Updates: Iran, Section 301 and ZTE

“May you live in interesting times” is supposedly a Chinese curse, although it doesn’t seem to be Chinese at all. Regardless of its origin, its sentiment that “interesting” times are antonymous to placid ones is particularly appropriate for international trade these days.

Today we provide updates on three “interesting” trade disputes: the reversion to pre-2016 sanctions on Iran, identification of new products for “Section 301” tariff coverage and extension of a temporary, limited lifeline to Chinese telecoms giant ZTE.  Because the latest U.S. government pronouncements on these issues have complex requirements and deadlines, companies potentially affected by them should pay particular attention to the details.

Status Quo Ante Restored for Iran

Before the Joint Comprehensive Plan of Action was adopted in 2016, the United States maintained stifling trade sanctions on nearly all trade-related activities between “United States persons” and Iran. The JCPOA provided an opening, however slight, for some direct transactions. Following its withdrawal from the JCPOA, the U.S. has closed those off.

The Office of Foreign Assets Control has announced the following phase-out schedule for these previously-authorized activities.

  • Activities to “wind down” (i.e., terminate) transactions under OFAC’s general licenses authorizing imports of Iranian-origin carpets and foodstuffs are permitted through August 6, 2018.
  • The same schedule applies to “winding down” letters of credit and brokering services relating to those transactions.
  • Likewise, activities for “winding down” “transactions ordinarily incident to the negotiation of contingent contracts” subject to the licensing policy for commercial aircraft, parts and services may take place through August 6.
  • Finally, the pre-JCPOA prohibition on transactions by “foreign entities owned or controlled by a U.S. person” (e.g., subsidiaries) “with the Government of Iran or any person subject to the jurisdiction of the Government of Iran” is restored. That latter term covers natural or legal entities “organized under the laws of Iran or any jurisdiction within Iran, ordinarily resident in Iran, or in Iran, or owned or controlled by any of the foregoing.” Thus, trade with Iran by U.S. subsidiaries abroad, as well as with Iranian companies and their subsidiaries located in third countries, will again be prohibited. The “winding down” period to cease such activities expires on November 4, 2018.

In keeping with the terms of National Security Presidential Memorandum-11, the “secondary sanctions” in place before the JCPOA will be reinstated as well.

Possible Expansion of Section 301 Tariff Coverage

The first round of Section 301 tariffs went into effect today. A second round will be coming soon. The Trade Representative’s office has identified the products for coverage by the 25 percent rate, and requested public comment on which of the listed items should be included or excluded.

U.S. companies that import or purchase items on the list have the opportunity submit comments to USTR, as follows:

USTR requests that commenters address specifically whether imposing increased duties on a particular subheading listed in Annex C would be practicable or effective to obtain the elimination of China’s acts, policies, and practices, and whether maintaining or imposing additional duties on a particular product listed in Annex C would cause disproportionate economic harm to U.S. interests, including small or medium-sized businesses and consumers.

The comment schedule is:

July 23, 2018: Due date for submission of written comments.

July 24, 2018: Public hearing.

July 31, 2018: Due date for submission of post-hearing rebuttal comments.

Limited Authorization for Trade with ZTE

ZTE remains on the Bureau of Industry and Security’s Denied Persons List, notwithstanding last month’s agreement for its removal. Unless and until that changes, trading in commodities and software “subject to the Export Administration Regulations” remains prohibited. The Denial Order also makes it unlawful to:

Engage in any transaction to service any item subject to the Regulations that has been or will be exported from the United States and which is owned, possessed or controlled by a Denied Person, or service any item, of whatever origin, that is owned, possessed or controlled by a Denied Person if such service involves the use of any item subject to the Regulations that has been or will be exported from the United States.

This precludes anyone, whether a U.S. person or not, from servicing items that were previously and lawfully exported or reexported to ZTE, and poses an obvious problem when such items need servicing.

BIS has now authorized limited servicing activities with ZTE, relating to continued operation of existing networks and equipment, support to existing phone handsets that were available to the public before April 15, 2018, cybersecurity research and vulnerability disclosure and limited transfers of funds for these activities. This authorization is effective until August 1, 2018.


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