Trade Matters – Export Controls & Trade & Investment Sanctions

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1. Highlights the importance of continued enforcement compliance programs

  • Importer to pay $3.25M settlement in FCA case
    A California importer paid $3.25 million (requires Law360 subscription to view) to settle a whistleblower suit brought by a former employee of one of its overseas suppliers under the False Claims Act (FCA). RGE Motor Direct Inc. used false invoices (requires Law360 subscription to view) to avoid paying the 25 percent Section 301 tariff on imports from China. The move continues the government’s recent enforcement trend of using the FCA to prosecute companies for customs compliance failures. The move underscores the need for companies to ensure their access processes, checks and records are current.

  • The magnet company faces charges for export violations and defrauding the DOD

    Quadrant Magnetics LLC, a Kentucky-based magnetics manufacturing company, and three individuals face criminal charges under the Arms Export Control Act and arms regulations for international traffic, wire fraud, smuggling goods and defrauding the Department of Defense. Between January 2012 and December 2018, the defendants conspired to send export-controlled technical data related to U.S. military projects to a Chinese company without obtaining required U.S. government permits. Quadrant imported magnets melted and magnetized in China and sold them to two US companies that used the magnets in components sold to DOD, thereby violating the requirement that rare earth magnets sold to DOD be produced and magnetized in the United States. or another approved country. If convicted, the individuals involved face up to 20 years for each charge of exporting technical data without a license, among other potential penalties.


  • Deemed export requirements collide with discrimination concerns

    Aero Precision LLC, a Washington state firearms manufacturer, has reached a settlement agreement with the Department of Justice to resolve immigration-related discrimination claims. Between April and September 2020, Aero Precision screened eligible job applicants because they were not US citizens or lawful permanent residents, with the goal of complying with deemed export regulations. However, while the deemed export regulations require a foreign person to obtain an export permit to release controlled technology into the United States, asylees and refugees are considered US persons if a permit is required to send the item to their country of nationality. Under International Traffic in Arms Regulations. Thus, by screening asylum seekers and refugees, Aero Precision placed unnecessary restrictions on employment and violated the Immigration and Nationality Act.

2. The Commerce Department withdraws Russia’s market economy status

The Commerce Department has revoked Russia’s market economy status, which affects the calculation of anti-dumping duties on Russian goods, which usually results in higher tariffs. Russia was granted market economy status 20 years ago when, due to extensive government involvement in the Russian economy, commerce determined that commodity prices no longer accurately reflected the laws of supply and demand. Other countries on the department’s non-market economy list include China, Vietnam and nine former Soviet republics. In a commercial release, it said, “[T]Their decision gives the United States the ability to apply the full force of US anti-dumping law to address market distortions caused by increasing interference by the Russian government in their economy.”

3. CBP intercepted more than 1,000 solar shipments for suspected UFLPA violations

According to Reuters, US Customs and Border Protection (CBP) intercepted more than 1,000 shipments of solar panels and components imported from China’s Xinjiang region after the Uyghur Forced Labor Protection Act (UFLPA) took effect in June. Polysilicon, one of the materials used in the production of solar cells, is one of the “High Priority Sectors for Enforcement” according to the UFLPA. These arrests indicate that CBP continues to prioritize UFLPA enforcement and, as a result, importers with supply chains that touch China must ensure that their import and social compliance programs and related supply chain tracing records are up to date. In the event of a CBP seizure under the UFLPA, the threshold requirement for applying for entry into the United States is an existing compliance program consistent with CBP’s guidance. Submitting clear and fully translated documentation tracing the source of all parts/components/materials within the 30-day response window is the best way to expedite the acceptability review by CBP.

4. Investment firm obtains CFIUS approval to acquire United States SAAS business

In connection with its merger with software as a service provider Zendesk, a group of investors led by investment firms UK and Hellman & Friedman recently filed a joint voluntary notice with the Committee on Foreign Investment in the United States (CFIUS), which cleared the transaction. By filing a voluntary notice with CFIUS, parties can obtain a safe harbor from future CFIUS intervention in a transaction if the panel agrees that no national security concerns exist.

5. USTR Extends Exclusion of Section 301 Tariffs on COVID-19-Related Products from China

The Office of the United States Trade Representative announced on November 23 a further 90-day extension of the COVID-19-related product exclusions in the China Section 301 investigation. These 81 medical care product exclusions were originally issued on December 29, 2020 and are now valid through February 28.

Business Tip of the Month:

Companies have until January 23 to respond to the foreign availability of export-controlled items. If you are interested in removing export controls on certain items, this is your chance to show that the technology is already in other countries. Any comments should be submitted by email to Mark Crace [email protected] or to [email protected]. The subject line must refer to OMB Regulation Number 0694-0004 and must not submit any confidential business information or sensitive or protected information.

The content of this article is intended to provide a general guide to the topic. Expert advice should be sought regarding your particular circumstances.

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