American Trade & Manufacturing Blog

USTR Releases Reports Identifying Problematic Trade Practices by Chinese and Russian Governments

Posted in Trade Agreement Compliance, World Trade Organization

On January 19, 2018, the U.S. Trade Representative (USTR) released its annual reports on China’s and Russia’s compliance with their World Trade Organization (WTO) obligations.

These reports highlight areas in which these countries continue to pursue policies that run afoul of global trade rules. In its reports, USTR concluded that both “China and Russia have failed to embrace the market-oriented economic policies championed by the {WTO} and are not living up to certain key commitments they made when they joined the WTO.”

USTR expressed significant concerns with recent policies pursued by the Chinese Government.  The report states that, “over the past five years, despite Chinese pronouncements to the contrary, the state’s role in the economy has increased, as have the seriousness and breadth of concerns facing U.S. and other foreign companies seeking to do business in China or attempting to compete with favored Chinese companies in their home markets.”  The report identified “priority issues” of particular concern for the United States and U.S. stakeholders, including industrial policies, inadequate intellectual property rights protections, barriers to providing services in and agricultural exports to China, and a lack of transparency and other concerns with China’s legal framework.  Among the industrial policies USTR emphasized as problematic, the report identifies:

  • Technology transfer requirements;
  • The pursuit of industrial plans;
  • Indigenous innovation policies;
  • Investment restrictions;
  • Restrictions on information and communications technology products and services;
  • The provision of substantial subsidies to domestic industries;
  • Policies contributing to excess capacity situations in various industries;
  • The continued implementation of export restrictions;
  • The imposition or retraction export duties to manage exports;
  • Prohibitions and limitations on the importation of remanufactured products and recoverable materials;
  • The use of standards to limit market access and promote domestic companies’ interests;
  • The failure to adequately open the government procurement market; and
  • The use of trade remedy laws as retaliation against trading partners that have exercised their rights under the WTO.

With respect to Russia, USTR noted that a “few positive steps” have been made, but said that these “are the exception, not the rule.”  Among troubling policies and practices implemented by the Russian Government, USTR highlighted that Russia:

  • Has an opaque import licensing regime and customs legal regime;
  • Imposes export restrictions;
  • Maintains a ban on nearly all agricultural products from the United States and continues to erect other barriers to U.S. agricultural exports;
  • Provides subsidies to many producers;
  • Has expanded import substitution policies and localization requirements;
  • Has failed to reliably and effectively protect intellectual property rights; and
  • Needs to be more transparent in notifying the WTO about draft measures.

USTR has stated that it will pursue all avenues, including WTO dispute resolution, to address these policies and promote market-oriented practices in China and Russia.

The full text of USTR’s reports on China and Russia are available here and here.

United States and South Korea to Begin Negotiations on KORUS FTA

Posted in Trade Negotiations

On January 5, 2018, the United States and the Republic of Korea will meet in Washington, D.C. to discuss amendments and modifications to the United States-Korea Free Trade Agreement (KORUS FTA).  Michael Beeman, the Assistant U.S. Trade Representative for Japan, Korea, and APEC, will lead the United States delegation. The South Korean delegation will be led by Myung-hee Yoo, Director General from the Republic of Korea’s Ministry of Trade, Industry and Energy.

These formal negotiations follow two special sessions of the KORUS Joint Committee, held on August 22, 2017 and October 4, 2017.  United States Trade Representative Robert Lighthizer initiated these discussions at the direction of President Trump in July 2017.  In the letter to the Republic of Korea formally calling for a special Joint Committee meeting, Ambassador Lighthizer emphasized the United States’ significant trade deficit with Korea, which has increased since the KORUS FTA’s March 2012 implementation.  According to USTR, the U.S. trade deficit in goods with Korea more than doubled from 2011 to 2016, rising from $13.2 billion to $27.6 billion. USTR has also raised market access concerns, emphasizing that burdensome Korean government regulations often exclude U.S. firms or artificially set prices for American intellectual property.  The South Korean government has emphasized that it will prioritize expanding national interest during the negotiations.  South Korea’s negotiating objectives are expected to cover the agriculture and livestock sectors.

 

President Releases National Security Strategy

Posted in Trade Negotiations, Trade Policy, Trade Remedies

On Monday, the President released the Administration’s National Security Strategy.  Organized into four pillars – the protection of the American public, the promotion of American prosperity, the preservation of peace, and the advancement of American influence – the National Security Strategy reflects the Administration’s goals to “revitalize the American economy, rebuild {the} military, defend {the country’s} borders, protect {its} sovereignty, and advance {the nation’s} values.”

With regard to trade, the Strategy sets out an overarching goal to engage in “fair and reciprocal” economic relationships with other countries, while also announcing that the United States “will pursue enforcement actions when countries violate the rules to gain unfair advantage.”  The Strategy also discusses threats posed by China and Russia in the areas of trade, economics, and intelligence.  In particular, it takes on the expansion of unfair trade practices by China and offensive cyber efforts by Russia.  Moreover, echoing the objectives of the recent section 232 investigations, the Administration’s Strategy calls for a strengthening of American manufacturing for purposes of national security.  According to the Strategy, “{s}upport for a vibrant domestic manufacturing sector, a solid defense industrial base, and resilient supply chains is a national priority.”

U.S.-China Commission 2017 Annual Report Highlights Industrial Policy in Tech Sectors and Chinese Investment in the United States

Posted in Trade Policy

On November 15, 2017, the U.S.-China Economic and Security Review Commission (USCC) published its 2017 Annual Report to Congress on the national security implications of the U.S.-China economic relationship.  In addition to an annual review U.S.-China trade issues, the report includes chapters focused on China’s pursuit of dominance in computing, robotics, and biotechnology and on Chinese investment in the United States.

Regarding the Chinese government’s efforts to acquire and develop indigenous capabilities in high-technology sectors, the report’s findings highlight growing risks and challenges for the United States.  The report finds that “China’s state-directed industrial policies are slowly closing market opportunities for U.S. and other foreign firms in China and nurturing Chinese competitors that will be able to challenge U.S. companies in the United States and third country markets.”  The report also notes that “the 13th Five-Year Plan reaffirmed the state’s long-held commitment to integrating civilian and military technology development, stating that the Chinese government seeks to ‘encourage flow of factors such as technology, personnel, capital, and information between the economic and defense sectors’ and strengthen the ‘coordination between the military and civilian sectors in the sharing of advanced technologies, industries, products, and infrastructure.’”

According to the report, this intermingling of state and commercial objectives “raise[s] concerns about the ability of U.S. regulators to manage the risks of investment from state-influenced entities.”  Specifically, the report notes the following challenges regarding Chinese investment in the United States:

  • “First, most Chinese FDI in the United States (outside of real estate investments) is targeting industries deemed strategic by the Chinese government.”
  • “Second, some private Chinese companies operating in strategic sectors are private only in name. Instead, the state extends its influence through an array of measures, including financial support and other incentives, to influence business decisions and achieve state goals.”
  • “Third, some Chinese firms are utilizing increasingly sophisticated methods to acquire strategic U.S. entities. Chinese companies employ a myriad of methods to circumvent U.S investment laws and regulations, including obscuring government-influenced investments through shell companies, conducting cyber espionage campaigns to financially weaken and then acquire U.S. firms, and claiming immunity from U.S. lawsuits under [the Foreign Sovereign Immunities Act].”

The report is available on USCC’s website, here.

USTR Year in Review & Potential 2018 Trade Policy Changes Webinar

Posted in Announcements

In the first year of his Administration, President Trump has taken several actions that are creating trade uncertainties for businesses and governments worldwide. Join us for a policy and law briefing to learn about new opportunities and challenges presented by the Administration’s actions in its first year, how new trade policies may affect domestic and foreign organizations, and what is to come in 2018.

Tuesday, January 9, 2018 | 12:00 p.m. – 1:00 p.m. EST

Discussion topics will include:

North American Free Trade Agreement (NAFTA)
Digital Trade
World Trade Organization (WTO) Updates
U.S. Trade Remedy Actions

Register Here.

Agencies Amend Cuba Sanctions to Implement President Trump’s June National Security Presidential Memorandum

Posted in BIS, Economic Sanctions, Trade Policy

Last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of State took steps to implement restrictions on tourism and trade with Cuba, which were announced by President Trump in June. Consistent with the National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba, the State Department published a list of restricted entities in Cuba’s military, intelligence, and security services sectors (Cuba Restricted List). At the same time, OFAC amended its Cuban Assets Control Regulations (CACR) and BIS amended its Export Administration Regulations (EAR) to strictly enforce the statutory ban on tourism in Cuba and to restrict the flow of money and U.S. goods to entities on the Cuba Restricted List.

Increased Restrictions on Certain Financial Transactions and Travel

The Cuba Restricted List includes entities or subentities that the State Department has identified as being under the control of, or acting for or on behalf of, the Cuban military, intelligence, or security services or personnel. The list includes, but is not limited to, the Ministry of the Interior, Ministry of the Revolutionary Armed Forces, holding companies such as GAESA, Gaviota, and CIMEX (and specified subentities of each), numerous hotels in Cuba, and entities determined to be directly serving the Cuban Defense and Security Sectors. Pursuant to OFAC’s amendments to the CACR, U.S. persons are now prohibited from engaging in certain direct financial transactions with the entities and subentities identified on the Cuba Restricted List. This could prove particularly troublesome for U.S. companies seeking to do business in the Cuban hospitality sector, as many flagship hotels in Cuba are now off-limits unless specifically authorized. Notably, commercial engagements in place with such entities prior to November 9, 2017 remain authorized.

In addition, the CACR now prohibit individual people-to-people nonacademic educational travel to Cuba. Instead, such travel can now be engaged in only under the auspices of an organization subject to U.S. jurisdiction that sponsors such exchanges to promote people-to-people contact, and such travelers must be accompanied by a representative of the sponsoring organization. The remaining categories of travel previously authorized under general licenses remain authorized, provided that the travel does not involve direct financial transactions with entities and subentities identified on the Cuba Restricted List.

OFAC is also amending the definition of “Officials of the Government of Cuba” to include certain additional individuals. While previously limited to members of the Council of Ministers and flag officers of the Revolutionary Armed Forces, the new definition now also includes, but is not limited to, Ministers and Vice Ministers, members of the Council of State, members and employees of the National Assembly of People’s Power, members of any provincial assembly, Director Generals and sub-Director Generals and higher of all Cuban ministries and state agencies, and certain editors of Cuban state-run media organizations and programs. U.S. persons are prohibited from engaging in specified transactions with such prohibited officials.

Expanded Restrictions on Trade in Goods with the Cuban Government

Although most trade with Cuba is prohibited by the statutory embargo, BIS considers certain types of export license applications on a case-by-case basis or under a general policy of approval. One such type of transaction subject to case-by-case review involves exports of items to state agencies or government-owned companies to meet the needs of the Cuban people, such as products for infrastructure benefitting the Cuban people. Even before BIS’s amendments, the agency typically denied these applications if the items were for use by government entities that primarily generate revenue for the state. BIS’s changes clarify that it also generally will deny applications of goods for use by entities on the State Department’s Cuba Restricted List, with certain limited exceptions (e.g., the export furthers U.S. national security or foreign policy interests).

Consistent with OFAC’s amendment to the definition of prohibited government officials, BIS also made corresponding expansions to its list of Cuban government officials, thereby rendering these individuals ineligible for three license exceptions in the EAR—License Exceptions Gift Parcels and Humanitarian Donations (GFT), Consumer Communications Devices (CCD), and Support for the Cuban People (SCP).

While the administration clamped down on certain transactions with the Cuban government, BIS also simplified and expanded License Exception SCP to further support Cuba’s fledgling private sector. Previously, this exception permitted exports of certain items, such as tools, for certain private sector end-uses in Cuba, such as private building construction and agricultural activities. The new rule removes these limitations and instead generally authorizes exports of EAR99 items and other items subject to low level export controls for use by the Cuban private sector for private sector economic activities. Nevertheless, U.S. exporters relying on this exception must ensure that the items are not going to be used primarily to generate revenue for the state or to contribute to the operation of the state (e.g., construction of Cuban government-owned buildings).

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Both OFAC and BIS emphasized that the changes to the Cuba rules of engagement do not impact commercial engagements or approved licenses that were in place prior to the issuance of the revised regulations. Going forward, however, many of the limitations introduced by the agencies may well have a chilling impact on travel and trade with Cuba.

FARA Webinar: Overview of the Act and Recent Developments in a New Enforcement Environment on December 12 at 12 PM EST

Posted in Announcements

The Foreign Agents Registration Act (FARA), once a little-known law, has been thrown into the national spotlight in recent months. The law, which has been on the books since 1938, is a disclosure statute that requires persons who are acting as agents of a foreign principal, and providing services in a political or public relations capacity in the United States, to make periodic public disclosures to the U.S. government regarding their activities for or on behalf of that foreign principal.

During this webinar, guided by Dan Pickard and Tessa Capeloto from Wiley Rein’s International Trade Practice, you will learn how to provide political or public relations services to your foreign clients without risking FARA violations and the potential fines, imprisonment, and reputational damage that could result. This presentation will explore a variety of FARA-related topics, including:

  • The types of representations that require registration under FARA;
  • Available exceptions;
  • Registrant requirements under FARA; and
  • Recent enforcement actions by the U.S. Department of Justice.

Register Here.

Updated Foreign Agents Registration Act (FARA) Handbook

Posted in Announcements

Wiley Rein has updated our Foreign Agents Registration Act (FARA) Handbook, which reviews the rules that govern whether an entity should register with the FARA Registration Unit of the U.S. Department of Justice, the registration process, the obligations of registered agents, and the penalties that may be imposed for FARA violations. Any person who engages in political activities on behalf of a foreign principal will likely be required to register under FARA.

Wiley Rein’s International Trade Practice, recognized by Chambers USA as one of the country’s elite international trade practices, regularly advises sophisticated industry clients on FARA matters. In addition to providing high-level legal analysis of potential FARA issues, our attorneys provide step-by-step assistance with the registration process. Ongoing counseling from our attorneys ensures that our clients remain in compliance with FARA regulations in a dynamic, international marketplace.

The FARA Handbook can be read here.

For more information about FARA, please contact Daniel B. Pickard (202.719.7285 or dpickard@wileyrein.com).

Commerce Department Finds that China Remains a Non-Market Economy Under U.S. Law

Posted in Trade Agreement Compliance, Trade Policy, Trade Remedies, World Trade Organization

On October 27, 2017, the U.S. Commerce Department issued its preliminary determination in the antidumping investigation of Aluminum Foil from China.  A key aspect of this determination was an analysis of whether China should continue to be treated as a non-market economy in U.S. antidumping investigations.  In this regard, Commerce concluded that China remains a non-market economy because:

At its core, the framework of China’s economy is set by the Chinese government and the Chinese Communist Party (CCP), which exercise control directly and indirectly over the allocation of resources through instruments such as government ownership and control of key economic actors and government directives. The stated fundamental objective of the government and the CCP is to uphold the “socialist market economy” in which the Chinese government and the CCP direct and channel economic actors to meet the targets of state planning. The Chinese government does not seek economic outcomes that reflect predominantly market forces outside of a larger institutional framework of government and CCP control.

The right of WTO Members to continue treating China as a non-market economy in antidumping proceedings after December 11, 2016 is currently subject to challenge before the World Trade Organization (“WTO”).  Commerce’s 200-page analysis of the Chinese economy is the first time since 2006 that the agency has considered China’s market-economy status under U.S. law.  It confirms the United States’ position that WTO rules, even after December 11, 2016, continue to allow Members to treat China as a non-market economy, unless and until China demonstrates otherwise under the law of the individual Member.

A copy of Commerce’s memorandum is available here.

International Trade Commission Provides Overview of Major Digital Trade Issues

Posted in Trade Policy

In recent years, a growing number of restrictions on digital trade around the world has caught the attention of U.S. policy makers.  On January 13, 2017, for example, the United States Trade Representative requested the International Trade Commission (“ITC”) to prepare a series of three reports on “the value of new digital technologies for U.S. firms and the impact of barriers to digital trade on U.S. firms’ competitiveness in international markets.”  The first of these reports, Global Digital Trade 1: Market Opportunities and Key Foreign Trade Restrictions, is a thorough introduction to the primary digital trade barriers that have emerged with the expansion of the digital economy, and to the industries affected most.

The ITC’s report identifies six general categories of regulatory and policy measures that create restrictions on digital trade in major markets:

  • Data protection and privacy, including data localization;
  • Cybersecurity;
  • Intellectual property rights;
  • Censorship;
  • Market access restrictions (g., low de minimis duty thresholds and unique technical standards for hardware and software); and
  • Investment measures (g., ownership restrictions, licensing and taxation policies, and local content requirements).

Specific sectors covered by the report include:

  • Internet infrastructure and network communication services;
  • Cloud computing services;
  • Digital content, search, and news;
  • E-commerce, digital payments, and records; and
  • Consumer communications services and devices.

The ITC’s second report, which will provide analysis of specific restrictions on “business to business” (“B2B”) products and services in key foreign markets, is due by the end of October 2018.  The final report is due by the end of March 2019 will provide similar analysis regarding “business to business” (“B2B”) products and services.

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