With the U.S. waging “wars of containment” on two fronts, companies are having to navigate an increasingly complex landscape of US trade enforcement measures in 2023 and beyond.
Russia’s invasion of Ukraine in March 2022 provided a turning point in its already deteriorating trading relations with the West. The U.S., EU and other Western partners moved to impose sanctions against strategic sectors of the Russian economy, and to restrict trade in specified goods and services. Almost immediately, the U.S. revoked its Most Favored Nation (MFN) status with Russia (and Belarus) so that any goods still being imported from Russia are now subjected to higher tariffs. Restrictive measures were also put in place to prevent the export to Russia of goods and services that could support its ability to conduct the war. As the war has escalated, so have the enforcement measures.
In June, 2023, Australia, Canada, New Zealand, the United Kingdom, and the United States – informally the “Five Eyes countries” – agreed to act in concert as “the Export Enforcement Five” (“E5”) to close existing loopholes and prevent unauthorized and illegal transfers of their technology. On September 26, 2023, the group released its first joint guidance to industry on the members’ coordinated efforts to degrade Russia’s military capabilities by restricting its foreign procurement of items critical to Russian weapons development.
The Guidance provides a list of prioritized items that Russia is using in its weapons systems. Identified by their Harmonized System (HS) codes, the list includes such innocuous items as parts for integrated electronic circuits, machines and apparatus for their manufacture, and ball bearings. Exporters now face a heightened level of responsibility for ensuring that these high priority items on the list do not end up in Russia using third parties.
Exporters should use the E5 Guidance, as well as the due diligence recommendations issued by the U.S. Bureau of Industry and Security (BIS) to update their export compliance programs. They should also stay on top of this issue as the list of high-priority items to be monitored will only expand.
With respect to China, U.S. trade enforcement measures are aimed at containing China’s ability to grow its semi-conductor industry and to “win” the technological battle with China. Concerns are also expressed about China’s ability to use this technology for inappropriate military use and human rights violations. In October of 2022, the U.S. imposed stringent controls on the export of key technology to China. The focus is to restrict China’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors. New regulations introduced in October, 2023 aim to close loopholes in the first regime and to expand the controls to new advancements, including artificial intelligence (AI).
Recent US actions also aim to limit the outflow of US capital in key sectors to China. Executive Order (EO) on “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern,” issued August 9, 2023, prohibit investments by US companies in the semiconductor and microelectronics, quantum information technologies, and artificial intelligence sectors in China, Hong Kong, and Macau.
All of these policies aim to “cut off China’s access to leading-edge chip technology without unduly constraining American businesses,” says Paul Scharre of Center for a New American Security (CNAS). This requires the Biden Administration to accomplish a “delicate balancing act”, he continues: restrict China’s access to advanced technology without inadvertently creating incentives for global companies to “de-Americanize” supply chains. While the “Five Eyes” countries have expressed concern about China they have not taken joint action on this issue as they did with regards to Russia.
There is also the question of how well will these controls actually work. Despite controls in place since 2019, the Huawei Mate 60 Pro, a Chinese smartphone powered by an advanced chip, was unveiled this year. The U.S. is investigating.
It is worth mentioning that the US CHIPS and Science Act of 2022 (the “CHIPS Act”) does allocate US $280 billion over the next ten (10) years to support the domestic manufacture of semiconductors. Recipients of funding will face limitations on their ability to expand manufacturing capacity in China or other “countries of concern”, notably the countries against which the U.S. maintains a comprehensive embargo (Iran, North Korea) and Russia.
This last provision is a reminder that, alongside the increased focus on China and Russia, US trade enforcement measures on commercial items continue with respect to all items on the Commerce Control List managed by the U.S. Department of Commerce; economic sanctions enforced by the U.S. Department of Treasury; and anti-bribery provisions enforced by the U.S. Department of Justice. A robust export compliance program is a must in today’s complex landscape. Contact us to learn more or for support.
I am a seasoned international trade and customs attorney, and policy adviser for various companies and governments with a demonstrated history of successfully developing and implementing sustainable and dynamic trade programs. I am experienced in creating partnerships with various business-support organizations to drive compliance and growth in the international market.