On the 40th anniversary of the Iranian takeover of the U.S. Embassy in Tehran and the hostage-taking of more than 50 U.S. diplomats and officials, the United States announced November 4, 2019, a further tightening of sanctions on Iran. In its statement supporting these sanctions, the White House explained, “The Iranian regime continues to target innocent civilians for use as pawns in its failed foreign relations. Until Iran changes this and its other hostile behavior, we will continue to impose crippling sanctions.”

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that Iran’s Armed Forces General Staff (AFGS) and nine individuals have been blocked and added to OFAC’s Specially Designated Nationals (SDN) List. The AFGS, the most senior military body in Iran, implements policy and monitors and coordinates activities within the armed forces. OFAC’s additions of individuals to the SDN List encompasses unelected officials who were appointed and are close to Iran’s Supreme Leader Ali Khamenei, including the head of Iran’s Judiciary, Khamenei’s chief of staff, Khamenei’s second son, as well as several senior advisers and military aides. Secretary of the Treasury Stephen Mnuchin stated, “These individuals are linked to a wide range of malign behaviors by the regime, including bombings of the U.S. Marine Barracks in Beirut in 1983 and the Argentine Israelite Mutual Association in 1994, as well as torture, extrajudicial killings, and repression of civilians. This action further constricts the Supreme Leader’s ability to execute his agenda of terror and oppression.”

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.

On November 1, the World Trade Organization (WTO) issued a decision arising from a longstanding dispute between the United States and China concerning certain methodologies used by the United States in anti-dumping (AD) proceedings involving imports of Chinese products. In this dispute, China argued that certain methodologies used by the U.S. Department of Commerce (Commerce) were inconsistent with WTO agreements and obligations, and a full WTO Dispute Settlement Body (DSB) concurred in May 2017. These inconsistencies fall into two categories: (1) findings of inconsistency concerning U.S. use of the weighted average-to-transaction (WA-T) methodology with “zeroing” in calculating dumping margins; and (2) findings of inconsistency concerning U.S. treatment of multiple exporters as a single government-wide entity under the so-called Single Rate Presumption.

The United States was given until August 22, 2018, to implement the DSB’s recommendations and rulings. When Commerce failed to address these inconsistencies, China sought WTO authorization to retaliate in the amount of $7.043 billion in tariffs as to trade in goods. In considering this request, the WTO arbitration panelists reviewed 25 Commerce AD orders and – while rejecting China’s proposed calculation model – nevertheless determined “that the level of nullification or impairment of benefits accruing to China as a result of the WTO-inconsistent methodologies used by the United States in anti-dumping proceedings concerning products imported from China is 3,579.128 million USD per annum.” As a result, China will be allowed to formally request the implementation of these retaliatory duties at the next DSB meeting on November 22, 2019.

In an October 28, 2019 memorandum for Secretary of Commerce Wilbur Ross, the Department of Commerce’s Office of Inspector General (IG) issued a “management alert” over concerns about the “lack of transparency that contributes to the appearance of improper influence in decision-making” for the Section 232 steel and aluminum tariff exclusion process. While not requesting any formal response, the IG noted that the issue would be included in a full audit report to be issued at a later date.

The alert raises concerns over (1) whether the Bureau of Industry and Security (BIS) and International Trade Administration (ITA) have been adhering to the processes and procedures in place to review Section 232 product exclusion requests and (2) the lack of transparency in the decision-making process. The memo notes that the IG discovered that officials and interested parties have had “off-record communications” that have not been documented and that subsequent actions have been based on those conversations. This behavior gives the appearance that the product exclusion process is not transparent, that there is an “unofficial appeals process” and that “decisions are not rendered based on evidence contained in the record.” In at least one reported instance, the memo notes that BIS revised a review criterion in the exclusion request process based on communications with an objecting party, that no other parties were aware of the communication or had the opportunity to comment, and that the resulting change “will likely result in an increase in the number of exclusion requests [that are] rejected.” This incident alone raises concerns of the appearance of improper influence on the review process.

As a result, the IG proposes that BIS consider these corrective actions:

  1. regard all decisions as final once they are posted online, or amend the exclusion process regulations to allow for appeals;
  2. create a formal process for modifying internal criteria that is used to review exclusion requests in order to ensure internal criteria are properly vetted and approved before implementation; and
  3. document all discussions with interested parties, and direct all emails concerning specific exclusion requests to BIS’s official organizational email addresses to ensure that the correspondence becomes part of the official record.

The Office of the U.S. Trade Representative (USTR) has announced that it is seeking public comment on its consideration of extending certain product exclusions it granted in December 2018 in the ongoing trade dispute with China [update: USTR Federal Register notice of October 31, 2019]. 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). On December 28, 2018, USTR granted an initial set of exclusion requests (see Trump and Trade Update of January 2, 2019). These exclusions are currently set to expire on December 28, 2019.

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.” The following 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 with respect 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 November 1 and November 30, 2019. All submissions must be made electronically via the www.regulations.gov portal on docket number USTR-2019-0019. 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, USTR notes that submitters must also file a public Form A.

At this time, USTR is considering the possible extension of product exclusions only for those approximately 1,000 exclusions granted in December 2018; no other extensions under any other product exclusion notices issued by USTR will be considered.

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has announced a new “humanitarian mechanism” to ensure transparency in humanitarian trade with Iran. According to OFAC, this mechanism “will help the international community perform enhanced due diligence on humanitarian trade to ensure that funds associated with permissible trade in support of the Iranian people are not diverted by the Iranian regime to develop ballistic missiles, support terrorism, or finance other malign activities.” This announcement accompanied a separate but related announcement by Treasury’s Financial Crimes Enforcement Network (FinCEN) regarding Iran money laundering concerns (see Trump and Trade Update Treasury’s Financial Crimes Enforcement Network (FinCEN) Issues Final Rule Concerning Iran Money Laundering Concerns).

Under this new method for providing humanitarian aid to Iran, Treasury and the Department of State will establish a process to help ensure that participating governments and financial institutions commit to conducting enhanced due diligence to mitigate the higher risks associated with Iran-related transactions and thus avoid running afoul of U.S. sanctions on Iran. While certain exceptions and general licenses have long allowed for certain humanitarian aid to Iran, OFAC stated that this new mechanism will result in enhanced due diligence to ensure payment mechanisms for legitimate humanitarian aid exports. This mechanism, designed solely for the purpose of commercial exports of agricultural commodities, food, medicine and medical devices to Iran, will be available to U.S. persons and U.S.-owned or -controlled foreign entities, as well as non-U.S. entities. OFAC has indicated that it will continue to consider other requests related to humanitarian aid for Iran as appropriate.

The new mechanism will require an “unprecedented” amount of information, with appropriate disclosure and use restrictions, on a monthly basis, as described in guidance provided by OFAC outlining specific requirements. It appears that a main purpose of this new mechanism is to restrict the role of the Central Bank of Iran (CBI) in facilitating or playing any role in humanitarian aid transactions in order to prevent any fund transfers to terrorist organizations.

This framework for more transparent humanitarian trade with Iran will allow U.S. persons, foreign governments and foreign financial institutions to seek written confirmation from OFAC that the proposed financial channel will not be exposed to U.S. sanctions, in exchange for these foreign governments and financial institutions committing to providing additional information on a monthly basis on their use of this mechanism. OFAC has indicated that the following documentation and information could be required for an Iranian humanitarian aid transaction:

  • Information used to identify the Iranian customers and to verify their identities and beneficial ownership;
  • Information to understand the purpose and intended nature of the transaction;
  • Information on the commercial and logistic elements of the transaction;
  • Written commitments from any Iranian distributors involved in the transaction that the goods will not be sold or resold to Iranian individuals or entities on the Specially Designated Nationals (SDN) List; and
  • Monthly statement balances of any account of an Iranian financial institution that is being used for humanitarian aid transactions.

OFAC encourages interested entities, foreign governments, and foreign financial institutions to contact OFAC for more information or with questions.

The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a long-awaited final rule prohibiting the opening or maintaining of correspondent accounts in the United States for, or on behalf of, Iranian financial institutions, and the use of foreign financial institutions’ correspondent accounts at covered U.S. financial institutions to process transactions involving Iranian financial institutions. On October 26, 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (USA PATRIOT Act) was signed into law. Section 311 of the USA PATRIOT Act grants FinCEN the authority, upon finding that reasonable grounds exist, for concluding that a jurisdiction outside of the United States and/or one or more financial institutions operating outside of the United States is/are of a primary money laundering concern. Upon such a conclusion, FinCEN can require domestic financial institutions and domestic financial agencies to take certain “special measures” to prevent money laundering and to cut off the foreign financial institution from the U.S. financial system.

Section 311 sets forth five special measures as preventative safeguards to defend the U.S. financial system from money laundering and terrorist financing. With this final rule, FinCEN has found that Iran is a jurisdiction of primary money laundering concern. In addition to other actions toward Iran – economic sanctions and U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) — the Department of the Treasury, in coordination with the Department of State, found that Iran has continued to evade sanctions and to fund terrorist activities. For all these reasons, FinCEN has now formally concluded that Iran is a jurisdiction of primary money laundering concern. This determination is based on the following findings:

  • Iran abuses the international financial system, developing covert methods for accessing the international financial system and pursuing its malign activities, including misusing banks and exchange houses, operating procurement networks that utilize front or shell companies, exploiting commercial shipping, and masking illicit transactions using senior officials, including those at the Central Bank of Iran (CBI).
  • Iran has used precious metals to evade sanctions and gain access to the financial system, and may in the future seek to exploit virtual currencies.
  • Iran’s evasive efforts serve to fund the Islamic Revolutionary Guard Corps (IRGC), its Islamic Revolutionary Guard Corps Qods Force (IRGC-QF), Lebanese Hizballah (Hizballah), Hamas, the Taliban and other terrorist groups.

FinCEN also determined that there is systemic and high levels of official and institutional corruption with various Iranian financial institutions that involve the IRGC. Further, FinCEN found that Iran lacks transparency and accountability under a comprehensive “anti-money laundering/countering the financing of terrorism” (AML/CFT) program and that public statements from Iranian officials indicate that Iran has no intention of adhering to international norms in this area of financing. Given this finding, covered financial institutions are now prohibited from opening or maintaining in the United States correspondent accounts for, or on behalf of, Iranian financial institutions, unless such an account is authorized by OFAC. OFAC will expect financial institutions to apply special due diligence and the implementation of risk-based procedures to guard against their foreign correspondent accounts from being used to process prohibited transactions involving Iranian financial institutions.

The Office of the U.S. Trade Representative (USTR) announced today more 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. The USTR determined that 83 specific product descriptions will be excluded from the tariffs, covering 95 separate exclusion requests, including: certain chemicals; certain polyethylene terephthalate (PET) film; certain gaskets, washers and seals made of nitrile rubber, ethylene propylene diene monomer (EPDM) rubber or fluoroelastomers; brake bushings; bamboo plates, bowls and trays; certain yarns, woven fabrics, nonwoven fabrics; certain imitation leather and other man-made fabrics; certain types of bolts; kerosene air heaters; certain freestanding cast iron bathtubs; certain portable work tables and saw horses; certain wrenches, clamps, drill bits; certain refrigerated lockers; pressure washers; certain types of ball and butterfly valves; certain portable electric space heaters and electric fireplaces; mobile wi-fi hotspots; certain gas ignition safety control devices; certain safety seat belts and assemblies; certain bicycle frames; certain unmounted lenses for rifle scopes, rangefinders and spotting scopes; certain battery-powered timers; certain wooden jewelry armoires; and certain bassinets.

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 annexes 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 Harmonized Tariff Schedule 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.

Merely nine days after implementing sanctions on Turkey for its military action in northeast Syria (see Trump and Trade Update of October 15, 2019), President Donald Trump announced that he was lifting those sanctions due to the continuing ceasefire along the border. The president stated that Turkey would be halting its offensive and make the ceasefire permanent. He added that since one would “define the word ‘permanent’ in that part of the world as somewhat questionable,” the sanctions would be lifted “unless something happens that we’re not happy with.”

As a result, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) removed sanctions imposed on Turkey’s Ministry of National Defence and Ministry of Energy and Natural Resources, as well as on its ministers of National Defence, Energy and Natural Resources and the Interior. With their removal from the Specially Designated Nationals (SDN) List, all of their property and interests in property, which had been blocked as a result of the OFAC sanctions, are unblocked and all otherwise lawful transactions involving U.S. persons and these entities and individuals are no longer prohibited.

In his remarks, Trump warned, “Should Turkey fail to honor its obligations, including the protection of religious and ethnic minorities … we reserve the right to re-impose crippling sanctions, including substantially increased tariffs on steel and all other products coming out of Turkey.”

The Office of the U.S. Trade Representative (USTR) has announced that it will begin accepting tariff exclusion requests on October 31, 2019, for imports of Chinese goods subject to a 15 percent tariff (Tranche/List 4 tariffs), which went into effect on September 1, 2019. This list encompasses products on List 4A of approximately $300 billion worth of Chinese products that President Donald Trump previously announced would occur in two phases – September 1 and December 15, 2019. See Trump and Trade Updates of August 1, 2019, August 13, 2019 and August 30, 2019.

As with the List 3 product exclusion request process, exclusion requests are to be submitted via USTR’s online exclusion request processing portal at www.exclusions.ustr.gov. This portal will open at noon on October 31, 2019, and all persons interested in submitting exclusion requests must do so no later than January 31, 2020, when the portal will close. As with all previous exclusion request processes, USTR has stated that each request must identify a particular product and provide supporting data and the rationale for the requested exclusion. Exclusion requests will be evaluated on a case-by-case basis, “taking into account the asserted rationale for the exclusion, whether the exclusion would undermine the objective of the Section 301 investigation, and whether the request defines the product with sufficient precision.” Requesting parties must provide their relationship to the product (Importer, U.S. Producer, Purchaser, Industry Association, Other) and provide specific data on the annual quantity and value of the Chinese-origin product, domestic product and third-country product involved in 2017, 2018 and the first half of 2019. Requesting parties must also provide information regarding their gross revenues for 2018 and the first half of 2019. Any exclusion will be effective for one year, starting from September 1, 2019.

The Department of Commerce’s Bureau of Industry and Security (BIS) further tightened U.S. sanctions on Cuba “for its repression of the Cuban people and its support of the Maduro regime in Venezuela.” Overall, the United States maintains a comprehensive embargo on trade with Cuba, and the export and reexport to Cuba of items subject to the Export Administration Regulations (EAR) require a BIS license unless authorized by a license exception. With the tightening of these sanctions, BIS issued an amendment to the Cuba provisions of the EAR that implements the following changes:

  • Licensing Policy for Aircraft – BIS will now apply a general policy of denial for leases of aircraft to Cuban state-owned airlines and has clarified that aircraft and vessels are no longer eligible for the License Exception Aircraft and Vessels (AVS) if they are leased to or chartered by a national of Cuba. Further, BIS has indicated that existing licenses will be revoked within the next seven days.
  • Change in De Minimis Amount Allowed in Foreign Goods – BIS has established a general 10 percent U.S.-origin de minimis content level for foreign items that contain U.S. content. The prior level had been 25 percent. This amendment drastically lowers the U.S. content level and will thus increase the amount of foreign-made items located abroad that are subject to the EAR under specified circumstances, including when they incorporate, or are bundled or commingled with, specified levels of controlled U.S.-origin commodities, software or technology. BIS has announced that license applications for the export or reexport of foreign-made items including 10 percent of more of U.S.-origin content will be subject to a policy of denial.
  • Revisions to License Exception Support for the Cuban People (SCP) – BIS has amended this license exception to: (1) make the Cuban government and Communist Party ineligible for certain donations, requiring a license application by any exporter wanting to donate items to organizations administered or controlled by the Cuban government or Communist Party so that the proposed donation can be reviewed by the U.S. government to determine whether donations to those entities would benefit the Cuban people; (2) eliminate an authorization for items to be given away for free for promotional purposes (BIS states that this provision has been primarily beneficial to the Cuban government since it has a virtual monopoly on importing items into the country); and (3) clarify that the SCP exemption for certain items for telecommunications is limited to eligible items for the creation and upgrade of telecommunications infrastructure to improve the free flow of information to, from, and among the Cuban people. Specifically, BIS notes that a license is required for the export or reexport to Cuba of items for telecommunications infrastructure that would be used to connect other specific end users (e.g., Cuban government ministries and state-owned hotels).

These amendments to the EAR are effective as of October 21, 2019. Secretary of Commerce Wilbur Ross stated, “This action … sends another clear message to the Cuban regime – that they must immediately cease their destructive behavior at home and abroad.”