American Trade & Manufacturing Blog

Pakistani National Pleads Guilty to FARA Violations

Posted in CFIUS, Economic Sanctions, National Security

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. 

Three Ways to Origin – What the New Circumvention Findings on Chinese Flat-Rolled Steel Products Illustrate

Posted in Antidumping, Customs Law

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.

 

Back to the Future: What Your Company Needs to Know and Do About the Reinstated Iran Sanctions

Posted in Economic Sanctions

Webinar: Wednesday, June 6, 2018 | 12:00 p.m. – 1:00 p.m. EDT

RSVP Here

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

More Info:

  • 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 lstabler@wileyrein.com.

Proposed Shift for Small Arms Export Controls from State Department to Commerce Department Authority

Posted in Export Controls

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.

President Trump Withdraws from Iran Nuclear Deal; U.S. Sanctions to be Re-Imposed

Posted in Economic Sanctions

President Trump today 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. Pursuant to the withdrawal, President Trump has directed his Administration to immediately begin the process of re-imposing sanctions against Iran, targeting the Iranian energy, petrochemical, and financial sectors. While the U.S. government will provide wind-down periods for activities involving Iran that were previously consistent with U.S. law, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) expects that all U.S. nuclear-related sanctions that were previously lifted will be re-imposed and in full effect by November 4, 2018. Many of these “secondary” sanctions act as an ultimatum to non-U.S. companies—if such companies engage in certain business with Iran, they effectively can be cut off from doing business in the United States. As such, President Trump’s actions likely will have ripple effects outside the United States, particularly in Europe, where many companies re-engaged with Iran in accordance with the terms of the JCPOA.

OFAC guidance indicates that the U.S. government will provide two wind-down periods for entities engaged in business involving Iran. The first is a 90-day wind-down period, ending August 6, 2018, after which the United States will re-impose sanctions on:

  • The purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
  • Iran’s trade in gold or precious metals;
  • The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
  • Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
  • The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
  • Iran’s automotive sector.

After August 6, 2018, the U.S. government will also revoke previously-issued authorizations permitting the importation of Iranian-origin carpets and foodstuffs, as well as its favorable licensing policy for activities related to commercial passenger aircraft, a key linchpin of the JCPOA. Additionally, OFAC plans to revoke any specific licenses issued pursuant to the favorable licensing policy for commercial passenger aircraft.

The second 180-day wind-down period will end on November 4, 2018, after which the United States will re-impose sanctions on:

  • Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates;
  • Petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
  • Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
  • The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
  • The provision of underwriting services, insurance, or reinsurance; and
  • Iran’s energy sector.

In addition, OFAC plans to revoke General License H, the broad authorization that previously allowed U.S.-owned or -controlled foreign entities to engage in certain activities involving Iran. OFAC has indicated that it intends to issue wind-down authorization for activities conducted pursuant to General License H, and that all such wind-down activities must be completed by November 4, 2018.

OFAC’s guidance states that the agency generally will permit non-U.S., non-Iranian persons owed payment at the conclusion of the applicable wind-down period for goods or services fully delivered prior to the deadline pursuant to a pre-May 8 written agreement to receive payment for such goods or services, provided the underlying activities were consistent with U.S. sanctions at the time of delivery/performance. Further, note that typically, wind-down activities do not cover “new” transactions. Although OFAC did not directly address this issue in its initial guidance, the agency warned that

[w]hen considering a potential enforcement or sanctions action with respect to activities engaged in after August 6, 2018, or November 4, 2018, as applicable, OFAC will evaluate efforts and steps taken to wind down activities and will assess whether any new business was entered into involving Iran during the applicable wind-down period.

Stay tuned for additional guidance from OFAC and the Department of State as the agencies begin the process of implementing the President’s decision.

The New Section 301 Tariffs: Everything You Need to Know

Posted in Uncategorized

Please join us on Friday, May 4th for a webinar on the new Section 301 Tariffs. Wiley Rein International Trade Practice partners Steve Claeys and Maureen Thorson, and senior public policy advisor Nova Daly will discuss the goods and industries that will be affected, the implementation process, and how these tariffs may affect other sectors not identified in the initial round.

Friday, May 4, 2018 | 12:00 p.m. – 1:00 p.m. EDT

Register Here

Wiley Rein’s Daniel B. Pickard, Counsel to the Coalition of American Flange Producers, Issues Open Letter to Producers, Importers, and Purchasers of Stainless Steel Flanges

Posted in Antidumping

Today, Wiley Rein LLP partner Daniel B. Pickard, counsel to the Coalition of American Flange Producers, issued an open letter to producers, importers, and purchasers of stainless steel flanges, regarding affirmative preliminary determinations that the U.S. Department of Commerce and the U.S. International Trade Commission have reached in the antidumping and countervailing duty investigations into stainless steel flanges from China and India.

Pursuant to these preliminary determinations, U.S. Customs and Border Protection (CBP) began collecting duties on Indian flanges effective January 23, 2018, and will begin collecting antidumping and countervailing duties on imports of stainless steel flanges from China within the week.

“It should be stressed, however, that the preliminary duties do not reflect the final duties that importers will owe on incoming shipments,” Mr. Pickard wrote on behalf of the Coalition. “The Department of Commerce is continuing to assess the duties applicable to Chinese and Indian stainless steel flanges, and has the power to raise the duties applicable to these goods in its final determinations.”

“However, even if the preliminary duties are not increased in the final determinations in the ongoing investigations, importers nonetheless may remain retroactively liable for higher duties than were paid at entry,” Mr. Pickard added.

The full text of Mr. Pickard’s letter on behalf of the Coalition can be found here.

 

Trump Administration Sanctions Russian Oligarchs and Government Officials

Posted in Economic Sanctions

Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated several Russian individuals and entities, including seven Russian oligarchs and 17 top Russian government officials, pursuant to the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) and Executive Orders related to Ukraine and Syria. The full list of individuals and entities sanctioned is available here. The seven oligarchs include Oleg Deripaska, the billionaire founder and majority shareholder of EN+ Group, a leading international vertically integrated aluminum and power producer; Valdimir Bogdanov, the Director General and Vice Chairman of the Board of Directors of Surgutneftegaz, a Russian oil and gas company; Kirill Shamalov, the son-in-law of Vladimir Putin and a large shareholder in Sibur, another Russian oil and gas company; and Alexey Miller, the CEO of Gazprom PJSC. OFAC also designated several Oligarch-owned companies, including Basic Element, EN+ Group, GAZ Group, United Company RUSAL PLC, Renova Group, and Agroholding Kuban.

Among others, the newly designated top Russian government officials include Andrey Akimov, the CEO of Gazprom Bank; Andrey Kostin, the head of state-owned VTB Bank; Nikolai Patrushev, the secretary of Russia’s Security Council; Valdimir Kolokoltsev, the Minister of Internal Affairs and General Police of the Russian Federation; and Alexander Zharov, the head of Roskomnadzor, Russia’s media and telecommunications regulator.

As Specially Designated Nationals (SDNs), the assets of these individuals/entities are now blocked, and U.S. persons are prohibited from engaging in any transactions with them, as well as with entities owned 50% or more by these SDNs. In addition, non-U.S. persons could also be subject to sanctions for knowingly facilitating “significant transactions” for or on behalf of these SDNs.

Concurrent with the designations, OFAC issued two General Licenses (GL) authorizing certain limited, wind down transactions involving some of the new SDNs for a specified period. General License 12authorizes, until June 5, 2018, all transactions ordinarily incident and necessary to wind down contracts or agreements with certain of the newly-designated entities/individuals, including but not limited to Basic Element, GAZ Group, EN+ Group PLC, and Renova Group. For example, U.S. companies that had previously ordered goods from the newly-designated entities may still accept/import those goods, and U.S. persons employed by a sanctioned entity may wind down their dealings with their employer, provided they otherwise comply with the restrictions in GL 12. General License 13 authorizes, until May 7, 2018, transactions ordinarily incident and necessary to divest or transfer debt, equity, or other holdings in EN+ Group PLC, GAZ Group, or United Company RUSAL PLC. U.S. persons making use of these GLs are required to file detailed reports of each transaction within 10 days of their expiration.

Given the prominence of the new SDNs, U.S. companies as well as U.S. person employees, shareholders, and Board members should engage in thorough due diligence to ensure that they are not dealing with such individuals/entities or companies 50% or more owned by the SDNs.

Update to China Section 301 Client Alert – USTR Releases Product List

Posted in Trade Remedies

On April 3, 2018, the Office of the United States Trade Representative (USTR) released a proposed list of products that will be subject to tariffs as part of the Administration’s response to findings from the Section 301 investigation into China’s IP practices. The list includes nearly 1,300 HTS codes and tariffs of 25%, in addition to any existing tariffs on those goods. By total value, the products covered by these tariffs equate to an estimated $50 billion in annual imports for year 2018. The range of products listed goes beyond statements in the President’s March 22 Memorandum.

The product categories covered by USTR’s release include:

  • Chemicals, particularly pharmaceuticals;
  • Steel and aluminum;
  • Machinery (both mechanical and electronic), but excluding wireless and telecom devices;
  • Vehicles – cars and boats/ships;
  • Certain measurement devices, like mirrors, microscopes, navigational instruments, and medical goods like defibrillators, hearing aids, pacemakers, etc.;
  • Weapons (guns/bombs, etc.); and
  • Seats for aircraft and motor vehicles.

USTR is seeking public comments on this proposed action, and has provided for a 30-day comment period, ending May 11, 2018. Comments will be accepted through Regulations.gov. After the public comment period closes, USTR will hold a public hearing on May 15, 2018, where parties will be able to share their views on the proposed tariffs. Additional details on how to submit your comments and/or requests to appear at the public hearing can be found in sections G and F of the Federal Register notice.

The USTR notice also informs parties of actions to be taken under WTO dispute settlement to address China’s discriminatory licensing practices. Comments and rebuttal comments to that process are due May 11, 2018 and May 22, 2018, respectively.

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.

The final determination on the tariff actions will be published in the Federal Register at a future date following the hearing.

UPDATE: President Signs Memorandum Penalizing China IP Violations

Posted in Trade Policy

Today, President Trump signed a Memorandum regarding the Section 301 investigation into China’s IP practices. In response to the U.S. Trade Representative’s (USTR) findings that the Chinese government’s practices and policies related to technology transfer, IP, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce, the Memorandum instructs USTR to publish, within 15 days, a proposed list of products subject to additional tariffs. By value, these tariffs are expected to range from $30 to $60 billion annually, and focused on Chinese technology products. The Memorandum also instructs USTR to pursue a WTO case on China’s discriminatory technology licensing practices. Further, the Memorandum directs the U.S. Department of the Treasury to propose restrictions on Chinese investments in sensitive U.S. technologies.

The President’s actions are based on USTR’s Section 301 investigation and findings, which are detailed in its report that was released today.

According to the White House fact sheet and the President’s statements, tariffs of 25% are to be imposed on products in the aerospace, information and communication technology, and machinery sectors, and may also cover products on China’s 2025 list, including:

  • Advanced information technology;
  • High-end numerical control machinery and robotics;
  • Aerospace and aeronautics equipment;
  • Maritime engineering equipment and high tech maritime vessel manufacturing;
  • Modern rail transportation equipment;
  • Energy-saving and new energy vehicles and equipment;
  • Electrical equipment;
  • New materials;
  • Agriculture machinery and equipment; and
  • Biomedicine and high-performance medical devices.

USTR will provide for a public notice and comment period on its proposed product list prior to the imposition of tariffs. In addition, Treasury will have 60 days within which to consult with other agencies and make recommendations on Chinese investment restrictions to the President.

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