The U.S. Trade Representative (USTR) is required by law to report annually to Congress on compliance by the People’s Republic of China (China) and the Russian Federation (Russia) with commitments made in connection with their accession to the World Trade Organization (WTO), including both multilateral commitments and any bilateral commitments made to the United States. In releasing the reports on February 5, 2019, the USTR stated, “China and Russia present unique and serious challenges for members of the WTO and the multilateral trading system, largely because of their failure to embrace the pursuit of open, market-oriented policies.” China became a member of the WTO in 2001 – see 2018 China WTO Compliance Report; Russia joined the WTO in 2012 – see 2018 Russia WTO Compliance Report.

China Report – In Part 1 of the report that provides an assessment of China’s WTO membership, the USTR states that China’s compliance with WTO rules is “poor” and highlights the country’s “continued embrace of a state-led, mercantilist approach to the economy and trade, despite WTO members’ expectations – and China’s own representations – that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO.” The report notes China’s failure to adhere to multiple bilateral and multilateral commitments, including commitments to refrain from forcible technology transfers; open its electronic payment services market; and review applications of agricultural biotechnology products in a timely and science-based manner. The report also notes China’s continuing use of export and import substitution subsidies in sectors as diverse as automobiles, textiles, advanced materials, medical products and agriculture, despite explicit prohibitions in the WTO Agreement. It highlights that China repeatedly deploys illegal export restraints, such as export quotas, export licensing, minimum export prices, export duties and other restrictions, to “provide substantial cost advantages to a wide range of downstream producers in China at the expense of foreign producers, while creating pressure on foreign producers to move their operations, technologies and jobs to China.” In the report, the USTR finds that “[a]ny review of China’s trade regime also shows that China’s regulatory system is so opaque that it is often difficult for U.S. companies – or even the U.S. government – to fully understand China’s legal requirements in a particular area of the economy. This problem is exacerbated by China’s extremely poor record of adhering to its transparency obligations as a WTO member.” Part 2 of the report provides a detailed analysis of China’s trade regime from a WTO perspective, including identifying and explaining China’s policies and practices that disadvantage or harm U.S. companies.

Russia Report – This report states that “the United States and others welcomed Russia into the WTO’s rules-based system with the hope of expanding the benefits of open and freely competitive markets. The reality has been disappointing.” It notes that U.S. trade with Russia has fluctuated since Russia’s WTO admission in 2012, and criticizes the continued promulgation of Russia’s protectionist measures and disregard of general WTO principles. While the report indicates that Russia has implemented its scheduled tariff reductions and lifted its transit ban on poultry products, importing into the country remains “a difficult task.” Non-tariff trade barriers remain an issue of concern, and Russia continues to have “a less than transparent customs legal regime” and other “arbitrary behind-the-border measures and other discriminatory practices to exclude U.S. exports.” While Russia strengthened its intellectual property rights (IPR) regime as part of its WTO accession, the report indicates that “reliable and effective implementation of those rules has stalled.” Overall, the USTR concludes that “[d]espite Russia’s continued reliance on inward-looking, protectionist economic policies, the United States will continue to press Russia to comply with its WTO commitments and pursue market-based principles. But, at the end of the day, Russia must decide its future and take responsibility for its actions and the impact of those actions on its citizens.”

After much debate and despite continuing criticism, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) lifted sanctions previously imposed upon three Russian entities: En+ Group plc (En+), United Company Rusal plc (Rusal) and JSC EuroSibEnergo (ESE). Effective January 27, 2019, OFAC removed these entities from the Specially Designated Nationals (SDN) List. Continue Reading Companies Previously Controlled by Russian Oligarch Are Removed from OFAC SDN List

The United States has announced additional financial sanctions on three individuals and nine entities supporting Russia’s attempt to integrate the Crimea region of Ukraine through private investment and privatization projects or engaging in serious human rights abuses in furtherance of Russia’s occupation or control over parts of Ukraine. Under Secretary of the Treasury for Terrorism and Financial Intelligence Sigal Mandelker stated, “The United States is leveraging new authorities to target Russian actors for serious human rights abuses in parts of Ukraine that the United States government has determined are forcibly occupied or otherwise controlled by the Russian government, and other reprehensible acts in furtherance of the Kremlin’s malign agenda.”

The sanctioned individuals are Andriy Volodymyrovych Sushko, Aleksandr Basov and Vladimir Nikolaevich Zaritsky. The sanctioned entities are the Ministry of State Security of the so-called Luhansk People’s Republic, Mriya Resort and Spa, Limited Liability Company Garant-SV, Limited Liability Company Infrastructure Projects Management Company, Joint Stock Company Sanatorium AY-Petri, Joint Stock Company Dyulber, Joint Stock Company Sanatorium Miskhor, KRIMTETS, AO, and Limited Liability Company Southern Project.

As a result of these sanctions, as of November 8, 2018, all of these individuals and entities have been placed on the Office of Foreign Assets Control’s Specially Designated Nationals (SDN) List, their property and interests in property that are subject to U.S. jurisdiction have been blocked, and U.S. individuals and entities are generally prohibited from engaging in transactions with them.

In early August 2018, after it was determined that the Russian government was involved in an attempt to assassinate UK citizen Sergei Skripal and his daughter Yulia Skripal with the use of a Novichok nerve agent, the U.S. Department of State (State Department) ruled under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 that the Russian government had used chemical or biological weapons in violation of international law. In an August 27, 2018 Federal Register notice, the U.S. government announced its sanctions in response, which became effective that date:

  • Foreign Assistance: Termination of assistance to Russia under the Foreign Assistance Act of 1961, except for urgent humanitarian assistance and food or other agricultural commodities or products.
  • Termination of Arms Sales: Termination of (a) sales to Russia under the Arms Export Control Act of any defense articles, defense services or design and construction services; and (b) licenses for the export to Russia of any item on the United States Munitions List.
  • Termination of Arms Sales Financing: Termination of all foreign military financing for Russia under the Arms Export Control Act.
  • Denial of U.S. Government Credit or Other Financial Assistance: Denial to Russia of any credit, credit guarantees, or other financial assistance by any department, agency or instrumentality of the U.S. government, including the Export-Import Bank of the United States.
  • Exports of National Security-Sensitive Goods and Technology: Prohibition on the export to Russia of any goods or technology on that part of the control list established under Section 2404(c)(1) of the Appendix to Title 50.

Continue Reading Department of State Imposes Additional Sanctions on Russia

The Department of Commerce has announced the initiation of a Section 232 investigation into whether the present quantity and circumstances of uranium ore and product imports into the United States threaten to impair national security. The decision was in response to a petition filed by two U.S. uranium mining companies and consultations with industry stakeholders, members of Congress, the Department of Defense, Department of Energy and other interested parties. Commerce Secretary Wilbur Ross has sent a letter to Secretary of Defense James Mattis informing him of the initiation of the investigation. Continue Reading Department of Commerce Initiates Section 232 Investigation into Uranium Imports

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), in consultation with the Department of State, has sanctioned numerous Russian oligarchs and the companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company. In his announcement, Treasury Secretary Steven Mnuchin stated, “The Russian government engages in a range of malign activity around the globe, including continuing to occupy Crimea and instigate violence in eastern Ukraine, supplying the Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities. Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities.”

The full list of individuals and entities being placed on OFAC’s Specially Designated Nationals (SDN) list is available here. With the placement of these persons and entities on the SDN list, U.S. persons are now generally prohibited from engaging in transactions with them, and all assets subject to U.S. jurisdiction of these designated individuals and entities are frozen. OFAC has cautioned that non-U.S. persons could face sanctions for knowingly facilitating significant transactions for or on behalf of these Russian individuals or entities.

Generally, the Russian oligarchs placed on the SDN list are known for their involvement in Russia’s energy sector and are close allies to Russian President Vladimir Putin or are current Russian government officials. Many of the companies these oligarchs own or control have also been sanctioned and placed on the SDN List. They are: B-Finance Ltd.; Basic Element Limited; EN+ Group PLC; JSC EuroSibEnergo; United Company RUSAL PLC; Russian Machines; GAZ Group; Agroholding Kuban; Gazprom Burenie, OOO; NPV Engineering Open Joint Stock Company; Ladoga Menedzhment, OOO; Russian Machines; and Renova Group. OFAC has cautioned that this list of companies owned or controlled by the sanctioned Russian oligarchs should not be viewed as exhaustive, and reminds U.S. persons and companies of OFAC’s 50 percent rule. Under this rule, property and interests in property of entities directly or indirectly owned 50 percent or more in the aggregate by one or more persons or entities placed on the SDN list are considered blocked regardless of whether such entities appear on the list. Appropriate party screening and due diligence will increasingly be necessary when U.S. persons or companies engage in transactions in Russia.

Given the scope of these sanctions, OFAC has issued General License No. 12 to allow for U.S. companies currently engaged in transactions with these Russian companies to wind down operations and conclude contracts or other agreements that were in effect before April 6, 2018. All activities with these Russian companies must conclude by June 5, 2018. OFAC has issued General License No. 13, authorizing U.S. persons to undertake any necessary transactions necessary to divest or transfer any debt, equity or other holdings in EN+ Group PLC, GAZ Group and United Company RUSAL PLC by May 7, 2018.

Due to Russia’s continued support of the Assad regime and its destabilizing activities in Syria, OFAC has sanctioned Rosoboroneksport, a state-owned Russian weapons trading company, and its related bank, Russian Financial Corporation. Rosoboroneksport has been placed on OFAC’s SDN list and its Sectoral Sanctions Identifications (SSI) list, a list identifying persons and entities operating in certain sectors of the Russian economy (such as financial services, energy, metals and mining, engineering and defense) under which the United States has placed certain additional restrictions limiting U.S. companies from engaging in specific transactions with such SSI listed entities.

The Office of the U.S. Trade Representative (USTR) has released its annual report on significant foreign trade barriers, providing an inventory of the most important foreign barriers affecting U.S. exports of goods and services, foreign direct investment by U.S. persons and protection of intellectual property rights. The term “trade barriers” does not have a fixed definition but is broadly defined by the USTR as government laws, regulations, policies or practices that either protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights. The report classifies foreign trade barriers into 10 different categories, including import policies, government procurement, export subsidies, lack of intellectual property protections and service/investment barriers. Continue Reading USTR Releases 2018 National Trade Estimate Report on Foreign Trade Barriers

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned five entities and 19 individuals it has identified as engaging in Russian cyber activity, including “attempted interference in U.S. elections, destructive cyber-attacks, and intrusions targeting critical infrastructure,” according to Treasury Secretary Steven Mnuchin. The Treasury Department indicated that these sanctions were in response to interference in the 2016 U.S. election and the execution of destructive cyber-attacks, including the NotPetya attack attributed to the Russian military that is believed to be the most destructive and costly attack in history. The sanctions are also in response to continuing efforts by Russian government cyber actors who have targeted U.S. government entities and multiple critical U.S. infrastructure sectors, including energy, nuclear and commercial facilities and the water, aviation and critical manufacturing sectors. The White House also joined France, Germany and the United Kingdom in condemning the recent use of a military-grade nerve agent in an attempt to murder two UK citizens and noted that this incident further demonstrates the reckless and irresponsible conduct of the Russian government.

The sanctions are being implemented pursuant to Executive Order 13694, which targets malicious cyber actors, and under the Countering America’s Adversaries Through Sanctions Act (CAATSA). Particularly, the sanctions include the Federal Security Service (FSB) and Main Intelligence Directorate (GRU), a Russian military intelligence organization, which have both been key actors in Russia’s ongoing efforts to undermine cybersecurity. As a result of these designations, all property and interests in property of the designated entities/persons subject to U.S. jurisdiction are blocked and U.S. persons are generally prohibited from engaging in transactions with them.

The Department of Commerce’s Bureau of Industry and Security (BIS) has sanctioned 21 entities determined by the U.S. government to be acting contrary to the national security or foreign policy interests of the United States. BIS has taken this action to ensure the efficacy of existing sanctions on the Russian Federation (Russia) for violating international law and fueling the conflict in eastern Ukraine. These entities have been placed on the BIS Entity List, which identifies entities and other persons that are subject to specific license requirements for the export, reexport and/or transfer (in-country) of specified items. Engaging in transactions with any of these entities now entails additional export licensing requirements and approval from BIS. The license review policy for each listed entity is identified in the License Review Policy column on the Entity List.

As required by Section 241 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) (see our Trump and Trade Update dated 10/30/17), the Treasury Department has submitted to Congress a detailed and classified report identifying senior Russian political figures, Russian oligarchs and Russian parastatal entities (companies in which Russian state ownership is at least 25 percent and that had revenues of $2 billion or more). While the list of parastatal entities remains classified, Treasury has released an unclassified report on the list of senior Russian political figures and oligarchs. This unclassified list includes virtually every senior member of Vladimir Putin’s inner circle and nearly 100 Russian billionaires; the classified list reportedly details the relationships these individuals have with President Putin and any information on their involvement in corrupt activities. This report is not a sanctions list; the inclusion of individuals or entities in any portion of the report does not impose sanctions on those individuals or entities, nor does it create any other restrictions, prohibitions or limitations on dealings with such persons by either U.S. or foreign persons. However, many of those listed are already sanctioned for their alleged involvement in the illegal annexation of the Crimea region of Ukraine, malicious cyber incursions into the United States, and interference in the 2016 U.S. presidential election. The Treasury Department stated that it will rely on all available sources of information, including the classified version of this report, when making determinations about additional sanctions in the future. Putin responded to the release of the list by calling it “nonsense” that would “reduce our bilateral relationship to zero.”

In a related move, the State Department announced that the president would postpone any sanctions on persons or entities engaging in any significant transactions involving the Russian defense or intelligence sectors pursuant to Section 231 of CAATSA. Under CAATSA, President Trump is required to impose at least five sanctions on persons or entities that may be engaging in such transactions; however, he is allowed to postpone these sanctions. A spokesperson for the State Department indicated that no actions would be taken at this time as the law was already “serving as a deterrent.”