On November 5, 2019 the Office of Foreign Assets Control (OFAC) issued two General Licenses (GLs) authorizing specific transactions involving the Government of Venezuela and categories of persons blocked by Executive Order 13884 (E.O. 13884).

E.O. 13884 was signed by President Donald Trump earlier this year on August 5, 2019. E.O 13884 was intended to increase pressure on the Nicolas Maduro regime by blocking property and property interests of the Government of Venezuela under U.S. jurisdictions and authorizing the U.S. Treasury Department to sanction additional persons who have assisted or supported the Government of Venezuela.

The term “Government of Venezuela,” as defined in E.O. 13884, includes the state and Government of Venezuela, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA), any person owned or controlled, directly or indirectly, by the foregoing, and any person who has acted or purported to act directly or indirectly for or on behalf of, any of the foregoing, including as a member of the Maduro regime.

Without authorization from OFAC, U.S. persons are generally prohibited from engaging in transactions with the Government of Venezuela, or persons in which the Government of Venezuela owns, directly or indirectly, a 50 percent or greater interest. U.S. persons are not prohibited from engaging in transactions involving the country or people of Venezuela, provided blocked persons or any conduct prohibited by any other Executive Order are not involved.

The two new GLs make it easier for U.S. persons to conduct certain business in Venezuela. In particular, General License 35 authorizes U.S. persons to engage in certain administrative transactions with the Government of Venezuela. This includes paying taxes, fees and import duties, and purchasing or receiving permits, licenses, registrations, certifications and public utility services from the Government of Venezuela, provided that such transactions are ordinarily incident to such person’s day-to-day operations in Venezuela. Businesses seeking to continue operations in Venezuela should be aware that GL 35 does not authorize transactions that are otherwise prohibited by E.O. 13884 or any other Executive Order related to Venezuela.

Although certain administrative transactions are permitted, businesses should be advised that they are required to file biannual reports with OFAC and the Department of State’s Office of Sanctions Policy and Implementation regarding the transactions. The reports must include the names and addresses of the entities remitting and receiving payment, the amount of funds paid to the Government of Venezuela, the type and scope of the activities conducted, and the date of the payments.

OFAC also issued amended General License 34A, which authorizes transactions with certain Government of Venezuela individuals, including U.S. citizens; permanent resident aliens of the U.S.; individuals who have a valid U.S. immigrant or nonimmigrant visa, other than individuals in the United States as part of Venezuela’s mission to the United Nations; former employees and contractors of the Government of Venezuela; and current employees and contractors of the Government of Venezuela who provide health or education services in Venezuela, including at hospitals, schools, and universities.

In connection with the two new GLs, OFAC also published FAQs related to the GLs. In the FAQs, OFAC encourages businesses, especially financial institutions, to conduct due diligence on their customers to ensure that the parties with whom they do business are not blocked. OFAC also warns U.S. persons to be cautious when conducting business in Venezuela to make sure all criteria for use of the General Licenses are met. Finally, as with any General License or specific license, OFAC reserves the right to revoke the authorizations in order to support U.S. foreign policy and U.S. national security policies.

Now that Canadian PM Justin Trudeau has dissolved Parliament and called for a general election (to be held October 21), chances of seeing the USMCA ratified by all three member states this year has become an increasingly remote possibility. However, the good news for USMCA supporters is that NAFTA’s replacement continues to enjoy support in Canada in both the Conservative and Liberal parties. In fact Andrew Scheer, leader of the Conservative party, has announced that he would support ratification of USMCA if elected Prime Minister, despite the fact that he believes Trudeau was railroaded in negotiations with the U.S.

Ratification by the U.S., which is a likely prerequisite to any vote by Canada, continues to find itself on shaky ground. Nevertheless, pressure continues to put USMCA to vote in the U.S. before late-November, but labor, the environment and enforceability continue to be sticking points. Moreover, the current impeachment discussions risk further delay, though House Speaker Nancy Pelosi recently announced that House Democrats are “making progress” on USMCA. If the U.S. manages to ratify USMCA in November, there remains the possibility that Canada could likewise get a ratification before the end of the year; however, as the days fly by that prospect becomes increasingly remote.

U.S. companies in tech, infrastructure and data seeking foreign investment will require approval from the Committee on Foreign Investment in the United States (CFIUS) before closing certain transactions. Last year, President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which outlined the expansion of CFIUS jurisdiction to review certain foreign acquisitions and investments in U.S. businesses on grounds of national security. FIRRMA left the specifics to regulations to be passed by the U.S. Department of Treasury (Treasury).

On September 17, 2019, Treasury issued proposed regulations (the Proposed Rules) to implement FIRRMA. The Proposed Rules are subject to public comment before they become final.

Key Takeaways:

  • CFIUS will have authority to review certain non-controlling foreign investments in “TID U.S. Business” (short for tech, infrastructure, and data), defined to include companies that:
    • are involved in “critical technologies,” as originally set forth in the Pilot Program, (see our previous alert) which remains in place for now without change;
    • are involved in “critical infrastructure” (including energy, telecommunications, finance, manufacturing, and transportation); or
    • collect “sensitive personal data” of U.S. citizens (including certain identifiable data and genetic data).
  • Jurisdiction over transactions in which a foreign party obtains “control” over a U.S. business with national security implications remains mostly unchanged.
  • CFIUS will have authority to review the purchase or lease of certain U.S. real estate by a foreign person.
  • CFIUS filings will be mandatory for (i) a foreign person’s acquisition of a substantial interest in a TID U.S. Business where a foreign government holds a substantial interest in the foreign person, and (ii) critical technology investments under the Pilot Program.
  • Filers will have the option to file a “short-form” declaration rather than a full blown filing for all transactions. CFIUS will review such declarations within 30 days of receipt.
  • Comments concerning the Proposed Rules may be submitted until October 17, 2019This is the only opportunity for interested parties to influence and shape the final regulations that will set out CFIUS’s expanded jurisdiction. The final regulations will go into effect no later than February 13, 2020. We recommend that all parties who will be affected by FIRRMA review the Proposed Rules and submit comments where appropriate.

For a detailed analysis of the Proposed Rules, click on the link below.

What U.S. Companies and Foreign Investors Need to Know

On Friday, August 23, the Trump Administration announced an increase in Section 301 tariffs following China’s announcement of retaliatory tariffs targeting $75 billion of US goods. The announcement, which came by way of tweet, provided that Section 301 tariffs on all List 1 through 3 goods would be elevated from 25% to 30% effective October 1. In addition, the administration announced that tariffs on List 4 goods-the first tranche of which goes into effect at 12:01 am EST on September 1, would be elevated from 10% to 15%. Though not expressly stated, we expect this increase to be applied against both List 4A and List 4B (with List 4B currently being set to go into effect December 15).

With the 2020 presidential election cycle already underway, it is unlikely that we will see much in the way of Chinese effort to reach a resolution with the Trump Administration. Rather, China should be expected to adopt a “wait and see” policy in hopes they find themselves dealing with a new administration following the election. President Trump has already commented that if he is reelected, China would come running to the table with a “phenomenal deal.”  President Trump’s recent comments and prior actions suggest that if he does win reelection, we may see an emboldened approach to dealing with China on trade issues.

Though the trade war is hitting American importers and consumers hard, it is also having a significant negative impact on China, who is struggling with a dwindling labor force and slowing of the domestic economy. Notwithstanding, China may be better positioned to continue the fight  and it is highly unlikely that President Xi will back down on key issues, including the Made in China 2025 strategic plan. Ultimately, we are not seeing indications that this dispute is nearing any resolution in the foreseeable future absent a major policy shift from the US.

Though the USMCA has been ratified by Mexico, the trade agreement still faces a vote in Canada and, perhaps more concerning, the US. Under the Trade Promotion Authority (“TPA”), both houses of US Congress must vote in favor of the implementing bill, which is expected to be submitted to Congress after September 1. Submission of the implementing legislation operates to start the 90-day clock for Congressional approval. Accordingly and assuming the implementing bill is submitted as anticipated, passage of the USMCA by the US this calendar year remains an attainable goal.

There are, however, a number of complicating factors. Although USTR Lighthizer has been working closely with House Democrats for months, a number of Democrats have been quite vocal in opposition to certain provisions of the USMCA—particularly those relating to labor, environmental concerns, prescription drug pricing and the exclusivity period for biologics, and dispute resolution and enforcement. Whether Congress will press for resolution of these issues in the USMCA text or settle for side agreements with Canada and Mexico on these issues remains to be seen. However, Rep. Buddy Carter (R-Ga) has suggested solutions to these disputed issues may not necessarily need to be contained in the agreement itself; although whether this reflects the opinion of a majority of Congress is uncertain (and likely doubtful). Moreover, Mexico has already passed labor reform legislation and indicated an unwillingness to reopen negotiations of the agreement’s text. Accordingly, Congressional pressure for a renegotiation may spell the end of the USMCA—at least for now.

Notwithstanding the uncertainty in Congress, there has been an outpouring of support for the USMCA by numerous businesses and trade organizations. Though House Democrats have been vocal in opposition to certain provisions of the agreement, there does appear to be some consensus that NAFTA has become outdated and in need of replacement or revision. As is typical, however, the devil is proving to be in the details.

In the event the USMCA cannot obtain Congressional approval this year, it may very well find itself a casualty of the upcoming US presidential election. Pushing a vote into 2020 could further delay ratification of the agreement or, depending on the outcome of the election, kill it entirely. If the Democrats carry the 2020 presidential election, the USMCA might very well find itself labeled a “Trump deal” and be relegated to the legislative dustbin.  Conversely, if President Trump is reelected, the USMCA will still need to find its way through the Congressional approval process of the TPA.

In an August 14, 2019 Notice of Proposed Rule Making, U.S. Customs and Border Protection (“CBP”) announced its intent to increase requirements on licensed customs brokers to verify the identity of the importers with whom they transact.  CBP reports that each year, approximately 350,000 importers actively engage with CBP through almost 2,100 licensed customs brokers.   Ensuring that each of these importers is a legitimate entity and not, for instance, a shell corporation used to evade customs enforcement or support enemies of the U.S., is a constant challenge for US authorities. Currently, for an importer to authorize a customs broker to act on its behalf through a Power of Attorney (“POA”), the importer is required only to disclose basic name and address information. CBP’s proposed rule changes would dramatically increase the required disclosures and the obligations of customs brokers to verify the information provided to them. Under the proposed revised rules, a broker would be required to obtain the following information at the time they executed a POA with an importer:

(1) The client’s name;

(2) For a client who is an individual, the client’s date of birth;

(3) For a client that is a partnership, corporation, or association, the grantor’s date of birth;

(4) For a client that is a partnership, corporation, or association, the client’s trade or fictitious names;

(5) The address of the client’s physical location (for a client that is a partnership, corporation, or association, the physical location would be the client’s headquarters) and telephone number;

(6) The client’s email address and business website;

(7) A copy of the grantor’s unexpired government-issued photo identification;

(8) The client’s Internal Revenue Service (IRS) number, employer identification number (EIN), or importer of record (IOR) number;

(9) The client’s publicly available business identification number (e.g., Data Universal Numbering System (DUNS) number, etc.);

(10) A recent credit report;

(11) A copy of the client’s business registration and license with state authorities; and

(12) The grantor’s authorization to execute power of attorney on behalf of client.

Further, CBP recommends that each of these data points be verified in-person, such as a visit to the importer’s physical location and inspection of their photo identification. In addition, the information would need to be updated and re-verified on a periodic basis.  Certain of these requirements and, in particular the recommendation for in-person verification, may prove impractical given the fast pace of international trade.  Nevertheless, customs brokers tend to agree that “knowing your customer” is essential to border security and already seek much of this verifying information from their clients.

Public comments on the proposed rule changes are open until October 15, 2019.  Check back for an updates on any changes to the proposed rules, their effective date, and information on ensuring that your clients, brokers, and supply chain are in compliance.

On August 13, the Trump Administration announced the “next steps” in implementation of the approximately $300 billion in additional tariffs set to go into effect September 1.  This fourth round of Section 301 tariffs (known as “List 4”) was originally announced on May 17; however, the USTR has now modified and separated that list into List 4A and List 4B. Several products (25 tariff lines in total) were removed from the lists following the public comment and hearing process on the basis of health, safety, national security and other factors. Most significantly, however,  is the delayed implementation of tariffs against List 4B articles until December 15.

The List 4B articles include cell phones, laptop computers, video game consoles, toys, computer monitors, sporting equipment, and certain articles of apparel and footwear. The list itself, coupled with the December 15 effective date, suggests the move was heavily influenced by a desire not to further burden American consumers and businesses during the busy shopping season leading up to the holidays. In fact, President Trump later announced this delay was “for Christmas season, just in case some of the tariffs would have an impact on US customers…”  This delayed effective date for List 4B provides US importers a significant stay as they build inventories in preparation for the holiday shopping season.

The tariff lines contained in List 4A (approximately 3,230) will still face the 10% additional tariff effective September 1. Though the USTR has yet to publish the official notice, we are not anticipating an “on the water” exception will be provided as occurred when the List 3 tariffs were increased from 10% to 25%.  List 4A goods entered into the US or withdrawn from warehouse for consumption on or after September 1 will be subjected to the additional 10% tariff. The remaining tariff lines of List 4B (approximately 540) will not be subjected to the 10% tariff until December 15.

The lists are available online:

List 4A

List 4B

 

 

The Committee on Foreign Investment in the United States (CFIUS)* recently cleared several investments and acquisitions involving foreign actors, giving businesses a small glimpse into which investment characteristics the interagency committee may be favoring in its clearance process.

With last year’s passage of the Foreign Investment Risk Review Modernization Act (FIRRMA), the scope of CFIUS’s oversight has expanded and the committee has become more frequently involved in acquisitions and investments by foreign actors. Earlier this year, CFIUS flexed its new muscles by forcing foreign investors to divest from Grindr and PatientsLikeMe. These actions illustrated a firm commitment by CFIUS to police investments involving certain countries and fields of business.

More specifically, CFIUS’s forced divestments of Grindr and PatientsLikeMe evidence a strong concern by the committee towards Chinese investment, particularly in business fields where sensitive personal data is involved.

This concern aligns with FIRRMA’s expansion of CFIUS’s jurisdiction, as the committee now oversees foreign investment in a number of new industries including data privacy and critical technologies (including semiconductors, robotics, and artificial intelligence). CFIUS prioritizes critical infrastructure as well, which includes fields such as transportation, healthcare, and financial services.

In its recent decisions, CFIUS has continued to follow the observed trend of criticism towards Chinese investment. On October 10, 2018, CFIUS cleared the partial acquisition of the US-based data security firm Micro Focus International by Ultimaco, a German cybersecurity firm. Micro Focus divested its Atalla Hardware Security Module (HSM) and Enterprise Secure Key Manager (ESKM) product lines to the German firm, which has also been active in the HSM market for 20 years.

Despite CFIUS’s skepticism towards any foreign investment involving data security and sensitive information, the committee opted to clear the Ultimaco transaction, marking a stark departure from the forced unwinding of Grindr and PatientsLikeMe. The approval showed that, although foreign investment related to sensitive data will be scrutinized, it will not always be disallowed. The German firm’s clearance, when viewed in contrast to the Grindr and PatientsLikeMe decisions, strongly suggests that CFIUS has specifically taken a stand against Chinese investment in the field.

On July 6, 2019, CFIUS issued another clearance that further supports this notion. SoftBank, a Japanese conglomerate, received approval for its $2.25 billion investment in Cruise, a GM-backed autonomous vehicle startup.

According to two people close to the deal, CFIUS approval did not always appear certain, as the interagency committee scrutinized the investment closely. Red flags arose due to SoftBank’s investment and ongoing involvement with various Chinese companies including ride-hailing firm Didi. According to this source, the committee feared that Didi could appropriate vital technology from Cruise through SoftBank.

CFIUS only approved the investment after SoftBank assured that Cruise’s technology would not leave the US and would be completely off limits to the Japanese conglomerate.

The SoftBank deal once again illuminated CFIUS’s critical view of investments involving Chinese firms. Although SoftBank itself was not a Chinese entity, its Chinese connections apparently delayed the committee’s approval of the investment until the conglomerate offered substantial limitations on the accessibility of Cruise’s technology.

While CFIUS’s clearances of the Ultimaco and SoftBank transactions reveal its hesitation towards Chinese involvement in foreign investment, the committee has also shown that Chinese involvement is not dispositive in their review. CFIUS made this readily apparent in its April 2019 approval of China-based Huatai Securities’ indirect acquisition of Global Financial Private Capital, a United States-based firm.

AssetMark Financial Holdings, an American subsidiary of Huatai specializing in wealth management and financial technology, paid $35.9 million to acquire GFPC, another American wealth management company.

The approval further sheds light on which investments CFIUS considers national security concerns – while Huatai is a Chinese investor and subject to heightened scrutiny, the practice of wealth management was not one that CFIUS deemed to be too “sensitive” to allow investment in.

Taken together with the Ultimaco and SoftBank approvals, the Huatai clearance narrows the apparent disapproval of CFIUS down to any Chinese investment in business sectors specifically involved with sensitive data.

Looking forward, U.S. companies involved with foreign investors should be ready to face substantial CFIUS criticism when their business involves sensitive data or the investor is connected to China.

Companies hoping to secure investments that share both of these characteristics should be prepared to assure CFIUS that any critical information will be kept within the United States, in line with SoftBank’s guarantees. Without the imposition of such conditions, investments may suffer the same fate as those in Grindr and PatientsLikeMe.

*CFIUS serves the President by overseeing the national security implications of foreign direct investment. For more information regarding CFIUS’s general operation, click here.

It has been almost a year since the first round of Section 301 China tariffs went into effect on July 6, 2018.  Since that time, the Office of the United States Trade Representative (USTR) has reviewed thousands of product exclusion requests on Lists 1 and 2.  Granted product exclusions are retroactive to the date of the imposition of additional duties under Section 301, and extend for one year after the publication of the exclusion notice in the Federal Register.  This post summarizes guidance issued by the U.S. Customs and Border Protection to obtain and preserve rights to refunds on excluded products.

Customs Guidance for Entry of Excluded Products and to Request Refunds 

To date, there have been five rounds of granted exclusion requests.  For each round of granted exclusions, Customs has issued guidance on how to submit entries of excluded products and the procedures to obtain refunds.   The Customs guidance is linked in the chart below.

Granted Exclusions Federal Register Notice Customs Guidance
Round 1 83 Fed. Reg. 67,463 CSMS 19-000052
Round 2 84 Fed. Reg. 11,152 CSMS 19-000155
Round 3 84 Fed. Reg. 16,310 CSMS 19-000212
Round 4 84 Fed. Reg. 21,389 CSMS 19-000244
Round 5 84 Fed. Reg.  25,895 CSMS 19-000289

Product exclusions granted by USTR so far are retroactive to July 6, 2018, for unliquidated entries or entries that are liquidated but not final.  Liquidation is the final assessment of duties owed on an entry, and generally occurs within 314 days of an entry.  However, liquidation may occur faster than the 314-day cycle.  In any event, liquidation must occur within one year of the date of entry unless otherwise extended. Importers must diligently monitor the liquidation status of entries of excluded products and exclusion requests pending review to protect their rights to refunds.

Once a product exclusion is granted by the USTR, an Importer of Record may request an administrative refund by filing a Post Summary Correction (PSC) for unliquidated entries that are covered by the exclusion. If an entry is liquidated prior to the filing of a PSC, a party may file a formal CBP Form 19 protest of the liquidation to obtain a refund.    Form 19 protests must be filed within 180 days of liquidation.

Entries Covered by Pending Product Exclusion Requests

Given that liquidation deadlines are fast-approaching for many entries covered by Section 301 (if they have not already occurred), Customs recently issued guidance to U.S. importers concerned that entries may liquidate before the USTR renders a decision on product exclusion requests.  This guidance applies to importers of products pending exclusion review on Lists 1 and 2.

The Importer of Record may:

(1) request an extension of the liquidation deadline, and file a PSC no later than 15 days before the extended date of liquidation; and/or

(2) file a protest within the 180 day period following liquidation. When filing a protest, the protestant should identify the pending product exclusion decision from USTR as a basis for the protest. Upon receiving USTR’s decision on the product exclusion, the protestant should submit the exclusion information to CBP, as additional information pursuant to 19 C.F.R. 174.28.

If a protest is filed, CBP will postpone making a determination on protests that include a claim identifying a pending product exclusion. Once USTR completes the exclusion processing, CBP will process these protests pursuant to USTR’s exclusion determination. That is, CBP will refrain from denying or granting a party’s protest before the importer receives a final determination from USTR regarding its product exclusion request.

For more information about the Section 301 exclusion process, the procedure to  obtain refunds, or the submission of extension requests of liquidation, please contact Fox Rothschild attorneys Brittney Powell, Lizbeth Levinson, or Joseph Rohe.

Note: The exclusion process for List 3 products will commence on June 30, 2019.

On November 30, 2018, the United States, Canada and Mexico took the first steps toward a renegotiated North American Free Trade Agreement (NAFTA)—now dubbed the United States-Mexico-Canada Agreement (USMCA). However, the USMCA still faces the hurdles of ratification by the respective governments. In the United States, that means Congressional approval in accordance with the Trade Promotion Authority (TPA).

Pursuant to the TPA timeline, the final text of the USMCA was published and a Statement of Administrative Action was submitted by US Trade Representative Robert Lighthizer on May 30, thereby permitting the Administration to formally submit the deal to Congress as soon as July 1. Whether or not the deal will be submitted this soon remains to be seen, particularly in light of pushback from Democratic leaders. Once the implementing bill is introduced, the House must vote on the bill within sixty (60) days. If successful before the House, the bill then moves to the Senate where it must be voted on within thirty (30) days.

Now that the Section 232 steel and aluminum tariff issue has been resolved and the threat of additional tariffs on Mexico have been sidelined—at least for the moment—the chances of USMCA’s submission to Congress seems much improved. Nevertheless, House approval of the USMCA in its current form remains a lofty hurdle for the Administration.

The full text of the agreement is available at https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between