/>iThis edition offers critical insights for industries including AI, Metaverse & Blockchain, Automotive, Consumer Products, Electric Mobility, Electronics, Energy & Cleantech, Fashion & Retail, National Security, as well as for foreign investors, compliance professionals, and customs brokers.
In this July 2024 edition, we cover:
- The US government’s additional export controls and sanctions on Russia.
- The post-Chevron landscape and its impact on Commerce and CBP actions.
- The latest on the AD/CVD investigation on aluminum extrusions and how to participate in the proceedings.
- Treasury’s new proposed rule on outbound foreign investments.
- Forced labor enforcement updates including new priority sectors.
- Section 232 exemptions for Mexican imports remain, but with new restrictions on steel and aluminum.
1. ICYMI: US Government Imposes New Export Controls and Sanctions on Russia
On June 12, the US government redoubled efforts to weaken Russia’s “full war economy” with new export controls and sanctions. Besides naming scores of new blacklisted and sanctioned parties, the Biden Administration introduced a license requirement on a wide range of EAR99 items and software to Russia and Belarus and a prohibition on providing certain information technology (IT) and cloud-based services to Russia.
Export Controls
The Bureau of Industry and Security (BIS) imposed a new export licensing requirement on a wide range of EAR99 software, such as enterprise resource planning (ERP), customer relationship management (CRM), and business intelligence (BI) to Russia and Belarus to become effective September 16. BIS also added 522 additional Harmonized Tariff Schedule (HTS)-6 Code entries to the list of controlled items, including hand tools, kitchen sinks, bathtubs, metallic goods, and other various items.
Furthermore, BIS narrowed the category of items eligible for license exception consumer communications devices (CCD) to Russia and Belarus. Finally, BIS added five entities and eight addresses reportedly involved with transshipping controlled items to Russia to the Entity List.
Sanctions
Under Executive Order 14071, the US Department of the Treasury’s (Treasury Department) Office of Foreign Assets Control (OFAC) will prohibit the direct or indirect export, reexport, sale, or supply of certain IT and cloud-based services to entities in Russia by a US person or from the United States, effective September 12. OFAC and the State Department also designated over 300 new Russia-related individuals, entities, and vessels subject to blocking sanctions. The new sanctions targeted significant aspects of Russia’s financial infrastructure and energy industries, including the Moscow Exchange and the National Clearing Center. In addition, OFAC expanded its definition of “military-industrial base” in the context of Russia to increase additional secondary sanctions risks for foreign financial institutions that engage in transactions with blocked Russian entities.
And the Fox Says…: To ensure compliance and avoid penalties, companies that continue to do business with Russia — particularly software, IT, and cloud service providers — should review the US’s expanded export controls and sanctions on Russia, which now broadly impact EAR99 goods, software, and IT services. See our full summary of the new regulations here.
2. Revamping Trade Litigation: Navigating Post-Chevron Waters
The recent US Supreme Court decision in Loper Bright Enterprises v. Raimondo has overturned the longstanding Chevron doctrine, altering the landscape of administrative law and potentially its application in trade and customs cases. Chevron USA, Inc. v. National Resources Defense Council, Inc. (1984) had directed courts to defer to a federal agency’s reasonable interpretation of ambiguous statutes. In overturning Chevron, Loper Bright held that courts should decide “all relevant questions of law” stemming from judicial review of agency actions.
The decision may impact how courts handle challenges to the US Department of Commerce (Commerce) or US Customs and Border Protection (CBP) actions in trade and customs cases. In particular, Commerce’s regulations or decisions involving antidumping and countervailing (AD/CVD) cases may be more vulnerable to legal challenge, even with the acknowledgment that Commerce’s scope determinations are historically given substantial deference without citing Chevron. With respect to CBP’s decisions, the Supreme Court had already made clear in United States v. Mead Corp. (2001) that CBP’s binding rulings are not entitled to Chevron deference. Instead, rulings are subject to the lesser deferential standard under Skidmore v. Swift & Co. (1944), which depends on the agency’s power to persuade the court that their interpretation is correct. However, under United States v. Hagger Apparel Co. (1999), Chevron deference was considered appropriate for reviewing CBP’s regulations.
And the Fox Says…: In the post-Chevron era, courts may increasingly lean on Skidmore’s less deferential approach to assessing agency interpretations. Enhanced judicial scrutiny on decisions and regulations issued by Commerce and CBP could significantly reshape strategies in handling trade disputes and customs issues, potentially leading to more litigation. We will continue to monitor developments in trade litigation to help companies effectively navigate this less predictable judicial landscape.
3. The Aluminum Extrusion Saga Continues at the Department of Commerce and International Trade Commission
As we reported in last month’s edition, the AD/CVD investigations on products containing aluminum extrusion have been very active, particularly in light of Commerce’s affirmative preliminary finding of dumping on May 2.
Last month, Commerce allowed interested parties to submit scope comments and rebuttal comments. By our count, around 52 interested parties from a wide array of industries submitted comments to Commerce, arguing both for the inclusion and the exclusion of certain products from the scope of any ultimate AD/CVD orders.
In the meantime, the US International Trade Commission (ITC) is conducting the final phase of its investigations to determine whether the US industry that produces aluminum extrusions is being injured by subject imports. US importers and purchasers may have received questionnaires from the ITC on June 14. For these companies, responses to the questionnaires are mandatory. Questionnaire responses are due back to the ITC by July 19, although this date may be extended given the anticipated robust participation of parties.
And the Fox Says….: Even if a company has not received a questionnaire from the ITC, companies may voluntarily prepare and submit one. While questionnaires are very data and fact-intensive on a company-level basis, parties may find value in preparing one as it provides an opportunity to raise issues relating to conditions of competition for the aluminum extrusions industry. Parties who submitted questionnaire responses and entered appearances at the ITC may be able to participate in upcoming ITC proceedings, including by submitting statements and testifying at the hearing scheduled on September 24.
4. Treasury Proposes Regulation of Outbound Foreign Investments in China, Hong Kong, and Macau
The Treasury Department has issued a notice of proposed rulemaking, aiming to regulate outbound foreign investments that could allow countries of concern to develop sensitive technologies or products posing national security risks to the United States. The proposed rule, which implements Executive Order 14105, would apply to certain transactions by a US person involving a covered foreign person, meaning a person from China, Macau, or Hong Kong who is engaged in activities described by the Order or regulations issued thereunder.
Specifically, the Treasury Department proposes to require US persons to give notice of certain investments related to the design, fabrication, and packaging of integrated circuits, as well as the development of artificial intelligence (AI) for government intelligence, mass surveillance, military end uses, or cybersecurity applications. These investments are prohibited if the covered foreign person is a proscribed party (i.e., a military end user, foreign terrorist organization, or included on the Entity List, Specially Designated Nationals and Blocked Persons List, or Non-SDN Chinese Military-Industrial Complex List). Also prohibited are all covered transactions in certain especially sensitive areas related to integrated circuits, AI, and quantum computing.
These obligations apply if a US person knows or has reason to believe that the investment involves a covered foreign person or if other factors bring the investment under the scope of the proposed rule. Violations may result in civil penalties or criminal consequences.
And the Fox Says…: The proposed rule will further chill US investment in China by increasing risks within the semiconductor, AI, and quantum computing areas. The Treasury Department is currently seeking public input on the proposed rule — inviting comments on, among other things, the appropriate scope of the proposed rule, refining the knowledge standard for US persons, whether to establish a computing power threshold for controlled AI systems, and what factors to consider when identifying additional countries of concern. Comments must be submitted by August 4. Our team can assist in preparing and submitting comments on behalf of your company.
5. Forced Labor Enforcement Updates: FLETF UFLPA Annual Update, Increased Enforcement, and a Private Suit Against a US Importer
UFLPA Annual Update
This week, the Uyghur Forced Labor Prevention Act (UFLPA) Forced Labor Enforcement Task Force (FLETF) published its 2024 UFLPA Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China (Annual Strategy). As expected, the FLETF has identified three additional high-priority sectors for forced labor enforcement: Polyvinyl Chloride (PVC), aluminum, and seafood. During this reporting period, 38 new entities were added to the US Department of Homeland Security (DHS) Entity List (now totaling 68 entities). With a more streamlined review process, the list will continue to expand, potentially to include entities involved in the three new priority sectors. We will be issuing a forthcoming alert with additional takeaways from the Annual Strategy.
UFLPA Enforcement Updates
Following the US Senate Finance Committee’s report on automotive supply chains, there have been reports that entities in the automotive and consumer electronics sectors may face increased enforcement under the UFLPA. The value of shipments stopped by CBP due to suspicion of forced labor under the UFLPA for fiscal year 2024 ($1.57 billion) has already exceeded the value of shipments stopped in 2023 ($1.42 billion).
It is our understanding that CBP has also begun using labs to compare products suspected of forced labor against products confirmed to have been produced with forced labor or by an entity on the Entity List.
Private Right of Action
A private right of action has been initiated concerning alleged forced labor in a US importer’s supply chain. The suit alleges that the US importer recklessly disregarded the use of forced labor to manufacture their products, a violation of the Trafficking Victims Protection Reauthorization Act.
And the Fox Says…: We expect that the FLETF and CBP will increase enforcement actions in high-priority and related sectors, including the automotive and consumer electronics sectors. We also predict more additions to the DHS Entity List, particularly entities related to the newly identified priority sectors.
The private lawsuit filed by the former prisoner against a US importer underscores the risks companies face if they fail to thoroughly analyze their supply chains, which are not limited to detentions at the border. In addition, companies should be aware of the risk of Homeland Security Investigations related to forced labor allegations.
Companies in all industries, particularly those with complex supply chains and those in priority sectors, should evaluate and develop comprehensive supply chain due diligence processes and procedures in preparation for increased enforcement.
6. Section 232 Exemptions for Mexican Imports Remain, But With Some New Restrictions
US imports from Mexico have been exempt from the additional Section 232 tariffs on steel (25%) and aluminum (10%) since 2018. Though those current exemptions remain, the requirements have become more restrictive with the publication of two new Presidential Proclamations on July 10 in response to allegations of steel and aluminum being diverted by China through Mexico.
Effective on or after 12:01 a.m. EDT on July 10, only steel melted and poured and aluminum smelt and cast in the United States, Mexico, or Canada will continue to enter duty-free from Mexico. Steel and aluminum melted and poured/smelt and cast in any other country will now be subject to the additional Section 232 tariffs. These restrictions also extend to the specific derivative steel and aluminum articles that have been subject to the additional tariffs since January 2020.
For steel, melt and pour requirements will likely be consistent with the guidance from the Steel Import Monitoring and Analysis system already utilized by steel importers, which provides that the country of melt and pour is the original location where the raw steel is (1) first produced in a steel-making furnace in a liquid state; and, then (2) poured into its first solid shape. For aluminum, requirements will mirror the Aluminum Import Monitoring system, as well as guidance released from CBP providing for reporting of primary and secondary country of smelt and country of cast for purposes of Section 232.
And the Fox Says…: Importers of steel and aluminum from Mexico should review the reported country of melt and pour or country of smelt and cast reported in the Steel Import Monitoring and Aluminum Import Monitoring systems, respectively. Steel and aluminum melted and poured/ smelt and cast in countries other than the United States, Mexico, or Canada will now be subject to the additional 25% Section 232 tariff on steel and 10% tariff on aluminum.
James Kim, Lucas A. Rock, Mario A. Torrico, Sisi Liu, and Jack Bistritz conributed to this article.
