Guilty As Charged

Posted by at 8:59 pm on November 17, 2016
Category: BISChinaNorth Korea Sanctions

Fat Man and Little Boy via KCNA [Fair Use]Oh dear. Apparently His Rotundity, the Dear Leader of North Korea, is annoyed that people that he can’t throw into internment camps and execute are mentioning that his aspirations to become a triathelete have been sabotaged by third and fourth helpings of yangnyeom tongdak. The chief offenders appear to be Internauts in China that refer to Kim Jong Un as Jin San Pang which, apparently, translates as — snicker, snicker — Kim Fatty the Third.

This blog, following the long-standing tradition of ridiculing the appearance of national enemies, has been on the forefront of suggesting that the Nork Dictator might benefit by a few less cigarettes and a few more jogs around the Chosŏn’gŭl: 55호 관저, his main palace. But we haven’t gone quite as far as Jin San Pang. Even with our post titled Fat Man Sanctioned Over Little Boy

Jin San Pang, aka His Obesity Kim Jong Un, has asked China to censor the use of Jin San Pang on Chinese websites. In the grand tradition of the Chinese government, they have both completely censored the offensive, if accurate, nickname Jin San Pang, at the same time that they have denied censoring the name and expressed shock and profound disappointment that anyone would dare to suggest that they would tamper with free speech on the Internet.

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New White House Cannot Impose China Tariffs Under Trading With The Enemy Act

Posted by at 10:27 pm on November 15, 2016
Category: ChinaTrading with the Enemy Act

Great Wall of China Wide by Nate Merrill [CC-BY-SA-2.0 (], via Flickr [cropped]

We trawl the nether regions of the Internet looking for export stories so that you don’t have to. We saw one today, on a dubious site called ValueWalk by a dubious journalist, reporting that China has threatened to ban sales of iPhone if the new administration imposes a threatened 45% tariff on Chinese imports. Global Times, a PRC-run website, did indeed threaten to halt sales of iPhones, Boeing airplanes and U.S. autos in China if tariffs are imposed on Chinese imports by the United States.

But the reporter for ValueWalk went off the deep end when she said Trump could unilaterally impose tariffs under the Trading with the Enemy Act (“TWEA”):

First of all, Trump could invoke the “Trading with the Enemy Act of 1917” to set big tariffs against other nations. The law states that the President can restrict trade with other countries “during time of war.” But here’s the thing: the U.S. doesn’t necessarily have to be at war with China for Trump to impose his desired 45% tariffs on Chinese imports. The definition is so loose that America can be “at war” in any part of the world, while Trump can impose tariffs on any countries he wants. In fact, some political experts believe that having U.S. special forces deployed in Syria and Libya is already enough to invoke the law.

Er, no, no, no and no again.

Let’s start with a rundown of the history of section 5(b) of the Trading with the Enemies Act, 50 App. USC § 5(b). As initially passed, that section permitted the President, or a delegated agency, “[d]uring time of war or any other period of national emergency declared by the President” to regulate imports of any property in which a foreign national has an interest. The section was amended in 1977 by Public Law 95-223, which struck the language in 5(b) relating to national emergencies declared by the President. The law allowed current regulations passed under the national emergency powers of the TWEA, which included the Cuba regulations and all regulations in effect under the law at the time of the amendment, to remain in force — provided that the President made an annual finding of national emergency justifying their continuation.

So we can’t look at the current regulations on Cuba under the TWEA despite the absence of an existing state of war as proof of a loose definition of a state of war. They are justified under the deketed but grandfathered national emergency language of section 5(b). The definitions in section 2 of the TWEA of “beginning of the war” and “end of the war” make clear that “war” under the TWEA requires a formal declaration of war by Congress. Boots on the ground anywhere outside the United States does not constitute “war” under Section 5(b) justifying the President to impose broad controls on international trade. Indeed, there would have been little purpose to the deletion of the national emergency powers of Section 5(b) if the President could exercise unilateral power of international trade by sending a handful of troops overseas to any zone of conflict or potential conflict.

Photo Credit: Great Wall of China Wide by Nate Merrill [CC-BY-SA-2.0 (], via Flickr [cropped]. Copyright 2013 Nate Merrill

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New Administration May Change Landscape of U.S. Trade and Export Policy

Posted by at 1:13 pm on November 9, 2016
Category: General

YM Ningbo seen from the Golden Gate Bridge by Richard Erikkson [CC-BY-SA-2.0 (], via Flickr [cropped and processed]

Although it is impossible to tell whether the new Trump administration will follow through on its campaign promises to irrevocably alter the landscape of U.S. trade with foreign countries, businesses should realize that the new administration’s power to do so is broad and should act accordingly in the coming weeks and months to take steps to limit the impact that these changes could have on their business and foreign trade.  Of course, it remains possible that the views of the new administration’s economic advisers may prevail against the implementation of some of these promises.

1. Trade Agreements

At various times throughout the campaign, candidate Trump promised to withdraw from the WTO, to terminate NAFTA, and to impose retaliatory tariffs on China and Mexico.  Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411 gives the President, acting through the United States Trade Representative, the unilateral power, among other things, to “suspend, withdraw, or prevent the application of, benefits of trade agreement concessions” and to “impose duties or other import restrictions” without further authorization from Congress.

Unapproved trade agreements, including the Trans-Pacific Partnership (“TPP”) and the Trans-Atlantic Trade and Investment Partnership (“T-TIP”), are likely now dead on arrival.   At this point the Obama administration has yet to submit the implementation bill required to start the clock on Congressional action on TPP under fast-track, so the fate of the TPP will be decided by the next Congress and the Trump administration.  If the Trump administration does not submit to Congress a draft implementation bill, as required by fast track, and it seems likely that he will not, TPP will not go into effect.

2. Iran Sanctions

Candidate Trump repeatedly expressed his desire to back out from the Joint Comprehensive Plan of Action (“JCPOA”), otherwise simply known as the Iran nuclear deal.   Since the JCPOA was entered into by the United States by executive action, the Trump administration can withdraw from the deal unilaterally and immediately, and there is a good chance that it will.

If that happens, we can count on the regulatory changes adopted by the Office of Foreign Assets Control (“OFAC”) to implement the JCPOA to be reversed.  These include General License H, which permits foreign subsidiaries of U.S. companies to engage in trade with Iran. They also include the relaxed policy on civil aviation sales to Iran.

The issue here will be both the time frame for such reversal and whether there will be any grandfathering in place.  Historically, OFAC has been slow to act and has included limited grandfathering provisions which either allow certain agreements with the sanctioned country to proceed or provide a wind-down period to terminate those agreements.  Even with these possibilities, U.S. businesses selling civil aircraft to Iran and permitting foreign subsidiaries to trade with Iran should, at a minimum, put those activities on hold and probably begin considering plans to terminate these activities.

3. Cuba Sanctions

Candidate Trump also vowed to roll back the Obama administration’s actions that have relaxed many of the sanctions against Cuba. This would include the removal of Cuba from the list of state sponsors of terrorism.

The removal of Cuba from the list of state sponsors of terrorism was largely symbolic, so putting it back on the list will not have significant impact.

  • Under section 40 of the Arms Export Control Act, 22 U.S.C. § 2780, any country put on the list of state sponsors of terrorism is automatically subject to an arms embargo. Of course, even after Cuba was removed from the list, there was no chance any arms shipments from the U.S. to Havana would be approved in the foreseeable future.
  • Section 6(j) of the defunct Export Administration Act, 50 U.S.C. App § 2405, requires a license for exports to state sponsors if the export could make a “significant contribution to the military potential of such country” or if it could “enhance the ability of such country to support acts of international terrorism.” And, in those instances, Congress must be given notice of such exports thirty days in advance. None of the changes in the Cuba sanctions contemplated any such exports.
  • Section 7205 of the Trade Sanctions Reform and Export Enhancement Act, imposes a license requirement for shipping those goods to a sanctioned country if that country is also on the state sponsor of terrorism list. However, that section specifically identifies Cuba as a state sponsor of terrorism and imposes the license requirement on exports of agricultural products, medicines and medical products to Cuba. So, removing Cuba from the terrorism list did not eliminate the need for exporters to Cuba to continue to file the export notifications required to utilize License Exception AGR for TSRA exports to Cuba.

Even if adding Cuba back to the list would not have much impact on trade relations with Cuba, it seems likely that the other recent revisions, such as the general licenses for travel and favorable licensing policy for certain exports such as telecommunications equipment, civil aviation equipment, and certain items in support of Cuba’s private sector, have a good chance of reversal.  The regulations permitting entry into executory contracts subject to license approval will likely disappear as well.

Certainly those planning to use the general travel licenses, should do so as soon as possible.  The changes in licensing policy mean that businesses should also seek licenses for contemplated exports to Cuba as soon as possible, with the understanding that those licenses might be terminated at the same time the favorable licensing policy is reversed.

4. Russia Sanctions

At the same time that the new Trump administration is likely to impose stricter controls on Cuba, it may well loosen sanctions on Russia, Cuba’s longtime ally and supporter.   Vladimir Putin has strengthened Russian ties with Cuba and even called for lifting of the U.S. embargo on Cuba.  Although Trump is not likely to heed this request from Putin, there is a stronger chance that Trump’s call for better relations with Russia will lead to the lifting or loosening of the sanctions on the Crimean territory as well as removals from, or elimination of, the Sectoral Sanctions Identifications List.  Restrictions on oil-related exports to Russia could be lifted as well.  Putin supporters that were placed on the List of Specially Designated Nationals and Blocked Persons might also get a reprieve from the Trump administration.

Photo Credit: YM Ningbo seen from the Golden Gate Bridge by Richard Erikkson [CC-BY-SA-2.0 (], via Flickr [cropped and processed]. Copyright 2010 Richard Erikkson

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Sometimes Once Doesn’t Mean Once

Posted by at 9:20 am on November 4, 2016
Category: BISEncryption

Blue Hour Capitol Building
My dog Maisie shamelessly plugging the historic Cubs victory in the 2016 World Series

This blog previously reported on the recent changes to the encryption rules.   One less-than-carefully drafted provision in those amendments has been causing some confusion relating to the annual self-classification reports

The issue is whether an item once listed on a self-classification report needs to be relisted on subsequent reports.  Before the recent amendments, products needed to be relisted on subsequent reports for each year in which they were exported during the time frame covered by the classification report.

The new rules say this:

Your encryption self-classification report must include the information described in paragraph (a) of Supplement No. 8 to part 742 for each applicable encryption commodity, software and component made eligible for export or reexport under § 740.17(b)(1) of the EAR. Each product must be included in a report only one time. However, if no new products are made eligible for export or reexport during a calendar year, you must send an email to the addresses listed in paragraph (e)(3)(ii)(A) of this section stating that nothing has changed since the previous report.

At least one law firm has, with some justification, read the language saying that a product must be “included in a report only one time” to mean that items need not be included in subsequent annual reports unless, presumably, the encryption functionality of the item has changed.

At the BIS Update 2016, BIS officials made clear that they do not think that the language means what it appears to say. Instead, they asserted, items needed to be included on subsequent annual self-classification report even if encryption funtionality of the item has not changed since the last report. Apparently the language is thought by the agency to mean that you only have to list an item once on the same report, although why anyone ever thought that they would have to list any product more than once on the same report is puzzling.

No one from the agency, however, at least that I heard, could explain what “becomes eligible for export” means. The reporting requirement in the previous version was for items “exported or reexported pursuant to an encryption registration.” Unfortunately this new language requiring the listing in the report of every encryption item “eligible for export” during the reporting period would appear to apply to every encryption item that the company filing the report might have been able to export during the reporting period.  This would be the case whether or not it was actually exported. The safest course, then, for upcoming self-classification reports is to include every item with encryption functionality that was available for sale during the reporting period.

Note: My apologies for the picture of my dog wearing a Cubs hat.  However, there’s this:  (a) the Cubs victory justifies all actions by longtime Cubs fans that are not otherwise illegal, immoral or rude and (b) a dog picture is the only possible way to make a post about BIS’s encryption rules even vaguely interesting.

Photo Credit: Go Cubs Go! by Clif Burns, via Copyright 2016 Clif Burns

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OFAC Guidance To Publishers: Proceed At Your Own Risk

Posted by at 10:13 pm on November 1, 2016
Category: Information ExceptionOFAC

DSCN7029 by Bianca Ruiz [CC-BY-SA-2.0 (], via Flickr [cropped]Last week, the Office of Foreign Assets Control (“OFAC”) issued guidance which expands the scope of the various general licenses, embodied in its rules, relating to publishing activities with nationals of sanctioned countries. OFAC has always taken the dubious position that editing and formatting for publication documents prepared by individuals in sanctioned countries was not covered by the informational materials exemption in the Berman Amendment. Instead, according to OFAC, it was a provision of a service to the sanctioned country and required a license. In its most questionable incarnation, OFAC, for a period of time, insisted that publication of anything other than “camera-ready” copy of materials authored by an individual in a sanctioned country required an OFAC license. Why OFAC did not carry this nonsensical logic to its final extreme and say that picking a book from a warehouse shelf before exporting it to a sanctioned country was also a “service” requiring a license has always been unclear.

After years of newspapers openly defying these rules publishing stories from Iranian (and other) dissidents in versions that the newspapers typeset instead of the typewritten copy sent by the dissidents, OFAC ultimately in 2004 amended the rules to add a general license permitting certain editing, translation, formatting and typesetting activities by publishers. Each of these rules, however, provided that these activities could not be performed on behalf of sanctioned governments or their officials.

The new guidance states what should have been more or less obvious: that the prohibition did not cover written materials authored by government officials in their personal capacity. But OFAC appears not to have been able to resist the opportunity to take back more than it gave, noting that it was up to the publisher to decide in what capacity the government official was writing and, worse, that it would not provide any guidance by issuing specific licenses in difficult cases.

Indeed, it is the policy of OFAC not to grant applications for specific licenses
authorizing transactions to which the provisions of an outstanding general license are applicable.

And even though OFAC says that it won’t offer help on determining the government official’s capacity, it does not provide any safe harbor for a publisher that makes a good faith mistake. Nope. Any such mistake would lead to significant civil penalties, currently maxed out at $284,582 per violation.

Oh, you reply, why not just apply for licenses anyway in questionable cases? You can provide all the information relating to the capacity in which the government official is writing; and then, when OFAC returns or denies the application, you will have your answer. That assumes, of course, that OFAC will return such an application rather than just file it away in an archive for the next century or so.

Is anyone else offended by an agency saying, as it seems to have done here, that you must abide by our rules but we refuse to provide any guidance on the proper interpretation of our rules?

Photo Credit: DSCN7029 by Bianca Ruiz [CC-BY-SA-2.0 (], via Flickr [cropped]. Copyright 2015 Bianca Ruiz

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