US - President continues national emergency with respect to Côte d’Ivoire

On February 5, 2016, the Federal Register published Presidential Notice of February 3, 2016 - Continuation of the National Emergency With Respect to the Situation in or in Relation to Côte d’Ivoire which extends the measures first established in Executive Order 13396 (February 7, 2006) for an additional year. In Executive Order 13396, the President declared a national emergency, to deal with the unusual and extraordinary threat to the national security and foreign policy of the United States constituted by the situation in or in relation to Côte d’Ivoire and ordered related measures blocking the property of certain persons contributing to the conflict in Côte d’Ivoire. The situation in or in relation to Côte d’Ivoire, which has been addressed by several UN Security Council Resolutions, has resulted in the massacre of large numbers of civilians, widespread human rights abuses, significant political violence and unrest, and fatal attacks against international peacekeeping forces.

The national emergency is being extended because, while the Government of Côte d’Ivoire and its people continue to make progress towards consolidating democratic gains and peace and prosperity, the situation in or in relation to Côte d’Ivoire continues to pose an unusual and extraordinary threat to the national security and foreign policy of the United States.

New Zealand - New law for food importers from 1 March 2016

The Ministry for Primary Industries (MPI) posted a notice reminding importers that the law on importing food is changing with the Food Act 2014 that comes into force on 1 March 2016. The posted reminder states:

The Food Act 2014 strengthens food safety in New Zealand. It requires importers to show the food they sell is safe.

The most significant change is that people or businesses wishing to import food into New Zealand must either register with the Ministry for Primary Industries (MPI) as a food importer or use a registered food importer to import on their behalf. Under the current rules, food importers must only 'list' with MPI.

Registration will help MPI communicate with importers, for example if there is a food safety incident.

It will also help other businesses contact importers. The register of food importers will be available on this website. Registration will help assure customers that the food they buy is safe.

All currently listed importers are deemed registered until the 1st anniversary of their current listing that falls after 1 July 2016.

From 1 March 2016

Food must be imported through a registered importer.

Registered importers must:

    • start paying a fee to register
    • renew registration each year
    • keep or have access to records to show where food has come from and that it's safe (under the current law you must keep records yourself, under the new law, someone else can keep records for you)
    • get food safety clearance for foods of high regulatory interest (formerly called prescribed foods) – there will be a few changes to how you do this.

For more information about the requirements from 1 March 2016, read our guidance documents:

US - ITC provides schedule for 2016 U.S. Services Trade report, opportunity to provide input
On February 4, 2016, the U.S. International Trade Commission (ITC) published in the Federal Register a notice [Investigation No. 332–345] providing the schedule for the 2016 Report on Recent Trends in U.S. Services Trade, and providing an opportunity to submit information. The 2016 report, which the ITC plans to publish in September 2016, will provide aggregate data on cross-border trade in services for the period ending in 2014, and transactions by affiliates based outside the country of their parent firm for the period ending in 2013. The report’s analysis will focus on financial services (banking, insurance, and securities services). The ITC is inviting interested members of the public to furnish information and views in connection with the 2016 report. The deadline for filing written submissions is March 30, 2016. The anticipated date for publishing the report is September 30, 2016. The ITC has prepared and published annual reports in this series under investigation No. 332–345, Recent Trends in U.S. Services Trade, since 1996.
US - State accepting applications for DTAG membership

On February 3, 2016, the Department of State published in the Federal Register a notice [Public Notice: 9431] announcing that the U.S. Department of State’s Bureau of Political-Military Affairs’ Defense Trade Advisory Group (DTAG) is accepting membership applications. The Bureau of Political- Military Affairs is interested in applications from subject matter experts from the United States defense industry, relevant trade and labor associations, academic, and foundation personnel.

The DTAG was established as an advisory committee under the authority of 22 U.S.C. 2651a and 2656 and the Federal Advisory Committee Act, 5 U.S.C. App. (‘‘FACA’’). The purpose of the DTAG is to provide the Bureau of Political-Military Affairs with a formal channel for regular consultation and coordination with U.S. private sector defense exporters and defense trade organizations on issues involving U.S. laws, policies, and regulations for munitions exports. The DTAG advises the Bureau on its support for and regulation of defense trade to help ensure that impediments to legitimate exports are reduced while the foreign policy and national security interests of the United States continue to be protected and advanced in accordance with the Arms Export Control Act (AECA), as amended. Major topics addressed by the DTAG include (a) policy issues on commercial defense trade and technology transfer; (b) regulatory and licensing procedures applicable to defense articles, services, and technical data; (c) technical issues involving the U.S. Munitions List (USML); and (d) questions relating to actions designed to carry out the AECA and International Traffic in Arms Regulations (ITAR).

Members are appointed by the Assistant Secretary of State for Political- Military Affairs on the basis of individual substantive and technical expertise and qualifications, and must be representatives of United States defense industry, relevant trade and labor associations, academic, and foundation personnel. In accordance with the DTAG Charter, all DTAG members must be U.S. citizens, and DTAG members will represent the views of their organizations. All DTAG members shall be aware of the Department of State’s mandate that arms transfers must further U.S. national security and foreign policy interests. DTAG members also shall be versed in the complexity of commercial defense trade and industrial competitiveness, and all members must be able to advise the Bureau on these matters. While members are expected to use their expertise and provide candid advice, national security and foreign policy interests of the United States, as well as the interests of the entities they represent, shall be the bases for all policy and technical recommendations.

For member responsibilities and instructions on how to file an application, please see the Federal Register notice.

Australia - Iran sanctions changes

The Department of Foreign Affairs and Trade (DFAT) has announced that the Australian Government is implementing changes to Australia’s sanctions on Iran in line with our international obligations under UN Security Council resolutions.

The Australian Government will apply the changes to UN sanctions on Iran as required by UN Security Council Resolution 2231, although others will remain in place.

The Australian Government has decided to suspend certain autonomous sanctions on Iran, while others will remain in place. For more information, please read DFAT’s Iran Frequently Asked Questions.

The Iran sanctions website will be amended to reflect the changes to Australian sanction laws as they take legislative effect. Australia has lifted all nuclear-related economic and financial sanctions. However, some restrictions remain in force, including restrictions on the transfer of proliferation sensitive goods, the arms and ballistic missiles embargoes and the restrictive measures against some designated persons and entities.



Exporters will be required to verify containers “gross mass” under SOLAS Convention amendments – 1 July 2016

The International Maritime Organization (IMO), a specialized agency of the United Nations responsible for improving maritime safety and preventing pollution from ships, is responsible for the Safety of Life at Sea Convention (SOLAS). In May 2014, amendments to SOLAS (SOLAS Chapter VI, Regulation 2; the “regulation”) that will affect imports and exporters were approved by the IMO Sub-Committee on Dangerous Goods, Solid Cargoes and Containers. The regulation was adopted by IMO’s Maritime Safety Committee (MSC) at its 94th session in November. The regulation, which will come into force on 1 July 2016, will require exporters to present and verify the “gross mass” (weight) of packed containers prior to stowage aboard ship (with certain exceptions) and sign a certification. If the verified gross mass weight is presented to the carrier by means of EDP or EDI transmission techniques, the signature(s) may be electronic signature(s) or may be replaced by the name(s) (in capitals) of the person(s) authorized to sign.

As with other SOLAS provisions, the enforcement of the SOLAS requirements regarding the verified gross mass of packed containers falls within the competence and is the responsibility of the SOLAS Contracting Governments. Contracting Governments acting as port States should verify compliance with these SOLAS requirements. Any incidence of non-compliance with the SOLAS requirements is enforceable according to national legislation. In the United States, the U.S. Coast Guard is expected to issue guidance.

Resources:

US - FAS accepting affidavits for eligible wool products duty refunds

On February 1, 2016, the Foreign Agricultural Service (FAS) published in the Federal Register a notice announcing that it will accept affidavits from individuals or firms to substantiate eligibility for distributions from the Refund of Duties Paid on Imports of Certain Wool Products program (the Refund program) authorized under Section 12315 of the Agricultural Act of 2014 (Pub. L. 113– 79) (the Act). For calendar year 2016 distributions, affidavits must be electronically filed with FAS no later than March 1, 2016.

Section 12315 transferred the Refund program to the U.S. Department of Agriculture in FY 2016, from Customs and Border Protection, Department of Homeland Security. The Refund program is one of several programs authorized by Congress within the Agriculture Wool Apparel Manufacturers Trust Fund for each of calendar years 2016 through 2019. The purpose of the Refund program is to compensate wool manufacturers of men’s and boy’s wool suits, suit type jackets, or trousers of imported worsted wool fabrics of the kind described in heading 9902.51.11 or 9902.51.12; manufacturers of worsted wool fabrics who import wool yarn of the kind described in heading 9902.51.13; and manufacturers of wool yarn or fabric who import wool fiber or top of the kind described in heading 9902.51.14 of the Harmonized Tariff Schedule of the United States for customs duties paid on imported wool in 2000, 2001 and 2002. To claim a distribution from the Refund program manufacturers are directed to submit an affidavit that follows the statutory procedures specified under Section 12315(b) of the Act, and also as described on the FAS Web site. Because section 12315 is self effectuating, FAS will not be issuing regulations to implement the program this year. The notice announces the deadline and email address to which claims, affidavits and supporting documents must be sent.

UK - BIS issues guidance for exporters of nuclear goods to Iran

On 29 January 2016, the Department for Business, Innovation and Skills (BIS) released a publication entitled “The Procurement channel for export of nuclear goods to Iran – Guidance for exporters” (BIS/16/102). The 8 page Guide notes that although the majority of EU trade and financial sanctions against Iran were lifted under the Joint Comprehensive Plan of Action (JCPOA) agreed between the E3+3 (i.e. UK, France, Germany, USA, Russia, China) and Iran, some sanctions remain in force including the arms embargo and a ban on the supply of missile-related goods, technology and associated services.

In addition, certain nuclear-related activities with Iran can only take place if they have been approved in advance by the UN Security Council. States will seek approval for these activities from the Security Council which will then consult a Procurement Working Group comprising the E3+3 and Iran. The Procurement Working Group will consider all such proposals and make a recommendation to the Security Council for its final review and decision. The Security Council will then notify the proposing State whether its request has been approved or disapproved. This is known as the Procurement Channel and covers:

1. The supply, sale or transfer of items, materials, equipment, goods, and technology specified in the Nuclear Suppliers Group (NSG) Trigger List and NSG Dual-Use List, as well as any further items if the relevant State determines that they could contribute to activities inconsistent with the JCPOA.

2. The provision to Iran of assistance or services related to the supply, sale, transfer, manufacture, or use of the items specified above (e.g. technical assistance or training, financial assistance, investment, brokering).

3. The acquisition by any Iranian person, entity or body of an interest in commercial activities in another state involving uranium mining and the production and use of goods in the NSG Trigger List, and related investments.

The Guide, which is in a Q&A format, provides practical guidance for UK exporters and service providers regarding the procurement channel for exporting nuclear goods to Iran. It includes links to guidance on doing business with Iran, relevant sanctions, and the joint comprehensive plan of action.

Client Alert: Focus on Iran - European Union, Switzerland, and the United States Relax Sanctions Targeting Iran on “Implementation Day”; Canadian Sanctions Under Review

Focus on Iran

European Union, Switzerland, and the United States Relax Sanctions Targeting Iran on “Implementation Day”; Canadian Sanctions Under Review

Under the Joint Comprehensive Plan of Action (“JCPOA”), January 16, 2016 was “Implementation Day.” On that date, the European Union, the Swiss Government, and the US Government relaxed certain sanctions against Iran after the International Atomic Energy Agency (“IAEA”) confirmed that Iran had fulfilled its nuclear-related commitments under the JCPOA. Canada’s sanctions targeting Iran have not been affected.

To the casual observer, the measures adopted on Implementation Day may give the impression that Iran is now “open for business.” While the EU and other European states have dramatically reduced their restrictions on trade with Iran, it is important to note that many important US sanctions targeting Iran remain in force. Before engaging in any new activities involving Iran or Iranian parties, companies should carefully consider the limitations and restrictions on Iran-related dealings that remain in place after Implementation Day.

Below we provide additional information about the changes adopted by the EU, the US Government, and the Swiss Government on Implementation Day. We also provide comments on the current status of Canadian sanctions targeting Iran. Finally, we outline the significant compliance risks that continue to arise from doing business with Iran.

EU Sanctions Relief

On Implementation Day, the EU took steps to significantly relax its restrictions on doing business with Iran. Below we provide a brief summary of the sanctions relief instituted by the EU on Implementation Day. More detailed guidance can be found in the related Information Note published by the European Union External Action Service (“EEAS”), which sets out the EU nuclear-related economic and financial sanctions that were lifted on Implementation Day, the new EU legislative framework, and the sanctions that remain in place post-Implementation Day.

1. De-Listing of Designated Parties

The EU has de-listed over 400 blacklisted Iranian people and entities that will now be able to do business with the EU. Certain entities and individuals remain listed under EU sanctions, including a number of banks, namely Ansar Bank, Bank Saderat Iran, Bank Saderat PLC, and Mehr Bank.

The removal of restrictions on certain persons, entities, and bodies that were currently subject to asset freezes will also result in the releasing of funds currently frozen in accounts around the globe. Speculation as to the amount of funds that will be released ranges from US$ 29 billion (as quoted by the Central Bank of Iran (“CBI”)) to US$ 50 billion (as quoted by the US Treasury) to as high as US$ 100 billion (as speculated by critics of the JCPOA).

2. Relaxation of Product Controls

Prior to Implementation Day, supplying dual-use items, nuclear items, and military items, as well as certain oil, gas, and petrochemicals products, was prohibited. Post-Implementation Day, Regulation 2015/1681 provides, inter alia, that:

  • the supply to Iran of missiles goods and technologies listed in Annex III to Regulation 2015/1861, as well as the provision of technical assistance, brokering or financial assistance related to those goods, remains prohibited (including the provision of technical assistance, brokering or financial assistance related to those goods) (Article 1(5)), and Iran also will continue to be subject to an EU arms embargo;
  • subject to prior authorization, the sale, supply, transfer, or export of the following, which was prohibited under Council Regulation (EU) 267/2012, is now permitted under Regulation 2015/1861 (Article 1(2)):
    • nuclear “Trigger List” items (though it seems unlikely that permission will be granted for these items),
    • certain dual-use and other items identified in Annexes I and II to Regulation 2015/1861, and
    • technical assistance and brokering related to these items;
  • the sale, supply, transfer, or export to Iran of key equipment or technology, including equipment in the oil and gas sectors, which was prohibited under Council Regulation (EU) 267/2012, is now permitted under Regulation 2015/1861 (Article 1(7));
  • the import or purchase of crude oil, petrochemicals, and gas, originating in Iran or having been exported from Iran, which was prohibited under Council Regulation (EU) 267/2012, is now permitted by Regulation 2015/1861 (Article 1(9));
  • the sale, purchase, supply, transfer, import, or export of gold, precious metals, diamonds, banknotes, and coinage to or from the Government of Iran or any person controlled by it, which was prohibited under Council Regulation (EU) 267/2012, is now permitted by Regulation 2015/1861 (Articles 1(9) and (11)); and
  • the provision of granting financial loans or credit to Iranian persons involved with oil and gas or petrochemicals which was prohibited under Council Regulation (EU) 267/2012, is now permitted by Regulation 2015/1861 (Article 1(11)).

3. Removal of Funds Transfer Controls

Additionally, Regulation 2015/1861 removes fund transfer controls on Iran, including prohibitions on the transfer of funds to or from financial institutions in Iran, the opening of representative offices or bank accounts in Iran, the sale or purchase of public bonds from Iran, and the provision of insurance or reinsurance to Iran and its government (Article 1(15)).

The obligation to make a prior notification or to obtain prior authorization before funds transfers over certain amounts to or from Iran has also been removed. However, while the funds transfer reporting requirements have been removed under EU law, EU banks may not yet feel confident in dealing with funds originating from Iran given the possibility of violating the remaining US sanctions against Iran that are discussed in further detail below. Accordingly, companies will need to assess the payment routes before supplying any goods or services and consider including conditionality language in the contracts such that performance would be subject to them being able to identify a bank that will receive payments from Iran.

Swiss Sanctions Relief

Although not a party to the JCPOA, the Swiss Government announced on October 21, 2015 that Swiss sanctions against Iran would be lifted at the same time as those of the UN and the EU. To make this possible, the Federal Council overhauled the Ordinance on Measures against the Islamic Republic of Iran. This new ordinance came into force on Implementation Day. Most notably, this ordinance repealed the Swiss Government’s funds transfer controls.

The remaining restrictions against Iran are based on the corresponding UN and EU measures. They concern trade and services involving arms, delivery systems, and equipment which may be used for internal repression and surveillance. Trade in nuclear goods and nuclear-related dual-use goods are subject to licensing, and financial and travel restrictions remain in place for a limited number of individuals and firms. Further restrictions concern, in particular, technical services for Iranian cargo aircraft and the fulfilment of certain claims.

US Sanctions Relief

In contrast to the broader sanctions relief described above, the steps taken by the US Government on Implementation Day to relax sanctions targeting Iran are markedly narrow in scope. This is because the US Government primarily relaxed its nuclear-related secondary sanctions (i.e., sanctions that generally target specified conduct involving Iran that occurs entirely outside of US jurisdiction). These measures have only a limited impact on the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (“ITSR”), and other restrictions affecting parties who are “US persons” (i.e., US citizens or permanent residents (wherever located or employed), entities organized under the laws of the United States (including foreign branches), and persons located in the United States).

Below we provide a brief summary of the sanctions relief the United States adopted on Implementation Day. More detailed information can be found in the related Guidance issued by the US Treasury and State Departments and in the JCPOA FAQs published by the Treasury Department’s Office of Foreign Assets Control (“OFAC”).

1. Relaxation of Nuclear-Related Secondary Sanctions

On Implementation Day, the US Government relaxed a number of nuclear-related secondary sanctions by waiving certain statutory sanctions authorities, issuing an Executive Order revoking several previous orders, and removing certain individuals and entities from the List of Specially Designated Nationals and Blocked Persons (“SDN List”), the Foreign Sanctions Evaders List (“FSE List”), and the Non-SDN Iran Sanctions Act List (“NS-ISA List”). As a result of these measures, non-US persons would generally not be subject to secondary sanctions for engaging in transactions or activities involving the following: (i) Iran’s financial and banking sectors; (ii) the provision of certain insurance, reinsurance, and underwriting services; (iii) Iran’s energy and petrochemical sectors; (iv) Iran’s shipping and shipbuilding sectors and port operators; (v) trade with Iran in gold and other precious metals; (vi) trade with Iran in graphite, raw, or semi-finished metals (including aluminum and steel), coal, and certain software (except with respect to Iran’s military or ballistic missile programs); and (vii) Iran’s automotive sector.

Importantly, this relaxation does not remove all restrictions on non-US persons. For instance, it continues to be sanctionable for non-US persons to knowingly provide significant financial, material, technological, or other support to, or goods or services in support of, any activity or transaction on behalf of or for the benefit of any Iranian person on the SDN List. In addition, non-US banks will continue to have potential risks under the Iranian Financial Sanctions Regulations, 31 C.F.R. Part 561, for knowingly facilitating a significant financial transaction or providing significant financial services for Iranian SDNs or any other person on the SDN List designated in connection with the Iranian Revolutionary Guard Corps (“IRGC”), Iran’s proliferation of weapons of mass destruction (“WMDs”), or Iran’s support for international terrorism.

2. Removal of Parties from the SDN List, FSE List, and NS-ISA List

The US Government also removed the individuals and entities specified in Attachment 3 to Annex II of the JCPOA from the SDN List, FSE List, and/or NS-ISA List on Implementation Day. The complete list of individuals and entities removed by the US Government can be found here and here. As a result of these removals, as of Implementation Day, non-US persons are no longer subject to secondary sanctions for engaging in transactions with these individuals and entities, including the CBI and other Iranian financial institutions, provided that the transactions do not involve SDNs or involve other specified conduct (e.g., supporting terrorism, proliferation of WMDs, etc.).

Despite their removal from these restricted party lists, individuals and entities meeting the ITSR’s definitions of the “Government of Iran” or an “Iranian financial institution” remain persons whose property and interests in property are blocked as to US persons pursuant to Executive Order 13599 and the ITSR. Accordingly, US persons continue to be broadly prohibited from engaging in transactions or dealings with such persons unless the transactions are otherwise exempt or authorized by OFAC. As a means of assisting in compliance with this requirement, OFAC published a new List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599 (“EO 13599 List”). The EO 13599 List is not meant to be exhaustive, and some parties de-listed on Implementation Day that appear to meet the definition of the Government of Iran were not transferred to the EO 13599 List. Regardless of whether they have specifically been identified by OFAC as meeting the definitions of the Government of Iran or an Iranian financial institution, all individuals and entities that meet those definitions remain subject to blocking by US persons.

3. Activities by Non-US Persons that are Owned or Controlled by a US Person

OFAC issued General License H, effective on Implementation Day, which authorizes non-US entities owned or controlled by US persons (“owned/controlled non-US entities”) to engage in certain transactions involving Iran that would otherwise be prohibited by the ITSR. Importantly, this general license does not completely remove the US sanctions restrictions that apply to owned/controlled non-US entities. For instance, these entities may not engage in transactions involving individuals or entities on the SDN List or the FSE List or any military, paramilitary, intelligence, or law enforcement entity of the Government of Iran or any agents or affiliates thereof. Moreover, owned/controlled non-US entities remain subject to restrictions on the direct or indirect exportation/reexportation of goods, technology, or services from the United States—including the transfer of funds to, from, or through the US financial system (i.e., most US dollar-denominated transfers). Like US and other non-US persons, owned/controlled non-US entities are also subject to the dual use export controls maintained in the Export Administration Regulations, 15 C.F.R. Parts 730-774 (“EAR”), and to other Executive Orders targeting Iran and its activities in the Middle East (e.g., orders relating to Iran’s proliferation of weapon of mass destruction and ballistic missiles, support for international terrorism, and human rights abuses).

General License H also authorizes US persons to engage in certain activities necessary to allow owned/controlled non-US entities to engage in transactions involving Iran that are authorized by the general license. This authorization for US persons extends to establishing or altering corporate policies and procedures and making certain “automated” and “globally integrated” business support systems (i.e., any computer, accounting, e-mail, telecommunications, or other business support system, platform, database, application, or server) available to owned/controlled non-US entities. The OFAC Guidance notes that, with the exception of the authorized activities in General License H, the prohibition on “facilitation” by US persons under the ITSR remains in place. Some aspects of the scope of authorized US-person activity related to the initial establishment or alteration of corporate policies and procedures remain unclear. For instance, the extent to which US persons may be involved in making business (as opposed to compliance) determinations related to owned/controlled non-US entities starting Iran-related business is unknown, as is the point at which the still-applicable “facilitation” prohibition applies to US persons in this context.

4. Other US Authorizations

Statement of Licensing Policy for Activities Related to the Export/Reexport to Iran of Commercial Passenger Aircraft and Related Parts and Services

OFAC also issued a Statement of Licensing Policy on Implementation Day that expands the scope of a favorable licensing policy through which US persons, and non-US persons where there is a nexus to US jurisdiction (e.g., US aircraft or parts), may request specific authorization from OFAC to engage in transactions for:

  • the export, reexport, sale, lease, or transfer to Iran of commercial passenger aircraft for exclusively civil aviation end-use and of spare parts and components for commercial passenger aircraft; and
  • the provision of associated services, including warranty, maintenance and repair services, and safety-related inspections, provided that the licensed items are used exclusively for commercial passenger aviation.

Such transactions may not involve SDNs. In addition, exports/reexports to parties listed on the Department of Commerce’s Denied Persons List and, in some cases, the Entity List, will require separate authorization from the Department of Commerce. One issue that remains to be clarified is whether OFAC will license the export/reexport to Iran of items that are “controlled” (i.e., not “EAR99”) under the EAR.

General License Authorizing the Importation into the United States of Iranian-Origin Carpets and Foodstuffs

Finally, OFAC issued a final rule in the Federal Register on January 21, 2016 authorizing (with certain exceptions) the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar. This authorization extends to certain transactions or dealings by US persons in or related to such products, including the processing of letters of credit for payments for these items.

Status of Canadian Sanctions Targeting Iran

The Government of Canada announced on January 26, 2016 that it would begin to lift some sanctions on Iran. For the time being, however, comprehensive economic sanctions remain in place. Canada imposes sanctions under the Special Economic Measures Act and has also enacted into domestic law the UN Security Council Resolutions on Iran under the United Nations Act.

In his comments announcing that sanctions would be lifted, Foreign Affairs Minister Stéphane Dion indicated that the UN has asked countries to lift sanctions put in place in accordance with the UN Security Council Resolutions on Iran and that Canada would lift its sanctions “in accordance with our allies,” who are keeping sanctions in place to limit Iran’s capability to be involved in nuclear military activities. While the Minister’s comments suggest that significant changes will be forthcoming with respect to Canada’s relations with Iran, until the government takes further action to amend or repeal the sanctions currently in place, companies should continue ensuring compliance with the Canadian sanctions on Iran.

Ongoing Compliance Risks of Doing Business with Iran

Despite the measures undertaken on Implementation Day, companies continue to face risks when entering into transactions involving Iran or Iranian parties. These risks include the following:

1. Continuing Restrictions under the ITSR

Risk

As noted above, the vast majority of restrictions on US Persons, including those provided in the ITSR, remain in effect even after Implementation Day. As such, with limited exceptions, US persons remain broadly prohibited from engaging in transactions or dealings, directly or indirectly, with Iran or the Government of Iran. These prohibitions continue to apply to facilitation by US persons of non-US persons engaging in transactions otherwise targeted by the ITSR (except to the extent authorized in General License H). In addition, non-US persons remain prohibited from knowingly engaging in conduct that seeks to evade US restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran. The clearing of US-dollar transactions involving Iran through the US financial system, including foreign branches of US financial institutions, also specifically remains prohibited.

Compliance Steps

Companies considering doing business with Iran should carefully analyze whether their activities would involve US persons or activities that are subject to US jurisdiction and determine whether such activities are authorized under US sanctions. US-based or -headquartered companies with owned/controlled non-US entities should first determine which initial policies, procedures, and delegations of authority need to be changed for such non-US entities to engage in Iran-related business and implement such changes systematically. In addition, US companies should confirm whether their service providers (e.g., banks, insurance companies, shippers, suppliers) are willing to engage in Iran-related business.

2. Lingering US Secondary Sanctions

Risk

Although many provisions of the US secondary sanctions regime were removed on Implementation Day, several remain in force. As such, US persons and non-US persons could potentially be subject to secondary sanctions for, inter alia:

  • knowingly facilitating a significant financial transaction or providing significant financial services for Iranian SDNs or any other person on the SDN List designated in connection with the IRGC, Iran’s proliferation of WMDs, or Iran’s support for international terrorism;
  • materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services in support of, Iranian SDNs, including the IRGC or any of its officials, agents, or affiliates; and
  • engaging in trade with Iran in graphite, raw or semi-finished metals (including aluminum and steel), coal, and certain software with respect to Iran’s military or ballistic missile programs outside the JCPOA/UN procurement channel established for Iran.

Compliance Steps

Regardless of whether a US person will be involved in a transaction, companies engaging in activities in Iran should carefully consider whether their actions remain subject to secondary sanctions. Non-US companies should also determine whether their service providers (e.g., banks, insurance companies, shippers, suppliers) are willing to engage in Iran-related business.

3. Remaining Limitations on Dealings with Restricted Parties

Risk

The United States and, to a lesser extent, the EU and Switzerland continue to impose sanctions on individuals or entities meeting certain criteria or engaging in certain specified conduct. Such sanctioned activities include, among others, support for terrorism, human rights abuses in Iran or Syria, and WMD proliferation (including ballistic missiles). In fact, on January 17, 2016, the US Treasury Department announced that OFAC had imposed new sanctions on 11 entities and individuals involved in procurement on behalf of Iran’s ballistic missile program. In the press release related to the designations, OFAC emphasized that the US Government intends to continue to impose sanctions against Iranian activities outside of the JCPOA, including those related to Iran’s support for terrorism, regional destabilization, human rights abuses, and its ballistic missile program.

Compliance Steps

When considering business in Iran, it is important to continue to screen counterparties (including customers, agents, and distributors), as well as their beneficial owners and directors, against all applicable restricted party lists to ensure that they are not designated.

4. Continuing Controls on Military and Dual-Use Exports and Reexports to Iran

Risk

The EU, Switzerland, and the United States continue to maintain arms embargos and other export controls restricting the flow of military and dual-use goods to Iran. Notably, US controls such as those provided in the EAR and the ITSR can apply to shipments of goods, technology, and software to Iran from outside of the United States if the items are subject to US jurisdiction (including, in some cases, if they incorporate certain amounts of US origin content).

Compliance Steps

Companies exporting or reexporting goods to Iran should determine what, if any, governmental authorizations are required to carry out these transactions. If any of the items were manufactured using US origin content or are otherwise subject to US jurisdiction, US controls must be considered even if the items will not be exported from the United States.

5. Ongoing Reporting Requirements for US Issuers

Risk

The JCPOA’s sanctions relief does not directly alter the disclosure requirements applicable to companies publicly traded in the United States that are already required to file annual or quarterly reports under Section 13(a) of the Securities Exchange Act of 1934, as amended, for certain specifically identified dealings or transactions primarily related to Iran. This disclosure requirement applies to the activities of US and non-US issuers and to activities of their US and non-US affiliates. That said, activities by a US issuers’ owned/controlled non-US entities are not subject to disclosure if these activities are within the scope of General License H.

Additionally, the JCPOA does not affect the efforts of the SEC’s Office of Global Security Risk to conduct periodic inquiries to issuers to ensure they have made adequate disclosures regarding potential dealings or transactions involving Iran and other “state sponsors of terrorism.”

Compliance Steps

Publicly traded companies should continue to file annual and quarterly reports for dealings or transactions related to Iran as required under Section 13(a) of the Securities Exchange Act of 1934.

6. Snapback

Risk

As provided under the JCPOA’s so-called “snapback” provisions, the EU and the United States have reserved the right to reinstate sanctions against Iran in the event that Iran is found to have violated its obligations under the JCPOA. OFAC noted in its FAQs that the US Government has made a commitment against retroactively imposing sanctions targeting legitimate activities undertaken after Implementation Day. However, if sanctions were to be imposed again under the snapback provisions, contracts entered into before the snapback are unlikely to be “grandfathered.”

Compliance Steps

Companies entering into agreements as part of their dealings with Iran should consider options to mitigate the contractual risks that could arise if sanctions were to “snap back” into place, such as clauses providing the right to terminate the agreement in the event that sanctions are reintroduced.

Future Steps

Following Implementation Day, the next milestone set out under the JCPOA is Transition Day, which will be 8 years from July 2015, or the date on which the IAEA confirms that Iran’s nuclear material remains peaceful. On Transition Day, the EU and the US Government will terminate or modify their remaining nuclear-related sanctions against Iran. Provided that the resolutions and sanctions against Iran are not reinstated, the JCPOA will terminate 10 years from July 2015 on what will be known as Termination Day.

* * *

The foregoing is intended only to provide a general summary of recent developments regarding sanctions targeting Iran. If you have any questions or if you require advice on any specific transactions or plans, please contact one of the members of Baker & McKenzie's International Trade Practice Group.
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Follow Baker & McKenzie's Sanctions Update blog by clicking here. This blog monitors Iran-related developments, as well as developments related to other sanctions programs, and provides commentary from our International Trade team as events unfold.
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Other Baker & McKenzie Client Alerts issued since 2010 regarding sanctions against Iran:

European Union, United States, and Switzerland Move Forward on Sanctions Relief for Iran Following JCPOA’s Adoption Day

Outline of EU and U.S. Sanctions Relief for Iran under Joint Comprehensive Plan of ActionOverview and Significance of the Joint Comprehensive Plan of Action

The E3/EU+3 and Iran Agree to Extend Negotiations; Limited Sanctions Easing Under Joint Plan of Action Also Extended

U.S. Government, European Union, and Switzerland Implement Limited Sanctions Easing Under Joint Plan of Action

EU Proposes Legislation to Ease Sanctions on Iran

New Deal on Iran's Nuclear Programme

IRISL Latest Company To Successfully Challenge EU Iran Sanctions Listing

EU Implements Additional Sanctions on Iran

U.S. Congress Enacts Additional Sanctions Targeting Iran

OFAC Amends Iranian Transactions and Sanctions Regulations to Implement Executive Orders 13622 and 13628 and New Wind-Down General License

OFAC Issues Iranian Transactions and Sanctions Regulations

EU Further Strengthens Sanctions Measures on Iran

Non-U.S. Subsidiaries of U.S. Companies Now Subject to U.S. Sanctions Targeting Iran

U.S. Government Significantly Expands Sanctions Targeting Iran

EU Significantly Extends Sanctions on Iran

OFAC Reissues Iranian Financial Sanctions Regulations

U.S. Government Blocks Government of Iran, Central Bank of Iran, and Iranian Financial Institutions

Further Round of EU Sanctions Against Iran

Administration Announces New Sanctions Against Iran's Energy Sector and Financial System

UK Prohibits All Dealings Between UK and Iranian Banks

FinCEN Imposes New Reporting Requirement on Iranian Financial Transactions

U.S. Government Issues Guidance Regarding New Iran Sanctions Legislation and Publishes Iranian Human Rights Abuses Sanctions Regulations

Switzerland Tightens Up Its Sanctions Regime Against Iran

U.S. Government Implementation of New Iran Sanctions Legislation

New Expanded EU Iran Sanctions Come Into Force

Canada Unveils New Trade Sanctions Against Iran

Japan's Sanctions Against Iran: Extension of UNSC Resolution 1929

EU Publishes Draft Regulation on New Iran Sanctions

U.S. Treasury Department Issues New Iranian Financial Sanctions Regulations

Significant Extension of EU Sanctions Against Iran

President Signs New Iran Sanctions Bill

United Nations, European Union, and United States Significantly Extend Sanctions Against Iran

US – Treasury list countries requiring cooperation with boycott
On January 27, 2016, the Treasury Department published in the Federal Register a current list of countries which require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986). On the basis of the best information currently available to the Department of the Treasury, the following countries require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986): Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.
US – OFAC amends Cuban Assets Control Regulations

On January 27, 2016, the Office of Foreign Assets Control (OFAC) published in the Federal Register a final rule amending the Cuban Assets Control Regulations to further implement elements of the policy announced by the President on December 17, 2014 to engage and empower the Cuban people. The amendments remove certain payment and financing restrictions for authorized exports and reexports to Cuba of items other than agricultural items or commodities and further facilitate travel to Cuba for authorized purposes by allowing blocked space, code-sharing, and leasing arrangements with Cuban airlines and authorizing additional travel-related and other transactions directly incident to the temporary sojourn of aircraft and vessels. The amendments also authorize additional transactions related to professional meetings and other events, disaster preparedness and response projects, and information and informational materials, including transactions incident to professional media or artistic productions in Cuba.

Please see our Sanctions blog for further updates and additional information.

US - BIS revises Cuban licensing provisions

On January 27, 2016, the Bureau of Industry and Security (BIS) published in the Federal Register a final rule [Docket No. 151208999-5999-01] that amends the exceptions to the general policy of denial in the Export Administration Regulations (EAR) for exports and reexports to Cuba by identifying additional types of exports and reexports that are subject to a general policy of approval: items for safety of civil aviation and safe operation of commercial aircraft engaged in international air transportation, certain telecommunications and agricultural items, items to human rights organizations or individuals and non-governmental organizations that promote independent activity intended to strengthen civil society in Cuba, and items for use by U.S. news bureaus. This rule also amends the exceptions to the general policy of denial in the EAR for exports and reexports to Cuba by identifying types of exports and reexports that will be reviewed to determine, on a case-by-case basis, whether such transactions meet the needs of the Cuban people, including exports and reexports for this purpose made to state-owned enterprises and agencies and organizations of the Cuban government that provide goods and services to the Cuban people. BIS is making these changes to further implement the Administration’s policy of empowering and engaging the Cuban people. This rule retains the prohibition on the export or reexport of items subject to the EAR to Cuba without a license or applicable license exception.

Please see our Sanctions blog for further updates and additional information.

US - State takes sanctions lifting actions pursuant to the JCPOA

On January 25, 2016, the Department of State published in the Federal Register a notice [Public Notice: 9422] of the actions taken by the Secretary of State to comply with the Presidential Memorandum entitled “Preparing for the Implementation of the Joint Comprehensive Plan of Action of July 14, 2015” issued on October 18, 2015 and to give effect to the United States commitment under Section 4.8.1 of Annex II and Section 17.3 of Annex V of the Joint Comprehensive Plan of Action (JCPOA).pursuant to Section 9(b) of the Iran Sanctions Act of 1996 (Pub. L. 104-172) (50 U.S.C. 1701 note) (ISA), as amended. The Secretary has taken action to discontinue the imposition of sanctions on the following individuals and entities sanctioned under section 5(a) of ISA: Dimitris Cambis, FAL Oil Company Limited, Ferland Company Limited, Impire Shipping, Kuo Oil Pte. Ltd, Naftiran Intertrade Company, Petrochemical Commercial Company International, Petróleos de Venezuela S.A., Royal Oyster Group, Speedy Ship, and Zhuhai Zhenrong Company and the following entities sanctioned under Section 212 of the Iran Threat Reduction and Syria Human Rights Act of 2012: Bimeh Markazi – Central Insurance of Iran and Kish Protection and Indemnity.

The Secretary of State has also taken action to discontinue the imposition of sanctions under E. O. 13622 (July 30, 2012), as amended, on the following entities: Jam Petrochemical Company and Niksima Food and Beverage JLT. Finally, the Secretary of State has taken action pursuant to Section 1244(i)of the Iran Freedom and Counter-Proliferation Act of 2012 (subtitle D of title XII of Pub. L. 112-239, 22 U.S.C. 8801 et seq.) (IFCA) to waive the imposition of sanctions under Section 1244(c)(1) of IFCA with respect to the following entities: the National Iranian Oil Company, the National Iranian Tanker Company, the Islamic Republic of Iran Shipping Lines, and South Shipping Line Iran, and under Section 1244(d)(1) of IFCA with respect to Goldentex FZE. The Department of the Treasury’s Office of Foreign Assets Control will take action to remove these entities from its list of Specially Designated Nationals and Blocked Persons (SDN List) and/or the Non-SDN ISA List, as appropriate, as of the effective date.

These actions were effective on January 16, 2016 (Implementation Day), when the Secretary of State confirmed that Iran had implemented the nuclear-related measures specified in Sections 15.1-15.11 of Annex V of the JCPOA, as verified by the International Atomic Energy Agency.

US – USITC expands GSP investigation
On January 22, 2016, the U.S. International Trade Commission (USITC) published in the Federal Register a notice that the scope of Investigation 332-556 Generalized System of Preferences: Possible Modifications, 2015 Review has been expanded following receipt of an amended request on January 12, 2016, from the United States Trade Representative (USTR) to include five additional HTS statistical reporting numbers relating to certain handbags and travel goods products: 4202.92.30.20; 4202.92.30.31; 4202.92.30.91; 4202.92.90.26; and 4202.92.90.60. The USTR asked that the Commission provide its advice as to the probable economic effect on total U.S. imports, U.S. industries producing like or directly competitive articles, and on U.S. consumers of the elimination of U.S. import duties on these five articles for all beneficiary developing countries under the GSP program, least-developed beneficiary developing countries (LDBDCs), beneficiary developing countries of the African Growth and Opportunity Act (AGOA), and both LDBDCs and AGOA beneficiary developing countries combined under the GSP program. In his January 12, 2016 letter, the USTR also requested that the Commission provide its advice with respect to whether like or directly competitive products were being produced in the United States on January 1, 1995 for these additional 5 articles as well as for all of the products being considered for addition to and removal from the list of GSP-eligible products listed in Tables A and B of the Annex to the December 30, 2015 request letter.
TPP to be signed on 4 February in New Zealand
On 21 January 2016, the New Zealand Trade Minister, Todd McClay, confirmed that his Government is planning to host the signing of the Trans-Pacific Partnership (TPP) in New Zealand on Thursday 4 February. New Zealand has issued invitations to TPP Ministers to sign the Agreement in Auckland. Mc Clay indicated that the signing will mark the end of the TPP negotiating process and will permit all 12 countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, US and Vietnam) to begin their respective domestic ratification processes. Signatories will have up to two years to complete that before the agreement enters into force, although there are three options to allow the TPP to enter into force. In New Zealand, following signature the Government will submit the final text of TPP and the National Interest Analysis to Parliament. The legislative changes to implement TPP will then go through normal policy and Parliamentary procedures. New Zealand intends to run a series of roadshows throughout the country during the review period.
US – President continues national emergency with respect to terrorists who threaten the Middle East peace process
On January 22, 2016, the Federal Register published Presidential Notice of January 20, 2016—Continuation of the National Emergency With Respect to Terrorists Who Threaten To Disrupt the Middle East Peace Process which continues for 1 year the national emergency first declared on January 23, 1995, by Executive Order 12947 to deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States constituted by grave acts of violence committed by foreign terrorists that disrupt the Middle East peace process. On August 20, 1998, by Executive Order 13099, the President modified the Annex to Executive Order 12947 to identify four additional persons who threaten to disrupt the Middle East peace process. On February 16, 2005, by Executive Order 13372, the President clarified the steps taken in Executive Order 12947. The national emergency is being continued because the terrorist activities continue to threaten the Middle East peace process and to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.
US - FCC International Bureau removes Cuba from the Exclusion List

On January 15, 2016 the Federal Communications Commission (FCC) announced that its International Bureau removed Cuba from the Commission’s Exclusion List for International Section 214 Authorizations, also known as the Exclusion List. The Exclusion List identifies countries and facilities that are not covered by grant of a global facilities-based Section 214 application and require a separate international Section 214. The news release stated:

By removing Cuba from the Exclusion list, the Commission opens the door for U.S. telecom carriers to provide facilities-based telephone and Internet service to Cuba without separate approval from the Commission. Cuba was the last remaining country on the Commission’s Exclusion List. Today’s Order becomes effective upon release.

Specifically, this action allows carriers seeking new international Section 214 authority for facilities-based service to Cuba to receive such authority sooner, and permits carriers with existing global Section 214 authority to provide services between the United States and Cuba without additional authorization.

Removing Cuba from the Exclusion List benefits the public interest as it will likely alleviate administrative and cost burdens on both the applicant and the Commission, and will promote competition on the U.S.-Cuba route.

US - OFAC amends Iranian Transactions and Sanctions Regulations

On January 21, 2016, the Office of Foreign Assets Control (OFAC) published in the Federal Register a final rule amending the Iranian Transactions and Sanctions Regulations (ITSR) to implement certain United States Government (USG) commitments under the Joint Comprehensive Plan of Action (JCPOA) reached on July 14, 2015 between the P5+1 (China, France, Germany, Russia, the United Kingdom, and the United States), the European Union (EU), and Iran. In particular, OFAC is adding to the ITSR general licenses authorizing the importation into the United States of, and dealings in, certain Iranian-origin foodstuffs and carpets and related transactions to implement the USG commitment set out in section 5.1.3 of Annex II and section 17.5 of Annex V of the JCPOA. In addition, to reflect the USG’s implementation of its commitment set out in section 4 of Annex II and section 17.4 of Annex V of the JCPOA to terminate Executive Order 13622 of July 30, 2012, OFAC is removing regulatory provisions that implemented the blocking sanctions in sections 5 and 6 of Executive Order 13622. OFAC is also making certain technical and conforming changes to its regulations to reflect the implementation of the USG commitment set out in section 4.8.1 of Annex II and section 17.3 of Annex V of the JCPOA to remove the individuals and entities set forth in Attachment 3 to Annex II of the JCPOA from OFAC’s Specially Designated Nationals and Blocked Persons List, the Foreign Sanctions Evaders List, and/or the Non-SDN Iran Sanctions Act List, as appropriate, on Implementation Day of the JCPOA.

The final rule is effective: January 21, 2016

Client Alert - Import of goods into the EU: Significant increase in circumstances when royalties and licence fees will be dutiable -- ATTORNEY ADVERTISING

IP implications of EU customs law development

We wanted to bring to your attention an important EU customs law development. That may sound like it doesn’t have much to do with IP, but it does!

From 1 May 2016, EU customs legislation will begin to undergo a complete overhaul. One of the key changes relates to royalties and IP licence fees for goods imported into the EU. These changes will result in a significant increase in cases where those payments are dutiable and therefore need to be included in the customs value of the imported goods. This will in turn result in an increase in the amount of customs duty and import VAT payable on the goods.

It is advisable to review how royalty/licence fees are structured for goods you import into the EU. If those payments will be caught by the changes we can provide advice on possible ways to mitigate that impact. In some cases that may involve making changes to the terms of your licence agreements.

Further information is set out below. If you have any questions or would like to discuss how you may be able to best prepare for these changes, please do not hesitate to contact us.



Import of goods into the EU:
Significant increase in circumstances when royalties and licence fees will be dutiable

Introduction

On 1 May 2016, the European Union will begin the implementation of the Union Customs Code[1] ("UCC") and its implementing legislation.[2] This legislation will replace the current EU customs legislation contained in the Customs Code and its implementing provisions.[3]

One of the key changes[4] that will come into force on 1 May 2016 is that royalties and licence fees relating to goods imported into the EU will be treated as dutiable in more circumstances than under the existing legislation.

Key changes at a glance

From 1 May 2016:

  • Significant expansion of the "condition of sale" requirement. It will be now considered fulfilled if the buyer of the goods being valued cannot purchase the goods without paying the royalty and/or licence fee.
  • Removal of the distinction between trademark royalties and other royalties and licence fees. Trademark royalties will be subject to the same requirements as other royalties and licence fees.

What are royalties and licence fees?

Royalties and licence fees are payments for the use of rights relating to (i) the manufacture of imported goods (e.g., patents, designs, models and manufacturing know-how); (ii) the sale for exportation of imported goods (e.g., trade marks, registered designs); or (iii) the use or resale of imported goods (e.g., copyright, manufacturing processes inseparably embodied in the imported goods).[5]

Royalties and licence fees under the current legislation

Under the current legislation, royalties and licence fees, which are not already included in the price of the goods and which the buyer must pay, either directly or indirectly, must be included in the customs value (i.e., they are dutiable) where the royalty and/or licence fee relates to the imported goods and where the buyer makes the payment as a condition of sale of the goods being valued. With regards to the 'condition of sale' requirement:

  • Where the buyer makes the payment to the seller, there is a presumption, in the absence of evidence to the contrary, that the payment is a condition of sale of the goods.

    Where the payment is made to a third party, it will be considered to be a condition of sale of the imported goods where the seller or a person related to the seller requires the buyer to make the payment. A person will be considered related to the seller where they are either part of the same corporate group as the seller, or exercise direct or indirect control over the seller which goes beyond mere quality control checks. [6] Where the payments are made to a third party licensor as opposed to the seller of the goods, many businesses are currently able to exclude the payments from the customs value on the basis that there is no such relationship between the seller and the third party licensor.

The current legislation also distinguishes between trademark royalties and other royalties and licence fees. In particular, trademark royalties require additional conditions to be met before such trademark royalties may be deemed dutiable. They will not be dutiable if the buyer of goods is free to source the goods from suppliers unrelated to the seller. Many companies have benefited from this exemption.

Royalties and licence fees under the UCC

Royalties and licence fees will continue to be treated as dutiable only where the rights are related to the imported goods and where the buyer makes the payment as a condition of sale of the goods being valued.[7]

Royalties and licence fees are related to the imported goods where, in particular, the rights transferred under the licence or royalties agreement are embodied in the goods.

The circumstances where a payment will be treated as a condition of sale are significantly broadened under the new legislation. Payments will be deemed a condition of sale where:

a. the seller or a person related to the seller requires the buyer to make the payment;

b. the payment by the buyer is made to satisfy an obligation of the seller, in accordance with contractual obligations; or

c. the goods cannot be sold to, or purchased by, the buyer without payment of the royalties or licence fees to a licensor.[8] [NEW CONDITION]

As a consequence of the new condition contained in (c) above, royalties and licence fees that are paid by the buyer of the goods to a third party are much more likely to be a condition of sale (and therefore dutiable). The nature of the relationship between the third party and the seller will likely no longer be the deciding factor. Royalties and licence fees will now be dutiable even if the seller and the licensor are unrelated if the buyer cannot purchase the goods without these payments (e.g., if the goods would infringe the intellectual property rights of the third party licensor without such payments, this may be caught). The diagram below illustrates how the new condition (c) will affect businesses in practice.

Diagram - Impact of new condition (c)




Pre-UCC:
Licence fee not likely dutiable

Post-UCC:
Where new condition (c) satisfied, licence fee likely dutiable.


Trademark royalties under the UCC

The current exemption for trademark royalties will no longer exist under the UCC. This will result in trademark royalties being subject to the same rules as royalties and licence fees, as described above.

What does this mean for companies importing into the EU?

Increase in customs value of imported goods

The changes to the rules on dutiability of royalties and licence fees will result in a significant increase in cases where such payments need to be included in the customs value. This will in turn result in an increase in the amount of customs duty and import VAT payable on the goods.

Challenges where value of royalties / licence fees is not known at the time of import

Where the amounts of dutiable royalties / licence fees are not known at the time of import (e.g. the amount of the payments are dependant on the number of products sold), this will result in additional challenges for importers as the value of the goods at the time of import will be provisional. This will mean that the importer will need to agree with the customs authorities on how to treat such entries and whether / how the final customs value is to be adjusted to take account of the final royalties / licence fee payments. The challenge is that there is no consistent approach across the 28 Member States as to how to deal with entries where the value is provisional at the time of entry. An importer will therefore likely need to negotiate with each Member State to agree the methodology for reporting value adjustments. Whilst this is already a challenge for companies that have dutiable royalty / licence fee payments where the amounts are not known at the time of import, this challenge will arise for companies much more frequently under the UCC as the circumstances when such payments are dutiable will increase.

Advance planning and mitigation techniques

In preparation for the implementation of these changes on 1 May 2016, importers should review what royalties and licence fees are payable in respect of goods which they import into the EU and consider whether these payments will be caught within the scope of the new rules. If so, consideration should be given as to whether there are any ways to mitigate the impacts of this change. This could include, for example, considering (i) whether the royalties and licence fees "relate to" the imported goods; (ii) whether all the payments are dutiable or whether apportionment into dutiable and non-dutiable elements might be possible; and (iii) potential rewording of royalty and/or licence fee agreements.

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The foregoing is intended only to provide an overview of changes to royalties and licence fees under the Union Customs Code. If you have any questions or if you require advice on any specific transactions or plans, please contact one of the members of Baker & McKenzie's Customs Practice Group.

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Customs Seminar: We are also hosting a two day "Anti-Bribery, Customs, Export Controls and Trade Sanctions Compliance Seminar" on 3-4 February 2016 at Baker & McKenzie's office in London. As part of this seminar, there will be a half day session on Introduction to Customs Law and Overview of the Union Customs Code on the afternoon of 3 February 2016. If you would like to attend this seminar, please click on the following link:

REGISTER

UCC Client Alert: For a more detailed overview of the UCC changes, see our client alert on the topic, please click here.

[1] Contained in Regulation (EU) No 952/2013, together and its corresponding Delegated Act and Implementing Act.
[2] These will be contained in a Delegated Act (Commission Delegated Regulation (EU) 2015/2446) ("DA"), an Implementing Act (Commission Implementing Regulation (EU) 2015/2447) ("IA") and transitional legislation. Both the DA and the IA have been adopted and were published in the Official Journal on 29 December 2015. The transitional legislation is not expected to be adopted until March 2016.
[3] Contained in the Customs Code ("CC") (Council Regulation (EEC) No 2913/92) and the Implementing Provisions to the Customs Code ("IPCC") (Commission Regulation (EEC) No 2454/93).
[4] For a more detailed overview of the UCC changes, see our client alert on the topic. Please click here.
[5] As defined in Art. 157 IPCC.
[6] See Commentary N° 11 of the Customs Code Committee (customs valuation section) on the application of Article 32 (1) (c) CC in relation to royalties and licence fees paid to a third party:
http://ec.europa.eu/taxation_customs/resources/documents/customs/customs_duties/declared_goods/european/compendium_2007_en.pdf

[7] Art. 71(1)(c) UCC.
[8] Art. 136(4) IA.

Tags: Hot Topic
UK – BIS/ECO updates OGELs and one OGTCL

On 20 January 2016, the Export Control Organisation (ECO), Department for Business, Innovation and Skills (BIS) issued Notice to Exporters 2016/06: dual-use and other licences updated which announced that several Open General Export Licences (OGELs) have been amended and republished following changes to the EU dual-use list. In addition, an Open General Trade Control Licence (OGTCL) was also updated. The revised OGEL licences are:

The OGEL (Vintage Aircraft) has been updated to remove ML10b from the goods schedule, to update the text to refer to the Arts Council and to extend the time-period by which goods must be exported under this licence to six months (rather than three months) for consistency purposes.

Additionally, the OGTCL (Trade and Transportation: Small Arms and Light Weapons) has been updated to reflect the expansion of the list of items subject to Category B of the trade controls (trafficking and brokering):

US - President revises or revokes Executive Orders regarding Iran

On January 16, 2016, President Obama issued Executive Order -- Revocation of Executive Orders 13574, 13590, 13622, and 13645 with Respect to Iran, Amendment of Executive Order 13628 with Respect to Iran, and Provision of Implementation Authorities for Aspects of Certain Statutory Sanctions. The Executive Order (the “order”) revokes Executive Orders 13574, 13590, 13622, and 13645 with respect to Iran and amending Executive Order 13628 with respect to Iran in order to give effect to the United States commitments with respect to sanctions described in section 4 of Annex II and section 17.4 of Annex V of the Joint Comprehensive Plan of Action of July 14, 2015 (JCPOA) between the P5+1 (China, France, Germany, the Russian Federation, the United Kingdom, and the United States), the European Union (EU), and Iran. In addition, the order takes steps to provide implementation authorities for aspects of certain statutory sanctions that are outside the scope of the U.S. commitments to lift nuclear-related sanctions under the JCPOA.

The JCPOA provides for the lifting of nuclear-related sanctions on Iran in exchange for Iran's completion of specified nuclear-related steps, as verified by the International Atomic Energy Agency (IAEA). The President determined that:

… Iran's implementation of the nuclear related measures specified in sections 15.1-15.11 of Annex V of the JCPOA, as verified by the IAEA, marks a fundamental shift in circumstances with respect to Iran’s nuclear program. In order to give effect to the United States commitments with respect to sanctions described in section 4 of Annex II and section 17.4 of Annex V of the JCPOA, section 1 of the order revokes Executive Orders 13574, 13590, 13622, and 13645 in their entirety. Section 2 of the order amends Executive Order 13628 by revoking sections 5 through 7 and section 15 of that order, revising cross references in the remaining sections of that order to the revoked sections, and renumbering the remaining sections of that order.

Section 3(a) of the order provides implementation authority for aspects of section 1244(c)(1)(A) of IFCA [Iran Freedom and Counter Proliferation Act of 2012]; this provision only applies to the extent sanctions are imposed with respect to transactions or activities that are outside the scope of the JCPOA, specifically, providing significant financial, material, technological, or other support to, or goods and services in support of, any activity or transaction on behalf of or for the benefit of persons described in section 1244(c)(2)(C)(iii) of IFCA (i.e., Iranian persons on the list of Specially Designated Nationals and Blocked Persons (SDN List)).

Section 3(b) of the order provides implementation authority for aspects of sections 1244(d)(1)(A), 1245(a)(1), and 1246(a)(1) of IFCA; this provision only applies to the extent sanctions are imposed with respect to transactions or activities that are outside the scope of the JCPOA, as reflected in waiver determinations as to sections 1244(d)(1)(A), 1245(a)(1), and 1246(a)(1) of IFCA issued by the Secretary of State to give effect to sanctions commitments described in sections 17.1-17.3 and 17.5 of Annex V of the JCPOA (including any transactions or activities involving persons on the SDN List), and any renewals thereof.

Section 3(c) of the order provides implementation authority for section 1249 of IFCA, which is outside the scope of the JCPOA.

The President has delegated to the Secretary of the Treasury the authority, in consultation with the Secretary of State, to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, as may be necessary to carry out the purposes of the order, other than the purposes described in section 6 of the order. All agencies of the United States Government are directed to take all appropriate measures within their authority to carry out the provisions of the order.

Check our Sanctions blog for additional updates.

US – Importer Trade Activity (ITRAC) data for 2015 will be available soon from CBP

Importer Trade Activity (ITRAC) data for all of 2015 will soon be available from U.S. Customs and Border Protection (CBP) Headquarters. ITRAC data contains company-specific import data going back up to 5 years. It includes general entry information, such as tariff classifications, values, preferential tariff programs used, etc.; as well as information regarding CBP's review of a company's import shipments (e.g., whether a CF-28 or CF-29 was issued). It also identifies each of the links in the company's international supply chain (i.e., foreign manufacturers, carriers, customs brokers and sureties). In short, the ITRAC data is a useful tool for monitoring the effectiveness of your import compliance program, identifying areas of potential cost and duty savings, customs valuation reconciliation and identifying links in the international supply chain for security purposes (i.e., C-TPAT-related information).

Given how useful the information is, the low cost of acquiring it (i.e., CBP generally charges ~$250 per request), the fact that it is still more reliable than ACE, and that CBP uses the same info for their audits, we generally recommend that all companies request their ITRAC data at least once a year and incorporate its review into their compliance programs (there is also no stigma associated with requesting this data from CBP). The downside to the data has always been the format in which CBP provides it (basically, a data dump from their system in Microsoft Access format). Over the years, we have developed simple macros that can extract the most relevant data from the Microsoft Access tables and convert it to Excel for ease of use. We also have a developed a template report the summarizes the data so trends, issues and opportunities can be more easily identified.

If you’d like to request your ITRAC data from CBP HQ, please let us know. Author: Ted Murphy, Washington, DC office.

Upcoming Events: Iran Trade Roadshow

Baker & McKenzie Event Invitation

"Implementation Day" of the nuclear agreement with Iran (the Joint Comprehensive Plan of Action or “JCPOA”) and the re-opening of the Iranian market arrived on Saturday, 16 January. As such, there is a high interest on the effect on non-US businesses of US sanctions many of which will remain in force.

In response to this, Baker & McKenzie is organizing the Iran Trade Roadshow, a series of 2-3 hour seminars in various locations across the globe that will provide an overview of the potential changes to sanctions in relation to the JCPOA. Our panel of speakers include specialists from the US and the EMEA region who will address business opportunities as well as risks presented by these developments.

Please register here or by clicking the link below to get schedule updates for our first run in the following locations:


  • Austria (Vienna)
  • Germany (Dusseldorf, Frankfurt, and Munich)
  • Russia (Moscow)
  • South Africa (Johannesburg)
  • Switzerland (Zürich)
  • Turkey (Istanbul)
  • United Arab Emirates (Abu Dhabi and Dubai)

One-to-one meetings

Our practitioners will be available for one-to-one meetings to discuss specific issues you may have. Please let us know in advance if you wish to set up a personal appointment as the number of meetings will be limited.

Attendance at this event is free of charge.

For more immediate information or questions, please contact Meryll Sarco.

Click here to register for updates

UK – Sanctions relief paves the way for developing UK trade relationship with Iran

On 16 January 2016 UK Trade & Investment (UKTI), Department for Business, Innovation & Skills (BIS), UK Export Finance (UKEF), Export Control Organisation (ECO) and The Rt Hon Lord Maude of Horsham announced that Iran has received extensive economic and financial sanctions relief as a result of meeting its obligations under the nuclear deal agreed on 14 July 2015, meaning the country is now able to trade more freely. The announcement said:

On 16 January Implementation Day was triggered following the verification by the International Atomic Energy Agency of Iran meeting its requirements as part of a comprehensive agreement on Iran’s nuclear programme. This has resulted in the termination of EU nuclear related financial and economic sanctions, and the suspension of US nuclear related secondary financial and economic sanctions.

As a result, UK Export Finance (UKEF), the UK’s export credit agency, has reintroduced cover to support UK companies seeking to compete for business in Iran.

Cover is now available on a case-by-case basis in Pounds Sterling and Euros. Within this, and in recognition of the UK’s place as a global centre of excellence for financial and professional services, UKEF will make available a £50 million facility guaranteeing payments to UK professional advisory service providers advising the government of Iran.

This can cover advice on areas such as: accounting standards; capital market development; compliance with global regulatory requirements; accessing and reducing the cost of financing; and facilitating new trade. UKEF will also consider applications for direct lending to purchasers of British exports to Iran.

To improve UK-Iran trade, UKEF will work directly with the Export Guarantee Fund of Iran and the Iranian Ministry of Economic Affairs and Finance.

UKTI is the government department that helps UK-based companies succeed in the global economy. It also helps overseas companies bring their investment to the UK’s economy. UKEF is the UK’s export credit agency. It supports long term economic growth and competitiveness by complementing the private market with insurance for exporters, loan guarantees to banks, and support for and provision of loans to overseas buyers of UK goods and services.

The latest information on UKEF’s cover position for the Islamic Republic of Iran can be found here.

UK – BIS issues Notice to Exporters on lifting of nuclear-related sanctions against Iran

On 18 January 2016, the UK's Department for Business, Innovation & Skills published a Notice to UK exporters, Notice 2016/05, on the lifting of the EU nuclear-related sanctions against Iran:

This Notice provides a helpful summary of the range of items that are no longer prohibited from supply to Iran, but are subject to UK export licensing requirements as of Implementation Day. This includes:

    • Nuclear-related goods and technology as specified on the Nuclear Suppliers Group (NSG) Trigger List and the NSG Dual-Use List and listed in Annex I of Council Regulation (EU) 267/2012. The UK is required to seek approval from the UN Security Council through a 'Procurement Channel' before granting a licence for these items, in relation to which the Notice reveals that the UK Export Control Organisation will be issuing guidance in due course.
    • Nuclear-related goods and technology as listed in Annex II of Council Regulation (EU) 267/2012.
    • Metals: certain graphite and raw or semi-finished metals.
    • Enterprise Resource Planning (ERP) software, including updates.
    • Provision of technical assistance, brokering services, or financial assistance related to any of the above.

For further guidance on the UK export licensing implications, please do not hesitate to contact Baker & McKenzie's International Trade team in London. Please see our Sanctions blog for further updates and additional information.

Switzerland – Swiss lift Iranian sanctions on the occasion of Implementation Day

On 17 January 2016 the Federal Council announced that Swiss sanctions against Iran will be lifted at the same time as those of the UN and the EU. To make that possible, the Federal Council conducted a total revision of the Ordinance on Measures regarding the Islamic Republic of Iran. The new ordinance came into force at 12 am on 17 January 2016.

On 16 January 2016, the International Atomic Energy Agency IAEA confirmed that Iran had complied with its obligations under the Joint Comprehensive Plan of Action (JCPOA). On this basis, this day becomes the ‘Implementation Day', i.e., the day on which the nuclear agreement is formally implemented. The agreement provides for the simultaneous lifting or suspension of a large portion of the international sanctions against Iran in return for IAEA-verified restrictions to Iran's nuclear programme.

Switzerland has always supported the process to negotiate and implement the agreement. The Federal Council is confident that implementation of the nuclear agreement and the lifting of international sanctions will enable political and economic exchanges with Iran to be intensified. Switzerland congratulated the parties (E3/EU+3 (China, Russia, USA, Germany, France and the UK) and Iran) involved on the successful implementation of the agreed plan.

On 21 October 2015, the Federal Council took a decision of principle on the future lifting of Swiss sanctions against Iran and commissioned the EAER to prepare the necessary changes to the relevant legislation. At its meeting on 11 November 2015, the Federal Council decided to conduct a total revision of the Ordinance on Measures against the Islamic Republic of Iran. The remaining restrictions against Iran are based on the corresponding UN and EU measures. They concern trade and services involving arms, equipment which may be used for internal repression and delivery systems. Trade in nuclear goods and nuclear-related dual-use goods will be subject to licence. In addition, financial and travel restrictions remain in place for a limited number of individuals and firms. Further restrictions concern in particular technical services for Iranian cargo aircraft and the fulfilment of certain demands.

Please see our Sanctions blog for further updates and additional information.

US – JCPOA Implementation

On January 16, 2016, the Office of Foreign Assets Control (OFAC) issued the following statement:

On July 14, 2015, the P5+1 (China, France, Germany, Russia, the United Kingdom, and the United States), the European Union, and Iran reached a Joint Comprehensive Plan of Action (JCPOA) to ensure that Iran’s nuclear program will be exclusively peaceful. October 18, 2015 marked Adoption Day of the JCPOA, the date on which the JCPOA came into effect and participants began taking steps necessary to implement their JCPOA commitments. Today, January 16, 2016, marks Implementation Day of the JCPOA. On this historic day, the International Atomic Energy Agency (IAEA) has verified that Iran has implemented its key nuclear-related measures described in the JCPOA, and the Secretary State has confirmed the IAEA’s verification. As a result of Iran verifiably meeting its nuclear commitments, the United States is today lifting nuclear-related sanctions on Iran, as described in the JCPOA.

In connection with reaching Implementation Day, today the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued several documents. Specifically, OFAC posted to its website: Guidance Relating to the Lifting of Certain Sanctions Pursuant to the Joint Comprehensive Plan of Action on Implementation Day; Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action (JCPOA) on Implementation Day; General License H: Authorizing Certain Transactions relating to Foreign Entities Owned or Controlled by a United States Person; and a Statement of Licensing Policy for Activities Related to the Export or Re-Export to Iran of Commercial Passenger Aircraft and Related Parts and Services. The aforementioned documents are effective today, January 16, 2015.

In addition, OFAC has submitted for publication in the Federal Register a final rule adding a general license under the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560, relating to the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar ; this general license will be effective upon publication in the Federal Register.

OFAC has also published to its website additional information regarding actions to give effect to other JCPOA commitments, including removals from the Specially Designated Nationals and Blocked Persons List, the Foreign Sanctions Evaders List, and/or the Non-SDN Iran Sanctions Act List, as appropriate. In addition, OFAC has made available on its website a list of persons identified as blocked solely pursuant to Executive Order 13599 (“E.O. 13599 List”), which consists of persons that OFAC previously identified as meeting the definition of the Government of Iran or an Iranian financial institution. Information regarding these changes to OFAC’s sanctions lists is available on OFAC’s Recent Actions website. This information will be published subsequently in the Federal Register.

Implementation Day also marks the close of the Joint Plan of Action of November 24, 2013, as extended (JPOA), including the provision of sanctions relief pursuant to the JPOA.

Effective Implementation Day, all specific licenses that: (1) were issued pursuant to OFAC’s Second Amended Statement of Licensing Policy on Activities Related to the Safety of Iran’s Civil Aviation Industry, and (2) have an expiration date on or before July 14, 2015, are hereby authorized to remain in effect according to their terms until May 31, 2016.

Please see our Sanctions blog for further updates and additional information.

EU and US Sanctions relief for Iran under the Joint Comprehensive Plan of Action goes into effect
On Saturday, January 16, 2016, the International Atomic Energy Agency (“IAEA”) certified that Iran had fulfilled its nuclear-related commitments under the Joint Comprehensive Plan of Action (“JCPOA”) in order for the JCPOA’s “Implementation Day” to take effect. Accordingly, EU and US sanctions relief for Iran that was outlined in the JCPOA has simultaneously gone into effect. The US Secretary of State has confirmed the IAEA’s certification and the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) has issued the much-anticipated general license authorizing non-US subsidiaries of US companies to engage in certain transactions with Iran or the Government of Iran, along with various guidance documents outlining other OFAC and secondary sanctions relief measures for Iran under the JCPOA. OFAC’s guidance documents are available here. Check our Sanctions blog for additional updates and look for a Client Alert that is being prepared.
US - USTR to permit AGOA visas to be submitted via ITDS
On January 19, 2016, the Office of the United States Trade Representative (USTR) published in the Federal Register a notice indicating that USTR is directing the Commissioner of Customs and Border Protection (CBP) to allow importers claiming preferential treatment for entries of textile and apparel products under the African Growth and Opportunity Act to provide an appropriate export visa submitted electronically via the Document Image System or other approved functionality in ACE or any CBP approved successor system. A shipment still must be visaed by stamping an original circular visa, in blue ink only, on the front of the original commercial invoice. For ease of use, the visa stamp requirements published in 2001 are reproduced in the Federal Register notice without substantive change. Providing an electronic image of the original visa stamped invoice is not considered duplication for purposes of these instructions. The USTR also advises the Commissioner that an importer must provide the original of the invoice with the original visa stamp for physical inspection upon request by CBP personnel in accordance with 19 C.F.R. part 163. The effective date is February 8, 2016.
US - FTC seeks comments on revisions to its jewelry guides
On January 12, 2016, the Federal Trade Commission (FTC) published in the Federal Register a request for public comments on proposed amendments to its Guides for the Jewelry, Precious Metals, and Pewter Industries (“Jewelry Guides” or “Guides”’). The proposed revisions aim to respond to changes in the marketplace and help marketers avoid deceptive and unfair practices. The Federal Register document summarizes the FTC’s proposed revisions to the Guides and includes the proposed revised Guides. Comments must be received on or before April 4, 2016.
US – USTR sets effective date for WTO GPA amendments for Korea

On January 12, 2016, the Office of the United States Trade Representative USTR) published in the Federal Register a notice announcing that for the purpose of U.S. Government procurement that is covered by Title III of the Trade Agreements Act of 1979, the effective date of the Protocol Amending the Agreement on Government Procurement, done on March 30, 2012 at Geneva, World Trade Organization (the Protocol), for the Republic of Korea is January 14, 2016.

The Protocol entered into force on April 6, 2014 for the United States and the following Parties: Canada, Chinese Taipei, Hong Kong, Israel, Liechtenstein, Norway, European Union, Iceland, and Singapore. (79 Fed. Reg. 14776, March 17, 2014). The Protocol entered into force on April 16, 2014 for Japan (79 Fed. Reg. 21991, April 18, 2014); July 4, 2014 for Aruba (79 Fed. Reg. 61926, Oct. 15, 2014); and on June 5, 2015 for Armenia (80 Fed. Reg. 36884, June 26, 2015).

US – President suspends South African AGOA benefits

On January 14, 2016, the Federal Register published Proclamation 9388 of January 11, 2016 - To Take Certain Actions Under the African Growth and Opportunity Act. The proclamation:

    • Suspends the application of duty-free treatment for all AGOA-eligible goods in the agricultural sector from South Africa effective on March 15, 2016.
    • Modifies the Harmonized Tariff Schedule of the United States (HTS) as set forth in the Annex to the proclamation in order to reflect in the HTS that beginning on March 15, 2016, the application of duty-free treatment for all AGOA-eligible goods in the agricultural sector from South Africa shall be suspended.
    • Supersedes any provisions of previous proclamations and Executive Orders that are inconsistent with the actions taken in the proclamation to the extent of such inconsistency.
US – CBP extends import restrictions on certain archaeological material originating in Italy
On January 15, 2016, U.S. Customs and Border Protection (CBP) published in the Federal Register a final rule [CBP Dec. 16–02] amending the CBP regulations to reflect the extension of import restrictions on certain categories of archaeological material originating in Italy and representing the pre-Classical, Classical, and Imperial Roman periods of its cultural heritage, ranging in date from approximately the 9th century B.C. through approximately the 4th century A.D. The restrictions, which were originally imposed by Treasury Decision (T.D.) 01–06 and extended by CBP Decision (CBP Dec.) 06–01 and CBP Dec. 11–03 are due to expire on January 19, 2016. The Assistant Secretary for Educational and Cultural Affairs, United States Department of State, has determined that factors continue to warrant the imposition of import restrictions and no cause for suspension exists. Accordingly, these import restrictions will remain in effect for an additional five years, and the CBP regulations are being amended to reflect this extension until January 19, 2021. These restrictions are being extended pursuant to determinations of the United States Department of State made under the terms of the Convention on Cultural Property Implementation Act that implemented the United Nations Educational, Scientific and Cultural Organization (UNESCO) Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property. CBP Dec. 11–03 contains the Designated List of archaeological material originating in Italy and representing the pre-Classical, Classical, and Imperial Roman periods to which the restrictions apply. The Designated List and accompanying image database may also be found at the following Internet Web site address: http://eca.state.gov/cultural-heritage-center/cultural-property-protection/bilateral-agreements/italy. The final rule is effective January 19, 2016.
US – CBP establishes temporary mailing address for NCS Division
On January 14, 2016, U.S. Customs and Border Protection (CBP) published in the Federal Register a notice informing the public that The mail room servicing the Director, National Commodity Specialist Division, Regulations and Rulings, in the Office of International Trade, of CBP is relocating within New York and a temporary location has been established to receive correspondence. Until further notice, beginning on January 28, 2016, non-electronic correspondence should be sent to the Director, National Commodity Specialist Division, Regulations and Rulings, Office of International Trade, 1100 Raymond Boulevard, Newark, New Jersey 07102. Please note that e-rulings procedures will remain the same and will not be affected by the temporary change in office location.
US – CBP adopts final US-Australia FTA Regulations
On January 15, 2016, U.S. Customs and Border Protection (CBP) published in the Federal Register a final rule [USCBP–2015–0007; CBP Dec. 16–1] adopting with one change, interim amendments to the CBP regulations that were published in the Federal Register on February 10, 2015, as CBP Dec. 15– 03 (80 Fed. Reg. 7303), to implement the preferential tariff treatment and other customs-related provisions of the United States- Australia Free Trade Agreement. The final rule document clarifies 19 C.F.R. 10.725(c) by removing the parenthetical cross reference to §§ 10.746 and 10.747 and, instead, stating that the importer’s actions must be “pursuant to” those CBP regulations. The final rule is effective February 16, 2016.
Canada - Government announces new export program for Canadian companies

On January 5, 2016, the Hon. Chrystia Freeland, Minister of International Trade, and the Hon. Bardish Chagger, Minister of Small Business and Tourism, announced CanExport, a new program that will provide C$50 million to help Canadian small and medium-sized enterprises take advantage of global export opportunities.

CanExport is one of the building blocks of the government’s export strategy: it will help Canadian companies take advantage of opportunities abroad and increase their competitiveness, while creating jobs and growth at home.

CanExport will provide Canadian small businesses with matching contributions of between C$10,000 and C$100,000 toward export development costs. The new program will benefit hundreds of companies each year over the next five years.

To be eligible for the program, companies must employ fewer than 250 employees and have annual revenue in Canada of between C$200,000 and C$50 million. Eligible activities must promote export development and go beyond an applicant’s core activities, as well as represent new or expanded initiatives.

The Union Customs Code – Are you ready for 1 May 2016?

EU customs legislation will be undergoing a complete overhaul with the implementation on 1 May 2016 of the Union Customs Code (UCC), which will replace significant aspects of the existing legislation. The UCC’s key implementing provisions are contained in Delegated Regulation (EU) 2015/2446 and Implementing Regulation (EU) 2015/2447, both of which were published on 29 December 2015.

At a glance, the main changes include:


  • Removal of ‘earlier sale’ (also called ‘first sale’ principle) for customs valuation.
  • Significant increase in the dutiability of royalties and licence fees (and no longer an exemption for trademark royalties).
  • Goods removed from a customs warehouse and entered into free circulation in the EU pursuant to a sale to an EU customer to be valued based on the value of the transaction to the EU customer.
  • Introduction of compulsory guarantees for operating customs procedures (reduction or waiver available for companies that meet certain of the AEOC criteria or have AEOC status).
  • New criteria for AEOC and AEOS status.
  • Centralised clearance and self-assessment expected to be introduced in 2020 but will only be available for companies that have AEOC status.

Please click here for our comprehensive overview of the key changes introduced by the UCC. In addition, please click here for a more detailed analysis of how royalties and licence fee payments will be treated for customs valuation purposes under the UCC.

If you have any questions or if you require advice on any specific transactions or plans, please contact one of the members of Baker & McKenzie’s EU Customs Group.

EU- Ukraine – The trade part of the Association Agreement becomes operational on 1 January 2016
On December 31, 2015, the European Commission announced that on 1 January 2016, the European Union (EU) and Ukraine will start applying the Deep and Comprehensive Free Trade Area (DCFTA) which forms part of the EU-Ukraine Association Agreement signed in June 2014. The rest of the Association Agreement, containing political and cooperation provisions, has already been provisionally applied since November 2014. With the entry into force of the DCFTA both sides will ensure that markets for goods and services will be mutually opened on the basis of predictable and enforceable trade rules so that new opportunities will be created for the EU and Ukraine businesses, investors, consumers and citizens. By more closely aligning Ukraine’s regulations with EU legislation, the DCFTA will promote higher quality standards for products and will increase the levels of consumer and environmental protection. Economic cooperation and exchanges will also be enhanced, contributing to increased stability and prosperity for Ukraine.
Mexico lowers duties on certain environmental goods

On January 6, 2016, the Diario Oficial published a Decree amending the tariff to reduce the duties on certain environmental goods pursuant to Mexico’s commitments under the Asia-Pacific Economic Cooperation (APEC) and to make other tariff adjustments. Particularly, during the Leaders meeting, which was held in Vladivostok, Russia in 2012, Mexico and other economies adopted an “APEC List of Environmental Goods” for which they agreed to reduce import tariffs on goods on the list from 2016. The Decree amends the tariff rates of goods referred to in the APEC list.

The fulfillment of the APEC commitment involves a tariff reduction to 20 tariff subheadings; the creation of 10 new tariff lines, of which 9 will have a duty of 5% or 15%; and modifying the description of 6-tariff subheadings, to distinguish them as specifically for environmental goods, without modifying the tariff rate. Tariff subheading 4418.72.01 is removed and replaced with specific subheadings that identify bamboo and other products.
The Decree creates four tariff subheadings that identify certain goods as “ceramic” or “porcelain” according to the degree of water absorption and deletes subheading 6908.90.01. To curb the trade in certain goods for their impact on human health, the environment, endangered species and objects of historical, palaeontological or ethnographic interest and antiques more than a hundred years, among other things, high export tariffs were previously established for these goods. However, the Decree now removes these export tariffs since they are already included in the current regulatory scheme that imposes export controls through non-tariff regulatory Acuerdos.

In addition, the Decree reduces import tariffs on toy items to aid companies in the highly competitive toy industry: 10 toy subheadings will go to duty-free while one will go to 10%. Finally, the Decree also establishes a mechanism to obtain better information on the importation of goods in the footwear sector, which will be achieved by creating specific tariff subheadings, the amendment to the description of tariff lines to harmonize with this creation and the elimination of 22 subheadings of Chapter 64 of the Tariff.

USITC releases 2016 Harmonized Tariff Schedule of the U.S.; Census releases 2016 Schedule B

The U.S. International Trade Commission (USITC) posted the 2016 Harmonized Tariff Schedule of the United States (Publication 4588). As in past years, it is available for downloading as a single document or by chapter. The Harmonized Tariff Schedule of the United States, Annotated for Statistical Reporting Purposes (HTS), is published by the USITC as directed by Congress in section 1207 of the Omnibus Trade and Competitiveness Act of 1988 (Public Law 100-418; 19 U.S.C. 3007) (Trade Act). Pursuant to that Act, the 2016 edition of the HTS contains the current legal (enacted or proclaimed) and nonlegal (statistical or reference) provisions specifically designated as such in section 1204(a) of the Trade Act (102 Stat. 1148). General notes 1 through 3 explain the structure of the HTS and define terms and symbols used throughout the schedule. The Commission publishes annual editions of the HTS, as well as any printed supplements and on-line revisions that may be needed to keep each annual edition current. This edition contains all changes since the last printed edition of January 29, 2015, as explained in the Change Record.

Except for goods listed in the Notice to Exporters, goods being exported from the United States can also be reported under the HTS provisions covering them. The goods listed in the Notice to Exporters must instead be reported under provisions of Schedule B administered by the United States Census Bureau (Census). The 2016 Edition of Schedule B has been posted by Census and is available for downloading in a variety of formats. In addition, Census has posted Concordance files and a listing of obsolete codes.

US – Government procurement: DoD seeks comments regarding reciprocal defense procurement MOU with Japan

On December 31, 2015, the Department of Defense (DoD) published in the Federal Register a request for public comments [Docket No. DARS–2015-0071] relating to the negotiating and concluding a Reciprocal Defense Procurement (RDP) Memorandum of Understanding (MOU) with the Ministry of Defense of Japan on behalf of the U.S. Government. DoD is requesting industry feedback regarding its experience in public defense procurements conducted by or on behalf of the Japanese Ministry of Defense or Armed Forces.

DoD has concluded RDP MOUs with 23 “qualifying countries” at the level of the Secretary of Defense and his counterpart. The purpose of RDP MOUs is to promote rationalization, standardization, and interoperability of conventional defense equipment with allies and other friendly governments. These MOUs provide a framework for ongoing communication regarding market access and procurement matters that enhance effective defense cooperation. RDP MOUs generally include language by which the Parties agree that their defense procurements will be conducted in accordance with certain implementing procedures. These procedures relate to—

• Publication of notices of proposed purchases;

• The content and availability of solicitations for proposed purchases;

• Notification to each unsuccessful offeror;

• Feedback, upon request, to unsuccessful offerors concerning the reasons they were not allowed to participate in a procurement or were not awarded a contract; and

• Provision for the hearing and review of complaints arising in connection with any phase of the procurement process to ensure that, to the extent possible, complaints are equitably and expeditiously resolved.

Based on the MOU, each country affords the other country certain benefits on a reciprocal basis consistent with national laws and regulations. The benefits that the United States accords to the products of qualifying countries include—

• Offers of qualifying country end products are evaluated without applying the price differentials otherwise required by the Buy American statute and the Balance of Payments Program;

• The chemical warfare protection clothing restrictions in 10 U.S.C. 2533a and the specialty metals restriction in 10 U.S.C. 2533b(a)(1) do not apply to products manufactured in a qualifying country; and

• Customs, taxes, and duties are waived for qualifying country end products and components of defense procurements.

Written comments should be submitted to the address shown in the notice on or February 1, 2016.



US – Government procurement: Montenegro and New Zealand added to list of WTO GPA designated countries

On December 31, 2015, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published in the Federal Register a final rule [FAC 2005-86; FAR Case 2015-034; Item III; Docket No. 2015-0034; Sequence No. 1] amending the Federal Acquisition Regulation (FAR) to add Montenegro and New Zealand as new designated countries under the WTO Government Procurement Agreement (WTO GPA) and update the list of parties to the Agreement on Trade in Civil Aircraft. The Office of the U.S. Trade Representative (USTR) has determined that both countries will provide appropriate reciprocal competitive Government procurement opportunities to United States products and services and therefore has waiving the Buy American Act and other discriminatory provisions for eligible products from both countries.

In addition, USTR has also indicated that Montenegro is a party to the Agreement on Trade in Civil Aircraft. USTR has waived the Buy American Act for civil aircraft and related articles from countries that are parties to the Agreement on Trade in Civil Aircraft.

The rule is effective as of February 1, 2016.

US – Government procurement: FAR Trade Agreements thresholds set

On December 31, 2015, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published in the Federal Register a final rule [FAC 2005-86; FAR Case 2016-001; Item No. IV; Docket No. 2016-0001, Sequence No. 1] amending the Federal Acquisition Regulation (FAR) to incorporate revised thresholds for application of the WTO Government Procurement Agreement (GPA) and the Free Trade Agreements (FTAs), as determined by the United States Trade Representative (USTR), effective January 1, 2016. Every two years, the trade agreements thresholds are escalated according to a predetermined formula set forth in the agreements. USTR has specified the following new thresholds in the Federal Register (80 Fed. Reg. 77694, December 15, 2015).

This final rule implements the new thresholds in FAR subpart 25.4, Trade Agreements, and other sections in the FAR that include trade agreements thresholds (i.e., FAR sections 22.1503, 25.202, 25.603, 25.1101, and 25.1102). In addition, changes are required to FAR sections 52.204-8, Annual Representations and Certifications, and 52.222-19, Child Labor-Cooperation with Authorities and Remedies, with conforming changes to the clause dates in FAR sections 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders- Commercial Items, and 52.213-4, Terms and Conditions- Simplified Acquisitions (Other Than Commercial Items).

The new thresholds are:

Trade Agreement

Supply or

Service

contract

(equal to or

exceeding)

Construction

contract (equal

to or

exceeding)

WTO GPA –

191,000

7,358,000

FTAs:

Australia FTA

77,533

7,358,000

Bahrain FTA

191,000

10,079,365

CAFTA-DR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua)

77,533

7,358,000

Chile FTA

77,533

7,358,000

Colombia FTA

77,533

7,358,000

Korea FTA

100,000

7,358,000

Morocco FTA

191,000

7,358,000

NAFTA

– Canada

Supply 25,000

Service 77,533

10,079,365

– Mexico

77,533

10,079,365

Oman FTA

191,000

10,079,365

Panama FTA

191,000

7,358,000

Peru FTA

191,000

7,358,000

Singapore FTA

77,533

7,358,000

Israeli Trade Act

50,000

US – OFAC issues final Cyber-Related Sanctions Regulations

On December 31, 2015, the U.S. Office of Foreign Assets Control (OFAC) published in the Federal Register a final rule issuing regulations in 31 C.F.R. Part 578 to implement Executive Order 13694 of April 1, 2015 (“Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber- Enabled Activities”). The Regulations are being published in abbreviated form at this time for the purpose of providing immediate guidance to the public. OFAC intends to supplement Part 578 with a more comprehensive set of regulations, which may include additional interpretive and definitional guidance and additional general licenses and statements of licensing policy. The appendix to the Regulations will be removed when OFAC supplements this part with a more comprehensive set of regulations.

The final rule was effective on publication.

US – BIS corrects C.F.R.

On December 31, 2015, the Bureau of Industry and Security (BIS) published in the Federal Register a correction to Title 15 of the Code of Federal Regulations, (C.F.R.), Part 774 – the Commerce Control List. In Title 15 of the Code of Federal Regulations, Parts 300 to 799, revised as of January 1, 2015, on page 999, in Supplement 1 to Part 774, in Category 9, Export Control Classification Number (ECCN) 9E003, in the Items section, remove the second introductory text of paragraph f.1.

Also on December 31, 2015, BIS published in the Federal Register a correction to Title 15 of the Code of Federal Regulations, (C.F.R.), Part 744 - Control Policy: End-User and End-Use Base. In Title 15 of the Code of Federal Regulations, Parts 300 to 799, revised as of January 1, 2015, on page 414, in supplement no. 4 to part 744, remove the entry for “Sergey Grinenko” from “GREECE” and add it in alphabetical order under “GERMANY”.

US –NMFS proposes import-export revisions, consolidation of permits

On December 29, 2015, the National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA) published in the Federal Register a proposed rule and request for comments [Docket No. 090223227–5999–02] related to international trade in seafood. NMFS proposes regulations to revise procedures and requirements for filing import, export, and re-export documentation for certain fishery products to meet requirements for the SAFE Port Act of 2006, the Magnuson- Stevens Fishery Conservation and Management Act (MSA), other applicable statutes, and obligations that arise from U.S. participation in regional fishery management organizations (RFMOs) and other arrangements to which the United States is a member or contracting party.

Specifically, NMFS proposes to integrate the collection of trade documentation within the government-wide International Trade Data System (ITDS) and require electronic information collection through the automated portal maintained by the U.S. Customs and Border Protection (CBP). Under this integration, NMFS would require annually renewable International Fisheries Trade Permits (IFTP) for the import, export, and re-export of certain regulated seafood commodities that are subject to trade monitoring programs of RFMOs and/or subject to trade documentation requirements under domestic law. These trade monitoring programs enable the United States to exclude products that do not meet the criteria for admissibility to U.S. markets, including products resulting from illegal, unregulated, and unreported (IUU) fishing activities. This proposed rule would consolidate existing international trade permits for regulated seafood products under the Antarctic Marine Living Resources (AMLR) and Highly Migratory Species International Trade Permit (HMS ITP) programs and expand the scope of the permit requirement to include regulated seafood products under the Tuna Tracking and Verification Program (TTVP). This proposed rule would also stipulate data and trade documentation for the above programs which must be provided electronically to CBP and address recordkeeping requirements for these programs in light of the proposed changes. Trade documentation excludes any programmatic documents that are not required at the time of entry/export (e.g., biweekly dealer reports).

Written comments must be received by February 29, 2016.

US – Government Procurement: DFARS Trade Agreements thresholds set

On December 30, 2015, the Defense Acquisition Regulations System, Department of Defense (DoD) published in the Federal Register a final rule [Docket DARS–2015–0066] amending the Defense Federal Acquisition Regulation Supplement (DFARS) to incorporate increased thresholds for application of the WTO Government Procurement Agreement and the Free Trade Agreements, as determined by the United States Trade Representative (USTR). Every two years, the trade agreements thresholds are escalated according to a predetermined formula set forth in the agreements. USTR has specified the following new thresholds in the Federal Register (80 Fed. Reg. 77694, December 15, 2015).

This final rule implements the new thresholds in DFARS part 225, Foreign Contracting, for sections that include trade agreements thresholds (i.e., 225.1101, 225.7017–3, 225.7017–4, and 225.7503). Additionally, the rule updates clauses 252.225–7017, Photovoltaic Devices, and 252.225– 7018, Photovoltaic Devices—Certificate, with conforming changes. A minor technical amendment corrects cross references at 225.1101(10)(i) and paragraphs (b)(1)(i) and (ii) of the clause at 252.225–7018.

The final rule is effective January 1, 2016.

Trade Agreement

Supply

Contract

(equal to or

exceeding)

Construction

Contract

(equal to or

exceeding)

WTO GPA

$ 191,000

$ 7,358,000

FTAs:

Australia FTA

77,533

7,358,000

Bahrain FTA

191,000

10,079,365

CAFTA-DR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua)

77,533

7,358,000

Chile FTA

77,533

7,358,000

Colombia FTA

77,533

7,358,000

Korea FTA

100,000

7,358,000

Morocco FTA

191,000

7,358,000

NAFTA

- Canada

25,000

10,079,365

- Mexico

77,533

10,079,365

Panama FTA

191,000

7,358,000

Peru FTA

191,000

7,358,000

Singapore FTA

77,533

7,358,000

US - President modifies HTS to lower rates on environmental goods

On December 23, 2015, President Obama signed Proclamation 9384 of December 23, 2015 To Modify the Harmonized Tariff Schedule of the United States (published in the Federal Register on December 29, 2015) which lowers the rates of duty for certain products to 5% to carry out an APEC agreement to lower the rates to 5 percent or less on 54 environmental goods by the end of 2015. The new rates are effective with respect to goods entered, or withdrawn from warehouse for consumption, on or after December 31, 2015 and apply to products covered by subheadings 4418.72.95, 8404.20.00 and 8406.90.20, 8406.90.30, 8604.90.40 and 8406.90.45, of the Harmonized Tariff Schedule of the United States.

The President’s authority to lower rates was contained in Section 103(a) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, Section 502 of the Protecting Americans from Tax Hikes Act of 2015, and Section 604 of the Trade Act of 1974.

EU - Commission lays down detailed rules to implement the Union Customs Code
US - DOE proposes rule to require use of ACE for energy certifications

On December 29, 2015, the Department of Energy (DOE) published in the Federal Register a notice of proposed rulemaking [Docket No. EERE–2015–BT–CE–0019] to require a person importing into the United States any covered product or equipment subject to an applicable energy conservation standard set forth in 10 C.F.R. part 430 or 431 to provide, prior to importation, a certification of admissibility to the DOE for the covered product or equipment. The certification would be required to be filed through CBP’s Automated Commercial Environment (ACE). Paper submissions would not be accepted.

DOE states that the proposed certification requirement will allow it to notify CBP if an importer is attempting to import a covered product or equipment that DOE has determined fails to meet the applicable energy conservation standard. Filers would be required to state whether an annual certification is on file for the covered product or equipment. This provision would allow DOE to identify importers that have not complied with these requirements, including potentially the failure to test; ensure that the product or equipment does, in fact, meet the applicable standards; and, if not, take appropriate enforcement action. Under a final rule issued in 2013, CBP will refuse admission to any consumption entry covered by DOE energy efficiency standard if DOE notifies it that the covered import does not comply. CBP may allow conditional release of the shipment so that it may be brought into compliance.

The certification would be submitted to DOE through the U.S. Customs and Border Protection’s Automated Commercial Environment (ACE). 10 C.F.R. parts 430 and 431 do not apply to covered products or equipment imported for export from the United States, provided that such products or equipment “or any container in which it is enclosed, when distributed in commerce, bears a stamp or label stating ‘NOT FOR SALE FOR USE IN THE UNITED STATES’ “ and “such product is, in fact, not distributed in commerce for use in the United States.” (10 C.F.R. 429.6). See also CBP Ruling No. HQ W231173 (“equipment subject to the standards set by the Department of Energy under 10 CFR 430.32 that are not in compliance with those standards, may be imported into the United States for the purpose of exportation, and placed in either a foreign trade zone or customs bonded warehouse pursuant to that purpose”).

DOE will accept comments, data, and information regarding this notice of proposed rulemaking no later than February 12, 2016. Please see the Federal Register document for instructions on how to submit those Materials to DOE.

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Chair, NA International
Commercial Practice Group

Miguel Noyola
Partner, Chicago
Email: Miguel Noyola
T + 1 312 861 7589


Members, US International
Trade Compliance Steering Committee


Janet K. Kim
Partner, Washington DC
Email: Janet Kim
T + 1 202 835 1653

John F. McKenzie
Partner, San Francisco
Email: John McKenzie
T + 1 415 576 3033

Ted Murphy
Partner, Washington DC
Email: Ted Murphy
T + 1 202 452 7069


Editor, International Trade
Compliance Update


Stuart P. Seidel
Partner, Washington DC
Email: Stuart Seidel
T + 1 202 452 7088