On December 2, 2020, U.S. Customs and Border Protection (CBP) issued an import detention or Withhold Release Order (WRO) against cotton produced by Xinjiang Production and Construction Corps (XPCC) based on information that reasonably indicated XPCC used forced labor within its cotton supply chains. This action comes after CBP issued five WROs in September 2020 on products found to be reliant on state-sponsored forced labor in Xinjiang. The U.S. government has expressed ongoing concern about human rights abuses of the Uyghur minority in this part of China.
On November 12, 2020, President Trump issued an Executive Order (E.O.) prohibiting U.S. persons from engaging in any transaction (defined as a “purchase for value”) of publicly traded securities, or transacting in financial products that are derivative of, or provide investment exposure to, securities of designated Communist Chinese military companies (“Chinese Military Companies”).
The prohibition will enter into effect on January 11, 2021 at 9:30 a.m. Eastern time and currently applies to 31 entities that have been identified on a list of Chinese Military Companies published by the U.S. Department of Defense (DoD). U.S. investors will have until November 11, 2021 at 11:59 p.m. Eastern time to fully divest from any shares or funds involving these 31 companies. Continue reading →
Over the course of the Obama and Trump administrations, U.S. officials have found new ways to incorporate human rights concerns into sanctions and export control policies. Recent announcements by the Commerce and State Departments address how, by the U.S. government in its licensing approvals, and private companies in their foreign-sales decisions, can take into account human rights impacts.
Export Licensing for Dual-Use and Commercial Products
On October 6, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule revising the Export Administration Regulations (EAR) to allow the agency to consider human rights concerns when granting export licenses. Specifically, BIS amended its licensing policy for items controlled for crime control (CC) reasons under 15 CFR §742.7.
The final rule also expands the existing EAR human rights licensing policy. The prior licensing policy provided for case by case review for CC-controlled items “unless there is evidence that the government of the importing country may have violated internationally recognized human rights.” The final rule now would allow BIS to consider the risk that items will be used in violation or abuse of human rights by individuals or entities in addition to the government or the importing country. Further, licensing officers will now review how an item may be used to engage in, or enable, violations or abuses of human rights (not just “internationally recognized” human rights), including through censorship, surveillance, detention, or excessive use of force. Importantly, the new provision also allows the agency to consider such risk for items controlled for reasons beyond CC, covering most items listed on the Commerce Control List (with the exception of items controlled for short supply). The final rule specifically notes the need to examine items controlled for reasons related to certain telecommunications and information security and sensors.
State Department Guidance for Surveillance Tools
Separately, on September 30, 2020, the Department of State released guidance designed to assist U.S. businesses in assessing the risk that surveillance tools exported to foreign government end-users could be used to commit human rights abuses.
The guidance entitled, “U.S. Department of State Guidance on Implementing the UN Guiding Principles for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities,” provides a roadmap for businesses to assess the risk of human rights abuse prior to engaging in a transaction with a foreign government end-user and provides recommended contractual and procedural safeguards should the business proceed with the transaction. The guidelines are non-binding and, according to a statement by a State Department official, they will not be used as a basis for sanctions against foreign governments.
The State Department encourages U.S. businesses to integrate human rights due diligence into compliance programs, including export compliance programs. The following eight recommendations are provided to assist companies seeking to conduct human rights due diligence, screening, and risk mitigation—
- Review the capabilities of the product or service in question to determine potential for misuse to commit human rights violations or abuses by foreign government end-users or private end-users that have close relationships with a foreign government.
- Review the human rights record of the foreign government agency end-user of the country intended to receive the product or service.
- Review, including through in-house or outside counsel, whether the foreign government end-user’s laws, regulations, and policies that implicate products and services with surveillance capabilities are consistent with the Universal Declaration of Human Rights.
- Review stakeholders involved in the transaction (including end-user and intermediaries such as distributors and resellers). Refer to BIS’s Know Your Customer Guidance.
- To the extent possible and as appropriate, tailor the product or service distributed to countries that do not demonstrate respect for human rights and the rule of law to minimize the likelihood that it will be misused to commit or facilitate human rights violations or abuses.
- Prior to sale, strive to mitigate human rights risks through contractual and procedural safeguards and strong grievance mechanisms.
- After sale, strive to mitigate human rights risks through contractual and procedural safeguards and strong grievance mechanisms.
- Publicly report on sales practices (e.g., in annual reports or on websites).
The guidance is designed for U.S. companies that engage in transactions involving sensors, biometric identification, data analytics, internet surveillance tools, non-cooperative location tracking, and recording devices, among other products and services. While the guidance is not designed to address export control licensing, the State Department has suggested that the guidance may be used as a resource during export license reviews in cases that raise a human rights concern.
These two announcements form part of a slow-but-steady growth among U.S. officials looking for ways to use existing trade regulatory tools to recognize human rights considerations. Other examples include recent U.S. Customs withhold release orders (WROs) for certain goods produced from forced or indentured labor in Xinjian, China here; Hong Kong trade treatment in the wake of human rights abuses in that territory here; and Global Magnitsky sanctions designations here.
On October 5, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule that imposes new multilateral controls on six “emerging technologies,” agreed during the December 2019 plenary meeting of the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar Arrangement). These recently developed or developing technologies “essential for the national security of the United States” include forensic hacking tools, surveillance software, sub-orbital craft, and manufacturing tools and technology used to make integrated circuits and semiconductors.
On September 15, 2020, a World Trade Organization (“WTO”) panel found that the Trump Administration’s unilateral tariffs imposed on Chinese products violated WTO rules regarding nondiscrimination and import tariff rates agreed to by the United States. The dispute concerned China’s challenge to the Trump Administration’s tariffs imposed pursuant to the Trump Administration’s investigation under Section 301 of China’s intellectual property and technology transfer practices. Specifically, China challenged USTR List 1 (discussed here) and List 3 (discussed here).
On September 14, 2020, U.S. Customs and Border Protection (CBP) issued five Withhold Release Orders (WROs) for a range of goods produced in the Xinjiang region of China. Under 19 U.S.C. § 1307, CBP can initiate enforcement actions for products made wholly or “in part” by forced or indentured labor—defined as “work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily,” as well as forced or indentured child labor. CBP issues WROs following an investigation if it finds that information “reasonably but not conclusively” indicates that the goods have been made in whole or in part by such forced labor. A WRO prevents the products from being released by CBP into the United States.
On May 15, 2020 the Commerce Department announced an amendment to the direct product rule that further restricts the ability of Huawei Technologies Co., Ltd. and its affiliates on the Entity List, such as HiSilicon (collectively “Huawei”), to receive certain foreign-made semiconductor products.
The Commerce Department also extended the temporary general license (TGL) that authorizes certain dealings with Huawei and its subsidiaries by U.S. persons through August 13, 2020. Statements from the Commerce Department indicate this may be a “final” extension.
On April 28, 2020, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) published two final rules that will eliminate the license exception for civil end users (CIV) in the People’s Republic of China, Russia, and Venezuela and expand military end use and end user restrictions on these countries. These rules confront the national security risks presented by the increasing integration of civilian and military technology development, particularly in China, by requiring U.S. Government review of a broader range of exports including electronics and telecommunications items only controlled for antiterrorism (AT) reasons (with licenses subject to a presumption of denial) when shipped for military end uses or to military end users. These final rules will go into effect on June 29, 2020.
BIS also published a proposed rule that would modify License Exception Additional Permissive Reexports (APR) by restricting the destinations that will be eligible for the license exception. Comments on the proposed rule are also due June 29, 2020. Continue reading →
On Friday, March 20, 2020, in an effort to fight against the coronavirus pandemic, the U.S. Trade Representative (USTR) announced that it is accepting exclusions requests to remove tariffs imposed on Chinese origin medical-care products under Section 301 of the Trade Act of 1974 (Section 301). This process does not replace the current exclusion process, but rather serves to supplement it.
On November 27, 2019, the US Commerce Department published a proposed rule implementing regulations following President Trump’s May 15, 2019 Executive Order 13783 (E.O.) on Securing the Information and Communications Technology and Services (ICTS) Supply Chain. The proposed rule adopts an open-ended, case-by-case review framework by which the Commerce Department will be able to evaluate “transactions” and determine if they are prohibited or must be mitigated due to national security concerns. Reviews would be undertaken by the Commerce Department on its own initiative or via referrals from other U.S. Government agencies or private parties.