OFAC Implements Hong Kong-Related Sanctions Regulations Pursuant to E.O. 13936

The U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) published regulations in the Federal Register on January 15, 2021, to implement Executive Order 13936 (“E.O. 13936”), titled “The President’s Executive Order on Hong Kong Normalization.” The President determined on July 14, 2020, in E.O. 13936 that Hong Kong was no longer sufficiently autonomous to justify special treatment under U.S. law, due to the implementation of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Administrative Region (“National Security Law”). Additionally, E.O. 13936 directed the Department of Treasury to implement sanctions on persons undermining democracy in Hong Kong.

OFAC’s Hong Kong regulations formally block transactions prohibited by E.O. 13936 and establish the process by which persons and entities are added to OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”). On January 15, 2021 OFAC also added six (6) persons to the SDN List pursuant to E.O. 13936. These persons were found to have been involved in the implementation of the National Security Law and to be undermining democratic processes in Hong Kong. As a result, all property and interests in property of 50% or greater belonging to these persons—which are in the U.S. or held by U.S. persons—must be blocked and reported to OFAC.

OFAC stated in its final rule that the regulations “are being published in abbreviated form at this time for the purpose of providing immediate guidance to the public,” and that OFAC intends to supplement with “a more comprehensive set of regulations.” However, since the OFAC regulations are a published final rule, they are not impacted by the President’s “Regulatory Freeze Pending Review Memorandum” and are therefore in effect until amended or withdrawn.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Julia Banegas is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

Archives, Global Trade Daily, International Trade

The Top Five International Trade Issues Under the New U.S. Administration

February 7th, 2021 Kirk Samson Leave a comment

After a tumultuous stretch of international trade wars and a global economic crisis courtesy of the pandemic, the U.S. has a new president directing trade policy. What can business leaders expect from a Biden presidency as far as strategies, relations with major trading partners, and the role of the U.S. in global trade for the next few years? Early indications are that the U.S. – China relationship will remain tense, but the Biden team approach in other areas will differ greatly from the previous administration. Global partners can expect a change in tone from Washington, and there are five issues which will stand out as major differences under Biden’s leadership:

Number Five: The U.S. will reengage with the World Trade Organization (WTO), which should lead to a substantial reduction in unilateral ‘trade wars’ and tit-for-tat tariff exchanges. Under Trump, the WTO was marginalized and hamstrung by U.S. policies, as the appellate body did not have enough judges to take any action on trade disputes. Under Biden, the U.S. will be an active participant in the WTO and will use the organization to bring pressure against China and other nations on issues such as illegal support to state-owned enterprises. There is still an urgent need to reform the WTO, but the new administration seems poised to jump in and push for improvements.

Number Four: Russia is in the crosshairs. The on-again, off-again political relations between the U.S. and Russia should switch firmly to ‘off’ for the foreseeable future, as Biden’s foreign policy team has already indicated grave concerns over Russia’s meddling in Belarus as well as its treatment of protestors and dissidents such as Alexei Navalny in Russia. Biden ordered an extensive intelligence review of Russia’s actions over the last few years and will likely use the results of that report to tighten sanctions on Putin’s inner circle through the Magnitsky Act or dramatically limit trade and transactions with Russian state-owned enterprises, such as the Trump administration did with Huawei and other Chinese companies.

Number Three: The UK faces an uphill climb on their eventual U.S. trade deal. PM Boris Johnson lost an ally when President Trump left office, and the relationship with President Biden will be cordial but arm’s length. Johnson is in a tough spot, as he would like to secure a trade deal quickly to bolster his post-Brexit polling numbers, but Biden’s team is focused on the domestic agenda and probably will not see a need to negotiate this before 2022. The only way to move this deal to the front burner is to offer the U.S. one or more of the concessions it has long desired – increased access to the NHS for the U.S. pharmaceutical industry, lowered trade barriers for food imports, or improved entry into the services industry in the UK. None of these would be popular for British voters, but Biden’s trade representative will be well-positioned to insist on key concessions.

Number Two: Biden’s team has committed early in the presidency to implement a “worker-centered trade policy” and that will color all of the legislation and trade deals that his administration will touch. The intent of the policy is to ensure that future trade deals (including any potential participation in the CPTPP) do not harm American workers by giving the U.S. market access to foreign goods that were produced by underpaid and under-protected workers. The flip side of this approach should be easier U.S. market entry from countries with decent labor (and environmental) standards, as the administration formulates a way to preference the ‘right’ type of imports.

The number one issue that will differ under the Biden administration is a desire to improve ties and trade opportunities with reliable partners. The tension with China will remain and potentially even deepen, but the Biden administration – stocked with committed ‘globalists’ – is going proactively tie other partners (especially fellow democracies) closer to the U.S. through increased trade and investment opportunities. Outside of North America, this will benefit Japan, South Korea, Australia, New Zealand, Israel and the European Union most of all. Rather than adjustments to existing trade deals (some of which, like the USJTA and USMCA, were just recently completed), the Biden administration will look to use bilateral investment deals to promote greater trade ties with trusted partners, especially in areas such as renewable energy and defense technology.

On the outside looking in will be Saudi Arabia, Turkey, Russia and other countries that will find in the Biden administration a trade team that is willing to substantively weigh human rights abuses and the dangers of populist leaders when assessing trade deals, money-laundering regulations, sanctions and access to the U.S. market and technology. While this shift in approach and tone will not immediately push international trade traffic into new patterns, it will lay the groundwork for a transition to more benign trade policies and less regulation for businesses working with preferred partners. The foundations of global trade will shift just enough to push some companies, already weakened and weary by the pandemic recession, into a difficult scramble to quickly move operations and find new partners.

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Kirk Samson is the owner of Samson Atlantic LLC, a Chicago-based international business consulting company which offers market entry research, political risk assessment, and international negotiations assistance. Mr. Samson is a former U.S. diplomat and international law advisor.

Archives, Global Trade Daily, International Trade

Cuba Policy Under Biden: Change on the Horizon?

February 4th, 2021 Matthew D. Aho, Pedro A. Freyre, and Augusto E. Maxwell at Akerman Leave a comment

After four years of Trump Administration efforts to increase sanctions on Cuba and reverse Obama-era efforts to normalize bilateral ties, the Biden White House last week announced its own plans to review Cuba policy and signaled that changes may soon be forthcoming.

“Our Cuba policy is governed by two principles. First, support for democracy and human rights – that will be at the core of our efforts. Second is Americans, especially Cuban Americans, are the best ambassadors for freedom in Cuba. So we’ll review the Trump administration policies,” said White House press secretary Jen Psaki during her January 28, 2021 daily news briefing.

While the full scope and timing of potential Cuba policy changes remain unknown, there are indications that the administration could move quickly to address issues affecting the Cuban American community, such as a de facto Trump-era ban on formal remittance flows to the Cuban people. Other steps may include removing some restrictions on U.S. travel to Cuba, as well as revisiting the Trump Administration’s final-hour January 11, 2021 decision to re-designate Cuba a State Sponsor of Terrorism.

The political landscape surrounding Cuba policy has shifted dramatically in recent years. Since 2017, the Trump Administration and its allies in South Florida sought to engage conservative Cuban American voters through aggressive measures to crack down on the Cuban government and strong anti-Castro messaging. Public polling in 2020, as well as Miami-Dade County vote tallies in the November presidential elections, indicate that the strategy was at least somewhat successful. Mr. Trump increased his share of Cuban American votes from 54 percent in 2016 to 56 percent four years later—amidst considerably higher turnout—and helped flip two key South Florida congressional seats in Republicans’ favor. These trends may impact Cuba policy outcomes under Mr. Biden if they heighten the perceived political costs of a return to engagement-oriented policies.

On the other hand, many of President Joe Biden’s senior White House foreign policy advisors and cabinet secretaries at the Departments of State, Homeland Security, Defense, and elsewhere, have tended to favor engagement-oriented approaches, premised on the belief that such policies better serve U.S. interests and promote positive changes in Cuba. First Lady Dr. Jill Biden’s October 2016 travel to Cuba—during which she met with diverse members of Cuban civil society—means that a member of the first family also has first-hand impressions of Cuba policy.

Historically, new presidential administrations have moved swiftly—typically within the first six months—to put their stamp on Cuba policy through executive actions. In April 2009, the Obama Administration issued its first actions by removing restrictions on family remittances and Cuban American travel to Cuba, and by expanding authorizations for U.S. telecommunications projects. In June 2017, the Trump Administration published National Security Presidential Memorandum 5 (”NSPM-5“), “Strengthening the Policy of the United States Toward Cuba,” which laid the foundation for its future Cuba policy actions.

While it seems likely that President Biden will take his own first Cuba policy steps sometime in the next few months by replacing NSPM-5 with a statement of his own administration’s priorities, how far he will go in reversing specific Trump-era restrictions is difficult to predict. However, U.S. companies with Cuba-related interests should get a better sense of the likely future contours of U.S.–Cuba relations soon and initial indications are that Cuba sanctions will become less restrictive under Biden than his predecessor.

Akerman will continue to provide updates on significant Cuba policy developments—as well as any changes to federal regulations—in the coming months.

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By Matthew D. Aho, Pedro A. Freyre, and Augusto E. Maxwell at Akerman. This Akerman Practice Update is intended to inform firm clients and friends about legal developments, including recent decisions of various courts and administrative bodies. Nothing in this Practice Update should be construed as legal advice or a legal opinion, and readers should not act upon the information contained in this Practice Update without seeking the advice of legal counsel. Prior results do not guarantee a similar outcome.

Archives, Global Logistics, Global Trade Daily, International Trade

Global Trade Trends: What Will 2021 Unwrap?

January 21st, 2021 Anne van de Heetkamp, VP of Product Management GTC, Descartes Leave a comment

2021 is a handful of oliebollen away in the rearview mirror and it’s time to prepare for new events. What will global trade unwrap? A number of nuggets below.

Think Green

No, not that green. Real green. As in: will the U.S. and European Union’s green initiatives put pressure on their trading partners to invest in more environmentally friendly manufacturing, transportation methods, or forms of energy? For example, will U.S.–Mexico relations be strained because of the demand for greener solutions in manufacturing plants?

Sanctions

It is expected that sanctions will remain a prime measure to put pressure on political regimes. When countries improve their standing, however, sanctions can get lifted: the Sudan sanctions are already lifted, and the question is if more will follow. Iran will demand a reprieve if the nuclear treaty is to be put back in place and Cuba may get another look with a Democratic administration. Anticipating the impact, or perhaps the opportunities, is important.

Ecommerce

Lead by retail growth at a high rate of ~20-23% until 2020, ecommerce exploded last year (Forbes noted the May 2020 year-over-year growth was 77%) and will stay a part of every company’s selling strategy. Forced or accelerated by the pandemic, companies have adjusted their customer interactions, and ecommerce strategies will remain an integral part of all global businesses. No longer confined to specific market segments, this change drastically affects how global trade is conducted and where resources will be spent. Shipping directly to customers affects many aspects of the global supply chain and companies now must account for shipping and compliance aspects that are different from previous models.

Various governments (e.g., EU, Australia) already implemented or announced changes regarding treatment of low-value shipments (value-added taxes are no longer waived) and, with more revenue at stake, more governments will follow that trend. Additional scrutiny on the compliance front is another logical step. The ecommerce burst included markets outside of the traditional ecommerce heavy retail products. Industries with a heavier compliance burden (e.g., dual-use goods) have also shifted to online models and are dealing with non-traditional importers that will be less familiar with required compliance measures. New legislation/procedures will certainly make their entry in 2021 to ensure products do not end up in the wrong hands.

Brexit

No surprises here—the shadows Brexit threw ahead are now being caught up with. One thing perhaps underestimated in the mayhem of new regulations and immediate requirements is that the Free Trade Agreements (FTAs) that were mostly copied and pasted to avoid disruptions will get a closer look around Q3 2021. This may result in new Rules of Origin (i.e., requirements to meet preferential thresholds) or even different duty rates.

Manufacturing

Countries such as Vietnam and Cambodia made significant infrastructure investments and it looks like efforts are paying off. Manufacturing in South East Asia (and, for example, in the Philippines, Indonesia and Laos) is growing exponentially and with new locations come new compliance requirements. New Rules of Origin, documents, shipping lanes and trading partners make for exciting yet busy changes.

Besides South East Asia, Africa is also making strides. With large investments from China (among others in South Africa, Alegria and Zambia), infrastructure and capabilities improve, and the next global shift is in the works.

Tariff Measures

Regarding the additional duty rates the Trump administration put in place on imports (either on specific goods and/or from specific countries), it is to be expected those will be reduced if not nullified over the next months or years. That does not mean things will go back to how they were prior to 2016. The U.S. is expected to continue operating more forcefully when it comes to supporting U.S. businesses and industries against unfair third-country competition, and that includes protectionary measures. Perhaps there will be an uptake in the more traditional Anti-Dumping/Countervailing Duty cases through the WTO as a preferred path over unilateral actions.

US Changes

Undoubtedly the change in administration in the U.S. will have a significant impact on its position towards global trade. Balancing the need to keep a tight grip on foreign trade (especially with crucial partners such as China, the U.K. and the EU) with a more outward-facing policy will be an interesting affair for new Secretary of State Andrew Blinken. Expanding and re-establishing trade relationships will also be on the agenda. This will likely include a fresh effort to revisit the Trans-Pacific Partnership (U.S. – ASEAN), the review of a few other FTAs that were slowed down and, further down the line, even a Trans-Atlantic (U.S. – EU) pact, possibly spearheaded by a U.K. – U.S. agreement first.

All in all, 2021 will not allow companies to take a breather. If anything, the agility of supply chain strategies will be tested further this year.

Archives, Global Trade Daily, News

U.S. Sanctions Turkey’s Defense Procurement Entity Over Its Purchase of Russian Missile System

January 9th, 2021 Grant Leach, Cortney O’Toole Morgan, and Camron Greer Leave a comment

The U.S. Department of State (“State Department”) announced the imposition of sanctions on Turkey’s Presidency of Defense Industries (“SSB”) pursuant to Section 231 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”). The U.S. is sanctioning SSB over its procurement of the S-400 surface-to-air missile system from Russia’s Rosoboronexport (“ROE”). SSB is Turkey’s primary defense procurement entity and ROE is Russia’s main exporter of arms. As a result of Turkey’s actions, the U.S. is imposing full blocking sanctions on four SSB officials along with certain non-blocking CAATSA sanctions on the SSB entity.

CAATSA Section 231 requires the President to impose at least five sanctions from the menu of twelve available sanctions authorized under CAATSA Section 235 on any person determined to have knowingly engaged in a significant transaction with the defense or intelligence sectors of the Russian government. ROE is listed on the State Department’s List of Specified Persons (the “LSP”) and recognized as being a part of the defense sector of the Russian government, therefore the State Department determined that CAATSA required the imposition of sanctions on SSB.

The State Department and U.S. Department of Treasury (“Treasury Department”) have selected the following sanctions from CAATSA Section 235 to impose on SSB:

-“a prohibition on granting specific U.S. export licenses and authorizations for any goods or technology transferred to SSB (Section 235(a)(2));

-a prohibition on loans or credits by U.S. financial institutions to SSB totaling more than $10 million in any 12-month period (Section 235(a)(3));

-a ban on U.S. Export-Import Bank assistance for exports to SSB (Section 235(a)(1));

-a requirement for the United States to oppose loans benefitting SSB by international financial institutions (Section 235(a)(4)); and

-imposition of full blocking sanctions and visa restrictions (Section 235(a)(7), (8), (9), (11), and (12)) on Dr. Ismail Demir, president of SSB; Faruk Yigit, SSB’s vice president; Serhat Gencoglu, Head of SSB’s Department of Air Defense and Space; and Mustafa Alper Deniz, Program Manager for SSB’s Regional Air Defense Systems Directorate.”

Although CAATSA Section 235 gave the State and Treasury Departments the discretion to impose full blocking sanctions on SSB, they chose not to do so and instead only imposed those blocking sanctions on the four previously-identified SSB senior officers.

In order to effectuate these sanctions, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) added SSB to its new “Non-SDN Menu-Based Sanctions” list with designations specifying the above-listed non-blocking, menu-based CAATSA Section 235 sanctions. Additionally, OFAC added the four individual SSB officers to its Specially Designated Nationals and Blocked Persons (“SDN”) list. As a result, all of their property and interests within U.S. jurisdiction are blocked and U.S. persons are prohibited from conducting transactions with them without an OFAC license.

State Department’s Directorate of Defense Trade Controls (“DDTC”) is responsible for issuing and administering export licenses under the U.S. International Traffic in Arms Regulations (“ITAR”). DDTC issued the following notice on December 14, 2020 explaining how it will implement the new export licensing restrictions which are now applicable to SSB under these new CAATSA sanctions:

“[E]ffective immediately DDTC will not approve any specific license or authorization to export or re-export any defense articles, including technical data, or defense services where SSB is a party to the transaction. This prohibition does not apply to temporary import authorizations or to current, valid, non-exhausted export and re-export authorizations. However, the prohibition does apply to new export and re-export authorizations – including amendments to previously approved licenses or agreements and licenses in furtherance of previously approved agreements. This sanction does not apply to subsidiaries of SSB; however, licenses submitted to DDTC which name subsidiaries of SSB are still subject to a standard case-by-case review, including a foreign policy and national security review. We are not imposing a prohibition on U.S. Government procurement from SSB as part of this action.”

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) is responsible for issuing and administering export licenses under the U.S. Export Administration Regulations (“EAR”). BIS also issued its own notice on December 14, 2020 which generally stated BIS “has implemented a policy of denial for export license applications to [SSB].” However, BIS’s notice did not address whether these new CAATSA sanctions would affect existing BIS export licenses issued for SSB or transactions with SSB subsidiaries under the EAR.

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Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

Archives, Global Trade Daily, News

GSP Special Tariff Status Expired at End of 2020

January 6th, 2021 Nithya Nagarajan, Cortney O’Toole Morgan, and Camron Greer Leave a comment

U.S. Customs and Border Protection (“CBP”) issued a notice announcing the lapse of the Generalized System of Preferences (“GSP”) special tariff program, effective December 31, 2020, unless renewed by an act of Congress. The GSP is the oldest U.S. trade preference program and was established by the Trade Act of 1974. GSP effectively promotes the economic development of countries by eliminating duties on thousands of products when imported from one of 119 designated beneficiary countries and territories.

This specialized tariff treatment status is denoted by “special tariff program indicators” (“SPI”) “A,” “A+,” and “A*” in the Harmonized Tariff System of the United States (“HTSUS”). Under the GSP, the symbol “A” indicates that all GSP countries are eligible for duty-free treatment, “A*” indicates that certain GSP countries are ineligible for duty-free treatment, and “A+” indicates approximately 1,500 additional tariff items for which only the “Least Developed Beneficiary Developing Countries” are eligible for duty-free treatment. As a result of the lapse, GSP eligible goods entered or removed from the warehouse for consumption will be assessed “General” or “Column 1” duty rates as of January 1, 2021.

CBP encourages importers to instruct their broker to flag entries of GSP eligible items with SPI “A” until further notice, starting on January 1, 2021, but importers may not file SPI “A” without paying normal duties at the time of entry. On post-importation GSP claims, CBP states the following: “CBP will continue to allow post-importation GSP claims made via post summary correction (PSC) and protest (19 USC 1514, 19 CFR 174) subsequent to the expiration of GSP, for importations made while GSP was still in effect. CBP will not allow post-importation GSP claims made via PSC or protest subsequent to the expiration of GSP, for importations made subsequent to expiration.”

The GSP program has been reauthorized 14 times since it was originally scheduled to expire in 1985, but only 4 of those reauthorizations occurred prior to the expiration of the program. The most recent extension of GSP by Congress was part of the Consolidated Appropriations Act of 2018, which extended the GSP program until December 31, 2020. With the economic stimulus negotiations currently dominating the discussion in Congress, it is currently unclear whether GSP reauthorization will be included in any year-end legislation, though GSP reauthorization last passed the House and Senate in 2018 with strong bipartisan support. It is possible that the next Congress will renew the GSP program with retroactive effect, which has been done several times in the past.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

Archives, EU Trade, Global Trade Daily

USTR Increases Tariffs on Aircraft Parts and Certain Wines and Distilled Spirits from France and Germany

January 5th, 2021 Robert Stang and Emily Lyons Leave a comment

Since October 18, 2019, the U.S. has imposed additional duties on various European origin goods (including aircraft, certain textiles and wearing apparel, hardware, cheeses, and other agricultural goods) due to the ongoing Large Civil Aircraft (LCA) dispute with the European Union (EU).

On December 30, 2020, the U.S. Trade Representative (USTR) announced that in response to certain EU actions involving duties imposed on U.S. goods in related litigation at the World Trade Organization, the U.S. was adding LCA-dispute tariffs to certain products imported from the EU; specifically, certain aircraft manufacturing parts, non-sparkling wines, and cognacs and other grape brandies, but only if the goods are from France or Germany. All previously announced LCA-dispute tariffs remain in effect.

The additional duties for the newly listed goods will go into effect when entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time January 12, 2021.

The additional goods subject to LCA-dispute tariffs and their corresponding tariff provisions are as follows:

Additional goods (wine and spirits) from France and Germany subject to 25% tariff to duties effective January 12, 2021:

-Effervescent grape wine, in containers holding 2 liters or less (subject to subheading 2204.21.20).

-Tokay wine (not carbonated) not over 14% alcohol, in containers not over 2 liters (subject to subheading 2204.21.30).

-Marsala wine, over 14% vol. alcohol, in containers holding 2 liters or less (subject to subheading 2204.21.60).

-Grape wine, other than Marsala, not sparkling or effervescent, over 14% vol. alcohol, in containers holding 2 liters or less (subject to subheading 2204.21.80).

-Wine of fresh grapes, other than sparkling wine, of an alcoholic strength by volume <=14% in containers holding over 2 liters but not over 4 liters (subject to subheading 2204.22.20).

-Wine of fresh grapes, other than sparkling wine, of an alcoholic strength by volume >14% in containers holding over 2 liters but not over 4 liters (subject to subheading 2204.22.40).

-Wine of fresh grapes, other than sparkling wine, of an alcoholic strength by volume <=14% in containers holding over 4 liters but not over 10 liters (subject to subheading 2204.22.60).

-Wine of fresh grapes, other than sparkling wine, of an alcoholic strength by volume >14% in containers holding over 4 liters but not over 10 liters (subject to subheading 2204.22.80).

-Wine of fresh grapes, other than sparkling wine, of an alcoholic strength by volume <=14% in containers holding >10 liters (subject to subheading 2204.29.61).

-Wine of fresh grapes, other than sparkling wine, of an alcoholic strength by volume >14% in containers holding >10 liters (subject to subheading 2204.29.81).

-Grape must, nesoi, in fermentation or with fermentation arrested otherwise than by the addition of alcohol (subject to subheading 2204.30.00).

-Spirits obtained by distilling grape wine or grape marc (grape brandy), other than Pisco and Singani, in containers each holding not over 4 liters, valued over $38 per proof liter (subject to subheading 2208.20.40**).

Additional goods (aircraft parts) from France and Germany subject to an additional 15% duty effective January 12, 2021:

-Fuselages and fuselage sections, wings and wing assemblies (other than wings having exterior surfaces of carbon composite material), horizontal stabilizers, and vertical stabilizers as defined in U.S. note 21(t), suitable for use solely or principally with new airplanes and other aircraft of an unladen weight over 30,000 kg as described in subheading 9903.89.05 (described in statistical reporting number 8803.30.0030) (subject to subheading 8803.30.00**).

USTR stated in its announcement that the additional LCA-dispute duties were being implemented “in a restrained way” to counter what is believed to be the unfair use of certain trade data. Specifically, the WTO authorized the U.S. to impose LCA-dispute tariffs on $7.5 billion of EU goods. Thereafter, the WTO authorized the EU in related litigation to impose tariffs affecting up to $4 billion in U.S. trade. When calculating the duty impact to achieve the permitted $4 billion, the EU used trade data from a time period (August 2019 – July 2020) during which trade was substantially diminished due to the COVID-19 public health emergency. As such, when the EU tariffs are applied to trade volumes in a more normal period, the resulting duties exceed the permitted $4 billion.

In response, the U.S. is mirroring the EU’s time period, the result being that current LCA-dispute tariffs applied to goods during that time period result in additional duties substantially less than the $7.5 billion authorized by the WTO. Consequently, the USTR’s recently announced tariffs on additional goods from France and Germany are designed to raise the LCA-dispute duties on EU goods during the August 2019 – July 2020 time period to approximately $7.5 billion.

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Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

Emily Lyons is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Archives, Global Logistics, Global Shippers 101, Global Trade Daily

2021 Logistics & Transportation Forecast: Here’s What to Prepare for in the New Year

December 30th, 2020 Deepak Chhugani, founder and CEO of Nuvocargo Leave a comment

The US-China trade war, COVID-19, regulations and compliance, economic disruptions, and more all contributed to a hectic year for players in the global logistics and transportation arenas. It’s safe to say that 2021 will inevitably require a new level of innovation and predictions compared to how operations used to be. Sophisticated forecasting and agility take on a new meaning for proactive measures to prove successful in the new normal. With the hope of 2021 on the horizon, Deepak Chhugani, founder and CEO of Nuvocargo, the first digital freight forwarder and customs broker for US/Mexico trade, lists what he considers to be some of the most significant events to prepare for in 2021 and how shippers, manufacturers, and other industry players can prepare.

-Mexico is now the USA’s #1 trade partner, according to the US Census Bureau’s 2019 report. The China-US trade war, as well as the COVID-19 pandemic, are driving more US companies to establish new supply chains and we anticipate explosive growth as Mexico becomes the new China. Companies are nearshoring and moving their US supply chains closer to home in favor of Latin America and more specifically Mexico. The automakers especially should continue to see a big boom and reliance on Mexico as it favors homegrown manufacturing. The auto industry will continue to see a shift, in particular the Bajio region of Mexico, which is flush with trucking capacity.

-Digitization, software, and giving shippers and carriers efficient tech tools are critical as technology continues to disrupt this industry. COVID-19 has forced the traditional and analog logistics industry to adopt technology as its primary way of doing business. Everyone is working from home, switching in-person and paper processes with digital transactions and signatures. Digital freight forwarding technology can help businesses ease this transition from offline to online and empower them with tools to smoothly transition towards more digital and modern ways of managing their cargo and supply chains.

-Changes to the global logistics industry (trucking, maritime, and others) that inherently impact the cross-border world is mainly the result of the United States-Mexico-Canada Agreement (USMCA) and tariff schedules. The expectation was that the USMCA would increase annual US exports to Canada and Mexico significantly. As exports increase, that results in more cross-border truckloads between the US and Mexico which will lead to more capacity crunches as several trucking players have exited the marketplace in recent years and volumes will only increase. This should also increase reliance on cross-docking shipments to leverage trucking capacity on both sides of the US/Mexico borders.

-Politics will also play a role in 2021 as we can anticipate a Biden administration will bring more stability and predictability to trade relationships, especially after the recent signing of the new North American Free Trade Agreement USMCA. An expected increase in US government spending and a policy refocus on middle and lower classes could also prove beneficial to Mexico’s production capabilities, as additional consumption incentives are created. Finally, with the tight grip on China not likely to loosen in the near future, both countries (US/Mexico) could benefit from embracing the shift of global supply chains to bring more manufacturing to North America.

-Transportation of COVID-19 vaccinations will create more demand and we’ll see an increase in shipping, especially refrigerated cargoes and cold-chain solutions. The U.S. Department of Transportation just announced that “all of its necessary regulatory measures have been taken for the safe, rapid transportation of the coronavirus disease (COVID-19) vaccine by land and air.” As a result, there will be additional safeguards and support in place for the trucking industry. Also, the importance of freight forwarders is likely to increase as the complexity of vaccine distribution reaches never-before-seen levels. Freight forwarders’ role as the “connective tissue” of logistics will be key and will take the pressure of managing the logistics of pharmaceutical companies. On the flip side, prioritizing vaccines means that some non-essential cargo will get bumped, increasing rates and affecting businesses that are not properly prepared for this unprecedented time.

-COVID-19 and border restrictions continue to impact customer’s exporting needs as they move their freight into the US. Since most of the available equipment is retained at the border and looking to move southbound from Laredo, the export/import ratio of 8:1 continues to impact the overall capacity into specific areas such as Guadalajara, Bajio, and Mexico City which creates challenges. Companies will have to be nimble and diligent as they navigate and comply with their customer’s requirements.

Archives, Global Trade Daily, International Trade

UNPACKING US-CHINA SANCTIONS AND EXPORT CONTROL REGULATIONS: PRACTICAL COMPLIANCE STRATEGIES

December 22nd, 2020 Ginger T. Faulk and Jeffrey P. Bialos Leave a comment

This is the fourth in a series of articles by Eversheds Sutherland partners Jeff Bialos and Ginger Faulk explaining the legal and regulatory impacts of certain recent US sanctions and export control actions targeting various Chinese entities. Each article explains the regulatory context of the recent rules.

Our previous articles have discussed recent developments in US sanctions and export controls affecting trade with China, including US export controls on software and semiconductor technology, the Department of Defense list of Chinese military companies, the Commerce Department’s “Military End User” rule, and the use of the US “Entity List” to target various concerns from export control to human rights to Iran sanctions. The last month has also seen efforts to restrict foreign investments in publicly traded securities of companies associated with the Chinese military.

The purpose of this article is to provide a framework and practical guidance for complying with existing and emerging US-China export controls and sanctions. In other words, how does a company establish an effective compliance program that appropriately manages risk, limits potential liability exposure, and, at the same time, if things go wrong, confirms to regulators and prosecutors that the company took compliance seriously, thereby mitigating penalties and avoiding a criminal referral?

The best approach to trade compliance is a multidisciplinary approach

As a starting point, if recent developments in US-China trade policies have taught us anything, it’s that US trade restrictions can apply to everything from technical exchanges (internal and external) and product shipments to intracompany shipments and financial transactions and investments. As such, a company’s approach to compliance with US-China trade rules and well as the broader range of other sanctions regimes should be multidisciplinary and capable of responding to emerging requirements in any and all of these areas.

Recent US-China trade policies have targeted certain products, technology, and software; third parties; financial flows and financial institutions; inbound foreign investment; imports and tariffs; and even access to capital market financing. As a result, in considering your multinational company’s compliance obligations and risk exposure, you should consider the implications across business units and functions, including:

-Research and Development

-Sales and Marketing

-Procurement

-Shipping and Logistics

-Finance and Accounting

-Banking and Insurance

-Customer Service

-IT Systems, and others.

These rules can apply to intra-company, as well as external, activities. Even if one segment of your business has a particular type of heightened risk exposure, it does not mean that is the only segment of your business that may be exposed.

Ensure accountability and support for trade compliance

Overall, an effective compliance program requires a number of core elements: 1) leadership commitment and the allocation of resources to the compliance function; 2) robust procedures and processes integrated into the company’s business; 3) internal controls that can test the efficacy of the procedures on an ongoing basis; and 4) training that ensures that the company’s personnel understand their compliance obligations and internalize them in their work routines.

US regulatory agencies expect a company to assign responsibility to a person or function within a company for ensuring trade compliance and to provide that function sufficient access to, and support from, senior management. Often, this means designating a compliance officer who reports to the board of directors. Regulators will look not only at a company’s “culture of compliance,” but also assess whether the company provided adequate compliance resources commensurate with the size and nature of its operations. Recognizing that a corporate parent may be held liable for its subsidiaries’ trade control violations resulting from inadequate supervision, companies are advised to establish centralized policies and procedures for ensuring and monitoring compliance by each of their subsidiaries. Compliance integration under these policies should be part of every post-acquisition integration effort.

Know Thyself: Assessing your own business risks

A centerpiece of modern regulatory compliance is prudent risk management. In many regulatory areas, including sanctions, it is challenging for firms to achieve 100% compliance at all times. Rather, the goal is to establish a program to appropriately manage and mitigate compliance risk.

US foreign trade and investment regulatory and enforcement agencies emphasize the importance of conducting a risk assessment in order to identify compliance risks that are particular to your business. OFAC’s Framework for Compliance Commitments advises companies in developing compliance measures to consider the risk profiles of the company’s “customers, supply chain, intermediaries, and counter-parties; (ii) the products and services it offers, including how and where such items fit into other financial or commercial products, services, networks, or systems; and (iii) the geographic locations of the organization, as well as its customers, supply chain, intermediaries, and counter-parties.” [1]

You should also understand how sanctions laws may apply in the context of your company’s multinational structure and operations. It is a mistake to believe that companies operating outside of the US cannot be touched by US sanctions and export controls. Many times violations arise from US person “facilitation” of sanctioned activities and interactions by non-US companies with the US financial system, e.g., through US dollar-denominated financial transactions. For this reason, some US-based multinationals have elected to apply sanctions and export control compliance throughout not only their US, but also foreign, operations – even in areas where the controls are not fully extraterritorial. The application of corporate liability rules in a multinational enterprise where US persons have some level of involvement around the globe otherwise makes compliance more challenging than it needs to be.

In assessing its exposure to US trade controls, a company must look not only at the location of management and administrative support personnel, but also the geographic footprint of its entire product and R&D supply chains, i.e., the location of internal technology and software development and the location of manufacturing of products, parts, components and materials and the development of software and technology on which they are based. Consider not only software and technology shared with third parties but also internal (intracompany) cross-border or domestic transfers of software and technology and establish effective internal controls.

Implement a program to manage identified risks effectively, including Know Your Counterparty (KYC) controls

As impressive as a compliance program may appear on paper, the only worthwhile compliance program is one that is effective. To be effective, a compliance program should work with company’s existing structures and information flows and be integrated with day to day internal work instructions. It needs to be able to incorporate and screen in real-time existing third-party information and implement stop-hold procedures for transactions that trigger risk. This usually calls for a customized screening and software solution.

In developing a trade compliance program, US regulators and enforcement agencies encourage companies to build around certain basic core elements.

Management Commitment – As discussed above, demonstrate and document senior management approval of the compliance program and foster a “culture of compliance” with a positive “tone from the top.”

(2) Risk Assessment – Again, a compliance program must be responsive to identified risks, and there is no “one-size-fits-all” approach.

(3) Internal Controls – Per OFAC, this refers to “policies and procedures, in order to identify, interdict, escalate, report (as appropriate), and keep records pertaining to activity that may be prohibited by the regulations and laws.” These internal policies should be clearly set out in writing and consistently implemented and enforced. Heightened review is recommended for transfers of dual-use and military items and dealings with high-risk destinations or counter-parties.

Beyond day-to-day KYC screening, numerous companies have recognized that their foreign collaborative engagements can involve significant risk, which can vary depending on the country, industry, and the particular party involved. Thus, firms often establish a special committee to vet engagements with third parties, whether agents, distributors, or joint venture partners. Individual business units may propose these engagements, and the company will evaluate them on an enterprise-wide basis after due diligence and the assessment of risks, advising also on the structuring of legal arrangements to mitigate such risks.

(4) Testing and Auditing – Regular monitoring of trade compliance is encouraged and, in some cases, expected. Regular auditing can occur at a global level or may rotate to focus on certain business units, functions, or procedures. Testing and auditing may be conducted by internal audit or external subject matter experts.

(5) Compliance training – Much of trade compliance depends on employees knowing how to spot and address “red flags” of sanctions and export control issues. Compliance training should provide information that is readily useable and easily accessible, risk-focused, and tailored to the duties and responsibilities of the participants.

To summarize, in today’s global business, complying with US-China trade policies requires a holistic review of a company’s external and internal operations. The best compliance programs are developed on the basis of a realistic review of a company’s compliance risk exposure; designed to be able to respond to ever-changing targets and regulations; and implemented effectively to work with a company’s existing systems and structures.

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Ginger T. Faulk, partner at Eversheds Sutherland, represents multinational companies in matters involving US government regulation of foreign trade and investment. She has extensive experience advising and representing global companies, counseling clients in matters arising under US sanctions, export controls, import and other national security and foreign policy trade-related regulations.

Jeffrey P. Bialos, partner at Eversheds Sutherland, assists clients in making multi-faceted business decisions, structuring transactions and complying with complex regulatory requirements. A former Deputy Under Secretary of Defense for Industrial Affairs, he brings deep experience in defense, homeland security and national security matters, including antitrust, export controls, foreign investment, industrial security, the Foreign Corrupt Practices Act, and mergers and acquisitions, and procurement.

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[1] OFAC Framework for Compliance Commitments, at https://home.treasury.gov/system/files/126/framework_ofac_cc.pdf; see also BIS Elements of an Effective Compliance Program, available at at https://www.bis.doc.gov/index.php/documents/pdfs/1641-ecp/file; see also US Department of Justice, National Security Division, “Export Control and Sanctions Enforcement Policy for Business Organizations,” Dec. 14, 2019, available at https://us.eversheds-sutherland.com/portalresource/ces_vsd_policy_2019.pdf.

Archives, Global Trade Daily, Imports/Exports, News

USITC To Begin Monitoring Imports of Strawberries and Bell Peppers at USTR’s Request

December 10th, 2020 Nithya Nagarajan, Turner Kim, and Camron Greer Leave a comment

The U.S. International Trade Commission (“USITC”) announced on December 2, 2020, that it would begin monitoring imports of bell peppers and strawberries pursuant to Section 332 of the Tariff Act of 1930, following a request from the United States Trade Representative (“USTR”) Robert E. Lighthizer. The USITC will monitor imports of the subject products for a 90-day period and will have three weeks to prepare and submit a recommendation to the president with the appropriate trade remedies.

Interested parties may submit written submissions for the record no later than January 15, 2021. The USITC stated that at this time it is seeking submissions to enable its monitoring activities only. Specifically, the USITC is interested in information concerning imports, principal source countries, and the potential impact of the imports on the domestic industry.

Additionally, the USITC expressed its interest in information regarding the condition of the domestic industry, production, employment, profits and losses, and other factors outlined in section 202(c) of the Trade Act. To the extent practical, data and information submitted should include the period 2016-2020 and any subsequent period.

The products in question fall under the following categories of the Harmonized Tariff Schedule of the United States:

-Fresh or chilled strawberries: 0810.10;

-Fresh or chilled bell peppers:

-0709.60.4015,

-0709.60.4025,

-0709.60.4065,

-and 0709.60.4085

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

OFAC Implements Hong Kong-Related Sanctions Regulations Pursuant to E.O. 13936

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