1.  FCC Bans Import and Sale of Certain Chinese Telecom and Video Surveillance Devices

Late last year, the Federal Communications Commission (FCC) adopted new rules to block the importation and sale of telecommunications equipment considered unacceptably hazardous to U.S. national security. The Report and Order, issued on November 25, prohibits any future importation, marketing, and sale of radiofrequency devices and equipment by entities on its Covered List. The FCC previously adopted rules barring the use of federal funds to buy equipment or services from those on the Covered List. The FCC also issued a Further Notice of Proposed Rulemaking announcing potential additional steps, including revoking existing device and equipment authorizations held by covered entities and expanding the new ban to include “components” made by covered entities but used by others in their own devices and equipment. Communications equipment manufacturers and companies should ensure they know the origin of their equipment and prepare for likely further regulation by the FCC.

2.  2022 Ends With Enforcement Bang

  • 7 Charged With Sneaking Sensitive US Tech to Russia
    Two U.S. nationals and five Russian nationals recently were charged with conspiracy, wire fraud, and money laundering for conspiring to obtain U.S. military-grade and dual-use technologies for Russia’s defense sector in violation of U.S. sanctions. As alleged in the indictment, the defendants were affiliated with Serniya Engineering and Sertal LLC, Moscow-based companies that operate under the direction of Russian intelligence services to procure advanced electronics and sophisticated testing equipment for Russia’s military industrial complex and research and development sector.
  • Ex-Marine Pilot Accused of Unlawfully Training Chinese Pilots
    In December, authorities unsealed an indictment and arrest warrant for Daniel Edmund Duggan, a former Marine pilot, following his arrest in Australia for unauthorized training of Chinese military pilots. Duggan allegedly trained Chinese military pilots in aircraft carrier approaches and landings without obtaining an export license or other authorization from the U.S. Department of State’s Directorate of Defense Trade Controls. Military training is considered to be a “defense service,” the export of which requires a license under the International Traffic in Arms Regulations. Duggan and his co-conspirators also allegedly bought an aircraft from a U.S.-based dealer and falsified end-user information to receive approval to export it to South Africa, where the training took place.
  • Sanctions Compliance Gap Results in $4.4M Settlement
    On December 30, Danfoss A/S, a multinational Danish company that makes refrigeration and other cooling products, agreed to pay $4.4 million to the Office of Foreign Assets Control (OFAC) to settle its liability over sanctions violations. The violations occurred when Danfoss’ wholly owned United Arab Emirates subsidiary had customers in Iran, Syria, and Sudan make payments to its bank account at the UAE branch of a U.S. financial institution and then made payments from that same account to entities in Iran and Syria. The violations occurred due to deficiencies in Danfoss’ global sanctions compliance programs. While the sale of non-U.S. goods by a non-U.S. person to an entity in an OFAC-sanctioned country might not otherwise violate OFAC regulations, it can nonetheless cause a violation (the export of U.S. financial services) when payments transit through U.S. financial institutions.

3.  Supply Chain Tracking Critical for Automotive Industry

Researchers at a UK university have traced the customers of companies that mine, process, and manufacture products in the Xinjiang region of China (XUAR) and found that practically every major traditional automotive and electric vehicle manufacturer sources from that area. A recent report details the findings. In the United States, the Uyghur Forced Labor Prevention Act (UFLPA) is broad and establishes a rebuttable presumption that any goods mined, produced, or manufactured wholly or in part in the XUAR are supplied using forced labor, and imposes a ban on such imports. The requirements to rebut the presumption can be difficult and burdensome, so importers need to ramp up tracking capability, especially as the U.S. government ramps up enforcement.

4.  USTR Extends Section 301 Exclusions; Time Remains for Comments

On December 16, the Office of the United States Trade Representative (USTR) announced a nine-month extension of 352 product exclusions in the China Section 301 Investigation, making the exclusions valid through September 30. USTR’s willingness to extend exclusions is a positive sign as they undertake the four-year Section 301 tariff review required by law. U.S. companies still have an opportunity to comment on the effects of the Section 301 tariffs and argue for their removal. Comments can be submitted on the USTR Comments Portal, which closes January 17.

5.  Broad Humanitarian Exceptions for Sanctioned Jurisdictions

On December 20, OFAC announced amendments to add or revise general licenses across multiple OFAC sanctions programs for humanitarian-related aid. OFAC issued or amended general licenses to provide authorization in the following four categories: the official business of the U.S. government; the official business of certain international organizations and entities like the United Nations; certain humanitarian transactions in support of nongovernmental organization activities; and the provision of agriculture commodities, medicine, and medical devices, including replacement parts and components.

6.  Negotiation of Trade and Economic Agreements

  • Indo-Pacific Economic Framework
    From December 10 to 15, representatives from USTR and the Commerce Department presented draft text during negotiations for the Indo-Pacific Economic Framework (IPEF). Fourteen countries launched the IPEF in May 2022; many of the same countries also participated in negotiating the Trans-Pacific Partnership (TPP). The IPEF is not a traditional trade agreement like TPP but rather an economic agreement with four pillars: trade, supply chain, clean economy, and fair economy. 
  • MOU to Promote Trade and Investment Between the United States and Africa
    On December 14, the U.S. government entered into a memorandum of understanding (MOU) with the African Continental Free Trade Area Secretariat with a goal to accelerate sustainable growth across the African continent. When unified, the free trade area will comprise 54 member states representing 1.3 billion people, making it the fifth-largest economy in the world. In addition to signing the MOU, President Biden announced over $15 billion in two-way trade and investment commitments, deals, and partnerships that advance priorities in areas such as sustainable energy, health systems, agribusiness, digital connectivity, infrastructure, and finance.

TRADE TIP OF THE MONTH: CFIUS EO Defining Moment of 2022; Supply Chain Tracing Required for 2023

President Biden’s September 15 Executive Order 14803 did not change the Committee on Foreign Investment in the United States (CFIUS) law or regulations, but it did put parties on notice that CFIUS will be considering supply chain and third-party relationships when it reviews foreign investment transactions. Parties also will have to pay more attention to the trends in the U.S. industry and existing foreign ownership issues when considering the national security risk posed by a covered transaction. Finally, given that CFIUS has been provided with increased resources to conduct non-notified reviews, the order makes the file/don’t file determination more complex and increases the potential for CFIUS intervention in the transaction.

Companies also should expect supply chain transparency requirements to increase in 2023. For example, when selling to the military, you may be required to certify that your supply chain does not include items or components from certain Chinese companies or certain Chinese-origin products. And the Customs Trade Partnership Against Terrorism (CTPAT) program incorporates supply chain resilience and national security concerns into its risk assessment analysis. Considering the variety of regulatory regimes that are placing supply chains under a microscope, companies will need to know where every screw and bolt comes from, and most companies are not prepared for this analysis.

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