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On August 8, 2018, the State Department announced that it had concluded that Russia was responsible for poisoning former double agent Sergei Skripal and his daughter Yulia using the nerve agent Novichok and that it had sent a report to Congress pursuant to the Chemical and Biological Warfare Weapons Elimination Act of 1991.

The statute requires the President to report to Congress when there has been a determination that another country has used chemicals weapons.  Thereafter, the statute requires the President to impose a number of sanctions relating to (i) foreign assistance, (ii) arms sales, (iii) arms sales financing, (iv) denial of US credit assistance (e.g., Export-Import Bank loans) and (v) a prohibition on exports of any controlled goods.

The scope and application of the sanctions will be detailed in a Federal Register notice to be published on or around August 22, 2018.  A State Department spokesperson provided a preview at an August 8 briefing.

Policy of Denial for National Security Controlled Products and Technology

The most significant of the sanctions will be the establishment of a policy of denial for license applications to export to Russia products or technology subject to National Security (“NS”) controls pursuant to the Export Administration Regulations administered by the Department of Commerce.  These license applications are currently subject to case-by-case review.

Importantly, the denial policy will only apply to products and technology that are currently subject to NS controls.  The sanctions will not impose NS controls on new items.  In addition, the sanctions will not affect the availability of license exceptions.

Carve-outs

The State Department spokesperson announcing the sanctions indicated that there would be carve-outs for a number of categories of transactions, including: the (i) provision of foreign assistance to Russia and the Russian people, (ii) space flight activities, (iii) commercial passenger aviation (flight safety), and (iv) exports for purely commercial end users for civilian end uses.

The license denial policy could potentially affect a broad range of products and technology, including aero gas turbine engines, electronic devices and components, integrated circuits, and test and calibration equipment.  However, the carve-out for exports to “purely commercial end users for civilian end uses” could largely vitiate its impact, making the sanction more of a symbolic gesture.

Deemed Exports

It appears that the license denial policy for NS controlled technology will not apply to deemed export licenses for Russian nationals employed by firms in the United States.  This leaves open the question of whether it will apply to Russian nationals working for non-US companies, although it appears that the denial policy will not apply to exports to wholly owned subsidiaries of U.S. or foreign companies in Russia.

Possibility of Further Sanctions

If Russia does not provide assurances concerning the future use of chemical weapons within three months, the CBW Act will trigger another set of mandatory sanctions against Russia.  These sanctions include three of the following five: (i) opposition to multilateral development bank loans, (ii) prohibition on loans by US banks to Russia (except for loans or credits to purchase food or agricultural commodities), (iii) further export restrictions (except for food and agricultural commodities), (iv) import restrictions of items from Russia; or (v) downgrading or suspending diplomatic relations.

 

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On August 13, 2018, President Trump formally signed the 2019 National Defense Authorization Act, signaling a number of substantial changes on the horizon for government contractors and foreign investors in the United States. In “President Trump Signs FY 2019 NDAA,” our colleagues Richard B. Oliver, Glenn Sweatt, Alexander B. Ginsberg and Kevin Massoudi offer a roundup of Pillsbury’s coverage of the key issues.

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On August 6, 2018, the Treasury Department’s Office of Foreign Assets Control (OFAC) released a new Executive Order to implement the previously announced re-imposition of U.S. sanctions for Iran. There were no major surprises, with the Executive Order paralleling the guidance released on May 8, 2018 when the President announced his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA) and to begin re-imposing the U.S. nuclear-related sanctions that had been lifted, following a wind-down period.

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House and Senate negotiators have agreed on proposed reforms to the Committee on Foreign Investment in the United States (CFIUS) foreign investment review process, which has been added as Title XVII of the FY2019 National Defense Authorization Act (NDAA). The final bill makes a number of changes intended to improve the efficiency of national security reviews and investigations, although a significant increase in staff and funding will be required in order to handle the increased caseload. Importantly, outbound technology transfers in the context of joint ventures and other collaborative arrangements will not be added to the “covered transaction” definition, but will instead be addressed by U.S. export controls.

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  • June 15, 2018 – U.S. proposes an additional 25 percent ad valorem duty on products from China (818 tariff categories) with an annual trade value of approximately $34 billion. The $34 billion action became effective on July 6, 2018. (See our previous blog here)
  • June 15, 2018 – U.S. also proposes an additional 25 percent ad valorem duty on products from China (284 tariff categories) with annual trade value of approximately $16 billion. The $16 billion action is undergoing public comment.
  • June 15, 2018 – China retaliates imposing an additional 25 percent tariff on U.S. goods with a value of $50 billion. Part of this action ($34 billion) became effective on July 6, 2018. The additional $16 billion will be effective on a date to be determined.
  • July 11, 2018 – U.S. proposes an additional 10 percent ad valorem duty on products of China with an annual trade value of $200 billion.

***

On July 11, 2018, the Office of the United States Trade Representative (“USTR”) proposed an additional 10 percent ad valorem duty on products of China with an annual trade value of $200 billion.  President Trump directed this action in connection with the Section 301 investigation into China’s acts, policies and practices related to intellectual property (discussed here and here).

According to USTR, President Trump directed this action in response to China’s decision to impose retaliatory tariffs on U.S. goods following the initial round of 25% tariff increases on Chinese goods covering $50 billion in trade value, $16 billion of which is currently proposed (discussed here).  According to the USTR, “China has shown that it will not respond to action at a $50 billion level” and “supplemental action at a $200 billion level is in accord with the President’s direction.”

The proposed tariffs cover 6,031 tariff subheadings and a wide variety of products, including food, chemical, mineral, electrical products; fertilizers; photographic goods; plastic, rubber, leather, cork, and wood articles; paper and paperboard; textile articles; headgear; stone, ceramic and glass articles; base metals; various types of machinery and appliances; electrical equipment; vehicles; ships; clocks; and furniture.

USTR will finalize the list following a public notice and comment process, including a hearing.  USTR has requested comments on:

  • Whether tariff subheadings included in the list should be retained or removed, or whether subheadings not currently on the list should be added;
    • In comments advocating for the removal of products from the list, commentators address whether imposing increased duties on a particular product would: 1) be practicable or effective to obtain the elimination of China’s acts, policies, and practices identified by USTR to be in violation of Section 301 (discussed in our blog post here); and 2) cause disproportionate economic harm to U.S. interests, including small- or medium-sized businesses and consumers.
  • The level of the increase, if any, in the rate of duty;
  • The appropriate aggregate level of trade to be covered by additional duties.

The relevant dates for the proceedings are as follows:

  • July 27: Requests to appear and a summary of expected testimony
  • August 17: Written comments
  • August 20-23: Public Hearing
  • August 30: Post-hearing rebuttal comments

 

 

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Recently, the U.S. Senate overwhelmingly passed the 2019 National Defense Authorization Act, H.R. 5515 (NDAA). The Senate version contains several differences from the NDAA as passed by the House, and these discrepancies must now be resolved through a joint conference committee. Notably, the Senate attached to the NDAA its proposed Foreign Investment Risk Review Modernization Act (FIRRMA), which would update and alter the CFIUS review process. The House had not attached its CFIUS reform bill, H.R. 5841, but recently passed this bill as a standalone piece of legislation. Both bills would expand CFIUS jurisdiction to include certain types of non-controlling investments, affecting foreign investors in U.S. businesses. However, impacts would vary depending on whether the investor is from a country of special concern or an allied nation.

While there are also commonalities, important differences between the Senate and House proposed CFIUS reform legislation are described below.

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Following President Trump’s direction in connection with the Section 301 investigation into China’s acts, policies and practices related to intellectual property (discussed here), on June 15, 2018, the Office of U.S. Trade Representative (USTR) announced a 25% tariff increase on Chinese products valued at approximately $34 billion in 2018 trade values, with more tariff increases to come. Below, we describe USTR’s action and China’s response.

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Background
On 23 May 2018, the Sanctions and Anti-Money Laundering Act became law in the United Kingdom. Its aim is to provide a legal framework to allow the UK to impose sanctions and implement its own sanctions regime once the UK leaves the EU on 29 March 2019. However, the Bill goes well beyond any current EU sanctions regime and provides scope for the Government to shape an autonomous UK sanctions policy.

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On May 23, 2018, as directed by President Trump, the Secretary of Commerce initiated a Section 232 investigation into whether imports of automobiles, including SUVs, vans, light trucks and automotive parts, threaten to impair national security. President Trump reportedly is contemplating tariffs as high as 25% on automobile imports, similar to the tariff imposed a result of its recent 232 action on steel imports.

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Long awaited rules for “Customer Due Diligence Requirements for Financial Institutions” (the CDD Rules) went into effect on May 11, 2018. FinCEN has taken steps to clarify and refine implementation of the CDD Rules, issuing (1) FAQs on April 3, 2018 and (2) a ruling on May 16, 2018 providing covered financial institutions with a limited 90-day exceptive relief from the obligations for financial products and services that are subject to automatic renewals, provided such products were established before May 11, 2018.

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