The BR International Trade Report: September 2024

Welcome to this month’s issue of The BR International Trade Report, Blank Rome’s monthly digital newsletter highlighting international trade, sanctions, cross-border investment, geopolitical risk issues, trends, and laws impacting businesses domestically and abroad.

Recent Developments

BIS issues export controls targeting GAAFET, quantum, additive manufacturing, and other emerging technologies.
On September 5, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued new export controls covering gate all-around field effect transistor (“GAAFET”) technology, quantum computing items, advanced semiconductor manufacturing equipment, additive manufacturing equipment, and aerospace coating systems technology. The BIS rule establishes an export licensing requirement for the export of any such covered item to any destination in the world, as well as a new license exception authorizing export to certain specified “like-minded” countries that have implemented similar controls. See our alert.

Canada announces 100 percent tariff on Chinese EVs, while China retaliates with probe into imports of Canadian canola.
Canada’s electric vehicle (“EV”) tariff follows similar measures by the United States and the European Union, based on claims that China subsidizes its EV industry and thus has an “unfair advantage,” in the words of Canadian Prime Minister Justin Trudeau. Following the announcement of the tariff, China announced an antidumping investigation regarding imports of Canadian-origin canola.

BIS proposes rule establishing reporting requirements for AI developers and cloud providers.
On September 9, BIS issued a notice of proposed rulemaking outlining new requirements for developers of powerful AI models and computing clusters to report certain information to the U.S. government. Reportable information would include development activity, cybersecurity measures, and results of “red-team” testing to identify capabilities for illicit uses such as cyberattacks and development of chemical, biological, radiological, or nuclear weapons. The deadline for comments on the proposal is October 11.

United States implements AUKUS through ITAR exemptions for Australia and the United Kingdom.
On August 16, 2024, the U.S. Department of State announced a broad exemption from export licensing requirements under the International Traffic in Arms Regulations (“ITAR”) for most defense trade involving “authorized users” in the United States, Australia, and the United Kingdom. The ITAR relief was the linchpin of implementation of the AUKUS security pact between the three defense partners. See our alert.

Canada seeks public input on United States-Mexico-Canada Agreement (“USMCA”).
Canada has asked for public input on what Canadian priorities should be in the upcoming trilateral review of the USMCA in 2026. Unlike the previous North American Free Trade Agreement, the USMCA provides for a review at least every six years to assess how the agreement is doing and whether it should continue. Canada is inviting input on key areas that “are working well and potential areas for improvement.” Comments are due by October 31, 2024.

United States to dispute Canadian Digital Services Tax in USMCA.
The United States will challenge Canada’s new tax on digital services in a dispute under the USMCA. Canada imposes a tax on online revenues from companies that have a large global presence (€ 750 million in revenues) as well as Canadian digital revenue of $20 million (US$15 million). The U.S. claims that the tax unfairly discriminates against U.S. businesses. The first step will be consultations between the U.S. and Canadian governments. If a resolution cannot be reached, the U.S. may then request a formal dispute resolution panel. Governments have also been negotiating for years at the Organization for Economic Cooperation and Development (“OECD”) for an agreed regime to govern these taxes, and those negotiations are ongoing.

Xi Jinping touts U.S.-China “traditional friendship.”
In a meeting with U.S. National Security Advisor Jake Sullivan on August 29, Chinese leader Xi Jinping spoke of China’s interest in preserving stability in U.S.-China relations, referred to the “traditional friendship” between the two countries, and asked Sullivan to pass on his regards to President Biden. Sullivan reported after the meeting that he reassured Xi that the United States seeks to maintain stable ties, but also pressed the issues of de-escalation in the South China Sea and concerns over U.S. election interference.

The Netherlands adopts new export controls on semiconductor manufacturing equipment (“SME”), while Japan anticipates robust SME sales to China.
The Dutch government announced new controls on exports of certain advanced SME on national security grounds, reportedly bringing Dutch law in line with U.S. restrictions, a move that China blamed on U.S. “coercion.” Meanwhile, reports indicate that Japanese SME companies are counting on significant revenue from Chinese customers, even amidst heightened U.S. export controls, based on sales of SME for less advanced legacy chips that are used in cars and not in smartphones or advanced AI applications.

Huawei reportedly planning to unveil AI chip.
Reports indicate that Chinese telecom giant Huawei is nearing a release of an artificial intelligence chip, the Ascend 910C, that supposedly is comparable to high-end U.S. AI chips. The potential development comes as intense U.S. export controls aim to restrict the flow to China of advanced semiconductors that power the AI technology stack, and likely will prompt calls by Congress and national security thought leaders to consider continued calibration of U.S. policy in addressing technology-related national security challenges.

Federal study recommends that Pentagon engage with commercial chipmakers.
A report by the National Academies of Sciences, Engineering, and Medicine found that the U.S. Department of Defense (“DoD”) “currently lacks an overarching microelectronics strategy.” The report recommends that the DoD work more closely with the semiconductor industry, as it did in the latter half of the 20th century, and partner with civilian agencies such as the U.S. Department of Commerce in order to ensure a reliable supply of semiconductors for national defense.

China implements new export controls for antimony and revises controls for drones.
China recently updated its export controls amidst escalating volleys of trade controls between the United States and China. First, China issued restrictions on exports of antimony, a key input in military items such as missiles, nuclear weapons, night vision goggles, and ammunition. Furthermore, China is adjusting its export controls over drones to lift temporary export controls over certain consumer drones, adjust standards for other controlled items, and add certain high-precision measurement equipment to its control list.

Biden Administration crafting plan for a U.S. sovereign wealth fund (“SWF”). National Security Advisor Sullivan reportedly is working on a proposal for a U.S. SWF that would support investments in emerging technologies and critical minerals, in an effort to keep pace with countries like China and Singapore, which have invested aggressively through SWFs. The plan is similar to a recent proposal by former President Trump, suggesting there could be bipartisan support for the measure.

United States considers price support for critical minerals projects.
Reports indicate that the Biden Administration is considering price support for certain U.S. critical minerals projects, in response to an influx of less costly Chinese lithium, nickel, and other minerals, and delays and cancellations of several U.S. minerals processing projects. Specifically, the administration reportedly is considering the establishment of a price floor for a limited time, with the U.S. Department of Energy paying the difference when market prices fall below the floor. The mechanism would be intended to assure investors and customers that domestic suppliers can thrive.

OFAC extends recordkeeping requirements from five to 10 years.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued an interim final rule extending the recordkeeping requirement under economic sanctions regulations from five years—which had been the requirement for decades—to 10 years. The measure is consistent with the recent extension of the statute of limitations for sanctions violations from five years to 10 years. See our prior alerts.

BIS expands export controls against Russia and Belarus.
BIS issued measures on August 23 that (i) expanded the scope of the Russia/Belarus Military End User and Procurement Foreign Direct Product rule; (ii) added 123 entities to the Entity List; (iii) added four high-diversion risk addresses to the Entity List to target diversion through shell companies; and (iv) issued new guidance to exporters on contractual language restricting exports to Russia and Belarus.

United States International Trade Commission (“USITC”) proposes quota on textile materials.
The four commissioners of the USITC unanimously recommended that the President impose a four year tariff-rate quota on imports of fine denier polyester staple fiber (“PSF”), to address serious injury to the U.S. domestic industry. Fine denier PSF is used in the production of textiles and other products such as diapers, baby wipes and coffee filters. The USITC recommends that a number of countries be excluded from this quota, primarily free trade partners of the United States. The President has the final decision on whether or not to impose a tariff-rate quota.

In Case You Missed It…

DDTC Issues Long-Awaited Rule Implementing AUKUS: Five Key Takeaways
On August 16, 2024, the U.S. Department of State announced a broad exemption from export licensing requirements for most defense trade between and among “authorized users” in the United States, Australia, and the United Kingdom, thereby issuing much-anticipated export control relief in implementation of the AUKUS security pact. Read More >>

BIS Issues New Export Controls Targeting GAAFET, Quantum, and Additive Manufacturing, and Ushers in New Age of Plurilateral Export Controls: 5 Key Takeaways
The U.S. Department of Commerce’s Bureau of Industry and Security recently issued an interim final rule under the Export Administration Regulations imposing licensing requirements for exports to all destinations worldwide of certain gate all-around field effect transistor technology, quantum computing items, advanced semiconductor manufacturing equipment, additive manufacturing equipment, and aerospace coating systems technology. Read More >>