On October 10, 2018, the U.S. Department of the Treasury issued several amendments and temporary regulations expanding the authority of the Committee on Foreign Investment in the United States (CFIUS). The Foreign Investment Risk Review Modernization Act, enacted as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, laid the framework for CFIUS’ expanded scope as congressional leaders aimed to address national security concerns within the context of foreign investment activities in the United States that have historically fallen outside of CFIUS’ purview.

Key Notes:

  • New pilot program effective November 10, 2018, applies to all foreign persons engaging in investment with certain U.S. industries.
  • Mandatory declarations now required for certain transactions; risk of civil penalty if ignored.
  • Export control compliance is essential to understand if transaction involves any critical, emerging or foundational technology.

View this entire client bulletin in HTML or PDF format.

The Office of the U.S. Trade Representative (USTR) announced that the United States is set to launch separate free trade agreement (FTA) negotiations with Japan, the European Union and the United Kingdom. In letters sent to Congress on October 16, 2018, Ambassador Robert Lighthizer wrote: “We are committed to concluding these negotiations with timely and substantive results for U.S. consumers, businesses, farmers, ranchers, and workers, consistent with U.S. priorities and the negotiating objectives established by Congress in statute.”

By issuing these formal letters to Congress, the USTR is following procedures required by the Congressional Trade Priorities and Accountability Act of 2015, commonly referred to as Trade Promotion Authority (TPA). The announcement allows negotiations to formally begin with Japan and the European Union after a 90-day period. The letter announcing the negotiations with the United Kingdom accounts for its upcoming exit from the European Union and signals that talks will begin after that is completed in late March 2019.

The congressional notification letters regarding Japan, the European Union and the United Kingdom are available on USTR’s website.

Following receipt of a request from the U.S. Trade Representative (USTR), the U.S. International Trade Commission (USITC) has initiated investigation No. TPA-105-003 for the purpose of preparing the report required by section 105(c) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015. The report will assess the likely impact of the United States-Mexico-Canada Agreement (USMCA) on the U.S. economy as a whole and on selected industry sectors. Transmittal of the final USITC report to the president and Congress must occur no later than 105 days after the president enters into the agreement.

The investigation, United States-Mexico-Canada Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors, was requested by the USTR in a letter received on August 31, 2018. In assessing the likely impact of the USMCA on the U.S. economy, the report will include information and data on the impact the agreement will have on the gross domestic product, exports and imports, aggregate employment and employment opportunities, the production, employment and competitive position of industries likely to be significantly affected by the agreement, and the interests of U.S. consumers.

Key Dates:

  • October 29, 2018: Deadline for filing requests to appear at the public hearing
  • October 30, 2018: Deadline for filing prehearing briefs and statements
  • November 15-16, 2018: Public hearing at USITC
  • December 20, 2018: Deadline for written submissions from the public

Further information on the scope of the investigation and the procedures for written submissions are available in the USITC’s notice of investigation, dated October 12, 2018.

On October 10, 2018, the U.S. Department of the Treasury released temporary regulations expanding the authority of the Committee on Foreign Investment in the United States (CFIUS). This important first step comes after the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA), enacted this past August, which laid the initial framework for the expansion of the committee’s authority. (See Trump and Trade Update dated August 16, 2018.)

FIRRMA, which passed as part of the broader John S. McCain National Defense Authorization Act for Fiscal Year 2019, received bi-partisan support as congressional leaders aim to address national security concerns within the context of foreign investment activities in the United States that have historically fallen outside of the committee’s purview.

CFIUS, an interagency body that is led by the Department of Treasury, historically reviewed investment deals that involved acquiring foreign control of a U.S. entity. FIRRMA expanded this authority to now include the mandate that the committee review certain investments in U.S. industries regardless of whether they result in a controlling stake. Treasury Secretary Steven Mnuchin announced in a press release: “These temporary regulations address specific risks to U.S. critical technology while informing the department of final regulations that will fully implement FIRRMA.”

Pilot Program Overview

In a fact sheet released by the Treasury Department, the pilot program implements certain authorities provided by FIRRMA to now “include review of certain non-controlling investments” by foreign persons in key U.S. industries and also “makes effective FIRRMA’s mandatory declarations provisions for transactions that fall within the specific scope of the pilot program.”

Other important aspects of the pilot program include:

  • The program is not country specific, but applies to all foreign persons engaging in investment with certain U.S. industries.
  • The program applies to any U.S. business that “produces, designs, tests, manufactures, fabricates, or develops a critical technology …” as defined by FIRRMA along with “emerging and foundational technologies” controlled pursuant to the Export Control Reform Act of 2018.
  • The program applies to 27 industries identified by specific North American Industry Classification System (NAICS) codes that the U.S. government has evaluated and “for which certain strategically motivated foreign investment could pose a threat to U.S. technological superiority and national security.” This full list can be found in Annex A to Part 801 of the Federal Register notice.
  • Mandatory declarations, or abbreviated notices not exceeding five pages in length, for transactions involving critical technologies must be filed within 45 days prior to a transaction’s closure date or risk a civil monetary fine up to the value of the transaction. A party may also choose to file under the standard procedures instead of through a declaration.

The full pilot program regulations can be found in the October 11, 2018 Federal Register.

The pilot program is due to begin on November 10, 2018, after a brief public comment period and will likely remain in effect until February 2020, when the final FIRRMA provisions are implemented.

U.S. Secretary of State Michael Pompeo announced on October 3, 2018, that the United States would terminate the 1955 “Treaty of Amity” with Iran. The decision was triggered by a ruling issued earlier in the day by the International Court of Justice (ICJ), which ordered the United States to “remove, by means of its choosing, any impediments arising from the measures announced on 8 May 2018 to the free exportation to the territory of the Islamic Republic of Iran of (i) medicines and medical devices; (ii) foodstuffs and agricultural commodities; and (iii) spare parts, equipment and associated services (including warranty, maintenance, repair services and inspections) necessary for the safety of civil aviation … .” (See also Trump and Trade Update dated May 8, 2018.)

During a press conference, Pompeo said, “In July, Iran brought a meritless case in the International Court of Justice alleging violations of the Treaty of Amity. … In light of how Iran has hypocritically and groundlessly abused the ICJ as a forum for attacking the United States, I am therefore announcing today that the United States is terminating the Treaty of Amity with Iran. I hope that Iran’s leaders will come to recognize that the only way to secure a bright future for its country is by ceasing their campaign of terror and destruction around the world.” Despite the move to terminate the treaty, Pompeo acknowledged, “Existing exceptions, authorizations, and licensing policies for humanitarian-related transactions and safety of flight will remain in effect.” He concluded his remarks by answering a question from CBS News, “We’ll see what the practical fallout is.”

The “Treaty of Amity, Economic Relations, and Consular Rights Between the United States and Iran” was entered into force on June 16, 1957, when both nations ratified its terms after its original signing August 15, 1955. Specific treaty provisions included:

  • Favorable and fair judicial treatment of nationals while traveling or living within the territory of the other party (Art II, Sec 4).
  • Recognition of a corporation/business entity’s juridical status within the territory of either party (Art III, Sec 1).
  • No restrictions or prohibitions on the importation or exportation of any product of the other party unless that product is restricted/prohibited in a similar manner from other nations (Art VIII, Sec 2).
  • Several provisions governing the treatment of consular staff and related diplomatic operations in each nation (Art XII – XIX). These clauses remained in effect despite the severance of U.S.-Iranian diplomatic relations on April 7, 1980.

Article XX of the treaty included specific carve outs for the importation/exportation of gold and silver, activities relating to fissionable materials, production or traffic of arms, and measures “necessary to protect its essential security interests.” The final article of the treaty stipulated that either party could terminate the treaty “by giving one year’s written notice” to the other party. Because of the U.S. notification this week, the treaty as written will remain in effect until October 2019.

After successful, last-minute negotiations, Canada and the United States agreed on September 30, 2018 to revise and modernize the North American Free Trade Agreement (NAFTA). The United States and Mexico previously announced their intent to proceed with a revised trade agreement (see Trump and Trade Update dated September 4). In remarks to the press, President Trump said, “Throughout the campaign, I promised to renegotiate NAFTA, and today we have kept that promise,” adding, “Once approved by Congress, this new deal will be the most modern, up-to-date, and balanced trade agreement in the history of our country, with the most advanced protections for workers ever developed.”

To augment the president’s announcement, the Office of the U.S. Trade Representative (USTR) released a series of fact sheets concerning the renegotiated trade agreement with Mexico and Canada:

According to the USTR, these features are among the highlights of the new agreement:

  • U.S. auto manufacturers and workers will benefit from new rules of origin requiring 75 percent of auto content to be produced in North America, and the new agreement will incentivize billions of dollars in additional U.S. vehicle and auto parts production.
  • New trade rules will increase wages by requiring that 40-45 percent of auto content be performed by workers earning at least $16 per hour.
  • For textiles, the agreement will promote greater use of Made-in-the-USA fibers, yarns and fabrics. It also establishes provisions for textile-specific verification and customs cooperation that provide new tools for strengthening customs enforcement and preventing fraud and circumvention.
  • The new labor chapter is a core part of the agreement and will make the labor provisions fully enforceable.
  • Canada will eliminate its “Class 7” program that allows low-priced dairy ingredients to undersell U.S. dairy products, and will provide new access for U.S. products, including fluid milk, cream, butter, skim milk powder, cheese and other dairy products. Canada will also eliminate its tariffs on whey and margarine.
  • For poultry, Canada will provide new access for U.S. chicken and eggs and increase its access for turkey. Under this agreement, all other tariffs on agricultural products traded between the United States and Mexico will remain at zero.
  • The new agreement includes a modernized, high-standard chapter that provides strong protection and enforcement of intellectual property rights, including 10 years of data protection for biologic drugs and a large scope of products eligible for protection.
  • Strong measures on digital trade have been established, including rules to ensure data can be transferred cross-border and to minimize limits on where data can be stored.
  • An updated financial services chapter includes commitments to liberalize financial services markets and facilitate a level playing field for U.S. financial institutions, investors and investments in financial institutions, and cross-border trade in financial services.
  • The environment chapter includes enforceable environmental obligations, including obligations to combat trafficking in wildlife, timber and fish; strengthen law enforcement networks to stem such trafficking; and address pressing environmental issues such as air quality and marine litter.

With the international trade community’s focus on China (tariffs) and Mexico/Canada (NAFTA negotiations), it would be easy to forget another significant trade matter that the Trump administration has been seeking to finalize. According to reports, the revised Korea-U.S. Free Trade Agreement (KORUS) will be signed today after President Trump and South Korean President Moon Jae-in meet in New York City, where both are attending the start of the United Nations’ General Assembly plenary session. Continue Reading Revised Korea-U.S. Free Trade Agreement to Be Signed

The Office of the U.S. Trade Representative (USTR) has announced that President Trump is moving forward with additional tariffs in its Section 301 investigation involving China’s acts, policies and practices related to forced technology transfers and intellectual property rights. The USTR has finalized a third list of Harmonized Tariff Schedule (HTS) subheadings resulting in additional tariffs of $200 billion on imports of Chinese products. The additional tariffs will go into effect September 24, 2018, and will be 10 percent at the start. The USTR has stated that these tariffs will increase to 25 percent on January 1, 2019. Continue Reading United States to Implement Additional Import Tariffs on $200 Billion of Chinese Products

On August 16, 2018, the United States implemented retaliatory tariffs of 25 percent on U.S. imports of 279 Chinese products covering an estimated trade value of $16 billion in 2018. This was in addition to the $34 billion in tariffs implemented in June 2018.

With these tariffs in place, the U.S. Trade Representative (USTR) has announced procedures to request the exclusion of products subject to this additional duty. In a notice published today in the Federal Register, the USTR has provided the criteria and detailed guidance for any product exclusion request application. Each request must specifically identify a particular product and provide supporting data and the rationale for the proposed exclusion. The USTR will not consider exclusion requests using criteria that cannot be made available to the public. Each request will be evaluated on a case-by-case basis. The USTR has specified, however, that the following information must be provided:

  • Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading. The USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or tradenames. The USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
  • The 10-digit subheading of the HTSUS applicable to the particular product requested for exclusion.
  • The annual quantity and value of the Chinese-origin product that the applicant purchased in each of the last three years.

Continue Reading U.S. Trade Representative Announces Section 301 Product Exclusion Process for Second List of Chinese Products Subject to 25 Percent Tariff

The Department of Commerce’s Bureau of Industry and Security (BIS) has amended the exclusion request process for the tariffs on certain steel and aluminum products implemented under Section 232 of the Trade Expansion Act of 1962. On March 8, 2018, President Trump exercised his authority under Section 232 and imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports (with certain countries receiving exemptions). U.S. Customs and Border Protection (CBP) began collecting the tariffs on March 23, 2018.

BIS has acknowledged that the number of filings has far surpassed expectations – as of August 20, BIS had received more than 38,000 exclusion requests and more than 17,000 objections – amid growing concerns over the importance of a transparent, fair and efficient product exclusion and objection process. The amendments seek to address these concerns and will create a process for rebutting objections filed to exclusion requests. They also attempt to clarify the criteria BIS considers during the review process to grant or deny an exclusion request. Continue Reading Department of Commerce Amends Section 232 Exclusion Process for Steel and Aluminum Products