Trade and Manufacturing Monitor

U.S. State Department Announces Temporary ITAR Provisions In Response to COVID-19

Eric McClafferty — Thu, 07 May 2020 12:24:50 -0400

The Department of State’s Office of Defense Trade Controls Policy announced that they are temporarily suspending, modifying, and excepting certain International Traffic in Arms Regulations (ITAR) requirements in an effort to mitigate the impact of the COVID-19 pandemic. The temporary changes are as follows:

As of February 29, 2020, ITAR registrations and fees with an expiration dates from February 202” through June 30, 2020 are extended for two months from the original expiration date.
As of March 13, 2020, ITAR licenses and agreements expiring between March 13 and May 31, 2020 will be extended for six months from the original expiration date, so long as there are no changes to the name/address, scope, or value of the authorization.
As of March 13, 2020, there is a temporary suspension, modification, and exception to the requirement that a regular employee, for purposes of ITAR § 120.39(a)(2), work at the company's facilities, to allow the individual to work at a remote work location. Additionally, regular employees of licensed entities, who are working remotely in a country not currently authorized by a technical assistance agreement (TAA), manufacturing license agreement or exemption, can access, send, or receive technical data that is authorized for export, reexport or retransfer to their employer via a TAA.

For both situations, the individual employee must not be located in Russia or a country listed in ITAR § 126.1. These two provisions end on July 31, 2020, unless extended in writing.

We are happy to answer questions about these or other recent trade compliance changes in light of the COVID-19 pandemic.

USITC Releases Analysis of Imports of COVID-19 Related Items

Joshua Morey — Tue, 05 May 2020 13:02:00 -0400

Yesterday, the U.S. International Trade Commission (“USITC”) released a report on imports of products known to be related to the response to COVID-19. The report was requested by Congressman Richard E. Neal, Chairman of the House Committee on Ways and Means and Senator Charles E. Grassley, Chairman of the Senate Committee on Finance in early April.

Relying on lists compiled by the World Customs Organization (“WCO”), the World Health Organization (“WHO”), World Trade Organization (“WTO”), and input from the U.S. Department of Commerce’s Industry and Analysis division of the International Trade Administration and other government agencies, the USITC identified 112 Harmonized Tariff Schedule of the United States (“HTSUS”) 10-digit statistical reporting numbers as partially or wholly relevant to the response. The 112 statistical reporting numbers were grouped into the following eight categories:

COVID-19 test kits/testing instruments;
Personal protective equipment (PPE);
Disinfectants and sterilization products;
Oxygen therapy equipment and pulse oximeters;
Medical imaging, diagnostic, and other equipment;
Non-PPE medical consumables and hospital supplies;
Medicines (pharmaceuticals); and
An “other” category that includes transportation for patients, mobile clinics, and furniture used in a healthcare setting.

Of the 112 relevant statistical reporting numbers, 36 are currently subject to normal duties, 39 are subject to 25 percent Section 301 tariffs on imports from China, and 16 are subject to 7.5 percent Section 301 tariffs on imports from China. Notably, the report did not identify whether antidumping or countervailing duties were applicable to the categories or products identified.

On the heals of the USITC’s release of its report, Congressman Neal called for President Trump to suspend “all tariffs” for 90-days on the items identified in the USITC’s report as related to the response to COVID-19. Congressman Neal also urged President Trump to take measures necessary to increase domestic production of these essential items.

Congressman Neal also acknowledged that the United States Trade Representative’s request for comments on the possibility of removing the application of China Section 301 tariffs on certain medical care products. The Congressman noted, however, that this process will take time – as the comment period will remain open until at least June 25, 2020 – and that several items identified by the USITC are imported from countries other than China and are subject to normal duties regardless of origin.

A copy of the USITC’s report is available for download on the agency’s website under publication number 5047 – COVID-19 Related Goods: U.S. Imports and Tariffs, Inv. 332-576. The report identifies all 112 10-digit statistical reporting numbers subject to the report.

A press release concerning Congressman Neal’s call for a 90-day suspension of tariffs is available here and the Congressman’s complete analysis of the report is available here.

FEMA Issues New Rule Requiring Approval for Exports of Certain Personal Protective Equipment

Eric McClafferty — Mon, 20 Apr 2020 13:36:10 -0400

On April 10, 2020, the Federal Emergency Management Agency (FEMA) issued a temporary final rule (TFR), pursuant to the Defense Protection Act (DPA) and related authorities[1], to require explicit approval for exports of certain personal protective equipment (PPE). This TFR is aimed at allocating certain scarce or threatened materials for domestic use as needed for national defense during the COVID-19 pandemic. The TFR took effect April 7, 2020, and remains effective until August 10, 2020. This date could be extended.

Five Types of PPE Currently Covered:

Pursuant to this TFR, shipments of the following five types of PPE, determined by the Secretary of Health and Human Services (HHS) to be “scarce or threatened materials”, may NOT leave the United States without explicit FEMA approval:

N95 Filtering Facepiece Respirators, including devices that are disposable half-face-piece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth to reduce exposure to pathogenic biological airborne particulates;
Other Filtering Facepiece Respirators (e.g., those designated as N99, N100, R95, R99, R100, or P95, P99, P100), including single-use, disposable half-mask respiratory protective devices that cover the user's airway and offer protection from particulate materials at an N95 filtration efficiency level;
Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges;
PPE surgical masks, including masks that cover the user's nose and mouth and provide a physical barrier to fluids and particulate materials; and
PPE gloves or surgical gloves, including exam and surgical gloves, as well as gloves intended for the same purposes.

Note that this list is not exhaustive, and that the FEMA Administrator may add other materials if they are determined to be scarce and critical materials essential for national defense. Other such materials would be added to this allocation order, and there would be a Federal Register notice.

FEMA Approval Process

Pursuant to this TFR, before any shipments of these materials may leave the United States, the U.S. Customs and Border Patrol (CBP) will detain the shipment temporarily, so that FEMA may determine in a reasonable time period, which is not defined, and acting based on promoting national defense how to proceed. They could either issue a rated order for all or part of the shipment and return the merchandise for domestic use (i.e., not allowing the export at all), or they could allow the export in whole or in part.

In making its determination, FEMA may consult other agencies and will consider the totality of the circumstances, including the following factors: (1) ensuring that scarce or threatened items are appropriately allocated for domestic use; (2) minimizing supply chain disruption, both in the U.S. and abroad; (3) facts surrounding the distribution of the materials and potential for price-gouging or hoarding; (4) humanitarian concerns; (5) the quality and quantity of the materials; and (6) diplomatic considerations and international relations.

Exemptions Necessary or Appropriate to Promote National Defense

The TFR also sets forth an exemption where the Administrator determines that the export is necessary or appropriate to promote the national defense. For example, FEMA will not purchase covered materials from shipments made by or on behalf of U.S. manufacturers with continuous export agreements with customers outside the United States since at least January 1, 2020, if at least 80 percent of such manufacturer’s domestic production of covered materials (on a per item basis) was distributed in the United States in the previous 12 months. The Administrator recognized the importance of these pre-existing commercial relationships to the international supply chain and for humanitarian reasons, in light of the global nature of the pandemic. In each case where an exemption applies, the materials may leave the United States without further review by FEMA. Exemptions can waived by the Administrator if determined to no longer be necessary or appropriate to promote the national defense.

Customs and Border Protection (CBP) issued internal guidance for ports or entry. There will likely be additional public guidance forthcoming clarifying these exemptions. For example, CBP will be focusing its efforts on shipments involving “commercial quantities,” currently defined as shipments valued at $2,500 or more and containing more than 10,000 units. The guidance indicates that CBP will not be focusing on the following categories of shipments:

Exports to Canada or Mexico;
Exports to U.S. government entities such as U.S. military bases overseas;
Exports by U.S. Government agencies;
Exports by U.S. charities;
Exports by critical infrastructure industries for the protection of their workers;
Exports by the 3M Company;
Express or Mail Parcels that do not meet the commercial quantity definition above;
In-transit shipments.

The guidance does not provide additional information on how CBP will coordinate with FEMA to make a decision on whether the materials may leave the United States.

Again, there will likely be more guidance on categories for exclusion, and FEMA encourages manufacturers to contact them with specific information regarding their status under this exemption. Additionally, the Administrator may announce other exemptions by notice in the Federal Register.

Enforcement

FEMA may conduct investigations and issue requests for information to enforce the Defense Production Act. They may seek an injunction or other order to prevent a person from engaging in acts that will violate the Act or any TFR or order issued pursuant to the Act. Failure to comply fully with this TFR is a crime punishable by a fine of not more than $10,000 or imprisonment for not more than one year, or both. Moreover, whoever fraudulently or knowingly exports, or attempts to export/send from the United States, any item contrary to any U.S. law or regulation, or receives, conceals, buys, sells, or facilitates the transportation, concealment, or sale of such an item before it leaves the United States, knowing it is intended to leave the United States in violation of U.S. laws and regulations, faces up to 10 years’ imprisonment, a fine, or both.

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We are continuing to monitor developments regarding these requirements for the five categories of PPE and potentially others to be subject to certain restrictions before leaving the United States, as well as any other exemptions and additional guidance. Please let us know if you have questions.

Kelley Drye has been closely monitoring the federal government response to the COVID-19 pandemic. Our goal is to help clients face current challenges and address questions that impact business operations as information becomes available to us. We have been providing up-to-date information including daily advisories, blog posts and frequent webinars about the legal and business implications related to the pandemic, all of which can be found on the firm’s COVID-19 Resource Center.

[1] The TFR is issued pursuant to the following authorities: The Defense Production Act of 1950, as amended (“DPA” or “the Act”), and specifically sections 101 and 704 of the Act, 50 U.S.C. 4511, 4554; Executive Order (E.O.) 13909, 85 FR 16227 (Mar. 23, 2020); E.O. 13910, 85 FR 17001 (Mar. 26, 2020); E.O. 13911, 85 FR 18403 (Apr. 1, 2020); DHS Delegation Number 09052 Rev. 00.1, “Delegation of Defense Production Act Authority to the Administrator of the Federal Emergency Management Agency” (Apr. 1, 2020); and The Presidential Memorandum on Allocating Certain Scarce or Threatened Health and Medical Resources to Domestic Use (April 3, 2020).

COVID-19 – Four Key International Trade Compliance Considerations

Eric McClafferty — Fri, 10 Apr 2020 12:39:15 -0400

Even as companies make rapid changes to respond to business challenges posed by the COVID-19 pandemic, executives and compliance team leaders must protect their company and employees by continuing to comply with critical U.S. international trade laws and regulations (including those addressing customs, anti-corruption, export controls, and economic sanctions). Trade regulations are not suspended, and it is important to not make assumptions or conclude that the law does not apply during this difficult time with all of the issues competing for attention, not least family and employee health and company survival. With the need to move so quickly, we have seen clients inadvertently come close to trade compliance violations that would not pose a problem for them in normal times. The following suggestions are intended to help companies reduce the risk of certain significant federal international trade law violations and avoid inbound and outbound shipment delays – while continuing to operate.

Trade rules and surrounding circumstances are changing quickly. For example, the Administration very recently appeared to be seriously considering suspending or lowering certain import tariffs, but backed away from that approach given the complexity of administering a revised system on short notice, among other problems. You are likely also seeing reports about various countries’ restrictions on exports of medicine, medical equipment (including protective equipment and ventilators), and food, among other products. How do you keep up with what is actually happening that may affect your company and what is just rumor that you do not need to react to?

One step companies are taking is to include key personnel from their trade compliance and legal teams in the decision processes related to changing international transactions. You need to move quickly, but including a team member who knows trade rules can help keep things on track and help avoid clear compliance errors.

Here are four substantive areas of U.S. trade regulation that should continue to be part of international transaction diligence: U.S. anti-corruption, export controls, and sanctions laws (that permit most exports of medicines, medical devices, and food to sanctioned locations), and U.S. Customs rules on personal protective equipment and medical devices (among other imported items).

Foreign Corrupt Practices Act (FCPA):

Due to the pandemic and disruptions in supply chains, companies should be on high alert regarding potentially illegal and/or unethical activities by brokers, freight forwarders, and other agents who may be suggesting or paying bribes or taking other similar steps to move products in the face of delays caused by the pandemic. Payments to or otherwise providing anything of value to a government official outside the United States in order to receive an improper commercial advantage could result in a violation of the federal FCPA[1] and/or other applicable anti-bribery laws. For example, companies need to watch for unusual requests for fees, surcharges, extra commissions, unusually large discounts, or other payments – particularly to third parties - that could be shared with foreign officials, including Customs personnel in the form of a side payment or bribe intended to preferentially move product. It can be tempting to authorize such payments in this context. Consult with counsel for guidance if this comes up.

Importation, Exportation or Re-exportation of Controlled Pathogens and Medical Equipment

Although the U.S. Commerce Department’s Bureau of Industry and Security (BIS) has stated that COVID-19, including virus samples, is not generally controlled for export and re-export under the Export Administration Regulations (EAR),[2] a license for a variety of associated activities could be required depending on the end-user, end-use, and destination country. For example, exporting a virus sample from the United States to Iran would require a license, as would any export creating potential biological weapons proliferation concerns. Additionally, U.S. persons are prohibited from exporting a virus sample to an individual or company on BIS’s Entity List.

Moreover, certain “equipment capable of use in handling biological materials” (e.g., those used for manufacturing vaccines) and “protective and detection equipment and components” related to biological threats may also require a license for export or re-export. [3] There are also potential licensing requirements for software specially designed or modified to enable such biological detection systems.

Next, companies should be aware of potential licensing requirements to export “technology” related to controlled items. Controlled technology includes information related to the production, development or use of controlled items, such as vaccines. For example, technology related to the production of certain protective gear to prevent against controlled pathogens or for manufacturing a vaccine might also require a license. Additionally, releasing controlled technology to a foreign person (e.g., foreign person working in a U.S. laboratory on a vaccine) would be considered a “deemed export” under the EAR and may require a license. There might be a license exception or license available, but, even in an emergency, it is necessary to check to ensure compliance with applicable laws.

Finally, many countries, like the European Union countries,[4] have imposed stringent export control restrictions on certain medical supplies due to COVID-19.[5] While the United States has not yet imposed similar measures on such items as respirators and face masks, they may do so in the future so it is necessary to monitor U.S. policy as the response to the pandemic evolves.

Office of Foreign Assets Control (OFAC) Sanctions Concerns, including humanitarian exports of food, medicine and medical devices

It is important to comply not only with export control laws but also the laws and regulations administered by the Office of Foreign Assets Control (OFAC). Most of the comprehensive sanctions programs have a general license (GL) or other authorization for exporting certain medicines or medical supplies, but each license is different and must be reviewed in its entirety to ensure compliance.[6] Additionally, many of the general licenses have exclusions as well as reporting requirements that must be followed.

Note that there are certain medicines and medical devices that are not covered by the GLs, and would require a specific license.[7] Before exporting to a sanctioned country, companies need to evaluate whether a particular general license is applicable in its entirety or whether they need to request a specific license.

Finally, transactions with, including exports to, any individual or entity on OFAC’s Specially Designated National List remain generally prohibited, so it is important for companies to continue their general denied party screening processes.

Remote Work Arrangements

As companies have moved toward increased remote work arrangements, they should also consider potential export and deemed export issues in light of these changes. As noted above, the export or re-export of controlled technology is subject to export controls. Because many employees are now working from home, the places from which controlled technology may be accessed, or to which controlled technology may be sent, may change. This situation may arise with respect to U.S. persons who are temporarily abroad, or for individuals who typically work inside the United States but are now working from a place outside of the United States, such as individuals who live near the Mexican or Canadian border. Non-U.S. persons may have been granted access to databases that they require a license to access. In assessing compliance risk, companies should seek to ensure that working at alternative locations, use of technology and software, and access to information comport with all regulatory requirements and that companies continue to adhere to their Technology Control Plan, even in this environment.

As companies are struggling to maintain normal business operations due to the numerous disruptions created by the COVID-19 pandemic, it is important to ensure that any necessary adjustments do not compound these difficulties by creating violations with strict liability U.S. international trade compliance laws and regulations. Because of the constantly changing circumstances, companies could very easily commit inadvertent violations in an attempt to solve business challenges as they arise. As companies develop strategies to cope with the disruptions caused by the pandemic, international trade compliance must be an element of those discussions. Should any of the above considerations apply to your company, we are happy to discuss.

[1] 15 U.S.C. §§ 78dd-1, et seq.

[2] https://www.bis.doc.gov/index.php/documents/pdfs/2532-severe-acute-respiratory-syndrome-coronavirus-2-sars-cov-2-faq/file

[3] Examples include fermenters, centrifugal separators, freeze-drying equipment, aerosol challenge chambers, cross-flow filtration equipment and components, among others. These items can be subject to very restrictive controls, such as “Chemical and Biological Weapons” (CB) controls, and require an authorization for export to most destinations. Note that some related items could be controlled for export under the International Traffic in Arms Regulations, see, e.g., Category XIV of the U.S. Munitions List at 22 C.F.R. § 121.1.

[4] https://eur-lex.europa.eu/legal-content/GA/TXT/?uri=CELEX:32020R0402

[5] https://www.marketplace.org/2020/03/30/countries-race-to-limit-ban-exports-of-masks-ventilators-other-gear/

[6] For example, see our March 11, 2020 post on Iran General License 8, which authorizes transactions involving the Central Bank of Iran where such transactions involve the authorized export of food, medicine, and medical devices to Iran.

[7] See, e.g. https://www.treasury.gov/resource-center/sanctions/programs/documents/iran_gl_med_supplies.pdf

USTR Considers Removal of 301 Duties on COVID-19-Related Medical Care Products

Jennifer E. McCadney — Wed, 25 Mar 2020 14:53:33 -0400

In response to the COVID-19 outbreak, USTR issued a Federal Register Notice requesting public comments on the possibility of removing the application of China Section 301 duties from medical care products, including inputs used to produce such needed medical care products.

The comment period will remain open until at least June 25, 2020, however, USTR indicated the deadline may be extended. Interested parties are encouraged to submit comments as promptly as possible. Responses to comments should be submitted within three business days after a comment is posted on the docket. USTR will review requests and comments on a rolling basis.

The announcement further indicates that comments may be submitted regarding any product covered by Section 301 duties, even if the product is subject to a pending or denied exclusion request. Commenters must identify the product of concern and explain how it relates to the COVID-19 outbreak, including whether a product is directly used to treat COVID-19 or limit the outbreak, or whether the product is used in the production of needed medical-care products.

For additional information, please contact Jennifer McCadney.