Impact of US Federal Government Shut Down on International Trade and Investment: Essential Services vs. Impacted Agencies and Processes

There have been many significant impacts to international trade and the U.S. agencies overseeing such over the last 10 months. Over the last year international trade and investment have had to adapt and react to changes in U.S. trade policy, imposition of a wide array of U.S. tariffs as both trade and foreign policy tools, and funding cuts tied to fraud, waste, and abuse to various U.S. international programs. 

The U.S. Federal Government is now facing a budget shutdown, and based on prior history, may face another going into the year end. It is well-understood that a U.S. government shutdown affects a wide array of federal programs and agencies, but there is less awareness of how a U.S. Federal shutdown affects international trade and investment – which may be further exacerbated in light of the other significant changes in U.S. trade and foreign policy implemented this year. 

The shutdown will have a material impact on trade related agencies such as the State Department, Department of Commerce, Treasury, and even the Committee on Foreign Investment in the United States (CFIUS). As a result, it is important for businesses—whether U.S. or non-U.S.—engaged in either international trade or investment to understand and plan for the potential impacts to their business. This alert is intended to provide a concise overview of the relevant agencies and potential impacts.

U.S. Department of State – Directorate of Defense Trade Controls

The U.S. Department of State, Directorate of Defense Trade Controls (DDTC), is responsible for US registrations, export licenses, and renewal requests covered by the International Traffic in Arms Regulations. The DDTC’s activities were impacted in prior shutdowns. As a result, businesses seeking registrations, export licenses, advisory opinions, and Commodity Jurisdiction determinations should expect delays in processing, and difficulty in reaching agency staff. Conversely, enforcement is deemed an essential service and should not be impacted by the shutdown.

U.S. Department of Commerce – Bureau of Industry and Security

The U.S. Department of Commerce, Bureau of Industry and Security (BIS) is responsible for export license applications, advisory opinions, commodity classification requests (CCATS) covered by the Export Administration Regulations (EAR). BIS operations were affected in prior shutdowns. As a result, those seeking export license applications, advisory opinions, commodity classification requests (CCATS), and other related services should expect delays in processing times, and difficulty in reaching agency staff. Conversely, enforcement is deemed an essential service and should not be impacted by the shutdown.

U.S. Department of the Treasury – Office of Foreign Assets Control

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is responsible for oversight and enforcement of U.S. sanctions and embargos. OFAC operations were affected in prior shutdowns. As a result, those seeking specific licenses or regulatory guidance should expect delays. OFAC’s communications with financial institutions may also be delayed. Conversely, enforcement is deemed an essential service and should not be impacted by the shutdown. Similarly, in prior shutdowns, OFAC continued to maintain the Specially Designated Nationals and Blocked Persons (SDN) List.

U.S. Customs and Border Protection

Being primarily focused on enforcement, the U.S. Customs and Border Protection (CBP) has historically not been significantly impacted by prior shutdowns. More significantly, as part of the Department of Homeland Security (DHS), the majority of CBP services will be characterized as essential. As such, enforcement is deemed an essential service and should not be impacted by the shutdown. As a result, CBP agents and ports of entry will likely not be significantly impacted by the shutdown. Similarly, based on prior shutdowns, the CBP website should be maintained be during the shutdown. However, those seeking guidance from CBP staff or clearance of shipments will likely experience delays.

On a related note, based on prior shutdowns, the Automated Commercial Environment (ACE) system will be maintained. As a result, exporters should continue to submit mandatory Electronic Export Information (EEI) to the Census Bureau. Enforcement activity will also continue during the shutdown. 

Committee on Foreign Investment in the United States

The Committee on Foreign Investment in the United States (CFIUS) is responsible for oversight, approval, and mitigation for Foreign Ownership Control or Influence (FOCI) of non-U.S. investments in American businesses with certain controlled technologies, real estate or critical infrastructure, or sensitive personal information – referred to as “TID.” It has been reported that CFIUS will delay the formal “acceptance” of new filings until after the shutdown to avoid the tolling of statutory review deadlines. As a result, those intending to submit either a mandatory notice or voluntary declaration should expect CFIUS to extend the review period and delay clearance. Conversely, enforcement should not be impacted by the shutdown.

Trade and Foreign Policy Tariff Initiatives

As with other trade related enforcement efforts, the White House has indicated that the various tariff initiatives – whether trade or foreign policy related -- implemented since the first of the year will not be impacted by the shutdown, including tariff enforcement, collections, and Section 232 investigations by the Department of Commerce International Trade Administration. It is unclear how the shutdown will impact tariff related cases currently pending in various US Federal trial and appellate courts.

Conclusion

While U.S. federal government shutdowns have historically been short lived, based on efforts earlier this year to reduce the size and expenditures of various agencies, it is unclear if the shutdown will facilitate permanent cuts or result in longer-term impacts on trade related agencies. It is therefore important for businesses—whether U.S. or non-U.S.— engaged in either international trade or investment to understand and plan for the potential impacts to their business, whether from a temporary shutdown, or longer-term funding and staffing cuts. 

As a result, decision-makers should consider how impacts to the relevant U.S. agencies may affect their business, and to establish workable plans to minimize those impacts to operations.