1. society
2. work
3. unemployment

American Institute For International Steel, Inc.
STEEL NEWS
E-NEWSLETTER FOR AIIS MEMBERS AND THE STEEL COMMUNITY
JANUARY - FEBRUARY 2015
EXECUTIVE DIRECTOR’S REPORT
CONTENTS
1 Executive Director’s Report
6 Market Update
10 Steel Shorts
13 Customs Corner
15 Russia Trade Sanctions Update
17 Calendar of Events
The wind-whipped snow and advancing winter evening gloom turned
the inviting cityscape outside the window in front of me into a dull white
obscurity as I started to write my first report of the New Year in the
lower-Manhattan café where we sought refuge. An hour before, the snow
had made things seem clean, fresh, promising. But like the snow-covered
woods in Robert Frost’s celebrated poem “Stopping by the Woods on a
Snowy Evening”, the streets now seemed dark and deep in the cold dusk.
Perhaps that’s an apt metaphor for our current global economic and political condition. It certainly
seems that way after I read and absorbed the latest economic data and geopolitical analyses.
Consider the following: we learned in December that the U.S. achieved its most robust year of job
growth in 15 years. At the same time, hourly earnings in December barely kept pace with inflation,
not what one expects to see in a vigorous post-recession recovery. And the number of Americans
who have dropped out of the labor force--people who are neither employed nor looking for work-grew by 1.1 million since November 2013, a distressingly high number.
But then we learned at the end of January that our economy only grew at a disappointing 2.6% in
the fourth quarter, the ninth year in a row that U.S. GDP growth did not reach 3%, the level at which
we will start to see more robust economic activity and job growth. The unsatisfying fourth quarter
result also means that we saw only a 2.4% growth rate for all of 2014. This sub-par performance
most likely accounts for the continued stagnant U.S. wage growth.
What is perhaps most troubling is what is behind the fourth quarter numbers. As reported by the
Wall Street Journal, the biggest boost to the economy in the quarter came from consumer spending,
while business investment grew only at a weak 1.9%. As the Journal further notes, overall fourth
quarter business spending was not strong enough to compensate for the oil price-related effects
on the energy sector. Perhaps what we are seeing, especially in the fourth quarter’s dependence
on consumer spending, is a reflection of the continued inadequacy of policies to promote more
capital formation and investment, and the increased drag of unwarranted, oppressive regulation on
business formation and expansion.
Looking overseas, we see other economic warning signs. JPMorgan’s Global All-Industry Output
Index, which measures the pace of global business growth, while still above the line that separates
growth from contraction, fell to a 14-month low in December. A few days later, the World Bank cut
its forecast for global growth. The Bank’s chief economist explained “The global economy is running
(continued on page 2)
Richard Chriss, Esq.
EXECUTIVE DIRECTOR OF AIIS
[email protected]
Alexandra Jopp
ASSISTANT DIRECTOR
[email protected]
701 West Broad Street | Falls Church, VA 22046 | Tel: 703.245.8075 | Fax: 703.610.0215 | www.aiis.org
STEEL NEWS | JANUARY - FEBRUARY 2015
1
Executive Director’s Report (continued from page 1)
on a single engine…it is only the U.S. economy The European Central Bank’s (ECB) response
that is forging ahead in a global economy with to this challenge is to buy $80 billon worth of
so much uncertainty. We need several engines.” government debt per month. The effort appears
This is a sobering comment, considering the designed to force the price of government bonds
fact that so far, our engine--our economy--is so low that investors who are seeking a positive
return will decide they have no choice but to buy
straining in a lower gear.
riskier assets. The theory is that banks will use the
The World Bank’s action followed a similar move money to lend, and consumers will spend more.
last October by the International Monetary
Fund, which also issued a downward revision of However, acclaimed bond investor Bill Gross,
its previous global economic growth prediction. the founder of the Pimco investment fund who
has since decamped to Janus Capital, described
The Financial Times noted earlier in January the ECB move as “too little, too late,” and, as
that European markets are prophesying “secular reported in the Financial Times, wondered
stagnation,” with the eurozone reporting whether the subsequent interest rate drops
outright deflation for the first time since 2009.
across Europe meant that banks would be less
Given all these facts, it does seem that we are poised inclined to use the money to lend.
on the edge of a deep and dark woods, wondering My great concern is that while the ECB action will
what dangers lurk there in the year ahead.
likely give confidence to the markets, at least in
the short term, printing money is never more than
The first is the 19-country eurozone deflation a stopgap measure. Europe’s central economic
matter. Deflation, especially on a continent-wide problem is that most of southern Europe is
scale, is terrible economic news. In a deflationary not economically competitive. No one has yet
period, consumers generally postpone spending invented a way to make an inefficient economy
because they tend to believe the cost of goods competitive by printing money. The ECB’s
bond buying program will work only if Europe’s
will be lower in the future.
politicians realize they are operating on borrowed
time, and act accordingly.
I see at least three.
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The second is Russia’s
continued assault on
Ukraine, perhaps with
the intent of carving a
compliant client state
out of that country, and
the lack of an effective
response from Europe
and the United States.
There are too many
variables to address here,
but the boldness with
which Russia’s continuing
aggression
against
Ukraine is being waged
should give us all pause,
not the least because of the
potential that the fighting
could spiral out of control.
(continued on page 3)
STEEL NEWS | JANUARY - FEBRUARY 2015
2
Executive Director’s Report (continued from page 2)
The fact that the newly elected radical leftist
government of Greece is apparently aligning
itself with Russia in this conflict means that
the traditional European pillars of stability are
less so than they were just a few weeks ago. As
a result of the recent Greek election and other
factors, debate over potential EU sanctions
against Russia appears to be growing more
acrimonious, with some in the EU trying to
differentiate between sanctions imposed over
the conflict in eastern Ukraine and those
imposed over the annexation of Crimea. For
more on the important subject of possible U.S.
trade sanctions against Russia, please see the
excellent piece by attorneys Larry Hanson and
Matthew Cummins elsewhere in this newsletter.
My third concern relates to China’s economic
slowdown, which has already had a considerable
effect on global commodity prices and exporters.
Data show that China’s factory sector
constricted in January for the first time in more
than two years. China’s official manufacturing
Purchasing Managers’ Index (PMI) dropped
to 49.8 in January, below analysts’ expectations
of a PMI reading of 50.2. Looking behind this
weak PMI data, we see that profits in China’s
industrial sector, which includes manufacturing,
dropped by the most on record last December,
as reported in the Financial Times.
Moreover, as the Financial Times also recently
noted, the economic pain of China’s economic
retreat is likely to worsen, since the downturn is
being led by commodity-intensive construction
and manufacturing investment. The effects of
China’s slowdown will likely ripple throughout the
(continued on page 4)
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STEEL NEWS | JANUARY - FEBRUARY 2015
3
Executive Director’s Report (continued from page 3)
rest of Asia. We must face
the fact that these effects
may last for some time:
Premier Li Keqiang stated
recently that China must
adapt to “a new normal”
of slower growth.
What does all this mean
for the AIIS? We recognize that our obligation
to our members goes well
beyond merely observing lurking dangers and
pointing out problems
that inhibit trade and
commerce--although
correctly perceiving reality is a necessary and
vital first step. Our global
economy is characterized
by a growing interconnectedness and interdependence. The concerns
mentioned here (as well
as others) pose great
challenges to this interconnectedness and interdependence.
That is why this year we
will devote so much effort
to working on initiatives
designed to strengthen
this interdependence—
initiatives like winning
Congressional approval
of Trade Promotion
Authority legislation, advancing the TransPacific Partnership trade negotiations, and other
trade-related as well as regulatory initiatives that
promote global cooperation aimed at creating
more economic freedom and opportunity for all
of our members.
International trade—the ability to engage
in normal commercial relations, to import
and export without being encumbered by
unwarranted trade barriers—is one of the
necessary conditions of economic progress. It is
one of the essential ingredients to the economic
well being of every AIIS member.
We will pursue these efforts with our likeminded partners, and this year we will seek
even more to enhance our effectiveness and
reach by building on our existing domestic and
internationally based relationships.
(continued on page 6)
STEEL NEWS | JANUARY - FEBRUARY 2015
4
PHOTOS FROM THE AIIS 64TH ANNUAL DINNER
STEEL NEWS | JANUARY - FEBRUARY 2015
5
Executive Director’s Report (continued from page 4)
Finally, I would like to thank all of our wonderful
members, friends, and colleagues--especially
our outstanding Board Members, and AIIS
Assistant Director Alexandra Jopp--for helping
to make our Houston Annual Christmas Dinner
on December 10, and our December 3rd New
York City Annual Dinner, so successful.
For all the modest good news in the U.S.,
though, the rest of the world continues to
struggle economically. Things are so bad in
Europe, in fact, that the European Central Bank
is expected to adopt a strategy implemented by
the U.S. Federal Reserve in the aftermath of this
country’s financial crisis: quantitative easing.
We had one of the largest, most enthusiastic This would involve the central bank buying 500
turnouts at our New York City Annual Dinner billion euros or more in debt to inject capital into
in recent memory. We enjoyed each other’s the economy and, it is hoped, promote growth.
company, great food, and an informative China, meanwhile, recorded its slowest growth
program in a stunning, unique City venue. last year since 1990, with the 7.4 percent
There is something inviting and captivating expansion down from 7.7 percent in 2013 and
about enjoying all of this while being literally double-digit increases in many earlier years.
surrounded by Christmas/holiday-time New The International Monetary Fund projects that
York City, as we were with floor-to-ceiling views the Chinese economy will grow just 6.8 percent
of the nighttime Manhattan skyline. With your this year and 6.3 percent in 2015. Some Chinese
help and support, we hope to continue and build officials say the slowdown is a necessary – even
on our success this year.
welcome – part of the country’s transition to an
economy of “improved quality.”
“This 7.4 percent was a 7.4 percent that
overcame hardship,” the head of China’s
National Bureau of Statistics said. “It was a
The U.S. economy appeared to be doing better 7.4 percent that overcame pressure. It’s a 7.4
in December 2014 than it has in some time, percent that suits the new normal of shifting
although the hoped-for growth boom appeared the gears of the pace of economic development
to wane considerably with the release of new in line with objective laws.”
GDP numbers in late January.
A survey of corporate CEOs attending the World
MARKET UPDATE
In December the Bureau of Economic Analysis
revised its estimate of third quarter growth up to
5 percent, the highest in 11 years. This followed
4.6 percent growth from April to June, making
for the best back-to-back quarters since the last
half of 2003.
Economic Forum’s annual meeting in Davos,
Switzerland in January found that only 37
percent think the world economy will improve
this year, while 17 percent think it will decline,
up from 7 percent who expressed pessimism
last year. The remaining chief executives expect
This was a stark turnaround from early 2014, things to remain about the same.
when harsh winter weather led to economic At least one aspect of the economic slump outside
contraction of 2.1 percent and concerns that the the United States has had positive effects for those
nation had still not broken free of the lingering inside. As the global economy has stagnated, so
effects of the Great Recession.
has global demand for oil. As a result, crude
However, late January’s numbers told a different, oil prices, which had been near or above $100
more comprehensive, and significantly less per barrel from mid-2013 until mid-2014, have
optimistic story for 2014: the economy only plummeted to less than $50 per barrel. This has
grew at a 2.6 percent rate in last year’s fourth allowed the average price for a gallon of regular
quarter, putting 2014 growth at a disappointing gas in the United States to fall from $3.28 a year
ago to just $2.05 in mid-January, the American
2.4 percent.
Automobile Association reported.
(continued on page 8)
STEEL NEWS | JANUARY - FEBRUARY 2015
6
Market Update (continued from page 6)
The stronger economy is having an impact
on the labor market, as unemployment in the
United States has fallen to 5.6 percent, the
lowest level since June 2008. Again, though, the
news beyond U.S. borders is not so good. The
United Nations predicted in a report released in
January that the number of unemployed people
worldwide would grow by 3 million this year
and another 8 million in the four succeeding
years. Noting that 61 million jobs have been lost
since the start of the financial crisis in the late2000s, the report stated that, “The challenge of
bringing unemployment and underemployment
back to pre-crisis levels now appears as daunting
a task as ever, with considerable societal and
economic risks associated with this situation.”
and therefore led to fewer November closings.
Furthermore, rising home values are causing
more investors to retreat from the market.”
The National Automobile Dealers Association
reported that the 16.4 million light vehicle sales
in 2014 were 5.8 percent higher than the 2013
total and were the most for any year since 2006.
Sales of light trucks – which represent just over
half of all sales – were up 10.1 percent over last
year, while car sales increased 1.4 percent.
The Institute for Supply Management’s
Purchasing Managers Index (PMI) dipped to
55.5 percent in December. While this is the
index’s lowest level since June, any reading
over 50 percent indicates expansion in the
manufacturing sector. The lowest PMI in 2014
...crude oil prices, which had been near was 51.3 in January; the highest was 59 in
or above $100 per barrel from mid-2013 August and October.
until mid-2014, have plummeted to less
than $50 per barrel.
Stocks have stumbled in recent months, but the
long-term trend continues to be positive. On Jan.
20, the Dow Jones Industrial Average closed at
17,515, while the S&P 500 Index closed at 2,023.
As might be expected when the U.S. economy is
outpacing other countries, the dollar has grown
stronger, and, on Jan. 20, was trading at 0.86
euros, 0.66 pounds, 117.85 yen and 6.22 Yuan.
It has roughly doubled in value against the ruble
in recent months, surging to 65.15 rubles to the
dollar, as Russia’s economy has been hit hard by
falling oil prices.
Housing starts in the United States were 7
percent lower in November than they were
one year earlier, according to the U.S. Census
Bureau. From January through November,
though, housing starts were up 7.7 percent over
their numbers from the previous year.
Sales of existing homes in November showed
a 2.1 percent increase over November 2013,
despite dipping 6.1 percent from October,
according to the National Association of
Realtors. An association economist suggested
that, “The stock market swings in October
may have impacted some consumers’ psyches
STEEL NEWS | JANUARY - FEBRUARY 2015
The federal government is scheduled to release
its first estimate of growth in the fourth quarter
of 2014 on Jan. 30. This will cover the critical
holiday spending period, and early reports
have indicated that retail and food spending in
December dipped 0.9 percent from November
but was 3.2 percent higher than in December
2013. A strong growth report – the U.S. has
not had three quarters in a row of at least 4
percent growth since 1993-94 – could add to the
economic momentum for the new year, though,
as was seen a year ago, sometimes Mother
Nature has the last word. Another quarter of
rapid growth might also stir inflation fears,
and if the Federal Reserve thinks the economy
is overheating, it could hasten its plans to start
raising interest rates. Then, of course, there
is the rest of the world. With hot spots here
and there and economic stagnation nearly
everywhere, the U.S., after several tough years,
stands out for no longer being the Sick Man of
North America, but, instead, resuming its role
of global economic leader. The nation can do
only so much on its own, though, and, unless
conditions improve elsewhere, it could be a brief
return to glory.
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STEEL SHORTS
Alaska, Canada in Dispute over ‘Buy America’ Provision
The Canadian government is trying to block the state of Alaska from updating a ferry terminal in
British Columbia using only suppliers from the United States.
The Federal Highway Administration is expected to provide the bulk of money for the project, and
the agency requires that steel, iron and other materials used in projects that it funds come from the
United States.
Canadian officials, saying their country’s suppliers should have the opportunity to secure deals for
the project, signed an order to prevent the “Buy America” provision from limiting the selection of
contractors. Canadian Minister of International Trade Ed Fast said that, “the application of protectionist
Buy America provisions on Canadian soil is unacceptable and an affront to Canadian sovereignty.”
The order invokes Canada’s Foreign Extraterritorial Measures Act, which was last used in 1992 and
can result in fines or, even, incarceration for violators.
Alaska has refused Canadian requests to seek a waiver for the Buy America rule. A spokesman for
Alaska Gov. Bill Walker said the state will proceed as planned with the $15 million project and,
“We’re going to respond to that [legal] action if and when it occurs.”
Although the terminal is part of the Alaska Marine Highway System, it is on Canadian land that is
leased by the state.
Falling Oil Prices Could Affect Demand for Steel
Plummeting oil prices could result in reduced demand for steel in the energy sector.
Since mid-2014, oil prices have dropped from around $100 per barrel to less than $50. While this
has generally been good news for most people outside of the petroleum industry, it could mean that
oil companies will cut back on steel-intensive drilling and fracking projects.
Oil Country Tubular Goods (OCTG), which are used for oil and gas exploration, account
for around 7 percent of U.S. steel consumption (about 7 million tons of OCTG out of overall
consumption of about 100 million tons). And oil and gas pipe account for around 10 percent of U.S.
steel consumption (about 10 million tons out of 100 million tons).
The numbers outside the United States vary, but a 2014 report from Ernst & Young found that,
“Globally, the pipe and tube sector accounts for around 8% of total steel consumption.”
A sizable cutback on oil drilling and fracking, then, could be felt in the steel industry. But the news
isn’t necessarily all bad.
“It’s very difficult to say what the overall impact of low oil prices will be on the steel sector,” American
Institute for International Steel Executive Director Richard Chriss said. “Supply reductions could
definitely cut into steel sales. However, cheaper oil can also, to take just one example, encourage more
people to drive and, thus, promote car purchases. More importantly, it can also contribute to stronger
economic growth, which would almost certainly increase demand for steel. There are countless
potential second and third-order effects, and we’re working to help our members sort it all out.”
(continued on page 12)
STEEL NEWS | JANUARY - FEBRUARY 2015
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Steel Shorts (continued from page 10)
Growth in Steel Production in China Slows
Steel production in China increased by just 0.9 percent from 2013 to 2014, the slowest annual
growth on record, according to the National Bureau of Statistics.
China’s output last year, nonetheless, totaled a record 822.7 million tons. Some Chinese mining
companies predicted in 2014 that steel production in that country would soon exceed 1 billion tons
a year, but Zhang Guangning, the chairman of the China Iron & Steel Association (CISA), said in
January that, “China’s steel sector has already entered a period of peaking and flattening out.”
Chinese leaders have been seeking to rein in industrial overproduction as part of an effort to remake
the country’s economy.
“As our country’s economy enters a new normal, it’s bringing enormous pressures to the steel
industry,” CISA President Xu Lejiang said.
The slowdown in production happened at the same time that the country’s economic growth dipped
to 7.4 percent, its lowest rate since 1990. With increases in domestic demand slowing, China, which
produces half of the world’s steel, exported a record 93.78 million metric tons of steel last year, 51
percent higher than in 2013.
Democrats Foiled in Effort to Require Domestic Steel for Keystone XL Pipeline
An attempt by Senate Democrats to require that the Keystone XL pipeline be built with domestically
produced steel was blocked on January 20 by the majority Republicans.
The Keystone XL project would build an oil pipeline from Alberta, Canada, down through Montana
and to the Gulf of Mexico. Most Republicans support its construction, while many Democrats oppose it.
Sen. Al Franken, D-Minn., proposed an amendment to legislation to enable construction of the
1,179-mile pipeline that would have required it to be built with steel and other materials from the
United States. Franken was unsuccessful in his attempt to amend the bill.
While the Keystone XL legislation is likely to pass both the House of Representatives and the Senate,
President Obama has said that he will veto the bill.
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with over 5,500 employees located in 17 offices throughout the world. Owing to its roots as a
commodity merchant, BBH is the only US bank with a dedicated commodity finance business that
provides working capital and trade finance solutions to premier, privately owned importers, trading
companies, distributors and service centers within the metals sector. BBH’s deep institutional
knowledge of, and commitment to the commodity supply chain makes uniquely comfortable
with financing inventory, whether domestic or on the water. BBH typically lends to closely held
businesses with revenues of at least $50MM and average senior credit needs of $10 million dollars,
and seeks to develop an owner-to-owner relationship characterized by both corporate and personal
financial partnership and advisory over the long term.
STEEL NEWS | JANUARY - FEBRUARY 2015
12
CUSTOMS CORNER
C-TPAT, AEO, and MRA – Benefits and Drawbacks to Security Arrangements
The first major post 9-11 security program adopted by U. S. Customs was the voluntary
program known as the Customs – Trade Partnership Against Terrorism (C-TPAT). This program
was developed under then Customs Commissioner Robert C. Bonner in part to leverage the
knowledge that importers and subsequently other supply chain providers have about their own
suppliers and operations; in part to give U. S. companies a way to demonstrate their concern with
import security issues; and in part to demonstrate to Congress that methods other than 100% cargo
inspections could be devised to secure America’s imports. C-TPAT quickly grew to include several
thousand certified members, mostly but not exclusively larger companies. Membership allowed
these companies to consider themselves a part of the 9-11 security response, and demonstrate
their commitment to security to Customs and other agencies. As the program expanded to include
customs brokers, carriers, and other service providers, it became a selling tool for such companies
seeking business from C-TPAT certified importers as part of an integrated secure supply chain.
C-TPAT also served as the template for the development by the World Customs Organization
of the SAFE Framework of Standards to Secure and Facilitate Global Trade. A major component
of the SAFE Framework is the Authorized Economic Operator (AEO) concept, including the use
of Mutual Recognition Agreements (MRA) between countries implementing such programs. AEO
programs are required to be full-fledged operations, with strong validation and security components
built in, to qualify for MRA participation. AEO programs have been adopted by dozens of countries,
some using their own program names (Partners in Protection in Canada, the Secure Export Scheme
in New Zealand, the Golden List in Jordan), with Japan, Korea, Taiwan, Singapore, Israel, and all of
the European Union included. As of December 2014, the U. S. has entered into MRA agreements
with all of those jurisdictions, and is working toward agreements with China and Switzerland.
In the decade plus since the institution of the C-TPAT Program, membership grew to
over 10,000 certified partners, but has stagnated at that level over the past several years despite
plans by Customs to at least quadruple the size. (C-TPAT partners do import over 50% of the total
value of U.S. imports, while constituting less than 1% of the total number of importers.) As the
program developed and Customs gained more experience, the minimum security criteria and the
information required from participants – particularly sometimes difficult to obtain data regarding
foreign suppliers; and the formality of presentation – all electronic submission through a web
Portal; increased. Validations have sometimes seemed to use mandatory checklists with limited
applicability, such as questions relating to production facilities applied to office locations, or to
container operations for bulk cargo like steel, with little opportunity to explain the differences
or non-applicability. More validations are also being conducted in expensive, difficult locations,
including those with limited volumes of trade.
A number of companies have begun to question continued participation as the costs and
difficulty of maintaining certification increase, and the benefits seem more distant or elusive.
Although Customs statistics show that C-TPAT participants undergo fewer cargo examinations,
for many companies the actual reduced number has not been too significant. “Front of the line”
exam processing and expedited trade processing by Centers for Excellence and Expertise (CEEs)
have (at least yet) also not been found particularly helpful or necessary. The possibility of expedited
treatment in any trade disruption is seen as (at least so far) an illusory benefit.
(continued on page 14)
STEEL NEWS | JANUARY - FEBRUARY 2015
13
Customs Corner (continued from page 13)
There are some meaningful benefits. For carriers, participation allows access to the FAST
lanes (highway carriers) and penalty mitigation (maritime carriers for late ISF data). Importer
participation is required to join the Importer Self Assessment (ISA) program, and to secure
Partnership level processing from the CEEs. Importers with large numbers of entries receive
greater benefits from reduced inspections. The inclusion of other government agencies, such as the
FDA and TSA, results in benefits to companies regulated by such agencies.
MRAs with AEO countries reduce the time and cost for C-TPAT importers when their
suppliers are part of the exporting country AEO program – both verification and validation is done
by accepting the other country’s approvals. (This does mean that U.S. validations of foreign suppliers
will be of non-AEO companies and countries.) The addition of a C-TPAT for exporters module
means that exporters qualified and validated by U.S. Customs can be accepted as validated suppliers
in the importing country’s AEO program without necessitating a second set of documentation and/
or verification.
It remains to be seen whether the increasing costs and complexity of participating in
C-TPAT will lead to continued lack of growth or even reduction in numbers, or the benefits from
full implementation of the CEEs, improved administration from the consolidation of the trusted
trader programs, and expansion of the number of MRAs will trigger greater interest in becoming a
member. Customs continues to direct significant resources to the program and push new companies
to apply and current members to maintain membership.
Steven W. Baker
AIIS Customs Committee Chair
[email protected]
STEEL NEWS | JANUARY - FEBRUARY 2015
14
Recent Developments in Trade Sanctions against Russia
By Lawrence W. Hanson
Matthew Cummins
Attorneys at Law, The Law Office of Lawrence W. Hanson, P.C.
There have been some significant changes in the United States’ position toward Russia and Crimea
in the past several months and since our last report on this issue. In August and September
2014, the US enforced several regulatory amendments to trade with Russia in the energy and
financial sectors, most notably adding individuals to trade-prohibiting watch lists and focusing on
prohibiting specific transactions with certain entities in deep water, arctic offshore, and shale oil
and gas projects.1 Most recently, the United States has emboldened its stance against democratic
unrest in the Crimean region. Changes have taken place with regard to sanctions against Russia and
the Crimea region at both the executive and legislative levels. President Barak Obama has issued
a new Executive Order and signed an act of congress into law in order to continue to discourage
turmoil in Crimea. Additionally, the United States Department of Commerce, through the Bureau
of Industry and Security, has placed a prohibition on export or reexport to Crimea. Some these
legislative actions directly prohibits steel trade with Crimean entities, and all of these actions may
have latent trade related consequences.
The President issued Executive Order 13685 effective December 19, 2014.2 This EO applies similar
restrictions against the government of Russia to entities that are operating in the Crimea region
of Ukraine, primarily focusing on the prohibition of transactions with persons added to the SDN
list and leaders of firms based in Crimea. Certain transactions with entities that are located within
Crimea or specifically mentioned on the SDN list are no longer permitted without an OFAC
license. What this means for steel firms or businesses heavily reliant upon steel is an increase in
self-assessment and proceeding with extreme caution when dealing with a transaction involving
the Crimean region. Washington has demonstrated further commitment to restricting trade and
eliminating Russian militaristic and aggressive presence in Ukraine. This includes the Crimean
support of Russia’s expansionist agenda, as this executive order makes clear.
In addition to executive order, on December 18, 2014 President Obama Signed the Ukraine
Freedom Support Act.3 The Act primarily details and enforces power the President already had
through authority of a much older piece of legislation, the International Economic Emergency
Powers Act (“IEEPA”), enacted in 1977. IEEPA states the president is authorized to declare the
existence of “an unusual and extraordinary threat […] to the national security, foreign policy, or
economy of the United States.”4 This empowers the President to take action in the form of sanctions
through executive order.
While the Ukraine Freedom Support Act may not lend additional powers to the President, it does
demonstrate the strong and serious stance the U.S. government has taken against Russia and
the potential for future sanctions affecting trade looms more ominously than it did before. The
1
See, Russian Sanctions: Addition of Persons to the Entity List and Restrictions on Certain
Military End Uses and Military End Users, 79 Fed. Reg. 55608, 55609 (Dep’t Commerce September 17, 2014).
2
Blocking Property of Certain Persons and Prohibiting Certain Transactions with respect
to the Crimea Region of Ukraine, EO 13685, December 19, 2014.
3
Ukraine Freedom Support Act of 2014, H.R. 5859, 113th Cong. §4(a)(1) (2014).
4
50 U.S.C. § 1701, et seq.
STEEL NEWS | JANUARY - FEBRUARY 2015
15
legislative stamp of approval provides a bright green light for the President and governmental
agencies to regulate trade with Russia and in the Ukraine.
The immediate effects of the Act are focused on the defense industry and humanitarian expenditures.
The President’s concurrent press release stated there are no plans for new sanctions emerging from
the Act but only the authority to implement them should the circumstance arise.5 This new law
addresses particular areas of interest regarding the Russian invasion of Ukraine; specifically the
defense industry, oil and gas industry, and the authorization of expenses for humanitarian aid and
anti-Russian propaganda.
Most recently, on January 29, 2015 the U.S. Department of Commerce, through the Bureau of
Industry and Security (“BIS”) published amendments to the Export Administration Regulations
(“EAR”) “consistent with the goals and objectives of Executive Order 13685 of December 19,
2014.”6 These amendments state that “imposes a license requirement for exports or reexports to the
Crimea region of Ukraine, or transfers within the Crimea region of Ukraine, of all items subject
to the EAR, other than food and medicine designated as EAR99.”7 These regulations explicitly
dictate a presumption of denial of licenses for those that require one. There is an exception to
this presumption of denial consistent with the Office of Foreign Assets Control (“OFAC”) General
License No. 4 and 5, which provide exceptions for certain humanitarian aid and certain transactions
related to the winding down of business prohibited by sanction, respectively.
In essence, these regulations are codifying the President’s Executive Order prohibitions. Just as the
EO are aimed at limiting trade relationships with Crimea, the BIS regulations utilize a “presumption
of denial” for licenses to transact in Crimea. The license requirement for export and reexport to
Crimea effects almost all products and the exceptions to a license requirement are fairly narrow.
Generally, this amendment to the EAR has a very significant impact on trade relations with Crimea.
As related to the steel industry, these actions signal a heightened and continual attention to the
political environment surrounding Crimea. Steel firms should exercise caution regarding their
business dealings with Russian and Crimean-based entities. A review of federal agency regulations
related to any transactions that involve these countries and/or individuals located on government
watch lists (e.g., SDN and SSI lists) is imperative to ensure compliance. In particular, firms that
deal with any entities located or associated with Crimea should exercise extreme caution and
seek professional advice regarding specific license requirements and practical ability to obtain a
license for products going to Crimea. Further, the United States’ renewed commitment to trade
sanctions with Russia and Crimea signal that any trade related transactions in these regions should
be scrutinized. It is doubtful the US will let up on these barriers to trade without a radical change
in Russian foreign policy.
5
See, Statement by the President on the Ukraine Freedom Support Act (Dec. 18, 2014),
http://www.whitehouse.gov/the-press-office/2014/12/18/statement-president-ukraine-freedom-supportact.
6
See, Russian Sanctions: Licensing Policy for the Crimea Region of Ukraine, 80 Fed. Reg.
4776, 15 CFR Parts 738, 740, 746, and 772.
7
Id.
STEEL NEWS | JANUARY - FEBRUARY 2015
16
CALENDAR OF EVENTS
The Critical Commodities Conference
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April 7-9, 2015
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