On December 1, a day after signing the new U.S.-Mexico Canada Agreement (USMCA), President Trump suggested to the press that he would formally notify Canada and Mexico of U.S. withdrawal from the existing NAFTA, in order to pressure Congress to pass USMCA in 2019.

Meanwhile, on December 6, U.S. Trade Representative Robert Lighthizer met with Rep. Nancy Pelosi (D-California), House Democratic Leader and expected Speaker of the House for the 116th Congress, on USMCA. Lighthizer had expressed the wish during the USMCA negotiations that the final agreement would attract substantial bipartisan support.  Following the meeting, Pelosi noted a number of positive aspects of the new agreement, but concluded that the USMCA lacked “real enforcement on the labor and environmental protection[s].” Other House Democrats including Rep. Richard Neal (D-Massachusetts) and Rep. Bill Pascrell. Jr. (D-New Jersey), who are expected to be chairs of the House Ways and Means Committee and the Ways and Means Trade Subcommittee respectively, have made similar statements.

These events set the stage for the debate in Congress over the fate of the newly signed USMCA in 2019.

While some Republicans have expressed concerns about the agreement[1], USMCA will likely face a greater challenge in the Democratic-majority House than in the Republican Senate. Despite some changes to NAFTA that may appeal to Democrats (such as limitations on investor-state dispute settlement and a wage-based rule of origin for autos), we expect the Democrats to seek additional concessions from the Administration, in particular on the enforceability of USMCA’s labor and environmental provisions.

Depending on the scope and magnitude of the changes sought by Democrats, any concessions might not require formally reopening negotiations with Canada and Mexico, which would likely delay USMCA passage. Democrats could seek to include any such changes in the implementing legislation or through side-letters or other types of political agreements with Mexico and Canada. The Democrats led by Pelosi have struck an agreement on labor and trade with Republicans in the past—the so called “May 10” Agreement in 2007 that Democrats reached with the George W. Bush Administration that added labor provision to pending and future U.S. trade agreements.

If needed in renewed talks with Canada and Mexico, the United States could use another point of leverage—prior to the USMCA entering into force, the President must certify that both Canada and Mexico have taken the necessary domestic steps to comply with their respective FTA commitments on “day one” of the agreement, according to TPA procedures.  Accordingly, implementation of the agreement can be delayed until all such steps have been taken.

If domestic disagreements over USMCA escalate, however, and lawmakers are not able to reach a resolution with the Trump Administration, we may see the President continue to raise the possibility of U.S. withdrawal from NAFTA. As we’ve previously noted, the President initiating NAFTA withdrawal would likely come with significant obstacles, both legal and political, and there is significant uncertainty over how Congress and in particular the Democrats will react. Congress would have a number of tools to oppose the President’s unilateral withdrawal from NAFTA—the question is if it would have the will to use them.

 

[1] A group of 40 Republicans criticized USMCA for its protections for LGBTQ workers. However, the final text version of USMCA included a footnote essentially excepting the United States from implementing any policy changes related to the LGBTQ commitment.

Webinar – Thursday, January 17, 2019
1:00 – 2:30 pm EST

What can government contractors expect in 2019?  Join the Crowell & Moring team on Thursday, January 17 at 1:00 pm to discuss likely trends for the coming year.  We’ll cover a variety of topics including cost and DCAA matters, bid protests, cybersecurity, congressional oversight, international and national security issues, claims, ethics/compliance, digital transformation, small business, False Claims Act, and so much more.

Presenters include some of the most experienced practitioners in the field. We hope you will join us for this free and informative webinar.

 

For questions about this webinar, please email Denise Giardina at DGiardina@crowell.com.

 

On November 28, the International Organization for Standardization (ISO) released the first ever draft global standard for unmanned aircraft systems (UAS) operations. The standard, titled Draft International Standard for Unmanned Aircraft Systems Operations, represents an important step in standardizing UAS operations around the world. Although ISO will publish the standard for global adoption starting in 2019, compliance is not mandatory. The standard is nevertheless important because the Federal Aviation Administration (FAA) and sister agencies worldwide will likely use it as a foundation for future rulemaking. Operators, service providers, and manufacturers should thus strongly consider early adoption of the standard in preparing for forthcoming regulation.

The draft, ISO 21384-3, is the first in a four-part series of UAS standards that ISO is currently developing. The next three draft standards are to address general specifications, manufacturing, and unmanned traffic management. This maiden draft addresses operational procedures, making it particularly relevant to anyone who operates UAS for commercial purposes. The draft standard covers safety, autonomous operations, data protection, and overall operational etiquette.

The standard, not surprisingly, first directs UAS operators to follow the existing statutes and regulations of the operators’ jurisdictions. But it also provides guidance for use in the absence of specific regulations. For instance, for commercial operators in the United States flying under the FAA’s Small UAS Rule (Part 107), the standard includes recommendations for properly logging flights, implementing a safety management system, employing training and maintenance standards, and updating UAS hardware and software. Many commercial UAS operators agree that those subjects are valuable and important for the continued development of the UAS industry, but the FAA has not yet addressed them in a formal rulemaking. The ISO draft standard may prompt reconsideration of the value of (or need for) formal rules in these areas and others it covers.

The ISO has invited drone professionals, academics, businesses, and the general public to submit comments on the draft standard. Those comments are due by January 21, 2019. Given the likelihood that the draft standard will influence upcoming FAA rules, among others, businesses that utilize UAS technology would be well-advised to review the draft standard and consider what comments they might contribute. Even businesses that do not yet employ UAS technology would be well served to focus, since new applications for UAS are rapidly emerging in a host of industries, including in the agricultural, maritime, insurance, construction, and energy sectors.

 

Safe drone implementation is transforming businesses and municipalities, resulting in significant cost savings, improved workplace safety, and more reliable work product. A standards-led adoption of drone technology promises to allow commercial operators to integrate drone operations into their business models safely and confidently.

Photo by Guillaume Bolduc on Unsplash;

On December 1, President Trump and President Xi reached agreement on the margins of the G20 in Buenos Aires to delay an increase on the third, $200 billion tranche of Section 301-related tariffs from 10% to 25%, which was originally set to take place January 1. According to the White House, the two sides will now begin a 90-day period of talks to resolve “structural” issues around IP theft, non-tariff barriers, and forced technology transfer. The White House said the tariff increase would be implemented at the end of the 90-day period if no agreement is reached.

According to the White House, China has also agreed to “purchase a not yet agreed upon, but very substantial amount of agricultural, energy, industrial and other product from the United States to reduce the trade imbalance.” Soybeans, other agricultural products, and energy products were reportedly included. China has not yet indicated whether this commitment will take the form of a policy change (such as a reduction in retaliatory tariffs on U.S. agriculture exports) or whether it will be left up to private-sector entities (as when EU Commission President Jean-Claude Juncker committed to purchasing U.S. soybeans as part of its agreement last July).

Following the meeting, President Trump said China also agreed to reduce 40% tariffs (25% of which is retaliation for U.S. tariffs) on U.S. automobile exports, though China has not confirmed that it will do so.

The latest agreement is a small, but positive step toward repairing the U.S.-China trade relationship. It likely postpones the risk of a fourth tranche of tariffs on another $267 billion in Chinese imports, which the Trump administration has previously threatened to impose, beyond the 90-day period. President Trump’s appointment of U.S. Trade Representative (USTR) Robert Lighthizer, who managed to conclude the renegotiation of NAFTA, as the lead for the 90-day talks suggests that serious negotiations will take place.

However, the gulf between what the U.S. is purportedly seeking—structural and meaningful economic reform—and what China seems currently prepared to offer remains wide. Much will depend on the Trump administration’s level of ambition. Companies with interest in China should ensure that the U.S. government is aware of opportunities to address their trade issues in China as well as the specific business risks arising from the current trade conflict (in particular any risks to U.S. jobs and economic growth).

 

 

 

Brussels, Belgium

On Tuesday, November 20, the European Commission announced a political agreement with EU member states on a new framework for foreign direct investment (FDI) screening. The legal text for the framework still needs to be finalized and released. The announcement can be found here.

According to the Commission, the new framework will provide a mechanism for the Commission and EU member states to request information and raise concerns related to FDI screening, without restricting the ultimate authority of an individual EU member state to determine who can invest within its borders. The framework will also provide for “short business-friendly deadlines” and confidentiality requirements for EU members’ FDI screening regimes and will permit the Commission to issue opinions on FDI cases involving several Member states or EU-wide interests.

Currently only 12 of the 28 EU member states—Austria, Denmark, Germany, Finland, France, Latvia, Lithuania, Italy, Poland, Portugal, Spain, and the UK—have formal FDI screening systems in place. The new framework could provide a basis for the remaining EU members to develop such systems.

 

After the legal text is finalized, the framework still needs to be submitted for formal approval by the European Parliament and the Council of the European Union. Separately, the Commission is still conducting an in-depth technical study on current FDI flows related to strategic sectors and technologies for expected release before the end of the year.

The Congressional election on November 6, 2018 produced a new split Congress with a House Democratic majority and a Senate Republican majority starting in January 2019. The difference between the outgoing 115th Congress, with a Republican House and Senate, and the 116th Congress starting in 2019 will be significant for U.S. businesses.

While the divided Congress brings opportunities to advance bipartisan legislation involving infrastructure, energy, and pharmaceuticals, the new House Democratic majority in the 116th Congress will produce a series of new committee chairs who will use their power to oversee and investigate the Trump Administration, U.S. businesses that have benefited from the Republicans’ deregulatory agenda of the past two years, and even some businesses on less friendly terms with the Trump Administration.

One of the first examples of this will be in the energy and environmental sectors. The expected chairman of the House Energy & Commerce Committee has already announced plans to hold oversight hearings in the new year focusing on the chemical industry and implementation by the U.S. Environmental Protection Agency of the recent amendments to the Toxic Substances Control Act. The House Energy & Commerce Committee along with the House Science, Space, and Technology Committee and the House Natural Resources Committee are also planning a series of hearings on the Trump Administration’s plans to address climate change and regulate greenhouse gas emissions. The leadership of EPA, the Department of Energy, and the Department of the Interior can expect to testify on Capitol Hill to explain why they are replacing the Clean Power Plan and Waters of the U.S. rule, rolling back environmental protections for federal lands, and favoring oil and gas companies and the mining industry, as opposed to promoting renewable energy and protections for endangered species. These committees will likely also summon senior executives of those same oil and gas, mining, and related energy companies to explain what role they have had in influencing the Trump Administration’s regulatory reform agenda and why they are not taking more proactive measures to address climate change and global warming. Furthermore, House Democrats are likely to revive the Select Committee on Energy Independence and Global Warming, which was discontinued by Republicans following the Red Wave of the 2010 midterm elections.

Another example of this will be the health care industry. The same House Energy & Commerce Committee, and its Subcommittee on Health, will require the leadership of the U.S. Department of Health and Human Services, the Centers for Medicare and Medicaid Services, and the Food and Drug Administration to explain what they are doing to reduce drug pricing. Although this issue resonates personally with the President and is one that the Administration has already begun to address, the House Democrats will demand that the Administration do more to make drug prices cheaper for Americans. Thus, the same committee will also call on senior executives of U.S. drug manufacturers, health insurance companies, pharmacy benefit managers, and others to press them for plans and commitments to reduce drug prices. They will likewise press some of these same companies on their actions with regard to curbing the opioid crisis.

A final example will be the financial services industry. The House Financial Services Committee, among others, under the control of Democrats, will bring senior leaders from the Treasury Department, Consumer Financial Protection Bureau, and other agencies to Capitol Hill to explain why they have moderated the consumer protections in the Dodd-Frank Act and given more power and flexibility to banks and financial institutions. They will likewise bring the leaders of some of those institutions up to Capitol Hill to explain their behavior and the risks they might pose to the U.S. economy.

On November 15th, the Crowell & Moring Government Affairs Group held a webinar entitled – “Post-Midterm Elections: What to Expect in 2019.” The webinar covered the following topics:

  • How will the election results impact the November and December 2018 lame duck session?
  • Will Nancy Pelosi return to the Speaker’s chair?
  • Who will lead the major committees of each chamber?
  • What issues are most ripe for bipartisan compromise in the new Congress?
  • Does the 116th Congress promise legislative productivity or political posturing and gridlock?
  • Will House Democrats exercise their newly gained majority for rigorous oversight and investigations of the Trump Administration to the exclusion of significant policy work?
  • How would increased oversight by House Democrats affect industries that have benefited from the Trump Administration’s regulatory reform agenda, and can these industries expect to be the target of any increased oversight?
  • Are Senate Republicans prepared to work on a bipartisan basis to pass legislation or will that chamber spend much of the next two years on judicial confirmations?
  • Which health care issues are likely to dominate the headlines in 2019?
  • Can the two parties find any common ground on energy and environment issues?

The Crowell & Moring Government Affairs team brings experience that includes former senior staff to U.S. Senate Majority Leader Mitch McConnell (R-KY) and U.S. Senate Minority Leader Charles E. Schumer (D-NY), former Congressional healthcare, environmental and investigative staff from both House and Senate personal offices and Committees, and legal and regulatory professionals with extensive experience representing organizations on health care, environmental, and trade matters before the U.S. government.

 

On November 19, 2018, the Bureau of Industry and Security (BIS) published an advance notice of proposed rulemaking (ANPRM) seeking comments on implementation of Section 1758 of the Export Control Reform Act of 2018. This section requires Commerce, in consultation with DoD and other CFIUS member agencies, to define “emerging technologies” sufficiently significant to U.S. national security interests to impose some level of export controls over the technology and potentially to trigger mandatory declarations of any foreign investment in companies involved in the development and production of such technology.

This ANPRM identifies certain broad categories of emerging technologies (largely consistent with technologies identified in the 2018 DIUx China Report) and seeks recommendations on defining specific technologies within these categories or others to control considering such factors as on the status of the technology development in the U.S. and other countries and the potential impact – pro or con – of such controls on U.S. technological superiority.

Comments are due by December 19, 2018; BIS will issue a separate ANPRM for “foundational technologies.”

 

On October 10, Treasury announced interim regulations to implement certain provisions of the Foreign Investment Review Modernization Act (FIRRMA), which President Trump signed into law on August 13, 2018.

As part of that announcement, Treasury will initiate a pilot program imposing mandatory declarations on transactions involving certain sensitive sectors. That pilot program is due to go into effect on November 10, 2018 and will cover 27 “pilot program industries.” One of the questions for analysis that has emerged is to what extent those sectors intersect with Made in China 2025 priority industries.

Click here to continue reading the full version of this alert.

 

 

The 116th Congress begins on January 3, 2019. Based on projections from yesterday’s midterms, Democrats will control the House of Representatives by a narrow margin, while Republicans will expand their hold on the Senate. The changes to Congress are likely to shape trade policy through 2019, but much will depend on how House Democrats use their new majority, and whether trade is a priority issue or whether it will be overtaken by domestic issues.

Companies will have to carefully navigate the new political environment in order to advance their policy objectives. In addition to accounting for the hard-nosed approach to trade taken by the current administration, an effective policy engagement strategy will have to account for the new political dynamics created by newly empowered House Democrats and a potentially polarized Congress. Companies should be prepared to intervene on issues that are likely to come up in 2019, including: ratification of the U.S.-Mexico-Canada Trade Agreement (USMCA); trade negotiations with the EU, Japan, and the UK; and the ongoing U.S. tariff interventions on China and for sensitive sectors.

Below is our best forecast for the makeup of the trade- and foreign affairs-related committees for the 116th Congress, and their voting record on key pieces of trade legislation:

 

NAFTA
(1994)

China PNTR
(2000)

U.S.-Colombia FTA  (2012)

Korea-U.S.-FTA (2012)

TPA**
(2015)
House Ways and Means
Chair: Richard Neal (D-Massachusetts)

Nay

Yea

Nay

Yea

Nay
Ranking Member: Kevin Brady (R-Texas)

N/A

Yea

Yea

Yea

Yea
House Foreign Affairs
Chair: Eliot Engel (D-New York)

Nay

Nay

Yea

Nay

Nay
Ranking Member: Michael McCaul (R-Texas) OR

N/A

N/A

Yea

Yea

Yea
Joe Wilson (R-South Carolina)

N/A

N/A

Yea

Nay

Yea
Senate Finance
Chair: Chuck Grassley (R-Iowa) OR

Yea

Yea

Yea

Yea

Yea
Mike Crapo (R-Idaho)

Nay (as House member)

Yea

Yea

Yea

Yea
Ranking Member: Ron Wyden (D-Oregon)

Yea

Yea

Yea

Yea

Yea
Senate Foreign Relations
Chair: Jim Risch (R-Idaho)

N/A

N/A

Yea

Yea

Yea
Ranking Member: Bob Menendez (D-New Jersey)

Nay

Nay

Nay

Yea

Nay

* China Permanent Normal Trade Relations
** Trade Promotion Authority

We expect the following impacts on 2019 U.S. trade priorities:

Impact on U.S.-Mexico-Canada Trade Agreement (USMCA)

The new USMCA is expected to be signed at the end of this month. USMCA would have likely passed in a Republican-held Congress on a bumpy but ultimately consistent trajectory. It will still likely enjoy broad backing in the Republican Senate. With Democrats now in control the House, there may be some new challenges to ratification.

Some of the new provisions in USMCA give cover for Democratic support—including the new wage-based rule of origin for autos and new enforceable labor rules, along with the weakening of investor-state dispute settlement. The Advisory Committee for Trade Policy and Negotiations (ACTPN), which includes the leaders of United Steelworkers and the International Brotherhood of Teamsters, last week expressed unanimous support for the agreement. But these changes still might not be enough to gain wide Democratic support. The Labor Advisory Committee for Trade Policy and Negotiations (LAC) noted several reservations on the agreement. Major environmental groups are also already preparing for a major advocacy campaign against USMCA. We expect House Democrats to seek additional concessions from the administration, particularly on the enforceability of the new labor provisions, on the environment, or possibly in the area of intellectual property protections.

If USMCA is signed on November 30, the U.S. International Trade Commission (USITC) would have to publish a study on its probable economic impacts by March 15, 2019, according to Trade Promotion Authority (TPA) procedures. The agreement could theoretically be voted on at any point after publication of the report, but difficulties in assembling the needed votes for implementing legislation would likely delay the process. The Trump Administration may still attempt to withdraw from the existing NAFTA as a tactic to force Congress to pass USMCA. It remains unclear how House Democrats or Senate Republicans would react to such a threat. The role of the business community will be key. The White House would look to U.S. business, including agribusiness, to generate bipartisan support for the agreement.

Impact on Future U.S. FTAs: U.S.-Japan, U.S.-EU, U.S.-UK

The U.S. Trade Representative (USTR) notified Congress on October 16 of its intention to begin negotiations for trade agreements with Japan, the EU, and the UK. The earliest that formal negotiations for the Japan and EU agreements could start is January 14, while negotiations with the UK would have to wait until after Brexit on March 29. USTR’s negotiating objectives for these agreements could be published in December or later.

For the new Congress, the Republican majority in the Senate and Democratic majority in the House will have differing sets of concerns for the new negotiations. Senate Republicans will seek many of the outcomes they sought in the NAFTA renegotiation. The Democratic House leadership is likely to call for new measures on labor and the environment, intellectual property, and/or dispute settlement. Some of these, such as opposition to investor-state dispute statement, would resonate with USTR Lighthizer and the White House, though it’s not clear how far the administration would move in the Democrats’ direction on labor or environmental issues. Consideration of the USMCA will be an early test on issues of concern to Democrats that will have implications for other agreements.

USTR is seeking short-term delivery of less controversial outcomes on regulatory alignment and other limited market access issues (such as an enlarged quota for high-quality beef and sales of U.S. soybeans) as part of an early harvest for negotiations with the EU, while with Japan the immediate priorities appear to be focused on market access for autos and agriculture.  Such priorities are not likely to require Congressional ratification and so will be less affected by the changes in Congress.

Impact on Section 301 tariffs

President Trump is expected to meet with President Xi at the G20 Summit in Argentina on November 30- December 1. While the White House has downplayed expectations for the meeting, others see the possibility of beginning a meaningful U.S.-China dialogue and perhaps moderating or delaying additional tariff actions. If no accommodation or way forward is reached, the U.S. has indicated it will increase existing tariffs on certain goods from 10 percent to 25 percent in January, with some reports that the U.S. could also impose new tariffs on nearly all remaining Chinese imports. China would likely respond in kind to any new tariffs.

The new Congress is not likely to change the direction of the U.S. economic relationship with China, although the plight of U.S. farmers facing their worst economic year in a long time might have some effect in pushing individual Members of Congress to seek a moderate course. We expect Republicans in the Senate will continue to have concerns on the impacts of China’s retaliation on the broader economy, but still be reluctant to contradict the administration’s approach. The Democratic-controlled House may be more enthusiastic in supporting tariffs overall and could give the Trump Administration cover to take a harder line if circumstances warrant, although may push back where there are specific constituent impacts. In fact, if the Trump Administration reaches a deal with China at the end of November (or anytime afterward), incoming House Democrats could use their newfound leverage to criticize the administration’s efforts and seek to outflank the administration on China issues. China policy is certain to figure in both parties’ presidential election campaigns as the 2020 presidential election begins to take shape during 2019.

While the current approach broadly to China is likely to continue, there may be enough bipartisan support for the new Congress to continue pushing the administration for a product-exclusion process for the 10 percent tranche of tariffs announced last September.

Impact on Section 232 tariffs

The Trump Administration has implemented tariffs on all imports of steel and aluminum, subject to certain country-specific exceptions. Negotiations for some country-specific exclusions could continue through 2019 (e.g., for Canada, Mexico, Japan, or the EU). In addition, the Trump Administration is considering implementation of tariffs on imports of autos and auto parts.

Changes to the control of Congress are not likely to affect the ongoing Section 232 tariffs related to steel and aluminum. House Democrats and Senate Republicans are likely to take positions on the Section 232 tariffs based on the economic impact for their district or state. Members from steel-heavy districts and states will continue to be supportive of the tariffs, while those from districts and states suffering from negative economic consequences because of retaliation or increased downstream costs are more likely to oppose.

Unless the Trump Administration imposes additional tariffs, we would not expect the new Congress to pass legislation designed to restrict the president’s Section 232 authority, as introduced by Senator Bob Corker (R-Tennessee) in the Senate and Representative Mike Gallagher (R-Wisconsin) in the House earlier this summer. That legislation did not have the votes to pass at the time, and the new Democratic majority in the House is not likely to increase the chances of passage.

In the area of the administration’s potential imposition Section 232 tariffs on autos and auto parts, the economic consequences of the tariffs and any resultant retaliation from other countries are likely to be broad. We would continue to expect a significant degree of bipartisan Congressional opposition to new Section 232 tariffs on autos.

Interaction between International Trade and Domestic Issues

Domestic factors are likely to dominate in shaping international trade and economic policy over the course of the new Congress and the remainder of President Trump’s term. Emerging issues, including renewed interest in comprehensive U.S. federal privacy legislation, could influence future U.S. trade-related rules (e.g., on cross-border data flows) as well as set policy models that other governments could replicate.

While the Trump Administration may be keen to pivot to international issues given its lack of a Congressional majority at home, its ability to negotiate and conclude agreements on multiple fronts could be complicated as it seeks to manage an increased array of investigations and oversight by the Congress. Add to this the inevitable turnover of Cabinet members and White House and Executive Branch staff changes that will occur after the mid-terms, and the administration may see a temporary hiatus in undertaking new policy initiatives, including on trade.

Furthermore, the upcoming presidential campaign could set the stage for an intra-party debate among Democrats on whether to take an even more hawkish approach on trade issues than the current administration; stay the current course; or return to a more centrist policy as was ultimately adopted by the Obama Administration while in office.

On November 5, 2018, in accordance with President Trump’s May 8, 2018 decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) issued an amendment to the Iranian Transactions and Sanctions Regulations (ITSR). The amendment followed on the expiration of the final 180-day wind-down period for transactions previously authorized by “General License H” and for the re-imposition of the remaining “secondary sanctions,” which concluded November 4, 2018, at 11:59 PM.

This action, along with the　August 6, 2018 issuance of a new Executive Order (E.O. 13846), reinstates a full U.S. embargo against Iran, and fully re-imposes all U.S. sanctions which had been suspended or waived since the implementation of the JCPOA in January 2016.

Below, we summarize OFAC’s action, as well as related actions　taken　by the State Department to authorize certain waivers of these sanctions. OFAC:

  1. Amended the ITSR to revise 31 C.F.R. § 560.211(c) to implement the authority granted in　E.O. 13846　to block all interests in property in the United　States,　or under the control of a U.S. Person, of a person that has been designated for having either –
    1. Materially assisted or provided support to the Government of Iran in the purchase or acquisition of U.S. currency or precious metals on or after August 7, 2018.
    2. Materially assisted or provided support to the National Iranian Oil Company (NIOC), the Naftiran Intertrade Company (NICO), or the Central Bank of Iran (CBI) on or after November 5, 2018.
  2. Removed the EO 13599 non-SDN List (denoting blocked persons that meet the definition of “Government of Iran” and “Iranian financial institution”) and relisted more than 700 individuals and entities, including Bank Melli, National Iranian Tanker Company (NITC), and hundreds of others, on the Specially Designated Nationals and Blocked Persons List (SDN List).
  3. Amended the existing general license provided in 31 C.F.R. § 560.543 related to the sale of real property in Iran to further authorize U.S. persons to engage in all transactions necessary and ordinarily incident to the sale of personal property in Iran and to transfer the proceeds to the United States, provided that the property was either acquired before the individual became a U.S. Person, or was inherited from persons in Iran.

In parallel, OFAC also issued a number of frequently asked questions (FAQs), which generally provide guidance regarding how OFAC will interpret its Iran-related authorities going forward. This includes, in addition to other things, the following notes:

  • General Summary:　The provision of goods or services, or extension of debt or credit, to an Iranian counterparty after November 4, 2018, even pursuant to contracts that were lawful and in effect prior to the U.S. withdrawal from the JCPOA (May 8, 2018) may result in the imposition of sanctions unless otherwise authorized by OFAC. (FAQ 630)
  • Non-U.S. Persons Receiving Payment for pre-Nov. 5 Activity: However, non-U.S., non-Iranian persons may receive payment for goods or services fully provided or delivered prior to the expiration of the relevant wind-down period and pursuant to contracts in effect prior to the U.S. withdrawal from the JCPOA (May 8, 2018) after November 5, 2018. (FAQs　631,　634)
  • U.S. Persons Receiving Payment for pre-Nov. 5 Activity:　In contrast, U.S. persons, and non-U.S. entities owned or controlled by U.S. persons, will require prior authorization from OFAC to receive payment on or after November 5, 2018 for goods or services fully provided or delivered prior to the expiration of the relevant wind-down period and pursuant to contracts in effect prior to the U.S. withdrawal from the JCPOA on May 8, 2018. (FAQ 635)
  • U.S. Persons and New SDNs: U.S. persons, and non-U.S. entities owned or controlled by U.S. persons, require prior authorization from OFAC to receive any payment involving any of the re-listed SDNs from the former EO 13599 List. (FAQ 636)
  • Insurance: OFAC clarified that non-U.S. insurers, reinsurers, and brokers could face U.S. “secondary” sanctions for processing claims after November 5, 2018, even if those claims relate to “incidents” that occurred prior to November 5,　2018　and during a period in which the underlying activity and insurance policy were not prohibited.

In addition to OFAC’s actions, the State Department issued guidance on two sets of waivers that it has issued for sanctions under its authority. Specifically:

  • Significant Reduction Exemption for Crude Oil Importers: The　State Department noted　that it was granting a “significant reduction exemption” to China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey. As a result, these countries and importers in these countries will not face “secondary” sanctions risk for importation of Iranian crude oil. The State Department specifically noted that it continues to negotiate with these countries to “get all the nations to zero [oil imports].”
  • Civil Nuclear Energy Waivers: Second, the State Department stated that it will not impose “secondary” sanctions related to ongoing nonproliferation projects at Arak, Bushehr, and Fordow as an “interim measure that preserves oversight of Iran’s civil nuclear program.” These waivers do not, however, extend to any “new civil nuclear projects.” The　State Department specifically noted　that these waivers are conditional upon “the cooperation of the various stakeholders” and can be rescinded at any time.

These amendments represent the final step in re-imposing the full suite of U.S. primary and secondary sanctions after President Trump’s May 8, 2018 decision to fully withdraw from the JCPOA, returning the U.S. sanctions program to its pre-JCPOA state.

U.S. persons and non-U.S. persons that are owned or controlled by U.S. persons are now prohibited from conducting virtually all Iran-related activity without a license.

Non-U.S. persons face renewed “secondary” sanctions risks for conducting certain types of transactions with sanctioned persons (e.g., Iranian persons on the SDN list) and Iranian industries (e.g., petroleum, petrochemicals, energy, shipping, shipbuilding, precious metals, etc.).

Despite widespread global opposition to these developments—including the passage of updated “Blocking” legislation in the European Union—we expect the Administration to aggressively enforce these new authorities to increase the perceived pressure on Iran, both through expanded enforcement of “primary” sanctions (e.g., aggressive investigation and imposition of penalties with respect to perceived violations) and through increased numbers of “secondary” sanctions designations.