U.S. and EU Impose Sanctions in Connection with the Crisis in Ukraine: A Detailed Look

U.S. and EU Impose Sanctions in Connection with the Crisis in Ukraine: A Detailed Look

February 27th, 2022 Hughes Hubbard & Reed LLP Leave a comment

On February 21, 2022, President Biden issued a new executive order targeting the breakaway regions known as the Donetsk People’s Republic (“DNR”) and Luhansk People’s Republic (“LPR”, and together with the DNR, the “Covered Regions”) in eastern Ukraine. On February 22, 2022, President Biden announced further sanctions, specifically designating two major Russian banks and three close associates of Russian President Vladimir Putin, and imposed increased restrictions on dealings in Russia’s sovereign debt. On February 23, 2022, the EU adopted, a set of new Regulations and Decisions implementing asset freezes and travel bans notably against senior Russian officials and close associates of President Putin, financial restrictions limiting Russia’s access to the EU’s capital and financial markets, and trade restrictions targeting economic relations with the Covered Regions. The actions follow President Putin’s formal recognition of the independence of those breakaway regions and react to the continued involvement of Russian military forces.

New U.S. Sanctions

February 21, 2022 Executive Order

The February 21 executive order largely extends the existing restrictions on the Crimea region of Ukraine and applies them to the Covered Regions. In particular, the executive order prohibits:

-New investment in the Covered Regions;

-Importation into the U.S. of any goods, services, or technology originating in the Covered Regions;

-Exportation, reexportation, sale or supply from the United States or by a U.S. persons of any good, services or technology to the Covered Regions; and

-Any approval, financing, facilitation, or guarantee by a U.S. person of prohibited transactions.

The executive order further authorizes the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) to add to the Specially Designated Nationals (“SDN”) list any person determined by the Secretary of the Treasury, in consultation with the Secretary of State:

-To operate in the Covered Regions;

-To be a leader, official, senior executive officer, or member of the board of directors of an entity operating in the Covered Regions;

-To be owned or controlled or acting on behalf of any person blocked under the executive order; or

-To have materially assisted or supported any person blocked under the executive order.

However, although some individuals in the Covered Regions have been previously designated under the Crimea-related authorities, no person has been designated yet under the executive order as of the date of this alert.

Simultaneously with the issuance of the executive order, OFAC issued six general licenses to permit otherwise prohibited activity in the Covered Regions. Most significantly, General License 17 authorizes all transactions that are ordinarily incident and necessary to the winddown of transactions in the Covered Region until March 23, 2022. Note, however, that a specific license from OFAC would still be required for any transactions with an SDN designated under the executive order. The other five general licenses authorize the following activity:

–General License 18– authorizing the export or reexport to the Covered Regions of certain agricultural, medical, and COVID-19 related products and services;

–General License 19– authorizing transactions that are ordinarily incident and necessary to the receipt or transmission of telecommunications in the Covered Regions;

–General License 20– authorizing transactions by the United Nations and other specified non-governmental organizations;

–General License 21– authorizing transactions related to non-commercial, personal remittances to the Covered Regions; and

–General License 22– authorizing transactions related to the exportation of services or software from the United States or by U.S. persons that are incident to the exchange of personal communications over the internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging.

One key question following the issuance of the executive order is how the specific territories of the Covered Regions will be determined. This may be particularly challenging, given the shifting borders of the DNR and LPR throughout their prolonged conflict with the Ukrainian government. We anticipate that OFAC will seek to clarify this question through the guidance in the form of responses to “Frequently Asked Questions” in the coming days.

February 22, 2022 Actions

On February 22, 2022, in a speech in which President Biden stated that “Russia has now undeniably moved against Ukraine,” he announced “the first tranche of sanctions to impose costs on Russia,” promising to “continue to escalate sanctions if Russia escalates.” Subsequently, OFAC issued a press release detailing the specific actions, all of which were taken pursuant to the existing Executive Order 14024, which included the designation of two major Russian banks and three close associates of President Putin as SDNs as well as restrictions on transactions involving Russian sovereign debt.

Specifically, the two Russian banks targeted are the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”) and Promsvyazbank Public Joint Stock Company (“PSB”), along with 42 of their subsidiaries. The designations were made pursuant to a contemporaneous determination issued by Treasury Secretary Janet Yellen that Russian financial institutions are eligible for sanctions under Executive Order 14024 (previously, determinations had also been made on April 15, 2021, with respect to the technology sector and defense sectors). Both banks are state-owned institutions and play key roles in servicing Russia’s sovereign debt and defense contracts. Further, in connection with PSB’s designation, OFAC designated the following five Russian-flagged vessels in which PSB has an interest:

-Baltic Leader (IMO: 9220639), a cargo vessel;

-Linda (IMO: 9256858), a crude oil tanker;

-Pegas (IMO: 9256860), a crude oil tanker;

-Fesco Magadan (IMO: 9287699), a container ship; and

-Fesco Moneron (IMO: 9277412), a container ship.

In addition, three close associates to President Putin – including the Chairman and CEO of PSB and two sons of previously designated oligarchs – were added to the SDN list. As a result of these designations, U.S. persons are prohibited from virtually all transactions with the listed parties or entities of which they own fifty percent or more, directly or indirectly. In addition, “significant” transactions with these entities could create secondary sanctions liability under Section 228 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”).

OFAC also issued a new Directive 1A under Executive Order 14024, which replaces the prior Directive 1. The effect of the new Directive 1A is to expand existing sovereign debt prohibitions to cover participation in the secondary market for bonds issued after March 1, 2022 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. Specifically, Directive 1 previously prohibited U.S. financial institutions from, as of June 14, 2021, participating in the primary market for bonds issued by Russia’s Central Bank, National Wealth Fund or Ministry of Finance, or lending funds to those organizations. Directive 1A keeps those prohibitions in place, and additionally prohibits U.S. financial institutions – effective March 1, 2022 – from participating in the secondary market for bonds issued by the listed organizations. Note that OFAC clarified in FAQ guidance that the fifty percent rule does not apply to Directive 1A so that entities owned by the institutions identified in Directive 1A are not themselves automatically subject to the restrictions.

In conjunction with these restrictions, OFAC also issued General License 2, which authorizes transactions involving the servicing of bonds issued by VEB prior to March 1, 2022, and General License 3, which authorizes a winddown period with respect to VEB through March 24, 2022. No similar general license has been issued yet regarding transactions involving PSB.

Potential Further Action

The Biden Administration has also implied that additional multi-lateral sanctions could be forthcoming, indicating an incremental approach. A Fact Sheet issued in conjunction with the February 21, 2022 executive order explained that the executive order “is distinct from the swift and severe economic measures we are prepared to issue with Allies and partners in response to a further Russian invasion of Ukraine. We are continuing to closely consult with Ukraine and with Allies and partners on next steps and urge Russia to immediately deescalate.” As also noted above, President Biden characterized the February 22, 2022 actions as the “first tranche” of sanctions and kept open the possibility for “escalation” depending on how Russia responds. An embargo on semiconductors and advanced technology has reportedly been considered as part of a second tranche of actions if Russia escalates or continues its incursion further into Ukraine.

New EU Sanctions

February 21, 2022 Designations

On February 21, the Council of the European Union (“EU”) imposed travel bans and asset freezes (including a prohibition to make funds or economic resources available) on five new individuals “for actively supporting actions and implementing policies that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine,” bringing the total number of designated parties to 193 individuals and 48 entities on the EU’s list of parties subject to Ukraine-related sanctions.

The new designations include members of the State Duma of the Russian Federation, who were elected to represent the annexed Crimean peninsula and the City of Sevastopol on 19 September 2021, as well as the head and deputy head of the Sevastopol electoral commission.

February 22-23, 2022 Actions

On February 22, the Presidents of the European Council and European Commission jointly announced that an additional package of restrictive measures will be swiftly adopted by the EU in reaction to Russia’s latest aggression against Ukraine, which the EU sees as “illegal and unacceptable” under the Minsk Agreements, which stipulate the full return of the Covered Regions to the control of the Ukrainian government.

The same day, Josep Borrell, the High Representative of the Union for Foreign Affairs and Security Policy, urged Russia “to reverse the recognition, uphold its commitments, abide by international law and return to the discussions within the Normandy format and the Trilateral Contact Group.” Borrell later announced in a joint press conference with French Minister for Europe and Foreign Affairs Jean-Yves Le Drian that the 27 Member States had unanimously agreed on a new package of sanctions.

The new package has been swiftly adopted and published in the Official Journal of the EU on February 23 through 4 Council Decisions and 5 Regulations amending EU’s current sanctions program targeting Russia progressively strengthened since 2014, which already included:

-Individual restrictive measures consisting of travel bans and assets freezes on designated individuals and entities;

-Comprehensive restrictions on economic relations with Crimea and Sevastopol, including (i) an import ban on goods from Crimea and Sevastopol, (ii) restrictions on trade and investment related to certain economic sectors and infrastructure projects, (iii) a prohibition to supply tourism services in Crimea or Sevastopol, and (iv) an export ban for certain goods and technologies;

-An import and export ban on trade in arms as well as an export ban for dual-use items for military end-users or end-use in Russia;

-Financial restrictions limiting access to EU primary and secondary capital markets for certain Russian banks and companies;

-Economic restrictions limiting Russia’s access to sensitive technologies and services that can be used for oil production and exploration.

As announced, the new package of sanctions is quite wide-ranging and intended to “hurt [Russia] a lot” in the words of High Representative Borrell.

First, the legal acts of February 23 (Council Implementing Regulation (EU) 2022/260 and 2022/261 ; Council Decision (CFSP) 2022/267) formally designate individuals and entities which will be subject to individual restrictive measures, namely a travel ban and an asset freeze, in the Union. The new designations target:

-336 members of the Russian State Duma who voted for the recognition of the two self-proclaimed republics; and

-22 decision-makers involved in the illegal decision in addition to 4 entities (Internet Research Agency, Bank Rossiya, PROMSVYAZBANK and VEB) financially and materially supporting, or benefiting from them, those operating in the Russian defense sector and having played a role in the invasion such as senior military officers, as well as individuals engaging in a “disinformation war” against Ukraine.

The legal acts (Council Implementing Regulation (EU) 2022/259 ; Council Decision (CFSP) 2022/265) also provided for a derogation from the application of the new restrictive measures targeting Bank Rossiya, PROMSVYAZBANK and VEB. The competent authorities of a Member State may authorize the release of certain frozen funds or economic resources belonging to these Russian banks, or the making available of certain funds or economic resources to those entities, under such conditions as the competent authorities deem appropriate and after having determined that such funds or economic resources are necessary for the termination by August 24, 2022, of operations, contracts, or other agreements, including correspondent banking relations, concluded with those entities before February 23, 2022.

Moreover, further financial restrictions limiting Russia’s access to the EU’s capital and financial markets will now apply (Council Implementing Regulation (EU) 2022/262 ; Council Decision (CFSP) 2022/264) including notably:

-A prohibition to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments issued after March 9, 2022 by Russia and its government, the Central Bank of Russia or any person or entity acting on behalf or at the direction of the said Central Bank;

-A prohibition to directly or indirectly make or be part of any arrangement to make any new loans or credit to the above-mentioned persons and entities;

-The current prohibitions applicable to securities giving the right to acquire or sell such transferable securities are extended to the securities giving rise to a cash settlement determined by reference to transferable securities.

Finally, the legal acts (Council Implementing Regulation (EU) 2022/263 ; Council Decision (CFSP) 2022/266) introduce extensive trade restrictions targeting economic relations with the Covered Regions of Donetsk and Luhansk, on the model of those already targeting Crimea and Sevastopol including:

-A prohibition to import goods from the Covered Regions into the EU and to provide, directly or indirectly, financing or financial assistance as well as insurance and reinsurance related to such imports;

-A prohibition to (i) acquire any new, or extend any existing participation in ownership of, real estate in or located in the Covered Regions, including the acquisition in full of such an entity or the acquisition of shares therein, and other securities of a participating nature of such an entity; (ii) grant or be part of any arrangement to grant any loan or credit or otherwise provide financing, including equity capital, to an entity in the Covered Regions, or for the documented purpose of financing such an entity; (iii) create any joint venture in the Covered Regions or with an entity in the Covered Regions; and (iv) provide investment services directly related to these prohibited activities;

-A prohibition to sell, supply, transfer or export goods and technology listed in Annex II suited for use in the transport, telecommunications, energy, oil and gas and mineral sectors, to (i) any natural or legal person, entity or body in the Covered Regions, or (ii) for use in the Covered Regions;

-A prohibition to provide, directly or indirectly, technical assistance or brokering services related to the goods and technology listed in Annex II, or related to the provision, manufacture, maintenance and use of such items to any natural or legal person, entity or body in the Covered Regions or for use in the Covered Regions;

-A prohibition to provide, directly or indirectly, financing or financial assistance related to the goods and technology listed in Annex II to any natural or legal person, entity or body in the Covered Regions or for use in the Covered Regions.

-A prohibition to provide technical assistance, or brokering, construction or engineering services directly relating to infrastructure in the specified territories in the mentioned sectors, independently of the origin of the goods and technology; and

-A prohibition to provide services directly related to tourism activities in the Covered Regions.

The new restrictive measures entered into force on February 23, the date of their publication in the Official Journal of the EU.

Potential Further Action

In reaction to the latest events, Olaf Scholz, Germany’s Chancellor, announced that Germany will halt the certification of Nord Stream 2, a gas pipeline designed to bring natural gas from Russia directly to Europe, a decision welcomed by both High Representative Borrell and President Ursula von der Leyen.

On February 23, 2022, President Biden announced that he would direct OFAC to sanction Nord Stream 2 AG – a wholly owned subsidiary of Gazprom, which is already subject to U.S. sectoral sanctions – and its corporate officers.

The EU had warned it will leave the door open to the adoption of more wide-ranging political and economic sanctions at a later stage should Russia use “the newly signed pacts with the self-proclaimed “republics” as a pretext for taking further military steps against Ukraine.” As President Putin declared war against Ukraine and escalated military action on February 24, President Michel of the European Council urgently convened an extraordinary meeting of the European Council. EU leaders intend to meet later today to discuss further restrictive measures that “will impose massive and severe consequences on Russia for its action, in close coordination with our transatlantic partners.”

The Member States will also keep a close eye on Belarus, which is said to have “aided and supported the Russian actions” in Ukraine, and the EU is ready to enlarge the listing criteria “to target those who provide support or benefit from the Russian government – the oligarchs, in plain language,” if needed.

Archives, Global Trade Daily, International Trade

Xinjiang US Import Sanctions Looming Over Global Supply Chains

February 4th, 2022 Vedia Biton Eidelman Leave a comment

On December 23, 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act (the “UFLPA”), which passed Congress with strong bipartisan support. With the UFLPA, the US has targeted imports of goods sourced from or produced in the Xinjiang region of China in an effort to address allegations of forced labor. Until now, similar orders had focused only on certain products – computer parts, cotton and cotton products, silica-based products, apparel, and hair products – from Xinjiang or from certain Xinjiang producers. The new measures will affect a wide range of industries and supply chains around the world. Companies are obliged to apply heightened diligence and transparency requirements in Chinese-based supply chains, and anticipate extended shipment delays for US imports and possible shifts in global apparel, food, solar, electronics, and automotive sectors, among others.

Background

The UFLPA was a bipartisan effort following on the heels of congressional action dating to 2019 in reaction to alleged human rights abuses against ethnic minorities in Xinjiang. It was enacted as part of a whole-of-government effort to combat alleged forced labor abuses in Xinjiang:

-US Customs and Border Patrol (“CBP”) has issued Withhold Release Orders (“WROs”) applying to cotton, tomato, apparel, hair products, silica-based products, and computer parts from Xinjiang.

-The Bureau of Industry and Security (“BIS”) of the Department of Commerce added more than 50 Chinese entities on the Entity List.

-The Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury designated more than a dozen persons on the Specially Designated Nationals and Blocked Persons List (“SDN List”) under the Global Magnitsky Human Rights Accountability Act.

-The US Department of State imposed visa restrictions against China Communist Party officials “believed to be responsible for, or complicit in, the unjust detention or abuse of Uyghurs, ethnic Kazakhs, and members of other minority groups in Xinjiang” as well as their family members.[1]

The UFLPA calls for a ban on the import of “all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of China, or by persons working with the Xinjiang Uyghur Autonomous Region government for purposes of the ‘poverty alleviation’ program or the ‘pairing-assistance’ program.” These programs, per the UFLPA, subsidize the establishment and operation of manufacturing facilities in the Xinjiang Region.

In fact, CBP’s authority to withhold release of imports suspected of involving forced labor already has existed for almost 100 years under Section 307 of the Tariff Act of 1930, which prohibits importing into the US any product that was “mined, produced, or manufactured wholly or in part by forced labor, including forced or indentured child labor.” CBP enforces the prohibition through the issuance of WROs.

CBP first began issuing WROs relating to Xinjiang in 2016. Most recently, in 2020 and 2021, CBP issued a series of WROs. Some apply to listed companies and their subsidiaries while others apply to the entire Xinjiang region:

In one of its first major actions under the Biden Administration, on June 24, 2021, CBP issued a WRO instructing ports of entry to detain shipments containing “silica-based materials” that are “derived from or produced using” products manufactured by Hoshine Silicon Industry Co. (“Hoshine”). Hoshine is one of the largest global producers of metallurgical-grade silicon, the raw material needed to produce solar-grade polysilicon that is used to create solar cells. In addition, BIS added Hoshine and four other Chinese companies to the “Entity List,” banning exports, re-exports, or transfers of US goods and technology to the listed entities. When the new order under the UFLPA goes into effect, the 2021 restrictions will be viewed merely as a preview to a much more pervasive region-wide and not sector-specific import ban that will reverberate through a wider variety of supply chains.

The US government has identified the following industries as involving heightened risk due to potential forced labor in Xinjiang:

Where there is suspicion that the goods contain materials originating in Xinjiang, these industries’ products will likely be held at customs as banned from imports into the US on suspicion of being sourced with forced labor.

What does the Uyghur Forced Labor Prevention Act do?

Pursuant to the UFLPA, 180 days after enactment of the Act, on June 21, 2022, CBP will apply a “rebuttable presumption” that applies to any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Region or produced by the entities listed by the Task Force. This “rebuttable presumption” will apply except when the CBP determines that the importer has:

(a) fully complied with the guidance described in the China forced labor strategy and any regulations issued to implement that guidance;

(b) completely and substantively responded to all inquiries for information submitted by the CBP to ascertain whether the goods were mined, produced, or manufactured wholly or in part with forced labor; and

(c) shown, by clear and convincing evidence, that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.

CBP advises that the importer may be required to submit time cards, wage payment receipts, and daily process reports that demonstrate the employment status of the employees in order to meet the burden of proving the lack of forced labor. In fact, textile companies whose cargoes got held up at US ports pursuant to Section 307 have needed to prove such evidence to CBP to get the goods released.

Finally, the UFLPA calls for increased enforcement of WROs. Within 30 days of making its determination, CBP will submit a public report to congressional committees identifying the good and evidence it has considered. The UFLPA provides for the Forced Labor Enforcement Task Force (the “Task Force”), in consultation with the Secretary of Commerce and Director of National Intelligence, to develop a strategy for supporting enforcement of CBP WROs.

What does this mean for companies?

The UFLPA is distinguished from a CBP WRO, which subjects to detention at US ports of entry products produced by listed entities or, in many cases, any products derived from or incorporating such products because the UFLPA’s rebuttable presumption will subject any and all goods sourced from or produced in XUAR to the import ban. The release process under the UFLPA will be what it has been for WROs.

To release the goods from detention, the importer must either re-export them from the US or provide evidence demonstrating that the goods were not manufactured with forced labor. In practice, goods subject to a CBP WRO are banned from entering the US until and unless the importer can convince CBP that it should not be withheld.

For example, in January 2021, CBP stopped a UNIQLO shipment of men’s cotton shirts that had arrived at the Port of Los Angeles / Long Beach pursuant to the XPCC cotton WRO. UNIQLO was required to provide various detailed records of the production chain (including timecards, salary records, and transportation records) from the raw cotton grower to the bulk trader to the yarn maker to the finished product. While UNIQLO argued that the shirts were not produced by XPCC, the burden is on the importer to prove the negative; even if UNIQLO eventually succeeds in convincing CBP, the shipment will have been delayed for months. Thus, the new WRO will also trigger shifting of supply chains by companies that do not want to take that risk.

In addition to customs consequences, a variety of measures may be applied to Xinjiang-affiliated entities. For example, an Entity List designation prohibits exports and reexports of all US goods, software and technology to those entities absent a license from BIS. Even more, those listed on the SDN List are prohibited from dealing, directly or indirectly, with US persons and are likely blocked from the global financial system altogether.

1. Shifting of Supply chains

When the rebuttable presumption under the UFLPA becomes effective on June 21, 2022, all goods sourced from or produced in XUAR – including any goods incorporating or derived from such goods in any amount – will essentially be banned from entering the US pending a favorable determination by Customs. In other words, there is no de minimis requirement for the import ban. Therefore, companies should expect and plan for global supply chain pricing and sourcing issues.

For instance, as 40-45 percent of the world’s solar-grade polysilicon comes from Xinjiang, the US solar projects industry will start to suffer even greater supply chain headaches. Currently, the WRO only applies to silica-based materials if the silicon was produced by Hoshine. Under the rebuttable presumption, it will extend to any products containing either silicon or polysilicon produced in China. This is expected to impact the supply and pricing of polysilicon worldwide. China produces more than 65% of the world’s silicon and around 89% of the world’s polysilicon. Most of the polysilicon production is believed to be outside of Xinjiang. Since Xinjiang is not a transparent place at present, it is hard to say exactly how much. US importers will likely encounter third-country suppliers who are reluctant to dig as deeply as the UFLPA demands.

In order to avoid import delays, component and product manufacturers in third countries (for example, Germany and South Korea) will seek to shift their supply chains to products that are not sourced from or produced in XUAR, if possible. Those efforts are beginning now in anticipation of the June effective date.

2. Heightened Supply Chain Transparency and Recordkeeping Obligations in Affected Sectors

Companies – especially those in industries listed above as identified by the US government to be higher risk – need to establish heightened supply chain transparency obligations. Supply chain transparency will help companies in the uphill battle of meeting the burden to prove the absence of forced labor. Up to now, transparency in Chinese in-country supply chain has been lacking, which makes it difficult to forecast the future impacts of the UFLPA. Without such transparency, it will be nearly impossible for companies to convince the CBP, “by clear and convincing evidence, that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.”

Transparency and recordkeeping will go hand-in-hand, and both will be necessary to navigate the UFLPA waters. In addition to requiring transparency on all levels of the supply chain, companies also need to keep records of the entire supply chain to be able to quickly and easily provide such records to CBP as evidence of lack of forced labor, if and when necessary.

3. Reputational and Banking risks

Aside from US sanctions enforcement risks, reliance on Xinjiang suppliers in any aspect of a supply chain presents significant dual-sided reputational risks. For example, due to reputational concerns, major brands, such as Calvin Klein, Gap, H&M, IKEA, Patagonia, and Tommy Hilfiger, stopped purchasing or committed to stop purchasing cotton sourced from Xinjiang.

There is also reportedly backlash from Chinese authorities and consumers. Brands that issued statements against sourcing cotton from Xinjiang, such as Burberry, thereafter faced a public backlash from Chinese consumers. Intel issued an apology to its Chinese customers after facing backlash for telling its suppliers that it would not be using forced labor or goods sourced from XUAR.

Banks in particular are highly attuned to OFAC primary and secondary sanctions-enforcement risks, as well as the above-mentioned reputational risks. In view of the 9- and 10-figure sanctions-related settlements, even non-US financial institutions are generally conservative in their sanctions compliance and risk appetite. Sanctions pose an existential risk to some banks that rely on access to US correspondent banking accounts in order to deal in US dollars. Thus, aside from the CBP order, banks and companies continuing to engage in transactions directly or indirectly with sanctioned Chinese producers risk having their transactions rejected or blocked by the US and global financial systems.

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Vedia Biton Eidelman is an associate in Eversheds Sutherland’s International Trade Practice. She advises clients on a wide range of regulatory matters, including sanctions (OFAC) and antiboycott matters; antidumping, countervailing duty and safeguard actions before the US International Trade Commission (ITC) and the US Department of Commerce (DOC); export controls (ITAR and EAR); national security controls on investment in US entities (CFIUS); trade policy issues such as free trade agreement negotiations; customs matters; and transactional due diligence.

[1] M. Pompeo, “The United States Imposes Sanctions and Visa Restrictions in Response to the Ongoing Human Rights Violations and Abuses in Xinjiang,” (July 9, 2020), https://2017-2021.state.gov/the-united-states-imposes-sanctions-and-visa-restrictions-in-response-to-the-ongoing-human-rights-violations-and-abuses-in-xinjiang/index.html.

Archives, EU Trade, Global Trade Daily, International Trade

Navigating Trade & Business 1 Year Post-Brexit

January 30th, 2022 David O'Sullivan, Senior Counsel at Steptoe & Johnson LLP and Co-Authors Leave a comment

It is just over five and a half years since the Brexit referendum delivered a surprise 52/48 verdict in favor of the UK departing the European Union.

It has been a period of intense political upheaval in the UK resulting in the departure of two successive Prime Ministers and two general elections, all against the backdrop of fraught negotiations to agree with the EU a Withdrawal Agreement (WA), setting out the terms of the departure, and a new Trade and Cooperation Agreement (TCA), designed to frame the new relationship.

The WA was concluded in December 2019. The UK exited the EU on January 31, 2020, but nothing changed until the expiry of a transition phase at the end of that year, by which point the TCA was also agreed.

The dust has still not fully settled on the definitive shape of EU-UK relations as there are several as yet unresolved issues due to certain grace periods (the UK is only this year beginning fully to implement checks on EU imports) and some unfinished business (defining the modalities of the vexed arrangements for Northern Ireland). However, the general direction of travel is clear. The UK has opted for the most severe form of exit, seeking to cut most ties with the EU and aiming to achieve the maximum degree of regulatory independence.

The economic and social dislocation caused by the pandemic has made it difficult sometimes to distinguish between the impact of Brexit only versus that of COVID 19. However, this article seeks to describe, as far as possible, how Brexit has affected the business and regulatory environment across the full range of areas covered by Steptoe and Johnson practices so far, and to identify issues of potential future concern for companies.

Trade, Customs, and the Level Playing Field

Customs and Supply Chain Issues

2021 was a year characterized by supply chain issues. Not just in the EU or the UK, but globally. While trade was down in the first half of 2020 due to the global pandemic, 2021 saw a complete reversal with global ports being highly congested. This issue was felt differently in the EU as compared to the UK, however. Euro-area exports of goods in October 2021 were close to pre-pandemic levels, being only 2,34% down from October 2019.[1] In the UK, on the other hand, exports of goods were 9,6% lower in October 2021 than in October 2018, the “most recent ‘stable’ period” in the UK.[2]

A key reason why customs and supply chain issues were more acute in the UK as compared to the EU appears to be Brexit. UK companies have so far experienced more difficulties in trading under the new customs arrangements following Brexit than EU companies.[3] Indeed, the EU has been applying full customs checks to imports from the UK since January 1, 2021, while the UK has repeatedly delayed similar checks on imports from the EU. However, as of January 1, 2022, the UK has introduced full customs checks on goods imported from the EU to Great Britain, with exceptions regarding Ireland and Northern Ireland.[4] UK importers are likely to face significant disruptions, at least in the short term, as they get used to the additional red tape due to the application of full customs checks. This could have an important impact on EU export volumes to the UK, similar to the disruptions caused to UK exports to the EU when the EU started applying full customs checks on imports from the UK.

The Level Playing Field

Ensuring a post-Brexit “level playing field” was a key issue during the Brexit negotiations. A key fear of Brussels was that having left the strict rules of the EU, the UK would turn into an economy with limited regulations and uncontrolled subsidies while retaining duty free access to the Single Market. The TCA ended up including a number of components related to the level playing field, with key parts being related to subsidies and state-aid. The outcome of this on the UK side has been the UK Subsidy Control Bill 2021,[5] which seeks to strike a balance between the UK’s obligations under the TCA, while at the same time allowing the UK with sufficient flexibility to provide subsidies where it deems fit. In its current form, its principles regarding subsidy control largely mirror those of the TCA, although there does seem to be room for interpretation and it remains to be seen whether the EU will consider the implementation thereof to be in line with the TCA.

In parallel, the EU is in the process of adopting a new regime to address distortions caused in the EU market by foreign subsidies.[6] This would give the European Commission the power to investigate foreign subsidies granted to any company active in the EU and impose regressive measures to counteract any distortive effects (see our blog post describing this proposed regime here). While this proposed legislation is not specifically related to Brexit, it could have implications for UK companies active in the EU which have received UK subsidies.

The Northern Ireland Protocol

While Brexit happened on February 1, 2020, and the Brexit transition period ended on January 1, 2021, there are still many unresolved issues under negotiation. Throughout 2021 the EU and the UK have been engaged by intense negotiations regarding the Northern Ireland Protocol, which has in effect resulted in Northern Ireland remaining in the EU Single market for goods. This has, however, resulted in several disruptions in trade between the rest of the UK and Northern Ireland, with several customs checks on goods, and severe disruptions on agri-food products, due to the absence of a veterinary agreement.

These disruptions are despite the fact that all the checks under the Protocol have not yet been fully implemented, while the UK has continued to extend the “grace period” during which lesser checks apply.

Towards the end of 2021, the situation got very tense, with the UK threatening to unilaterally suspend part of the Protocol over continued trade disruptions caused by the Protocol. Although at the time of writing the situation seems to have somewhat settled down, UK red lines remain, and the UK remains prepared to suspend part of the Protocol should the parties not come to an agreement.[7]

Should the UK suspend (part of) the Protocol, the EU has indicated that it may initiate dispute settlement proceedings and/or take retaliatory measures. There is even the potential that the EU may renounce the TCA in its entirety if the UK suspends the Protocol, although this appears less likely. It is clear, however, that a UK suspension of the Protocol would have significant consequences for EU-UK relations; not only in terms of trade but also other issues dealt with in the agreement.

Regulatory landscape

Competition

Since the end of the transition period, EU competition law ceased to apply to the UK and EU competition law is no longer applied by UK enforcement authorities. Although they must have regard to EU guidance and future EU case law, they are not bound by future EU law and may depart where appropriate.

The UK’s competition authority, the Competition and Markets Authority (CMA) is no longer party to the EEA’s cooperation network, nor does it benefit from the 60+ cooperation agreements between the EU and third countries. The TCA envisaged such an agreement and under discussion are provisions to share information, attend each other’s interviews (M&A and infringements), and request the other to conduct raids. However, it has yet to be concluded.

EU block exemptions (which define certain types of agreements that are allowed under the EU’s competition rules) have been retained as part of the UK’s domestic law. The EU has been conducting public consultations on some Block Exemptions which will expire soon, including those concerning vertical agreements. The CMA is in the process of preparing its own version. The two are likely to diverge, not least because the EU’s Single Market imperative is not relevant in the UK context, save as between the UK nations (where the UK now has its own UK Internal Markets Act).

As regards merger control, the UK regime is voluntary and the thresholds are unchanged. It is envisaged that mandatory notification may be introduced in the digital markets. The UK has now also adopted, in line with other major jurisdictions, a foreign direct investment (FDI) screening regime – the National Security and Investment Act (NSIA). Under the NSIA, there is currently mandatory notification of transactions required in 17 key “sensitive” sectors, including notably telecommunication, technology, and defense. The CMA has issued new Market Assessment Guidelines which, for example, broaden the CMA’s approach to when it will claim jurisdiction over a transaction. The CMA closely monitors the market and has significantly increased the review of transactions and called in completed transactions for investigation.

Sanctions

During Brexit negotiations, the EU and UK stated their desire to coordinate as much as possible on sanctions policy post-Brexit without agreeing on a formal framework to do so. The past year has seen several examples of continuing cooperation when EU and UK political priorities align, including announcing coordinated measures under their respective Belarus, Global Human Rights and Myanmar sanctions regimes. Yet, the decoupling brought about by Brexit has resulted in a degree of divergence between EU and UK sanctions priorities, designations and implementation.

The UK’s establishment of an autonomous Global Anti-Corruption sanctions regime in April 2021 underlines the UK’s efforts to develop a more agile autonomous sanctions regime that is capable of swift action. The move brought the UK more into line with the scope of the “Magnitsky” regimes adopted in the US and Canada, which unlike the EU’s Global Human Rights Sanctions Regime also apply to corruption offenses. It also emphasized the UK’s commitment to expanding the roster of like-minded international partners with which it will collaborate post-Brexit.

The decision to not directly transpose existing EU sanctions regimes into the UK’s new legal framework for sanctions already has resulted in divergence in designations and the implementation of sanctions policy, bringing with it the potential to create sanctions compliance difficulties for companies that are subject to both regimes. For example, the legal tests for designation are different in the EU and UK, which has resulted in disparities between EU and UK sanctions lists. It is likely that, over time, these differences will expand further in response to the refinement of designation thresholds and shifting political priorities. The UK also has introduced new tools, such as general licenses, to enable companies that meet certain conditions to undertake otherwise prohibited activities under specified sanctions regimes. Such tools are absent from the EU’s sanctions architecture. This could potentially complicate the navigation of sanctions exemptions and licensing derogations for companies operating across Europe.

Insurance

In preparation for Brexit, many insurers rationalized their business so that UK business was handled by entities in the UK and EU business was handled by entities in the EU. Numerous books of business were transferred using portfolio transfers (almost half of those from the UK were to Ireland or Luxembourg). In other cases, insurers simply discontinued their UK or EU business.

The TCA, concluded at the last moment, largely excluded financial services.

Following Brexit, the right under EU law for insurers to passport from the UK into the EU, and vice versa, ended. However, the UK permitted EU insurers to carry on business as usual in the UK for a limited period, under a temporary permissions regime (“TPR”), the intention being to allow such insurers to become UK-authorised if they wished to do so. Fewer insurers than expected opted into the TPR. The EU did not offer any comparable arrangement, and most EU Member States now prohibit UK insurers from conducting new business and have stringent rules concerning the run-off of existing business.

During the Brexit negotiations, the possibility of the EU recognizing the UK as an equivalent regime under the EU’s insurance legislation was a key topic. Although the UK has granted equivalence to the EU, the EU has not done so with the UK’s regime. The EU and the UK regimes concerning solvency may diverge in the near future due to the ongoing reviews of an applicable framework on both sides of the Channel, which further reduces the likelihood of the EU recognizing the UK as equivalent.

UK and EU re-insurers have adjusted their operations to reflect the restricted market access rights, including by establishing local licensed entities and setting up appropriate outsourcing arrangements for the most efficient allocation of group resources.

Chemicals

Those campaigning for Brexit often cited the benefits of a more flexible, targeted, UK-centric approach to environmental regulation as one of the prizes, and in 2021 the UK government wasted no time in seeking reform. However, of all the environmental issues, the regulation of chemicals stands out as creating some of the biggest Brexit challenges.

The issue stems from the European approach of ‘no data, no market’, which requires companies to submit data on hazard properties through a registration process to obtain market access. The UK failed to reach an agreement with the EU on the existing database, so the independent regimes for the UK market require companies to populate new databases, at a cost estimated at over a billion euros.

In response to industry concerns about timescales and costs, in December 2021 the UK announced a review to explore a ‘new model’ for data packages, with longer timescales for submitting data and a greater focus on use and exposure, allowing ‘more targeted’ regulatory action. Also, in December 2021, the UK announced its approach to identifying ‘substances of very high concern’, setting a different process to the EU list. The moves generated an immediate reaction from NGOs who claim the UK is not upholding the terms of the TCA on ensuring a ‘level playing field’, and urging the EU to step in.

The arguments are likely to intensify in 2022, when the EU pushes forward with its legislative agenda to deliver the Chemicals Strategy for Sustainability, with some significant changes predicted. In 2022 we also anticipate the UK’s own chemicals strategy, first promised in its 25 Year Environment Plan back in January 2018. With chemicals underpinning so much of the economy, this is an agenda with implications far beyond the chemicals sector itself, and international companies should monitor this closely. You can read more in our briefing.

Data protection

Brexit left a question mark over the flow of personal data between the UK and the EEA. That question was not resolved until June 2021 when the European Commission issued its decision confirming that the UK does ensure an adequate level of protection. While that outcome was highly political, it was difficult for the Commission to come to any other decision given that the UK had implemented the EU’s data protection legislation into national law and, to date, applied the case law of the European Court of Justice. However, the adequacy decision is not permanent. It may be revoked by the Commission if the UK no longer provides that requisite protection and will be reviewed in 2024. If that review does not result in an extension, the decision will expire on June 27, 2025.

Notwithstanding the above, the UK has flagged its intention to deviate from the EU’s privacy strategy by adopting a supposedly more business-friendly approach. In particular, the UK is likely to adopt its own set of adequacy decisions, develop domestic data transfer mechanisms and has stated its intention to overhaul the regulation of website cookies. In addition, the UK will not be a party to the upcoming changes in the EU to the regulation of cybersecurity, AI, and more.

How quickly and how far the UK deviates from the EU’s data protection legislation is yet to be seen. Whatever the possible deviations, the key question will be how far the EU is prepared to tolerate such divergence and still grant adequacy.

Criminal Investigations

The WA and the TCA have significant implications for cross-border cooperation in criminal matters in the UK and EU.

In relation to financial crime enforcement, the key provisions in the WA are contained in Title V on ‘Ongoing Police and Judicial Cooperation in Criminal Matters.’ In relation to investigations and proceedings commenced before the end of the implementation period, requests or judicial orders received by the appropriate authority in the UK or EU prior to the end of the implementation period remain enforceable. For requests or orders issued after that time (including European Investigation Orders (“EIOs”)) mutual legal assistance arrangements will need to be relied upon instead. These arrangements can be administratively burdensome and time-consuming. There are also exceptions that allow members states to refuse to comply with a request, including where a matter has already been adjudicated on in another state, that state may refuse to comply with a request.

Part 3 of the TA concerns ‘Law Enforcement and Judicial Cooperation in Criminal Matters,’ and covers a number of areas including exchanges of operational information, cooperation with Europol and Eurojust, surrender, mutual legal assistance, anti-money laundering and counter-terrorism financing, and freezing and confiscation orders. Most significantly, the UK ceased being a member of Europol and Eurojust, with its influence and involvement being significantly reduced as a result. The availability of the European Arrest Warrant (“EAW”) in the UK also came to an end, and was replaced by a new regime known as ‘surrender’. In essence, surrender is based on the mutual recognition of arrest warrants issued by another state. In contrast to an EAW, states can elect to refuse to comply with a request for surrender on the basis that the underlying offense is ‘political’, and may also elect to refuse to surrender their own nationals or attach conditions to the surrender of their own nationals.

The TCA also expressly provides for Joint Investigation Teams (“JITs”) between UK and EU member state investigating authorities, although it is largely silent on the detail. It is envisaged that changing political moods and relationships have the potential to affect the willingness and ability of authorities to cooperate with each other.

Conclusion

While some of the impacts of the UK’s departure from the EU are becoming increasingly clear, much of the detail remains to be defined. The politics of Brexit are likely to remain fraught, both around the Northern Ireland Protocol and other areas such as fisheries, data privacy, chemicals, and financial services. Companies will need to follow very closely both the fine-tuning of existing arrangements as well as the way potential new arrangements will evolve. Steptoe and Johnson can offer detailed and informed commentary and advice on all the areas covered in this article.

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*Co-authors: Renato Antonini, Eva Monard, Byron Maniatis, Charles Whiddington, Alexandra Melia, Guy Soussan, Angus Rodger, Simon Tilling, Ruxandra Cana, Leigh Mallon, Charles-Albert Helleputte, Diletta De Cicco, Zoe Osborne

[1] See https://ec.europa.eu/eurostat/documents/2995521/11563419/6-16122021-%20AP-EN.pdf/fe1315b6-a0c5-56b3-3de3-13468db7becd, and https://ec.europa.eu/eurostat/documents/2995521/10662401/6-16122020-BP-EN.pdf/083d8003-af99-e3c6-0294-6b5df4e68156.

[2] See https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/october2021#total-trade-three-monthly-and-annual-movements. After October 2018 disruptions caused by Brexit started to kick in, further exacerbated by the pandemic starting in 2020.

[3] In December, the British Chamber of Commerce reported that 45% of UK companies have had difficulties in trading under the new customs arrangements put in place by the TCA. See https://www.britishchambers.org.uk/news/2021/12/almost-half-of-firms-facing-difficulties-trading-with-eu-under-post-brexit-trade-agreement.

[4] See https://www.gov.uk/government/news/less-than-a-month-until-full-customs-controls-are-introduced.

[5] See https://bills.parliament.uk/bills/3015.

[6] See https://ec.europa.eu/commission/presscorner/detail/en/ip_21_198.

[7] See https://www.politico.eu/article/uk-to-eu-british-position-on-northern-ireland-remains-unchanged/.

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BIS Delays Implementation of New Cybersecurity Items Interim Final Rule

January 26th, 2022 Tony Busch, Cortney O'Toole, and Grant Leach Leave a comment

In an October 21, 2021 interim final rule (“IFR”), the Bureau of Industry and Security (“BIS”) published long-awaited “cybersecurity items” controls in Categories 4 (Computers) and 5, Pt. 1 (Telecommunications) of the Commerce Control List (“CCL”) and followed the IFR up on November 12, 2021 with relevant FAQs. The IFR will impose new export controls on certain “cybersecurity items” that relate to “intrusion software” or “IP network communications surveillance.” The IFR, originally scheduled to become effective on January 19, 2022, will now become effective on March 7, 2022. In the January 12, 2022 notice announcing the delay, BIS stated it “may consider some modifications for the final rule” and indicated it would “provide the public with additional guidance.” Below we describe the IFR as it currently stands. We will update readers when BIS implements any additional edits to the IFR and/or updates its guidance.

The IFR establishes two (2) new export control classification numbers (“ECCNs”) and expands the control text of several additional ECCNs within the CCL. The IFR collectively defines the items falling under these CCL modifications as the “cybersecurity items.” Each “cybersecurity item” covered in the IFR will be destination-controlled for National Security (“NS”) and Anti-Terrorism (“AT”) reasons. The modifications fall under two (2) broad topics: (i) expanded control text in Category 4 for hardware, software, and technology providing the infrastructure for managing “intrusion software”; and (ii) expanded control text in Category 5, Pt. 1 related to “IP network communications surveillance” items. The IFR also includes notes which clarify that, in the event any commodities or software which qualify as “cybersecurity items” also incorporate “information security” functionality described in any Category 5, Pt. 2 ECCNs (which will often involve encryption or cryptanalysis), then those Category 5, Pt. 2 ECCN classifications will prevail. However, those notes do not cover technology (which has a special definition under the EAR). The notes also specifically state that elements of source code implementing functionality not controlled by Category 5, Pt. 2 may still be subject to the “cybersecurity item” controls implemented by the IFR. “Cybersecurity items” controlled for Surreptitious Listening (“SL”) reasons under pre-existing ECCNs will also remain under those ECCNs.

The new “intrusion software”-related parameters will control hardware and software specially designed or modified for the generation, command and control, or delivery of “intrusion software,” as well as technology for the “development” or “production” of that hardware or software. The EAR’s pre-existing definition of “intrusion software,” will remain. It is primarily designed to describe exploits or payloads that do not involve encryption but that are nonetheless specially designed or modified to avoid detection by ‘monitoring tools’ or to defeat ‘protective countermeasures’ for the purpose of extracting data or modifying a standard software program execution to allow the execution of externally provided instructions. Importantly, the IFR does not impose export controls on the “intrusion software” itself. “Intrusion software,” when designed for military offensive cyberspace operations, would more appropriately be considered for classification purposes under the International Traffic in Arms Regulations (“ITAR”) as clarified by BIS FAQ #5.

The new “IP network communications surveillance” parameters will control telecommunications equipment capable of servicing a carrier class Internet Protocol (“IP”) network, performing application layer analysis, indexing extracted data, and being “specially designed” to execute searches based on “hard selectors” (i.e., personal data) and mapping relational networks of individuals or groups of people (hereafter referred to in this post as the “Telecommunications Surveillance Equipment”). The new and expanded control text will also control the software equivalents of the Telecommunications Surveillance Equipment as well as the test equipment, software, and technology specially designed or modified for the “development,” “production,” or “use” of the Telecommunications Surveillance Equipment.

The IFR also creates a new License Exception Authorized Cybersecurity Exports (“License Exception ACE”). Although LE ACE is similar to the EAR’s existing License Exception Encryption Commodities, Software, and Technology (“License Exception ENC”), there are some key differences between License Exceptions ACE and ENC. Exporters hoping to use the new License Exception ACE’s authorizations will need to consider the full range of U.S. export controls represented in its terms and conditions: destination, end-user, and end-use. For instance, License Exception ACE lays out a multi-layered approach where the nature of the end-user (e.g., “U.S. subsidiary,” “non-government end user,” “government end user,” and/or “favorable treatment cybersecurity end user”) must be considered alongside the destination and any knowledge or “reason to know” of an illegitimate end-use (which, without citing the EAR definition, is what is commonly understood as black hat and/or state-sponsored “hacking”). “Deemed” exports to Country Group D foreign nationals of any Country Group D destination are presumptively not authorized under LE ACE. However, when an exporter can determine the end-user of the export or “deemed” export is a “non-government end user,” then License Exception ACE will provide authorization to certain Country Group D destinations for (i) exports to “favorable treatment cybersecurity end users”; (ii) exports for “vulnerability disclosure” or “cyber incident response”; and (iii) “deemed” exports to foreign nationals.

A final note on License Exception ACE, especially for those proficient in License Exception ENC, is that License Exception ACE’s definition of “government end user” is far broader than the parallel definition in License Exception ENC.

Some heightened areas of risk under the IFR will include exports and reexports to non-U.S. subsidiaries in Country Group D countries and proper due diligence to meet BIS’ “reason to know” standard for end-use restrictions in License Exception ACE.

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Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office and is a member of the firm’s International Trade & Supply Chain practice 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.

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.

Archives, Global Trade Daily, News

DHS Requests Comments to Inform Implementation of the Uyghur Forced Labor Prevention Act

January 24th, 2022 Tony Busch and Robert Stang Leave a comment

Today, the U.S. Department of Homeland Security (“DHS”) issued a request for comments to assist the Forced Labor Enforcement Task Force (“FLETF”) with implementation of the Uyghur Forced Labor Prevention Act (“UFLPA”). The UFLPA, signed by President Biden on December 23, 2021, creates a rebuttable presumption that goods manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (“Xinjiang”) or produced by an entity on a number of lists to be produced, will be denied entry into the U.S. under section 307 of the Tariff Act of 1930 (19 U.S.C. 1307). The UFLPA was passed in response to the alleged use of forced labor of Uyghurs, Kazakhs, Kyrgyz, Tibetans, and other persecuted groups in China. Readers can learn more about the UFLPA and the rebuttable presumption, which goes into effect on June 21, 2022, in our previous post following the UFLPA’s enactment.

While the UFLPA will almost certainly result in additional withhold release orders (“WROs”) on goods manufactured wholly or in part by entities in China, DHS’ request for comments does not provide the public with new details about investigations and enforcement practices or procedures that DHS has utilized in the Xinjiang-related WROs issued on certain silica-based products as well as certain cotton and tomato products. Instead, the request for comments poses eighteen (18) open-ended questions.

U.S. importers potentially affected by WROs are encouraged to submit comments to ensure a balanced and fully accurate record. Some questions of particular importance include:

-What due diligence, effective supply chain tracing, and supply chain management measures can importers leverage to ensure that they do not import any goods mined, produced, or manufactured wholly or in part with forced labor from the People’s Republic of China, especially from the Xinjiang Uyghur Autonomous Region?

-What type, nature, and extent of evidence can companies provide to reasonably demonstrate that goods originating in the People’s Republic of China were not mined, produced, or manufactured wholly or in part with forced labor in the Xinjiang Uyghur Autonomous Region?

-To what extent is there a need for a common set of supply chain traceability and verification standards, through a widely endorsed protocol, and what current government or private sector infrastructure exists to support such a protocol?

-What measures can be taken to trace the origin of goods, offer greater supply chain transparency, and identify third-country supply chain routes for goods mined, produced, or manufactured wholly or in part with forced labor in the People’s Republic of China?

Comments are due on March 10, 2022 at 11:59 PM. Husch Blackwell will continue to monitor UFLPA developments including the anticipated reports, lists, and implementing regulations.

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Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office and is a member of the firm’s International Trade & Supply Chain practice team.

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

3pls, Archives, Global Logistics, Global Trade Daily

THIRD PARTY LOGISTICS FIRMS OFFER BENEFITS TO THOSE OPERATING IN FTZs

December 31st, 2021 Tom Peters Leave a comment

Companies involved in the import of global products into the U.S. and considering the utilization of a foreign trade zone (FTZ) in their business may want to consult with a third-party logistics firm to get an in-depth look at what access to an FTZ may mean for them—and what a 3PL could offer in terms of benefits and efficiencies while operating within an FTZ.

According to U.S. Customs and Border Protection (CBP), FTXs are secure areas under the agency’s supervision that are generally considered outside CBP territory upon activation. Located in or near CBP ports of entry, they are the U.S. version of what are known internationally as free-trade zones.

Imported products can be brought into the country through an FTZ and no duty is paid on these products until they are moved to their U.S. destination. Products can sit or be warehoused in FTZs for lengthy periods and if it is determined these products are no longer required, they can be returned without duties being paid.

“Most importantly, the FTZ program is a U.S. government program-driven around compliance and is unique in that it covers the full supply chain,” says Trudy Huguet, senior director of FTZ Product at GEODIS in Americas, in an interview.

An international firm with a strong North American presence and operations, GEODIS is a logistics company that offers services in several lines of business: supply chain optimization, freight forwarding, contract logistics, distribution and express, and road transportation.

Huguet offered that the expertise of the 3PL that offers foreign trade services has many benefits but, most importantly, they usually can serve on compliance and efficiencies. For instance, she noted a 3PL may have better access “to operational systems and data flow that is needed for multiple systems to run an FTZ” or systems integrated with a foreign-trade zone system. She said a 3PL may also be able to serve certain shared costs with the availability of facilities such as warehousing, as an example.

“3PLs are driven by customers’ needs, like customization and square footage, along with services, staff and team members to run that FTZ for them,” she said.

Addressing a company’s needs is extremely important, in or prior to a peak holiday season, said Huguet.

She noted that many years ago companies used to administrate their own zones but that meant the expertise had to be in-house, necessitating the need to cross-train employees. However, by contracting with a 3PL, “those risks with these programs go away,” Huguet said.

GEODIS has molded programs to fit customers’ needs “so we will work with customers to determine how they can get the biggest bang for their buck,” and where they can find the greatest savings within the FTZ, she said.

Because the U.S.a U.S. FTZ is a sister program to the global free-trade zone, “We are unique in regulations and how we operate and very strong in compliance and most industries and manufacturers, producers and distributors,” Huguet said. “If they are importing into the U.S., they have the opportunity to benefit from this program.”

Getting involved in an FTZ is “kind of a three-stage process” that, Huguet says, involves consultation with the FTZ board where designation is obtained. Activation with local customs and security is followed by building the operational side of the FTZ to run parallel with in-house systems.

Paul Killea, senior vice president of Freight Services Compliance & Security in Americas for GEODIS, oversees import and export compliance for the U.S., Canada, Mexico, Brazil, Chile, Argentina and Colombia, in addition to running an FTZ product. He stressed that “compliance is very big part of the FTZ.”

“Compliance is the process of ensuring that all of our services and our customers’ services are performed in a compliant manner and adhere to all (government) regulations” in and out of the U.S., Killea says. “So, we are responsible to ensure that we have the right processes in place, the right tools for auditing and reporting and in doing so, create visibility to outside parties, specifically the government and our customers, to show them we are compliant.”

GEODIS provides an array of services such as air freight, ocean freight, warehousing and trucking, and the 3PL has a top goal to be compliant itself and to make sure its customers are, too. “First and foremost, GEODIS has to be compliant but obviously we need to make sure our customers are compliant as well. It is a global principle we hold in high regard at GEODIS,” he says.

Strong compliance would definitely be beneficial to a company looking at the benefits of a 3PL with access to FTZ, he noted.

On the security side, GEODIS has a team that manages various aspects of security. The company is a member of Independent Air Carriers and freight forwarder that adheres to the U.S. Transportation Security Administration regulations. The company not only transports air freight, “we are also a certified screening facility in six locations,” Killea notes. “So, my team manages all of that air freight security which is also beneficial to clients.”

Huguet points out that more companies are becoming interested in FTZs “so what we have seen are more companies trying to improve their supply chain dealing with all the various supply chain challenges and bottlenecking with merchandise. Everyone is looking for a better solution and FTZs will help with that.”

In addition, they can assist with some of the governmental trade issues that have been put into place, such as dealing with China.

Challenges created by the COVID-19 pandemic and port congestion have created issues for companies that 3PLs with access to FTZs can assist with, such as creating additional warehousing within the FTZ to store products longer.

“Because of port congestion and because of COVID, merchandise is sometimes being delayed and not moving as quickly as it should,” Huguet concedes. “The FTZ program has certainly helped.”

Archives, Global Trade Daily, International Trade

THE U.S., CHINA, AND THE FUTURE OF THE WORLD TRADING SYSTEM

December 21st, 2021 Gregory Shaffer Leave a comment

Victorious after World War II and the Cold War, the United States and its allies largely wrote the rules for international trade and investment. Critically, the United States and European Union drove the creation of the World Trade Organization (WTO) in 1995 with the aim of opening trade in goods and services for their products, ramping up protection for their intellectual property, and transforming national trade-related law and institutions within countries around the world to look more like American and European law and institutions. Developing countries joined the WTO, but often complained that its rules were skewed. As a result, it was argued, the U.S. and European Union could rule the global economy through rules. They were incredibly successful, as WTO norms transformed laws and institutions within emerging economies.

Yet by 2020, 25 years after the WTO’s creation, it was the U.S. that has become the great disrupter—disenchanted with the rules’ constraints, including on its ability to create new rules. It was the U.S. that flouted WTO rules in the name of “national security” and the national interest—even to protect American producers of aluminum siding, and to pressure countries to block migration from Mexico and Central America. It was the U.S. that neutered trade dispute settlement and threatened to withdraw from the organization. Meanwhile, the United Kingdom— the EU’s second largest economy—voted by referendum to leave the European Union. As nationalist parties rose in prominence throughout Europe, the EU was pressed to turn inward to protect its very existence, curtailing its role on the global stage. It continues to defend multilateralism, but it is in a much weaker position following the euro crisis, internal divisions over migration, Brexit and the ravages of the COVID-19 virus, than it was in the 1990s.

Paradoxically, China and other emerging economies became stakeholders and (at times) defenders of economic globalization and the rules regulating it, even while they too have taken nationalist turns. Before the World Economic Forum in Davos, that paragon of global institutions, China’s President Xi declared in his 2016 keynote address, “We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening up and say no to protectionism.”

How did this come to be? How did the emerging powers invest in trade law to defend their interests? What has this meant for their own internal economic governance? And what does it mean for the future of the trade legal order in light of intensified rivalry between the U.S. and China, triggering a new economic cold war?

Many economists write of China’s rise in terms of efficiency—a combination of Western know-how and Chinese wages that triggered a “manufacturing miracle” where China became producer for the world. In his book The Great Convergence, Richard Baldwin explains how the revolution in information and communications technology in the 1990s led Western firms to outsource production of goods and services to countries such as China and India, creating a new unbundling of production through global supply chains. This unbundling “created a new style of industrial competitiveness—one that combined G7 know-how with developing-nation labor.” China became the manufacturer for the world. Its share of world manufacturing surged from 3% percent in 1990 to 19% in 2015. Western firms outsourced services to India, whose services exports increased more than 22-fold from US$8.9 billion in 1997 to US$204 billion in 2018, while its manufacturing grew in parallel. Such growth triggered a commodity boom for Brazil’s highly competitive agribusiness and mining sectors.

These economic shifts catalyzed dramatic changes in shares of global gross domestic product. In just 29 years, the share of the G7 (U.S., Japan, Germany, U.K., France, Canada and Italy) plummeted 18 percentage points, from 64% (in 1990) to 46% (in 2019) in nominal terms, and to 30% measured by purchasing power parity. In contrast, China’s and India’s share soared. At the start of 2020, the share of global GDP of China, India and Brazil approached that of the U.S. in nominal terms (21% compared to 24%) and almost doubled it in terms of purchasing power (29% to 15%). Within a decade, China should become—once more—the world’s largest economy.

These changes in the share of global GDP gave rise to shifts in power, as political scientists stress. While the U.S. and Europe turned inwards, emerging powers like China gained confidence and became central players in the global economy. The creation of the G20 for global economic governance first reflected this transition.

The growing U.S-China rivalry now dramatizes it. China, India and Brazil each play a leadership role in regional economic governance, and they aim to play a growing role globally. Although the U.S. wishes to halt China’s rise, the reality is that two-thirds of countries trade more goods with China than the U.S., compared to just one-fifth in 2001, the year China joined the WTO. Simply put, the economies and market size of China and other emerging powers matter, providing the country with negotiating leverage, constituting a form of power.

So, what about law? Stated simply, it is not just structural and material power that govern the world, but also law, legal institutions and their practices. They are complementary, and they affect each other. Law and legal institutions provide normative resources that actors harness to advance their interests. They simultaneously affect the normative environment in which actors operate, which shapes their understanding and pursuit of interests. The story of emerging powers’ rise and the implications for global trade governance requires a complementary story about law and their deployment of it. My book, Emerging Powers and the World Trading System, provides that story. It tells the past story of trade law’s impact within large, emerging powers and their response to trade law, which, in turn, helps us understand the current context and responses to this context that will shape international trade and economic law’s future. The book shows how emerging powers changed internally to engage better externally.

These countries’ institutional changes and investments in legal capacity shaped the international trade legal order. They learned how to play the legal game to thwart U.S. and European dominance of the trade regime, both in negotiations and in litigation over the meaning of legal texts. This dynamic, in turn, constrained U.S. and E.U.EU policymaking, ranging from agricultural subsidies to industrial protection through import relief law. When the U.S. and European Union turned away from the WTO to create new rules through bilateral and regional trade and investment agreements, China and other emerging powers developed their own initiatives and models as well.

The challenges for the future of the multilateral legal order for trade are clearly material, structural and ideological, as well as legal. On the one hand, they reflect the growing economic power of China, and the impact of trade from China and other emerging economies within the United States. On the other hand, traditional narratives of the benefits of free trade that ignore the impact on the economically vulnerable, have been destabilized, especially in the United States.

The development of legal capacity to use, make, shape and apply law are is a critical part of this story, and they will continue to shape the evolving ecology of the trading system. By defining the trade order in terms of rules and judicialized dispute settlement, the WTO system created an opening for emerging economies to invest in trade law capacity and take on the U.S. and Europe at their own legal game. As a system of law purportedly in service of fairness and equal treatment, weaker players could also win. Law’s ideology of rationality and fairness could constrain the powerful, shape the interpretation of norms, and affect their strategies. The legal order for trade, although slanted in favor of the powerful, offered opportunities to weaker parties who could compete through building legal capacity. China’s, Brazil’s and India’s investments in legal capacity help explain the paradox of the U.S. abandoning the legal order that it created.

The U.S. challenge to the legitimacy and efficacy of the international trade regime that it created, and emerging powers’ defense of that regime, is a paradox that cuts across international relations theories.

John Ikenberry, in his book After Victory, published a decade after the end of the Cold War and five years after the WTO’s creation, asked this central political question: “What do states that have just won major wars do with their newly acquired powers.” His answer was a legal one: They create the rules of the game. In this situation, he wrote, states “have sought to hold onto that power and make it last” through institutionalizing it. He called the order that the U.S. created a “liberal hegemonic order” because other states consented to it in the context of American unipolar power, while the U.S. agreed to constrain itself under the rules to “make it acceptable.”

Michael Zurn, in his theory of global governance, argues that such regimes create resistance because they are “embedded in a normative and institutional structure that contains hierarchies and power inequalities.” He thus contends that “counter-institutionalization is the preferred strategy by rising powers.”

And the realist Graham Allison, in his book Destined for War, writes, “Americans urge other powers to accept a ‘rule-based international order.’ But through Chinese eyes, this appears to be an order in which Americans make the rules, and others obey the orders.” The paradox with the trade legal order is that China and other emerging powers became its defenders, while the U.S., under the Trump administration, attacked it as illegitimate and neutered its dispute settlement system. The U.S. became the revisionist power. So far, the Biden administration has continued these policies, although with a more constrained rhetoric and without the 3 a.m. tweets.

Political fault lines over trade are not just between states, but also within them. Such politics shape legal ordering internationally. Developments in China implicate companies and workers in the U.S.; the rise of U.S. economic nationalism implicates companies and workers in China. International law and institutions such as the WTO can provide an interface that helps to shape those interactions, but international law and institutions are also reciprocally shaped by them. International law and institutions are both medium and outcome.

For trade liberals, this has the arc of a tragedy. International trade law rose in prominence and trade law norms permeated deeply within emerging powers’ laws, institutions and professions. Yet, the very success of such legal ordering triggered unintended consequences. As these countries rose in economic importance and built legal capacity to wield WTO law to defend and advance their positions, the U.S. became disenchanted with the legal order it had created. It elected an economic nationalist who became “a wrecking ball,” unsettling the international legal order for trade and broader economic governance.

Effective international legal orders must be grounded in common perceptions of problems that law can address. If perceptions of underlying problems shift in radically divergent ways within the U.S., E.U.EU and these emerging powers, then the WTO as a multilateral institution based on common rules that permeate domestic laws and institutions becomes unsettled. There is no end of history, no unidirectional force toward a particular manifestation, breadth or depth of international legal ordering. Norms settle and unsettle, internationally and domestically, often in parallel. Now the centralized WTO legal order for trade is declining, giving rise to fragmenting, overlapping and competing regional and bilateral legal ordering.

The challenge for states will be how to maintain and adapt the international trade legal order to changing political and economic contexts. To maintain the international trading system to foster economic order, sustainable and inclusive growth, and the pacific settlement of disputes through law, the U.S., E.U.EU, China, India and Brazil will need to collaborate to define rules governing the interface of their economies. International trade law and institutions are no nirvana, but the alternative to them could be dire. We are in the history and make the history with the choices we make today.

The Trump administration may have neutered the WTO’s dispute settlement system and brazenly ignored WTO rules. So far, the Biden administration has done little to nothing to change this. Its legacy for the multilateral trading system will depend on the decisions it makes in the months to come.

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Gregory Shaffer is Chancellor’s Professor at the University of California, Irvine School of Law and President-Elect of the American Society of International Law. This essay is taken from his book Emerging Powers and the World Trading System (2021, Cambridge University Press).

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Hughes Hubbard Releases 2022 FCPA Alert

December 13th, 2021 Hughes Hubbard & Reed LLP Leave a comment

Hughes Hubbard & Reed today released its 2022 FCPA Alert, a comprehensive review of the global cases, trends and enforcement actions that impacted anti-corruption law, multinational corporations and individuals to date this calendar year. For the 13th consecutive year, the highly respected and anticipated annual FCPA Alert highlights the most important trends and lessons for in-house counsel and compliance professionals.

The FCPA Alert’s contributors, led by Laura N. Perkins and Kevin T. Abikoff, co-chairs of Hughes Hubbard’s Anti-Corruption & Internal Investigations practice group, expect enforcement to surge – due in part to the Biden Administration’s recent memorandum on combatting corruption. Their analysis of recent enforcement actions suggests that going forward:

-The Department of Justice and Securities and Exchange Commission will be cooperating with an expansive number of domestic agencies and divisions to conduct complex bribery investigations, as well as a growing number of non-US enforcement agencies.

-Companies that have resolved FCPA matters through NPAs, DPAs or plea agreements should expect increased scrutiny and attention to compliance with ongoing obligations under such agreements.

-While commodities traders, in particular, can expect greater scrutiny, enforcement will continue in a diverse array of traditional and non-traditional industries and in high-risk jurisdictions, with special emphasis on the independence and authority of corporate compliance functions and complete and timely cooperation with enforcement agencies.

The 153-page Alert provides detailed descriptions of key matters from 2020 and 2021 that support these and other key takeaways.

“As enforcement leadership has evolved this year under a new administration in Washington, we’ve witnessed renewed vigor in the investigation and prosecution of bribery and corruption in the United States and abroad,” said Abikoff. “As the regulators continue to leverage greater resources and reach into new industries, it is vital that companies and compliance departments remain vigilant in enforcing their compliance programs.”

The Alert also contains a deep dive into anti-bribery enforcement and developments in France, Brazil, United Kingdom, China, Mexico, and by multilateral development banks. For the first time, the Alert includes a discussion of the rapidly developing intersection between transnational corruption issues and international arbitration. This discussion highlights examples of how tribunals and courts have treated corruption claims in arbitration in recent years and provides insight into key questions raised by bringing claims in arbitration proceedings, regarding the burden of proof, the identification and treatment of red flags, and the impact of government investigations.

“An effective compliance program is more than words on paper,” said Perkins, a former supervisor in the DOJ’s FCPA Unit. “Prosecutors will pursue companies that have established but ineffective programs in place. It’s critical that companies adequately staff and empower their compliance departments, conduct due diligence, address red flags and allegations, and follow-though on their obligations. Every year, our analysis cites example after example of the downsides to a lack of vigilance. Especially given the expected surge in enforcement now is not the time to take your eye off the ball.”

The complete report is available for download here.

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About the Anti-Corruption & Investigations Practice Group

Hughes Hubbard’s Anti-Corruption & Internal Investigations Practice Group handles the full range of matters across the anti-corruption and compliance spectrum. It has conducted investigations in more than 90 countries involving the FCPA and other anti-corruption laws, resolved investigations and won landmark decisions for clients before U.S. and international authorities, and has served as compliance monitors approved by the Department of Justice, the Securities and Exchange Commission, the U.K. Serious Fraud Office, the Department of the Treasury’s Office of Foreign Assets Control and the United Nations.

Lawyers in the group include former senior government enforcement officials, corporate compliance counsel, foreign-trained attorneys and certified public accountants located in the United States and France. The group has many longstanding relationships with leading local firms in countries across the world with which it works closely on cross-border matters, including a strategic cooperation agreement with leading Brazilian anti-corruption firm Saud Advogados.

About Hughes Hubbard

Hughes Hubbard & Reed is a New York City-based international law firm that offers clients results-focused legal services and a collaborative approach across a broad range of practices. Hughes Hubbard was founded in 1888 by the renowned jurist and statesman Charles Evans Hughes. The firm is a leader in promoting diversity and is recognized for its pro bono achievements. For more information, visit hugheshubbard.com.

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EPA Issues Final Rule to Phase Down HFCs as White House Announces Measures to Prevent Illegal Imports

November 9th, 2021 Nithya Nagarajan & Camron Greer Leave a comment

The United States Environmental Protection Agency (EPA) has finalized a rule intending to reduce the production and consumption of hydrofluorocarbons (HFCs) in the United States by enforcing a cap and phasedown program under the American Innovation and Manufacturing (AIM) Act. According to the EPA, the final rule will phase down U.S. production and consumption of HFCs by eighty-five percent over the next fifteen years. Beginning January 1, 2022, allowances will be required to produce or import HFCs. The first of such allocations are to be announced by the EPA by October 1, 2021. The AIM Act instructs the EPA to issue a fixed quantity of transferrable production and consumption allowances, which producers and importers must hold in quantities equal to the amount of HFCs they produce or import. Alongside the EPA’s final rule, the EPA and other federal agencies under the Biden Administration announced additional actions intended to reduce consumption of HFCs, with a focus on curtailing and controlling illegal imports.

The final rule establishes HFC production and consumption baselines, a statutory phasedown schedule of allowed production and consumption, and the EPA’s approach to allocating and allowing transfer of allowances. According to the EPA, a global HFC phasedown is expected in order to avoid the most severe consequences of climate change. Producers and importers of HFCs should begin to consider how to adapt their businesses to the phasedown and how to take advantage of potential HFC alternatives. According to the phasedown schedule, steep reductions in allowances are planned for 2024 and 2029 to bring HFC production and consumption down to thirty percent against the baseline.

The EPA will set the initial allocation for each producer and/or importer based upon the individual entity’s production and/or import for the highest three-year period during the 2011-2019 period. The AIM Act had originally established the baseline to be the three-year period of 2011-2013, but the proposed rule published by the EPA in May 2021 had modified that to 2017 to 2019. Now with the final rule, the EPA has determined that using the average of the highest three years in the 2011 to 2019 window would ensure an equitable phasedown consistent with prior phasedowns.

The Administration announced the formation of an interagency task force consisting of the EPA and the Department of Homeland Security (DHS) to prevent and disrupt illegal importation of HFCs into the United States. The announcement of measures to prevent illegal imports follows reports of a surge in illegal trade in HFCs in Europe due to the European Union’s strict regulation of the greenhouse gases. The White House nods to this issue in its fact sheet on the matter, referring to “rates of noncompliance similar to what has been observed in other countries…” With the issuance of the EPA’s final rule, the U.S. has adopted a similar policy on HFCs but aims to avoid the enforcement issues observed in Europe, which have undermined the purpose of HFC regulations.

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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.

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

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Commerce Issues Final Determination in AD/CVD Investigation on Utility Scale Wind Towers from India

October 29th, 2021 Nithya Nagarajan Leave a comment

The Department of Commerce published its Final Determination in the antidumping (“AD”) and countervailing duty (“CVD”) investigation of Utility Scale Wind Towers from India on October 13, 2021, which investigation was initiated in November 2020. The AD/CVD petition was filed by Wind Tower Trade Coalition (“Petitioner”). The mandatory respondent selected by Commerce in both the antidumping and countervailing duty investigation was Vestas Wind Technology India Private Limited (“Vestas”).

The additional producers/exporters Commerce included in the antidumping investigation were: Anand Engineering Products Private Limited, Windar Renewable Energy Private Limited, and GRI Towers India Private Limited.

The additional producers/exporters included in the countervailing duty investigation were: Naiks Brass & Iron Works, Nordex India Pvt. Ltd., Prommada Hindustan Pvt. Ltd., Suzlon Energy Ltd., Vinayaka Energy Tek, Wish Energy Solutions Pvt. Ltd., and Zeeco India Pvt. Ltd.

In its final determination, Commerce found that (1) imports of wind towers from India are being, or are likely to be, sold in the United States, at less than fair value and (2) that countervailable subsidies are being provided to producers and exporters of wind towers from India. As a result of these findings, Commerce instituted:

-A 54.03 percent weighted-average dumping margin on exports by Vestas and the five other producer/exporters from India;

-A 2.25 percent countervailable subsidy rate for Vestas and all others that were not specifically investigated; and

-A 397.70 percent countervailable subsidy rate for the seven other producer/exporters.

The factsheet detailing these amounts can be found here.

In the anti-dumping investigation concerning whether Vestas and the other producers/exporters were selling or likely to be selling at less than fair value (“LTFV”), Commerce based its calculation of the dumping margin “entirely on the basis of facts available with the application of adverse inferences (“AFA”).” This decision was mainly due to a lack of documentation and cooperation from Vestas and the five other producers/exporters. Despite many briefs filed by parties opposing the use of AFA, Commerce upheld its Preliminary Determination and adopted it in full.

Notably, Commerce did not receive the necessary information from Vestas or the five other producer/exporters by the agreed-upon deadline. While Vestas did eventually submit the information requested, Commerce stated that it would only accept untimely filed information in extraordinary circumstances. Vestas argued that the COVID-19 pandemic had hindered it from timely filing its responses. However, Commerce noted that Vestas was using a U.S. based law-firm and that the filings were made by the law firm from the law firm’s U.S. office location. Therefore, the extraordinary COVID-19 impact in India was not affecting Vestas’ ability to timely file.

In the countervailable subsidy rate calculation, Commerce reversed its Preliminary Determination to use AFA to calculate the subsidy rate for Vestas. Commerce stated that for the Final Determination, based on the information it received in lieu of its onsite investigation, Commerce was able to investigate and verify all of the information provided by Vestas and “[agreed] with Vestas that use of facts otherwise available is no longer necessary because all necessary information is on the record.” However, Commerce maintained that AFA was the correct calculation for the other producers/exporters to calculate the countervailable subsidy rate due to a lack of cooperation. Specifically, none of the seven other producers/exporters responded to Commerce’s quantity & value questionnaire; therefore, Commerce held that AFA was the correct calculation because the companies “failed to cooperate to the best of their ability….”

The next step in this process will be for the International Trade Commission (“ITC”) to complete its investigation and make a determination “as to whether the domestic industry in the United States is materially injured, or threatened with material injury.” If the ITC decides that the domestic industry is being harmed, then Commerce will issue AD/CVD Orders and instruct Customs and Border Protection (“CBP”) to implement the duties described above. If the AD/CVD orders are issued, they will remain in force for a period of five years after which there will be a mandatory sunset review to determine the continuation of dumping and/or subsidization. Also, for the next five years, Commerce will continue to conduct annual reviews of the AD/CVD rates on an ongoing basis, which might be an avenue to providing relief for certain manufacturers and exporters.

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