At the forefront of addressing the global challenge of climate change is the effort to reduce carbon.

In their latest podcast, Pittsburgh’s energy transactional partner, Ryan Haddad and Brussels’ international trade and customs partner, Yves Melin explore how Carbon capture, utilization, and sequestration (CCUS) and the Carbon Border Adjustment Mechanism (CBAM) could interact in the U.S. and EU. Their discussion includes:

  • Economic incentives linked to carbon capture in the U.S.
  • Conditions imposed by the CBAM on U.S. exporters of goods to the EU
  • How the CBAM incentivizes the decarbonization of industrial processes beyond the EU

The full podcast is available for listening on reedsmith.com.

The recent English Court of Appeal judgment on Mints & others v PJSC National Bank Trust & PJSC Bank Otkritie Financial Corporation [2023] EWCA Civ 1132 (“Mints”) on 6 October 2023 discussed several fundamental issues pertaining to concepts under the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) and the secondary sanctions regulations thereunder, in particular the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Regulations”). The judgment can be found here.

Continue Reading UK Sanctions – What is “Control”?

October 12, 2023, witnessed perhaps one of the most fast-paced days since the introduction of the price cap restrictions on Russian crude oil and petroleum products almost a year ago. Namely, the G7 and Australia (the “Price Cap Coalition”) issued a joint statement, which was followed by the issuance of a maritime advisory and the first sanctions imposed by the Office of Foreign Assets Control (“OFAC”) for breach of the Russian oil price cap. As we are nearing the one-year anniversary of the price cap, this should serve as an important reminder to operators across the industry that enforcement will be coming.

Continue Reading A little less conversation, more action

As a follow-on to last week’s quint-seal guidance, the Bureau of Industry and Security (BIS) published best practice guidance to help prevent high-priority items from being diverted to Russia. The latest guidance focuses on exports of the following high-priority items to counterparties in countries outside the Global Export Controls Coalition (GECC):[1]

HS CodeHS Description and Representative Part
8542.31Electronic integrated circuits: Processors and controllers, whether or not combined with memories, convertors, logic circuits, amplifiers, clock and timing circuits, or other circuits
8542.32Electronic integrated circuits: Memories
8542.33Electronic integrated circuits: Amplifiers
8542.39Electronic integrated circuits: Other
8517.62Machines for the reception, conversion and transmission or regeneration of voice, images, or other data, including switching and routing apparatus
8526.91Radar apparatus, radio navigational aid apparatus and radio remote control apparatus: Radio navigational aid apparatus
8532.21Other fixed capacitors: Tantalum capacitors
8532.24Other fixed capacitors: Ceramic dielectric, multilayer
8548.00Electrical parts of machinery or apparatus, not specified or included elsewhere in chapter 85

BIS recommends that exporters ask counterparties for a signed export control certification that includes the following information:

  • Customer’s full name, address, website, and role (e.g., purchasers, intermediate consignee, ultimate consignee, end user).
  • Activity the customer intends to take with the item (e.g., consumed, transformed into a different item, maintained for stock, resold, etc.).
  • Name and address of the known end user (if not the customer).
  • List of items covered by the transaction.
  • Customer confirmation that the item requires a license to export or reexport to Russia or Belarus.
  • Confirmation the customer will comply with the Export Administration Regulations (EAR).
  • Confirmation the customer will flow the EAR requirements down to its customers and other parties in subsequent transactions, including:
    • Screening subsequent parties against the Consolidated Screening List before any reexport or transfer (in-country) and comply with any restrictions on the parties;
    • Not providing the item for end use by or to end users of Russia’s or Belarus’s military, intelligence, or national police;
    • Not providing the item for end use by or end users tied to nuclear weapons, chemical and biological weapons, or missiles or unmanned aerial vehicles capable of a range of at least 300 kilometers (or when such range is unknown); and
    • Not providing the item for ultimate end use in Russia or Belarus or the temporarily occupied Crimea region of Ukraine or the so-called DNR or LNR regions of Ukraine.
  • The name, title, phone number, email address, and signature of the customer’s representative making the certification.

The guidance includes a sample written certification, which can be for the exporter’s industry. Exporters can also incorporate these items into their existing customer certifications or end-user statements. Exporters should review the information provided by the customer for errors, omissions, or “red flags.”

[1] The GECC countries are 27 EU member states, Australia, Canada, Iceland, Japan, Liechtenstein, New Zealand, Norway, South Korea, Switzerland, Taiwan, the United Kingdom, and the United States.

On Saturday (September 30, 2023), new UK and EU trade sanctions tightening the restrictions on the import of Russian-origin iron and steel products will come into effect.

While certain measures are already in place in relation to a number of listed iron and steel products (Listed Iron and Steel Products) that are of Russian origin, the new measures prohibit the import (UK and EU) or purchase (EU only) of Listed Iron and Steel Products that are processed in third countries and incorporate Listed Iron and Steel Products that are of Russian origin, in order to reduce sanctions circumvention.

The UK’s Guidance on third country processed iron and steel measures (UK Guidance) explains that the new UK sanctions prohibit an import of such Listed Iron and Steel Products into the UK if it meets all of the following criteria, being that the product:

  1. is listed in Schedule 3B of the Russia (Sanctions) (EU Exit) Regulations 2019;
  2. has been “altered, transformed in any way; or subjected to any type of operation or process” in a third country (i.e., a country that is not the United Kingdom, the Isle of Man or Russia); and
  3. incorporates one or more Schedule 3B iron and steel products of Russian origin.

Importantly, given the new measures were first announced in April 2023, there are no exceptions or transitional periods for any goods caught by them.

Helpfully, the UK Guidance also contains scenarios which provide examples of how the rules may be applied in practice and sets out the tariff codes for the relevant iron and steel products caught by the new measures.

According to the UK Guidance, traders can apply for a license if they want to import banned iron and steel processed in a third country into the UK after September 30, 2023 and can refer to statutory guidance on Russia sanctions for information on license applications and penalties for sanctions violations.

In the UK Guidance, the government advises all parts of the supply chain for third country processed iron and steel imports to the UK to undertake necessary due diligence to ensure sanctions compliance and importers to include assurances regarding import origin in contractual agreements. Traders are also advised to be prepared to have documentation available to demonstrate a good’s supply chain history.

It is therefore recommended that companies potentially caught by the new measures consult the UK Guidance carefully and seek legal advice if necessary.

The EU is imposing a phased introduction of the new measures, with the restrictions being implemented in three phases – from September 30, 2023, April 1, 2024 and October 1, 2024 – depending on the specific tariff code of the imported iron and steel products.

The European Commission has issued guidance (in the form of FAQs) on documents that may be considered as sufficient evidence of the origin of the inputs. However, since the customs authorities of EU member states may require additional evidence in the event of reasonable doubt, there is discussion in the EU about the uncertainty as to how each member state is going to apply these restrictions.

On Tuesday, the U.S., UK, Australia, Canada, and New Zealand—known as the “Export Enforcement Five” or “E5”—issued joint guidance to industry and academia on how best to identify Russian export control evasion tactics. The E5 coordinates with other members of the Global Export Control Coalition (GECC) on export controls specific to Russia. In addition to the E5, the GECC countries are the 27 EU member states, Iceland, Japan, Liechtenstein, Norway, South Korea, Switzerland, and Taiwan.

The joint guidance identifies 45 six-digit Harmonized System (HS) codes containing items Russia needs for its weapons systems. When exporting goods listed in one of these HS codes, exporters are encouraged to conduct additional due diligence to ensure the end user is not attempting to evade export controls or sanctions. The HS codes are divided into four tiers based on priority:

  • Tier 1: Integrated circuits (also referred to as microelectronics)
  • Tier 2: Electronics items related to wireless communication, satellite-based radio navigation, and passive electronic components
  • Tier 3: This tier is divided into electronic and non-electronic items to provide greater clarity to the different industries that may work with these items
  • Tier 4: Manufacturing, production and quality testing equipment of electric components and circuits

As part of a company’s risk-based customer and transactional due diligence, the joint guidance outlines the following potential “red flags” that may indicate attempted export control or sanctions evasion:

  • Transactions related to payments for dual-use or defense items from a company incorporated after February 24, 2022 and located in a non-GECC country;
  • A new customer trading in Tier 1 or Tier 2 products, based in a non-GECC country, and incorporated after February 24, 2022;
  • An existing customer who only started receiving exports of Tier 1 or Tier 2 products after February 24, 2022 and is now exporting or reexporting the goods to known transshipment points;
  • An existing customer located outside the E5 who requests or receives a significant increase in Tier 1 or Tier 2 products after February 24, 2022;
  • A customer who cannot or will not provide details on banks, shippers, or third parties (e.g., end-users); intended end-use; or corporate ownership;
  • Transactions involving smaller-volume payments from the same end-user’s foreign bank account to multiple suppliers of dual-use products;
  • Parties listed as the ultimate consignee or in the “consign to” field who do not typically engage in business involving the goods being shipped (e.g., other financial institutions, mail centers, logistics companies);
  • A customer paying significantly more than the known market price for a good; or
  • A customer or address similar to one of the parties sanctioned by one or more of the E5.

This joint guidance builds on the Tri-Seal Compliance Note released by the U.S. Commerce, Treasury, and Justice Departments earlier this year.

With less than two weeks until the start of the Carbon Border Adjustment Mechanism (CBAM) transitional period (1 October 2023 – 31 December 2025), the European Commission published the CBAM Implementing Regulation on the reporting obligations in the Official Journal of the European Union on 15 September 2023. During the transitional period, declarants are required to submit quarterly CBAM reports to the CBAM Transitional Registry no later than one month after the end of the relevant quarter. Below, we explain the key elements of the CBAM Implementing Regulation.

Background

The CBAM Regulation entered into force on 17 May 2023. During the transitional period (1 October 2023 – 31 December 2025), declarants must submit quarterly CBAM reports that include: (i) the total quantity of imported goods; (ii) the direct and indirect emissions embedded in the imported goods; and (iii) any carbon price effectively paid in the country of origin for the embedded emissions.

On 13 June 2023, the European Commission communicated a draft Implementing Regulation on reporting obligations and conducted a public consultation until 11 July 2023. After reviewing comments from interested parties, on 17 August 2023, the Commission published the final text of the Implementing Regulation, two CBAM guidance documents, and an Excel template for reporting embedded emissions. On 15 September 2023, the Implementing Regulation was officially published in the Official Journal of the European Union.

Key elements of the Implementing Regulation

General comments: Compared to the draft Implementing Regulation, there are no major changes in the final text. However, with respect to the calculation of embedded emissions, the Commission deleted references to the “weighted average across all used production routes”. This means that operators can calculate actual embedded emissions by separating production processes without the weighted average of the embedded emissions.

Quarterly reports: Declarants placing CBAM goods on the European Union (EU) market must submit quarterly CBAM reports. Those reports must be submitted by a reporting declarant, who could be one of the following persons: (i) the importer lodging the customs declaration to release CBAM goods for free circulation; (ii) the person with authorisation to lodge a customs declaration who declares the import of CBAM goods; or (iii) the indirect customs representative.

Reporting elements: The CBAM report must include the following information:

  • Imported goods: (i) the total quantity of imported goods; and (ii) the type of goods, as identified by the EU Combined Nomenclature code.
  • Embedded emissions: (i) the country of origin of the imported goods; (ii) the installation where they were produced; (iii) the production route used and information on specific parameters qualifying the indicated production route chosen; (iv) for steel goods, the identification number of the specific steel mill; and (v) the amount of specific direct emissions of the goods (see Annex III).
  • Indirect emissions: (i) electricity consumption; (ii) confirmation of whether the declarant is reporting actual emissions or default values; (iii) the corresponding emissions factor; and (iv) the amount of specific indirect emissions (see Annex IV).
  • Carbon price paid in the country of origin for the embedded emissions: (i) the form of carbon price; (ii) the country of origin; (iii) any rebate or other form of compensation available in the country that would have resulted in a reduction of that carbon price; (iv) reference to the legal provisions that form the basis for the carbon price, the rebate or any other form of compensation; (v) the type of product, as identified by the CN code; (vi) the quantity of embedded emissions covered by the carbon price; (vii) the quantity of embedded emissions covered by any rebate or other form of compensation, including free allocations, if applicable; and (viii) the monetary amount.

Calculation of embedded emissions: The Implementing Regulation provides flexibility regarding the methods that can be used to calculate embedded emissions of CBAM goods during the transitional period. Reporting declarants will have the choice of reporting in one of the following three ways (but as of 1 January 2025, only the EU method will be accepted):

  • Reporting according to the EU method (see Annex III), using (i) the calculation-based approach or (ii) the measurement-based approach (the mandatory approach as of 1 January 2025);
  • Reporting based on equivalent third country national systems, which can be used until 31 December 2024; or
  • Reporting based on another method (e.g., default values to be published by the Commission), which can be used until 31 July 2024.

Default values: Default values, or estimations by non-EU operators, may be used for precursors of complex goods contributing up to 20% of the total for complex goods. At the time of writing this alert, the Commission has not published the default values, but it is expected that they will be published in the coming days before the transitional period starts.

Review of CBAM reports: The Commission may review CBAM reports to assess compliance with the reporting obligations within three months after the last CBAM report is submitted. Further, the competent authorities of EU member states where a reporting declarant is established must review and assess the data, information and list of reporting declarants. After 31 December 2025, the competent authorities may initiate a correction procedure in cases of incomplete or incorrect CBAM reports or failure to submit a CBAM report.

Penalty: A penalty will be imposed if the reporting declarant has not taken the necessary steps to comply with the reporting obligations or to correct the CBAM report. The penalty for each tonne of unreported embedded emissions will be between €10 and €50. This is significant, especially when compared with the price paid by EU producers for actual emissions: the price for a tonne of carbon under the EU Emission Trading Scheme is around €100, but most allowances are given out free of charge.

CBAM Transitional Registry:The Commission will establish an electronic database, the CBAM Transitional Registry, to collect the information reported during the transitional period. The CBAM Transitional Registry will enable communication, checks and information exchange between the Commission, the competent authorities, the customs authorities of the member states and reporting declarants.

Guidance documents and webinars

On 17 August 2023, the Commission published two guidance documents on the reporting obligations for EU importers of CBAM goods and non-EU installation operators, as well as a reporting template. The guidance documents explain the CBAM requirements for EU importers and non-EU operators of installations producing CBAM goods during the transitional period. Further, while the use of the reporting template in Excel is voluntary, the Commission stresses that the use of a common template greatly simplifies the communication.

Additionally, the Commission will host six online webinars in the coming weeks, which will cover general and sector-specific features of the CBAM. Interested stakeholders can register to participate in the webinars and will be able to ask questions, which will be answered live. The registration links, when active, will be available here.

  • Cement: 15 September 2023, 10am-11:30am (CET)
  • Aluminium: 21 September 2023, 2pm-3:30pm (CET)
  • Fertilisers: 26 September 2023, 11:30am-1pm (CET)
  • Electricity: 28 September 2023, 9:30am-11am (CET)
  • Hydrogen: 3 October 2023, 3:30pm-5pm (CET)
  • Iron and steel: 5 October 2023, 4pm-5:30pm (CET)

Looking ahead                                                        

When the transitional period starts on 1 October 2023, non-EU manufacturers of products currently in the CBAM scope will have to calculate accurately the emissions embedded in the goods they import and submit this information to EU importers. Using this information, EU importers will have to submit a quarterly CBAM report by 31 January 2024 for the period of October 2023 – December 2023.

Our previous publications on CBAM

Any questions? Please do not hesitate to get in touch with Reed Smith’s international trade, environment or ESG teams in Brussels, or your usual contact at Reed Smith. 

On 13 September 2023, European Commission President Ursula von der Leyen announced in her annual State of the Union Address that the European Commission (Commission) will launch an anti-subsidy investigation into Chinese subsidies to electric vehicle (EV) makers in China under EU trade rules. The Commission’s concern is that “global markets are now flooded with cheaper electric cars […] and their price is kept artificially low by huge [Chinese] state subsidies”. The investigation concerns battery-powered EVs from China and will include not only Chinese car brands but also non-Chinese brands produced in China. There is a considerable risk that the Commission will, in parallel, also scrutinise Chinese electric vehicles under the new Foreign Subsidies Regulation (FSR), which is enforced by the Commission’s Directorate-General Competition (DG Competition). Reed Smith’s EU trade and FSR team in Brussels highlight key aspects of the EU’s anti-subsidy investigation and a possible parallel FSR scrutiny. Both investigation tools are relevant to all EV manufacturers potentially targeted by the Commission.

Overview

The announcement of the anti-subsidy investigation follows a significant market growth for Chinese car makers in the EU in recent years. According to the Commission, the share of Chinese EVs sold in Europe has recently risen to 8 per cent and could reach 15 per cent in 2025, noting prices are typically 20 per cent below EU-made models.1 While the announced anti-subsidy investigation gives the Commission the power to impose punitive import tariffs for Chinese EVs imported to the EU in the future, in parallel, Chinese EV producers active in Europe are also facing a considerable risk that the Commission will use its newly gained powers under the EU’s FSR and initiate a market investigation to take redressive measures against undue subsidies granted since July 2018.

EU anti-subsidy investigation on Chinese EVs

Scope of the investigation: The scope of the investigation will be for the Commission to assess whether (i) imports from China benefit from countervailable subsidies, including those identified before the case is initiated or discovered in the course of the investigation; (ii) the EU industry suffers material injury; (iii) there is a causal link between the injury and the subsidised imports; and (iv) putting measures in place is in the interest of the European Union.

What is subsidy? A subsidy is a financial contribution by a government or a public body conferring a benefit to a specific recipient (e.g., a company, an industry or a sector as a whole). It can take various forms, such as grants, loans, tax credits, debt forgiveness, provision of goods/services or purchases of goods for less or more than adequate remuneration. A subsidy may also take the form of any income or price support. 

Risk of countervailing measures: If the investigation reveals that subsidies are causing injury to the EU industry, the Commission will impose countervailing measures, which, as in the case of dumping, will take the form of additional duties at the border to offset the negative effect of the subsidies and restore a level playing field on the EU market. Countervailing measures last for an initial period of five years. The measures can be – and often are – extended for an additional period of five years.

Formal initiation: The anti-subsidy investigation will formally start only once a notice of initiation is published in the EU’s Official Journal. The notice will detail the product under investigation, the rights and obligations of interested parties to the proceeding and relevant deadlines. An investigation can generally be triggered by a complaint from an EU industry or – more exceptional, but press reports suggest so in this case – the Commission’s own initiative (ex officio). The investigation is likely to be initiated in the days or weeks to come.

Questionnaires, sampling and verification visit: When the notice of initiation is published, the Commission’s responsible Directorate of Trade (DG Trade) will place a questionnaire at the disposal of exporters and authorities in China, EU producers and importers and users. When there are more companies than can be investigated, the Commission will sample the largest ones. The deadline for replies to the questionnaire is typically 37 days from the Commission’s determination of the sample. After reviewing the questionnaires, DG TRADE will conduct on-spot verification to check submitted data. Additional questionnaires may follow.

Risk of non-cooperation: While exporting producers are not required to submit a response to questionnaires, those that do not reply are considered to be not cooperating with the investigation. In such cases, the Commission will continue the investigation and may use other information available. The duty imposed on a non-cooperating exporter will be a high punitive duty. Cooperating exporting producers, if they are in the sample, receive a duty calculated based on the data they have submitted, or – for all non-sampled companies – a weighted average of the duty of the sampled producers.

Timeline: The Commission (DG Trade) will complete the investigation within 13 months from the initiation of the investigation (i.e., from publication of the notice of initiation in the Official Journal of the EU). Provisional duties may be imposed earlier, but no later than eight months from initiation. Duties can sometimes be imposed retroactively, but only if the Commission decides to require the registration of the imports, and retroactive imposition can cover imports made before registration was ordered.

Candidate for first market investigation under the Foreign Subsidies Regulation?

Heightened FSR enforcement risk: There is a considerable risk that the Commission will also initiate a market investigation against one (or more) Chinese car manufacturers active in the EU under the new FSR that entered into force on 12 July 2023. While the Commission has wide discretion for opening a market investigation under the FSR, the strategic importance of automotive production in the EU, the sector’s rapid transition to EVs and the recent success of Chinese EV producers in the EU make Chinese subsidies for EV producers also a hot candidate for enforcement under the FSR. In addition, compliance with the FSR will be important for Chinese producers, which are subject to an FSR notification requirement in case of M&A transactions or the participation in tenders in Europe.

Scope of FSR investigation: In an FSR market investigation, the Commission would assess whether the manufacturer concerned benefitted from foreign subsidies and whether they had distortive effects in the EU (i.e., they improve the competitive position of the undertaking concerned and thereby actually or potentially negatively affect competition in the internal market). If a foreign subsidy is found to have distorted the EU internal market, the Commission may consider the potential positive effects of the foreign subsidy, if any, and balance those effects with its negative effects.

Redressive measures: While countervailing measures concern future imports into the EU (see above), the FSR gives the Commission the power to impose redressive measures (or binding commitments) for foreign subsidies granted since 12 July 2018(!). Redressive measures may include structural or behavioural measures, such as divestment of assets, reduction of capacity or market presence (including by means of temporary restriction on commercial activity), granting access to infrastructure (including, for example, research facilities, production capabilities or essential facilities) and/or repayment of the foreign subsidy (including interest). This means that the enforcement tools available to the Commission under the FSR are wider in nature than in anti-subsidy investigations.

Investigatory powers: The Commission, acting through DG Competition, has far-reaching powers to investigate potential beneficiaries of foreign subsidies, including the power to request information, conduct unannounced inspections within and outside the EU and impose fines and periodic penalty payments on companies if they provide incorrect, incomplete or misleading information or take interim measures. These mirror those under available antitrust rules which DG Competition has routinely been applying in antitrust investigations for the last 20 years. That several Chinese manufacturers have already established a local presence in Europe, whether through participations or own operations, in practice facilitates a potential investigation under the FSR by the Commission. Contrary to anti-subsidy investigations under EU trade rules, the FSR does not provide for a specific timeline within which the investigation must be concluded.

Long limitation period: The limitation period for investigating foreign subsidies under the FSR is 10 years, i.e., there remains a continuous threat to EV producers with links to China for an opening an ex officio market investigation for the foreseeable future.

Closer scrutiny of M&A deals and tenders: Irrespective of the above, ongoing and future M&A investments and participation in public tenders in the EU by Chinese (and other) car manufacturers benefitting from Chinese (and other non-EU subsidies) will potentially trigger mandatory notification to the Commission and be subject to closer scrutiny as of 12 October 2023, and affected businesses are required to ensure full consistency with the new FSR rules.

Looking ahead

The Commission‘s anti-subsidy investigation on electric vehicles originating from China is likely to be initiated in the days or weeks to come. The investigation will be officially launched when a notice of initiation is published in the EU’s Official Journal. To be heard and to impact the outcome of this investigation, active cooperation with the Commission is essential.

EV manufacturers active in the EU and benefitting from Chinese subsidies also face a considerable risk that the Commission will start a market investigation under the EU’s new FSR in the future. Potential “target” companies are therefore advised to assess their potential risk exposure under the FSR. For exporters and/or importers questioned in the Commission’s anti-subsidy investigation, responses will potentially trigger follow-on scrutiny under the FSR.

If you would like to discuss any of this in more detail, please do not hesitate to contact our EU Trade and FSR team in Brussels or your usual contact at Reed Smith.

Our EU Trade team has represented manufactures in EU trade defence investigations for over 20 years, including in a majority of the anti-subsidy investigations that the EU has initiated against China, and litigating against these measures before the courts of the European Union in Luxembourg.

Our FSR team has a strong record in representing businesses in antitrust investigations (mirroring the investigation powers under the FSR) and regularly advises businesses on the implications of the new FSR on their investments and operations in the EU. We have actively followed the coming into force of the new FSR rules since the adoption of the White Paper in June 2020 (see, e.g., It’s a wrap: EU’s new foreign subsidies regime adopted (December 2022), European Commission sharpens pencil to control foreign subsidies in the EU (May 2021) and EU pushes for closer scrutiny of foreign subsidies in the EU (June 2020).

1. See, e.g., “EU to investigate ‘flood’ of Chinese electric cars, weigh tariffs”, Reuters (13 September 2023).

During her annual State of the European Union speech on 13 September 2023, the President of the European Commission, Ursula von der Leyen, announced that “the Commission is launching an anti-subsidy investigation into electric vehicles coming from China.” An anti-subsidy measure (i.e., countervailing duties) is one of the trade defence instruments that a World Trade Organization (WTO) Member can use to protect domestic production against international trade distortions. Below, we explain key elements of the EU anti-subsidy investigation.

Background

Trade defence instruments (TDI), namely anti-dumping, anti-subsidy and safeguard measures, are mechanisms designed to protect European production and sales on the EU market against imports of products that are unfairly priced. TDIs are used to restore fairness and a level playing field. The EU’s TDIs are based on the WTO agreements and are transposed in the EU legal order by the Anti-Dumping Regulation, the Anti-Subsidy Regulation and the Safeguards Regulation.

EU anti-subsidy investigation

What is subsidy? A subsidy is a financial contribution by a government or a public body conferring a benefit to the specific recipient (e.g., a company, an industry or a sector as a whole). It can take various forms, such as grants, loans, tax credit, debt forgiveness, provision of goods/services or purchases of goods for less/more than adequate remuneration. A subsidy may also take the form of any income or price support. 

Investigation based on complaint or ex officio investigation: Once the European Commission receives a valid complaint from an EU industry, providing sufficient prima facie evidence that a country is subsidising companies exporting a particular product to the EU and that this is causing injury to the EU industry, the Commission will launch an anti-subsidy investigation within 45 days. Alternatively, in special circumstances, the Commission may also initiate an ex officio investigation on its own initiative without having received a complaint from an EU industry if it has sufficient evidence of subsidised imports causing injury to European industry.

Initiation: An investigation is officially launched when a notice of initiation is published in the EU’s Official Journal. The notice of initiation provides details on the product under investigation, the country to be investigated, the rights and obligations of interested parties to the proceeding and relevant deadlines. The deadlines start to kick in from the publication of the notice of initiation.

Questionnaires, sampling and verification visit: When the notice of initiation is published, a questionnaire is made available to exporters and authorities in the country concerned, to EU producers and importers and to users. When there are more companies than can be investigated, the Commission will sample the largest ones. The deadline for replies to the questionnaire is typically 37 days from the Commission’s determination of the sample. After reviewing the questionnaires, the Commission will conduct on-spot verification to check the submitted data.

Non-cooperation: While exporting producers are not required to submit a response to questionnaires, those that do not reply to the questionnaire are considered to be not cooperating with the investigation. The Commission will continue the investigation and may use other information available. The duty imposed on a non-cooperating exporter will be a high punitive duty. Cooperating exporting producers receive a duty calculated based on the data they have submitted if they are in the sample, or a weighted average of the duty of the sampled producers for all non-sampled companies.

Timeline: The Commission completes the investigation within 13 months from the initiation of the investigation (i.e., from publication of the notice of initiation in the Official Journal of the EU). Provisional duties may be imposed earlier, but no later than eight months from initiation. Duties can sometimes be imposed retroactively, but only if the Commission decides to require the registration of the imports, and retroactive imposition can cover imports made before registration was ordered.

Result: If the investigation reveals the existence of subsidies causing injury to the EU industry, the Commission will impose countervailing measures, which, as in the case of dumping, will take the form of additional duties at the border to offset the negative effect of the subsidies and restore a level playing field on the EU market. Countervailing measures last for an initial period of five years. The measures can be – and often are – extended for an additional period of five years.

Looking ahead

As the Commission announced an anti-subsidy investigation, this investigation will be the ex officio investigation. The anti-subsidy investigation on electric vehicles originating from China is likely to be initiated in the days or weeks to come. The investigation will be officially launched when a notice of initiation is published in the EU’s Official Journal. To be heard and to impact the outcome of this investigation, active cooperation with the European Commission is essential.

Any questions? Please do not hesitate to contact Reed Smith’s trade and customs team in Brussels or your usual contact at Reed Smith. We have a strong trade and customs team based in Brussels with a longstanding reputation for representing companies in anti-dumping, anti-subsidy and safeguards investigations, and litigating against these measures before the Courts of the European Union in Luxembourg.

On August 9, 2023, President Biden issued his much anticipated executive order on outbound U.S. investment in China, Hong Kong, and Macau (dubbed “reverse CFIUS”). The Treasury Department simultaneously released an advance notice of proposed rulemaking (ANPRM) related to the order. Public comments on the ANPRM will be accepted until September 28. The final rule Treasury issues may also be substantively different from what is contemplated in the ANPRM.

The executive order

The new executive order targets U.S. investment in “sensitive technologies and products in the semiconductors and microelectronics, quantum information technologies, and artificial intelligence sectors that are critical for [China, Hong Kong, or Macau’s] military, intelligence, surveillance, or cyber-enabled capabilities.” The order directs the Treasury Secretary, in consultation with the Commerce Secretary and the heads of other relevant agencies like the State, Defense, Energy, and Homeland Security Departments, to issue regulations subject to public comment to implement the new restrictions. The regulations will define:

  • “Sensitive technologies and products,” which may include a definition limited to only certain end-uses;
  • The scope of transactions that require notice to the Treasury Department; and
  • Transactions that pose an acute national security threat and are prohibited.

The regulations will apply to all U.S. persons, which includes U.S. citizens; lawful permanent residents; entities organized under U.S. or state law, including foreign branches; and persons in the U.S. The regulations may also expand the scope to transactions by foreign entities controlled by U.S. persons.

Advance notice of proposed rulemaking

According to the ANPRM, the Treasury Department does not contemplate a case-by-case review of U.S. outbound investment. Instead, the transaction parties will have the obligation to determine whether a transaction is prohibited, subject to notification, or permitted without notification. The ANPRM also indicates the regulations would apply to U.S. persons wherever they are located.

Under the program proposed in the ANPRM:

  • U.S. Persons. The definition of “U.S. person” would remain the same as in the executive order without being expanded to include foreign entities controlled by U.S. persons.
  • Forward-Looking. The program would not be intended to cover transactions entered into prior to August 9. The Treasury Department may, however, request information about transactions completed or agreed to after August 9 to better inform the development and implementation of the program.
  • Prohibited Transactions. U.S. persons would be prohibited from engaging in “covered transactions”[1] with “covered foreign persons”[2] involving:
    • The development or production of electronic design automation software designed to be exclusively used for integrated circuit design;
    • The development or production of front-end semiconductor fabrication equipment designed to be exclusively used for the volume fabrication of integrated circuits;
    • The design of integrated circuits that exceed the thresholds in Export Control Classification Number (ECCN) 3A090 in Supplement No. 1 to 15 C.F.R. Part 774 of the Export Administration Regulations (EAR), or integrated circuits designed for operation at or below 4.5 Kelvin;
    • The fabrication of integrated circuits that meet any of the following criteria: (1) logic integrated circuits using a nonplanar transistor architecture or with a technology node of 16/14 nanometers or less, including but not limited to fully depleted silicon-on-insulator (FDSOI) integrated circuits; (2) NOT-AND (NAND) memory integrated circuits with 128 layers or more; (3) dynamic random-access memory (DRAM) integrated circuits using a technology node of 18 nanometer half-pitch or less; (4) integrated circuits manufactured from a gallium-based compound semiconductor; (5) integrated circuits using graphene transistors or carbon nanotubes; or (6) integrated circuits designed for operation at or below 4.5 Kelvin;
    • The packaging of integrated circuits that support the three-dimensional integration of integrated circuits, using silicon vias or through mold vias;
    • The production of a quantum computer, dilution refrigerator, or two-stage pulse tube cryocooler;
    • The development of a quantum sensing platform designed to be exclusively used for military end uses, government intelligence, or mass-surveillance end uses; and
    • The development of a quantum network or quantum communication system designed to be exclusively used for secure communications, such as quantum key distribution.
  • Notifiable Transactions. U.S. persons would be required to notify the Treasury Department about covered transactions with covered foreign persons involving the following (that are not otherwise prohibited under the restrictions outlined above):
    • The design of integrated circuits;
    • The fabrication of integrated circuits;
    • The packaging of integrated circuits; and
    • The development of software that incorporates an “artificial intelligence system”[3] and is designed to be exclusively used for: cybersecurity applications, digital forensics tools, and penetration testing tools; the control of robotic systems; surreptitious listening devices that can intercept live conversations without the consent of the parties involved; non-cooperative location tracking (including international mobile subscriber identity (IMSI) Catchers and automatic license plate readers); or facial recognition.
  • Excepted Transactions. To minimize unintended consequences and focus on transactions that present a higher risk, the following categories of transactions would be excluded from the definition of “covered transaction”:
    • An investment in a publicly traded security;
    • An investment in an index fund, mutual fund or exchange-traded fund or similar instrument;
    • An investment as a limited partner in a fund;
    • The acquisition by the U.S. persons of all interests in the entity or assets in a third country from a Chinese, Hong Kong, or Macau seller;
    • An intracompany transfer of funds from the U.S. parent company to a subsidiary located in China, Hong Kong, or Macau;
    • A transaction under a binding, uncalled capital commitment entered into before August 9, the date of the executive order.

The excepted transactions would not apply to investments that afford U.S. persons rights beyond those reasonably considered to be standard minority shareholder protections.

  • Additional Exclusions. The Treasury Department also intends to carve out the following activities from the covered transaction definition: university-to-university research collaboration; contractual arrangements or the procurement of material inputs for any of the covered national security technologies or products; intellectual property licensing arrangements; bank lending; the processing, clearing, or sending of payments by a bank; underwriting services; debt rating services; prime brokerage; global custody; and equity research or analysis.
  • Knowledge Requirement. The Treasury Department is considering conditioning U.S. persons’ obligations under the regulations on their knowledge of the covered foreign person’s activities. Actual or constructive knowledge would be sufficient, consistent with the current standard under the EAR.
  • Notification Timing. Unlike the current CFIUS review process, notifications would be due through a portal hosted on the Treasury Department’s website no later than 30 days after a covered transaction closes.
  • Penalties. Civil penalties would be up to the maximum allowed under the International Emergency Economic Powers Act, which are currently the greater of $356,579 or twice the amount of the underlying transaction per violation. Penalties could be imposed for (1) material misstatements or omissions in materials filed with the Treasury Department; (2) engaging in a prohibited transaction; or (3) failure to file a timely notification. The executive order also authorizes the Treasury Department to refer potential criminal violations to the Attorney General.

Reaction from China

China issued a strong response just hours after President Biden signed the executive order. In a statement on August 10, the Ministry of Commerce and the Ministry of Foreign Affairs of the People’s Republic of China issued a statement calling the U.S.’s restrictions on investment in China, Hong Kong, and Macau “naked economic coercion and technological bullying.” The Chinese government warned against further “unintentional decoupling’” with China “[u]nder the guise of national security.”

The new executive order comes as the latest move in a strained U.S.-China relationship. On August 1, China implemented export restrictions on gallium- and germanium-related products. The new restrictions were in response to U.S. export controls implemented last fall to restrict China’s access to high-performance chips and semiconductor manufacturing items.

Companies should continue monitoring China’s response to see if any new U.S.-specific restrictions are imposed as a countermeasure to the latest executive order.

[1] “Covered transactions” would include “(1) acquisition of an equity interest or contingent equity interest in a covered foreign person; (2) provision of debt financing to a covered foreign person where such debt financing is convertible to an equity interest; (3) greenfield investment that could result in the establishment of a covered foreign person; or (4) establishment of a joint venture, wherever located, that is formed with a covered foreign person or could result in the establishment of a covered foreign person.”

[2] “Covered foreign persons” would mean (1) persons who are citizens or lawful permanent residents of China, Hong Kong, or Macau (each a “Country of Concern”); (2) entities that have their principal place of business in a Country of Concern; (3) entities owned, controlled, directed by, or acting on behalf of the government of a Country of Concern; or (4) entities directly or indirectly owned 50% or more, individually or in aggregate, by people or entities in (1)-(3).

[3] “Artificial intelligence system” would mean “an engineered or machine-based system that can, for a given set of objectives, generate outputs such as predictions, recommendations, or decisions influencing real or virtual environments. AI systems are designed to operate with varying levels of autonomy.”