The U.S. Senate has approved by a vote of 89 to 10 the required implementing legislation for the U.S.-Mexico-Canada Agreement (USMCA). After months of negotiations by Democrats in the House of Representatives with U.S. Trade Representative Robert Lighthizer (see Trump and Trade Updates of December 10, 2019 and December 16, 2019), H.R. 5430 was quickly passed through the various House committees and passed by a wide, bipartisan vote of 385 to 41 on December 19, 2019. Upon receipt in the Senate, the bill was referred to the Senate Finance Committee for consideration. However, the Senate parliamentarian ruled that the Committees on Health, Education, Labor, and Pensions; Environment and Public Works; Appropriations; Foreign Relations; Commerce, Science, and Transportation; and the Budget also had jurisdiction and oversight. On January 15, 2020, all Senate committees favorably approved the legislation and reported it to the full Senate for consideration.

Debate in the Senate was limited to 20 hours under the rules set forth in the Trade Promotion Authority (TPA) legislation – often referred to as “fast track” authority. TPA allows Congress to consider required implementing legislation under expedited procedures for any trade agreements that require changes in U.S. law. Under TPA procedures, the legislation may come to the floor without action and receives an up-or-down vote with no amendments allowed. Now that the Senate has passed H.R. 5430, the legislation will be sent to President Donald Trump, who has indicated the White House will schedule a signing ceremony for the new law during the week of January 20, 2020.

Upon presidential signature, it should be noted, the new USMCA will still not enter into force. While Mexico has ratified the USMCA (see Trump and Trade Update of June 20, 2019), Canada must still consider and ratify the agreement, and its legislative body does not reconvene until January 27, 2020.

 

On January 15, 2020, after two years of negotiations and retaliatory measures in a tariff trade war, the United States and China signed a “phase one” trade agreement that President Donald Trump called “historic” and “transformative.” In remarks during the signing ceremony, Trump said, “Today, we take a momentous step — one that has never been taken before with China — toward a future of fair and reciprocal trade, as we sign phase one of the historic trade deal between the United States and China. Together, we are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers, and families.”

In very brief remarks to the press, Chinese Vice Premier Liu He stated that it was a “great agreement,” adding that it was “good for China, good for the United States, and good for the whole world” and “conducive to world peace and prosperity.” During the signing ceremony, Ambassador Robert Lighthizer added, “The United States and China are two great countries with two great economies, but two very different economic systems. It is imperative that we develop trade and economic rules and practices that allow us both to prosper. The alternative is not acceptable for either of us.” He noted that this “phase one” agreement is a “big step forward in writing the rules needed and developing the practices that we must have going forward.”

Intellectual Property and Technology Transfer Protections

On the two key issues that ostensibly triggered the Section 301 investigation and resulting tariffs on imports from China into the United States, critics have argued and, to some extent, USTR officials have acknowledged, that additional work on intellectual property protections and forced technology transfers remains necessary in phase two of the negotiations. However, under the agreement’s IP chapter, numerous concerns in the areas of trade secrets, patents and pharmaceutical-related intellectual property, geographical indications, trademarks, and enforcement against pirated and counterfeit goods appear to be preliminarily addressed. China must put forth an action plan that will outline the structural changes it will take to implement its obligations. Under the Technology Transfer chapter of the agreement, the parties have agreed to: (i) prohibit the forcing or pressuring of foreign companies to transfer their technology as a condition for market access, administrative approvals, or receipt of any advantages; (ii) require that any transfer or licensing of technology be based on market terms that are voluntary and reflect mutual agreement; (iii) prohibit state-directed or supported outbound investment aimed at acquiring foreign technology in sectors and industries targeted by a party’s industrial policies; and (iv) ensure that enforcement and administrative proceedings are impartial, fair, transparent, and non-discriminatory.

Financial Services Reform

The Financial Services chapter of the agreement addresses many of China’s existing trade and investment barriers that have reduced market access for and the competitiveness of U.S. companies supplying or seeking to supply financial services in China. This includes certain commitments for China — some to be initiated as soon as April 1, 2020 — in the banking, insurance, securities, and credit rating services sectors. Non-tariff trade barriers to be modified include eliminating foreign equity limitations and discriminatory regulatory requirements.

Agreements by China to Import More U.S. Goods and Agricultural Products

As a part of the agreement, China has pledged to increase imports of U.S. goods and services by at least $200 billion over the next two years. The annexes to the agreement include commitments covering a variety of U.S. manufactured goods, food, agricultural and seafood products, energy products, and services. According to a fact sheet on Expanding Trade, China has made the following commitments:

  • China’s imports of U.S. manufactured goods, such as industrial machinery, electrical equipment, pharmaceutical products, aircraft, vehicles, optical and medical instruments, iron and steel, solar-grade polysilicon, hardwood lumber, and chemical products, among other goods, will total at least $120.0 billion in 2020 and at least $131.9 billion in 2021.
  • China’s imports of U.S. agricultural products, such as soybeans, cotton, grains, meats, ethanol, seafood, and the full range of other agricultural products will total at least $80 billion over the next two years. China will also strive to purchase an additional $5 billion of agricultural products annually.
  • China’s imports of energy products from the United States, such as liquefied natural gas, crude oil, and metallurgical coal, will total at least $30.1 billion in 2020 and at least $45.5 billion in 2021.
  • China’s imports of U.S. services, such as financial services, insurance services, cloud services, and travel services, will total at least $99.9 billion in 2020 and at least $112.2 billion in 2021.

Currency Manipulation

The agreement states that each party “shall respect the other party’s autonomy in monetary policy, in accordance with its domestic law.”  The USTR has indicated that China under the agreement agreed to strong commitments on currency practices regarding currency devaluations and exchange rates. As a result, and as a prelude to the signing ceremony, on January 13, 2020, the Department of the Treasury released its semi-annual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. The report concluded that no major U.S. trading partner at this time meets the criteria for designation as a currency manipulation or enhanced analysis. Thus, while China has been removed from the list, it does remain on Treasury’s Monitoring List as meriting “close attention to their currency practices.”

Dispute Resolution and Enforceability

Both Trump and Lighthizer repeatedly stated that the agreement was enforceable. The Dispute Resolution chapter of the agreement ensures “the effective implementation of the agreement and [allows] the parties to resolve disputes in a fair and expeditious manner.” It calls for regular bilateral consultations at both the principal level and the working level. It establishes procedures for addressing disputes related to the agreement and allows each party to take proportionate responsive actions that it deems appropriate. This includes allowing a party to suspend obligations under the agreement or to take other remedial actions proportionate to an alleged violation, including imposing remedial tariffs if done in “good faith.” China has made a promise not to retaliate for any such remedial actions taken in good faith, but the agreement also allows a party to withdraw from the terms of the agreement if it believes an action is taken in “bad faith.” The parties may also agree, in writing, to amend the agreement.

Phase Two Negotiations and Section 301 Tariffs

While no firm date was given, Trump indicated that phase two of the negotiations would start soon, and that the Section 301 tariffs on imports from China will remain in place for now. He stated, “We’re negotiating with the tariffs. We have 25 percent on $250 billion worth of goods. And then we’re bringing the 10 percent down to 7.5 percent on $300 billion worth of goods plus [see also Trump and Trade Update on this announcement]…. but I’m leaving them on, because otherwise we have no cards to negotiate with.” It should be noted that China has not made any commitment at this time to reduce or remove any of its retaliatory tariffs.

To view the full text of the agreement and multiple fact sheets about it, click on the following links:

The U.S. Trade Representative (USTR) announced this week that the current Section 301 tariff of 15 percent on List 4A Chinese products will be reduced to 7.5 percent as of 12:01 a.m. on February 14, 2020. This reduction, which will be formally published in an upcoming Federal Register notice, covers all HTS subheadings in Annex A of the August 20, 2019 Federal Register notice first implementing these duties.

This reduction is the result of the United States and China signing their “phase one” trade agreement on January 15, 2020. With the agreement scheduled to enter into force on February 14, 2020, President Donald Trump determined that the higher duty rate is no longer appropriate.

On January 10, 2020, President Donald Trump issued “Executive Order on Imposing Sanctions with Respect to Additional Sectors of Iran,” implementing further sanctions on Iran and blocking the assets and property of additional senior Iranian government officials. The executive order authorizes economic sanctions on entities operating in the construction, mining, manufacturing or textiles sectors of the Iranian economy. The sanctions also target any persons or entities that knowingly engage in a significant transaction for the sale, supply or transfer to or from Iran of significant goods or services used in connection with Iranian entities designated by the Department of the Treasury’s Office of Foreign Assets Control (OFAC) in these sectors of the Iranian economy, as well as any persons or entities who may materially assist, sponsor or provide financial, material or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to OFAC. The executive order authorizes secondary sanctions on foreign financial institutions that may engage in transactions with persons or entities designated pursuant to the executive order.

In a message to Congress, Trump stated that the executive order “takes steps to deny Iran revenue, including revenue derived from the export of products from key sectors of Iran’s economy, that may be used to fund and support its nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence.” Pursuant to the executive order, OFAC has designated and placed on the Specially Designated Nationals (SDN) List 17 Iranian metals producers and mining companies; a network of three China- and Seychelles-based entities; and a vessel involved in the purchase, sale and transfer of Iranian metals products, as well as in the provision of critical metals production components to Iranian metal producers.

In addition to these economic sanctions on sectors of the Iranian economy, Secretary of State Mike Pompeo and Secretary of the Treasury Steven Mnuchin announced in a press briefing that the United States was “taking action against eight senior Iranian officials who advanced the regime’s destabilizing activity and were involved in [the January 7, 2020] ballistic missile strike” on air bases in Iraq. These officials have been placed on OFAC’s SDN List: (1) Ali Shamkhani, the Secretary of Iran’s Supreme National Security Council; (2) Mohammad Reza Ashtiani, the Deputy Chief of Staff of Iranian armed forces; (3) Gholamreza Soleimani, the head of the Basij militia of the Islamic Revolutionary Guards Corps (IRGC); (4) Mohsen Reza’i, a member of Iran’s Expediency Council; (5) Mohammad Reza Naqdi, the Deputy Coordinator of the IRGC; (6) Ali Abdollahi, a senior Iranian military appointee of the Supreme Leader and former Deputy Commander of Iran’s Law Enforcement Forces; (7) Ali Asghar Hejazi, a senior official within the Supreme Leader’s Office in charge of security; and (8) Mohsen Qomi, a Deputy Advisor for International Affairs in the Supreme Leader’s Office and an advisor to the Supreme Leader on International Communications.

The full and detailed list of the Iran-related Designations​ and Updates is available on Treasury’s website.

As a result of this action, all property and interests in property of these persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. Because U.S. persons are generally prohibited from dealing with entities on the SDN List, persons who engage in certain transactions with these designated persons may themselves be exposed to designation. OFAC has indicated that any foreign financial institution that knowingly facilitates a significant financial transaction or provides significant financial services for these persons could be subject to U.S. correspondent account sanctions or payable-through account sanctions.

According to recently released U.S. Customs and Border Protection (CBP) data, the agency has assessed, as a result of tariffs implemented through U.S. government actions under Section 232 of the Trade Expansion Act of 1962 and Sections 201 and 301 of the Trade Act of 1974, approximately $52.9 billion in import duties as of January 8, 2020 (see CBP’s trade statistics page).

The table below shows that U.S. importers paid more than $42.58 billion in duties from the Section 301 tariffs on imports from China and, as of October 9, 2019, the Section 301 tariffs for certain products of the European Union related to U.S. retaliation resulting from the WTO Large Civil Aircraft Dispute; more than $8.53 billion under the Section 232 tariffs on steel and aluminum; and another $1.42 billion in duties under the Section 201 safeguard actions involving washing machines and solar cells.

Trade Remedy Enforcement Imported Products Total Duties Assessed
Section 201 Duty Assessment Washing Machines $167,335,722.10
Washing Machine Parts $1,677,105.55
Solar Panels $1,255,772,516.63
Section 232 Duty Assessment Aluminum $1,932,725,184.56
Steel $6,605,572,887.74
Section 301 Duty Assessment China $42,781,011,047.60
European Union $177,771,970.36

When CBP last reported on these trade figures (see Trump and Trade Update of July 29, 2019), the total amount of these tariff collections was $30.9 billion. In the second half of 2019, the most significant increase under these enforcement actions has been the additional $20 billion collected in the ongoing Section 301 trade action against China.

After receiving over 4,000 Miscellaneous Tariff Bill (MTB) petitions seeking to temporarily reduce or eliminate tariffs on the import of various goods into the United States (see Trump and Trade Update of October 1, 2019), the U.S. International Trade Commission (USITC) has been posting petitions satisfying the statutory filing criteria on a rolling basis on the MTB Petition System (MTBPS) portal. Beginning on January 10, 2020 and continuing until 5:15 p.m. ET on February 24, 2020, interested parties may file public comments on these petitions. All comments must be filed through the MTBPS portal during this 45-day comment period, and all comments will be visible to the public.

The USITC has recorded a webinar, “How to File a Comment on a Miscellaneous Tariff Bill Petition,” which includes step-by-step instructions on how to file comments through the MTBPS portal. Among other helpful comments, the webinar notes that:

  • Petitioners will NOT receive alerts if or when their petitions receive comments;
  • Commenters (and rebutting petitioners) must bracket confidential information so as not to be included in any public version of the comments and rebuttals; and
  • While all petitions are currently available in the MTBPS portal, USITC will soon provide a link to a user-friendly Excel file of all petitions with limited information such as product name, Chemical Abstracts Service (CAS) registry number and petition ID number.

On December 13, 2019, the U.S. Department of Justice (DOJ) released a revised policy for companies regarding voluntary self-disclosures of export control and sanctions violations. The revised policy was effective on the date of its release and will be formally incorporated into the Justice Manual. In releasing the revised Voluntary Self-Disclosure Policy (VSD Policy), Assistant Attorney General for National Security John C. Demers stated, “Protecting our nation’s sensitive technologies and preventing transactions with sanctioned entities are DOJ priorities, but we cannot succeed alone … We need the private sector to come forward and work with DOJ. The revised VSD Policy should reassure companies that, when they do report violations directly to DOJ, the benefits of their cooperation will be concrete and significant.”

Key Notes:

  • The revised Voluntary Self-Disclosure Policy builds on the guidance DOJ’s National Security Division (NSD) issued in October 2016.
  • This revised policy signals DOJ’s continued emphasis on corporate voluntary self-disclosure, rewarding cooperating companies with a presumption in favor of a non-prosecution agreement and significant reductions in penalties.
  • The policy was effective on December 13, 2019, and applies only to export control and sanctions matters brought by the NSD’s Counterintelligence and Export Control Section.

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On December 30, 2019, the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC) issued an interim final rule seeking to amend the International Traffic in Arms Regulations (ITAR) with definitions more clearly explaining activities that are not considered to be exports, reexports, retransfers or temporary imports of secured and unclassified technical data. This interim final rule is part of DDTC’s ongoing effort to update the ITAR and will become effective on March 25, 2020. Before that date, DDTC is accepting public comments on the rule until January 27, 2020.

While the interim final rule addresses a number of definitions, a new definition has been proposed under a new section of the ITAR, 22 C.F.R. §120.54, covering activities that are not exports and thus not controlled and subject to the ITAR, including:

  • Launching a spacecraft, launch vehicle, payload or other item into space; DDTC states that such an activity “is already excluded from the definition of an export” in other sections of the ITAR and by statute but that it has been consolidated and simplified under this section.
  • Transmitting or otherwise transferring technical data to a U.S. person in the United States from a person in the United States; DDTC states that such an activity is “unequivocally not a controlled event.”
  • Transmitting or otherwise transferring within the same foreign country technical data between or among only U.S. persons, as long as the transmission or transfer does not result in a release to a foreign person or transfer to a person prohibited from receiving the technical data.
  • Shipping, moving or transferring defense articles between or among the United States, which includes all states, possessions and territories of the United States.
  • Sending, storing or taking unclassified technical data when it is effectively encrypted using end-to-end encryption.

The proposal regarding the sending, storing or taking of unclassified technical data is intended to help address questions and concerns as to email transmissions as well as cloud computing and storage. DDTC makes clear that electronic transmissions and storage of secured unclassified technical data is not an export as long as the “technical data is encrypted prior to leaving the sender’s facilities and remains encrypted until decrypted by the intended authorized recipient or retrieved by the sender, as in the case of remote storage.” This provision contains important requirements that must be met in order to remain compliant with U.S. export control laws and to prevent an unauthorized or inadvertent export violation.

The transmission must employ end-to-end encryption, which is defined as: (i) the provision of cryptographic protection of data, such that the data is not in an unencrypted form, between an originator (or the originator’s in-country security boundary) and an intended recipient (or the recipient’s in-country security boundary); and (ii) the means of decryption are not provided to any third party. Further, the transmission and/or storage must be secured using “cryptographic modules (hardware or software) compliant with the Federal Information Processing Standards Publication 140-2 (FIPS 140-2) or its successors, supplemented by software implementation, cryptographic key management, and other procedures and controls that are in accordance with guidance provided in current U.S. National Institute for Standards and Technology (NIST) publications, or by other cryptographic means that provide security strength that is at least comparable to the minimum 128 bits of security strength achieved by the Advanced Encryption Standard (AES-128).” Also, the sending, storing or taking of secured unclassified technical data may not involve, be stored in or be sent from the Russian Federation or a DDTC-restricted country, including Belarus, Burma, China, Cuba, Iran, North Korea, Syria, Venezuela, Afghanistan, Central African Republic, Cyprus, Democratic Republic of Congo, Eritrea, Haiti, Iraq, Lebanon, Libya, Somalia, South Sudan, Sudan and Zimbabwe.

Those interested in addressing the interim final rule before the January 27, 2020 deadline may submit comments by (i) email to DDTCPublicComments@state.gov with the subject line, ‘‘Revisions to Definitions; Data Transmission and Storage’’ or (ii) using the federal rulemaking portal at www.regulations.gov and filing comments under Docket DOS–2019–0040.

The Office of the U.S. Trade Representative (USTR) announced on December 31, 2019 additional Section 301 tariff exclusions for certain imported Chinese products appearing on List 3. These products have been subject to Section 301 tariffs since September 24, 2018, when President Donald Trump announced additional import duties on Chinese goods with an annual trade value of approximately $200 billion.

This batch of approved product exclusions covers two 10-digit Harmonized Tariff Schedule (HTS) subheadings in their entirety and 66 specially-prepared product descriptions covering 81 separately filed exclusion requests. The two HTS subheadings are 8712.00.1510 and 8712.00.1550, which involve certain bicycles. The specially prepared product description exclusions cover: endless synchronous belts of vulcanized rubber, molded polyurethane, neoprene, or welded urethane; certain leather briefcases; certain storage containers of paulownia wood or twisted paper rope; certain woven fabrics; certain vault doors and safes of carbon steel; certain steel clamps with rubber insulation; certain spring-loaded telescoping poles of steel or aluminum; certain awning and decorative cast aluminum endcaps; certain steel hand tools for crimping/stripping or cutting wire; certain steel valve lifters; certain hand or foot operated air pumps; certain ventilation fans for motor vehicles; certain portable air compressors; certain electric winches; certain wireless battery chargers; alternators for motor vehicles charging systems; certain automobile alarm systems; certain color video cameras for use with microscopes; certain ultraviolet lamps used for skin tanning purposes; certain hand held, battery-powered electrical devices that administer transcutaneous electrical nerve stimulation (TENS) and electrical muscle stimulation (EMS); certain motor mount kits; certain bicycle saddles; certain compound binocular optical microscopes; certain stackable upholstered metal chairs for religious worship settings; certain hunting stands of steel or aluminum; certain wheeled trays; certain baby crib liners; and, certain light boxes that provide light therapy for seasonal and sleep disorders.

These product exclusions will be retroactive to September 24, 2018, and remain in effect until August 7, 2020. These exclusions apply to any product that satisfies the description in the annex of the Federal Register notice, regardless of whether the company using the exclusion filed the request. Each exclusion is governed by the scope of the HTS heading and the product description appearing in the annex of the exclusion notice; it is not governed by the product description set out in any particular exclusion request. U.S. Customs and Border Protection will soon issue instructions on entry guidance and implementation. USTR will continue to issue determinations on pending requests on a periodic basis.

The Office of the U.S. Trade Representative (USTR) has issued a Federal Register notice seeking public comment on the extension of certain product exclusions it granted in March 2019 in the ongoing trade dispute with China. These exclusions were part of the first round of Section 301 tariffs placed on imports of Chinese goods with an annual trade value of approximately $34 billion (List/Tranche 1 products). These exclusions were granted in March 2019 (see Trump and Trade Update of March 21, 2019), and are scheduled to expire on March 25, 2020. The USTR is considering a possible extension of up to 12 months for these exclusions and seeks public comment on whether to extend particular ones.

USTR states that it will evaluate the possible extension of each exclusion on a case-by-case basis. The focus of the evaluation will be “whether, despite the first imposition of these additional duties in July 2018, the particular product remains available only from China.” These issues should be addressed in submitting any comments:

  • Whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
  • Any changes in the global supply chain since July 2018 as to the particular product, or any other relevant industry developments.
  • The efforts, if any, the importers or U.S. purchasers have undertaken since July 2018 to source the product from the United States or third countries.

In addition, USTR notes that it will continue to consider whether the imposition of additional duties on the products covered by the exclusion will result in severe economic harm to the commenter or other U.S. interests.

USTR will accept comments between January 15 and February 15, 2020. All submissions must be made electronically via the www.regulations.gov portal on docket number USTR-2019-0024. USTR strongly recommends that those wishing to comment complete Exclusion Extension Comment: Form A, which will be posted on the public docket. Importers and purchasers may also submit Exclusion Extension Comment: Form B containing business confidential information via email to 301bcisubmissions@ustr.eop.gov, which will not be made available to the public. If filing a Form B, submitters, USTR notes, must also file a public Form A. These forms will be posted on USTR’s website by the time the docket opens.

At this time, USTR is considering the possible extension of product exclusions only for those exclusions granted in March 2019; no other extensions under any other product exclusion notices issued by USTR will be considered.