McGinnis Lochridge International Trade and Transactions Newsletter

Regulatory Updates and Guidance

Commerce Department Tightens Requirements for Exports to China, Russia, Venezuela, and Other Countries of Concern

On April 28, 2020, the Commerce Department’s Bureau of Industry and Security (BIS) published two final rules and one proposed rule that aim to prevent efforts by entities in China, Russia, Venezuela, and other countries listed in Country Group D:1 of the Export Administration Regulations (EAR) from acquiring U.S. products and technology that could be used for military applications. Specifically, BIS has expanded the military end use/end user controls in Part 744 of the EAR (final rule available here ), removed License Exception Civil End Users (CIV) (final rule available here ), and made proposed changes to License Exception Additional Permissive Reexports (APR) (proposed rule available here ). These changes—particularly those to Part 744, which imposes additional license requirements on certain ECCNs destined for “military end uses” and/or “military end users” in China, Russia, and Venezuela—are important for companies selling certain controlled items to these countries as they create additional due diligence expectations for exporters.

In the published rules, BIS noted that it is amending the EAR in response to the increasing integration of civilian and military technology development in countries of concern. With respect to China in particular, these rules are consistent with recent U.S. regulatory and enforcement actions that focus on restricting China’s access to sensitive U.S. products and technology for national security and foreign policy reasons. The concerns regarding China, which are set out in Trump administration policy documents, and the increased diligence expectations for exporters are further highlighted by BIS’s comment that the expansion of military end user controls “will require increased diligence with respect to the evaluation of end users in China, particularly in view of China’s widespread civil-military integration.”

In connection with the EAR amendments, Commerce Secretary Wilbur Ross stated: “It is important to consider the ramifications of doing business with countries that have histories of diverting goods purchased from U.S. companies for military applications. Certain entities in China, Russia, and Venezuela have sought to circumvent America’s export controls, and undermine American interests in general, and so we will remain vigilant to ensure U.S. technology does not get into the wrong hands."

Click here to read more about the amendments.

OFAC Issues Significantly More Restrictive Venezuela General License 8F

On April 21, 2020, OFAC issued General License (GL) 8F, which authorizes a more limited scope of activities and transactions that Chevron, Halliburton, Schlumberger, Baker Hughes, and Weatherford may engage in with PdVSA in Venezuela. GL 8F provides that the covered entities may engage in transactions and activities incident and necessary to a limited maintenance of essential operations, contracts, or other agreements, that: “(i) are for the safety or the preservation of assets in Venezuela; (ii) involve PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest; and (iii) were in effect prior to July 26, 2019.” This new GL is notable in that it no longer covers a number of other activities that were authorized by previous iterations of the original GL 8, including design and construction of wells; drilling and processing of Venezuelan-origin petroleum and petroleum products; and contracts for additional personnel or services, except as required for safety. Any company that supplies or otherwise transacts with the covered entities in Venezuela should immediately review this more limited GL to determine whether its activities would continue to be authorized, and if not, determine any necessary steps that need to be taken to ensure compliance with OFAC’s sanctions. This General License expires on December 1, 2020.

FEMA Granted Authority to Detain Exports of Certain PPE Due to Supply Shortages

As a result of domestic shortages of personal protective equipment (PPE) related to the COVID-19 pandemic, on April 7, 2020, FEMA issued a temporary final rule, effective immediately, limiting the types of PPE that can be exported. Due to the scarcity of five specified categories of PPE, including N95 and other Filtering Facepiece Respirators, elastomeric respirators and their filters or cartridges, and PPE surgical masks and gloves, exports containing these items will be temporarily detained by U.S. Customs and Border Protection (CBP) and subject to review by FEMA. FEMA will review the export to determine whether to return the items for domestic use, issue a rated order for the items, or allow the export of part or all of the shipment. As a result, exporters of this PPE should plan on serious delays in the near term. This rule will remain in effect until August 8, 2020.

FDA Publishes Guidance for Filing Imports of Personal Protective Equipment and Medical Devices During COVID-19

On April 22, 2020, the U.S. FDA provided updated instructions to the import community regarding the submission of entry information for personal protective equipment (PPE) and certain other medical devices with the aim of facilitating the import process for products related to the COVID-19 public health emergency. Due to the rapidly evolving COVID-19 situation, we expect that these instructions will be updated periodically, particularly as the FDA issues new Emergency Use Authorizations (EUAs) for imports of PPE and revises existing EUAs. As a result, importers of PPE should closely monitor these instructions and the FDA’s listing of EUAs for updates. McGinnis Lochridge is working closely with foreign manufacturers and importers of PPE, and we are available to provide an array of legal and regulatory services to companies entering the U.S. PPE and medical device market in response to the COVID-19 crisis.

DDTC Temporarily Modifies Certain ITAR Authorization and RegistrationRequirements

On May 1, 2020, the State Department’s Directorate of Defense Trade Controls (DDTC) announced temporary suspensions, modifications, and exceptions to the International Traffic in Arms Regulations (ITAR) in light of the current public health emergency resulting from the COVID-19 virus. Changes include two-month extensions for ITAR registration renewal and payments of associated fees, six-month extensions of licenses and agreements set to expire, and allowing regular employees of licensed entities to work from remote locations and send, receive, or access technical data for export, reexport, or retransfer from any country other than Russia or those listed in ITAR § 126.1. Unless otherwise extended, these temporary suspensions, modifications, and exceptions are set to expire on July 31, 2020.

Click here to read more.

USMCA Scheduled to Take Effect on July 1

On April 24, 2020, the U.S. Trade Representative informed Canada and Mexico that the U.S. had completed all preparatory domestic procedures as its last step prior to finalizing and implementing the U.S.-Mexico-Canada Agreement (USMCA). Both Mexico and Canada gave notice earlier in April of their readiness to proceed with the trade deal. In conjunction, U.S. Customs & Border Protection (CBP) issued “Interim Implementing Instructions” for the USMCA, detailing how imports will operate under the new agreement. CBP’s regulations are currently being updated to implement the USMCA, and the procedures outlined in the “Interim Implementing Instructions” are in place pending the issuance of the amended regulations. The USMCA, which will replace NAFTA, is currently scheduled to take effect on July 1. However, as trade continues to slow or shut down during this current period of global uncertainty, there is the potential for a delay in the implementation of the trade pact, as both politicians and businesses push for a later implementation date.

OFAC Issues Fact Sheet on Provision of Humanitarian Assistance to Combat COVID-19

On April 16, 2020, OFAC published a Fact Sheet that provides consolidated guidance on the key exemptions, exceptions, and authorizations that are available for humanitarian-related trade, assistance, and activity under OFAC’s Iran, Venezuela, North Korea, Syria, Cuba, and Ukraine/Russia-related sanctions programs. These sanctions programs generally allow for humanitarian-related activities, and OFAC is encouraging those interested in providing assistance to combat the spread and effects of COVID-19 to engage in humanitarian activities using available longstanding exemptions, exceptions, and authorizations. It is important to note that OFAC has not issued any new exemptions, exceptions, or authorizations. Rather, the purpose of the Fact Sheet is to provide guidance on the most relevant existing exemptions, exceptions, and authorizations related to personal protective equipment and other COVID-19-related humanitarian assistance and trade.

Duty Deferment Announced to Aid Certain Importers

Pursuant to Executive Order 13916, on April 19, 2020, the Treasury Department and U.S. Customs and Border Protection (CBP) released a joint temporary final rule allowing for a 90-day deferment of import duties and fees for U.S. importers facing substantial financial difficulties as a result of the COVID-19 pandemic. This postponement period applies to payments for goods that were entered into the United States between March 13 and April 30, 2020. An importer is eligible if its operations were fully or partially suspended during the months of March and April due to governmental orders, and, as a result of said suspension, the importer’s gross receipts were less than 60% of the receipts over the comparable period in 2019. Notably, payments related to antidumping and countervailing duties (AD/CVD) and Sections 201, 232, and 301 Trade Remedies are excluded from this emergency relief. If an importer qualifies based on the CBP requirements and associated guidance, it does not need to file an application or any other special documentation with CBP to take advantage of the relief offered. However, the importer must maintain all documentation that establishes its qualifications for the deferral. It is the responsibility of individual importers to schedule its payments to CBP accordingly if it wants to use the program.

EU Imposes Additional Tariffs on U.S.-Origin Goods

In the latest development in the ongoing trade tensions with the EU, on April 6, 2020, the EU issued its “Implementing Regulation EU 2020/502,” introducing additional duties on certain products originating in the United States. This retaliatory measure comes as a response to the U.S.’s recent increase in tariffs on imports of specific derivative aluminum and steel products, which President Trump signed into law in late January. The EU will implement its new levies in two phases: Phase 1 will set an increase by 20% on certain cigarette lighters and 7% on various furniture fittings (valued at over $20 million) on May 8, and Phase 2 will introduce an additional 4.4% duty on playing cards (valued at nearly $23 million) on February 8, 2023, or when the WTO Dispute Settlement Body adopts a ruling that Section 232 measures are inconsistent with WTO rules, whichever date arrives first.

Notable Enforcement Actions

OFAC Issues a Finding of Violation Against American Express

On April 30, 2020, OFAC published an enforcement action against American Express Travel Related Services Company (“Amex”) resulting from 41 violations related to transactions processed on behalf of Gerhard Wisser, an individual added to OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List in 2009. The violations were a result of human error and screening system defects. In March 2015, Mr. Wisser applied for an American Express GlobalTravel Card. Amex’s screening software initially declined Mr. Wisser and would not allow the application to be processed; however, following additional screening attempts and the software subsequently timing out, the declination of Mr. Wisser was unintentionally overridden and his card application was approved. Then, from March to May 2015, Mr. Wisser proceeded to utilize his GlobalTravel Card approximately 41 times. Following a cooperative investigation and proper remediation measures, OFAC determined a monetary penalty against Amex was not necessary. This case highlights the importance of ensuring that automated compliance measures, such as screening software results, cannot be overridden without proper review.