Today, the United States announced another round of significant sanctions and export control restrictions on Russia and Belarus in response to the deteriorating situation in Ukraine. Today’s actions subject Belarus to the same harsh export control restrictions that were imposed on Russia last week and effectively close U.S. airspace to Russian aircraft. The White House also announced that United States would impose new restrictions on exports of oil and gas equipment to Russia and blocking sanctions on Russian defense companies. We expect the Commerce and Treasury Departments to implement those restrictions in the coming days.

U.S. Belarus Export Controls

In coordination with the European Union, the U.S. Commerce Department announced amendments to the Export Administration Regulations today that subject Belarus to the same sweeping export control restrictions as those imposed on Russia last week.

The new rules effectively prohibit the export, re-export, or transfer of a broad range of dual-use items to Belarus, including all items listed in Categories 3 through 9 of the Commerce Control List, the U.S. dual use control list. With limited exception, the U.S. government will review license applications related to these exports subject to a presumption of denial, which means that licenses will rarely be granted. The rules also impose broad restrictions on exports of items to Military End Users and Uses in Belarus and added add two Belarusian entities to the Entity List as “military end users,” broadly prohibiting the transfer of items subject to the EAR to the listed parties.

Today’s amendments also extend the “Foreign Direct Product Rule” (FDPR) to apply exports to Belarus and Belarusian Military End Users, expanding the scope of items manufactured outside the United States that are now subject to U.S. export control and licensing requirements.

Additional information on the nature of these expanded controls is available in our prior post on Russia, available here.

Oil & Gas Equipment Restrictions

The White House announced that the United States would adopt new export controls on oil and gas extraction equipment shipped to Russia. The new controls are designed to limit the ability of Russia to support its refining capacity over the long term. Additional information about the oil and gas export controls is available here. The EU also recently imposed similar restrictions on an array of items used for oil refining.

Defense Sanctions

The White House also announced that 22 Russian defense-related entities would be added the List of Specially Designated Nationals (SDN List), including companies that manufacture “combat aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia’s military.” As of this writing, the SDN List had not yet been updated with these entities.

On March 4, 2022, BIS added 91 entries to its Entity List, effectively prohibiting exports of items “subject to the EAR” to the listed parties. The entities, which are located in Belize, Russia, Singapore, and the United Kingdom, were sanctioned for their involvement or support of Russian security, military, and defense efforts.

Airspace Restrictions

In coordination with U.S. allies, the United States also announced the closure of U.S. airspace to Russian aircraft. The new measures ban aircraft certified, operated, registered or controlled by any person connected with Russia from the United States. Accordingly, the Department of Transportation issued a notice today revoking Russian passenger and cargo airlines’ ability to operate to and from U.S. destinations and refusing entry of Russian-operated aircraft into U.S. airspace.

Under the FDPR, the EAR controls foreign-produced items that are a (1) direct product of certain U.S.-origin technology or software controlled for national security reasons or (2) are produced by plants, or a major components of plants, that are a direct product of U.S.-origin technology. The FDPR further restricts the receipt of certain foreign-produced items (i.e., those incorporating U.S. technology or software or produced by plants or major components of plants) by designated entities on the Commerce Department’s Entity List, primarily targeting primarily Huawei and its affiliates.

Previously, the FDPR appeared in two separate parts of the EAR, General Prohibition 3 and the Entity List. The amendments consolidate and place the FDPR in the scope section of the EAR to “clarif[y] that [the FDPR] are used to determine if a foreign-produced item is subject to, and thus within the scope of, the EAR.” The Commerce Department also simplified the text of the FDPR to facilitate adherence to the rule and makes clear which terms have special definitions under the EAR.

The Commerce Department’s amendments to re-organize, clarify, and correct the FDPR come amid rising tensions between the United States and Russia. In 2020, the Commerce Department expanded the FDPR to address Huawei’s threats to U.S. national security and essentially prevented the company from receiving any foreign-produced items that incorporated or was produced with controlled U.S.-origin technology or software, unless a license was obtained. The United States may take a similar approach to Russian entities and thereby hinder production in key sectors that rely on U.S.-origin items, such as defense and intelligence.

Companies should monitor developments in this space. If the United States takes further action under the FDPR, companies should conduct supply-chain due diligence to determine if their products are subject to the FDPR and, if so, whether they involve any targeted parties on the Entity List.

The investigation on electrical transformer components will cover laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators. Transformers are an essential part of the U.S. energy infrastructure. The Department’s press release notes that “[a]n assured domestic supply of these products enables the United States to respond to large power disruptions affecting civilian populations, critical infrastructure, and U.S. defense industrial production capabilities.” Several members of Congress had previously urged the Administration to initiate proceedings.

The investigation on mobile cranes follows a petition filed by domestic producer The Manitowoc Company, Inc. (“Manitowoc”), according to the Department’s press release. That petition, filed in December, alleges that “increased imports of low-priced mobile cranes, particularly from Germany, Austria, and Japan, and intellectual property (IP) infringement by foreign competition, have harmed the domestic mobile crane manufacturing industry.” Mobile cranes are considered a critical industry due to their extensive use in national defense and critical infrastructure applications. Manitowoc also alleges that low-priced imports and IP infringement of mobile cranes caused the closure of one of its two U.S. production facilities, eliminating hundreds of skilled U.S. manufacturing jobs.

The Department now has 270 days to provide a report to President Trump determining whether these imports threaten to impair U.S. national security, along with a recommendation for action. President Trump will then have 90 days to determine whether or not to impose restrictions so that imports no longer threaten national security.

In its preliminary determination, the Commerce Department found both Viraj and Venus to be uncooperative respondents and assigned the companies a preliminary dumping margin of 30.92 percent. This is the same rate that is currently in effect for Indian producers Mukand and Chandan. As a result of its preliminary finding, Commerce will instruct U.S. Customs and Border Protection to suspend liquidation of all entries of stainless steel bar produced and/or exported by either Viraj or the Venus Group and require a cash deposit of 30.92 percent from U.S. importers of such goods effective October 18, 2017.

The changed circumstances review request was filed on September 29, 2016 on behalf of seven U.S. stainless steel bar producers. The antidumping duty order has been in effect since February 21, 1995. Viraj was conditionally revoked from the order in 2004 and the Venus Group was conditionally revoked from the order in 2011 because they were found in three consecutive reviews to have engaged in no dumping (i.e., they received three consecutive zero or de minimis dumping margins). Under U.S. law, any company that has an order conditionally revoked may be reinstated under an existing order if the Commerce Department finds that the company has resumed dumping following revocation. This case is just one of a handful of reinstatement proceedings conducted by the Commerce Department to date and serves as a reminder that unfair trading practices by companies conditionally revoked from an existing order may be properly addressed through a changed circumstances review.

Petitioning companies: The petitioning companies are Carpenter Technology Corporation; Crucible Industries LLC; Electralloy, a Division of G.O. Carlson, Inc.; North American Stainless; Outokumpu Stainless Bar, Inc; Universal Stainless & Alloy Products, Inc.; and Valbruna Slater Stainless, Inc. and are represented by David A. Hartquist, Laurence J. Lasoff, and Grace Kim of Kelley Drye & Warren LLP.

In addition, thirty-one Chinese companies that failed to respond to Commerce’s initial inquiries received a “total” adverse rate of 112.99 percent. The scope of this investigation, which Commerce modified based on petitioner’s recommendations, covers certain metal tool chests and tool cabinets, with drawers, (tool chests and cabinets), from China. As a result of Commerce’s preliminary determination, imports of covered tool chests and cabinets from China that enter the United States will be subject to cash deposits consistent with the preliminary subsidy rates.

Previously, the International Trade Commission (“ITC”) unanimously determined on May 25^th that there is a reasonable indication that a U.S. industry is materially injured by reason of unfairly traded imports of tool chests and cabinets from China that are allegedly subsidized and sold in the United States at less than fair value, and also by unfair imports from Vietnam that are allegedly sold in the United States at less than fair value.

Kelley Drye represents the petitioner, Waterloo Industries, in this case, and prepared and filed antidumping (“AD”) and CVD petitions at Commerce and the ITC on April 11^th.

Commerce is scheduled to announce its preliminary determinations in the companion China antidumping investigation and Vietnam antidumping investigation on November 7^th.

Kelley Drye represents petitioner Nan Ya Plastics Corporation, America in this case.

The petition prepared by Kelley Drye, filed on June 27^th, alleged that subject imports – at estimated dumping margins of 39.24 to 52.3 percent (Korea) and 28.47 to 73.21 percent (Taiwan) – were able to penetrate the U.S. market and capture an increasing share of the U.S. market by significantly undercutting U.S. prices. The petition also alleged that as a result of increasing and low-priced imports, the domestic industry has suffered significant declines in production, shipments, prices, and profits. The ITC held a public preliminary conference on July 18^th to hear testimony from domestic industry, foreign producer, and U.S. importer parties in the investigation. Based on witness testimony, post-conference briefs, and the data obtained in the case, the Commissioners reached a unanimous affirmative preliminary injury determination. The report will be available on the ITC’s website after September 8, 2017.

As a result of the ITC’s affirmative determination, the U.S. Department of Commerce’s (“Commerce”) antidumping investigations, initiated on July 17^th, will proceed. Commerce’s preliminary antidumping determinations are due on or about December 4, 2017, unless fully extended to January 23, 2018. The entire investigation will take approximately one year, and will culminate with final dumping margin determinations at Commerce and with a final injury investigation and hearing at the ITC. If the domestic industry prevails, Commerce will issue orders imposing antidumping duties at the determined rates on imports of low melt PSF from Korea and Taiwan.

Insights from the data include:

• Total first year investment in U.S. Businesses was $373 billion in 2016, 6 billion in 2015, and 260.6 billion in 2014.
• In all three years, the leading type for foreign investment was U.S. manufacturing business. Within manufacturing most spending went to chemical manufacturing, including makers of pharmaceuticals and medicines as well as manufacturers of basic chemicals.
• Companies from English speaking countries spend the most to purchase U.S. businesses with nearly half of all investment coming from Canada, the UK, and Ireland.

To access the series, click here.

The memo directs agency chiefs to submit to the Commerce Department and OMB a report that details their assessment of the implementation of Buy American Laws within their agencies by September 15th in compliance with the executive order’s section 3.

Direct Federal Procurement and Federal Assistance

The OMB and DOC memorandum direct agency assessments of both (1) compliance with Buy American laws applicable to an agency’s direct procurement and (2) compliance with any Buy American laws applicable to federal financial assistance awarded by an agency.

Direct Federal Procurement

The OMB and DOC memorandum directs the elements of the analyses executive departments and agencies must undertake and the content they must include in their report. The categories of information sought by DOC and OMB include:

1. Oversight of Buy American laws;
2. Enforcement of Buy American laws and waiver usage; and
3. Steps to strengthen implementation of Buy American laws.

The OMB and DOC memorandum also directs agencies to review the level of spending conducted under exceptions to the Buy American laws, the most prevalent products that were subject to BAA exceptions and waivers, and the largest contracts subject to BAA waivers and exceptions during the last three fiscal years.

The memo further directs agencies to develop and propose policies to ensure procurements maximize the use of materials produced in the United States.

The OMB and DOC memorandum devotes considerable attention to the TAA, suggesting the Administration’s intent to adhere to the TAA and to abide by U.S. obligations under international trade agreements applicable to government procurement.

Federal Assistance

Notably, the OMB and DOC memorandum also directs agencies to evaluate and report on their oversight of Buy American laws applicable to federal financial assistance awards, for which there is no primary law that imposes a “Buy American” procurement preference. The memorandum directs agencies to:

1. Provide an inventory of their existing Federal financial assistance authorities and information on the extent Buy American laws apply to awards made under these authorities
2. Describe guidance the agency has issued to assist assistance recipients in complying with applicable Buy American laws; and
3. Describe reviews the agency has conducted in the last two fiscal years. . . to evaluate recipients’ compliance with Buy American laws.

Trump’s executive order requires agencies to “assess the use of waivers …by type and impact on domestic jobs and manufacturing.” The OMB and DOC memorandum directs agencies to, at a minimum, “describe their current waiver and exception process and actions they are taking to review and improve upon that process.”

Agencies Must Make Policy Recommendations

Finally, the OMB and DOC memorandum requires agencies to “develop and propose policies for their agencies to ensure that” federal procurements and assistance awards maximize the use of materials produced in the United States….” The OMB and DOC memorandum therefore directs each federal agency to:

1. Identify actions the agency intends to take to review and update the relevant agency guidance to recipients;
2. Identify actions the agency intends to take to review and update relevant agency internal procedures to implement relevant Buy American laws; and
3. Offer ideas for strengthening and applying Buy American laws that may require statutory, executive, regulatory, or administrative action across the government.

The OMB and DOC memorandum poses no immediate changes for federal procurements and procurements made with federal assistance. The information submitted by federal agencies may, however, prove to be critical to the ultimate success of President Trump’s executive order.

After the agencies submit their reports, the order directs Commerce and the USTR to assess, within 150 days of the date of the order, the impacts of all U.S. free trade agreements, including the World Trade Organization’s Government Procurement Agreement on the operation of Buy American laws.

The order also requires the Director of the OMB, the Secretaries of Commerce and State and the USTR to submit within 220 days of the order a report to the President on the findings of the required agency reviews, which is to include specific recommendations to strengthen implementation of Buy American laws.

For the uninitiated, the U.S. anti-boycott rules prohibit U.S. companies from cooperating with “unsanctioned foreign boycotts.” The rules also require U.S. companies to submit reports to the U.S. government if they receive requests related to such boycotts. The rules were developed in the 1970s to prevent U.S. companies from complying with the Arab League boycott of Israel, but the resulting regulations are worded broadly and could theoretically apply to other foreign boycotts. This has led some commentators to conclude that compliance with the blockade of Qatar would be illegal, or that it would at least require the submission of a report to the U.S. government. For now, that’s not the case. The only ‘unsanctioned foreign boycott’ subject to the anti-boycott rules remains the Arab League boycott of Israel. Some companies take a conservative approach and report other types of boycott-related requests to the U.S. government (such as those related to India and Pakistan or China and Taiwan). That approach is fine, but such reports are not required under the rules.

The takeaway: Failure to report Qatar-related blockade requests and compliance with the blockade will not, at least not yet, result in liability under the U.S. anti-boycott regulations. You should, of course, verify this conclusion with counsel – the facts of each case are unique and the rules (and the U.S. government’s interpretation of the rules) can change.

You can learn more about the U.S. anti-boycott rules on the Commerce Department’s Office of Antiboycott Compliance website, available here. Word to the wise: the anti-boycott regulations themselves are notoriously complex. Unless you deal with these rules on a regular basis, they can be very challenging to apply. As a result, we suggest that relevant employees be able to spot potentially problematic boycott requests, but rely on experienced counsel or compliance personnel for more detailed review.

The Commerce Department initiated the Section 232 investigations on steel and aluminum at the end of April. Normally, the agency may take up to 270 days to conduct its investigation and issue findings to the President. In this unique situation, however, the agency is conducting expedited investigations which is why its findings will be issued much more quickly than in past Section 232 investigations.

In the course of a Section 232 investigation, the Commerce Department examines a number of factors to determine whether imports of particular merchandise threaten the national security. These include, but are not limited to: requirements of the defense and essential civilian sectors; growth requirements of the domestic industry(ies) to meet national defense requirements; quantity, availability, character, and use of a particular imported article, or other circumstances related to its importation, and their effect on the national security; the impact of foreign competition on the economic welfare of the essential domestic industry; the loss of skills and investment in government revenue; and the displacement of any domestic products causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity.

Indications are the Commerce Department will recommend to the President that some form of action be taken with respect to imports of steel and aluminum. What remains to be answered is the specific type of action recommended to the President, including, the particular steel and aluminum imports subject to action, the foreign countries from which imports are affected, and the length of time or duration of any recommended action in each investigation.