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On Friday, May 8, the Senate overwhelmingly approved the Iran Nuclear Agreement Review Act, which would give Congress a role in approving any agreement with Iran concerning its nuclear program. The Senate approved the bill 98-1, with Sen. Tom Cotton (R-AK) the only dissenting vote. The House of Representatives could vote on the legislation as early as this week.

As discussed in a previous post, on April 2, 2015 representatives of the United States, Great Britain, France, Germany, China and Russia (collectively, the “P5+1” countries) announced that they had agreed with Iran on the Parameters for a Joint Comprehensive Plan of Action. The parties now have until June 30, 2015 to reach a final agreement. One of the major open issues is what sanctions on Iran would be removed and when. Complicating this negotiation, especially following passage of the Iran Nuclear Agreement Review Act, is President Obama’s authority to lift U.S. sanctions on his own authority.

Under the legislation passed by the Senate, Congress would have 30 days to review the agreement and the proposed sanctions relief plan (longer under certain circumstances). Congress may then enact a joint resolution in favor of the agreement, enact a joint resolution opposing the agreement, or take no action. If Congress approves the agreement or takes no action, the President may then grant sanctions relief in line with the authority that currently exists under relevant statutes. If Congress votes to disapprove of the agreement, the President can veto the joint resolution and, if Congress fails to override the veto, he can still move forward with sanctions relief. However, if that veto is overridden by a 2/3 vote of both houses of Congress, then the President would be prohibited from lifting sanctions. Continue reading →

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The Office of Foreign Assets Control (OFAC) granted specific licenses to operate passenger/cargo ferries from the United States to Cuba earlier this week. Havana Ferry Partners LLC announced on its Facebook page on May 5, 2015 that it had received approval from both OFAC and the Commerce Department’s Bureau of Industry and Security (BIS) to conduct ferry operations from four South Florida ports to Havana, Cuba. Reportedly, several other companies received similar approvals.

Under the Cuban Assets Control Regulations, persons subject to U.S. jurisdiction are authorized to provide carrier services via aircraft to persons authorized to travel to Cuba pursuant to a general license. This means that any person can provide these services, provided that they meet the requirements outlined in the regulations, with no approval necessary. Transportation of authorized travelers by vessels, however, requires a U.S. person to apply for and receive a specific license from OFAC. Accordingly, the vessel operators had to obtain licenses from OFAC.

In addition, under the Export Administration Regulations, a license from BIS is needed for a vessel to travel to Cuba, even though the visits will be temporary.

The ferries will only be able to carry passengers that are authorized by one of the twelve general licenses for travel to Cuba (e.g., professional research/meetings, religious and educational purposes, etc.) or by a specific license. Travel to Cuba for tourism purposes is still not authorized.

The ferry operators will also need to obtain approval from Cuba for the operations to commence.

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Japanese Prime Minister Shinzo Abe’s visit last week to the United States was a huge success. Through the visit, President Obama and the Prime Minister affirmed the importance of the Trans-Pacific Partnership (TPP) as a trade agreement, but also as a strategic security tool for the Asia Pacific region. The Prime Minister also made his mark as the first Japanese prime minister to address a joint meeting of Congress.

Unfortunately for TPP supporters, opposition forces in Congress have taken the wind out of the sails of the Prime Minister’s successful state visit.  Controversy continues to brew in Congress over the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, legislation to grant the President Trade Promotion Authority (TPA) to negotiate international deals that Congress can approve or disapprove, but which Congress cannot filibuster or amend.  TPA is seen as essential to completing a treaty like TPP which is being negotiated with 12 countries. Continue reading →

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The 17th EU-Ukraine summit took place in Kyiv, Ukraine on 27 April 2015, being the first summit taking place under the framework of the Association Agreement, the treaty between the EU and Ukraine that establishes a political and economic association between the parties.

The summit was an opportunity for the EU and Ukraine to discuss: (i) the implementation of the Association Agreement and the political and economic reforms in Ukraine including EU financial and other assistance; (ii) the crisis in Eastern Ukraine and the application of the Minsk agreements; and (iii) regional issues and the preparations for the upcoming Eastern Partnership summit in Riga.

During the summit, EU and Ukrainian leaders are reported to have agreed that the full implementation of the Minsk agreements, the ceasefire deal struck between Ukraine and pro-Russian rebels, remains the best chance to move towards a political solution, taking note of the European Council Conclusions of 19 March 2015 which called both for the swift and full implementation of the Minsk agreements, and for the duration of the restrictive measures against Russia to be linked to such implementation.

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It has been reported that Russia has proposed the sale of S-300 surface-to-air missile defense systems to Iran. According to the Russian News Agency TASS, Russian Foreign Minister Sergey Lavrov said that Russia’s previous voluntary embargo of sales of military equipment to Iran is no longer needed due to the progress in the negotiations regarding Iran’s nuclear program.

On May 1, 2015, Ed Royce (R-Calif.), the Chairman of the House Foreign Affairs Committee, and ranking member Eliot Engel (D-N.Y.) sent a letter to President Obama stating that the White House should consider using sanctions to deter the delivery of the missile defense system to Iran. The letter calls on the President to determine whether the proposed sale would advance Iran’s efforts to acquire or develop destabilizing numbers and types of advanced conventional weapons.

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Major new free trade agreements are on the horizon. For the past several years, the Obama Administration has been negotiating two new major free trade agreements: the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Partnership Agreement (TTIP). Because of divisions within the Democratic Party regarding trade agreements, previously it was uncertain whether the President could garner the support necessary to obtain Congressional approval. With both Houses of Congress now controlled by the Republican Party—which historically has supported trade agreements—the prospects for ultimate approval have significantly improved. Action on the TPP in particular is possible during 2015.

Trans-Pacific Partnership

Most of the existing U.S. free trade agreements have only two parties—the United States and one foreign country. (Exceptions are the NAFTA, with Canada and Mexico, and the CAFTA, with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.) There are currently 12 countries negotiating the TPP: the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. Of these, the United States already has free trade agreements with all except Japan, Malaysia, New Zealand and Vietnam.

Although there are extensive multilateral obligations to reduce or eliminate trade barriers contained in the World Trade Organization (WTO) agreements, free trade agreements go further. Such agreements require the complete elimination of customs duties (usually phased out over time), and also contain commitments relating to trade in services, government procurement, protection of intellectual property, and a wide range of other subjects. Adding Japan, Malaysia, New Zealand and Vietnam to the list of countries that have made free trade commitments to the United States will create new market opportunities for many industries.

To be eligible to benefit from preferential tariff commitments, exporters and importers must be able to verify that a product complies with the applicable “rule of origin” for that product. Rules of origin ensure that sufficient value is added in a member country so that products of a non-member cannot benefit simply by undergoing minimal processing in a member country. The TPP is expected to contain a “cumulation” provision that will allow content from any of the 12 member countries to be counted toward satisfaction of the rules of origin. This provision will create more flexibility for component sourcing and manufacturing arrangements.

The TPP is also expected to include enhanced obligations in a number of areas, for example with respect to disciplines on government support (e.g., subsidies) to state-owned enterprises, and the elimination of barriers to the provision of services by foreign companies in certain sectors.

Although a number of difficult issues remain to be resolved in the negotiations, significant progress has been made on the text. The prospect of potential receptivity by the U.S. Congress has created new momentum to complete the negotiations, and an effort is being made to reach agreement on the toughest subjects in the very near future.

Trans-Atlantic Trade and Partnership Agreement

TTIP is a proposed free trade agreement between the United States and European Union, on behalf of its 28 member states. Average tariffs on goods between the two trading partners are already low at 3%, and a major portion of bilateral trade is not subject to any duties. However some sectors still have relatively high customs duties, particularly the agricultural sector.

As with the TPP, the TTIP negotiating agenda is ambitious and goes beyond reducing customs duties. The United States and the European Union hope to deepen economic integration by streamlining customs rules and procedures, increasing liberalization of trade in services, expanding participating in government procurement contracts, and coordinating approaches for issues of global concern such as protection of intellectual property. A major goal is to increase regulatory coherence by promoting transparency, participation and accountability in the development of regulations concerning standards for products.

Trade Promotion Authority Legislation

The procedures under which the Administration negotiates and submits trade agreement are complex. Normally, Congress authorizes the negotiations through the enactment of Trade Promotion Authority (TPA) legislation. TPA allows the President to negotiate trade agreements under certain parameters, including requirements to consult with certain Congressional committees during the negotiations, and to incorporate certain goals, priorities and objectives into the trade agreements. If all of the substantive and procedural requirements are met, a trade agreement can be submitted by the President to Congress simultaneously with implementing legislation, and Congress is required to act within strict time deadlines to either approve or disapprove the entire agreement, without the ability to introduce amendments. Absent this procedure, foreign governments would be reluctant to make concessions, knowing that the Congress could override commitments of the U.S. government and reopen the negotiations.

The President’s TPA authority actually expired in 2007. Nonetheless, the Administration has carried out the TPP negotiations as though TPA were in place, in the expectation that Congress would at some point reenact TPA with largely the same substantive and procedural requirements.

Last week the House Ways and Means Committee and the Senate Finance Committee both reported out draft TPA legislation, and the full House and Senate are expected to take up the legislation for debate and a votes within the next few weeks.

These are noteworthy developments and the result of bipartisan consensus from leaders in the House and Senate. However, trade agreements remain politically controversial. We expect opponents from both political parties to propose amendments designed to force the Administration to stop the TPP and TTIP negotiations. To overcome a potential filibuster and pass the full Senate, the legislation also will need to garner all Republican votes and at least six votes from Democrats to achieve a 60-vote margin.

Achieving this goal will require Senator Ron Wyden (D-OR), Ranking Member of the Senate Finance Committee, and and other Democrats to continue to work closely with the President’s trade leadership team, which is intent on advancing TPP and TTIP as legacy issues for President Obama. Given the strong levels of bipartisan engagement among key leaders at this time, the prospects for ultimate approval are relatively strong.

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Tuesday, the Chairman of the House Appropriations Subcommittee on Transportation released the FY 2016 Department of Transportation, Housing and Urban Development appropriations bill which will be considered by the subcommittee tomorrow.  The legislation includes provisions which would, in essence, bar the U.S. government from recertifying any airline or cruise line if it were to include travel to Cuba.  This is one of the first attempts we have seen in Congress to try to counter President Obama’s efforts to normalize relations with Cuba.

The Cuba-related language was supported by the Chairman of the Transportation Appropriations Subcommittee, Congressman Mario Diaz-Balart (R-FL), who is a Cuban American and who strongly opposes normalization of relations between the U.S. and Cuba.

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On April 2, 2015 representatives of the United States, Britain, France, Germany, China and Russia (collectively, the “P5+1” countries) announced that they had agreed with the Islamic Republic of Iran on the Parameters for a Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program (the “Parameters” or “Framework Agreement”). The Parameters establish a comprehensive framework regarding Iran’s nuclear energy industry and capabilities. The parties have not yet drafted the text of the final agreement and will continue to negotiate implementation details, probably until the June 30, 2015 deadline (with some indications that the deadline could be extended). Meanwhile, U.S., EU and UN sanctions will remain in place until Iran demonstrates verifiable compliance with the key terms of the agreement.

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Japanese companies may face major questions about Iran after June 2015. At that time, significant new opportunities could open in one of the world’s largest undeveloped economies and energy reserves, or the door could remain shut and more severe sanctions policies could impact existing business. It is important to plan ahead to ensure any activities are undertaken in compliance with sanctions requirements. Here is what you need to know.

The P5 + 1 countries and Iran have a self-imposed deadline to reach a framework for a final nuclear agreement by the end of March 2015. The negotiating period for the current interim nuclear accord expires on June 30, 2015. This marks a crucial pivot point:

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OFAC removal of 45 parties from the list of Specially Designated Nationals deserves attention.

On March 24, 2015, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the removal of 45 parties from the list of Specially Designated Nationals (SDN List). All had previously been designated in relation to U.S. Cuba sanctions. On closer review, it appears that none of these removals are particularly important or newsworthy—dead persons, dissolved companies, sunken ships and so on. U.S. officials reported to media sources that this was a routine exercise in cleaning up out-of-date sanctions listings.

So why the fuss? Under U.S. Cuba sanctions, in addition to the broad embargo, there is a lengthy list of SDNs. This includes a number of major companies, key individuals and vessels. This can present another obstacle in Cuba in areas where sanctions are relaxed (even where activities are newly permitted, SDNs remain off limits normally). Thus, both companies interested in Cuba and the sanctioned parties themselves are watching for any signals that the Obama administration will update the SDN List as part of its Cuba sanctions reforms.

What should we expect? Based on past practice, it is likely that the U.S. government will be slow and deliberate in removing parties from the SDN List. Removal is an important carrot, and U.S. officials will likely seek changes in behavior and specific actions in advance of de-listing (reparations, privatization, remedying human rights practices, distancing from the regime and so on depending on the party). This is the approach that the U.S. has taken with SDNs in Myanmar/Burma as sanctions reform has proceeded in that market.

How do sanctioned parties come off the SDN List? There are two paths:

First, the U.S. government can remove the party on its own initiative—this is an area of executive discretion and the President or OFAC can take action without the need for any process or Congressional action in most cases.

Second, sanctioned parties can seek removal under a formal procedure for de-listing conducted by OFAC under 31 C.F.R. § 501.807. Under the procedure, the SDNs “provide arguments and evidence as to why “insufficient basis exists for the designation” and may “propose remedial steps … such as corporate reorganization, resignation of persons from positions in a blocked entity, or similar steps, which the person believes would negate the basis for designation.” The precedents are few, and there is no set time limit for the process. However, OFAC has de-listed SDNs in the past based on formal requests under § 501.807.

Where the revised Cuba sanctions permit activities or trade, it will be important for companies and individuals to be vigilant for SDN involvement. However, should a situation arise where an SDN is the only, or most capable, partner for a U.S. company, that company can reach out to counsel in Washington, D.C., to discuss the potential for de-listing. There are paths to engage with U.S. policy makers to gauge the prospects for a given party, and the SDN can petition for removal. U.S. officials also may consider licenses to authorize specific business with SDNs. The involvement of U.S. companies can make a significant difference in the U.S. response versus an SDN approaching on its own. However, persons subject to U.S. jurisdiction should be careful not to transact with or facilitate on behalf of any SDN. This requires careful compliance planning.

Given the above, expect those interested in Cuba to continue to carefully watch any changes to the SDN List for clues to U.S. policy, even if it only turns out to be a defunct company or sunken ship.

The following deletions have been made to OFAC’s SDN List:

ABASTECEDORA NAVAL Y INDUSTRIAL, S.A. (a.k.a. ANAINSA), Panama [CUBA].
ANAINSA (a.k.a. ABASTECEDORA NAVAL Y INDUSTRIAL, S.A.), Panama [CUBA].
ABDELNUR, Nury de Jesus, Panama (individual) [CUBA].
AGENCIA DE VIAJES GUAMA (a.k.a. GUAMA TOUR; a.k.a. GUAMATUR, S.A.; a.k.a. VIAJES GUAMA TOURS), Bal Harbour Shopping Center, Via Italia, Panama City, Panama [CUBA].
VIAJES GUAMA TOURS (a.k.a. AGENCIA DE VIAJES GUAMA; a.k.a. GUAMA TOUR; a.k.a. GUAMATUR, S.A.), Bal Harbour Shopping Center, Via Italia, Panama City, Panama [CUBA].
GUAMATUR, S.A. (a.k.a. AGENCIA DE VIAJES GUAMA; a.k.a. GUAMA TOUR; a.k.a. VIAJES GUAMA TOURS), Bal Harbour Shopping Center, Via Italia, Panama City, Panama [CUBA].
GUAMA TOUR (a.k.a. AGENCIA DE VIAJES GUAMA; a.k.a. GUAMATUR, S.A.; a.k.a. VIAJES GUAMA TOURS), Bal Harbour Shopping Center, Via Italia, Panama City, Panama [CUBA].
ALEGRIA DE PIO (Naviera Maritima de Arosa, Spain) (vessel) [CUBA].
AVALON, S.A., Colon Free Zone, Panama [CUBA].
BEWELL CORPORATION, INC., Panama [CUBA].
CARBONICA, S.A., Panama [CUBA].
CARIBBEAN HAPPY LINES (a.k.a. CARIBBEAN HAPPY LINES CO.), Panama [CUBA].
CARIBBEAN HAPPY LINES CO. (a.k.a. CARIBBEAN HAPPY LINES), Panama [CUBA].
CARIBSUGAR, S.A., Panama [CUBA].
CARISUB, S.A., Panama [CUBA].
CASTELL VALDEZ, Osvaldo Antonio, Panama (individual) [CUBA].
CHAMET IMPORT, S.A., Panama [CUBA].
COMPANIA PESQUERA INTERNACIONAL, S.A., Panama [CUBA].
DELGADO ARSENIO, Antonio, Panama (individual) [CUBA].
DUQUE, Carlos Jaen, Panama (individual) [CUBA].
FAMESA INTERNATIONAL, S.A., Panama [CUBA].
GLOBAL MARINE OVERSEAS, INC., Panama [CUBA].
HERMANN SHIPPING CORP., INC., Panama [CUBA].
HYALITE (Whiteswan Shipping Co., Ltd., Cyprus) (vessel) [CUBA].
INVERSIONES LUPAMAR, S.A. (a.k.a. LUPAMAR INVESTMENT COMPANY), Panama [CUBA].
LUPAMAR INVESTMENT COMPANY (a.k.a. INVERSIONES LUPAMAR, S.A.), Panama [CUBA].
KOL INVESTMENTS, INC., Miami, FL, United States [CUBA].
LOUTH HOLDINGS, S.A., Panama [CUBA].
PADRON TRUJILLO, Amado, Panama (individual) [CUBA].
PESCADOS Y MARISCOS DE PANAMA, S.A. (a.k.a. PESMAR S.A.; a.k.a. PEZMAR S.A.), Panama City, Panama [CUBA].
PESMAR S.A. (a.k.a. PESCADOS Y MARISCOS DE PANAMA, S.A.; a.k.a. PEZMAR S.A.), Panama City, Panama [CUBA].
PEZMAR S.A. (a.k.a. PESCADOS Y MARISCOS DE PANAMA, S.A.; a.k.a. PESMAR S.A.), Panama City, Panama [CUBA].
PIRAMIDE INTERNATIONAL, Panama [CUBA].
RADIO SERVICE, S.A., Panama [CUBA].
RECICLAJE INDUSTRIAL, S.A., Panama [CUBA].
ROSE ISLANDS (Shipley Shipping Corp., Panama) (vessel) [CUBA].
SIBONEY INTERNACIONAL, S.A., Edificio Balmoral, 82 Via Argentina, Panama City, Panama; Venezuela [CUBA].
STERN, Alfred Kaufman, Prague, Czech Republic (individual) [CUBA].
TALLER DE REPARACIONES NAVALES, S.A. (a.k.a. TARENA, S.A.), Panama City, Panama [CUBA].
TARENA, S.A. (a.k.a. TALLER DE REPARACIONES NAVALES, S.A.), Panama City, Panama [CUBA].
TECHNIC DIGEMEX CORP., Calle 34 No. 4-50, Office 301, Panama City, Panama [CUBA].
TEMIS SHIPPING CO., Panama [CUBA].
TRAVEL SERVICES, INC., Hialeah, FL, United States [CUBA].
TREVISO TRADING CORPORATION, Edificio Banco de Boston, Panama City, Panama [CUBA].
HEYWOOD NAVIGATION CORPORATION, c/o MELFI MARINE CORPORATION S.A., Oficina 7, Edificio Senorial, Calle 50, Apartado 31, Panama City 5, Panama [CUBA].
POCHO NAVIGATION CO. LTD., c/o EMPRESA DE NAVEGACION MAMBISA, Apartado 543, San Ignacio 104, Havana, Cuba [CUBA].
BROTHERS (f.k.a. TULIP ISLANDS) (C4QK) Bulk Carrier 25,573DWT 16,605GRT Cyprus flag (Ciflare Shipping Co. Ltd.) (vessel) [CUBA].
TULIP ISLANDS (a.k.a. BROTHERS) (C4QK) Bulk Carrier 25,573DWT 16,605GRT Cyprus flag (Ciflare Shipping Co. Ltd.) (vessel) [CUBA].
CARIBBEAN SALVOR (9H2275) Tug 669DWT 856GRT Malta flag (Compania Navegacion Golfo S.A.) (vessel) [CUBA].
HARNMAN H (f.k.a. PEONY ISLANDS) (5BXH) Bulk Cargo 26,400DWT 15,864GRT Cyprus flag (PEONY SHIPPING CO. LTD. (SDN)) (vessel) [CUBA].
PEONY ISLANDS (a.k.a. HARNMAN H) (5BXH) Bulk Cargo 26,400DWT 15,864GRT Cyprus flag (PEONY SHIPPING CO. LTD. (SDN)) (vessel) [CUBA].
NEW GROVE (f.k.a. KASPAR) (P3QJ3) General Cargo 1,909DWT 754GRT Cyprus flag (Oakgrove Shipping Co. Ltd.) (vessel) [CUBA].
KASPAR (a.k.a. NEW GROVE) (P3QJ3) General Cargo 1,909DWT 754GRT Cyprus flag (Oakgrove Shipping Co. Ltd.) (vessel) [CUBA].
PINECONE (f.k.a. GRETE) (P3QH3) General Cargo 1,941DWT 753GRT Cyprus flag (Pinecone Shipping Co. Ltd.) (vessel) [CUBA].
GRETE (a.k.a. PINECONE) (P3QH3) General Cargo 1,941DWT 753GRT Cyprus flag (Pinecone Shipping Co. Ltd.) (vessel) [CUBA].
RAVENS (9H2485) General Cargo 2,468DWT 1,586GRT Malta flag (ATAMALLO SHIPPING CO. LTD. (a.k.a. ANTAMALLO SHIPPING CO. LTD.) (SDN)) (vessel) [CUBA].
TEPHYS (f.k.a. PAMIT C) (H2RZ) General Cargo 15,123DWT 8,935GRT Cyprus flag (Tephys Shipping Co. Ltd.) (vessel) [CUBA].
PAMIT C (a.k.a. TEPHYS) (H2RZ) General Cargo 15,123DWT 8,935GRT Cyprus flag (Tephys Shipping Co. Ltd.) (vessel) [CUBA].
WEST ISLANDS (C4IB) General Cargo 15,136DWT 9,112GRT Cyprus flag (WEST ISLAND SHIPPING CO. LTD. (SDN)) (vessel) [CUBA].