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.
On September 1, a new round of Section 301 duties will be imposed on “List 4” products. President Trump previously announced plans for these duties, but had delayed implementation in June citing progress on the negotiations with China leading up to the G20 summit. Reportedly, however, the recently resumed talks have not led to the progress desired by the Administration. In his series of tweets announcing the 10 percent tariff, President Trump stated that China had failed to purchase increased quantities of U.S. agricultural goods and reduce the flow of fentanyl into the United States.
Recent comments from Bureau of Industry (BIS) officials at the BIS Update indicate the U.S. Government is progressing towards more detailed proposed rules with respect to both “emerging” and “foundational” technologies that will become subject to future export controls. This required rulemaking is part of an interagency effort mandated by the Export Control Reform Act (ECRA) of 2018.
As trade relations with China continue to evolve, Huawei Technologies Co., Ltd. (“Huawei”) and its foreign affiliates remain subject to broad U.S. export license requirements. However, President Trump’s statements at the G20 Summit on the relaxation of restrictions on Huawei were followed by recent senior administration officials’ announcements, including Commerce Secretary Wilbur Ross, that export licenses may be possible where the proposed transaction does not implicate U.S. national security.
The U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) maintains the Entity List, which is comprised of individuals and entities subject to U.S. export licensing requirements for exports, re-exports and in-country transfers of items subject to the Commerce Department’s export control jurisdiction. On May 16, 2019, BIS added Huawei and 68 affiliates to the Entity List, creating a license requirement for all items subject to the Export Administration Regulations (“EAR”). This designation means that licenses are required for all exports and re-exports to Huawei of U.S.-origin goods, including “EAR99” items that are not identified on the Commerce Department’s dual-use Commerce Control List (“CCL”). “Items subject to the EAR” can also include non-U.S. made items in certain circumstances, such as where they contain more than a de minimis amount of controlled U.S.-origin content, or are a “direct product” of certain controlled U.S.-origin technology. The official licensing policy for exports to Huawei is a “presumption of denial.”
BIS subsequently issued a Temporary General License authorizing a narrow subset of transactions through August 19, 2019. Temporarily authorized transactions include those relating to:
- Continued operation of existing networks and equipment: Transactions necessary to maintain and support existing and currently fully operational networks and equipment, including software updates and patches, subject to legally binding contracts and agreements executed between Huawei on or before May 16, 2019.
- Support to existing handsets: Transactions necessary to provide service and support, including software updates or patches, to existing models of Huawei handsets that were available to the public on or before May 16, 2019.
- Cybersecurity research and vulnerability disclosure: The disclosure to Huawei of information regarding security vulnerabilities in items owned, possessed, or controlled by Huawei when related to the process of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently fully operational networks and equipment, as well as handsets.
- Engagement as necessary for development of 5G standards by a duly recognized standards body: Transactions necessary for the development of 5G standards as part of a duly recognized international standards body. U.S. and non-U.S. companies dealing in items subject to the EAR should be aware that Huawei is still on the Entity List and remains subject to broad export licensing requirements. The Temporary General License authorizes certain limited exports to Huawei until August 19, 2019, and could signal the types of activities that would be viewed favorably in a license request. For activities outside the scope of the Temporary General License, exporters may consider submitting license applications for exports to Huawei or its supply chain where they believe the U.S. government would not have national security concerns.
Since its designation, interested U.S. and non-U.S. parties have questioned whether Huawei’s Entity List designation will remain permanent. President Trump made statements that the U.S. would lift some of the restrictions on Huawei following a meeting with Chinese President Xi Jinping to reengage the stalled China-U.S. trade talks. On July 9, 2019, Commerce Secretary Wilbur Ross indicated that Huawei will remain on the Entity List with the same export licensing requirements. In other words, exports to Huawei of any items subject to the EAR (including EAR99 items) will continue to require a license subject to an official policy of a “presumption of denial.” However, Secretary Ross left open the possibility that BIS may grant licenses where the proposed exports do not threaten national security. He further stated: “Within those confines we will try to make sure that we don’t just transfer revenue from the U.S. to foreign firms.” BIS has not released any official guidance announcing any specific criteria that would need to be met in order to obtain a license.
U.S. and non-U.S. companies dealing in items subject to the EAR should be aware that Huawei is still on the Entity List and remains subject to broad export licensing requirements. The Temporary General License authorizes certain limited exports to Huawei until August 19, 2019, and could signal the types of activities that would be viewed favorably in a license request. For activities outside the scope of the Temporary General License, exporters may consider submitting license applications for exports to Huawei or its supply chain where they believe the U.S. government would not have national security concerns.
On May 21, the Office of the United States Trade Representative (USTR) established a process through which U.S. stakeholders may exclude products included in List 3 from a 25% tariff imposed pursuant to the investigation of China’s intellectual property practices under Section 301 of the Trade Act of 1974 (“Section 301”) (discussed here). The window to submit exclusion requests will open “on or around” June 30.
Further to our prior blog post, on May 13, 2019, at the direction of President Trump, the Office of U.S. Trade Representative (USTR) published a proposed tariff list covering approximately $300 billion worth of Chinese imports to be subject to higher duties pursuant to the determinations previously made under Section 301. USTR explained that the United States and China have been engaged in negotiations on a range of issues, including, among others, forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. According to USTR, shortly in advance of the last scheduled round of negotiations, , China “retreated from specific commitments made in previous rounds”, prompting the United States to propose a fourth list of products subject to additional duties (see here and here for a discussion regarding Lists 1, 2, and 3).
On May 9, 2019, the Office of the United States Trade Representative (USTR) issued a Federal Notice indicating that tariffs on $200 billion worth of Chinese imports would be increased from 10% to 25%. These products are included in the third set of tariff categories (the first two sets are discussed here) announced by USTR in connection with the investigation under Section 301 of the Trade Act of 1974 into China’s acts, policies, and practices related to intellectual property (discussed here). The increase will go into effect on May 10, 2019 at 12:01 am eastern daylight time. Over the weekend, President Trump also threatened a 25% tariff will “shortly” be imposed on the remaining $325 billion worth of imports not currently subject to tariffs. For the prior three sets of Section 301 duties, there were proposed regulations with opportunity for public comment, and it seems likely that USTR would follow the same approach if there will be a fourth set.
On February 4, 2019, U.S. Customs and Border Protection (CBP) issued a withhold release order (WRO) against tuna and tuna products from the Tunango No. 61, a Taiwanese vessel, based on information obtained by CBP that indicated that tuna is harvested with the use of forced labor. The order will detain the entry of tuna and any such merchandise manufactured wholly or in part by the Taiwanese vessel at all U.S. ports. In the accompanying statement, CBP stated that importers of detailed shipments will have the opportunity to “export their shipments or demonstrate that the merchandise was not produced with forced labor.” This WRO is the most recent action resulting from CBP’s renewed focus on enforcement of the U.S. ban on imports of forced labor under Section 307 of the Tariff Act of 1930, and the first issued against a fishing vessel.
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.
There are several legislative proposals pending in Congress targeting trade and investment involving China. If enacted, the proposals would prevent Chinese entities from acquiring certain U.S. technologies, prohibit U.S. government procurement from ZTE and Huawei, and limit U.S. issuers from receiving investments from Chinese parties.