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20-0325 Wednesday ” Daily Bugle”

20-0325 Wednesday “Daily Bugle”

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Wednesday, 25 March 2020

  1. USTR Removes Additional Duties of China From Medial-Care to Address the COVID-19 Outbreak 
  1. Items Scheduled for Future Federal Register Edition 
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Posts Newly Revised CBP Form 7553
  4. State/DDTC: (No new postings.)
  5. Treasury/OFAC Issues Amended Nicaragua-related General Licenses
  1. Global Trade: “U.S. Regulators Focus on Compliance Efforts in Enforcement Decisions Involving International Companies”
  2. The Business Time: “Singapore, 6 Other Pacific Countries Pledge to Keep Trade, Supply Chains Going During Covid-19 Crisis”
  1. J.E. Bartlett: “The ITAR Definition of ‘Export’ Changes Today — Get Your Amended BITAR Now!”
  2. Arent Fox: “The Importation of Personal Protective Equipment for Treatment of COVID-19”
  3. Lexblog: “Semiconductor Company Hit with China Trade War-Related Securities Suit”
  4. Mayer Brown: “USTR Seeks Comments on 301 Duties as Part of COVID-19 Response”
  5. Tuttle Law: “CBP Announces A New Notice of Intent to Export, Destroy or Return Merchandise for Purposes of Drawback Form”
  1. ECTI Presents: Classifying Aircraft Part Technology Webinar: April 22
  2. FCC Academy: U.S Export Controls: ITAR, EAR, and FMS  
  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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The ITAR amendments to the definition of “export” that take effect today, 25 March, are included in the March 25th edition of the BITAR,
available today.  Subscribers receive updated editions every time the regulations are amended (usually within 24 hours) so you will always have the current versions of the regulations. Subscribe to the BITAR now to guarantee you have an up-to-date ITAR!   

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EXIMITEMS FROM TODAY’S FEDERAL REGISTER

OGS_a11. USTR Removes Additional Duties of China From Medial-Care to Address the COVID-19 Outbreak

(Source: Federal Register, 25 Mar 2020) [Excerpts]
 
85 FR 16987: Request for Comments on Additional Modifications to the 301 Action To Address COVID-19: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
 
* AGENCY: Office of the United States Trade Representative.
* ACTION: Notice and request for Comments.
* SUMMARY: In prior notices, the U.S. Trade Representative has modified the action in the Section 301 investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation by removing additional duties from medical-care products needed to address the COVID-19 outbreak. In light of ongoing developments, the Office of the U.S. Trade Representative (USTR) is requesting public comments on possible further modifications to remove duties
from additional medical-care products.
* DATES: The docket for comments will remain open at least until June 25, 2020, and may be extended as appropriate.

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

OGSOTHER GOVERNMENT SOURCES

OGS_a12.
Items Scheduled for Future Federal Register Editions 
(Source: Federal Register)
 
* CBP; NOTICES; Postponement of the April 2020 Customs Broker’s License Examination; [Pub. Date: 26 Mar 2020] 

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

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

OGS_a34. DHS/CBP
Posts Newly Revised CBP Form 7553  

(Source: DHS/CBP 24 Mar 2020)  
 
Drawback Update:
 
The newly revised CBP Form 7553 – Notice of Intent to Export, Destroy or Return Merchandise for Purposes of Drawback has been posted to CBP.gov and can be accessed by going to:
 
 
As stated in CSMS#40637910, the CBP Form 7553 was revised to adhere to the new regulations in 19 CFR part 190, which were published on December 18, 2018.
 
Please note that a continuation sheet was added to page 2 of the revised CBP Form 7553 and should be used effective immediately. The continuation sheet shall be used when additional space is needed for fields 15 through 19 of the form.
 

Questions regarding this update may be directed to OTDRAWBACK@cbp.dhs.gov

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

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

OGS_a56.
Treasury/OFAC
I
ssu
es
Amended Nicaragua-related General Licenses
(Source:
Treasury/OFAC
, 25 Mar 2020
)
 
The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is issuing Nicaragua-related General License No. 1A “Official Business of the United States Government” and General License No. 2A “Authorizing the Wind Down of Transactions Involving the Nicaraguan National Police” to make certain minor technical amendments to earlier versions of such general licenses.

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

COMNEWS

NWS_a17. Global Trade: “U.S. Regulators Focus on Compliance Efforts in Enforcement Decisions Involving International Companies”

(Source: Global Trade, 24 Mar 2020) [Excerpts]
 
Over the past few years, U.S. regulators have made it clear that having comprehensive and effective compliance policies covering trade is a must, regardless of the company size, location or industry. The government’s move to formalize the importance of compliance programs is a clear signal of what it expects and a harbinger of what is to come. …
 
Why Is Trade Compliance Important Regardless of the Company’s Location?
 
Trade compliance should be the goal of every global company, in particular as a risk mitigation measure and a positive value proposition. …
 
Avoiding U.S. Sanctions
 
The Department of Treasury’s Office of Foreign Assets Control (OFAC) has released guidance encouraging organizations to employ a risk-based approach to sanctions compliance and focus on five essential components: senior management commitment, risk assessments, internal controls, testing and auditing, and training. …

NWS_a28. The Business Time: “Singapore, 6 Other Pacific Countries Pledge to Keep Trade, Supply Chains Going During Covid-19 Crisis”

(Source: The Business Time, 25 Mar 2020) [Excerpts]
 
Singapore and six other Pacific Rim countries have pledged to keep their supply chains open during the Covid-19 pandemic, despite ongoing shocks to trade flows.
 
“We recognize that it is in our mutual interest to ensure that trade lines remain open, including via air and sea freight, to facilitate the flow of goods including essential supplies,” the trade ministers of the participating countries said in a joint statement released on Wednesday. …
 
Their latest statement used language from an earlier bilateral pledge between Singapore and New Zealand, which said jointly on March 20 that they would ensure supply chain connectivity amid the global spread of the infectious disease.
 
Around the globe, the perilous Covid-19 outbreak has prompted various economies to set export curbs on a host of goods, including masks in Taiwan and pharmaceuticals in India. …

COMCOMMENTARY

COM_a19. J.E. Bartlett: “The ITAR Definition of ‘Export’ Changed Today — Get Your Amended BITAR Now”
 
 
 

(Source: Author)
 
* Author: James E. Bartlett III,
Esq.,
 Full Circle Trade Law, PLLC, , 1-202-802-0646
 
Today, March 25th, the amendments of the International Traffic in Arms Regulations (ITAR), for the definition of “export” and related definitions that were announced on 26 Dec 2019 went into effect.  The following ITAR sections have been amended:  
 
  • § 120.17, Export
  • § 120.18, Temporary Import
  • § 120.19, Reexport
  • § 120.50, Release
  • § 120.51, Retransfer
  • § 120.52, [Reserved]
  • § 120.53, [Reserved]
  • § 120.54, Activities That Are Not Exports, Reexports, Retransfers, or Temporary Imports
  • § 120.55, Access Information
 
FCC is pleased to release the revised edition of Bartlett’s Annotated International Traffic in Arms Regulations (“The BITAR”) today, which includes the amendments of the above sections that became effective today, as well as all prior amendments, including the final rule effective March 9, 2020, which amended U.S. Munitions List Categories I, II, and III, and numerous related sections affected by the transfer of articles from USML Categories I, II, and III to the CCL in the EAR.   
 
The serious ITAR practitioner should have a subscription to the BITAR to be certain of having available the entire ITAR updated with all amendments.  In addition to the ITAR text, the BITAR provides a Word document that you can store on your laptop for quick review, or print for binding in your 3-ring notebook with nearly 400 pages of text, annotations, appendixes, and a huge index.  Over nearly 9,000 footnotes provide amendment dates, section histories, citations to errors in the official text, practice tips, and excerpts of the Supplemental Information advisories published in the Federal Register.  The Appendixes include portions of the Arms Export Control Act, a list of all ITAR amendments since 2007, a list of all Consent Agreements since 1978, a list of Acronyms and Forms, and a HUGE 33-page Index.   
 
Subscribers will receive a revised edition of the BITAR every time the ITAR is amended for a full year for the annual subscription price of $200. (The subscription price will be increased in a few months, so get your year’s subscription before the price increases.) Discounts are available for over 5 subscriptions to the same company, and discounted site licenses are available for companies with over 20 subscribers.  Government employees with “.gov” or “.mil” addresses and employees of universities with “.edu” addresses are eligible for a 50% discount.  BITAR subscribers are also entitled to a discount on subscriptions to Bartlett’s Annotated Foreign Trade Regulations (The BAFTR), the annotated version of the U.S. Foreign Trade Regulations, 12 CFR Part 30.  Subscribe HERE today!

COM_a210Arent Fox: “The Importation of Personal Protective Equipment for Treatment of COVID-19”

(Source:
Arent Fox, 24 Mar 2020)
 
* Principal Author:
David Salkeld, Esq., 1-202-857-6478, Arent Fox LLP 
 
News reports show that because of the spread of the novel coronavirus (COVID-19) pandemic, hospitals and medical facilities are overwhelmed and threaten to strain the healthcare system.
 
Masks, ventilators, and gowns are difficult to find in the United States and hospitals are putting out desperate pleas for supplies.
People are looking overseas to source these items. We provide some basic guidance for importing these items to satisfy US import requirements and to facilitate quick processing through clearance. Many of these items are regulated by the Food and Drug Administration as medical devices and are also subject to US Customs and Border Protection regulations. We break this into two categories – equipment intended for medical use by healthcare professionals in hospitals and medical facilities – and equipment intended for general purpose or industrial use (i.e., not intended to be distributed or marketed for medical use).
We also note that these policies are changing rapidly, even on a daily basis. We recommend that those looking to source overseas monitor these changes.
 
FDA Regulated Products for Medical Use
 
Products Needed
In the face of the pandemic, hospitals and medical facilities are facing a shortage of personal protective equipment (PPE) to keep doctors, nurses, and other health care providers safe from the disease. Necessary PPE for COVID-19 includes eye protection, isolation gowns, surgical masks, and N95 respirators – specialized masks used to protect the wearer from airborne particles and from liquid contaminating the face. Surgical masks and N95 respirators are medical equipment regulated by the FDA, Centers for Disease Control and Prevention’s National Institute for Occupational Safety and Health, and Occupational Safety and Health Administration.
 
FDA Regulatory Requirements
In addition to the US Customs requirements, as well as the export requirements of the applicable country, the importation of PPE for healthcare use must comply with all FDA requirements. But what are those requirements? The answer to this question can be expected to evolve just as the US response to the COVID-19 pandemic continues to evolve rapidly. The short answer, however, is that the applicable FDA requirements depend on the specific type of PPE.
 
At the current time, the importation of nearly all types of PPE hasn’t changed. This means that they must comply with FDA’s premarket clearance and all other regulatory requirements. That said, in an effort to address the critical shortage of protective masks for healthcare workers, FDA has made a recent exception for certain NIOSH-approved masks. This exception, as well as other PPE not falling within that category, is summarized below.
 
PPEs Other Than Certain NIOSH-Approved Masks
As a general matter, because healthcare PPE is intended for use in the diagnosis, treatment, mitigation, prevention or cure of disease, it is subject to regulation by FDA as a medical device under the U.S. Food, Drug, and Cosmetic Act. Therefore, most healthcare PPE-including gowns, goggles, gloves, and, until recently, all protective masks – must have either an FDA marketing authorization (which in this case is an “FDA-cleared” pre-market (or “510(k)”) notification or be classified as a 510(k)-exempt Class 1 device (e.g., a surgical mask with the FDA-assigned product code MSH).
 
For non-510(k) exempt devices, a specific manufacturer’s gowns, and surgical masks can be identified by
searching FDA’s 510(k) database using the 3-letter product codes that FDA has assigned to those products: for gowns (FYA, FYB, FYC); and for surgical masks (FXX, OUK, OXZ). Similarly, for a type of PPE other than a surgical mask or gown, this database can be searched by the product code assigned for that type of device to determine whether the specific manufacturer’s product sought to be imported has received 510(k) clearance. For product codes and other regulatory information concerning medical gloves, see FDA’s “FAQs on Medical Gloves” (March 2020).
 
In addition, all imported PPE (including 510(k) exempt devices) must comply with other FDA requirements such as FDA’s current good manufacturing practices, including the quality system requirements under 21 CFR Part 820, concerning the design, manufacture, labeling, storage, and distribution of the product, as well as FDA’s establishment registration and listing requirements. Notably, these other FDA requirements apply to a medical device, including PPEs, regardless of whether it is subject to a 510(k) or, instead, is one of the few that might be 510(k) exempt.
 
Certain NIOSH -Certified Personal Respiratory Protective Masks
As an exception to FDA’s 510(k) requirements, FDA has the statutory authority to issue Emergency Use Authorizations (“EUAs”) for the use of a medical device (or a drug) to address a public health emergency. On March 2, 2020, the FDA did just this and
issued an EUA solely for emergency use of certain NIOSH-approved “filtering face-piece respirators” (“FFRs” or “respirators”) for use in healthcare settings by healthcare professionals to prevent wearer exposure to pathogenic biological airborne particulates during shortages resulting from the COVID-19 outbreak.
 
This EUA applies to (1) certain NIOSH-approved disposable respirators classified as non-powered air-purifying particulate FFRs; and (2) certain respirators that were NIOSH-approved but which have exceeded the manufacturer’s recommended shelf life. Importantly, this EUA applies only to those respirators specifically authorized by FDA. The current list of the respirators eligible for authorization under the EUA can be found at
Appendix A, and the current list of authorized respirators can be found at Appendix B.
 
Respirators can be added to the FDA’s list of authorized respirators upon submission of a request from the manufacturer, CDC, or strategic stockpile pursuant to the Conditions of Authorization specified by FDA in its March 2nd letter. See FDA’s March 2, 2020, EUA letter, pp. 5-6. Manufacturers may request such authorization via submission of an attestation to FDA (with a copy to CDC (
CVSDBadmin@cdc.gov)) specifying the NIOSH-approval number, model number, and place of manufacturer. Such requests are to be made in consultation with, and the concurrence of, FDA’s Center for Devices and Radiological Health, Division of Infection Control.
 
As part of this EUA, FDA has waived current good manufacturing practice requirements, including the quality system requirements under 21 C.F.R. Part 820 with respect to the design, manufacture, packaging, labeling, storage, and distribution of the authorized respirators subject to the EUA. Notably, though, such waiver does not extend to NIOSH requirements, including requirements for NIOSH-approved labeling and/or applicable CDC recommendations. FDA’s EUA authorization letter requires the authorized respirators to be consistent with the terms set forth in the EUA “and the applicable requirements set forth in the FDCA and FDA regulations.” FDA further notes that manufacturers are required to maintain any records associated with the EUA until otherwise notified by FDA and are to be made available to FDA for inspection upon request. See March 2nd EUA letter at 6.
 
While the EUA remains in effect, FFRs included within its scope are subject to the liability protections provided under the Public Readiness and Emergency Preparedness Act, 42 U.S.C. 247d-6d, as recently amended by the Families First Coronavirus Response Act (H.R. 6201). The EUA remains in effect until termination of the declaration that circumstances exist justifying the authorization of the emergency use of the respirators, or until the EUA is revoked, under Section 564 of the Act.
 
Although FFRs satisfying all of the EUA criteria should be permissible for importation, we highly recommend close coordination between your Customs broker, US Customs, and FDA since this EUA has only recently been put into effect.
 
Once FDA terminates the EUA, the FFRs will no longer be deemed medical devices (and no longer subject to FDA’s requirements/jurisdiction) provided that they are not distributed, marketed, or labeled with an intended medical use.
 
FDA’s EUA Authority More Generally
Finally, it should be noted that the FDA’s authority to issue EUAs extends broadly to other devices and drugs. The EUA discussed in this Alert applies only to certain respirators, but additional EUAs can be sought. Therefore, should you wish to market in, or import into, the US another device or drug that has not been yet approved by FDA, you may wish to consider seeking an EUA as a possible option for doing so.
 
FDA’s general EUA guidance can be found
here.
 
Basic FDA Import Requirements
Medical devices imported into the United States must meet the requirements of CBP and the FDA. Each type of device is assigned to one of three regulatory classes based on the level of control necessary to assure the safety and effectiveness of the device.
 
The class to which a device is assigned determines, among other things, the type of premarketing submission/application required for FDA clearance to market. If your device is classified as Class I or II, and if it is not exempt, a 510k will be required for marketing.
 
Devices must meet FDA regulations prior to the importation of medical devices into the United States. FDA does not recognize regulatory approvals from foreign countries/areas.
 
All foreign firms are required to both register their establishments, identify a US Agent, and individually list their devices before they may import them into the United States.
 
The data elements below are important information for you to provide to the folks who are helping you to import the goods:
 
(1) Commercial Description
(2) Manufacturer – Manufacturer means any person who manufactures, prepares, propagates, compounds, assembles, or processes a device by chemical, physical, biological, or other procedure.
(3) Shipper is the actual shipper of the product. This can typically be determined from the freight bill or bill of lading, etc. The FDA Shipper may be the same entity as the invoicing party.
(4) FDA Importer (FD1) Importer means a company or individual in the United States that is an owner, consignee, or recipient, even if not the initial owner, consignee, or recipient, of the foreign establishment’s device that is imported into the United States.
(5) Device Initial Importer (DII); and
(6) FDA Country of Origin
(7) FDA Product Code (Product codes in parentheses); many PPE product codes are:
(a) Surgical masks (FXX)
(b) Surgical masks with antimicrobial/antiviral agent (OUK)
(c) Pediatric/child facemasks (OXZ)
(d) Surgical gowns (FYA)
(e) Isolation gowns and surgical apparel accessories (FYC, LYU, OEA)
(f) Surgical suits (FXO)
(8) Tariff Code/Tariff Classification – Harmonized Tariff Schedule of the United States (HTSUS). For example, surgical masks and N95 respirators fall under tariff classification 6307.90.9889.
(i) Goods from China have special tariffs on them – called Section 301 tariffs. Although Section 301 tariffs imposed on Chinese goods apply to this provision, as of March 17, 2020, the U.S. Trade Representative has excluded both “Face masks, single-use, of textile fabrics,” including surgical masks, and “Single-use medical masks of textile material,” including N95 respirators.
(9) Importers should use the tariff code 9903.88.42 to claim this exclusion.
– Quantity
– Value
– Consignee
– FDA Facility Registration number or DUNS –
– Affirmation of Compliance (AofC) codes and qualifiers; providing complete AofC information for devices expedites the FDA release process.
(10) Each entry line should contain an AofC code for:
(11) Device Foreign Manufacturer (DEV) or Device Foreign Exporter (DFE)
(12) Device Listing (LST)
(13) Device Initial Importer (DII)
(14) Premarket Application (PMA) (Can be a PMA, Humanitarian Device Exemption (HDE), or a Product Development Protocol (PDP) number) OR a Premarket Notification Number (PMN) OR an Investigational Device Exemption (IDE)
In certain instances, importers may be subject to reporting requirements as an importer of medical devices.
 
On March 23, 2020, CBP issued Customs Service Message System (CSMS) #42124872 -Information for Filing Personal Protective Equipment and Medical Devices During COVID-19.
 
The CBP provides the following information for medical PPE that are imported under an EUA:
 
Products authorized for emergency use pursuant to an Emergency Use Authorization (EUA)
– When importing such products, entry information should be submitted to FDA; however reduced FDA information is required for review.
– At the time of entry, Importers should transmit an Intended Use Code of 940.000: Compassionate Use/Emergency Use, and an appropriate FDA product code.
Below is a list of products and the appropriate product codes that are currently authorized by an EUA:
– Diagnostic tests: QPK, OTG, QKO, QJR
– Masks/Respirators: NZJ
Questions regarding appropriate product coding can be submitted to FDA at:
COVID19FDAIMPORTINQUIRIES@fda.hhs.gov.
 
Requests for Emergency Use Authorization can be submitted to FDA at:
CDRH-EUA-Templates@fda.hhs.gov (for diagnostic devices) and CDRH-NonDiagnosticEUA-Templates@fda.hhs.gov (for non-diagnostic devices)
 
– Products regulated by FDA as a device, not authorized by an EUA, but where an enforcement discretion policy has been published in guidance.
When importing such devices, entry information should be submitted to FDA.
 
At the time of entry, Importers should transmit an Intended Use Code of 081.006: Enforcement discretion per final guidance, and an appropriate FDA product code.
 
Below is a listing of guidance documents that have been issued for specific products related to COVID-19, which contain product codes within the scope of each guidance:
 


 
A full
list of all guidance documents related to COVID-19 is also available on FDA’s website.
 
Non-FDA Regulated Products for General Purpose or Industrial Use
 
CBP’s March 23, 2020 Customs Service Message System (CSMS) #42124872 also provided guidance re for importing PPE for general purpose or industrial use:
 
– Non-FDA-regulated general-purpose personal protective equipment (masks, respirators, gloves, etc.):
(i) Personal protective equipment for general purpose or industrial use (that is, products that are not intended for use to prevent disease or illness) is not regulated by FDA.
(ii) For these types of products, entry information should not be transmitted to FDA. At the time of entry for these products, Importers should transmit entry information to US Customs and Border Protection (CBP) using an appropriate HTS code with no FD Flag; or using an appropriate HTS code with an FD1 flag and do a ‘disclaim’ for FDA.
PPE imports conforming to a general-purpose or industrial use only, absent compliance with applicable FDA requirements, cannot be imported if they are intended to be distributed or marketed for medical use.
 
Conclusion
 
The current import-export and FDA regulatory regimes are complex and evolving rapidly almost on a daily basis given the scope of the COVID-19 pandemic.

COM_a311. Lexblog: “Semiconductor Company Hit with China Trade War-Related Securities Suit”

(Source:
Lexblog, 22 Mar 2020)
 
* Principal Author: Kevin LaCroix, Esq., R.T Specialty LLC
 
With the news about the coronavirus outbreak dominating the headlines, other important stories have faded into the background – though they definitely have not gone away. Among these important continuing stories is the U.S. trade war with China. The frontlines of this trade war are on the battlefield of economic competition, which these days includes, among other things, export and import controls and other coercive measures. As one commentator has put it, the “highest-profile example of the United States’ use of targeted coercive measures against China is its yearlong campaign against Huawei, China’s national-champion telecommunications company.” And as a recently filed lawsuit demonstrates, among the implications of the two countries’ competition – and specifically, the U.S. measures targeting Huawei – is a risk that affected companies can be exposed to government investigations and also to D&O claims.
 
Background
Alpha and Omega Semiconductor Ltd. designs, develops and supplies power semiconductors. On February 5, 2020, in connection with the company’s release of its fourth quarter and year-end financial results, the company announced that the U.S. Department of Justice “recently commenced an investigation into the Company’s compliance with export control regulations relating to certain business transaction with Huawei and its affiliates (‘Huawei’).”
 
The company’s statement went on to say that “in connection with this investigation, [the Department of Commerce] has requested the Company to suspend shipments of its product to Huawei.” The statement also said that the company’s “financial performance in the March quarter will be negatively impacted by the Huawei shipment interruption and by additional professional fees incurred in connection with the investigation.”
 
The company also said that “The Company is cooperating fully with federal authorities in the investigation. The Company has maintained an export control compliance program and has been committed to comply fully with all applicable laws and regulations.”
 
The Lawsuit
On March 19, 2020, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against the Company, its CEO, and its CFO. The complaint is filed on behalf of a class of Alpha and Omega shareholders who purchased the company’s securities between August 7, 2019 and February 5, 2020. A copy of the plaintiff’s complaint can be found here.
 
The complaint quotes at length from the company’s February 5 earnings release and then alleges that the defendants “failed to disclose to investors: (1) that the Company’s export control practices were in violation of applicable laws and regulations; (2) that, as a result, the Company was vulnerable to regulatory scrutiny and liability; and (3) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”
 
The complaint also quotes at length from the company’s various SEC filings during the class period, including, for example, the company’s August 23, 2019 filing on Form 10-K, in which the company said, among other things, that “We have adopted a global business model under which we maintain significant operations and facilities through our subsidiaries located in the U.S., China, Taiwan and Hong Kong. … Our international operations may subject us to the following risks: … economic and political stability, including trade tension between the U.S. and China.”
 
The complaint alleges that the defendants’ misrepresentations or omissions violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks damages on behalf of the putative class.
 
Discussion
The filing of a securities suit based on underlying alleged trade regulation violations is not unprecedented. There have in fact been securities suits in the past filed in the wake of trade law violation allegations (as discussed, for example here). In particular, there have been prior lawsuits filed in connection with alleged violations of Russian trade sanctions, as discussed here. Prior D&O lawsuits arising out of alleged trade law violations include prior lawsuits involving semiconductor sales (for example, here).
 
While there have been lawsuits in the past arising out of alleged trade regulation violations, this lawsuit is the first I am aware of arising out the current U.S. trade war with China, and specifically the first relating to the U.S.’s targeting of Huawei.
 
In many respects, this lawsuit and the prior suits relating to alleged trade regulation violations are one example of a larger phenomenon, which the filing of follow-on securities lawsuits in the wake of regulatory action or investigation (discussed in greater length here).
 
The securities suits following regulatory action, in turn, are themselves part of an even larger phenomenon – that is, event-driven litigation, in which a securities suit is filed based not on alleged accounting or financial misrepresentations but rather on an event that has disrupted the company’s business operations. Here, the event is the DOJ investigation against the company based on trade issues pertaining to Huawei.
 
Among the features of this case that are similar to other event-driven suits are the complaint’s scienter allegations. Like many event-driven lawsuits, the scienter allegations in this complaint are scarce. The court is going to have to look hard to find allegations sufficient to carry this case over the initial pleading hurdles.
 
There is another curious thing about this complaint. Although the complaint contains many lengthy quotations from the company’s SEC filings, the various portions of text quoted in almost every example have absolutely nothing to do with the company trade law compliance. The one notable exception to this generalization is the brief statement in the company’s most recent 10-K in which the company warned that the risks that may arise from the company’s operations includes the risk arising from “economic and political instability, including trade tension between the U.S. and China.” The seeming absence of alleged misrepresentations does not preclude the plaintiff from attempting to sustain his case based on alleged omissions; however, his case then in effect boils down to a contention that the company should have told investors it was violating the law, a challenging theory on which to proceed.
 
In any event, for purposes of the readers of this blog, this case is of greatest interest because it represents an example of a D&O claim arising out of the current U.S. trade war with China. Despite the seeming all-consuming predominance of the coronavirus outbreak, the trade war is going to continue to go on, even if only in the background for now. Companies are dealing with a lot right now, but even with the predominance of the COVID-19 pandemic, companies are going to have to continue to deal with the fallout from the trade war. As this case shows, among the risks these companies face will be the possibility of D&O claims based on alleged trade law violations. This risk is a concern both for the companies themselves and for their D&O insurers.
 
Along those lines, the risk for companies and their D&O insurers includes not only the possibility of follow-on civil lawsuits like this one. The risk includes the possibility of the underlying regulatory investigation, which entails its own significant costs. These cost in turn raise the question of whether or not the company can get D&O insurance coverage for the cost incurred in responding to a trade regulation investigation. In a prior post, I discussed at length these issues involved with the question of the possibility of D&O insurance coverage for trade sanction violation investigations.

COM_a412. Mayer Brown: “USTR Seeks Comments on 301 Duties as Part of COVID-19 Response”
(Source: Mayer Brown, 24 Mar 2020)
 
* Principal Author: Timothy J. Keeler, Esq., 1-202-263-3774, Mayer Brown
 
Since July 2018, the Trump administration has imposed special duties under Section 301 of the Tariff Act on imports from China, which progressively covered the vast majority of Chinese imports. Duties as high as 25 percent apply to Chinese products. That said, throughout the process of administering its Section 301 action against China, the Trump administration has worked to minimize the impact of tariffs on health-related products. In an additional step toward this goal, the Office of the US Trade Representative (“USTR”) announced March 23, 2020, that it would open a new docket to obtain public comments on further modifications to the 301 tariffs on goods from China that may be necessary to help in the fight against COVID-19. This comment process does not replace the current 301 tariff exclusion process, and submissions are limited to specific products subject to the 301 tariff actions and their relevance to the medical response to COVID-19. In response to the comments, USTR could remove products or groups of products in certain Harmonized Tariff Schedule [FN/1] (“HTS”) lines from the 301 tariffs entirely. This would be in contrast to exclusion grants, which are time-limited (typically one year) and narrowly tailored to the excluded product.
 
USTR invites comments from interested persons on products covered by the 301 action that are needed to respond to the COVID-19 outbreak. To facilitate timely consideration of possible modifications, interested persons should submit comments as promptly as possible. Interested persons may also submit responses to comments. To be assured of consideration, any responses to comments should be submitted within three business days after a comment is posted in the docket. USTR will review comments on a rolling basis.
 
Each comment specifically must identify the particular product of concern and explain precisely how the product relates to the response to the COVID-19 outbreak. For example, the comment may address whether a product is directly used to treat COVID-19 or to limit the outbreak and/or whether the product is used in the production of needed medical care products. Comments may be submitted regarding any product covered by the action in the investigation, regardless of which list the product was initially on or whether the product is subject to a pending or denied exclusion request.
 
The docket for comments will remain open at least until June 25, 2020, and may be extended. For assistance in submitting comments on products used to combat COVID-19, please contact one of the authors of this Legal Update listed below.
 
BACKGROUND:
 
At the direction of the US president, USTR has imposed duties on products of China to obtain the elimination of the unfair and damaging acts, policies, and practices identified in this investigation. The duties have been imposed in four tranches. [FN/2]
 
In imposing tariffs on goods from China as part of the Section 301 action, the United States determined to not impose tariffs on certain critical products such as pharmaceuticals, ventilators, oxygen masks, and nebulizers. In addition, over the past year, USTR granted exclusions for a large number of health-related products. Indeed, US imports in 2019 of all critical medical and pharmaceutical products were up over 20 percent since 2017, before Section 301 tariffs were imposed.
 
[FN/1] The Harmonized Tariff Schedule (“HTS”) number is a standardized numerical method of classifying traded products. It is used by customs authorities around the world to identify products when assessing duties and taxes and for gathering statistics.
 

[FN/2] See 83 FR 28719 (June 20, 2018), 83 FR 40823 (August 16, 2018), 83 FR 47974 (September 21, 2018), as modified by 83 FR 49153 (September 28, 2018), and 84 FR 43304 (August 20, 2019), as modified by 84 FR 69447 and 85 FR 3741.

COM_a513. Tuttle Law: “CBP Announces A New Notice of Intent to Export, Destroy or Return Merchandise for Purposes of Drawback Form” 
(Source: Tuttle Law Offices, 24 Mar 2020)
 
Unless the requirement for notification of intent to export, etc. has been waived by CBP after application by the Drawback claimant or exporter, filing of CBP Form 7553 is required before the export or destruction of the goods. A Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback on CBP Form 7553 must be filed at least 5 working days prior to the date of intended exportation, unless CBP approves another filing period or the claimant has been granted a waiver of prior notice (see 19 CFR §190.35).
 
On March 24, 2020 CBP announced in CSMS #42135168 that the newly revised CBP Form 7553 – Notice of Intent to Export, Destroy or Return Merchandise for Purposes of Drawback has been posted on CBP’s website. The document can be accessed here.
 
CBP Form 7553 was revised to adhere to the new regulations in 19 CFR part 190. CBP announced these changes in CSMS #40637910.

TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a1
14.
ECTI Presents: Classifying Aircraft Part Technology Webinar: April 22  
(Source:
ECTI)
 
* What: Classifying Aircraft Part Technology
* When: April 22, 2020; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: Scott Gearity

* Register
here or contact Ashleigh Foor, 1-540-433-3977

* * * * * * * * * * * * * * * * * * * *
TE_a215. FCC Academy: U.S. Export Controls: ITAR, EAR, and FMS

U.S. Export Controls: ITAR

Tuesday, 7 April 2020, Online
More Info

U.S. Export Controls: EAR

Wednesday, 8 April 2020, Online
More Info

The ABC of Foreign Military Sales (FMS)

Tuesday, 9 April 2020, Online
More Info

ENEDITOR’S NOTES

EN_a115. Bartlett’s Unfamiliar Quotations

(Source: Editor)

 

* Richard Hooker
(25 Mar 1554 – 3 Nov 1600) was an English priest in the Church of England and one of the most important English theologians of the sixteenth century.)
  – “He that goeth about to persuade a multitude that they are not so well governed as they ought to be shall never want for attentive and favorable hearers.”
 
* Mary Gladys Webb (25 Mar 1881 – 8 Oct 1927; was an English romantic novelist and poet of the early 20th century, whose work is set chiefly in the Shropshire countryside and characters and people whom she knew. Her novels have been successfully dramatized, most notably the film Gone to Earth in 1950.)
  – “If you stop to be kind, you must swerve often from your path.”

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

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.

24 Feb 2020:
85 FR 10274
: Amendments to Country Groups for Russia and Yemen Under the Export Administration Regulations.
 

 

DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   Last Amendment: 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.  26 Dec 2019: 84 FR 70887; 23 Jan 2020: 85 FR 3819: amending “export” definitions and USML Categories I, II, III, and related sections regarding guns & ammo. 
 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

13 Mar 2020:
85 FR 14572:
General Licenses Issued Pursuant to Venezuela-Related Executive Order 13835.

 
 
 
 
  USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA),

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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