Governments have long regulated international trade in goods, technology, and investment for purposes of revenue generation, economic policy, and national security. Recent U.S. administrations have used various regulatory tools to achieve these ends, including tariffs; import, export, and investment controls; sanctions; antidumping and countervailing duties (AD/CVD); and subsidies. Every change in international trade regulation affects a wide range of businesses which are engaged in importation or exportation of goods, technologies, and capital flows, and can significantly affect global supply chains.
In our “International Trade in Goods and Technology: An Ever-Changing Regulatory Landscape” series, members of the Womble Bond Dickinson Global Trade Advisors team will review a number of current issues in international trade regulation. We also will discuss strategies for companies to stay aware of change in this dynamic area of law, and achieve their business goals, while avoiding regulatory noncompliance costs.
The first piece in this series will take a look at the underlying law and history of tariffs and other import duties and charges in U.S. law. Tariffs are, of course, essentially a tax on imported or exported goods, and are assessed when goods enter or exit a customs territory. Since 1947, tariff rates have been standardized and regulated through the agreements making up the World Trade Organization (WTO). However, since 2017 there have been dynamic changes in U.S. tariff policy in particular, with specialized tariffs being applied for purposes of foreign policy and national security, in a departure from prior practice. The current U.S. administration has signaled its intent to continue to use specialized tariffs as instruments of foreign policy leverage. This will make for a more challenging environment particularly for U.S. importers. Other import duties which have traditionally been applied in order to correct unfair trade practices include anti-dumping duties, and countervailing duties in response to illegal subsidies. These unfair trade remedies can also increase the cost of imports, and must be factored into the cost of bringing imports to market.
In the second piece, we will switch focus to recent dynamics in export control law, particularly on commercial and dual use goods through the Export Control Reform Act of 2018 (ECRA), and its implementing Export Administration Regulations (EAR), which are administered by the Department of Commerce’s Bureau of Industry and Security (BIS). Recent export control regulation through the EAR has focused on what have been designated as “critical technologies.” These include “emerging and foundational technologies” that are “essential to the national security of the United States.” Technologies which fall into this expanded scope of actual or potential export controls include (1) biotechnology; (2) artificial intelligence and machine learning; (3) position, navigation, and timing (PNT) technology; (4) microprocessor technology; (5) advanced computing technology; (6) data analytics technology; (7) quantum information and sensing technology; (8) logistics technology; (9) additive manufacturing (e.g., 3D printing); (10) robotics; (11) brain-computer interfaces; (12) hypersonics; (13) advanced materials; and (14) advanced surveillance technologies. Exporters must be aware of and comply with these regulatory controls, or risk serious civil and potentially criminal penalties.
The third piece will take a deep dive into one of these technology areas, which has been a particular focus of recent export control activity – i.e., semiconductors and computer chips. Since October 2022, there have been several rounds of newly announced controls on semiconductors and related production equipment. These controls have taken the form of additions to the EAR’s Commerce Control List (CCL), which designates goods and technology subject to license requirements for export, as well as additions of natural and legal persons to the EAR’s Entity List, which imposes additional license requirements on each listed entity as the end user of covered exports. Semiconductor export controls have significant implications for technology companies involved in international trade, as they are a foundational technology for a number of emerging fields of commercial development, including the development of artificial intelligence programs.
In the fourth piece, we will switch our focus away from ECRA/EAR based commercial and dual use export controls, to look at export controls on defense articles, technology, and related services and training, administered by the Department of State’s Directorate of Defense Trade Controls (DDTC), pursuant to the International Traffic in Arms Regulations (ITAR), which implement the Arms Export Control Act of 1976 (AECA). DDTC maintains the United States Munitions List (USML). It also approves and monitors Technology Assistance Agreements (TAAs) and Manufacturing License Agreements (MLAs) concluded in the context of export of defense articles, technology, or services. ITAR controls are, of course, particularly focused on preventing the spread of defense technologies to end users of concern. Companies involved in trade in defense articles, technology, and related services and training must maintain awareness of and compliance with these controls in all aspects of their international goods and services supply chains.
In the fifth piece, we will return to look more closely at the EAR’s Entity List, as well as at a variety of other trade restrictions on end users of goods and technologies, maintained by a number of different administrative agencies, which are often collectively referred to as sanctions lists. While emanating from different government authorities, including directly from Congress as well as from the departments of State, Commerce, and Defense, most of these sanctions programs are implemented by the Treasury Department’s Office of Foreign Assets Control (OFAC). OFAC maintains lists of these economic, financial, and trade restrictions in the form of the Specially Designated Nationals (SDN) list, and the Consolidated Sanctions List (CSL). Sanctions have also been used increasingly in recent years as instruments of foreign and national security policy and must be closely monitored particularly by exporters in order to avoid noncompliant exports.
Finally, in the sixth piece, we will look at the topic of inbound investment controls, which are administered primarily through the reviewing authority of the Committee on Foreign Investment in the United States (CFIUS). While CFIUS was created in 1975 and implements foreign investment reviews pursuant to several different statutes, its jurisdiction and role were significantly expanded by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). FIRRMA expanded the scope of “covered transactions,” i.e. inbound investment transactions which trigger CFIUS review, to include certain foreign party real estate transactions, and foreign party non-controlling stakeholder investments in U.S. businesses involving sensitive personal data, critical infrastructure, or critical technology. These enhancements to CFIUS jurisdiction have resulted in its significantly increased activity in recent years. This has included, notably, the recent CFIUS decision to block the acquisition of U.S. Steel by the Japanese company Nippon Steel.
Throughout our review and discussion of all of these various areas of international trade regulations, the primary theme of this series will be that companies can best stay informed of this changing regulatory landscape and adapt their business to remain in compliance with it, through the establishment and maintenance of a well-resourced and staffed internal compliance program (ICP). WBD Global Trade Advisors specialize in assisting companies in the establishment and maintenance of individualized ICPs that help companies achieve their business goals while avoiding regulatory noncompliance costs.
Our Global Trade Advisory service is a part of our International Trade and National Security (ITNS) practice team, which includes attorneys experienced in all of the areas covered in this thought leadership series. WBD’s Global Trade Advisors focus on advising companies on regulatory compliance strategies that help them monitor and adapt to regulatory requirements in this dynamic area of law, at a price point far below normal big law firm billing rates. Clients of WBD’s Global Trade Advisors can also, however, count on the full service backing of the firm’s ITNS team if needed.
