On August 6 the Trump Administration announced that it would reimpose the 10% aluminum tariff on imports of Canadian “non-alloy unwrought aluminum” classified under HTS subheading 7601.10. The move has not garnered widespread support from industry or the US Chamber of Commerce, who called it “a step in the wrong direction.” The Administration’s proclamation claims an 87% increase in imports of Canadian non-alloyed unwrought aluminum between June 2019 and May 2020; however, the US Aluminum Association recently reported a 2.6% decline in primary aluminum imported from Canada from May to June and a 5% overall reduction in the first quarter 2020 as compared with first quarter 2017. In urging the Adminsitration to reconsider the reimpositin of aluminum tariffs against Canada, the US Chamber of Commerce commented that “thse tariffs will raise costs for American manufacturers, are opposed by most US aluminum producers, and will draw retaliation against US exports.”

This move comes roughly a month after the US-Canada-Mexico Agreement (USMCA) came into effect and risks further disruption to the US’ relationship with one of its largest trading partners. Canada has already announced its intent to impose countermeasures that would include “dollar-for-dollar” retaliatory tariffs on US goods.  In its defense of the increase, the Trump Administration claims Canada flooded the US market with aluminum following the Administration’s agreement to lift the original 10% aluminum tariff with respect to Canada last year.

As it stands, the tariff increaes is set to go into effect on goods imported or withdrawn from warehouse after August 16, 2020.

The fact that the US-Mexico-Canada Agreement (“USMCA”), which replaced NAFTA on July 1, does not require any particular form Certificate of Origin (“COO”) has left many importers and exporters confused on the proper manner of certifying goods as “originating” under USMCA. The new trade agreement dispensed with the formality of the Form 434 COO under NAFTA, but has left to the trade the determination of how to format and structure the certifying document. Though no particular format or structure is required, the COO under USMCA must contain the following nine “Minimum Data Elements:

  1. Importer, Exporter, or Producer Certification of Origin: Indicate whether the certifier is the exporter, producer, or importer in accordance with Article 5.2 (Claims for Preferential Tariff  Treatment).
  2. Certifier: Provide the certifier’s name, title, address (including country), telephone number, and email address.
  3. Exporter: Provide the exporter’s name, address (including country), e-mail address, and telephone number if different from the certifier. This information is not required if the producer is
    completing the certification of origin and does not know the identity of the exporter. The address of the exporter shall be the place of export of the good in a Party’s territory.
  4. Producer: Provide the producer’s name, address (including country), e-mail address, and telephone number, if different from the certifier or exporter or, if there are multiple producers, state “Various” or provide a list of producers. A person that wishes for this information to remain confidential may state “Available upon request by the importing authorities”. The address of a producer shall be the place of production of the good in a Party’s territory.
  5. Importer: Provide, if known, the importer’s name, address, e-mail address, and telephone number. The address of the importer shall be in a Party’s territory
  6. Description and HS Tariff Classification of the Good: (a) Provide a description of the good and the HS tariff classification of the good to the 6-digit level. The description should be sufficient to relate it to the good covered by the certification; and (b) If the certification of origin covers a single shipment of a good, indicate, if known, the invoice number related to the exportation
  7. Origin Criteria: Specify the origin criteria under which the good qualifies, as set out in Article 4.2 (Originating Goods).
  8. Blanket Period: Include the period if the certification covers multiple shipments of identical goods for a specified period of up to 12 months as set out in Article 5.2 (Claims for Preferential Tariff
  9. Authorized Signature and Date: The certification must be signed and dated by the certifier and accompanied by the following statement: “I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.”

Moreover, the COO may be included on the commercial invoice and need not be contained in a stand-alone document. Under USMCA, the COO may be completed by the exporter, producer of the good, or the importer, so long as the certification is based upon information, including documentation, establishing that the good is originating.

Although no particular format is required, Fox’s International Trade team is experienced and can assist with development of form documents to satisfy COO and other requirements for international trade transactions.

Starting Feb. 13, 2020, U.S. companies in tech, infrastructure and data seeking minority or controlling foreign investment will require approval from the Committee on Foreign Investment in the United States (CFIUS) before closing certain transactions.

The change stems from the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which was signed into law by President Donald Trump in 2018, expanding CFIUS’ jurisdiction to review certain foreign acquisitions of and investments in U.S. businesses on the grounds of national security. On Jan. 13, the U.S. Department of the Treasury issued final regulations to implement FIRRMA (the Regulations). A summary of the new regulations and key takeaways follows.

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

Key Takeaways:

  • CFIUS has the authority to review certain minority foreign investments in U.S. businesses in critical technology, critical infrastructure and sensitive personal data of U.S. citizens.
  • Fund managers will have to ensure that their fund documents do not trigger a CFIUS review if they provide foreign limited partners with certain governance rights and access to certain nonpublic information.
  • CFIUS filings are now mandatory for certain foreign acquisitions where a foreign government holds a substantial interest in the foreign party as well as for investments in companies involved in certain critical technology industries.
  • Certain investors from Australia, the United Kingdom and Canada are exempt.
  • 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.
  • CFIUS has authority to review the purchase or lease of certain U.S. real estate by a foreign person.
  • The new Regulations will have a significant impact on investment in large segments of U.S. technology. CFIUS will also require more information in its determination, including the U.S. business’ critical technology, government contracts and data-gathering practices.

For a detailed analysis, read my comprehensive breakdown of the new rules.

Apple Inc.’s recent settlement with the Treasury Department’s Office of Foreign Assets Control (OFAC) has exposed a potentially costly wrinkle in complying with international trade regulations. While sanctions screening technologies may help a company catch and report errors, this software alone will not absolve faults and shortcomings in a company’s overall export compliance programs.

The compliance woes at Apple serve as a signal to businesses of all sizes that rely on third-party sanction screening software. Ultimately, it’s not one technology but a company’s entire compliance program – collective policies, trainings, technology, efforts to address vulnerabilities and corrective responses – that will be accountable if a failure occurs.

Overreliance on Sanctions Screening Tech

On November 25, 2019, OFAC announced a $467,000 settlement with Apple, Inc. for apparent violations of international sanctions regulations. The apparent violations stem from errors in Apple’s sanction screening software and from Apple’s failure to take timely and complete corrective actions.

Apple entered into an app development agreement with Slovenian software company, SIS, d.o.o. (SIS), in July 2008. On February 24, 2015, OFAC identified SIS and its principal, Savo Stjepanovic, on its List of Specially Designated Nationals and Blocked Persons (SDN List).

On the same day as the designation, Apple screened its existing app developers against the updated SDN List, but failed to identify SIS or Stjepanovic. Apple later determined that its sanctions screening software failed to match the lower-case of the Slovenian corporate designation “d.o.o.” with the upper-case “DOO” contained in Apple’s systems, and that Stjepanovic’s name appeared in an un-reviewed “account administrator” field. In February 2017, Apple enhanced its sanctions screening tools and discovered SIS’s identification on the SDN List. Apple immediately suspended all payments to SIS’s account, but continued to permit payments to an entity to which SIS had transferred a portion of its apps in 2015. In all, Apple made 47 payments totaling more than $1 million to SIS after the company was placed on the SDN List.

OFAC identified several aspects of Apple’s response which mitigated the civil penalties against it, including:

  • Apple undertook various measures to enhance its compliance program, including: improving escalation and review processes; reconfiguring the search capabilities in its sanctions screening tool; expanding the scope of sanctions screening; and updating instructions and training provided to employees relating to export and sanctions.
  • Apple promptly responded to OFAC’s post-disclosure requests for information.
  • Apple voluntarily self-disclosed its potential violations in what OFAC determined to be a non-egregious case.
  • Apple had not received a penalty notice of Finding of Violation from OFAC in the five years prior to the transactions at issue.
  • The total amount of violative payments was not significant compared to Apple’s total annual volume of transactions.

The following aggravating factors increased Apple’s civil penalties:

  • Apple’s conduct demonstrated “multiple points of failure” in its compliance program.
  • Apple is a “large and sophisticated organization operating globally with experience and expertise in international transactions.”
  • Apple failed to take timely corrective actions when it continued to send payments to an affiliated entity after learning of its error.
  • Apple failed to “anticipate potential vulnerabilities” in its compliance programs.

The failure of the compliance software at a technology giant is disconcerting for many businesses. However, both the aggravating and mitigating factors identified in OFAC’s announcement of the settlement offer meaningful insights into what companies should do if they find that their compliance tools have failed them.

For Apple, its efforts to update its sanctions screening software allowed it to discover its error and voluntarily disclose its conduct. But its compliance program as whole failed to prevent transactions with SDNs. The settlement demonstrates that companies cannot rely on any one technological aspect of their compliance programs to ensure export compliance. A company should aim to have a healthy compliance program that integrates trainings, technologies, response policies and risk mitigation efforts.

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.