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U.S., EU and other sanctions and export control regimes continue to target the Russian defense and energy sectors, restricting access to both military and dual use items. This creates demand pressure on the Russia side and as a result potential added compliance risk for exporters. Companies often ask “what are we expected to do try and prevent our exports from going inadvertently to prohibited end users and end uses?”

On May 18, 2015, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) released guidance on due diligence practices for exporters to prevent unauthorized exports to Russia, amidst express concerns of front companies and intermediaries making transshipments to Russia in violation of the Export Administration Regulations (“EAR”).  In particular, the guidance focuses on exports of (a) National Security or “NS”-controlled items and (b) military end-use or end-user controlled items–which both require a license for Russia–to countries with less restrictive licensing requirements.

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On May 13, 2015 Senator Lisa Murkowski, Chair of the Senate Committee on Environment and Natural Resources, introduced the Energy Supply and Distribution Act of 2015 (S.1312), which if enacted would lift the crude oil export ban.

Co-sponsored with Sen. Heidi Heitkamp (D-ND) and twelve Republicans, the bill would permit exports of domestically produced crude oil without a Federal license “notwithstanding any other provision of law” (other than crude oil stored in the Strategic Petroleum Reserve), except to countries subject to U.S. sanctions. The bill would direct the Secretary of Energy to develop a standard definition of the term “condensate” and would express the sense of the Congress that processed condensate is a petroleum product.

S.1312 follows the bill introduced in the House of Representatives by Rep. Joe Barton (R-TX) last February, which would prohibit any official of the Federal Government from imposing or enforcing any restriction on the export of crude oil.

Both bills seek to cut through the layers of legislation and regulation implementing statutes enacted in the 1970’s that have prohibited exports of domestically produced crude oil except in limited circumstances, such as section 103 of the Energy Policy and Conservation Act, section 28(u) of the Mineral Leasing Act of 1920 and section 28 of the Outer Continental Shelf Lands Act.

Although these statutes give the President authority to lift export restrictions by means of specific authorizations or national interest determinations, the Administration has chosen not to expand the types of permitted transactions but has allowed the Commerce Department (which implements the Export Administration Regulations) to continue to license transactions such as swaps and exchanges in accordance with previously established policy. Preempting Sen. Murkowski’s focus on condensates, the Commerce Department late last year issued FAQ’s clarifying the circumstances under which processed condensate would be considered a refined product not subject to definition of crude oil and therefore not subject to the ban. A number of companies have since received commodity jurisdiction determinations for condensates. Continue reading →

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Congress is currently fiercely debating whether to grant the President fast track trade authority, allowing to him to finalize free trade agreements with the EU and a dozen Pacific Rim trading partners. While this debate caused President Obama to join with Republicans to overcome the objections of trade-skeptic Democrats, the coming debate over the U.S. Export-Import Bank will divide the Republican Party along sharply ideological lines that threaten the very existence of the Ex-Im Bank.

Small, medium, and large U.S. businesses that rely on the bank to underwrite their exports may soon be confronted with the loss of a major source of commercial support. Furthermore, it appears that the bank is already placing limits on its operations in case it is forced to wind down. John Hardy, president of the Coalition for Employment through Exports, an advocacy group representing the interests of U.S. businesses, has claimed that the Ex-Im bank is already refusing to support export deals over $100 million. Continue reading →

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Eurasia Group

The United States, UK, France, Germany, China and Russia announced in early April the parameters for a Joint Comprehensive Plan of Action regarding Iran’s Nuclear Program. However, a final agreement will not occur—if it occurs at all—until June 2015.

Savvy companies are planning now for either a potential relaxation of sanctions or a collapse of the process and the introduction of new, more severe sanctions policies impacting business.

The Eurasia Group and Pillsbury invite you to join us for a morning seminar on Iran sanctions, the current state of negotiations, likely outcomes and potential market opportunities. We will also discuss the current international sanctions regimes and the political developments in the United States impacting the future of U.S.-Iran relations.

This event is the first in a series organized by Pillsbury and the Eurasia Group to help businesses plan for changes in the legal regimes affecting international trade. Future events will examine changes impacting Russia, Cuba and Myanmar.

9 June 2015
09:00 – 11:00

Pillsbury’s London office
Level 21, Tower 42
25 Old Broad Street
London EC2N 1HQ

Schedule
09:00 – Registration and breakfast
09:30 – Seminar and Q&A session
11:00 – Networking

Topics include:

  • Eurasia Group’s forecast on the outcome of negotiations
  • Pillsbury’s assessment of evolving U.S., UK, EU and UN Iran sanctions: what they are, what may change, and when
  • What can companies do now to prepare for the successful conclusion of talks
  • What would the failure of negotiations mean
  • The impact the U.S. Congress may have on any outcome

Speakers:
Cliff Kupchan, Chairman, Eurasia Group
Nancy Fischer, Partner, Pillsbury
Aaron Hutman, Counsel, Pillsbury
Steven Farmer, Counsel, Pillsbury
Matthew Oresman, Counsel, Pillsbury
For further information, please contact Vera Kapysh at vera.kapysh@pillsburylaw.com / 44(0)207 847 9545.

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On Friday, May 8, the Senate overwhelmingly approved the Iran Nuclear Agreement Review Act, which would give Congress a role in approving any agreement with Iran concerning its nuclear program. The Senate approved the bill 98-1, with Sen. Tom Cotton (R-AK) the only dissenting vote. The House of Representatives could vote on the legislation as early as this week.

As discussed in a previous post, on April 2, 2015 representatives of the United States, Great Britain, France, Germany, China and Russia (collectively, the “P5+1” countries) announced that they had agreed with Iran on the Parameters for a Joint Comprehensive Plan of Action. The parties now have until June 30, 2015 to reach a final agreement. One of the major open issues is what sanctions on Iran would be removed and when. Complicating this negotiation, especially following passage of the Iran Nuclear Agreement Review Act, is President Obama’s authority to lift U.S. sanctions on his own authority.

Under the legislation passed by the Senate, Congress would have 30 days to review the agreement and the proposed sanctions relief plan (longer under certain circumstances). Congress may then enact a joint resolution in favor of the agreement, enact a joint resolution opposing the agreement, or take no action. If Congress approves the agreement or takes no action, the President may then grant sanctions relief in line with the authority that currently exists under relevant statutes. If Congress votes to disapprove of the agreement, the President can veto the joint resolution and, if Congress fails to override the veto, he can still move forward with sanctions relief. However, if that veto is overridden by a 2/3 vote of both houses of Congress, then the President would be prohibited from lifting sanctions. Continue reading →

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The Office of Foreign Assets Control (OFAC) granted specific licenses to operate passenger/cargo ferries from the United States to Cuba earlier this week. Havana Ferry Partners LLC announced on its Facebook page on May 5, 2015 that it had received approval from both OFAC and the Commerce Department’s Bureau of Industry and Security (BIS) to conduct ferry operations from four South Florida ports to Havana, Cuba. Reportedly, several other companies received similar approvals.

Under the Cuban Assets Control Regulations, persons subject to U.S. jurisdiction are authorized to provide carrier services via aircraft to persons authorized to travel to Cuba pursuant to a general license. This means that any person can provide these services, provided that they meet the requirements outlined in the regulations, with no approval necessary. Transportation of authorized travelers by vessels, however, requires a U.S. person to apply for and receive a specific license from OFAC. Accordingly, the vessel operators had to obtain licenses from OFAC.

In addition, under the Export Administration Regulations, a license from BIS is needed for a vessel to travel to Cuba, even though the visits will be temporary.

The ferries will only be able to carry passengers that are authorized by one of the twelve general licenses for travel to Cuba (e.g., professional research/meetings, religious and educational purposes, etc.) or by a specific license. Travel to Cuba for tourism purposes is still not authorized.

The ferry operators will also need to obtain approval from Cuba for the operations to commence.

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Japanese Prime Minister Shinzo Abe’s visit last week to the United States was a huge success. Through the visit, President Obama and the Prime Minister affirmed the importance of the Trans-Pacific Partnership (TPP) as a trade agreement, but also as a strategic security tool for the Asia Pacific region. The Prime Minister also made his mark as the first Japanese prime minister to address a joint meeting of Congress.

Unfortunately for TPP supporters, opposition forces in Congress have taken the wind out of the sails of the Prime Minister’s successful state visit.  Controversy continues to brew in Congress over the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, legislation to grant the President Trade Promotion Authority (TPA) to negotiate international deals that Congress can approve or disapprove, but which Congress cannot filibuster or amend.  TPA is seen as essential to completing a treaty like TPP which is being negotiated with 12 countries. Continue reading →

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The 17th EU-Ukraine summit took place in Kyiv, Ukraine on 27 April 2015, being the first summit taking place under the framework of the Association Agreement, the treaty between the EU and Ukraine that establishes a political and economic association between the parties.

The summit was an opportunity for the EU and Ukraine to discuss: (i) the implementation of the Association Agreement and the political and economic reforms in Ukraine including EU financial and other assistance; (ii) the crisis in Eastern Ukraine and the application of the Minsk agreements; and (iii) regional issues and the preparations for the upcoming Eastern Partnership summit in Riga.

During the summit, EU and Ukrainian leaders are reported to have agreed that the full implementation of the Minsk agreements, the ceasefire deal struck between Ukraine and pro-Russian rebels, remains the best chance to move towards a political solution, taking note of the European Council Conclusions of 19 March 2015 which called both for the swift and full implementation of the Minsk agreements, and for the duration of the restrictive measures against Russia to be linked to such implementation.

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It has been reported that Russia has proposed the sale of S-300 surface-to-air missile defense systems to Iran. According to the Russian News Agency TASS, Russian Foreign Minister Sergey Lavrov said that Russia’s previous voluntary embargo of sales of military equipment to Iran is no longer needed due to the progress in the negotiations regarding Iran’s nuclear program.

On May 1, 2015, Ed Royce (R-Calif.), the Chairman of the House Foreign Affairs Committee, and ranking member Eliot Engel (D-N.Y.) sent a letter to President Obama stating that the White House should consider using sanctions to deter the delivery of the missile defense system to Iran. The letter calls on the President to determine whether the proposed sale would advance Iran’s efforts to acquire or develop destabilizing numbers and types of advanced conventional weapons.

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Major new free trade agreements are on the horizon. For the past several years, the Obama Administration has been negotiating two new major free trade agreements: the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Partnership Agreement (TTIP). Because of divisions within the Democratic Party regarding trade agreements, previously it was uncertain whether the President could garner the support necessary to obtain Congressional approval. With both Houses of Congress now controlled by the Republican Party—which historically has supported trade agreements—the prospects for ultimate approval have significantly improved. Action on the TPP in particular is possible during 2015.

Trans-Pacific Partnership

Most of the existing U.S. free trade agreements have only two parties—the United States and one foreign country. (Exceptions are the NAFTA, with Canada and Mexico, and the CAFTA, with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.) There are currently 12 countries negotiating the TPP: the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. Of these, the United States already has free trade agreements with all except Japan, Malaysia, New Zealand and Vietnam.

Although there are extensive multilateral obligations to reduce or eliminate trade barriers contained in the World Trade Organization (WTO) agreements, free trade agreements go further. Such agreements require the complete elimination of customs duties (usually phased out over time), and also contain commitments relating to trade in services, government procurement, protection of intellectual property, and a wide range of other subjects. Adding Japan, Malaysia, New Zealand and Vietnam to the list of countries that have made free trade commitments to the United States will create new market opportunities for many industries.

To be eligible to benefit from preferential tariff commitments, exporters and importers must be able to verify that a product complies with the applicable “rule of origin” for that product. Rules of origin ensure that sufficient value is added in a member country so that products of a non-member cannot benefit simply by undergoing minimal processing in a member country. The TPP is expected to contain a “cumulation” provision that will allow content from any of the 12 member countries to be counted toward satisfaction of the rules of origin. This provision will create more flexibility for component sourcing and manufacturing arrangements.

The TPP is also expected to include enhanced obligations in a number of areas, for example with respect to disciplines on government support (e.g., subsidies) to state-owned enterprises, and the elimination of barriers to the provision of services by foreign companies in certain sectors.

Although a number of difficult issues remain to be resolved in the negotiations, significant progress has been made on the text. The prospect of potential receptivity by the U.S. Congress has created new momentum to complete the negotiations, and an effort is being made to reach agreement on the toughest subjects in the very near future.

Trans-Atlantic Trade and Partnership Agreement

TTIP is a proposed free trade agreement between the United States and European Union, on behalf of its 28 member states. Average tariffs on goods between the two trading partners are already low at 3%, and a major portion of bilateral trade is not subject to any duties. However some sectors still have relatively high customs duties, particularly the agricultural sector.

As with the TPP, the TTIP negotiating agenda is ambitious and goes beyond reducing customs duties. The United States and the European Union hope to deepen economic integration by streamlining customs rules and procedures, increasing liberalization of trade in services, expanding participating in government procurement contracts, and coordinating approaches for issues of global concern such as protection of intellectual property. A major goal is to increase regulatory coherence by promoting transparency, participation and accountability in the development of regulations concerning standards for products.

Trade Promotion Authority Legislation

The procedures under which the Administration negotiates and submits trade agreement are complex. Normally, Congress authorizes the negotiations through the enactment of Trade Promotion Authority (TPA) legislation. TPA allows the President to negotiate trade agreements under certain parameters, including requirements to consult with certain Congressional committees during the negotiations, and to incorporate certain goals, priorities and objectives into the trade agreements. If all of the substantive and procedural requirements are met, a trade agreement can be submitted by the President to Congress simultaneously with implementing legislation, and Congress is required to act within strict time deadlines to either approve or disapprove the entire agreement, without the ability to introduce amendments. Absent this procedure, foreign governments would be reluctant to make concessions, knowing that the Congress could override commitments of the U.S. government and reopen the negotiations.

The President’s TPA authority actually expired in 2007. Nonetheless, the Administration has carried out the TPP negotiations as though TPA were in place, in the expectation that Congress would at some point reenact TPA with largely the same substantive and procedural requirements.

Last week the House Ways and Means Committee and the Senate Finance Committee both reported out draft TPA legislation, and the full House and Senate are expected to take up the legislation for debate and a votes within the next few weeks.

These are noteworthy developments and the result of bipartisan consensus from leaders in the House and Senate. However, trade agreements remain politically controversial. We expect opponents from both political parties to propose amendments designed to force the Administration to stop the TPP and TTIP negotiations. To overcome a potential filibuster and pass the full Senate, the legislation also will need to garner all Republican votes and at least six votes from Democrats to achieve a 60-vote margin.

Achieving this goal will require Senator Ron Wyden (D-OR), Ranking Member of the Senate Finance Committee, and and other Democrats to continue to work closely with the President’s trade leadership team, which is intent on advancing TPP and TTIP as legacy issues for President Obama. Given the strong levels of bipartisan engagement among key leaders at this time, the prospects for ultimate approval are relatively strong.