Category: Antitrust & Trade Regulation

International Sanctions and the Energy Sector – Part 2: Russia

In the second part of this series we explore the EU and the US sanctions that have been imposed against the Russian energy sector.

RUSSIA

Background
The sanctions regimes against Russia were imposed in response to actual or alleged actions by the Russian government.  These included the annexation of Crimea and the destabilisation of Ukraine in 2014, plus the alleged malicious cyber activities aimed at interfering with or undermining the 2016 US presidential election.

They initially targeted a number of individuals and companies alleged to be involved in these actions or those close to the Russian government.  However, they have since been expanded to include sanctions prohibiting activity in certain sectors of Russia’s economy (in particular its energy industry) and have also targeted a number of the so-called ‘Oligarchs’ and the companies in their control.

More recently, sanctions have been imposed in the wake of the Novichok nerve agent attack in Salisbury, UK.

This article concentrates on the sanctions directly targeting the Russian energy sector.

The EU Sectoral Sanctions
The EU sanctions targeting the Russian energy sector are primarily contained in Council Regulation (EU) No 833/2014 (as amended) (the “EU Regulation”).  They seek to inhibit oil exploration and production projects in Russia:

  1. in waters deeper than 150 meters;
  2. in the offshore area north of the Arctic Circle; or
  3. which exploit shale formations by way of hydraulic fracturing.

(the “Targeted Projects”)

The sanctions operate in two key ways.  First, by preventing the sale, supply, transfer or export of the items listed in Annex II of the EU Regulation (which includes a number of items that can be used in the exploration or production of oil, for example, drill pipe and casing) by EU persons or from the EU for use in the Targeted Projects.1  Second, by prohibiting the direct or indirect provision of associated services necessary for the Targeted Projects, including: drilling, well testing, logging and completion services; and supply of specialised floating vessels.2

The EU Regulation also prohibits:

  1. certain dealings, directly or indirectly, with transferable securities and money-market instruments with a maturity exceeding 30 days and issued after 12 September 2014 by, or
  2. the making of loans or credit with a maturity over 30 days to,

certain Russian companies involved in the sale or transportation of crude oil or petroleum products, any non-EU subsidiaries owned 50% or more by them and any person acting on their behalf or at their direction.3  The companies currently listed in the EU Regulation are Rosneft, Transneft and Gazprom Neft.

Finally, the EU Regulation states that prior authorisation is required in respect of the provision of certain assistance or financing related to the items listed in Annex II of the EU Regulation to individuals or entities in Russia or if the items are to be used in Russia.4

A separate EU regulation prohibits the sale, supply, transfer or export of certain goods and technology suited for use in the energy sector and for the exploration of oil, gas and mineral resources to Crimea or Sevastopol and any associated assistance of financing.5

The EU sanctions apply to anyone within the EU, any EU national or company incorporated in the EU (wherever they may be physically located), and to any business done in whole or in part in the EU.

The US Sectoral Sanctions
The US sanctions targeting the Russian energy sector are primarily contained in Executive Order 13662 (as amended) (the “Order”) and in the Countering America’s Adversaries Through Sanctions Act (“CAATSA”).

The Order applies to “United States persons”.6  However, it could also apply to non-US persons in respect of any transaction that causes a US person to violate the Order or causes a violation of the Order to occur in the US.

In similar fashion to the EU Regulation, Directive 4 of the Order seeks to inhibit oil exploration and production from the Targeted Projects.  It does this by preventing goods, services (other than financial services), or technology in support of exploration or production from being provided to certain restricted entities and their 50% or more subsidiaries.

However, following the introduction of CAATSA in August 2017, the US sectoral sanctions went a step further than their EU counterparts.  In particular, CAATSA extended Directive 4 to include oil projects outside Russia in which the restricted Russian entities have a 33% or greater ownership interest or own the majority of the voting rights.  The US sectoral sanctions can therefore impact projects located far from Russian borders.

The Order also attacks the ability of key companies in the Russian energy sector to access the international debt markets.  Directive 2 of the Order prohibits new debt with a maturity of more than 60 days being issued to certain entities and their 50% or greater subsidiaries.

CAATSA contains various additional provisions impacting the Russian Energy Sector.  In particular, it provides for the:

  1. mandatory imposition of sanctions on non-US persons who knowingly7 make a significant investment8 in a project intended to extract crude oil from deepwater, Arctic offshore or shale projects in Russia (section 225); and
  2. discretionary imposition of sanctions on a person (not limited to US persons) who knowingly:
    1. makes an investment of $1 million or more (or an aggregate value of $5 million or more over a 12‑month period), which directly and significantly contributes to the enhancement of the ability of Russia to construct energy export pipelines; or
    2. provides goods, services, technology, information or support to Russia, which could directly and significantly facilitate the maintenance or expansion of the construction, modernisation or repair of energy export pipelines. (section 232)

That section 232 refers to “energy export pipelines” is significant.  Unlike the previous sanctions targeting the oil sector, section 232 could be applied to pipelines carrying Russian gas, large amounts of which are imported by the EU.

These additional provisions purport to have extraterritorial effect, which means they are of concern to non-US persons who are otherwise outside the US jurisdiction.  Any non-US persons breaching these provisions may become subject to secondary sanctions that would severely restrict their ability to do business with the US and to access the US financial system, and therefore the international financial system.

The Reaction of Energy Companies
The sanctions imposed on the Russian energy sector have received mixed reactions among energy companies.  The differences between the EU and US sanctions, most especially the manner in which they are enforced, has led to the perception that US companies are more affected than their European counterparts.

Mostly, however, energy companies have been able to progress their projects unimpeded by the sanctions.  This likely reflects the types of projects being progressed in Russia since the sanctions came into force.

The EU and US sectoral sanctions target oil exploration and production from deepwater, Arctic offshore or shale projects in Russia.  Such projects are complicated and require the adoption of advanced techniques and technologies.  Accordingly, they are typically more expensive than, for example, conventional shallow water or onshore drilling operations.  Projects of this nature therefore tend to be uneconomic in periods of lower oil prices, such as those experienced since 2014.  For these reasons, it is possible that such projects might not have been pursued since 2014 even in the absence of sanctions.

In fact, Russian oil production has increased from 10.86 million barrels per day in 2014 to 11.23 million barrels per day in 2017, making it the world’s third largest producer in 2017 behind the US and Saudi Arabia.9  This is a clear indication that the sanctions have not had a significant impact on the Russian energy sector’s ability to produce crude.

Looking Forward
It is questionable whether the sanctions imposed on Russia’s energy sector have been effective.  They have not, it seems, prevented Russia from increasing its production of oil.  Neither have they prevented all deepwater, Arctic or shale projects from being progressed.  However, with higher oil prices than when the sanctions first took effect, the economics of such projects should become more palatable and Russia may begin to feel the impact of the sanctions to greater extents.

Furthermore, the extraterritorial aspects of CAATSA are likely to begin affecting the appetite of non-US persons to make significant investments in Russian energy export pipelines or in Russian deepwater, Arctic offshore or shale projects.  There is also the risk of further sanctions.  The US Energy Secretary, Rick Perry, recently indicated that sanctions on the Nord Stream 2 pipeline are possible and that further energy‑related sanctions are planned.10   In addition, further sanctions on Russia in relation to the Novichok nerve agent attack in Salisbury, UK are expected, although it is not yet clear what form they will take and whether they will target Russia’s energy sector.11

In the first part of this three part series we considered the impact of President Trump’s decision to re-impose sanctions on Iran’s energy sector with effect from 5 November 2018.

________________________________________________________________

1 Article 3 of the EU Regulation.

2 Article 3a of the EU Regulation.

3 Articles 5(2) and 5(3) of the EU Regulation.

4 Article 4.3(a) of the EU Regulation.

5 Article 2(b) of Regulation EU No 692/2014.

6 United States persons is defined as “any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States” (Section 6(c) of Executive Order 13662).

7 “Knowingly” for these purposes means a person who had actual knowledge, or who should have known, of the conduct, circumstance or result.

8Guidance from the US Department of State that whether or not an investment is “significant” will be determined on a case by case basis taking into account inter aliathe nature and magnitude of the investment and its relation and significance to the Russian Energy Sector.

9here.

10here.

11 here.

 

© 2018 Bracewell LLP
This post was written by Robert Meade and Joshua C. Zive of Bracewell LLP.

CFIUS Broadens Coverage of Cross-Border Biotech Transactions

Summary

The Committee on Foreign Investment in the United States recently broadened its coverage of biotechnology transactions via new regulations that became effective on November 10, 2018. This article provides perspectives about how broadly these new rules will affect the biotech industry. All parties to cross-border transactions involving US biotech businesses, whether mere licensing arrangements or full M&A, should carefully consider all US regulatory implications, including application of the new CFIUS rules, US export controls and related requirements. Parties to pending biotech transactions or contemplating future biotech transactions are well advised to take actions.

In Depth

INTRODUCTION

Recent statutory and regulatory enactments have broadened the scope and jurisdiction of the Committee on Foreign Investment in the United States (CFIUS), including its jurisdiction over transactions in the biotechnology industry. This article provides perspectives about how broadly the new CFIUS regulations, which became effective November 10, 2018, will affect cross-border biotech transactions.

The development and growth of the biotechnology industry has spurred a growing volume of cross-border transactions with US life sciences businesses in recent years, involving early stage research companies as well as large pharmaceutical conglomerates. Foreign parties to cross-border biotech transactions have been active and diverse, involving financial and strategic investors and collaborators from Asia, Europe and other regions. Such transactions take a variety of forms, and can be grouped primarily in the following categories:

  • Controlling investments by foreign entities, such as acquisitions of a majority or more of equity or assets of US biotech companies;
  • Joint ventures between US and foreign entities to which US biotech companies contribute assets and/or intellectual property;
  • Non-controlling investments by foreign entities in US biotech companies with or without outbound licenses and/or options to acquire future equity interests or assets; and
  • Straightforward technology licenses granted by US biotech companies to foreign entities without corresponding equity interests issued in US companies.

How many of the foregoing types of transactions are now subject to the broadened jurisdiction of CFIUS? This On the Subject addresses the effect of recent CFIUS regulations on different types of cross-border biotech transactions.

FIRRMA AND BROADENED JURISDICTION OF CFIUS

CFIUS is a federal interagency committee chaired by the US Treasury Department (Treasury) that is charged with reviewing and addressing any adverse implications for US national security posed by foreign investments in US businesses. For background on the fundamentals of the CFIUS process and recent developments, see here, here and here.

As biotechnology entities generally focus on researching and finding therapeutics and diagnostics for diseases and saving patients’ lives, this industry has spurred very little concern for US national security outside of limited areas of bioterrorism and toxins. CFIUS review procedures were largely irrelevant for parties to cross-border biotech transactions. Under the voluntary CFIUS notification rules, parties to very few biotech transactions involving foreign acquirers notified CFIUS and sought CFIUS’s review and clearance of their deals. This may significantly change with the recent enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) in August 2018.

Prior to the enactment of FIRRMA, CFIUS was authorized to review the national security implications of only transactions that could result in control of a US business by a foreign person. FIRRMA expanded the scope of transactions subject to CFIUS’s review to include certain foreign investments in US businesses even in cases where the investment does not result in a controlling interest and imposedmandatory reporting requirements for certain transactions.

On October 10, 2018, Treasury issued new interim rules to implement FIRRMA, establishing a temporary “Pilot Program” that includes a mandatory declaration process. The Pilot Program went into effect on November 10, 2018, and will end no later than March 5, 2020. The interim rules specify 27 industries for focused attention under the Pilot Program, including Nanotechnology (NAICS Code: 541713) and Biotechnology (NAICS Code: 541714), as follows:

Research and Development in Nanotechnology
NAICS Code: 541713

“This U.S. industry comprises establishments primarily engaged in conducting nanotechnology research and experimental development. Nanotechnology research and experimental development involves the study of matter at the nanoscale (i.e., a scale of about 1 to 100 nanometers). This research and development in nanotechnology may result in development of new nanotechnology processes or in prototypes of new or altered materials and/or products that may be reproduced, utilized, or implemented by various industries.”

Such establishments include “Nanobiotechnologies research and experimental development laboratories.”

Research and Development in Biotechnology (except Nanobiotechnology)
NAICS Code: 541714

“This US industry comprises establishments primarily engaged in conducting biotechnology (except nanobiotechnology) research and experimental development. Biotechnology (except nanobiotechnology) research and experimental development involves the study of the use of microorganisms and cellular and biomolecular processes to develop or alter living or non-living materials. This research and development in biotechnology (except nanobiotechnology) may result in development of new biotechnology (except nanobiotechnology) processes or in prototypes of new or genetically-altered products that may be reproduced, utilized, or implemented by various industries.”

The new Pilot Program rules could directly affect parties to multiple cross-border biotech industry transactions, whether they are potential target companies, investors or acquirers. Mandatory, not voluntary, filings with CFIUS will be required for controlling and non-controlling investments that fall within the definition of “Pilot Program Covered Transactions,” and violations of the new rules could result in substantial penalties.

EFFECT ON CROSS-BORDER TRANSACTIONS IN BIOTECH SECTOR

PILOT PROGRAM COVERED TRANSACTIONS

The Pilot Program requires that parties to a “pilot program covered transaction” notify CFIUS of the transaction by either submitting an abbreviated declaration or filing a full written notice.

A “pilot program covered transaction” means either of the following:

1. Any non-controlling investment, direct or indirect, by a foreign person in an unaffiliated “pilot program US business” that affords the foreign person the following (a “pilot program covered investment”):

  • Access to any material nonpublic technical information in the possession of the target US business;
  • Membership or observer rights on the board of directors or equivalent governing body of the US business, or the right to nominate an individual to a position on the board of directors or equivalent governing body of the US business; or
  • Any involvement, other than through voting of shares, in substantive decision-making of the US business regarding the use, development, acquisition or release of critical technology.

As it relates to the biotech sector, the term “pilot program US business” means any US business that produces, designs, tests, manufactures, fabricates or develops one or more “critical technologies” either used in connection with, or designed specifically for use in, the biotechnology industry and/or nanobiotechnology industry. The determining factor is “critical technologies.”

An “unaffiliated” pilot program US business is defined as a “pilot program US business” in which the foreign investor does not directly hold more than 50 percent of outstanding voting interest or have the right to appoint more than half of the members of the board or equivalent governing body.

2. Any transaction by or with any foreign person that could result in foreign control of a “pilot program US business,” including such a transaction carried out through a joint venture.

By contrast, an investment by a foreign person in a US biotech company that does not produce, design, test, manufacture, fabricate or develop one or more “critical technologies” is not a “pilot program covered transaction.”

As it relates to the biotech industry, the term “critical technologies” under the Pilot Program may include:

  • Civilian/military dual-use technologies subject to Export Administration Regulations (EAR) that are relating to national security, chemical and biological weapons proliferation, nuclear nonproliferation or missile technology, excluding, for instance, “EAR99” items (i.e., those not covered by a specific Export Classification Control Number in the EAR);
  • Select agents and toxins; and
  • “Emerging and foundational technologies” controlled pursuant to section 1758 of the Export Control Reform Act of 2018 (the definition of which is forthcoming from the Department of Commerce).

Because most biotech products and technologies are classified as EAR 99 or are not otherwise subject to existing US export license requirements, a US biotech company (not involved with select agents and toxins) would fall under the “pilot program US business” category when one or more technologies such US biotech company produces, designs, tests, manufactures, fabricates or develops are covered in the to-be-released definition of “emerging and foundational technologies,” which are sensitive and innovation technologies not currently subject to export controls but deemed important for US economic security and technological leadership.  Industry observers predict that such definition will likely encompass certain biopharmaceuticals, biomaterials, advanced medical devices, and new vaccines and drugs, because some of these have been the subject of recent economic espionage efforts from groups in select countries such as China and Russia.

The US Commerce Department’s Bureau of Industry and Security (BIS) is expected soon to announce an advance notice of proposed rulemaking, inviting public comments on the development of the scope of such “emerging and foundational technologies.” Interested members of the US biotech industry should monitor and/or participate in this rulemaking procedure, which will define the scope of these new controls. Until new rules defining “emerging and foundational technologies” are issued, many in the biotech industry are expected to take a conservative approach in treating a broad range of biotechnology as potentially within the scope of “emerging and foundational technologies” for CFIUS purposes.

PRACTICAL IMPLICATIONS FOR DIFFERENT TYPES OF TRANSACTIONS

Controlling Investments by Foreign Persons

As discussed above, the Pilot Program applies to “any transaction by and with any foreign person that could result in foreign control of any pilot program US business, including such a transaction carried out through a joint venture.” Thus, parties to a controlling investment by a foreign entity in a US biotech company which is a “pilot program US business” are required to submit a declaration to CFIUS.

It is important to note that the CFIUS regulations define “US business,” “control” and “foreign person” very broadly. Such broad definitions could subject even transactions between two non-US entities to the jurisdiction of CFIUS, at least to the extent their venture involves any US business.

CFIUS regulations define a “US business” to include any entity engaged in interstate commerce in the United States, regardless of who owns it or where it is formed or headquartered. This broad definition authorizes CFIUS to review investments by a foreign business (e.g., a Chinese company) in another foreign business (e.g., a German target company) to the extent the deal involves elements of the foreign target company which is engaged in US interstate commerce, such as a US subsidiary or sales office. In other words, an investment or M&A transaction between two non-US biotech companies could be subject to CFIUS review if there are US business activities that will be controlled by the foreign company post-closing.

The CFIUS rules define “control” to mean the power to determine, direct, take, reach or cause decisions regarding important matters of a US business through the ownership of a majority or a “dominant minority” of the voting shares, board representation, proxy voting or contractual arrangements.

Under the CFIUS regulations, the term “foreign person” includes any entity over which a foreign national, foreign government or foreign entity exercises, or has the power to exercise control, (including a foreign-owned US subsidiary or investment fund). In contrast to a US citizen, a US permanent resident visa holder (i.e., green card holder) is a foreign national under the CFIUS regulations. Hence, a company formed as a Delaware corporation or Delaware limited liability company, which is controlled by green card holders, is also a foreign person for CFIUS purposes. An investment by such a Delaware company into a US biotech company will need to be analyzed under the new CFIUS regulations.

The Pilot Program applies to investments by any foreign investor, regardless of the investor’s country, and there are currently no exemptions. FIRRMA provides that CFIUS “may consider” whether a covered transaction involves a country of “special concern” for US national security, and practitioners generally expect CFIUS will consider the countries of foreign investors and will place heightened scrutiny on select countries, particularly if there is government involvement. However, the new regulations themselves do not establish different treatment for different countries, e.g., China, Canada, France or Germany.

Non-Controlling Direct Investments by Foreign Strategic Investors or Foreign Investment Funds

A large number of recent biotech deals take the form of a non-controlling investment, for example, a 5 – 15 percent investment, directly by a foreign strategic investor (e.g., foreign pharmaceutical companies) or by a foreign venture capital or private equity fund in a US biotech business. In some cases, the investment is coupled with, or conditioned upon, a grant by the US biotech business to such foreign strategic investor or its affiliate of an exclusive license of the former’s intellectual property for a particular geographic territory. A typical provision in such investment transactions entitles the investor to serve as, or nominate, a director or observer on the board. Assuming other features of the deal satisfy the new CFIUS regulations, this common transaction term would now trigger a mandatory CFIUS declaration filing whenever such rights are granted to a foreign investor.

Even non-controlling investments with no rights to a board seat or board observer status could be a “pilot program covered investment” subject to the mandatory filing requirement if the investment involves access for the foreign investors to material non-public technological data and scientific findings.  The term “material nonpublic technical information” means “information that is not available in the public domain, and is necessary to design, fabricate, develop, test, produce, or manufacture critical technologies, including process, techniques, or methods,” and does not include “financial information regarding the performance of an entity.” Access to such information is common for biotech investors, precisely because of the need for parties to any biotech deal to focus on the business’s underlying science. For both controlling and non-controlling investments, the ability to undertake careful diligence inquiries into underlying key technologies and scientific findings of biotechnology company targets is critical, especially with respect to the targets that are pre-revenue businesses. When such data and information are not yet patented or published in patent applications or other published scientific literatures, the access by a foreign investor to them in a non-controlling investment would make the transaction fall within the definition of a “pilot program covered investment.”

The CFIUS regulations define the term “investment” to mean the acquisition of equity interests, including not only voting securities, but also contingent equity interests, which are financial instruments or rights that currently do not entitle their holders to voting rights, but are convertible into equity interests with voting rights. For example, if a foreign investor is granted a warrant, option or right of first refusal to obtain additional equity interest in a “pilot program US business,” future exercise of the warrant, option or the right of first refusal should be analyzed to assess whether a declaration must be filed with CFIUS and whether CFIUS might find any US national security implications.

Indirect Investments by Foreign Persons via US Investment Funds

The Pilot Program rules establish an exemption from the mandatory declaration requirement for certain passive investments in US businesses made through investment funds. If a foreign investor makes an investment indirectly through a US-managed investment fund in a “pilot program US business,” such an indirect investment will not constitute a covered transaction under the Pilot Program and will not be subject to CFIUS review, even if it affords the foreign person membership as a limited partner or a seat on an advisory board or investment committee of the fund, provided that the following conditions are satisfied:

  • The fund is managed exclusively by a general partner, managing partner or equivalent who is not the foreign person;
  • The advisory board or investment committee does not have the ability to approve, disapprove or otherwise control (i) investment decisions or (ii) decisions by the general partner (or equivalent) related to entities in which the fund is invested;
  • The foreign person does not otherwise have the ability to control the fund, including authority to (i) approve or control investment decisions; (ii) unilaterally approve or control decisions by the general partner (or equivalent) related to entities in which the fund is invested; or (iii) unilaterally dismiss, select or determine the compensation of the general partner (or equivalent); and
  • The foreign person does not have access to material nonpublic technical information as a result of participation on the advisory board or investment committee.

Private equity funds that have foreign investors, especially foreign sovereign funds, as their limited partners, should carefully review their existing contractual arrangements with their foreign investors, as well as the ownership and control of general partners of such funds, to determine whether this “safe harbor” exemption applies to them.

Follow-On Investments

For any transaction that is not subject to the Pilot Program because it was completed before the effective date of the new rules (November 10, 2018), it is important to note that future investments by the same foreign investor may trigger the Pilot Program’s mandatory declaration requirement and should be reviewed for CFIUS implications earlier than 45 days in advance of such new investment.

CFIUS’s prior approval of a “pilot program covered investment” does not automatically endorse any subsequent “pilot program covered investment” by the same foreign person in the same US business. For example, if a foreign person acquired a 4 percent, non-controlling interest in a US biotech company that is a “pilot program US business” which was cleared by CFIUS, and then subsequently acquires an additional 6 percent non-controlling interest in the same US biotech company and obtains access to material nonpublic technical information, the parties to such follow-on investment would be required to file with CFIUS again.

Outbound License of US Technologies

Under new CFIUS regulations, outbound licensing of only intellectual property or technology by a US business to a foreign person does not fall within CFIUS’s jurisdiction, unless it also involves the acquisition of, or investments in, a US business or unless such license is a disguised acquisition of a US business or all or substantially all of its assets. Note, however, that if such technology is controlled under the EAR, access to such technology by a foreign person may require a US export license under the EAR.

Any contribution by a US critical technology company of both intellectual property and associated support to a foreign person through any type of arrangement (e.g., outbound licensing agreements) are now regulated under enhanced US export controls. Under US export control regulations, an export license is required to be obtained before a “controlled technology” classified in certain export classifications under the EAR is transferred or released to a foreign person. US businesses must carefully determine the export classification of any technology before transferring or releasing (e.g., pursuant to a licensing agreement) such technology to any foreign person.

THE NEW MANDATORY DECLARATION PROCEDURE

Parties to a “pilot program covered transaction” (i.e., the foreign investor and the US business) must submit to CFIUS an abbreviated declaration or, if preferred, file a full written notice (as provided under previous CFIUS rules and procedures). The filing must be made at least 45 days prior to the expected completion date of the transaction, so that CFIUS has an opportunity to review the transaction. The penalty for failing to file can be up to the entire amount of the investment.

A declaration, at around five pages in anticipated length, is expected to be easier to prepare than the typically much longer joint voluntary notice. CFIUS is preparing to release a declaration form for parties to use. The Pilot Program rules require fairly substantial information in a declaration, including but not limited to the following:

  • Brief description of the nature of the transaction and its structure (e.g., share purchase, merger, asset purchase)
  • The percentage of voting interest acquired;
  • The percentage of economic interest acquired;
  • Whether the “pilot program US business” has multiple classes of ownership;
  • The total transaction value;
  • The expected closing date;
  • All sources of financing for the transactions;
  • A list of the addresses or geographic coordinates of all “locations” of the“pilot program US business,” including “headquarters, facilities, and operating locations”; and
  • A complete organization chart, including information that identifies the name, principal place of business and place of incorporation of the immediate parent, the ultimate parent and each intermediate parent (if any) of each foreign person that is a party to the transaction.

After CFIUS receives a declaration, the CFIUS staff chair will initially assess its completeness and decide whether to accept it as complete. After such acceptance, CFIUS must take action within 30 days. CFIUS may either

  • Request that the parties file a full written notice;
  • Inform the parties that CFIUS cannot complete action on the basis of the declaration (and that the parties may file a full written notice);
  • Initiate a unilateral review of the transaction through an agency notice; or
  • Notify the parties that CFIUS has approved the transaction.

TAKEAWAYS

All parties to cross-border transactions involving US biotech businesses, whether mere licensing arrangements or full M&A, should carefully consider all US regulatory implications, including application of the new CFIUS rules, US export controls and related requirements. Parties to pending biotech transactions or contemplating future biotech transactions are well advised to:

  • Analyze at the outset whether the US businesses’ products and technologies are controlled under the US export control regimes and/or fall within the scope of “critical technologies”;
  • Monitor and participate in the BIS rulemaking procedure for establishing export controls on “emerging” and “foundational” technologies;
  • Determine well in advance of their transactions if the new Pilot Program rules apply, requiring a mandatory declaration filing and review by CFIUS;
  • Establish deal terms and conditions with a full understanding of how the various US requirements apply; and
  • Monitor continuing regulatory developments, as the new CFIUS Pilot Program will be supplanted by final CFIUS regulations to be issued by February 2020.
© 2018 McDermott Will & Emery

Nazi-Looted Art: Cranach Paintings to Remain at Norton Simon Museum

Lucas Cranach the Elder’s Adam[1] and Eve[2] have hung in the Norton Simon Museum at Pasadena for nearly 50 years. Since 2007, though, they have been the subject of a dispute between the museum and Marei von Saher. Von Saher is the daughter-in-law and surviving heir of Jacques Goudstikker, a Jewish art dealer who fled the Nazi-occupied Netherlands with his family in 1940. Goudstikker’s gallery and the family’s other assets were then acquired by members of Nazi leadership through a series of forced sales, with the gallery and the family’s residence being purchased by Alois Meidl, and more than 800 of the Goudstikker paintings – including Adam and Eve – being acquired by Hermann Goering.

The story of the Nazi seizure of artworks from public and private art collections in Europe has by now become a commonplace of popular culture.[3] Scholars have noted that “as many works of art were displaced, transported, and stolen as during the entire Thirty Years War or all the Napoleonic Wars.”[4] It has been estimated that “[o]ne-third of all of the art in private hands had been pillaged by the Nazis.”[5] Nazi looting of art took a number of forms: direct confiscation (seized by government officials and agents); “abandoned” objects (seized after being left behind as their owners fled persecution);[6] forced sales;[7] and what are sometimes called “fluchtgut” or “fluchtkunst”[8] (“flight goods” or “flight art,” which are cultural objects sold, generally at a steep discount, by owners desperate to finance their escape from Nazi-occupied or threatened areas). For background on Nazi-looted art, see my previous discussions here and here.

That the Cranach panels were looted by the Nazis is not disputed. Rather, the question for the court was whether the post-war restitution processes properly vested ownership of the paintings in the Dutch government such that its 1966 sale of those paintings to George Stroganoff-Sherbatoff (Stroganoff) (from whom the museum purchased them in 1971) was a valid governmental action, and so is not reviewable by U.S. courts. With a decision issued by the Court of Appeals for the 9th Circuit on July 30, the case may have reached its conclusion.[9]

In 1931 in Berlin, Goudstikker purchased the panels from the Soviet Union at an auction of objects the Soviets had seized from the Stroganoff family (and others).[10] Although the district court, in its 2016 decision, [11] had found that the Stroganoff family never owned the panels, Stroganoff ownership of the panels is unclear from the evidence presented. The question of Stroganoff ownership of the panels was ultimately not germane to the 9th Circuit’s decision. The panels were recovered by U.S. forces at the end of the war and returned to the Dutch government. Rather, the issue was whether the Dutch government had good title to the panels at the time it sold them to Stroganoff.

When the war was over, and the panels were recovered by U.S. forces., it was U.S. policy to return recovered Nazi-looted objects to the governments of the countries from which they had been taken, for ultimate restitution or other disposition.

The 9th Circuit’s analysis focuses on three aspects of Dutch law relating to Nazi agreements and confiscated property: (1) a wartime law nullifying Nazi agreements; (2) the post-war restitution regime; and (3) a post-war law forfeiting to the Dutch government property owned by enemies during the war.

During the war, the Dutch government (then in exile) enacted a law that nullified wartime agreements with the Nazis. After the war, however, that automatic nullification was revoked. The Dutch government instead put in place a formal restitution and restoration of rights process.[12]Claimants had until 1951 to file a petition for restoration of rights, after which the presiding council “could still order restoration of rights of its own accord, but claimants were no longer entitled to demand restitution.”[13] Finally, to compensate the Netherlands for its losses during the war, the government also enacted Royal Decree E133, which forfeited to the Dutch government all property “belonging to an enemy state or to an enemy national.”[14] Under Royal Decree E133, the paintings owned by Goering were forfeited to the Dutch government.

Goudstikker’s widow, Desi, returned to the Netherlands after the war and took on leadership of the firm. She petitioned for restoration of rights for the assets that had been purchased by Meidl, but, on advice, she decided not to petition for return of the paintings purchased by Goering.

In 1961, however, Stroganoff filed a claim for restitution of a number of artworks then owned by the Dutch government, including the Cranach panels, arguing that they had been expropriated from his family by the Soviet Union. The Dutch government and Stroganoff reached an agreement whereby Stroganoff relinquished his claim to certain of the works, and the government agreed to sell him several pieces, including the Cranach panels.

In the 1990s, von Saher filed a petition with the Dutch government for restitution of those Goudstikker works that had been purchased by Goering, but that petition was denied. However, in 2001, the government reevaluated its prior restitution process and, on the basis of “moral policy” turned over to von Saher those paintings from the Goering collection that were still in the Dutch government’s possession. This did not, of course, include the Cranach panels, which were in the museum’s collection in California. In 2007, von Saher commenced the first of her actions for return of the Cranach panels, arguing that the Dutch government could never have taken ownership of the panels, but merely served as custodian of the paintings until the original owners or their heirs claimed them.

Timeliness: Statute of Limitations

From 2007 until 2015, the question of the Cranach panels’ ownership played out in the context of motions to dismiss – first with respect to whether the suit was barred by the expiration of the statute of limitations, and then with respect to whether it was barred by the act of state doctrine.

Concerned that California’s three-year statute of limitations was presenting an unfair burden on claimants with respect to Holocaust and in Nazi-era looting cases, the California legislature extended that statute of limitations, but only for such Holocaust and Nazi-era looting claims. The museum filed a motion to dismiss, arguing that the California statute extending the limitations period unconstitutionally intruded upon the federal government’s “exclusive power to make and resolve war, including the procedure for resolving war claims.”[15] The district court agreed, and dismissed the case; however, the 9th Circuit reversed, finding the California extension of its statute of limitations unconstitutional. The Circuit Court granted leave for von Saher to amend her complaint.[16] The museum amended its motion to dismiss, arguing that the statute of limitations applicable to the Cranach panels had long since expired, since it had begun to run at the time that Goudstikker’s widow, Desi, had discovered the location of the panels after the war. The district court, in a 2015 decision,[17] disagreed with the museum’s position, holding that, under California law, the statute of limitations for the return of stolen property begins to run anew against each subsequent owner of the property. To review an extended discussion of statutes of limitations as they relate to Nazi-looted art (and to the von Saher case specifically), see my previous discussion here.

Foreign State and Finality: Act of State Doctrine

With respect to von Saher’s amended complaint, the district court granted the museum’s second motion to dismiss, holding that von Saher’s claims were preempted by the act of state doctrine.[18] Quoting the Solicitor General’s brief with approval, the district court found that “[w]hen a foreign nation, like the Netherlands here, has conducted bona fide post-war internal restitution proceedings following the return of Nazi-confiscated art to that nation under the external restitution policy, the United States has a substantial interest in respecting the outcome of that nation’s proceedings.”[19] The 9th Circuit, however, reversed that decision, remanding the case for development of the parties’ factual positions via discovery. The court stated that “[t]he Museum has not yet developed its act of state defense, and von Saher has not had the opportunity to establish the existence of an exception to that doctrine should it apply.”[20]

Summary Judgment: Act of State

After the parties had the opportunity to flesh out their factual arguments, the district court once again considered the question of whether the action was barred by the act of state doctrine. On Aug. 9, 2016, the district court issued a decision granting the museum’s motion for summary judgment,[21] finding that after the Goudstikker firm decided not to file a claim for return of the paintings, title passed to the Dutch government, and the Dutch government had good title to the paintings at the time it transferred the paintings to Stroganoff. Stroganoff, in turn, passed good title to the paintings to the museum.

In affirming the district court’s decision granting the museum’s motion for summary judgment, the 9th Circuit relied upon the act of state doctrine, which is “a ‘rule of decision’ requiring that ‘acts of foreign sovereigns taken within their own jurisdictions shall be deemed valid’” and are not to be overturned by U.S. courts.[22] The court explained that “we apply the doctrine here, because ‘the relief sought’ by von Saher would necessitate our ‘declar[ing] invalid’ at least three ‘official act[s] of’ the Dutch government ‘performed within its own territory.’”[23] Von Saher has petitioned the 9th Circuit for a rehearing of the motion for summary judgment. Such rehearing petitions are rarely granted, and von Saher’s previous petitions for rehearing at earlier stages in the case were unsuccessful. Absent a rehearing, von Saher’s likely recourse would be an appeal to the U.S. Supreme Court. Even if the Supreme Court were to grant certiorari, von Saher faces stiff odds against a reversal of the decision on the act of state doctrine.

[1] Lucas Cranach the Elder, Adam (c. 1530), oil on panel, 75 x 27-1/2 in. (190.5 x 69.9 cm), available at https://www.nortonsimon.org/art/detail/M.1971.1.P.

[2] Lucas Cranach the Elder, Eve (c. 1530), oil on panel, 75 x 27-1/2 in. (190.5 x 69.9 cm), available at https://www.nortonsimon.org/art/detail/M.1991.1.P.

[3] See, e.g., “Woman in Gold” (2015), available at https://www.imdb.com/title/tt2404425/; “Monuments Men” (2014), available at https://www.imdb.com/title/tt2177771/.

[4] Hector Feliciano, “The Lost Museum,” p. 23 (1997).

[5] Id. at 4.

[6] See, e.g., Menzel v. List, 267 N.Y.S.2d 804 (N.Y. 1966) (seeking to recover a painting by Marc Chagall that hung in the Menzel’s Brussels apartment when they fled Belgium before the Nazi occupation).

[7] See, e.g., Vineberg v. Bissonette, 529 F.Supp.2d 300, 307 (D.R.I. 2007) (noting that “the Nazi government forced Dr. Stern to liquidate inventory in his art gallery and controlled the manner of the forced sale,” and concluding that “Dr. Stern’s surrender of the painting to [the auction house] for auction was ordered by the Nazi authorities and therefore the equivalent of an official seizure or a theft.”). But see Orkin v. Swiss Confederation, 770 F.Supp.2d 612, 616 (S.D.N.Y. 2011) (dismissing the action for lack of jurisdiction, because “[p]laintiff does not allege that Reinhart acted in any capacity other than as a private individual.” The court noted that “[i]n 1933, [Plaintiff’s grandmother] sold the drawing to Swiss art collector Oskar Reinhart for 8,000 Reichsmarks to help fund her family’s escape from the Nazis’ persecution of German Jews.”).

[8] See, e.g., Florian Weiland, “Ist Fluchtkunst dasselbewie Raubkunst?” (Is flight art the same as looted art?), Sudkurier, Sept. 3, 2014, available at http://www.suedkurier.de/nachrichten/kultur/themensk/Ist-Fluchtkunst-dasselbe-wie-Raubkunst;art410935,7218364.

[9] von Saher v. Norton Simon Museum of Art at Pasadena, 2018 U.S. App. LEXIS 20989, Case No. 16-56308 (9th Cir. July 30, 2018).

[10] Although the district court found that the Stroganoff family never owned the panels, Stroganoff ownership of the panels is unclear from the evidence presented.

[11] von Saher v. Norton Simon Museum at Pasadena, 2016 U.S. Dist. LEXIS 187490, Case No. CV 07-2866 (C.D. Cal. Aug. 9, 2016).

[12] The Dutch restitution and restoration of rights regime was re-assessed in the 2000s, and that reassessment resulted in the Dutch government turning over to von Saher those Goudstikker works that were at that time still held by the Dutch government.

[13] von Saher v. Norton Simon Museum of Art at Pasadena, 2018 U.S. App. LEXIS 20989 at *9.

[14] Id. at *10.

[15] von Saher v. Norton Simon Museum of Art at Pasadena, Case No. CV-07-2866-JFW, 2007 WL 4302726 (C.D. Cal. Oct. 18, 2007).

[16] von Saher v. Norton Simon Museum of Art at Pasadena, 578 F.3d 1016 (9th Cir. 2009), amended by von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954 (9th Cir. 2010).

[17] von Saher v. Norton Simon Museum of Art at Pasadena, Case No. CV 07-2866-JFW, 2015 U.S. Dist. LEXIS 188627 (C.D. Cal. April 2, 2015).

[18] von Saher v. Norton Simon Museum at Pasadena, 862 F.Supp.2d 1044 (2012).

[19] Id. at 1051.

[20] von Saher v. Norton Simon Museum at Pasadena, 754 F.3d 712, 727 (9th Cir. 2014).

[21] von Saher v. Norton Simon Museum at Pasadena, 2016 U.S. Dist. LEXIS 187490, Case No. CV 07-2866 (C.D. Cal. Aug. 9, 2016).

[22] von Saher v. Norton Simon Museum of Art at Pasadena, 2018 U.S. App. LEXIS 20989, Case No. 16-56308, at *19 (9th Cir. July 30, 2018).

[23] Id.

©2018 Greenberg Traurig, LLP. All rights reserved.

Continue reading Nazi-Looted Art: Cranach Paintings to Remain at Norton Simon Museum

US Trade Representative Publishes List of Chinese Products Subject to Retaliatory Tariffs

The Office of the US Trade Representative (USTR) published a list of 1,300 Chinese products, valued at $50 billion, on which it intends to impose an additional 25 percent tariff in retaliation for the “harm to the US economy” resulting from certain Chinese industrial policies.  USTR also announced a public comment period to enable interested parties to request that products be removed from the list. In response to this April 3 announcement, China announced its own retaliatory import tariffs on 106 US products.

In Depth

On April 3, the Office of the US Trade Representative (USTR) published a list of 1,300 Chinese products, valued at $50 billion, on which it intends to impose a 25 percent tariff on top of any existing US tariff in retaliation for the “harm to the US economy” resulting from certain Chinese industrial policies. The full US retaliation list, available here, includes products from the chapters listed in Annex I below.

In conjunction with its list, USTR announced a public comment period to enable interested parties to request that products be removed from, or added to, the list. Comments must be filed by May 11, 2018. The agency will also hold a public hearing on May 15, 2018, for parties wishing to comment further on the list. USTR has not set a specific deadline for implementing the new tariffs, but said it will provide “final options” to President Trump after the comment and hearing process conclude.

In addition to the proposed retaliatory tariffs, President Trump has also directed the Secretary of the Treasury to develop new restrictions on inbound Chinese investments aimed at preventing Chinese-controlled companies and funds from acquiring US firms with sensitive technologies. The US Treasury Department has until May 21, 2018, to develop these restrictions, which will be in addition to the restrictions already imposed by the Committee on Foreign Investment in the United States (CFIUS).

In response to the administration’s April 3 announcement, China announced its own retaliatory import tariffs on 106 US products. Its retaliation products, listed below in Annex II, will face 25 percent tariffs should the Trump administration move forward with its announced tariffs.

After China issued its retaliatory tariff list, President Trump directed USTR on April 5 to assemble an additional $100 billion worth of retaliatory tariffs against Chinese goods on the grounds that China had unfairly retaliated against American farmers and manufacturers rather than addressing its own “misconduct.” The specific additional tariffs, once announced by USTR, will be subject to a review and public comment period similar to the one now underway for USTR’s initial $50 billion list.

McDermott is actively engaged in this issue and can assist Firm clients and contacts affected by the announcement, including with the preparation of comments and other advocacy efforts to influence products on the list. Please contact any of the authors to seek assistance or learn more.

This post includes contributions from Leon Liu from  China Law Offices.

Annex I

HTS Chapters Represented on the USTR Retaliatory List*

HTS Chapter Product
28 Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes
29 Organic chemicals
30 Pharmaceutical products
38 Miscellaneous chemical products
40 Rubber and articles thereof
72 Iron and steel
73 Articles of iron or steel
76 Aluminum and articles thereof
83 Miscellaneous articles of base metal
84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof
85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles
86 Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signaling equipment of all kinds
87 Vehicles other than railway or tramway rolling stock, and parts and accessories thereof
88 Aircraft, spacecraft, and parts thereof
89 Ships, boats and floating structures
90 Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments, and apparatus; parts and accessories thereof
91 Clocks and watches and parts thereof
93 Arms and ammunition; parts and accessories thereof
94 Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not elsewhere specified or included; illuminated sign illuminated nameplates and the like; prefabricated buildings

 

* Not all products contained in each chapter are represented.  For the complete list, visit: https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf

 

Annex II

Unofficial Translation of China’s Retaliation List

No. Product HTS Code
1. Yellow soybean 12019010
2. Black soybean 12019020
3.

 

 Corn 10059000
4. Cornflour 11022000
5. Uncombed cotton 52010000
6. Cotton linters 14042000
7. Sorghum 10079000
8. Brewing or distilling dregs and waste 23033000
9.

 

 Other durum wheat 10011900
10. Other wheat and mixed wheat 10019900
11. Whole and half head fresh and cold beef 02011000
12. Fresh and cold beef with bones 02012000
13. Fresh and cold boneless beef 02013000
14. Frozen beef with bones 02021000
15. Frozen boneless beef 02022000
16. Frozen boneless meat 02023000
17. Other frozen beef chops 02062900
18. Dried cranberries 20089300
19. Frozen orange juice 20091100
20. Non-frozen orange juice 20091200
21. Whiskies 22083000
22. Unstemmed flue-cured tobacco 24011010
23. Other unstemmed tobacco 24011090
24. Flue-cured tobacco partially or totally removed 24012010
25. Partially or totally deterred tobacco stems 24012090
26. Tobacco waste 24013000
27. Tobacco cigars 24021000
28. Tobacco cigarettes 24022000
29. Cigars and cigarettes, tobacco substitutes 24029000
30. Hookah tobacco 24031100
31. Other tobacco for smoking 24031900
32. Reconstituted tobacco 24039100
33. Other tobacco and tobacco substitute products 24039900
34. SUVs with discharge capacity of 2.5L to 3L 87032362
35. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2500ml, but not exceeding 3000ml for SUVs (4 wheel drive) 87034052
36. Vehicles with discharge capacity of 1.5L to 2L 87032342
37. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 1000ml, but not exceeding 1500ml for SUVs (4 wheel drive) 87034032
38. Passenger cars with discharge capacity 1.5L to 2L, 9 seats or less 87032343
39. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 1000ml, but not exceeding 1500ml for 9 passenger cars and below 87034033
40. Passenger cars with discharge capacity of 3L to 4L, 9 seats or less 87032413
41. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 3000ml, but not exceeding 4000ml for 9 passenger cars and below 87034063
42. Off-road vehicles with discharge capacity of 2L to 2.5L 87032352
43. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2000ml, but not exceeding 2500ml for off-road vehicles 87034042
44. Passenger cars with discharge capacity of 2L to 2.5L, 9 seats or less 87032353
45. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2000ml, but not exceeding 2500ml for 9 passenger cars and below 87034043
46. Off-road vehicles with discharge capacity of 3L to 4L 87032412
47. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 3000ml, but not exceeding 4000ml for off-road vehicles 87034062
48. Diesel-powered off-road vehicles with discharge capacity of 2.5L to 3L 87033312
49. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2500ml, but not exceeding 3000ml for diesel-powered off-road vehicles 87035052
50. Passenger cars with discharge capacity of 2.5L to 3L, 9 seats or less 87032363
51. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2500ml, but not exceeding 3000ml for 9 passenger cars and below 87034053
52. Off-road vehicles with discharge capacity of less than 4L 87032422
53. Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement not exceeding 4000ml for off-road vehicles 87034072
54. Other vehicles which are equipped with an ignited reciprocating piston internal combustion engine and a drive motor and can be charged by plugging in an external power source 87034090
55. Other vehicles that are equipped with a compression ignition type internal combustion engine (diesel or semi-diesel) and a drive motor, other than vehicles that can be charged by plugging in an external power source 87035090
56. Other vehicles which are equipped with an ignition reciprocating piston internal combustion engine and a drive motor and can be charged by plugging in an external power source 87036000
57. Other vehicles that are equipped with a compression-ignition reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source 87037000
58. Other vehicles that only drive the motor 87038000
59. Other vehicles 87039000
60. Other gasoline trucks of less than 5 tons 87043100
61. Transmissions and parts for motor vehicles not classified 87084099
62. Liquefied Propane 27111200
63. Primary Shaped Polycarbonate 39074000
64. Supported catalysts with noble metals and their compounds as actives 38151200
65. Diagnostic or experimental reagents attached to backings, except for goods of tariff lines 32.02, 32.06 38220010
66. Chemical products and preparations for the chemical industry and related industries, not elsewhere specified 38249999
67. Products containing PFOS and its salts, perfluorooctanyl sulfonamide or perfluorooctane sulfonyl chloride in note 3 of this chapter 38248700
68. Items listed in note 3 of this chapter containing four, five, six, seven or octabromodiphenyl ethers 38248800
69. Contains 1,2,3,4,5,6-HCH (6,6,6) (ISO), including lindane (ISO, INN) 38248500
70. Primarily made of dimethyl (5-ethyl-2-methyl-2oxo-1,3,2-dioxaphosphorin-5-yl)methylphosphonate and double [(5-b Mixtures and products of 2-methyl-2-oxo-1,3,2-dioxaphosphorin-5-yl)methyl] methylphosphonate (FRC-1) 38249100
71. Containing pentachlorobenzene (ISO) or hexachlorobenzene (ISO) 38248600
72. Containing aldrin (ISO), toxaphene (ISO), chlordane (ISO), chlordecone (ISO), DDT (ISO) [Diptrix (INN), 1,1,1-trichloro-2 ,2-Bis(4-chlorophenyl)ethane], Dieldrin (ISO, INN), Endosulfan (ISO), Endrin (ISO), Heptachlor (ISO) or Mirex (ISO). 38248400
73. Other carrier catalysts 38151900
74. Other polyesters 39079999
75. Reaction initiators, accelerators not elsewhere specified 38159000
76. Polyethylene with a primary shape specific gravity of less than 0.94 39011000
77. Acrylonitrile 29261000
78. Lubricants (without petroleum or oil extracted from bituminous minerals) 34039900
79. Diagnostic or experimental formulation reagents, whether or not attached to backings, other than those of heading 32.02, 32.06 38220090
80. Lubricant additives for oils not containing petroleum or extracted from bituminous minerals 38112900
81. Primary Shaped Epoxy Resin 39073000
82. Polyethylene Terephthalate Plate Film Foil Strips 39206200
83. Other self-adhesive plastic plates, sheets, films and other materials 39199090
84. Other plastic non-foam plastic sheets 39209990
85. Other plastic products 39269090
86. Other primary vinyl polymers 39019090
87. Other ethylene-α-olefin copolymers, specific gravity less than 0.94 39014090
88. Other primary shapes of acrylic polymers 39069090
89. Other primary shapes of pure polyvinyl chloride 39041090
90. Polysiloxane in primary shape 39100000
91. Other primary polysulphides, polysulfones and other tariff numbers as set forth in note 3 to chapter 39 are not listed. 39119000
92. Plastic plates, sheets, films, foils and strips, not elsewhere specified 39219090
93. 1,2-Dichloroethane (ISO) 29031500
94. Halogenated butyl rubber sheets, strips 40023990
95. Other heterocyclic compounds 29349990
96. Adhesives based on other rubber or plastics 35069190
97. Polyamide-6,6 slices 39081011
98. Other primary-shaped polyethers 39072090
99. Primary Shaped, Unplasticized Cellulose Acetate 39121100

100.

Aromatic polyamides and their copolymers

39089010

101.

Semi-aromatic polyamides and their copolymers

39089020

102.

Other polyamides of primary shape

39089090

103.

Other vinyl polymer plates, sheets, strips

39201090

104.

Non-ionic organic surfactants

34021300

105.

Lubricants (containing oil or oil extracted from bituminous minerals and less than 70% by weight)

34031900

106.

Aircraft and other aircraft with an empty weight of more than 15,000kg but not exceeding 45,000kg

88024010
© 2018 McDermott Will & Emery.

U.S. Restrictions on Travel to and Trade With Cuba Return

Effective November 9, 2017, new regulations took effect limiting U.S. travel and trade with Cuba. 

Decades ago, the United States imposed a commercial embargo on Cuba. The embargo existed in one form or another until 2015, when the United States eased some of its restrictions on trade and travel. Then, on June 16, 2017, President Trump signed the National Security Presidential Memorandum (NSPM) on Strengthening the Policy of the United States Toward Cuba. In accordance with the NSPM, the U.S. Department of State has now published a list of restricted entities associated with Cuba. The list names entities with which direct financial transactions will “generally be prohibited” under the Cuban Assets Control Regulations. The entities on the list are those that are “under the control of, or acting for or on behalf of, the Cuban military, intelligence, or security services or personnel with which direct financial transactions would disproportionately benefit such services or personnel at the expense of the Cuban people or private enterprise in Cuba.” Numerous hotels and tourism agencies, as well as retail shops popular with tourists, are included on the list. As a result, U.S. citizens will again have to travel as part of a group that is accompanied by a group representative and licensed by the U.S. Department of the Treasury.

The new restrictions will not impact certain existing transactions. Contracts that were in place and travel arrangements that were made prior to the new rule taking effect may move forward.

This post was written by Natalie L. McEwan of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.,© 2017
For more Antitrust Law legal analysis, go to The National Law Review 

U.S. Implements President Trump’s Cuba Policy

On Nov. 8, 2017, the U.S. Government announced new regulations in furtherance of the Trump Administration’s policy regarding Cuba.

In June 2017, President Trump published his National Security Presidential Memorandum “Strengthening the Policy of the United States Toward Cuba” (NSPM), which announced modification of U.S. policy with respect to Cuba to target the Cuban military, intelligence, and security agencies.  In the NSPM, President Trump emphasized the need to promote the flow of economic benefits to the Cuban people, rather than to its military.  The NSPM further directed the Commerce, State, and Treasury Departments to take various actions implementing the new policy.

Accordingly, regulations were released this week by the U.S. Department of State, Department of Treasury’s Office of Foreign Assets Control (OFAC), and Department of Commerce’s Bureau of Industry and Security (BIS) to implement the NSPM, and clarify the limitations imposed on U.S. persons wishing to travel to or do business in Cuba.

This post was written by Sonali Dohale, Kara M. Bombach, Yosbel A. Ibarra & Carl A. Fornaris of Greenberg Traurig, LLP. All rights reserved.,©2017
For more Antitrust legal analysis, go to The National Law Review 

EU Adopts New Sanctions on North Korea

On 16 October, the Foreign Affairs Council adopted new EU autonomous measures reinforcing the sanctions on North Korea imposed by the UN Security Council, effective immediately. They include a total ban on EU investment in North Korea across all sectors, whereas previously the ban related to certain sectors, such as the arms industry and chemical industries. Also, there is a total ban on the sale of refined petroleum products and crude oil. The amount of personal remittances to North Korea has been lowered from €15,000 to €5,000 in light of suspicions that they are being used in support of nuclear and ballistic missile programmes. In addition, three persons and six entities were added to the list of those subject to an asset freeze and travel restrictions.

This post was written by International Trade Practice at Squire Patton Boggs of Squire Patton Boggs (US) LLP., © Copyright 2017
For more Antitrust Law legal analysis, go to The National Law Review

Trump Administration Notifies Congress of Intent to Renegotiate NAFTA

The White House formally notified Congress on Thursday of the Trump administration’s intent to renegotiate the North American Free Trade Agreement (NAFTA). The notification letter from U.S. Trade Representative Robert Lighthizer marked the start of a 90-day window to consult with members of Congress on developing negotiation priorities before beginning formal negotiations with Canada and Mexico as early as August 16, 2017.NAFTA, USA, Mexico, Canada

Currently, there is no indication that renegotiations will impact NAFTA-related immigration programs. However, under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, the administration’s negotiation objectives are required to be made public 30 days before formal negotiations begin. While the letter to Congressional leadership did not discuss any specific changes to NAFTA, the administration indicated that it would aim to modernize outdated chapters of the agreement and address challenges faced by U.S. consumers, businesses, and workers.

NAFTA Immigration Programs

Among other economic and trade relationships established under NAFTA, the agreement created the TN nonimmigrant classification, which allows certain citizens of Canada and Mexico to work temporarily in the United States in a professional capacity. The agreement also provides an expanded range of permissible business activities for Canadian and Mexican citizens in B-1 visitor status and permits Canadian citizens to submit L-1 intracompany transferee petitions directly at U.S. ports of entry and pre-flight inspection stations for adjudication by U.S. Customs and Border Protection.

Whether the Trump administration intends to alter existing immigration programs under NAFTA is not yet known.

This post was written by Kara Kelly of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

President Trump Closes 100 Days in Office with Trade EOs, Debate of NAFTA Withdrawal

Trade NaFTAUnder pressure to make good on campaign promises as his first 100 days in office drew to a close, President Donald Trump considered a number of new trade-related actions last week, highlighting the importance of stakeholder engagement with his Administration on trade matters.

On Wednesday, April 26, reports emerged that President Trump was seriously considering withdrawing the US from NAFTA. The action reportedly came as a surprise to many stakeholders, who were expecting trade developments ahead of President Trump 100th day in office but not NAFTA withdrawal.  President Trump ultimately decided to shelve the draft executive action following conversations with the leaders of Mexico and Canada, calls from Members of Congress, and outreach by private stakeholders, as well as meetings with his most senior advisors.

In remarks the following day, President Trump confirmed that he had been seriously considering withdrawing the US from NAFTA, reiterating his promise to pursue the strongest deal possible and pledging to terminate the agreement “if we do not reach a fair deal for all.”

On Saturday, April 29, President Trump went on to sign two trade-related Executive Orders (EO).

The first EO states that the policy of the United States will be to negotiate agreements that benefit American workers, manufacturers, farmers and ranchers; protect intellectual property (IP) rights; and encourage domestic research & development.  It is also states that the policy of the United States will be to renegotiate any existing trade agreement, investment agreement, or trade relation that, on net, harms the U.S. economic, businesses, IP rights, and “innovation rate,” or the American people.

The EO directs the Secretary of Commerce and the U.S. Trade Representative – working with the Secretary of State, the Secretary of the Treasury, the Attorney General, and the newly-established Office of Trade and Manufacturing Policy Director – to conduct comprehensive performance reviews of:

  • All bilateral, plurilateral, and multilateral trade agreements and investment agreements to which the United States is a party; and

  • All trade relations with countries governed by the rules of the World Trade Organization (WTO) with which the United States does not have free trade agreements, but with which the United States runs significant trade deficits in goods.

The second EO establishes the Office of Trade and Manufacturing Policy (OTMP) within the White House.  The OTMP’s stated mission is “to defend and serve American workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defense industrial bases.”  Peter Navarro, previously Director of the White House National Trade Council, will serve as OTMP Director.

Last week’s developments provided the strongest indications yet that President Trump is ready to put his trade promises into action.  International stakeholders must be prepared to engage with the Administration, to emphasize the importance of trade in the Western Hemisphere for the US economy and American jobs and businesses.  The performance reviews mandated by the President’s April 29 EO – which are expected to help direct further policy-making efforts – will also provide Latin American stakeholders a chance to formally comment on the importance of existing trade relations and help to influence new policies going forward.

ARTICLE BY Ludmilla L. Savelieff & Stacy A. Swanson of Squire Patton Boggs (US) LLP

© Copyright 2017 Squire Patton Boggs (US) LLP

Trump, Xi Kick Off Economic Relationship

china economic relationshipOn Friday, April 14, the U.S. Department of Treasury published a widely anticipated semi-annual report detailing the foreign exchange practices of America’s major trading partners. Although he regularly called for China to be labeled as a “currency manipulator” as a candidate, President Donald J. Trump and his administration declined to use the occasion of this report to do so. Mr. Trump previewed this decision days earlier in an interview with the Wall Street Journal, reflecting the consensus among economists that the Chinese “are not currency manipulators.” While, according to many economists, the Chinese government did keep the value of the Renminbi (“RMB”; also known as the “Chinese yuan”) at an artificially low level for many years, Chinese policymakers have been hard at work trying to prop up the currency since 2014 due, in part, to a strengthening U.S. dollar and surging capital outflows.

The decision not to label China as a currency manipulator comes on the heels of the first in-person meeting between Mr. Trump and Chinese President Xi Jinping. On April 6 and 7, Mr. Trump hosted Mr. Xi at his Mar-a-Lago estate in Florida for a two-day summit, an important weather vane for near-term relations between the United States and China. Despite concerns that strategic differences over thorny issues such as North Korea and the South China Sea or harsh rhetoric regarding U.S.-China trade relations from Mr. Trump in advance of the meeting might sour the mood, both sides came out of the meetings with a buoyant step. The two sides agreed to implement a new, comprehensive framework for bilateral negotiations that will shape U.S.-China engagement in the years to come. Further, U.S. and Chinese officials announced a plan to reach agreement, within 100 days, on steps that can be taken to address trade-related frictions between the two countries.

For much of the Obama presidency, bilateral negotiations between the U.S. and China were centered around two main events: the U.S.-China Strategic and Economic Dialogue (“S&ED”) and the Joint Commission on Commerce and Trade (“JCCT”). During this first face-to-face encounter, Mr. Trump and Mr. Xi agreed to a new framework for high-level negotiations called the “U.S.-China Comprehensive Dialogue,” which is to cover four main tracks: diplomacy and security, economics, law enforcement and cybersecurity, and society and culture. Few details have been released as to how the new dialogue will work in practice, and which of the components of the S&ED and JCCT might be preserved in this new framework.

The 100-day plan for trade negotiations is aimed at addressing trade frictions, particularly with regard to increasing U.S. exports and reducing the U.S. trade deficit with China. Few details about what the 100-day plan will entail have been released, and many details are yet to be negotiated. However, it appears that these negotiations will focus on securing Chinese commitments on a range of U.S. exports including beef (banned in China since 2003) and other agricultural products, steel, oil, and gas. Additionally, the Chinese might provide greater market access for U.S. investments in the financial sector—e.g., in securities and insurance. U.S. Treasury Secretary Steven Mnuchin explained during a press briefing that there was a “very wide range of products that we discussed.” According to some reports, at least some Chinese commitments proposed at this early stage may have originally been intended for offer in the context of the bilateral investment treaty negotiations between the U.S. and China, the prospects for which are now less certain.

The current dynamics present significant opportunities for individual businesses and industry groups. Businesses seeking access to the Chinese market for exports or investment should consider engaging with U.S. policymakers to leverage the situation and make a case for addressing their specific needs during the current round of negotiations. Even if the 100-day plan does not bring about the kind of comprehensive economic benefits potentially possible under a bilateral investment treaty, companies with interests in China should see this as an opportunity to seek relief in a Chinese business environment that, according to over 80% of member companies responding to an AmCham China survey, has become less friendly to foreign business than in the past.

ARTICLE BY John Veroneau, Timothy P. Stratford & Ashwin Kaja of Covington & Burling LLP

© 2017 Covington & Burling LLP