technologies would require an export authorization for the hypothetical export, re-export, transfer, or retransfer to certain foreign persons involved in the transaction (the Export Licensing Prong). Under the Final Rule, an export authorization includes: (i) a license or other approval issued by the Department of State under the International Traffic in Arms Regulations; (ii) a license from the Department of Commerce under the Export Administration Regulations (the EAR); (iii) specific or certain general authorizations issued by the Department of Energy pursuant to 10 C.F.R. part 810; or (iv) a specific license issued by the Nuclear Regulatory Commission pursuant to 10 C.F.R. part 110. The Export Licensing Prong is likely to exclude from the CFIUS critical technologies mandatory filing program many investments by allied country investors that otherwise would have been subject to the program under the former Industry Prong. N
onetheless, in some cases, the due diligence required to confirm whether the Export Licensing Prong is satisfied will require more time and effort than the Industry Prong required, particularly if one or more persons hold a 25 percent voting interest, direct or indirect, in the foreign investor.
Defining the scope of foreign persons to which the Export Licensing Prong must be applied In assessing the Export Licensing Prong, the Final Rule clarifies that, in the context of the underlying transaction, the U.S. business must assess whether an export authorization would be required for the hypothetical export, re-export, transfer, or retran
sfer of the U.S. business’s critical technologies to: (i) any foreign person who could gain direct control over the U.S. business; (ii) any foreign person who will directly obtain one or more of three foreign investor rights specified in the CFIUS regulations (e.g., board/board observer rights); (iii) any foreign person who has a direct investment in the U.S. business and whose investor rights are changing pursuant to the transaction, such that either (i) or (ii) could occur; and (iv) any person who has, directly or indirectly, a 25 percent or greater voting interest in the persons described in (i)-(iii). The Export Licensing Prong, therefore, requires an examination of the hypothetical export licensing requirements for exports not just to the foreign acquirer/investor, but also entities or individuals in its ownership chain. Expansion of license exceptions The previous version of the CFIUS regulations provided a particular exclusion from the CFIUS critical technologies mandatory filing program on the basis of license exception ENC, which relates to encryption hardware, software, and technology. The Final Rule expands the scope of potentially applicable license exceptions to include not only (i) provisions of license exception ENC (15 C.F.R. § 740.17(b)), but also (ii) license exception TSU (technology and software unrestricted 15 C.F.R. § 740.13) and (iii) provisions of license exception STA (strategic trade authorization – 15 C.F.R. § 740.20(c)(1)) applicable to destinations in or nationals of country group A:5 under the EAR (Supp. 1 to 15 C.F.R. § 740)). In identifying these additional license exceptions as exclusions from the CFIUS critical technologies mandatory filing program, the Final Rule also clarifies that in order for one of the license exceptions to exclude a transaction from CFIUS’s critical technologies mandatory filing program, the U.S. business must have satisfied all the requirements for the use of the license exception in the context of the hypothetical export, re-export, transfer, or retransfer to the relevant foreign persons in the transaction (even if no such export, re-export, transfer, or retransfer is in fact anticipated in connection with the transaction). For example, in the context of a U.S. business that develops proprietary encryption source code, which is a critical technology and is described in 740.17(b)(2) of license exception ENC, the U.S. business must have met all the regulatory requirements of 740.17(b)(2) (assuming the source code has not otherwise been made publicly available), which includes submission of a commodity classification to the Commerce Department’s Bureau of Industry and Security and, in some cases, a 30-day waiting period, in order to utilize license exception ENC in excluding the transaction from CFIUS’s critical technologies mandatory filing program. Substantial interest modification The Final Rule also amends the definition of “substantial interest” which is relevant in considering the applicability of the CFIUS foreign government-backed mandatory filing program. In particular, the rule clarifies that with regard to entities whose activities are primarily directed, controlled, or coordinated by or on behalf of a general partner, managing member, or equivalent, the “substantial interest” considerations only apply if the national or subnational governments of a single foreign state hold 49 percent or more of the interest in the general partner, managing member, or equivalent. * * * * * * * * * * * * * * * * * * * * |
(Source: Author, 23 Dec 2020) Earlier today, the Office of the United States Trade Representative posted on its website a notice in the Section 301 (China) action announcing that it has determined to (i) approve certain new product exclusions, and (ii) extend certain expiring product exclusions. According to the notice, all of the exclusions involved are for medical-care products used to address COVID-19. A copy of the notice is attached for your reference. The notice states that: In light of the rising spread and ongoing efforts to combat COVID-19, the U.S. Trade Representative has determined that maintaining or re-imposing additional on certain products subject to the action no longer is appropriate and that the application of additional duties to these products could impact U.S. preparedness to address COVID-19. Accordingly, the USTR is extending certain existing product exclusions that otherwise would expire December 31, 2020, and approving certain new product exclusions from the COVID-19 docket opened back in March. As you will see from the annexes to the notice, the USTR adopted a narrow interpretation of products that would be helpful to the nation’s efforts to combat COVID-19 (at least in relation to the range of products requested to be excluded). The extensions/approvals run through March 31, 2021.
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(Source: Williams Mullen News, 18 Dec 2020) [Excerpts of long article.] It seems almost every day there are reports of new developments under the U.S. sanctions laws. Yet many U.S. companies do not understand the significance of these laws. While they often appear to affect distant countries such as Iran and N. Korea, they actually impact U.S. companies on a day-to-day basis. Due to the severe civil and criminal penalties involved (including recent penalties of over $1 billion), it is important for companies and their counsel to understand these laws. The following is a summary of U.S. sanctions laws in day-to-day business transactions and important compliance issues for U.S. companies. The U.S. sanctions laws are a set of legal requirements designed to achieve U.S. foreign policy and national security goals. They are administered by the Office of Foreign Assets Control (“OFAC”) within the U.S. Treasury Department, in conjunction with the State Department and other U.S. agencies. Sanctions are typically initiated by the President issuing an Executive Order declaring a national emergency under the International Emergency Economic Powers Act (“IEEPA”), the National Emergencies Act or similar authority and designating the parties targeted for sanctions. While originally adopted to freeze assets of enemies in times of war, they have evolved into a powerful tool for advancing U.S. foreign policy interests around the world.[FN/1] Sanctions are typically imposed to force foreign adversaries to change bad behavior – such as developing nuclear weapons or terrorist activity.[FN/2] They frequently take the form of prohibitions on U.S. parties entering business transactions with targeted countries or individual parties, and blocking assets of targeted parties. They apply to U.S. and certain foreign companies including exporters, financial institutions, companies in effectively all industries and even non-profit organizations. As a result, they have a direct impact on activities of many U.S. and foreign businesses. One of the most controversial parts of the sanctions laws is that the U.S. can designate a foreign party (an individual or entity) for sanctions. Targeted parties are placed on the OFAC List of Specially Designated Nationals and Blocked Persons (the “SDN List”) or other OFAC restricted party lists. If a party is listed on the SDN List, parties subject to U.S. jurisdiction are prohibited from entering most types of business transactions with the targeted party anywhere in the world, and the targeted party is cut off from the dollar-denominated U.S. financial system. In addition, U.S. persons are required to block the assets of the targeted party that come within the U.S. person’s possession and not deal in them. OFAC typically adds up to a thousand or more parties to the sanctions lists each year and more are being added every day – these requirements create huge compliance challenges for U.S. companies conducting international business transactions. A. Requirements Under the Sanctions Laws. . . . . B. Sanctions Requirements In Day-To-Day Business Transactions. . . . . C. Compliance Procedures For U.S. Sanctions Laws. . . . . The Challenge Ahead. The U.S. sanctions laws are complex and ever-expanding. As such, they create an ongoing compliance challenge for U.S. companies. Based on current political and enforcement trends, this challenge will likely continue for the foreseeable future. U.S. companies should use care to understand these laws and adopt compliance strategies that are suitable for their business to address these issues.
[FN/1] OFAC, part of the Office of Terrorism and Financial Intelligence within the Treasury Department, was founded in 1950. OFAC and its predecessor agencies the Office of Foreign Funds Control and the Division of Foreign Assets Control have a history of blocking assets and restricting trade and financial transactions with U.S. enemies dating back to the War of 1812. These agencies operated under Presidential national emergency powers including under the Trading With the Enemy Act of 1917 and other statutory authority to impose asset freezes and trade embargoes involving U.S. adversaries, including administering the Proclaimed List of Certain Blocked Nationals, or the “Black List.” [FN/2] For example, the Ukraine/Russia sanctions were imposed in response to the Russian invasion of Ukraine, and the Venezuela sanctions were imposed due to human rights abuses. Back to top * * * * * * * * * * * * * * * * * * * * |
EX/IM TRAINING EVENTS & CONFERENCES |
(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.] # * Date: (Location;) “Event Title”; <Weblink>” Event Sponsor; Back to top * * * * * * * * * * * * * * * * * * * * |  |
| EDITOR’S NOTES |
12. Bartlett’s Unfamiliar Quotations
(Source: Editor) On December 24, 1818, Father Joseph Mohr (Austrian priest; 1792-1848),first performed his song “Silent Night.” Nearly a century later, in 1914, German soldiers on the Western Front sang the song from the trenches and were joined in song by their British opponents. * Isaac Newton (25 Dec 1642 – 20 Mar 1726; was an English mathematician, physicist, astronomer, theologian, and author, recognized as one of the most influential scientists of all time. His book Philosophiæ Naturalis Principia Mathematica (Mathematical Principles of Natural Philosophy), first published in 1687, established classical mechanics. Newton also made seminal contributions to optics, and shares credit with Gottfried Wilhelm Leibniz for developing the infinitesimal calculus.) – “My powers are ordinary. Only my application brings me success.” * Charles Dickens (Charles John Huffam Dickens; 1812 – 1870; English author and social critic. He created some of the world’s best-known fictional characters, and is regarded by many as the greatest novelist of the Victorian era. His novels include The Pickwick Papers, David Copperfield, A Christmas Carol , Oliver Twist, Great Expectations, and A Tale of Two Cities.) – “Happy, happy Christmas, that can win us back to the delusions of our childhood days, recall to the old man the pleasures of his youth, and transport the traveler back to his own fireside and quiet home!” Friday funnies: * How do you know that Santa is a man? No woman would keep wearing the same outfit year after year.
* What did a one candle say to another candle on a Christmas Eve? “I am going out for dinner tonight.”
* Why does Santa have to be extra careful with his health around Christmas Eve? It’s flue season. * * * * * * * * * * * * * * * * * * * * |
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