U.S.-China Trade War Update

1. U.S.-China Trade War Update Richard Mojica, Member, Miller & Chevalier Collmann Griffin, Associate, Miller & Chevalier

2. Agenda • U.S.-China Trade War Update • Tariff Mitigation Strategies

3. U.S.-China Trade War

4. U.S.-China Trade Talks Break Down • April 2019: U.S.-China trade talks in “final lap” and “very productive,” according to U.S. and Chinese officials • May 2019: U.S.-China trade talks break down • U.S. officials accuse China of “playing games with us” and backsliding on commitments, i.e., removing references to specific Chinese laws U.S. Trade Representative Robert Lighthizer (left) China top trade negotiator Liu He (right)

5. Import Repercussions – U.S. Announces Tariff Increases • Tariffs will stay at 25% on $50B of “List 1” and “List 2” products • Tariffs jump from 10% to 25% on $200B worth of “List 3” products • Tariff increase applies to exports to U.S. on or after May 10, 2019 • Goods exported prior to May 10 are not subject to additional tariffs, so long as U.S. entry is prior to June1, 2019 • USTR announces exclusion process for List 3 products, with details TBD

6. Import Repercussions – U.S. Proposes New Tariffs • USTR requests comments for additional 25% tariffs on essentially all remaining Chinese products—“List 4” • Approx. $300B worth of imports • Narrow exceptions for certain pharmaceuticals, medical goods, rare earths, & critical minerals • USTR now seeking comments on practicability and economic harm from tariffs • Comments due June 17, 2019 • Requests to testify at public hearing due June 10, 2019

7. Export Repercussions – China Retaliates • China: 5%-25% retaliatory tariffs on $ 60B worth of U.S. products already covered by tariffs: • Tariffs cover (i) food products, (ii) building materials, (iii) consumer goods, (iv) transport, (v) electronics, (vi) natural resources, & (vii) chemicals • Tariffs take effect on June 1 • More tariffs possible

8. Export Repercussions – Customs Bond Sufficiency • Customs bonds are calculated based on historical duty liability: • Continuous bond = 10% of duties, taxes, & fees paid for the 12 month period • Single-entry bond ≥ total entered value + any duties, taxes, & fees • Increased Section 301 duties → higher duties, taxes, & fees • Insufficient or exhausted bond → no entry of additional merchandise until new bond is obtained • Monitor bond sufficiency

9. Tariff Mitigation Strategies

10. Tariff Mitigation Strategies – Exclusion Requests • Product-specific exclusion process will be available for List 3 • Likely similar to process for Lists 1 & 2 • Requestor must show all of the following: • Product not “strategically important” and/or connected to Made in China 2025 • No availability outside China • Tariff will cause severe economic harm to U.S. interests • Exclusion will be administrable – i.e., physical description, not intended end-use

11. Exclusion Requests – Winners

12. Exclusion Requests – Losers

13. Exclusion Requests – Takeaways USTR List 1 Exclusion Requests (10,837 as of May 10) • Exclusions are rarely granted and take several months • Approval rate for List 1 (after 7 months): • 55% denied • 3% still under review by USTR • 55% still under review by CBP for administrability • 18% granted • No approvals/denials for List 2 • Start preparing exclusion requests in advance

14. Tariff Mitigation Strategies – Others

15. Trade Deal May Still Be Possible

16. Increase in Customs Enforcement • U.S. Customs and Border Protection (“CBP”) has increased enforcement in response to China tariffs • Increase in CF-28s (requests for information) regarding classification, country of origin • New “Audit Survey Program” by CBP Centers of Excellence & Expertise focused on first sale programs • Document any changes to classification, country of origin, first sale in anticipation of CF-28 or survey

17. Economic Sanctions

18. U.S. Economic Sanctions • Administered by Office of Foreign Assets Control (“OFAC”) • Complex; constantly changing • Country-based (North Korea, Iran) • Activity-based (Russian unconventional oil) • List-based (terrorists, kingpins, oligarchs) • New sanctions on Cuba, Iran, Venezuela in 2019 • Dozens of designations and enforcement actions in 2019

19. Framework for OFAC Compliance Commitments Framework for OFAC Compliance Commitments (May 2019) • Sets forth OFAC compliance expectations • Management Commitment • Risk Assessment • Internal Controls • Testing & Auditing • Training • Useful for building compliance programs • Useful for negotiating penalties with OFAC

20. Sanctions Risk Assessment Compliance expectations depend on risk factors: • Large, int’l, fluctuating customer base • Overseas branches, correspondent accounts with foreign banks • Electronic products and services (i.e., account transfers, e-banking) • High number of fund transfers • Targeted sectors: energy, finance, shipping, defense articles, high-tech • Targeted countries: Iran, Syria, North Korea, Russia, Venezuela, Cuba, • Diversion Risk: China, Dubai

21. “Root” Causes of Sanctions Violations (1 of 2) • Lack of formal Sanctions Compliance Program • Misinterpreting OFAC regs. • Facilitating transactions by Non-U.S. persons • Exporting or re-exporting U.S.-origin goods, services or tech to sanctioned persons or countries • Utilizing U.S. financial system for sanctionable conduct

22. “Root” Causes of Sanctions Violations (2 of 2) • Sanctions screening software or filter failures • Improper due diligence on customers/client • De-centralized compliance functions • Non-standard payment or commercial practices • Individual employee misconduct

23. Case Studies from 2019

24. Questions? Richard A. Mojica Member 202.626.1571 rmojica@milchev.com Collmann Griffin Associate 202.626.5836 cgriffin@milchev.com