The conclusion of the World Trade Organization’s (“WTO”) 13th ministerial meeting (“MC13”) this past Friday, March 1st, saw the extension of the so-called e-commerce moratorium until the next ministerial conference in two years, at which point it will permanently expire unless another agreement is reached. The moratorium, which suspends customs duties on digital transmissions, was one of several issues on which WTO members struggled to find agreement. The suspension of tariffs on digital goods has been a source of tension between developing and developed nations since the moratorium’s introduction at the second WTO ministerial meeting in 1998 as a way of fostering growth in the nascent digital sector. With the explosion in growth of e-commerce and digital trade over the next 27 years, much of which comes in the form of exports from OECD member countries, the moratorium’s renewal has become increasingly contentious in WTO negotiations.

Talks on the moratorium’s extension echo those which took place at the previous ministerial conference in June of 2022, where India sought concessions on fishery and agricultural subsidies from other WTO members in exchange for the renewal of the e-commerce moratorium. Although ministers from various WTO member nations expressed their satisfaction with the moratorium’s renewal through multilateral agreement at the current conference, a group of 140 member nations signaled that they would be willing to mutually suspend tariffs on digital transmissions as part of a “joint statement initiative” should the moratorium fail to survive the next ministerial conference in 2026.

Crowell & Moring, LLP continues to monitor developments in the e-commerce and digital trade spaces and their potential impact on customers and businesses going forward.

Last week, Hoshine Silicon Industry Co. (“Hoshine”) filed a complaint at the Court of International Trade contesting a withhold release order (“WRO”) issued against it by U.S. Customs and Border Protection (“CBP”).

The withhold release order prohibits Hoshine and its subsidiaries from importing silica-based products into the United States due to allegations of forced labor in Hoshine’s manufacturing process. The WRO applies to materials and final goods derived from or produced using those silica-based products, regardless of where the materials and final goods are produced. The WRO therefore effectively bans any solar panel product containing Hoshine silica materials from entering the United States. At the time of WRO issuance, it was estimated that around 80% of the world’s polysilicon supply originated in China, nearly half of which came from the Xinjiang region.

The complaint alleges that the WRO was issued without prior notice to Hoshine and that CBP’s press release announcing the WRO contains factual inaccuracies including the statement that Hoshine’s parent company is located in Xinjiang Uyghur Autonomous Region. The complaint further alleges that Hoshine attempted to meet with Customs, but the agency did not provide any additional reasons for the WRO.  Moreover, despite efforts to establish supply chain tracing and third-party audits in support of a petition to be removed from the WRO, Hoshine’s petition was summarily denied by CBP. This denial ultimately prompted Hoshine to file its CIT suit.

This lawsuit tees up several interesting issues before the Court of International Trade and could have a significant impact on forced labor prevention enforcement.  To date, while several other cases challenged forced labor-related determinations have been brought, neither the Court of International Trade nor any other Court has assessed CBP’s forced labor prevention enforcement on the merits.  Should this case proceed, it may be the first insight we get into how the courts will view CBP’s increasing enforcement efforts.

Additionally, the complaint’s focus on CBP’s alleged lack of prior notice or reasoning seems to take aim at the Court of Appeals for the Federal Circuit’s recent decision in Royal Brush Manufacturing, Inc. v. United States, in which the Court of Appeals found that CBP violated an importer’s due process because it did not share information used to make the underlying determination.  Though not a case in the forced labor context, the Royal Brush decision may impact the progression of this litigation.

Crowell & Moring, LLP continue to monitor this case and the potential impact any court decision will have moving forward.

On Wednesday, February 28th, 2024, President Biden issued an Executive Order on Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern (the “EO”).  The purpose of the EO is to restrict the mass transfer of certain types of Americans’ personal data to, and to curb access to United States Government-related data by, “Countries of Concern.”  The E.O. is based under the President’s authority under the International Emergency Economic Powers Act, the same authority used to impose sanctions on certain countries, such as Iran, Russia, and North Korea.

The E.O. directs the U.S. Department of Justice (“DOJ”) to issue implementing regulations, including prohibiting or otherwise restricting U.S. persons from engaging in certain categories of transactions that involve U.S. Government-related data or bulk sensitive personal data.  DOJ issued an Advance Notice of Proposed Rulemaking (“ANPRM”) that identifies China (including Hong Kong), Russia, North Korea, Iran, Cuba, and Venezuela as Countries of Concern.  DOJ proposes to define “bulk US. sensitive personal data” to include personal identifiers, geolocation and related sensor data, biometric identifiers, personal health data, and personal financial data. DOJ proposes to define “United States Government-related data” as including “precise geolocation data” associated with “military, other government, or other sensitive facilities or locations” and “sensitive personal data” linked or linkable to “current or recent former employees or contractors, or former senior officials, of the U.S. government, including the military,” and intelligence community. 

DOJ’s ANPRM specifies specific commercial agreements that would be subject to restrictions, specifically investor, vendor, and employment relationships, which agreements would be subject to “security requirements,” to be issued by the Cybersecurity and Infrastructure Security Agency (CISA).

Similar to U.S. sanctions programs administered by the U.S. Treasury Department’s Office of Foreign Assets Controls (“OFAC”), DOJ expects to require U.S. persons (including companies) to maintain certain types of records associated with certain data transactions or transactions conducted pursuant to a general or specific license. 

In announcing the E.O., administration officials emphasized that no data or transactions will be immediately cut off or limited, and that the E.O. is a framework under which DOJ will issue final rules. Additionally, the EO exempts from regulation certain types of for financial services data transactions, DOJ’s ANPRM is contemplating further exempting data transfers relating to the ancillary operations of multinational companies, such as payroll.

Written comments must be submitted within 45 days of publication of the ANPRM in the federal register.

On February 20, 2024, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 83A, “Authorizing Certain Transactions Related to Imports of Certain Categories of Fish, Seafood, and Preparations Thereof Prohibited by Executive Order 14068.”

On March 11, 2022, President Biden issued EO 14068 to prohibit, among other transactions, the importation into the United States of any Russian-origin “fish, seafood, and preparations thereof.” This initial iteration of EO 14068 did not prohibit the importation of Russian-origin seafood that was incorporated or substantially transformed into another product (e.g., processed) outside of Russia. See FAQ 1154 & FAQ 1156.

On December 22, 2023, President Biden amended EO 14068 with EO 14114, extending this prohibition to capture “the importation and entry into the United States, including importation for admission into a foreign trade zone located in the United States” of identified categories of Russian-origin seafood, even if such seafood was incorporated or substantially transformed into another product in a third country. Also, OFAC simultaneously (1) issued a “Seafood Determination” that identified salmon, cod, pollock, and crab as the categories of Russian-origin seafood that are subject to this expanded prohibition (see FAQ 1155); and (2) issued General License 83, which authorized through 12:01 AM EST on February 21, 2024, all transactions that are ordinarily incident and necessary to the importation into the United States of these otherwise prohibited “seafood derivative products,” pursuant to written contracts or written agreements entered into prior to the December 22, 2023 Seafood Determination. 

GL 83A extends the deadline in GL 83 to 12:01 AM EST on May 31, 2024, provided that the relevant Russian-origin “seafood derivative products” are “loaded onto a vessel at the port of loading” prior to 12:01 AM EST on February 20, 2024, pursuant to written contracts or written agreements entered into prior to the December 22, 2023 Seafood Determination. In other words, GL 83A does not authorize transactions – such as shipments – involving seafood derivative products that were loaded onto a vessel at the port of loading at or after 12:01 AM EST on February 20, 2024.  

The U.S. Department of Commerce, Bureau of Industry and Security (BIS), published a final rule on February 23, 2024, amending the Export Administration Regulations (EAR) by revising license requirements for certain cameras, systems, and related components to eliminate license requirements for certain cameras to Country Group A:1. In addition to these changes, BIS is adding controls on certain high-speed cameras that are not already controlled by either export control classification number (ECCN) 6A003 or 6A203. These new controls are detailed under new ECCN 6A293, which is a classification for temporary controls for which BIS is seeking multilateral agreement. This rule will be effective March 8, 2024.

Crowell will continue to monitor developments around revisions to the EAR.

Feb. 23, 2024–Today, following the death of opposition politician and anti-corruption activist Aleksey Navalny, and after two years of Russia’s unprovoked and unlawful full-scale invasion of Ukraine, the Commerce Department’s Bureau of Industry and Security (BIS) imposed additional export restrictions on 93 entities under 95 entries in Russia and seven other destinations. Sixty-three of the entities are based in Russia, eight in the People’s Republic of China, sixteen in Turkiye, four in the United Arab Emirates (UAE), two in the Kyrgyz Republic, and one each in India and South Korea. More than 50 of the entities added to the list today will also receive a “footnote 3” designation as Russian-Belarusian military end users. A footnote 3 designation subjects these entities to some of the most severe restrictions under the Export Administration Regulations (EAR) by expanding U.S. jurisdiction to reach a greater scope of non-U.S. made item if ultimately destined to these entities.

Additionally, the Department of Treasury’s Office of Foreign Assets Control (OFAC) has announced that it is also sanctioning almost 300 individuals and entities relating to Russia’s invasion of Ukraine and the death of Aleksey Navalny. Treasury is designating targets including National Payment Card System Joint Stock Company, a major cog in Russia’s financial infrastructure and the state-owned operator of Russia’s Mir National Payment System; more than two dozen third-country sanctions evaders in Europe, East Asia, Central Asia, and the Middle East; and hundreds of entities in Russia’s military-industrial base and other key sectors.  In all, OFAC today targeted 26 third-country entities and individuals in 11 countries, including the People’s Republic of China, Serbia, the United Arab Emirates, and Liechtenstein. You can find the full BIS announcement of today’s actions here, while the OFAC announcement can be found here.

Crowell & Moring, LLP continues to monitor developments with regard to the Entity List and their potential impact on customers and businesses going forward.

Crowell & Moring’s International Trade practice is ranked in Chambers and Partners, Global Europe-wide International Trade/WTO rankings, Band 4. Chambers recognizes Crowell’s “notable practice advising clients on EU and US customs and trade members” and highlights our wide-ranging services.

Partner Vassilis Akritidis was again ranked in Band 3, acknowledging his experience in acting “both for non-EU exports as defendants and for European industry associations as complainants on EU trade defence matters.”

A hearty congratulations to our European colleagues on this notable achievement.

Please find the referenced Chambers profile here. For more information on both the Trade group and Crowell’s practices and lawyers rankings at large, please view the firm-wide post here.

“Several thousands” of vehicles from German luxury brands including Porsche, Bentley, and Audi have been detained at U.S. ports following the discovery of a Chinese subcomponent violating U.S. anti-forced labor laws. The parent company, Volkswagen Group, had sourced a key electronic component through a supplier further down the company’s supply chain and was unaware of the part’s origin from “western China” until notified by the supplier in mid-January of this year. U.S. Customs and Border Protection prohibits the import of products that have been made with forced labor in Xinjiang and other areas in China under the Uyghur Forced Labor Prevention Act of 2021 (UFLPA).

Volkswagen had previously commissioned an audit carried out by a Chinese law firm, which had found “no indication of forced labor” at its distribution plant located in Urumqi, the capital of China’s Xinjiang region. The plant is part of a joint venture between Volkswagen and SAIC Motor, a major Chinese automaker. A Human Rights Watch report released earlier this month has noted that foreign automakers in China are at an “increased risk” of acquiring aluminum produced by victims of forced labor in Xinjiang. On Wednesday, February 14, 2024, a spokesperson from Volkswagen stated that the company is now examining “a reorganization of its activities in the Chinese region of Xinjiang in light of possible human rights violations.”

Although this can be considered a large detainment of vehicles, it does follow a series of investigations launched by the US Senate and Finance Committee earlier in March. The committee sent a letter to the CEO of Volkswagen Group of America, Inc. requesting whether Volkswagen monitors Chinese suppliers, specifically trying to understand how Volkswagen assess and mitigates risk of subcomponents which could originate from the Xinjiang region.

This incident highlights the impact of tensions between the U.S. and China on global trade, particularly concerning human rights and forced labor. The incident also underscores the increased difficulties businesses currently face in maintaining ethical operations and effective compliance amidst evolving regulatory environments.

Crowell & Moring, LLP continue to monitor this development and the potential impact to businesses and consumers moving forward.

C&M International’s Asia-based digital policy team joined an industry delegation last week at a key gathering to discuss Southeast Asia’s future digital economy. Singapore hosted the 4thASEAN Digital Ministers’ Meeting (ADGMIN) from 30 January to 02 February, 2024 under the theme “Building an Inclusive and Trusted Digital Ecosystem”. Josephine Teo, Singapore’s Minister for Communications and Information, chaired the meeting alongside her counterpart from Thailand, Prasert Jantararuangtong, Minister of Digital Economy and Society as the Vice Chair.

Key themes that were top-of-mind for policymakers and the private sector alike included AI governance, data flows, cybersecurity, digital trade, and digital infrastructure. Member states of ASEAN, the Association of Southeast Asian Nations, encompassing all of the major economic powers in the region, endorsed guidelines and made action-oriented commitments aligned with their vision to create an enabling environment to support the region’s holistic digital transformation.

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What You Need to Know

  • Key takeaway #1: Contractors should continue monitoring DoD’s annual updates to the 1260H list.
  • Key takeaway #2: Contractors should also be aware of any 1260H-listed entities in their supply chains and implement supply chain screening procedures to ensure compliance with the Entity Prohibition and Goods and Services Prohibition from Section 805 of the FY 2024 NDAA well before their respective effective dates of June 30, 2026 and June 30, 2027.

Client Alert

On January 31, 2024, the Department of Defense (DoD) updated the 1260H List of entities identified as “Chinese military companies” operating in the United States, as it is required to do at least annually by Section 1260H of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021.  Section 1260H defines a “Chinese military company” as an entity that is:

  • directly or indirectly owned, controlled, or beneficially owned by, or in an official or unofficial capacity acting as an agent of or on behalf of, the People’s Liberation Army or any other organization subordinate to the Central Military Commission of the Chinese Communist Party or identified as a military-civil fusion contributor to the Chinese defense industrial base and
  • engaged in providing commercial services, manufacturing, producing, or exporting.

DoD first published the 1260H List in 2021 with 47 entities and updated it to include 13 more entities in 2022.  DoD did not issue an updated 1260H List in 2023. 

This most recent 1260H List update added 16 entities, including subsidiaries.  For the first time, DoD also removed three entities, finding that those entities either lacked a U.S. nexus or had a change in ownership structure.

While Section 1260H does not itself implement any prohibitions for identified companies, Section 805 of the FY 2024 NDAA prohibits DoD from entering into a contract with an entity on the 1260H list (Entity Prohibition) or purchasing, directly or indirectly, goods and services that include goods or services sourced from an entity on the 1260H list or any entity subject to the control of an entity on the 1260H list (Goods and Services Prohibition).  Section 805’s Entity Prohibition becomes effective on June 30, 2026, and its Goods and Services Prohibition becomes effective on June 30, 2027.  The prohibitions do not extend to purchases of goods, services, or technology that connect goods or services to third party services (e.g., interconnection) or to components, defined broadly as items supplied to the federal government as part of an end item or of another component.  This last exception is a significant exception, as it means the prohibition only applies to the extent the goods, services, or technology produced or developed by the 1260H entity are the end items being acquired by the DoD customer; i.e., to the extent a component produced or supplied by one of the entities is incorporated into a higher-level assembly or product, it would not be within the scope of the restriction.