On 14 September 2022, as part of a suite of regulatory changes targeting cross-border supply chains, the European Commission presented its proposal for a Forced Labour Regulation.

In November 2023, the European Parliament adopted its position on the Commission’s proposal, followed by the Council of the EU adopting its General Approach in January 2024. After intensive inter-institutional negotiations, EU co-legislators (the Council of the EU and the European Parliament) reached a provisional agreement on the text of the Forced Labour Regulation on 5 March 2024. On 23 April 2024, it was adopted by the Parliament and will be formally endorsed by the Council in the coming weeks.

The Forced Labour Regulation prohibits the sale or export of products made with forced labour, including child labour, within the EU. Our lawyers delve into the details of this new regulation and its link with the Corporate Sustainability Due Diligence Directive in their latest client alert.

Background

Russia’s military action against Ukraine has had a profound impact on Ukraine’s ability to trade with the rest of the world. Under such exceptional circumstances and to mitigate the negative economic impact of Russia’s aggression on Ukraine, the EU decided in May 2023 to grant sweeping concessions to Ukraine in the form of trade-liberalisation measures for all products. One year on, those concessions have had a significant impact on EU farmers themselves, who have been asking for better protection from Ukrainian imports.  The EU just agreed to continue the existing trade liberalisation, but with the inclusion of new safeguard mechanisms, and in parallel to increase tariffs on imports of grain from Belarus and Russia, to release the pressure on EU farmers at expense of both countries, and not the Ukraine.

  1. The existing measures and their consequences on EU farmers

On 31 May 2023 the EU adopted Regulation (EU) 2023/1077, which suspended for one year:

  • The application of the entry price system to fruit and vegetables;
  • Tariff quotas and import duties;
  • Existing anti-dumping duties; and
  • The creation of certain safeguard measures.

As a result, EU farmers have been facing growing competition from imports of grains from Ukraine.  EU farmers also face significant competition from Russian and Belarusian grain.

The EU has been working for months on measures that take into account to interest of EU farmers, while maintaining its support for Ukraine’s farmers. 

In February and March 2024, the European Commission proposed two new measures: a regulation extending the above-mentioned suspensions for another year and a regulation increasing tariffs on imports into the EU of grain products (cereals, oilseeds, and derived products) from Russia and Belarus. Both measures have been endorsed by the Council of the European Union and will enter into force on 6 June 2024 and 1 July 2024, respectively.

  1. Extension of trade-liberalisation measures for Ukrainian imports

On 14 May 2024, the Council of the EU and the European Parliament adopted Regulation 2024/1392 extending the temporary trade-liberalisation measures (the ‘renewal Regulation’).  It will enter into force on 6 June 2024

To counter the potential negative effect of the measures on EU farmers, the renewal Regulation incorporates several changes compared to Regulation (EU) 2023/1077, including the following safeguard mechanisms:

  • If a product originating from Ukraine that is covered by the trade-liberalisation measures is imported under conditions which adversely affect the Union market or the market of one or several member states for like or directly competing products, the Commission may now impose any necessary measures by means of an implementing act. Such measures may only be imposed upon a duly substantiated request from a member state.
  • Automatic safeguard mechanism which obliges the Commission to reintroduce tariff-rate quotas if the cumulative import volume of either eggs, poultry, sugar, oats, maize, groats, or honey exceeds the arithmetic mean of import volumes recorded in the second half of 2021, all of 2022 and all of 2023.
    • The automatic safeguard measure under Regulation (EU) 2023/1077 only covered eggs, sugar, and poultry. The renewal Regulation extends this measure to oats, maize, groats, and honey, offering better coverage for EU farmers. The renewal Regulation also shortens the delay for the Commission to act from 21 days to 14 days.
    • In addition – and this has been the object of much debate – the renewal Regulation extends the reference period to determine if imports have exceeded the arithmetic threshold to include the second half of 2021. Under Regulation (EU) 2023/1077, the threshold was assessed only for all of 2022 and 2023.

The renewal Regulation excludes from its scope the exemption for anti-dumping duties. As a result, all anti-dumping dumping duties will apply again on 6 June 2024.

  1. Increased tariffs on Russian and Belarusian grain products

In parallel, on 22 March 2024, the Commission proposed to increase the tariffs on imports into the EU of grain products (cereals, oilseeds, and derived products), as well as beet-pulp pellets and dried peas, from Russia and Belarus. The products concerned are classified under Chapters 7, 10, 12, 14, 15 and 23 of the Combined Nomenclature (CN) and are not currently subject to sanctions. This proposal was endorsed by the Council on 30 May 2024 and will enter into force on 1 July 2024.

This Regulation aims to:

  • Prevent EU market destabilisation by mitigating the growing risk to EU farmers.
  • Tackle Russian exports of illegally appropriated grain produced in the territories of Ukraine.
  • Prevent Russia from using revenues from exports to the EU – of both Russian and illegally appropriated Ukrainian grain products – to fund its war against Ukraine.

Depending on the product concerned, the tariffs will increase either to a fixed duty of €95 per tonne or to an ad valorem duty of 50%. Lastly, the EU’s WTO quotas on grain, which offer better tariff treatment for some products, will no longer be applicable to Russia and Belarus.

Looking ahead

  1. Next steps for the Regulation concerning Ukrainian grain imports

The renewal Regulation will enter into force on 6 June 2024 and will remain applicable until 5 June 2025.

  1. Next steps for the Regulation concerning Russian and Belarusian grain imports

The Regulation has been published in the EU’s Official Journal and will enter into force on 1 July 2024, meaning the increased tariffs will be imposed from that date.

Effective May 17, the Department of Homeland Security (DHS) is adding 26 China-based cotton traders and warehouse facilities to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List based on the U.S. government’s reasonable cause to believe the entities source or sell cotton from China’s Xinjiang Uyghur Autonomous Region (Xinjiang). These companies will now be subject to the UFLPA’s rebuttable presumption that the products they produce, wholly or in part, are prohibited from entry in the U.S.

The additions further DHS’s Textile Enforcement Plan. The 26 entities being added to the UFLPA Entity List are:

  • Binzhou Chinatex Yintai Industrial Co., Ltd.
  • China Cotton Group Henan Logistics Park Co., Ltd., Xinye Branch
  • China Cotton Group Nangong Hongtai Cotton Co., Ltd.
  • China Cotton Group Shandong Logistics Park Co., Ltd.
  • China Cotton Group Xinjiang Cotton Co.
  • Fujian Minlong Warehousing Co., Ltd.
  • Henan Yumian Group Industrial Co., Ltd.
  • Henan Yumian Logistics Co., Ltd. (formerly known as 841 Cotton Transfer Warehouse)
  • Hengshui Cotton and Linen Corporation Reserve Library
  • Heze Cotton and Linen Co., Ltd.
  • Heze Cotton and Linen Economic and Trade Development Corporation (also known as Heze Cotton and Linen Trading Development General Company)
  • Huangmei Xiaochi Yinfeng Cotton (formerly known as Hubei Provincial Cotton Corporation’s Xiaochi Transfer Reserve)
  • Hubei Jingtian Cotton Industry Group Co., Ltd.
  • Hubei Qirun Investment Development Co., Ltd.
  • Hubei Yinfeng Cotton Co., Ltd.
  • Hubei Yinfeng Warehousing and Logistics Co., Ltd.
  • Jiangsu Yinhai Nongjiale Storage Co., Ltd.
  • Jiangsu Yinlong Warehousing and Logistics Co., Ltd.
  • Jiangyin Lianyun Co. Ltd. (also known as Jiangyin Intermodal Transport Co. and Jiangyin United Transport Co.)
  • Jiangyin Xiefeng Cotton and Linen Co., Ltd.
  • Juye Cotton and Linen Station of the Heze Cotton and Linen Corporation,
  • Lanxi Huachu Logistics Co., Ltd.
  • Linxi County Fangpei Cotton Buying and Selling Co., Ltd.
  • Nanyang Hongmian Logistics Co., Ltd. (also known as Nanyang Red Cotton Logistics Co., Ltd.)
  • Wugang Zhongchang Logistics Co., Ltd.
  • Xinjiang Yinlong Agricultural International Cooperation Co.

Since the UFLPA was signed into law in 2021, 65 entities have been added to the UFLPA Entity List.

President Biden issued an order requiring a Chinese-owned crypto mining company to vacate and sell certain real property and remove equipment from land in close proximity to Warren Air Force Base (AFB) in Cheyenne, Wyoming.

In June 2022, the crypto mining company acquired 12.06 acres within 1 mile of the Warren AFB, a strategic missile base and home to Minuteman III intercontinental ballistic missile.  The parties to the transaction did not voluntarily notify CFIUS at the time of the transaction, and no filing was required.  Instead, approximately two years after the sale closed, a tip from the public led CFIUS to review the real estate transaction under its authority to review certain, so-called non-notified transactions. 

CFIUS identified national security risks relating to the proximity of the real property to Warren AFB and the presence of specialized equipment used to conduct cryptocurrency mining operations, some of which is foreign-sourced and potentially capable of facilitating surveillance and espionage activities. CFIUS determined mitigation measures would not be effective to address these national security risks and referred the transaction to the President.

President Biden ordered the crypto mining company to (1) sell or transfer the property within 120 calendar days; and (2) remove all equipment and improvements within 90 calendar days. The crypto mining company and its affiliates are immediately barred from any physical or logical access to the real estate, equipment, or improvements until divestment and removal are complete to CFIUS’s satisfaction. Additionally, they are required to cooperate fully, provide regular updates, and allow CFIUS access and inspection on reasonable notice to all premises and facilities in the United States for purposes of verifying and enforcing compliance. 

President Biden’s order is the first Presidential prohibition based on CFIUS’s real estate jurisdiction and the eighth Presidential prohibition in CFIUS’s approximately 48 years. This development highlights the need for foreign investors to evaluate their real property holdings and investments in the United States, particularly, but not limited to, those investors who are ultimately owned or controlled by Chinese nationals.  This development also demonstrates how CFIUS’s roll-out of tip reporting hotlines and other measures to review non-notified transactions continue to have an impact on existing investments in the United States.

On May 14, the Office of U.S. Trade Representative (USTR) published its report on the four-year review of the Section 301 tariffs on Chinese-origin goods first imposed in 2018. The report concludes that the tariffs have been effective, but China has not yet eliminated the technology transfer-related acts, policies, and practices at issue in the original investigation. Consequently, the USTR will continue to impose Section 301 tariffs on the products currently subject to additional duties.

The USTR is also proposing the following additions or increases to the Section 301 tariffs:

ProductCurrent TariffProposed Tariff
Battery parts (non-lithium-ion batteries)7.5%25% in 2024
Electric vehicles (EVs)25%100% in 2024
Facemasks and respirators (PPE)0–7.5%25% in 2024
Lithium-ion EV batteries7.5%25% in 2024
Lithium-ion non-EV batteries7.5%25% in 2026
Natural graphite0%25% in 2026
Other critical minerals0%25% in 2024
Permanent magnets0%25% in 2026
Rubber medical and surgical gloves7.5%25% in 2026
Semiconductors25%50% in 2025
Ship-to-shore cranes0%25% in 2024
Solar cells (whether or not assembled into modules)25%50% in 2024
Steel and aluminum products0–7.5%25% in 2024
Syringes and needles0%50% in 2024

The additions are intended to target China’s high-tech “new three”: solar products, lithium-ion batteries, and electric vehicles.

The USTR is also proposing creating an exclusion process targeting machinery used in domestic manufacturing, including 19 exclusions for certain solar manufacturing equipment (outlined at the end of the report).

The USTR will issue a Federal Register notice next week, which will provide additional details about the proposed modifications and exclusion process, as well as an opportunity for public comments.

The USTR’s report does not specifically address the current Section 301 exclusions that are set to expire on May 31.

On Friday, the Office of Foreign Assets Control (OFAC) published an interim final rule that will amend the Report, Procedures and Penalties Regulations, 31 C.F.R. Part 501, effective August 8, 2024. The updates include:

  • Electronic filing and submission requirements: Filers will generally be required to use the electronic OFAC Reporting System (ORS) to submit (1) initial reports of blocked property (which will also need to be maintained for the filer’s records); (2) annual Reports of Blocked Property; and (3) rejected transaction reports. Filers will also be required to submit the required documentation and notifications related to unblocked or transferred blocked property via email. Reports of unblocked or transferred blocked property can be submitted via email or ORS.
  • Unblocked or transferred blocked property reports: Filers will be required to submit unblocked or transferred blocked property reports (via email or ORS) within 10 business days of the unblocking or transfer, including pursuant to a valid order issued by a government agency or court.
  • Rejected transaction reports: The interim final rule clarifies that non-financial institutions’ rejected transaction reporting obligations includes transactions related to securities, checks, or foreign exchange, as well as sales or purchases of goods or services. The interim final rule also clarifies that the information that must be reported for a rejected transaction only applies to the extent the information is available to the filer at the time the transaction was rejected.
  • Compliance release requests for blocked property: The interim final rule extends the procedure for unblocking funds believed to have been blocked due to mistaken identity to any property blocked due to “typographical or similar errors leading to blocking.” Requests to release those funds can be emailed to OFAC’s Compliance Division. Only the person who mistakenly blocked the funds, however, may request a Compliance Release. Others will be required to request an unblocking license from OFAC’s Licensing Division.
  • Additional reports financial institutions may be required to provide: Under the interim final rule, if OFAC has reason to believe an account or transaction may involve a blocked person’s property or property interests, OFAC may issue instructions to a financial institution that (1) provide information or criteria to help identify the blocked property; or (2) require the financial institution to report transactions meeting specific criteria and notify OFAC before processing those transactions.

Interested parties can submit written comments about the interim final rule until June 10.

Although aid to Israel, Ukraine, and Taiwan made headlines last month when President Biden signed H.R. 815, the law also significantly expanded the scope of agencies’ enforcement authority under two key national security laws: the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). Both now have 10-year civil and criminal statutes of limitations, rather than five.

IEEPA and TWEA are the basis for many of the sanctions programs maintained and enforced by the Office of Foreign Assets Control (OFAC). IEEPA is also the statutory authority for certain export controls under the Export Administration Regulations.

As a result of the amendment, the statute of limitations under most of OFAC’s sanctions programs is now 10 years. This includes the Belarus, Cuba, Iran, North Korea, Russia, and Syria sanctions.

Although the extension of the criminal statutes of limitations may face challenges under the Constitution’s Ex Post Facto Clause, the limitations imposed by that clause are unlikely to impact the expanded civil enforcement authority. Civil enforcement is also more common. Civil penalties under IEEPA are currently $364,992 per violation; under TWEA, they are $108,489.

Practical implications

Although OFAC may issue guidance on the extended statute of limitations, companies should begin considering the following:

  • Recordkeeping: Currently, OFAC’s regulations only require companies to maintain transaction- and license-related records for five years. Even if OFAC does not amend its regulations, companies should consider updating internal policies and procedures to adopt a 10-year recordkeeping requirement to ensure the company has the information it needs if OFAC brings an enforcement action.
  • Internal audit policies and procedures: Companies should also consider revising investigations and internal audit policies and procedures to assess compliance over the past 10 years.
  • Acquisition-related due diligence: To address successor liability risks, if a buyer will acquire 10 years’ worth of the target’s liability for sanctions (and to a lesser extent, export control) violations, the lookback and disclosure period should cover more than the typical three to five years. Sellers are unlikely to want a longer lookback and disclosure period though, which may create friction in the negotiating process.
  • Pending disclosures or enforcement actions: Companies should evaluate the extent to which the extended statutes of limitations may create additional penalty exposure in current enforcement actions or pending voluntary self-disclosures. In many cases, the company may not have examined potential violations outside the five-year statute of limitations.  

Last fall, the Bureau of Industry and Security (BIS) paused its issuance of new export licenses involving certain firearms, related “parts,” “components,” and ammunition. On April 30, BIS will publish an interim final rule tightening controls of exports of these items. The interim final rule will take effect on May 30.

The interim final rule amends the Export Administration Regulations (EAR) by:

  • Adding four new Export Control Classification Numbers (ECCNs) to better track exports of firearms and related items. The new ECCNs are 0A506 (semi-automatic rifles previously controlled under 0A501), 0A507 (semi-automatic pistols previously controlled under 0A501), 0A508 (semi-automatic shotguns previously controlled under 0A502), and 0A509 (certain “parts,” “components,” “devices,” “accessories,” and “attachments” for items controlled under 0A506, 0A507, and 0A508).
  • Revaluating the controls for existing 0x5zz ECCNs, which includes rifles, pistols, shotguns, ammunition, and related “parts,” “components,” “accessories,” “attachments,” “software,” and “technologies.” The changes implement new license requirements for the export or reexport of certain shotguns to certain countries and end users.
  • Adding an import certificate requirement for license applications involving exports or reexports to Organization of American States (OAS)[1] member countries and any other destination where an import certificate is required under local law. Previously, exporters were not required to submit import certificates from non-OAS member countries that required one.
  • Revising certain unique license application requirements,including requiring a purchase order be submitted for exports and reexports of firearms and related items to non-A:1 countries. The purchase order must be dated within one year of the application’s submission date. Applicants should review all license requirements before submitting a license application.
  • Adding an import certificate requirement for shipments under a license exception for items controlled under ECCNs 0A501, 0A502, 0A504, 0A505, 0A506, 0A507, 0A508, or 0A509.
  • Limiting the use of License Exceptions LVS and BAG. License Exception LVS which will no longer be available for the export of items controlled under ECCNs 0A501, 0A502, 0A504 (except 0A504.g), 0A505, 0A506, 0A507, 0A508, and 0A509 when they are destined for countries in Country Group B, Country Group D:5, or CARICOM nations.[2] License Exception BAG will no longer be available for exports destined for Country Group D:5 (except Zimbabwe) or CARICOM nations. Additionally, U.S. citizens will be limited to three firearms or shotguns on any trip when using License Exception BAG.
  • Implementing new license review policiesof denial for the license applications involving exports or reexports of firearms and related products classified under:
    • ECCNs 0A501, 0A502, 0A505, 0A506, 0A507, 0A508, or 0A509 that are destined for countries in Country Group D:5.
    • ECCNs 0A501, 0A502, 0A504, 0A505, 0A506, 0A507, 0A508, 0A509, 0B501, 0B505, 0D501, 0D505, 0E501, 0E504, or 0E505, or any 9×515 ECCNs destined for China or countries in Country Group E:1.
  • Limiting new licenses to a 12-month validity period for items controlled under ECCNs 0A501, 0A502, 0A504, 0A505, 0A506, 0A507, 0A508, and 0A509. Licenses for longer terms may still be issued by BIS under limited circumstances (e.g., intracompany transfer, government contracts).
  • Revoking or modifying certain existing licenses for the export or reexport of firearms and related items.
    • Effective July 1, BIS will revoke existing licenses for the export and reexport of firearms and related items to non-government end users in the high-risk destination identified in the new Supplement No. 3 to Part 742 of the EAR. The high-risk destinations include the Bahamas, Bangladesh, Belize, Bolivia, Burkina Faso, Burundi, Chad, Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Indonesia, Jamaica, Kazakhstan, Kyrgyzstan, Laos, Malaysia, Mali, Mozambique, Nepal, Niger, Nigeria, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Suriname, Tajikistan, Trinidad and Tobago, Uganda, Vietnam, and Yemen.
    • Effective May 30, BIS will modify the validity period of certain licenses to non-government end users to make the license invalid on May 30, 2025. These modifications will not affect licenses to non-government end users in Country Group A:1, Israel, Ukraine, or the high-risk destinations whose licenses will be revoked.
  • Implementing a presumption of denial for license applications involving exports and reexports to the high-risk destinations listed in Supplement No. 3 to Part 742.
  • Requiring Electronic Export Information (EEI) filings to meet the conventional arms reporting requirements, including item-level classification or other item-level descriptors.

BIS is also seeking public comment on the interim final rule. Comments must be received by July 1.


[1] In addition to the U.S., the OAS member countries are Antigua and Barbuda, Argentina, the Bahamas, Barbados, Belize, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Cuba*, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Uruguay, and Venezuela.

[2] CARICOM nations include Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Lucia, Suriname, St. Kitts and Nevis, St. Vincent and the Grenadines, and Trinidad and Tobago; associate members: Anguilla, Bermuda, British Virgin Islands, Cayman Islands, and Turks and Caicos, as well as any other state or associate member that has acceded to membership in accordance with Article 3 or Article 231 of the Treaty of Chaguaramas for members or associate members respectively.

In recent years, the sanctions clause has become a “must have” contractual clause. Any company that engages in activity involving high-risk goods or services, or relating to or in connection with high-risk jurisdictions, should incorporate clear and robust sanctions clauses in its contracts. Businesses face complex issues when interpreting and drafting sanctions clauses, requiring an analysis of the business intent, the business’ ancillary obligations, its global footprint and its concerns about reputation, amongst other things.

To ensure they stand up to frequently changing geopolitical circumstances and sanctions regimes, sanctions clauses should include a degree of flexibility. Parties must also remember that what is acceptable in one transaction, may be very different to sanctions clauses which suit other transactions. There is no one-size-fits-all position, so it is crucial for businesses to comprehend the key elements of a sanctions clause to be able to assess any “non-negotiable” points.

Our lawyers examine the key elements of a sanctions clause, the relevant risks that they cover, and the pros and cons of different approaches to sanctions clauses in their latest client alert.

On October 15, 2023, following an accord with the Maduro regime in Venezuela, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued General License 44, “Authorizing Transactions Related to Oil or Gas Sector Operations in Venezuela,” which temporarily authorized transactions related to oil and gas sector operations, including transactions involving PdVSA. This was described in the Reed Smith update, which may be found here. Prior to the issuance of General License 44, U.S. persons were prohibited from engaging in virtually all oil and gas-related transactions in Venezuela, as well as with any Venezuelan state-owned entity or Venezuelan Specially Designated National (“SDN”) such as PdVSA. Furthermore, non-U.S. persons were exposed to secondary sanctions if providing material support to PdVSA or if OFAC found that a non-U.S. entity was “operating in the oil sector of Venezuela”. General License 44, now set to expire on April 18, 2024, temporarily suspended these U.S. sanctions against PdVSA and the Venezuelan oil and gas sector.

Continue Reading OFAC issues wind-down license for Venezuelan oil