On July 10, 2018, the United States Trade Representative (USTR) issued another list of Chinese products that may be subject to 10% duties stemming from the Section 301 investigation into China’s unfair practices related to technology transfer, intellectual property, and innovation. This list of products includes 6,031 tariff subheadings, covering a broad range of products, including agricultural goods, chemicals, building materials, and electronics, with an annual trade value of approximately $200 billion.
Washington, DC—For the second consecutive year, Wiley Rein LLP has been named “Legal Services Provider of the Year” by American Metal Market (AMM) as part of the publication’s annual Awards for Steel Excellence. The award was presented yesterday evening to Alan H. Price, chair of the firm’s International Trade Practice, at a ceremony in New York City. The awards dinner honored winners in 15 categories selected from 53 finalists spanning the steel industry chain.
The awards program recognizes companies that have demonstrated best-in-class performance in their respective segments of the steel industry. The awards dinner was held in conjunction with Steel Survival Strategies XXXIII, North America’s largest steel conference, which is presented by AMM and World Steel Dynamics Inc.
Mr. Price also was a featured speaker at the conference, participating in yesterday’s panel discussion on “Steel Marketplace: Winning Strategies.”
Wiley Rein has one of the nation’s largest and most diverse international trade groups, advocating for U.S. steel companies that find their very existence threatened by foreign governments’ unfair trade practices. The firm’s International Trade Practice provides solutions for its clients through a blend of legal expertise, trade policy, thought leadership, and public relations capabilities. Wiley Rein is one of the leading firms in trade remedy proceedings representing U.S. producers, and is among a limited number of practices that regularly serve as principal counsel for major unfair trade investigations.
Following the President’s May 8, 2018 withdrawal from the Joint Comprehensive Plan of Action (JCPOA), today, the Office of Foreign Assets Control (OFAC) revoked General License H (GL H), which authorized U.S.-owned or -controlled foreign entities to engage in business with Iran, and General License I (GL I), which authorized U.S. persons to negotiate and enter into contingent contracts related to activities subject to OFAC’s (since revoked) favorable licensing policy for commercial passenger aircraft and related parts and services.
In conjunction with these changes, OFAC authorized the following wind-down activities:
- All transactions and activities that are ordinarily incident and necessary to the wind-down of transactions relating to foreign entities owned or controlled by U.S. persons that were previously authorized under GL H, including transactions by U.S. parent companies and other U.S. persons related to necessary modifications of operating policies and procedures and continued use of automated and globally integrated business support systems to facilitate wind-down activities. Such wind-down transactions are authorized through November 4, 2018.
- All transactions and activities ordinarily incident and necessary to the wind-down of transactions related to the negotiation of contingent contracts for the export/reexport to Iran of commercial passenger aircraft and related parts and services previously authorized under GL I. These wind-down transactions are authorized through August 6, 2018.
- All transactions and activities ordinarily incident and necessary to the wind-down of transactions related to the importation into the United States of, and dealings in, certain Iranian-origin carpets and foodstuffs, such as pistachios and caviar. Such wind-down transactions are authorized through August 6, 2018.
Typically, wind-down activities do not cover “new” transactions. OFAC has stated that any activities involving Iran that continue after the wind-down periods conclude could be subject to enforcement actions, and that in evaluating potential enforcement or sanctions actions to take, OFAC will consider the efforts made to wind down activities prior to the conclusion of the applicable wind-down period. In other words, without explicitly stating as much, the U.S. government appears to be putting companies on notice that if they engage in new business with Iran during the wind-down periods, they do so at their own peril.
The U.S. House of Representatives yesterday passed by an overwhelming margin of 400-2 its version of the Foreign Investment Risk Review Modernization Act (FIRRMA). The landmark bipartisan legislation would significantly expand the jurisdiction and operational mandate of the Committee on Foreign Investment in the United States (CFIUS) and reform the CFIUS review process in a number of important respects. Our summary of the legislation as originally introduced is available here.
Notably, the current bills in both the House and the Senate omit the language in the original bill that would have authorized CFIUS to review certain outbound technology transfers (including of IP) through joint ventures and other similar arrangements. The current Senate draft, which differs from the House version in certain respects, has since been incorporated into the National Defense Authorization Act (NDAA) for Fiscal Year 2019, whereas the House version passed as a standalone bill. Conferees will be chosen in the coming weeks to reconcile the Senate and House versions. With the NDAA generally considered must-pass legislation, however, it appears highly likely that FIRRMA will soon become law in one form or another.
On March 8, 2018, President Donald Trump imposed tariffs of 25 percent on steel imports and 10 percent on aluminum imports pursuant to Section 232 of the Trade Expansion Act of 1962, which authorizes him to adjust imports in the interests of national security. Over the next two months, the president granted temporary exemptions to various trading partners, including the European Union, Canada and Mexico, as possible alternative forms of relief were negotiated.
Even as these negotiations were in progress, the EU took a confrontational approach asserting that it could unilaterally declare Trump’s actions to be a safeguard, entitling them to immediate retaliation. On May 31, 2018, the president signed two additional proclamations. In both, he announced that the tariffs would apply to Canada, Mexico and the EU, and that Australia was exempt. With respect to steel, he announced that quotas would be provided to Argentina, Brazil and Korea. With respect to aluminum, he announced that the imports from Argentina would be subject to a quota.
Following the imposition of tariffs, the EU was quick to claim the U.S. measures were disguised “safeguards.” Ultimately, the Chinese agreed, and were first to challenge the Section 232 relief on that basis. The EU and others claimed that the U.S. action to impose Section 232 relief on aluminum and steel imports for national security reasons would undermine the rules-based global trading order. Given their own previous statements, however, it is clear that the EU’s and others’ unilateral acts of retaliation are outside the rules, and represent the true threats to the global trading order.
Only by unilaterally reinterpreting the U.S. government’s Section 232 investigation and the subsequent relief can the EU and others attempt to justify their retaliation under the existing World Trade Organization rules. This rationale is unsupported by the facts, and anathema to the very WTO rules they claim to champion.
In fact, in its third-party submission in the Russia-Ukraine dispute regarding “Traffic in Transit (DS 512)” before the WTO, in response to Russia’s defense that the national security provision of Article XXI prevents any review by a dispute settlement panel, the EU states expressly that Article 23 of the Dispute Settlement Understanding, or DSU,
Prohibits Members from making a determination to the effect that a violation has occurred, except through recourse to the dispute settlement in accordance with the DSU. … In other words, a WTO Member, rather than the WTO dispute settlement bodies, would be deciding unilaterally the outcome of a dispute. This would run against the objectives of the DSU enshrined in Article 23 of the DSU.
Notwithstanding the EU’s statement that WTO members do not have the authority to unilaterally determine whether a particular member’s measures are in violation of its WTO obligations, that is precisely what the EU, Canada and others have done in justifying their unilateral retaliation against the United States’ Section 232 aluminum and steel relief. Apparently, the rules-based trading system that the EU and others champion is only supposed to apply to other countries and not them.
The EU knows it is not supposed to unilaterally determine whether the U.S. 232 relief is a violation of its obligations without review by a dispute settlement panel, yet that is precisely what the EU and others have done by moving straight to the retaliation. By immediately retaliating, they offer the U.S. government very little incentive for cooperating in the proceedings or attempting to comply with a panel determination.
When the U.S. enforced its rights against the EU in the aircraft dispute, it did not unilaterally find the EU subsidies to be a violation, and move straight to the retaliation, before there was even a determination by a dispute settlement panel. Yet the EU’s actions in this dispute suggest that that is precisely what the United States should have done to preserve its rights under the agreement rather than waiting for the dispute settlement process to take its course.
The Section 232 investigation was initiated by President Trump, the investigation was conducted, findings were made, relief recommendations were proposed and ultimately imports were adjusted under the statutory authority granted by the president to protect the national security of the United States. Article XXI of the General Agreement on Tariffs and Trade, or GATT, expressly allows members to suspend concessions for national security reasons.
The EU and others may not like the result, but there is a system in place — one they claim to champion — for them to challenge that result. Instead, the EU and others have chosen to move straight to retaliation without any findings by a dispute settlement body. This action undermines the continued existence of the dispute settlement system that the EU and others claim is “a central element in providing security and predictability to the multilateral trading system.”
Only by unilaterally declaring Trump’s action to have been a safeguard in disguise can the EU even attempt to justify that it is entitled to compensation (i.e., retaliation) under the WTO Safeguards Agreement. The EU has claimed that it can use the Safeguards Agreement to “retaliate” within 90 days against the United States. But the steel and aluminum tariffs are not safeguards.
The U.S. ambassador to the WTO, Dennis Shea, has rejected this assertion. The United States has taken these measures pursuant to the national security provision under the Trade Expansion Act of 1962. This is a wholly separate statute from that setting out the safeguards procedure. And, as the EU itself admitted in the Russian-Ukraine dispute, only a WTO dispute settlement panel has the authority to determine whether the Section 232 relief is a safeguard in disguise.
Nothing in the WTO agreement permits the EU to take any such action without a dispute settlement panel finding. Indeed, Article 11(1)(c) of the Safeguards Agreement itself states that it does not apply to actions taken under any other provision of the suite of WTO agreements. There is an express national security exemption under the WTO agreement. Therefore, according to the plain text of the Safeguards Agreement, the EU cannot take action thereunder.
The Safeguard Agreement itself precludes the EU from undertaking this course of action. Article 11.1(c) specifically states that the Safeguard Agreement does not apply to measures sought, taken or maintained pursuant to other GATT or WTO provisions. As noted above, the United States has made it clear that this action is not being taken pursuant to the Safeguard Agreement. The action is being taken pursuant to national security, which is covered by GATT Article XXI.
Furthermore, the U.S. and others have taken the position that actions taken for national security reasons under Article XXI of the GATT are nonreviewable by the WTO. While the EU may disagree with this interpretation of Article XXI of the GATT, the EU recognizes that Article 23(2)(a) of the DSU prohibits members from unilaterally declaring that another member has breached its obligations. Only the WTO can do that, pursuant to dispute settlement procedures.
Nevertheless, even if the steel and aluminum 232 tariffs were considered “safeguards,” the EU’s assertion that it could retaliate within 90 days was wrong for two reasons. First, assuming the Safeguards Agreement can be invoked, Article 8. 3 of the agreement states that retaliation is available after three years when the increase in imports in question is absolute, rather than relative.
For both steel and aluminum, the United States experienced absolute increases in imports. In an apparent recognition of this requirement, the EU has separated its retaliation list into two groups of products: one group for which they claim there is no absolute increase (mostly steel products), and where retaliation is therefore permitted immediately, and another group for which retaliation must be delayed three years. For that second group of products, where the EU attempts to justify immediate retaliation, it can only do so by selectively interpreting the period examined and the group of imports it considers.
While the agreement does not define what period is to be used when considering the increase for retaliation purposes, it is reasonable to use the same period the administering authority uses. The U.S. normally uses a five-year period in its safeguards cases. For both steel and aluminum, in its 232 investigation, the U.S. Department of Commerce used the five-year period from 2013 to 2017. Over that period there is an absolute increase of steel and aluminum imports.
The only way the EU could justify retaliation was to cherry-pick the import data, relying only on imports from European countries using self-selected smaller periods. If the measure is a “safeguard” in disguise, as the EU claims, then the imports must be examined globally. A member does not get to selectively examine the relative import surge of only a few members when retaliating. The Section 232 relief is either a “safeguard” in disguise, or it is not.
Second, the EU has argued that it is not subject to the three-year waiting period because Article 8.3 only provides that grace period if the underlying safeguard measure is consistent with Safeguard Agreement rules. Having declared that the U.S. action is not consistent with Safeguard Agreement rules, the EU thus considers itself entitled to proceed directly to retaliation. This of course assumes that the Section 232 relief is a safeguard, which it is not.
The EU’s reckless course of action is now leading multiple WTO members to follow suit and breach their obligations. Nothing confines the EU’s tactics to this one dispute. Nothing stops any other WTO member from declaring that another member’s policy is a safeguard and retaliating accordingly. The United States, for example, could consider the EU’s retaliation to be a safeguard and develop its own retaliation strategy, perhaps targeting sensitive EU products, such as those covered by geographical indications.
If the EU considers the United States to have breached its WTO obligations, the appropriate course of action is to challenge the action before the Dispute Settlement Body, not to violate the plain language of the Safeguard Agreement and the DSU. This ill-conceived approach is the real threat to the WTO. The EU holds no moral high ground in this dispute. Rather than upholding the rules-based system, the EU, by its actions, may ultimately undo the system.
 Proclamation 9705.
 Proclamation 9704.
 19 U.S.C. 1862.
 https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-aluminum-united-states-3/; https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states-3/.
 https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states-4/; https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-aluminum-united-states-4/.
 “The Charlevoix G7 Summit Communique,” (June 9, 2018), https://www.reuters.com/article/us-g7-summit-communique-text/the-charlevoix-g7-summit-communique-idUSKCN1J5107.
 The following does not address whether the proposed retaliation is consistent under the NAFTA rules.
 European Union Third Party Written Submission, Russia — Measures Concerning Traffic in Transit (DS 512), at 5 (Nov. 8, 2017).
 European Union — Measures Affecting Trade in Large Civil Aircraft, DS 316 (May 28, 2018), Appellate Body Article 21.5 Report, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds316_e.htm.
 European Union Third Party Written Submission, Russia — Measures Concerning Traffic in Transit (DS 512), at 5 (Nov. 8, 2017) (quoting Art. 3(2) of the DSU).
 “China files trade case at WTO over Trump’s steel and aluminum tariffs,” The Hill, by Vicki Needham (April 10, 2018) (quoting letter from Ambassador Shea: “These actions are not safeguard measures and, therefore, there is no basis to conduct consultations under the Agreement on Safeguards with respect to these measures”).
U.S. Will Review Additional Goods, Chinese Investment Restrictions
Today, June 15, 2018, the Office of the United States Trade Representative (USTR) announced Chinese products that will and may be subject to special duties stemming from the Section 301 investigation into China’s IP practices. USTR has released two lists. List 1 covers 818 tariff lines that will be subjected to 25% duties starting on July 6, 2018. List 2 includes 284 tariff lines that will not yet be subject to the tariffs, but will undergo further review before a decision on duties is made.
USTR originally announced a proposed list of products to be subject to the 25% duties in April. See Wiley Rein Alert. That list included 1,333 tariff lines, covering products as diverse as retail-packaged medications and airplane seats. After receiving comments and holding a hearing, USTR issued List 1 today, which includes products from that original proposal.
USTR’s List 2 covers products that were not included in the original proposal. For example, List 2 covers certain lubricating oils, numerous plastics, and machinery for hi-tech manufacturing operations, including semiconductors and semiconductor manufacturing machinery.
Notably, multiple tariff lines covered by the original proposal have been removed completely. In particular, USTR appears to have dropped its original proposal to apply tariffs to a number of pharmaceutical and medical goods, as well as certain steel/aluminum goods.
In conjunction with the issuance of the new lists, U.S. Trade Representative Robert Lighthizer indicated that the Administration plans to announce new restrictions on Chinese investment in technology goods. Ambassador Lighthizer indicated that the restrictions will be announced within the next two weeks and will be focused on investment restrictions directed at Chinese industries involved in fields related to the Section 301 tariff lists, which are largely intellectual property-intensive. The restrictions will be based on national security considerations that extend beyond those assessed under reviews conducted by the Committee on Foreign Investment in the United States.
Wiley Rein is well placed to provide counsel and direction should your company choose to prepare comments for submission, as well as to engage the Administration and assist companies affected by the U.S. actions and any potential Chinese retaliation.
Far from the spotlight of Special Counsel Robert Mueller, a Maryland man has pled guilty and is awaiting sentencing for violating the Foreign Agents Registration Act (FARA), highlighting the U.S. Department of Justice’s (DOJ) renewed attention on enforcement of the once little-known FARA.
Nisar Ahmed Chaudhry, a U.S. permanent resident and Pakistani national pled guilty to charges that he failed to register as a foreign agent in connection with lobbying work he did from 2012 through 2018 for the Pakistani government in an effort to shape U.S. foreign policy, the DOJ reported last month. Prosecutors say Chaudhry, 71, who represented himself as the president of the Pakistan American League, organized discussions in the Washington area aimed at influencing U.S. policy and travelled to Pakistan to brief government officials there on information that he had learned from American contacts.
In a sentencing hearing scheduled for July 30, Mr. Chaudhry faces up to five years in prison, a $10,000 fine and three years of supervised release upon completion of the prison term. This case serves as a cautionary tale for individuals and companies representing foreign interests in the U.S. who are looking to avoid a similar fate.
Enforced by the Counterespionage Section of the National Security Division of the DOJ, FARA is a disclosure statute that seeks to ensure that all persons acting politically or quasi-politically on behalf of foreign entities in the U.S. properly disclose their activities to the U.S. government.
FARA has been on the books since 1938, but prior to the headlines about the investigation into Russian interference and possible collusion in the 2016 election, yielded few criminal convictions. A 2016 departmental audit by the Justice Department’s inspector general found that the department lacked a comprehensive enforcement strategy, underscored by a pattern of chronic underenforcement. The report uncovered that between 1966 and 2015, the department only brought seven prosecutions for FARA violations. In response, the DOJ has since dialed up its enforcement strategy.
Wiley Rein’s International Trade Practice has published our Foreign Agents Registration Act (FARA) Handbook, which reviews the rules that govern whether an entity should register. The FARA Handbook can be read here.
Wiley Rein summer associate Tawanna Lee contributed to this blog post.
On May 17, 2018, the Department of Commerce (Commerce) handed a big win to U.S. producers of flat-rolled steel products, finding that products cold-rolled or coated in Vietnam using Chinese substrate are subject to existing antidumping and countervailing duty orders on Chinese hot-rolled and cold-rolled steel flat products.
Some initial commentary in the trade press has suggested that Commerce’s ruling implicates country-of-origin determinations for steel goods, and may change the way U.S. Customs & Border Protection (CBP) assesses the origin of steel products for general import purposes. Commerce’s decision, however cannot effect a change in CBP’s treatment of origin. So, why the confusion? It all goes back to the fact that while Commerce and CBP both consider the effect of third-country processing on how importers should declare their merchandise, the two agencies analyze third-country processing differently, and for different reasons.
In assessing whether third-country processing operations constitute circumvention of existing trade remedy orders, Commerce considers a number of factors, placing significant emphasis on the relative value of the third-country processing. Separately, Commerce may also make country-of-origin determinations for the purpose of establishing what products may be subject to particular antidumping or countervailing duty investigation, again placing a significant emphasis on value. Commerce often refers to the test employed in such initial investigations as the “substantial transformation test.”
Confusingly, this is the same name that CBP and the courts use for the test that they apply in assessing origin for customs entry purposes. CBP’s test, however, is not the same as Commerce’s. Unlike Commerce, CBP traditionally de-emphasizes the value added by processing operations, instead focusing on questions such as whether pre-processed inputs have any commercial use beyond being processed into the final end product, and whether the processing results in changes to the chemical or mechanical properties of the inputs.
The two agencies apply different tests because their separate determinations are animated by different statutes and different policies. While Commerce is chiefly concerned with offsetting the effects of unfair competitive practices, CBP is primarily concerned with the revenue-raising functions of standard import tariffs. For added complexity, CBP may analyze the origin of products exported from countries with which the United States maintains free trade agreements pursuant to separate origin/marking tests laid out in those agreements. The results of these agreement-specific analyses are not always identical to the results of CBP’s traditional version of the substantial transformation test.
We can see all of these issues at play with respect to flat-rolled steel products. Applying their traditional version of the substantial transformation test, CBP and the courts have long held that the galvanization of flat-rolled steel products changes the origin of the product. Thus, if cold-rolled steel is manufactured in Germany, but then galvanized in Norway, the resulting product is a good of Norway for customs entry declaration purposes. However, under NAFTA, the same operation performed on German cold-rolled steel in Canada would not result in a product eligible for duty-free entry; further, the product would not be eligible to be marked as a good of Canada. Finally, applying the logic of Commerce’s new finding, if the United States had an antidumping duty order on German cold-rolled steel, galvanizing the product in Norway prior to importation would not necessarily absolve importers of antidumping duty liability.
So, what does this mean for importers of steel that was further processed in Vietnam using Chinese inputs? While the products may remain Vietnamese from a CBP origin-declaration perspective, Commerce’s draft Federal Register notice establishes that the goods are nonetheless subject to AD/CVD duties, just as if they were being exported directly from China. Importers must therefore declare entries of such goods as “Type 03” entries, i.e., subject to trade remedy duties. For exports of corrosion-resistant steel flat products, the duties required at entry will be equal to 238.48%. For exports of cold-rolled steel flat products, the duties required at entry will be equal to 456.20%. The duties will apply not only to incoming entries, but to as-yet-unliquidated entries made on or after November 16, 2016. This may require importers to file post-summary corrections or to make other appropriate arrangements with CBP to deposit duties.
According to Commerce, importers of goods processed in Vietnam using non-Chinese substrates will not have to declare or pay trade remedy duties. However, they must support any declaration of their goods as not subject to such duties through certifications prepared and signed by both the exporter and the importer. Like the duty requirements, the certification requirements apply not only to prospective entries, but affect past, unliquidated entries made on or after November 16, 2016.
After publication of Commerce’s results in the Federal Register, it is possible that we will see additional technical guidance from CBP, in the form of instructions issued through the agency’s Cargo Systems Messaging Service. In the meantime, however, importers of flat-rolled products processed in Vietnam from Chinese substrates should prepare to declare their goods and deposit duties pursuant to Commerce’s announced instructions.
Webinar: Wednesday, June 6, 2018 | 12:00 p.m. – 1:00 p.m. EDT
On May 8, President Trump announced the United States’ withdrawal from participation in the Joint Comprehensive Plan of Action (JCPOA), the landmark 2015 agreement that eased sanctions on Iran in exchange for curbs on Iran’s nuclear program. The U.S. government’s withdrawal likely will have major ripple effects outside the United States, particularly in Europe, where many companies that re-engaged with Iran in accordance with the terms of the JCPOA will once again potentially be subject to steep U.S. penalties if they continue to do business in Iran.
Please join Wiley Rein International Trade Practice partners Dan Pickard and Jack Shane, of counsel Lori Scheetz, and senior public policy advisor Nova Daly for a discussion on the key risk areas as the Iran sanctions “snap back” into effect.
Topics Will Include:
- The primary and secondary sanctions that are being re-imposed by the U.S. government
- The potential implications of turning back the clock on foreign subsidiaries of U.S. companies
- What the reinstated Iran sanctions mean for non-U.S. companies in key sectors, such as the financial services, energy and petrochemical, insurance and reinsurance, automotive, and shipping industries
- The scope of the “wind-down” authorizations
- This event is complimentary but advance registration is required.
- Webinar instructions and materials will be distributed prior to the webinar. For more information, please email Lynne Stabler at firstname.lastname@example.org.
Yesterday, the Trump Administration announced a plan to transfer control over the export of small arms from the U.S. Department of State’s International Traffic in Arms Regulations (ITAR) to the typically less-stringent U.S. Department of Commerce’s Export Administration Regulations (EAR). The shift will affect U.S. small arms exports, including non-automatic and semi-automatic firearms up to .50 caliber, non-automatic and non-semi-automatic rifles and other weapons up to .72 caliber, and some ammunition, as well as certain gun parts and components.
The departments of Commerce and State detailed the plan to members of Congress during a confidential briefing on May 15. Agency officials explained that the regulatory burden associated with small arms exports would decrease as a result of the export controls shift, which is intended to promote American exports. For example, manufacturers and exporters of items shifted to EAR control will no longer be required to register annually with the State Department or pay an annual registration fee.
The State Department will retain control under the ITAR over military-grade weapons and other weapons systems that typically are not commercially available to the public, such as in sporting goods stores, as well as gun silencers and large component parts for fully automatic weapons.
The proposed rule from the Commerce Department regarding the transfer of authority is available here and the State Department’s proposed rule is available here. Once the proposed rule is published in the Federal Register, interested parties will have 45 days to submit comments to the agencies. The export controls changes will not be effective unless and until a final rule is published.