American Trade & Manufacturing Blog

The Trump Administration and Sanctions

Posted in Economic Sanctions

During his presidential campaign, President-Elect Donald Trump made few concrete statements regarding sanctions policies. However, it is possible to identify some areas where things might change significantly.

Iran: President-Elect Trump has said that he would immediately scrap the Joint Comprehensive Plan of Action (JCPOA) with Iran. The JCPOA has been described as a political commitment rather than a legal agreement. Under U.S. law, the President could accordingly modify the commitments of the United States, or even withdraw the United States from the Agreement completely, by his own action. Among other measures, the United States could re-impose a range of secondary sanctions against Iran, including those applying to financial and banking transactions; transactions involving the energy, shipping and shipbuilding, and other sectors; and trade in certain materials like steel. From the perspective of U.S. companies, the most likely and far-reaching change would be the revocation of General License H, which allows the foreign subsidiaries of American companies to do some types of business with Iran. The re-application of secondary sanctions could have a major effect on U.S. relations with major trading partners, especially the European Union, which has dismantled most of its sanctions against Iran. It is likely that the EU in particular would argue strongly against any proposed re-expansion of U.S. sanctions against Iran. Warnings from the U.S. intelligence community that terminating the JCPOA would have adverse security consequences may also affect decisions regarding the JCPOA.

Russia: President-Elect Trump has emphasized that he wants to establish better relations with Russia. This could potentially lead to a loosening or even dismantling of U.S. sanctions against Russia. That said, the United States has worked closely with the EU to coordinate policy regarding Russia, which could act as a brake on changes.

Cuba: Following the death of Fidel Castro, President-Elect Trump threatened to reverse liberalization of U.S. sanctions against Cuba unless there was a “better deal for the Cuban people.” While the liberalization of U.S. sanctions against Cuba has been unpopular with some segments of the Republican Party, American businesses have already begun to take advantage of relaxed sanctions, and would probably oppose any renewed restrictions. The most likely outcome is the maintenance of the status quo, but little if any additional action regarding Cuba.

General U.S. Policy: One of the pillars of the Trump campaign was a desire for a less-interventionist U.S. foreign policy. Taken at face value, this would indicate that, under President Trump, the United States might be more reluctant to impose sanctions as a tool of foreign policy. This is especially true with respect to human rights issues. As always with a new administration, though, mostly we will have to wait and see, first who is appointed to key positions such as Secretary of State, and second, what the new Trump Administration actually does.

The Outlook For Sanctions and Export Controls in the Next Administration

Posted in Economic Sanctions, Export Controls

With the presidential election fast approaching, businesses may be wondering what the next administration is likely to do with respect to sanctions and export controls. If Secretary Clinton is elected, the most likely path is a continuation in general of the current policies. If Donald Trump is elected, the prospects are much less clear. And in any event, much depends upon international developments which, as we saw in connection with Ukraine, can change the international sanctions situation quite quickly.

In the event of a Democratic victory in the elections, Secretary Clinton has been relatively candid regarding her position on various countries laboring under sanctions regimes:

  • Iran: Secretary Clinton was a member of the Obama Administration, and was involved in negotiations with Iran over the Joint Plan of Action (JPOA). She has evinced suspicion of the Iranian government, going so far as to identify Iran as one of her “enemies,” but is likely to observe the terms of the JPOA, but to interpret the agreement narrowly.
  • Russia: Secretary Clinton’s distaste for President Putin and the Russian government is well-publicized. However, the United States has made great efforts to align its sanctions policies towards Russia with those of the European Union. Given current opposition within the EU to any expansion of sanctions against Russia, this may limit any expansion of U.S. sanctions against Russia.
  • Syria: Secretary Clinton has made clear her belief that President Assad must leave power in Syria, but U.S. sanctions against Syria are already quite comprehensive, and it is unclear how they could be expanded significantly.
  • Cuba: While there is no indication that Secretary Clinton shares President Obama’s commitment to liberalization of relations with Cuba, there is no reason to believe that she would reverse any of the recent measures, although the rate of softening could certainly slow. Significantly, a major portion of U.S. sanctions against Cuba are statutorily imposed, so that U.S. sanctions policy regarding Cuba will depend in large part upon developments in Congress.

Overall, Secretary Clinton is associated with proponents of a “more assertive” U.S. foreign policy. Increased use of sanctions as an instrument of U.S. foreign policy is likely, but it is premature to identify any specific examples. Similarly, it is likely that the current ongoing efforts to reform and rationalize U.S. export control laws will continue, but no appreciable liberalization is likely.

It is much more difficult to anticipate what President Trump would do with respect to sanctions and export controls. He has no record to review, and has made few if any statements regarding the subject. Mr. Trump has stated that he favors a less-interventionist foreign policy overall, and has called for better relations with Russia in particular. Whether this would translate into any liberalization of U.S. sanctions and export control policy, however, is unclear.

USTR Urged to Re-list Alibaba Group As a “Notorious Market”

Posted in Manufacturing

Today, the United States Trade Representative (“USTR”) concludes its annual collection information from the public regarding markets outside of the United States that should be included in the 2016 “Notorious Markets” List.  Published annually, USTR’s Notorious Markets List identifies both Internet and physical markets that are reported to engage in and facilitate substantial copyright piracy and trademark counterfeiting.

Alibaba Group Holding Ltd. (“Alibaba Group”) has yet again found itself on the defensive as it has been identified by various commenters as operating a notorious market.  Alibaba Group is China’s largest e-commerce company; its various online marketplaces bring together buyers and sellers for a host of goods – including potentially counterfeit merchandise.  USTR initially identified two of Alibaba Group’s online forums, Alibaba.com and Taobao.com, as notorious markets in 2008, but later removed them in 2011 and 2012, respectively, based on efforts that Alibaba Group made to combat the sale of counterfeit goods.

Nonetheless, USTR stated in its 2015 report that it was “increasingly concerned by rights holders’ reports that Alibaba Group’s enforcement program is too slow, difficult to use, and lacks transparency.” USTR also outlined steps Alibaba Group should take to improve its measures, but ultimately chose not to re-list any Alibaba Group forums.  Still, many U.S. rightsholders are not convinced that Alibaba Group has cleaned up its act, and a number of groups have submitted comments this year urging USTR to re-list Alibaba Group’s various online platforms in its 2016 report.  Specifically, the American Apparel & Footwear Association, the Auto Care Association, Maus Freres International Services S.A.S., the Motor & Equipment Manufacturers Association, the Specialty Equipment Market Association, the Trademark Working Group, and Union des Fabricants have all identified Alibaba Group’s online marketplaces as being rife with counterfeit goods and having insufficient measures in place to identify and combat the sale of such goods.  While Alibaba Group has submitted comments to USTR in response identifying steps it has taken to improve its intellectual property enforcement efforts, it remains to be seen whether USTR will consider these steps sufficient to prevent it from being re-listed.

The enforcement of intellectual property rights is an important aspect of enabling companies to compete in the global market place on a level playing field.  USTR’s annual review of its Notorious Markets List presents an important opportunity for U.S. companies and the associations that represent them to provide USTR with information that may not otherwise be available to the government and which may assist the government in taking steps to help protect and enforce U.S. companies’ rights here and abroad.  Copies of the written comments that have been submitted are available at www.regulations.gov under Docket Number USTR-2016-0013.

New Miscellaneous Tariff Bill Petition Process Opens Today

Posted in Customs Law, Manufacturing

Today, October 14, 2016, the U.S. International Trade Commission will begin accepting petitions for duty suspensions and reductions pursuant to the new Miscellaneous Tariff Bill process. The Commission will collect petitions for a 60-day period, after which it will comments in support or opposition to the petitions received. After it has analyzed all petitions and comments, the Commission will prepare a final report to Congress recommending duty suspensions for enactment.

Miscellaneous tariff bills can be an important tool in increasing U.S. manufacturing competitiveness, by reducing the cost of inputs that cannot be found in the United States. However, the traditional process for passing Miscellaneous Tariff Bills broke down over concerns that individual, product-specific bills introduced by members of Congress on behalf of constituent manufacturers constituted “earmarks.” The new Miscellaneous Tariff Bill process, established earlier this year by the American Manufacturing Competitiveness Act of 2016, counters these concerns by taking Congress out of the process of proposing bills on individual products. Rather, the U.S. International Trade Commission will receive and vet proposals, collect information on opposition to proposed duty suspensions, and then submit a final recommended duty suspension proposal to Congress.

For companies that have worked with members of Congress to submit individual bills in the past, the overall process will be familiar. Just as in the past, proponents of a duty suspension will need to provide information identifying the relevant product and its tariff classification. Proponents will also need to provide estimates of likely future annual imports of the product, and to identify, to the best of their ability, any U.S. producers of the same or directly competitive products.

As in the past, petitions will only make it into the final proposed bill if the duty loss that would occur by reason of a suspension on a specific goods is less than $500,000/year. Further, proposals regarding goods manufactured in the United States are highly unlikely to make it through the petition process.

Companies interested in filing petitions have from today until December 12, 2016 to do so. Companies may also be interested in reviewing filed petitions to determine whether any concern products that they manufacture in the United States. This will ensure that such companies have ample time to file comments in opposition.

The Importance of Being Proactive On CFIUS Issues

Posted in CFIUS

Last Friday, Lexmark International Inc., a U.S. manufacturer of printers and imaging products, announced that its proposed $3.6 billion acquisition by a Chinese consortium has been given the green light by the Committee on Foreign Investment in the United States (CFIUS).  Just over a month ago, on August 22, 2016, CFIUS also approved the $43 billion takeover of Syngenta AG, a Swiss agriculture company with extensive U.S. production  and presence, by a Chinese state-owned enterprise, China National Chemical Corporation (ChinaChem). In light of the numerous Chinese investment deals that fell apart earlier this year due largely to CFIUS concerns, these two success stories are particularly encouraging.

In the recent years, CFIUS reviews have increasingly focused on Chinese investment into the United States. The United States remains one of the most attractive markets for Chinese companies looking to protect against asset devaluation in their own economy while securing technological upgrades in the process. However, Chinese officials have, in the past, indicated a sense that CFIUS is biased against Chinese investors. This sense appeared not entirely unfounded as CFIUS played a decisive role in halting three significant Chinese investment deals in the U.S. earlier this year.

So what made Lexmark and ChemChina-Syngenta deals different? One thing that may have helped is that in both cases, the companies decided to make a voluntary filing with CFIUS early on in the acquisition process and fully cooperated by providing extensive information relating to the transactions. The approval of these two deals indicates that it is possible for Chinese companies, even state-owned entities like ChemChina, to gain controlling shares of U.S. businesses as well as multinational corporations that are heavily enmeshed in the U.S. economy. The key is taking a proactive approach with regard to CFIUS concerns.

While the decision to file with CFIUS is completely voluntary, there have been enough major deals halted in the past due to CFIUS concerns to alert any company thinking about cross-border transactions to carefully and thoroughly consider CFIUS issues. Proactively seeking CFIUS approval, even where national-security implications may not be apparent, is much better than forging ahead with the deal only to get blocked by CFIUS down the road. This proactive approach is especially crucial for transactions involving technology, infrastructure, or entities located near U.S. government facilities or receiving U.S. government funding.

In short, companies that may be involved in mergers, acquisitions, or takeovers should always be cognizant of CFIUS issues. It is wise to plan ahead, do a thorough due diligence, and notify CFIUS of proposed transactions as early as possible, even if there do not appear to be major national security implications. This proactive approach avoids the time and expense of walking away from a deal, or dealing with forced divesture and mitigation requirements later in the deal.

DDTC Formally Recognizes Changes in U.S. Policy Toward Côte d’Ivoire, Liberia, Sri Lanka, and Vietnam

Posted in Export Controls

As detailed in a prior post, the Department of State’s Directorate of Defense Trade Controls (DDTC) recently announced significant changes to its policies on exports of munitions items to Côte d’Ivoire (Ivory Coast), Liberia, Sri Lanka, and Vietnam. Last Thursday, DDTC codified these changes in the U.S. International Traffic in Arms Regulations (ITAR), eliminating any uncertainty within industry regarding the treatment of the four countries.

Côte d’Ivoire, Liberia, Sri Lanka, and Vietnam had been identified in section 126.1 of the ITAR (i.e., ITAR-prohibited countries), which generally lists countries subject to U.S. and/or United Nations arms embargoes and imposes a number of restrictions on ITAR-controlled exports to such countries. Although DDTC previously announced that it now would consider export license applications for the four countries on a case-by-case basis, rather than a general policy of denial, it did not formally amend section 126.1 of the ITAR until last week. Up until that time, the section 126.1 restrictions, including the requirement to obtain a license or other approval before even making a proposal or presentation to sell defense articles to these four countries, regardless of whether or not such proposal or presentation contains controlled technical data, and the prohibition on use of most ITAR license exemptions for such countries, technically were still in effect in the regulations.

DDTC’s recent amendment to the ITAR puts U.S. exporters’ minds at ease, as it is now explicitly clear that the special restrictions in section 126.1 of the ITAR no longer are in place for Côte d’Ivoire, Liberia, Sri Lanka, and Vietnam. Along with opening up potential defense-related trade with these four countries, DDTC also designated Tunisia as a major non-NATO ally in the ITAR and created new exceptions to its policies of denial for license applications to export ITAR-controlled items to current section 126.1 countries Somalia, Eritrea, and the Democratic Republic of Congo.

Och-Ziff Capital Enters into Fourth-Largest FCPA Settlement in History

Posted in FCPA

On September 29, 2016, the Securities and Exchange Commission announced that Och-Ziff Capital Management Group will pay nearly $200 million to settle civil Foreign Corrupt Practices Act (FCPA) charges.  Combined with the expected criminal penalty of $213 million from the U.S. Department of Justice (DOJ), Och-Ziff’s $413 million settlement will land it fourth on the list of the largest FCPA enforcement actions in history.  The agreement also requires Och-Ziff to retain a compliance monitor for three years.

Alternative asset management company Och-Ziff was charged with violating the anti-bribery, books and records, and internal controls provisions of the FCPA.  The charges alleged that Och-Ziff paid bribes to high-level foreign government officials to win natural resources deals in which the fund invested across Africa, including in Libya, Chad, Niger, Guinea and the Democratic Republic of Congo.  As in many recent FCPA enforcement actions, the payments were reportedly made through third parties, such as intermediaries, agents, and business partners in Africa.  As one example, Och-Ziff is said to have bribed the Libyan Investment Authority’s sovereign wealth fund to make substantial investments in Och-Ziff managed funds.  Such bribes were improperly recorded in Och-Ziff’s books, including as payments for “Professional Services.”

This major enforcement action also serves as an example of the enforcement agencies’ focus on individual FCPA prosecutions.  In addition to the substantial corporate penalty, Och-Ziff’s CEO and CFO have also individually settled charges.  CEO and founder Daniel Och agreed to pay nearly $2.2 million to the SEC; CFO Joel Frank has agreed to pay a settlement that has not yet been assessed.  Both executives allegedly ignored warnings from their legal and compliance teams and approved deals where they were aware of a high risk of corruption.

BIS Publishes Changes to Its Encryption Rules, Reflecting Tech and Wassenaar Updates

Posted in Export Controls

Last Tuesday, the Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule amending its existing rules for encryption products (the “Final Rule”). In what will no doubt be seen by industry as at least a small and perhaps long overdue breath of fresh air, the Final Rule streamlines BIS’s approach to encryption products and updates its rules to reflect and implement changes arising from the December 2015 Wassenaar Arrangement Plenary Meeting.

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CBP Gears Up For Trade Enforcement

Posted in Customs Law

U.S. Customs & Border Protection (CBP) has launched a new website to keep the trade apprised of its authorities and efforts under the Trade Facilitation and Trade Enforcement Act (TFTEA) of 2015, which President Obama signed into law earlier this year. The TFTEA included significant new provisions strengthening CBP’s authority to combat trade remedy evasion, enforce intellectual property rights at the border, and ensure that all importers correctly declare their merchandise.

The new website includes a fact-sheet describing the major goals of the legislation, as well as links to implementation updates, summaries of meetings of the Customs Operations Advisory Committee discussing implementation of the TFTEA, and relevant remarks from agency officials.

TFTEA’s passage signaled a retrenchment of governmental interest in the vigorous enforcement of U.S. trade and importation laws, to ensure that all importers are competing on a fair playing field – both with one another and with their U.S.-based competition. At the same time, the law also offered provisions meant to streamline the importation process, such as an increase in the “de minimis” value for duty assessment.

CBP has not sat on its new authority, instead taking action to develop new regulations to process complaints regarding antidumping and countervailing duty evasion.

U.S. Lodges WTO Complaint Requesting that China Clear Its Crop Subsidies

Posted in World Trade Organization

On September 13, 2016, the United States filed a complaint with the World Trade Organization (WTO) alleging that China has unfairly subsidized the production of Chinese rice, wheat, and corn. The U.S. government’s complaint takes issue with China’s “market price support” subsidy program, in which the Chinese government sets the minimum price at which it will purchase rice, wheat, and corn from Chinese farmers above the prevailing world market price for these crops.

As with many industries within China that are plagued with overcapacity, including steel, aluminum, and solar, China’s provision of massive subsidies and its interference in the grain industry has led to significant over production by Chinese farmers. Indeed, since 2012, China has regularly used its “market price support” subsidy program to manipulate agricultural production decisions within the country and encourage the production of rice, wheat, and corn beyond the level of what would otherwise occur. Ultimately, China’s market price support subsidy program has distorted its domestic market for these crops, displacing imports and limiting opportunities for U.S. products to satisfy China’s import demand for rice, wheat, and corn.

When China joined the WTO, it agreed that it would not provide trade-distorting subsidies to the grain industry above the de minimis level of 8.5 percent.  But according to the United States government, China has significantly exceeded this level of support to its local farmers in each of the last four years. In 2015, China provided over $100 billion of support to its rice, wheat, and corn industries.

U.S. rice, wheat, and corn exports collectively represent $20 billion annually and support over 200,000 American jobs. But China’s provision of agricultural subsidies that essentially limit access to its market can have negative effects on American workers and their communities.  According to a 2016 study sponsored by the U.S. Wheat Associates, China’s “market price support” subsidies cost U.S. wheat farmers approximately $650 million in revenue annually.

Since 2009, the U.S. government has challenged China’s unfair trade practices on 13 separate occasions and has won every single case – ranging from export restrictions on rare earths to the imposition of duties on U.S. chicken products.  Another U.S. win before a WTO panel would bring the U.S. rice, wheat, and corn industries one step closer to competing on a level playing field to supply China’s import demand for these crops.

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