Draft controls target military support systems

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Jul 29, 2024 View in browser   By Ari Hawkins With help from Doug Palmer QUICK FIX — The Biden administration has unveiled new proposals to further restrict American adversaries’ access to intelligence services that could be used to fuel foreign militaries. — Several U.S. states have begun the process of divesting from China in another signal of deteriorating relations between the world's largest economies. — The United States on Friday blocked China’s first request for a WTO dispute settlement panel to assess various Inflation Reduction Act tax credits and accused Beijing of slowing progress on climate change. It’s Monday, July 29. Welcome to Morning Trade! Let me know what sport you’re looking forward to as the Olympic games in Paris continue. The opening ceremony was quite a moment. Share suggestions and trade news to ahawkins@politico.com, gbade@politico.com and dpalmer@politico.com. You can also follow us on X: @_AriHawkins, @GavinBade and @tradereporter.   Pro Briefing: Kamala Harris and the World. What we expect on foreign policy and trade. Join POLITICO Pro for a deep-dive conversation with our specialist reporters about the vice president’s approach to foreign policy. Register Now.     Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You’ll also receive daily policy news and other intelligence you need to act on the day’s biggest stories. Driving the day Secretary of Commerce Gina Raimondo speaks during a moderated conversation in West Lafayette, Indiana. | Darron Cummings/Pool/AFP via Getty Images DEFENSE CONTROLS ON TAP: The Departments of State and Commerce are proposing new rules to tighten export controls and pull back U.S. support for foreign military intelligence security services that give Washington’s adversaries a leg up. The proposed changes, released last week, would introduce new limitations on U.S. individuals and entities providing assistance to foreign military intelligence end-users in more than 40 countries of concern. The measures would also tighten the scope of export licenses for certain defense-related services and impose new restrictions on exporting AI-powered facial recognition technology. The why: The multi-agency push comes as lawmakers on both sides of the aisle urge the Biden administration to further crack down on exports of advanced technology to countries such as China, and after major tech companies modified their high tech exports to avoid penalties under updated standards. Public comments for the changes are due September 27. State’s move: State’s proposed rule, slated for publication today, would revise the definition of defense services and alter the scope of controls under the International Traffic in Arms Regulations, which is designed to facilitate the export of defense and military-related technology. The rule would also expand regulated activities to include actors that provide “assistance, including training or consulting, to foreign persons in the development (including, e.g., design), production (including, e.g., engineering and manufacture), assembly, testing, repair, maintenance, modification, disabling, degradation, destruction, operation, processing, use, or demilitarization of a defense article.” Military focus: One proposal from Commerce’s Bureau of Industry and Security would expand restrictions to cover activities from U.S. persons that assist military end users in accessing foreign-made items. The rule would further tighten restrictions on third-party repairs or maintenance services on items owned by a military end user. According to examples listed in the draft rule, there could be new penalties for assisting defense contractors in a targeted country with the production of a controlled armored vehicle or helping an electronics company develop integrated circuits ordered by the armed services in a covered country. Foreign security end-users: Another proposal from BIS would create an export control for foreign security end-users in various countries of concern. The rule would impose new requirements for items on the Commerce Control List, which helps organize what exports may require a special license. It would, among other changes, also create new restrictions for facial recognition systems, which the agency said has been coupled with artificial technology from adversarial governments to target victims at higher rates. On this front, the measure would create a new so-called CC1 control for "facial recognition systems specially designed for mass-surveillance and crowd scanning." Around the World ‘CIRCLE THE WAGONS’: Five U.S. states — Indiana, Florida, Missouri, Oklahoma and Kansas — have directed state fund administrators to begin the divestment process from China over the past year, the latest signal of deteriorating relations between the two countries. While the states that have taken such steps are heavily Republican, the trend reflects a souring in the perception of China in the U.S that goes beyond political parties. “This is a great issue for folks to put politics aside, circle the wagons and say ‘We’re going to stand against the Communist Chinese Party and all the threats they pose to our nation,’” said Indiana state Sen. Chris Garten, who authored his state’s bill. For years, pension funds clamored alongside U.S. companies to invest in a growing economy that many once believed would become less authoritarian as it modernized. Now the states are looking at China and seeing a pile-up of risks. States aren’t alone: The Federal Retirement Thrift Investment Board, the main U.S. federal government pension fund, announced in November that it would stop investing in Hong Kong and China-listed stocks due to worsening U.S.-China friction. Phelim Kine has more. TAI TO ECUADOR: U.S. Trade Representative Katherine Tai is traveling this week to Quito, Ecuador, for a trade ministerial meeting under the Biden-led Americas Partnership for Economic Prosperity, the agency confirmed Friday. In Ecuador, Tai is expected to hold bilateral meetings with APEP ministers and participate in other meetings. She will meet Ecuadorian President Daniel Noboa Azin on Thursday, and later meet with Guyanese President Mohamed Irfaan Ali, USTR said. Some context: The ministerial gives officials another chance to hammer out a path forward for the initiative. Earlier this month, APEP members agreed they needed to come up with criteria to expand the group during its foreign affairs ministerial in Washington. REGULATORY REVIEW U.S. DELAYS CHINA’S IRA CHALLENGE: The United States on Friday blocked China’s request for a WTO dispute settlement panel to decide whether key provisions of President Joe Biden’s Inflation Reduction Act violate global trade rules. Beijing can make a second request for a panel, which the United States will not be able to block, at the WTO’s next Dispute Settlement Body meeting on September 23. It could also request a special DSB meeting earlier, if it prefers not to wait. While it is fairly routine for countries to block initial panel requests, the United States delivered a long defense during Friday’s DSB meeting of the subsidies provided for electric vehicles and other clean energy priorities under the IRA. The U.S. delegate at the meeting also accused China of trade “hypocrisy” given Beijing’s own actions. “In short, it is hypocritical for China to target the U.S. measures in this dispute while failing to address its industrial targeting of clean energy sectors and its use of non-market policies and practices that are detrimental to all Members,” the U.S. delegate said. Doug has more.   The space economy is already woven into our lives in ways we don't always appreciate, creating a global backbone for communications, media, data, science and defense. It's also becoming an increasingly competitive zone among nations - and a venue for complex and important public-private partnerships. Join POLITICO on July 30 for a conversation about what Washington needs to understand is at stake – which sectors of the global economy see their growth arc in space, and what the role of government leaders is in both growing and regulating the explosion of orbital ideas. REGISTER     SPECIAL EVENTS Adham Sahloul has been named special assistant and adviser in the Office of Policy at the U.S. Agency for International Development. He most recently was special assistant in the White House Liaison Office in the Office of the Secretary of Defense. TRADE OVERNIGHT — WTO members reach ‘historic' e-commerce deal without U.S., per POLITICO Pro. — Treasury Secretary Janet Yellen says $3 trillion of fresh capital is needed annually to fight climate change, per POLITICO. — The EU says it wants food security. It really wants exports, per POLITICO Europe. — Unions play it cool in veepstakes, per POLITICO Pro. — U.S. revamps Japan command amid China’s threats, per POLITICO. THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: dpalmer@politico.com, gbade@politico.com and ahawkins@politico.com. Follow us @POLITICOPro and @Morning_Trade.   Follow us on Twitter Ari Hawkins @_AriHawkins Doug Palmer @tradereporter Gavin Bade @GavinBade Adam Behsudi @ABehsudi Emily Cadei @emilycadei   Follow us

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