As noted in my post yesterday on the proposed rules to transition certain Category I, II and III items from the United States Munitions List to the Commerce Control List, DDTC attempted to preserve its brokering authority over the transferred firearms and related items by amending the brokering rules to contain items both on the United States Munitions List (“USML”) and the United States Munitions Import List (“USMIL”).  An alert reader pointed out, quite correctly, that this clever regulatory sleight-of-hand was, ahem, not authorized by the Brokering Amendment to the Arms Control Export Act. 22 U.S.C. § 2278(b)(1)(A)(ii).

The Brokering Amendment provides authority to DDTC to register brokers and license brokering transactions.   The problem is that it authorizes this only with respect to items on the USML.   It makes no reference to the USMIL and provides no authority to regulate brokers of, and brokering transactions related to, items on the USMIL.

Section 2278(b)(1)(A)(ii)(I) provides the statutory mandate and authority to require registration of brokers:

As prescribed in regulations issued under this section, every person (other than an officer or employee of the United States Government acting in official capacity) who engages in the business of brokering activities with respect to the manufacture, export, import, or transfer of any defense article or defense service designated by the President under subsection (a)(1), or in the business of brokering activities with respect to the manufacture, export, import, or transfer of any foreign defense article or defense service (as defined in subclause (IV)), shall register with the United States Government agency charged with the administration of this section.

Subclause III requires licensing for “brokering activities described in [the above-cited] subclause (I)”.

The relevant language here then is “any defense article … designated by the President under subsection (a)(1)” and “any foreign defense article … as defined in subclause (IV)”.  Both of these are, it turns out, references only to items on the USML

Subsection (a)(1), which gives the President the authority to designate defense articles subject to export controls, says this in the last sentence of the subsection:

The items so designated shall constitute the United States Munitions List.

Subclause IV only references the USML in its definition of “foreign defense article”:

For purposes of this clause, the term “foreign defense article or defense service” includes any non-United States defense article or defense service of a nature described on the United States Munitions List regardless of whether such article or service is of United States origin.

Not surprisingly, DDTC’s discussion of these proposed rules fails to mention this little problem in relying on the Brokering Amendment or where it believes it can otherwise find statutory authority to extend its brokering rules to items on the USMIL.

UPDATE: I just got off the phone with a spokesperson from DDTC who explained the agency’s theory as to how they could exert brokering authority over USMIL items. According to the spokesperson, section 2278(a)(1) gives the President the authority to “control the import and export of defense articles” and to “to designate those items which shall be considered as defense articles.” The USMIL and the USML are, thus, separate subsets of the broader “statutory” USML referenced in subsection (a)(1).  The USMIL administered by ATF lists those items subject to controls on permanent imports.  The USML  administered by DDTC lists items subject to controls on exports and temporary imports. While this argument is at least plausible, it does require taking the facially counter-intuitive position that the USMIL is really the USML and that the USML in the ITAR isn’t really the entire USML.

Photo Credit: Pistol Heckler & Koch P9S by Hecklerfan [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via https://en.wikipedia.org/wiki/Heckler_%26_Koch_P9#/media/File:Heckler_%26_Koch_p9s.jpg [cropped]. Copyright 2004 Hecklerfan

ABOVE: Ramzan Kadyrov 

In an article in Foreign Policy titled “Why Is This Man Still on Twitter?” Emily Tamkin and Elias Groll get all confused about sanctions. And they are aided and abetted in this confusion by Peter Harrell from the Center for New American Security (whatever that is). The resulting mess is why I wonder, at least partly in jest, why Foreign Policy is still on the Internet.

The article attempts to answer the question I posed in this post in early January: why is Putin crony and Chechin strongman Ramzan Kadyrov blocked by some social media sites while Bashar Al-Assad and Nicolás Maduro, both of whom are also SDNs, are not? Tamkin and Groll quote Harrell’s supposed answer to this question:

Peter Harrell … explains that the difference might come down to something called the Berman Amendment.

The Berman Amendment, Harrell says, is an amendment to the International Emergency Economic Powers Act, or IEEPA, that states nothing in that law can be used to constrain publication.

“If you have a sanctions designation based on IEEPA, it’s very clear that that cannot be used to prohibit publication activities,” Harrell says.

…

The Berman Amendment applies only to IEEPA sanctions and not other sanctions programs, such as the separate legal provisions outlining the Global Magnitsky Act. “There is a legal argument that because Kadyrov was sanctioned under Magnitsky, rather than under IEEPA sanctions, the Berman Amendment does not apply,” Harrell says, meaning the U.S. government could conceivably sue Facebook to force Kadyrov’s removal, a risk the company may have not wanted to take.

Let’s leave aside for the moment Heller’s bizarre summary of the Berman Amendment, which deals with import and export of informational materials rather than “publication activities.” Instead, I have to point out, as I did in my earlier post, that Section 584.206(b) of the Magnitsky Sanctions Regulations clearly states:

The prohibitions contained in this part do not apply to the importation from any country and the exportation to any country of any information or informational materials, as defined in §584.304, whether commercial or otherwise, regardless of format or medium of transmission

So, okay, I guess Heller, Tamkin and Groll couldn’t be bothered to actually read the regulations that they were trying to rely on.  Reading regulations, after all, is hard.

But let’s also look at Heller’s inaccurate statement that the Berman Amendment would not apply to sanctions adopted under the Magnitsky Act rather than IEEPA. Once again, Heller, Tamkin and Groll could not be bothered to read the Magnitsky Act, which, if they had, would have revealed the bankruptcy of their argument. Section 406(a)(1) of the Act provides the authority under which the President may block and add to the SDN list human rights violators in Russia:

The President shall exercise all powers granted by the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) … to the extent necessary to freeze and prohibit all transactions in all property and interests in property of a person who is on the list required by section 404(a) of this Act if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a United States person.

By explicitly linking Magnitsky Act sanctions to those “powers granted by” IEEPA, it certainly means that the limitations on those powers, like the Berman Amendment, would apply to Magnitsky Act sanctions. That, of course, is why OFAC adopted the section of the Magnitsky Sanctions Regulations cited above that carves out the import and export of informational materials.

So both questions remain unanswered.

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

1. Trade Agreements

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

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

2. Iran Sanctions

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

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

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

3. Cuba Sanctions

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

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

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

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

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

4. Russia Sanctions

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

Photo Credit: YM Ningbo seen from the Golden Gate Bridge by Richard Erikkson [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/7VDQrj [cropped and processed]. Copyright 2010 Richard Erikkson