EXPORT/INTERNATIONAL TRADE 2021
Supply Chains: A Shifting Indo-Pacific / Interactive Web Tool Asia Society Policy Institute (ASPI) released an interactive web tool, Supply Chains: A Shifting Indo-Pacific, that maps out the concrete policy measures 17 economies in the region are taking to improve their investment climates, incentivize the movement of supply chains, and, in some cases, encourage the reshoring of overseas businesses. *Since its founding in 1956, the Asia Society has sought to explain the diversity of Asia to the United States and the complexity of the United States to Asia. For more than 60 years, the Asia Society has built bridges and helped to solve problems within the region and between Asia and the wider world. With a solution-oriented mandate, ASPI (the Asia Society Policy Institute, a “think-and-do tank”) expands this mission by tackling major policy challenges confronting the Asia-Pacific in security, prosperity, and sustainability, and by helping to develop common norms and values for the region.
Getting Smart About Smart Cities This CNAS policy brief examines some of the systemic vulnerabilities that facilitate misuse of smart city technology by governments and provides snapshots of cities across the Indo-Pacific that have managed these vulnerabilities to successfully implement smart technology within the precepts of a liberal digital order. It then offers guiding principles for policymakers in Washington to further facilitate the growth of responsible smart city development in the Indo-Pacific. More smart cities are coming, and those that are already here will continue to grow more technologically advanced. What that means for the state of Indo-Pacific digital governance in five, 10, and 50 years depends on the foundation laid by policymakers today while the concept of smart cities is still new.
China Pathfinder China Pathfinder is a new initiative from the Atlantic Council’s GeoEconomics Center and Rhodium Group that seeks to measure China’s system relative to advanced market economies. The goal is to shed light on whether China’s economic system is converging with, or diverging from, leading open market economies. In their inaugural report they examine six elements of the market economy model: financial system development; market competition; modern innovation system; trade openness; direct investment openness; and portfolio investment openness. With the launch of this annual scorecard, and subsequent quarterly updates, China Pathfinder aims to put recent developments like the crackdown on private technology companies, Beijing’s “dual circulation” strategy, and the debate over “common prosperity” into a broader framework to help policymakers and businesses assess China’s economic trajectory.
Escalation in the Taiwan Strait: What to Expect from Europe? Over the last few years, tensions in the Taiwan Strait have led to great concerns over Chinese territorial claims in the region. The potential for an escalation is high – with significant implications for Europe. At the same time, the Biden administration is pursuing a tough stance on China and expects Europe to join a transatlantic approach. Against this backdrop, Körber-Stiftung, in cooperation with the Chatham House Asia-Pacific Programme, brought together a high-level group of senior experts, politicians, and officials from France, Germany, Italy and the UK to address a fictional scenario of a political security crisis in the Taiwan Strait. The recently published Körber Policy Game scenario report summarises the results of these discussions and offers policy recommendations. Körber-Stiftung’s report is here.
CSET Legislation Tracker The CSET Legislation Tracker serves as a resource to identify and monitor federal legislation related to emerging technology and national security. In addition to widely covered bills, members of Congress have introduced proposals to secure the U.S. research enterprise, bolster domestic semiconductor production capacity, promote technology alliances with like-minded partners and improve STEM workforce development. This tracker catalogues legislation on topics within CSET’s key areas of inquiry and relevant to U.S. science and technology leadership. Each piece of legislation is represented as a card. Each card includes the bill’s title, sponsor, number of cosponsors and committee of jurisdiction. The panel on the right displays the CSET research topic within which the bill falls and the bill’s current status. At the top of the tracker, users will find pinned cards highlighting specific bills that we deem significant based on widespread media coverage or notable movement through the legislative process.
Trade, Technology & Connectivity The TTC meeting in Pittsburgh offered glimmers of hope, with both sides committing to closer cooperation on export controls, investment screening, and standard setting. According to a Senior Visiting Fellow, Asia Program of the German Marshall Fund of the United States*: “I was told that officials in Washington have also begun discreet discussions with partners like the Netherlands and Japan in a bid to forge a consensus, outside of the Wassenaar Arrangement, on export controls related to semiconductors. A common approach from like-minded countries on this important issue would send a strong signal. There are also signs that Europe is preparing to move on other China related policies that have been stuck for years in a bureaucratic morass. It was encouraging to see European Commission President Ursula von der Leyen embrace a revamp of the EU’s connectivity strategy—renamed Global Gateway—in her State of the Union speech in mid-September. Still, there are reasons to question whether the European Commission is serious about developing a real geopolitical alternative to China’s Belt and Road Initiative (BRI), as big member states have been urging. At the same time as it is touting Global Gateway, I learned, EU institutions are also poised to double down on connectivity cooperation with China, with the launch of a major $2 million study (with funding split between Brussels and Beijing) of rail transport corridors between Europe and China. The study, to be carried out by the European Bank for Reconstruction and Development and the Asian Infrastructure Investment Bank, has raised eyebrows among some EU diplomats because it includes the possibility of rail corridors through countries like Iraq, Syria, India, Pakistan, Iran, and Afghanistan. Some see this as a use of EU taxpayer money to further Beijing’s BRI ambitions in its zones of interest. The European Commission will have to explain how this project fits with Global Gateway, an initiative that Von der Leyen has made clear is aimed at countering Beijing’s influence”.
U.S.-EU Trade and Technology Council Inaugural Joint Statement The EU-US Trade and Technology Council (TTC) met for the first time in Pittsburgh on 29 September 2021. The Joint Statement says that, “As a demonstration of our shared commitment to make progress on the objectives of the TTC, the European Union and the United States have identified the following outcomes in specific areas, the details of which are further reflected in Annexes I-V.” Below are three of the six outcomes:
- We believe that our openness to foreign investment is essential for economic growth and innovation. We also face common challenges in addressing related risks. We intend to maintain investment screening in order to address risks to national security and, within the European Union, public order. We recognize that our investment screening regimes should be accompanied by the appropriate enforcement mechanisms. Furthermore, investment screening regimes should be guided by the principles of non-discrimination, transparency, predictability, proportionality, and accountability, as set forth in relevant OECD guidelines. We also intend to engage with partner countries and stakeholders on investment screening.
- We recognize the importance of effective controls on trade in dual-use items. Such export controls are necessary to ensure compliance with our international obligations and commitments. We affirm that a multilateral approach to export controls is most effective for protecting international security and supporting a global level-playing field. We note that the potential applications of emerging technologies in the defense and security field raise important concerns, and recognize the need to address these risks. We have determined shared principles and areas for export control cooperation, including in export control capacity-building assistance to third countries, and recognize the importance, where appropriate and feasible, of prior consultations to ensure that the application of export controls is transparent and equitable for EU and US exporters.
- With respect to global trade challenges, we intend to work closely together to address non-market, trade-distortive policies and practices, improve the effectiveness of our respective domestic measures that address those policies and practices, and explore ways to combat the negative effects of such policies and practices in third countries. We also intend to work together to maintain competitive, free, and fair transatlantic commerce in new and emerging technologies, by avoiding new and unnecessary barriers to trade in these technologies, while always respecting the European Union’s and the United States’ regulatory autonomy and promoting openness and transparency. In these and other efforts, we intend to maintain a particular focus on using and coordinating the use of our trade policy tools. We aim to protect workers and labor rights, and combat forced and child labor. We intend to address relevant trade, climate, and environmental issues.
Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects China has provided record amounts of international development finance and established itself as a financier of first resort for many low- and middle-income countries (LMICs) over the last two decades; however, its grant-giving and lending activities remain shrouded in secrecy. Thirty-five percent of infrastructure projects financed through China’s Belt and Road Initiative (BRI) struggle with corruption, labor violations, environmental pollution, and public opposition, according to a Policy Report by AidData. The report introduces a uniquely comprehensive and granular dataset of international development finance from China. It captures 13,427 projects worth $843 billion across 165 countries in every major world region over an 18-year period. AidData is a research lab at William & Mary’s Global Research Institute.
Saudi Arabia’s new Committee to Examine Foreign Investments The Kingdom of Saudi Arabia’s (KSA’ s) Cabinet of Ministers launched a new Permanent Ministerial Committee for Examining Foreign Investments (CEFI) that would review foreign investments for potential national security threats. This development comes at an important time as Saudi Arabia opens its doors for foreign investments in pursuit of the Vision 2030 plan. The Ministry of Investment recently reported that foreign investment licenses in the KSA rose 108% in the first half of 2021 in comparison the preceding year. The committee is expected to function in a manner similar to the Committee on Foreign Investment in the United States (CFIUS), and the proposed UK National Security and Investment Bill, although its future role and implementation remain to be determined. According to the Saudi Gazette, established in 1978 and based in Jeddah, KSA: “The competent authorities have approved the formation of a permanent ministerial committee called the “Permanent Ministerial Committee for Examining Foreign Investments,” Okaz/Saudi Gazette has learned from well-informed sources. The main task of the committee is to work out a list of individuals and companies that are banned from investing in the Kingdom and updating the list from time to time and that is in coordination with the concerned authorities. The committee will be concerned with identifying sensitive and strategic sectors that would have direct or indirect impact on national security or public order. It will constantly update these sectors, and will fix the upper limit of the percentages of direct and indirect ownership of foreign investors in shares of Saudi companies operating in sensitive and strategic sectors, as well as in securities, which are issued by these companies, and that are convertible into capital. The committee will work on fixing the necessary controls and penalties for violations with regard to foreign investors who own shares in Saudi companies operating in sensitive and strategic sectors. The committee will have the right to request any information, data, reports, statistics or visuals from all ministries and other government agencies required by it. It can also invite any government agencies and seek the assistance of specialists and consultants it deems fit to attend its meetings without having the right to vote. Minister of Investment will be the chairman of the committee, of which the members include Minister of Commerce, Minister of Economy and Planning, Minister of Communications and Information Technology, and the heads of the boards of many government agencies. The agencies will be represented by the Local Content and Government Procurement Authority, the Saudi Authority for Intellectual Property, the Capital Market Authority, the Saudi Data and Artificial Intelligence Authority as well as the governors of the General Authority for Foreign Trade, the General Authority for Competition”.
CFIUS, Team Telecom and China In the past few years, two federal government interagency committees—the Committee on Foreign Investment in the United States (CFIUS) and Team Telecom—have begun to play an important role in the government’s effort to counter potential threats from Chinese companies’ involvement in the United States. Both committees review certain foreign companies’ American investments. CFIUS has jurisdiction over a broad swathe of foreign investment in the U.S., and Team Telecom’s jurisdiction covers certain licenses for foreign telecommunications companies to operate. Both committees have become more assertive—often retroactively ordering divestiture or revocation against Chinese companies, sometimes years after an investment was completed or a license granted. And notably, both committees seem to be broadly maintaining a similar posture under President Biden as under President Trump. This post reviews both committees’ origins and activities.
The Committee on Foreign Investment in the United States is an interagency committee, headed by the treasury secretary, tasked with reviewing foreign in-bound investments for national security risks. If CFIUS deems a foreign investment a national security threat, it can force the investor to pursue measures to mitigate the risks or recommend that the president prohibit the transaction or order divestiture of a past investment. CFIUS orders or presidential orders on CFIUS’s recommendation are subject only to limited judicial review and the government does not have to produce extensive justifications for its national security recommendations or divestment orders. CFIUS never publicizes its reviews and publishes few details about its internal deliberations or reasoning for specific cases. CFIUS, historically, intervened rarely and focused primarily on investments critical to national security. CFIUS’s few public actions, along with media reports on CFIUS activity over the past five years, yields several trends that are particular to CFIUS, beyond those trends shared with Team Telecom and enumerated above. CFIUS has been particularly aggressive toward in-bound Chinese investment in the semiconductor industry (a long-standing concern) and to investments giving Chinese firms access to Americans’ personal data (a new concern). Moreover, while CFIUS under the Biden administration seems on track to continue Trump-era CFIUS’s aggressive focus on China and technology, Biden’s emerging effort to multilateralize foreign investment screening via intelligence sharing partnerships with allies and coordinated reviews suggests a potential break with Trump. More in this Lawfare article.
Overcoming the Tragedy of TPP In common parlance today, the word “tragedy” is used to describe any ill fortune that befalls a person or group: a destructive earthquake, a fatal shooting, the death of a family member from disease. But to the ancient Greeks, tragedy involved an element of human error (“hamartia’), not just external circumstance. On this measure, the saga of the United States and the Trans-Pacific Partnership (TPP) would have given Sophocles enough material for an epic to rival Oedipus Rex. From the start, TPP was marked by tragic irony—with China always in a supporting role. The George W. Bush administration notified Congress of its intent to negotiate a high-standard trade agreement with Asia-Pacific partners on September 22, 2008—one week into a global financial crisis that would severely undermine U.S. economic leadership and embolden Beijing. While quick to embrace TPP and successful in concluding an agreement among the parties, President Barack Obama fatally delayed pushing for trade promotion authority from Congress in 2014—choosing instead to name the chairman of the relevant Senate committee, Max Baucus, as his ambassador to China. And in one of his first, catastrophic acts as president, Donald Trump withdrew the United States from the unratified TPP—not understanding that it was one of the most powerful tools he had to compete with his nemesis, China. And now the People’s Republic of China has applied to join TPP’s successor agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Tragic irony, indeed. More in this CSIS Commentary.
Commission Recommendation (EU) 2021/1700 Commission Recommendation (EU) 2021/1700 of 15 September 2021 on internal compliance programs for controls of research involving dual-use items under Regulation (EU) 2021/821 of the European Parliament and of the Council setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items. Commission Recommendation (EU) 2021/1700 recommends that member states and exporters take account guidance for compliance programs in relation to the new EU dual-use export regulation. The guidance:
- Outlines the basic dual-use export control regime and controls on software, technology and certain activities;
- Identifies research areas and scenarios that could trigger dual-use export controls;
- Clarifies who is considered “the exporter” for the purposes of research; and
- Gives guidance for internal compliance programs.
Taiwan submits bid to join CPTPP trade pact Taiwan announced Thursday that it has submitted an application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the cabinet said late Wednesday, in a move expected to trigger opposition from China. Taiwanese authorities have submitted the application to New Zealand, which acts as the depositary for the Pacific rim trade pact, and sought the support of all existing members. Details on the application will be announced Thursday. The move comes less than a week after China last Thursday applied for membership in the CPTPP, which sets rules for tariff-free trade and investment and data flows. The timing suggests a rush by Taipei in response to Beijing’s bid. In order to join the CPTPP, Taiwan will need approval from all 11 of its existing members, which include Japan and Australia. The island already has bilateral free trade agreement with New Zealand and Singapore, another CPTPP member. Securing membership in the CPTPP has been a goal for Taiwanese President Tsai Ing-wen, who has not sought to join the Regional Comprehensive Economic Partnership, a China-led regional trade pact that also includes Southeast Asia, Japan, South Korea, Australia and New Zealand. Taiwan’s bid is likely to be followed by diplomatic wrangling as Taipei and Beijing each seek to influence existing CPTPP members. More in this recent NikkeiAsia article.
National Artificial Intelligence Strategy (UK) The U.K. government on Wednesday released its 10-year plan to make the country a global “artificial intelligence superpower”, seeking to rival the likes of the U.S. and China. The so-called “National Artificial Intelligence Strategy” is designed to boost the use of AI among the nation’s businesses, attract international investment into British AI companies and develop the next generation of homegrown tech talent.
Notice of Request for Public Comments on Risks in the Information Communications Technology Supply Chain On September 20, 2021, the Bureau of Industry and Security (BIS) published a Notice of Request for Public (RFC) Comments on Risks in the Information Communications Technology Supply Chain. The RFC calls for comments on cybersecurity and supply chain challenges for the ICT sector and will inform a federal report on ICT supply chain resiliency. Comments are due on November 4, 2021.
‘Just Get Me a Box’: Inside the Brutal Realities of Supply Chain Hell It’s mid-August, and her phone won’t stop pinging. Her faucets, sinks, and toilets are waylaid near Shanghai, snagged in Vancouver, and buried under a pile of shipping containers in a rail yard outside Chicago. As U.S. transportation manager for Gerber Plumbing Fixtures LLC, a unit of Taiwan’s Globe Union Industrial Corp., that’s based in Woodridge, Ill., she is trying to overcome the biggest shock wave to unsettle global trade since the dawn of container shipping almost seven decades ago. The pandemic has thrown the vital but usually humdrum world of logistics into a tailspin, spurring shortages of everything: masks and vaccine vials, semiconductors, plastic polymers, bicycles, and even baseball bobbleheads. For the logistics manager it’s complicated, the shipment of about 10,000 20-foot containers of bathroom equipment she brings into the U.S. each year from China and Mexico, but it has also revealed a bigger, structural challenge. The system underpinning globalization—production on one side of the planet, connected to consumers on the other by trucks, ships, planes, cranes, and forklifts—is too rigid to absorb today’s rolling tremors from Covid-19, or to recover quickly from the jolts to consumer demand or the labor force. It’s avoided a complete collapse only through a combination of human ingenuity, painfully long hours, and, as Thomas describes a recent success, strategy, mixed with a stroke of luck. More in the Bloomberg Businessweek article of September 16, 2021.
Advancing U.S. Goals in the U.S.-EU Trade and Technology Council As the Biden administration works with its EU counterparts through the new U.S.-EU Trade and Technology Council (TTC), it should hold firm in defending the superior U.S. innovation system. To that end, U.S. negotiators must first clarify their positions on at least four strategic questions, according to this ITIF new report (the Information Technology and Innovation Foundation is an independent, nonprofit, nonpartisan research and educational institute). Key takeaways:
• The EU’s precautionary approach to digital technologies is antithetical to U.S. economic and national security interests because it limits innovation and growth, which the United States urgently needs.
• It is critical for U.S. negotiators to vigorously defend U.S. economic interests in the TTC. They should not gloss over real differences in privacy rules, AI regulation, antitrust regulation, digital taxation, content moderation, and others.
• When it comes to areas of regulation that affect cross-border trade, the United States and EU should work together more closely to ensure their respective approaches are interoperable.
• It would be ideal if the EU were to unequivocally join the United States to limit Chinese innovation mercantilism and digital authoritarianism, but if the EU takes even limited measures toward that goal, it would be a success.
• Both sides need to commit to a successful relationship. But U.S. negotiators should not define success as emulating the EU or increasing cooperation for its own sake; they should increase cooperation while advancing key U.S. national interests.
Department of Commerce Establishes National Artificial Intelligence Advisory Committee U.S. Secretary of Commerce Gina Raimondo announced that the Commerce Department has established a high-level committee to advise the President and other federal agencies on a range of issues related to artificial intelligence. Working with the National AI Initiative Office in the White House Office of Science and Technology Policy, the Department is now seeking to recruit top-level candidates to serve on the committee.
The Rare Earth Myth China dominates the mining and refinement of rare earths, which are needed for almost all of the electronic devices that power our 21st-century lives. But contrary to popular perception, China neither can nor wants to weaponize the global supply, according to this article in SupChina.
The UK and China’s security and trade relationship: A strategic void HOUSE OF LORDS / International Relations and Defence Committee / 1st Report of Session 2021–22
United Kingdom Strategic Export Controls Annual Report 2020 The UK government has published its Strategic Export Controls Annual Report 2020. It covers the export licensing process and data, UK legislation post Brexit, the Court of Appeal judgment on military exports to Saudi Arabia, and compliance and enforcement.
In the driver’s seat: China’s electric vehicle makers target Europe China will become a major automotive export hub with localized supply chains – and Europe is the main market, finds a new MERICS report. The report’s main findings and recommendations are:
China will become a major automotive export hub. Fueled by technological change, huge production capacity and government support China has the necessary requirements to export vehicles on a large scale.
Europe is the main market for Chinese electric vehicle (EV) exporters. Europe has the second highest demand for EVs after China. Buyers benefit from high subsidies and a comparatively well-developed charging network. China’s automakers have government support to master European safety ratings.
China’s government directs and pressures Chinese and China-based foreign carmakers to export. The government has relegated its ambition to primarily promote national champions in favor of absorbing global value chains. The government is also setting targets and providing information about overseas regulations to help Chinese EV makers overseas advance.
Chinese manufacturers are moving up the value chain. Chinese car makers have leapfrogged established carmakers and can now produce desirable, safe and technologically advanced EVs. A few Chinese brands have a shot to rank among the world’s most successful carmakers.
Chinese companies’ overseas investments and partnerships make them global competitors. Automotive competition is going to increase globally, and consequently Chinese battery manufacturers and carmakers are expanding their global footprint. Exports are only the tip of the iceberg as companies pursue different strategies to leverage international brands and access overseas markets.
Government subsidies for China-based manufacturers could distort global markets. That China has become the leading EV market is the result of substantial government support. But Chinese exports are also directly supported by central and local governments sponsorship of new production plants, R&D centers and overseas acquisitions.
New beginnings: Rethinking business and trade in an era of strategic clarity and rolling disruption The Australian Strategic Policy Institute is delighted to share the new report ‘New beginnings: Rethinking business and trade in an era of strategic clarity and rolling disruption’. This report considers the relationship between our business and trade positioning in the context of the impacts of Covid-19, natural disasters and the actions of coercive trading partners. Global economic integration has enabled the spread of ideas, products, people and investment at never-before-seen speed. International free trade has been a goal of policy-makers and academics for generations, allowing and fostering innovation and growth. The mechanism shuddered in 2008 when the movement of money faltered; the disruption brought about by Covid-19 has seen a much more multi-dimensional failure of the systems which we share and move. The unstoppable conveyor belt of our global supply chain has ground to a halt. This time, what will we learn? The report examines the vulnerabilities in Australia’s national security, resilience and sovereignty in relation to supply chains and the intersection of the corporate sector and government highlighting recent paradigm shifts in geopolitics, whereby economic and trade priorities are increasingly relevant to the national security discussion. A key insight from the research is that there are plenty of opportunities for Australia to expand its investment horizons. Growth industries that deserve attention include data and technology, biotechnology, renewable energy, clean steel, agritech, critical minerals and rare earths. In each of these industries, Australia can leverage a strategic advantage to establish and maintain reliable, high-value supply chains. The profound economic shock of the pandemic provides the perfect time to assess our relationships with our trading partners, our industries and internally, between our governments and the corporate world. Click here to read the report.
Vetting Biden’s Export Control Nominee Up To Senate Committee On Banking, Housing, And Urban Affairs US export controls have a long history, dating to the American Revolution when the Continental Congress blocked trade with England. Since then, trade controls have been used to advance political, military, and economic objectives. Following the devastation of the 20th Century World Wars, restrictions were imposed on weapons to deter profiteering and the proliferation of nuclear arms, chemical/bio-hazardous materials, and “dual-use” technologies with civil and military applications. As technologies have evolved, export controls have become an increasingly important toolset to prevent adversaries from accessing items that could be weaponized against the US. In recent years, the US has entered into multilateral arrangements with like-minded nations to improve the effectiveness of strategic trade controls and reduce the abilities and incentives for bad actors to evade rules. A spokesperson for Sherrod Brown, Chairman of the Senate Committee on Banking, Housing and Urban Development, observed, “When used right, export controls are critical tools to protect our technologies from bad actors and strengthen our national security.” The office for the Committee’s Ranking Member Pat Toomey agreed. “Export controls are powerful tools, and the decision to impose unilateral controls must be taken extremely carefully.” The Senate Committee on Banking, Housing and Urban Affairs has had jurisdiction over the modern US export control system since its formation after World War II. While most people likely associate this committee with monetary policy, its authority extends to the export control regime. Key to its jurisdiction is oversight of Bureau of Industry and Security (BIS) and the International Trade Administration, both housed at the Department of Commerce. The Senate Banking Committee confirms the President’s nominees to these two agencies, while the Senate Commerce Committee confirms the cabinet-level position of Secretary of Commerce. Once a relatively obscure agency, the BIS has grown in prominence. It captured headlines in recent years for designating some 350 Chinese companies to the Entity List for activities that run counter to US national security and foreign policy interests—including telecom equipment giant Huawei. A US company must obtain a license from the BIS to do business with a counterpart on the Entity List. More in Forbes’ recent article.
Long Shadows: How the Global Economy Supports Oppression in Xinjiang In Xinjiang, China, millions of Uyghurs and other ethnic minority peoples face mass detention, forced labor, and constant surveillance from the Chinese government. Thanks to witness testimony and widespread reporting, the world has not stayed silent. Countries such as the United States have placed sanctions, trade restrictions, and other measures on perpetrating entities in China, while the private sector has sought to prevent their supply chains from buying goods produced by forced labor. However, these measures are falling short. The author of this new report, a Senior Analyst at C4ADS, reveals how perpetrators of mass detention and forced labor in Xinjiang connect to and profit from global commerce through trade, foreign subsidiaries, and financial markets. As a test case, C4ADS examines the Xinjiang Production and Construction Corps (XPCC). A key perpetrator of forced labor and mass detention in Xinjiang, the XPCC is sanctioned by the United States and partially sanctioned by the European Union. Despite this, corporate, trade and financial data shows that it still maintains significant access to global trade and financial markets. In fact, XPCC goods at high risk of having been produced by forced labor, including cotton and tomatoes, still appear to be flowing from Xinjiang into the rest of the world and contaminating the supply chains of some of the world’s biggest brands. While this unsettling analysis points out how the global regime against human rights violations in Xinjiang is falling short, the author provides recommendations for how public and private stakeholders can better fight against forced labor and its perpetrating networks.
Digest of United States Practice in International Law 2020 The Office of the Legal Adviser publishes the Annual Digest of United States Practice in International Law to provide the public with a historical record of the views and practice of the Government of the United States in public and private international law. The complete 2020 Digest is available at the bottom of this page. The 2020 Digest provides a historical record of key legal developments in 2020. Chapter 16 discusses selected developments during 2020 relating to sanctions, export controls, and certain other restrictions relating to travel or U.S. government assistance. It does not cover developments in many of the United States’ longstanding financial sanctions regimes, which are discussed in detail. It also does not comprehensively cover developments relating to the export control programs administered by the Commerce Department or the defense trade control programs administered by the State Department. Details on the State Department’s defense trade control programs are available here.
The Office of the Legal Adviser furnishes advice on all legal issues, domestic and international, arising in the course of the Department’s work. This includes assisting Department principals and policy officers in formulating and implementing the foreign policies of the United States, and promoting the development of international law and its institutions as a fundamental element of those policies. The Office is organized to provide direct legal support to the Department of State’s various bureaus, including both regional and geographic offices (those which focus on specific areas of the world) and functional offices (those which deal with specific subject matters such as economics and business, international environmental and scientific issues, or internal management).
Xinjiang Supply Chain Business Advisory On July 13, the U.S. Departments of State, Commerce, Homeland Security, Labor, and the Treasury, and the Office of the U.S. Trade Representative, issued an updated advisory on the risks for businesses with potential exposure in their supply chain to entities engaged in human rights abuses in the Xinjiang Uyghur Autonomous Region (Xinjiang). This advisory outlines risks that businesses and individuals should consider when assessing business partnerships with, investing in, sourcing from, or providing other support to companies operating in Xinjiang, linked to Xinjiang, or with laborers from Xinjiang.
The US and China are not destined for war Throughout history, when a rising power has challenged a ruling one, war has often been the result. But there are notable exceptions. A war between the US and China today is no more inevitable than was war between the rising US and the declining United Kingdom a century ago. And in today’s context, there are four compelling reasons to believe that war between the US and China can be avoided, according to this article in ASPI’s The Strategist. One of the reasons is that China and the US are deeply intertwined economically. Despite Trump’s trade war, Sino-American bilateral trade in 2020 was around US$650 billion, and China was America’s largest trade partner. The two countries’ supply-chain linkages are vast, and China holds more than US$1 trillion in US Treasuries, most of which it can’t easily unload, lest it reduce their value and incur massive losses.
Illicit Fentanyl from China: An Evolving Global Operation The U.S.-China Commission released a new staff issue brief entitled, “Illicit Fentanyl from China: An Evolving Global Operation”. Key Findings:
• China remains the primary country of origin for illicit fentanyl and fentanyl-related substances trafficked into the United States: In 2019, China fulfilled a pledge to the United States and placed all forms of fentanyl and its analogues on a regulatory schedule. Nevertheless, illicit fentanyl from China remains widely available in the United States. Chinese traffickers are using various strategies to circumvent new regulations, including focusing on chemical precursors, relocating some manufacturing to India, rerouting precursor shipments through third countries, and leveraging marketing schemes to avoid detection. China’s weak supervision and regulation of its chemical and pharmaceutical industry also enable evasion and circumvention.
• Since China’s government scheduled fentanyl, the amount of finished fentanyl shipped directly from China to the United States has declined, while the amount shipped from Mexico has increased: The U.S. Drug Enforcement Administration (DEA) assesses Chinese traffickers have shifted from primarily manufacturing finished fentanyl to primarily exporting precursors to Mexican cartels, who manufacture illicit fentanyl and deliver the final product. U.S. law enforcement has seen a growing trend of Chinese nationals, in both Mexico and the United States, working with Mexican cartels. As Chinese suppliers coordinate more with international partners, the DEA is concerned that fentanyl production is becoming increasingly global and more difficult to track and control.
• Chinese brokers are laundering Mexican drug money through China’s financial system: Chinese money launderers are using financial technology, mobile banking apps, and social media to evade authorities.
• Cooperation between the United States and China remains limited: U.S. law enforcement agencies have established working groups, conducted high-level meetings, and shared information with their Chinese counterparts, which has led to the dismantling of a few illicit fentanyl networks. At the same time, U.S. authorities are reporting that cooperation remains limited on the ground. The Chinese government has cooperated less with U.S. authorities on criminal and money laundering investigations, conducting joint operations, and U.S. requests for inspections and law enforcement assistance.
Survey of Chinese Espionage in the United States Since 2000 This survey lists 160 publicly reported instances of Chinese espionage directed at the United States since 2000. It does not include espionage against other countries, against U.S. firms or persons located in China, nor more than 50 additional cases involving attempts to smuggle munitions or controlled technologies from the U.S. to China. CSIS also did not include the more than 1200 cases of intellectual property theft litigation brought by U.S. companies against Chinese entities in either the U.S. or Chinese legal systems.
For those cases where CSIS could identify actor and intent, they found:
42% of actors were Chinese military or government employees.
32% were private Chinese citizens.
26% were non-Chinese actors (usually U.S. persons recruited by Chinese officials)
34% of incidents sought to acquire military technology.
51% of incidents sought to acquire commercial technologies.
16% of incidents sought to acquire information on U.S. civilian agencies or politicians.
41% of incidents involved cyber espionage, usually by State-affiliated actors.
The most recent cases are:
January 2021: Chinese national Cheng Bo, aka Jo Cheng, was indicted for conspiring to illegally export U.S. power amplifiers to China between 2012 and 2015.
January 2021: MIT professor Gang Chen, a naturalized U.S. citizen born in China, was charged with wire fraud for failing to disclose connections to various entities in the PRC. It is alleged that Chen received, and did not disclose, approximately $29 million in foreign funding since 2013, including $19 million from the PRC’s Southern University of Science and Technology. According to the indictment, Chen is accused of attempting to defraud “DOE by means of materially false and fraudulent pretenses…” but the Homeland Security Agent in his affidavit indicated that he did not include all facts about the investigation, only those required to establish probable cause.
April 2021: Mingqing Xiao, mathematics professor at Southern Illinois University – Carbondale, was charged with wire fraud and making a false statement. Xiao obtained $151,099 in NSF grant money without disclosing his loyalties to, and the support he received from, the Chinese government and a Chinese University.
April 2021: Chinese national Suren Qin pleaded guilty to illegally exporting $100,000 of U.S. goods to PLA-affiliated Northwester Polytechnical University in China. Qin primarily sent underwater and marine technologies to the PRC through their company LinkOcean Technologies, LTD.
July 2021: The U.S., NATO, and allies accused the PRC of using contract hackers to conduct an ongoing global cyberespionage campaign that includes ransomware attacks, cyber extortion, crypto-jacking, and rank theft. Accompanying this accusation were charges against four MSS hackers for engaging in a multi-year campaign to steal trade secrets, business information, IP, and Ebola vaccine research. Finally, the U.S. government announced they are attributing a March 2021 exploitation of zero-day vulnerabilities in Microsoft Exchange Server to MSS hackers.
Issuance of Iran General License M-1 The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is issuing Iranian Transactions and Sanctions Regulations 31 CFR Part 560 GENERAL LICENSE M-1 “Authorizing the Exportation of Certain Graduate Level Educational Services and Software”. In addition, OFAC is updating related Frequently Asked Question 853 (Iran Sanctions / “853. Can U.S. academic institutions provide online learning services to Iranian students who are not physically present in the United States because of the Coronavirus Disease 2019 (COVID-19) pandemic? Can U.S. technology companies provide software and services to assist Iranian students in accessing online coursework?”)
Sovereignty for sale: the FCDO’s role in protecting strategic British assets House of Commons Foreign Affairs Committee published the third report of Session 2021–22, together with formal minutes relating to the report. Summary: Foreign investment is an essential contributor to the UK economy. However, acquisitions by foreign entities can serve as the first step towards moving strategically vital companies, assets and intellectual property abroad. This transfer of assets threatens to make us reliant on others for assets and services that are critical to our capacity for independent action and global influence, as well as undermining the UK economy and our national security. Our sovereignty should not be for sale. The UK National Security and Investment (NSI) Act 2021 is intended to protect UK businesses and critical security interests. It is crucial that the Government gets the new investment screening regime right from the beginning—both to ensure that UK national security is protected and that we remain firmly open to valuable foreign investment.1 The FCDO’s global footprint has the reach to collect the important information required when considering the national security implications of foreign investments and ensuring a balance of perspectives within the newly-established Investment Security Unit (ISU). But the question remains: does it have the capability? This isn’t simply a question of tasking but of bringing together many of the skills that now sit in the Department for International Trade. Properly directed, the FCDO also has an important role to play in facilitating coordination with like-minded countries on matters of investment screening. Given the significant geopolitical implications of foreign investment decisions, it is key that the FCDO contributes meaningfully to the ISU and the consequent outcomes of the review process for investments. These decisions are, by necessity, based on judgments which must balance many aspects of the UK national interest, including the wider public good. We are concerned that the lack of robust Parliamentary scrutiny of the ISU provided for in the NSI Act leads Parliament to look at only the business aspect of the decision, potentially neglecting the Global Britain strategy. Now, more than ever, foreign investment is an important geopolitical issue with clear implications for the UK’s foreign relations; yet this appears to have been overlooked in the arrangements for scrutiny. Following our close scrutiny of the NSI Act as it progressed through Parliament, we intend to continue to monitor its effectiveness. While we welcome the NSI Act as a vital step towards securing our sovereignty and protecting our businesses, failure to implement it effectively would have catastrophic effects for our global influence and security.
From Plan to Action Strategies can be eloquent and inspiring. How successful they are rests in addressing gritty details outside of the spotlight. An effective and realistic national technology strategy requires vision, process, an executable framework, and a commitment to addressing bureaucratic, legal, and regulatory hurdles to implementation. Alongside a comprehensive national technology strategy, the United States needs a blueprint for how to operationalize such a strategy. In this new CNAS report, the authors offer concrete and pragmatic measures that U.S. policymakers should take to operationalize a national technology strategy. The report builds upon two previous publications in CNAS’ U.S. National Technology Strategy project. The first report in this initiative (“Taking the Helm”) makes the case for a national technology strategy and lays out what a modern-day strategy should be. The second report (“Trust the Process”), focuses on how the U.S. government should structure itself organizationally and bureaucratically to execute such a strategy. The White House and Congress can take numerous concrete steps to improve the U.S. government’s ability to execute strategic technology policies. The authors present four categories of key recommendations that can have profound impact on America’s ability to secure its long-term competitiveness:
• Bolster the Department of Commerce
• Mitigate Supply Chain and Technology Transfer Risk
• Streamline Technology Policy Coordination and Implementation
• Increase Capacity to Pursue International Technology Partnerships
The authors conclude: “Crafting sound strategy is difficult. Executing a strategy well is more challenging still . . . Once a vision is articulated, a framework crafted, and processes identified, the focus must be on actions required to operationalize the national technology strategy. How and whether those actions are implemented will have outsized influence over the strategy’s ultimate success.”
Ending Human Trafficking in the Twenty-First Century The authors of the new CFR report argue that human trafficking bolsters abusive regimes and criminal groups, weakens global supply chains, fuels corruption, and undermines good governance. They urge the United States to increase investment in anti-trafficking measures.
Syria and the West: the Efficacy of Economic Sanctions The U.S. and European Union have constructed an expansive and complex array of sanctions against Syria’s regime over the last 30 years, and particularly in the past decade. While such measures have been punitive in nature, the West has sought to utilize them since 2011 as a source of pressure and diplomatic leverage amidst the long-standing deadlock facing negotiations over the country’s future. Despite the best intentions, sanctions have not yielded any meaningful change in Syria diplomacy and as a result, they have become a source of intense political and analytical debate – for some, they are still of value and for others, they are only a source of humanitarian suffering, even if unintentional. The Middle East Institute’s new study (A Comprehensive Review of the Effectiveness of U.S. & EU Sanctions on Syria) is here.
Building Resilient Medical Supply Chains Through Trade Agreements With the outbreak of the COVID-19 pandemic, policymakers have become increasingly concerned about the pharmaceutical supply chain—and ensuring the American public can access vital products. Yet even under the tremendous pressure of the pandemic, the supply chain proved itself to be remarkably resilient. That said, there are ways to enhance that resiliency —without resorting to rank protectionism—in the face of legitimate concerns about certain foreign trade practices, including China’s. R Street released a new white paper which does exactly this: surveys the performance of supply chains in recent years and offers concrete policy recommendations.
Chinese FDI in Europe – 2020 Update This report, from Rhodium Group and MERICS, summarizes China’s investment footprint in the EU-27 and the United Kingdom (UK) in 2020, analyzing the fallout from the pandemic as well as policy developments in Europe and China. Below are the main findings:
- China’s global outbound investment hit a 13-year low in 2020: Concerns that the Covid-19 global pandemic slump might trigger another round of Chinese distressed asset-buying proved unfounded. Instead, China’s global outbound M&A activity dropped to a 13-year low, as completed merger and acquisition (M&A) transactions totaled just EUR 25 billion, down 45 percent from 2019.
- China’s FDI in Europe continued to fall, to a 10-year low: Shrinking M&A activity meant the EU-27 and the United Kingdom saw a 45 percent decline in completed Chinese foreign direct investment (FDI) last year, down to EUR 6.5 billion from EUR 11.7 billion in 2019, taking investment in Europe to a 10-year low. However, greenfield Chinese investment reached its highest level since 2016 at nearly EUR 1.3 billion.
- The “Big-3” reclaimed their top spot, Poland emerged as a key recipient: More than half of total Chinese investment in Europe went to the “Big Three” economies – Germany, the UK and France. However, the UK saw Chinese investment plummet by 77 percent. Poland rose to become the second most popular destination, though inflows of EUR 815 million were largely concentrated on one acquisition.
The Liberty to Spy Many, if not most, international legal scholars share the ominous contention that espionage, as a legal field, is devoid of meaning. For them, any attempt to extrapolate the lex lata corpus of the International Law of Intelligence (ILI), let alone its lex scripta, would inevitably prove to be a failed attempt, as there is simply nothing to extrapolate. The notion that international law is moot as to the question of if, when, and how intelligence is to be collected, analyzed, and promulgated, has been repeated so many times that it has become the prevailing orthodoxy. This paper, written by Asaf Lubin (Associate Professor of Law, Indiana University Maurer School of Law), offers a new and innovative legal framework for articulating the law and practice of interstate peacetime espionage operations, relying on a body of moral philosophy and intelligence ethics thus far ignored by legal thinkers. This framework diagnoses the legality of covert intelligence at three distinct temporal stages: before, during, and after. In doing so it follows the traditional paradigms of international law and the use of force, which themselves are grounded in the history of Just War Theory. Adopting the Jus Ad, Jus In, Jus Post model is appropriate, given the symbiosis between espionage and fundamental U.N. Charter principles. This paper focuses on the first of these three paradigms, the Jus Ad Explorationem (“JAE”), a sovereign’s prerogative to engage in peacetime espionage and the right’s core limitations. Examining a plethora of international legal sources, the paper exemplifies the myriad ways by which peacetime intelligence gathering has been already recognized as a necessary pre-requisite for the functioning of our global legal order. The paper then discusses the nature of the JAE. It argues that the right to spy is best understood as a privilege in Hohfeldian terms. It shows how understanding interstate intelligence operations as a weaker “liberty right” that imposes no obligations on third parties to tolerate such behavior helps capture the essence of the customary norms that form part of the practice. Recognizing the liberty right to spy opens the door for the doctrine of “abuse of rights” to play a role in constraining the practice. By identifying the only two legitimate justifications for peacetime espionage—advancing the national security interests of States and promoting an increase in international stability and cooperation—we are able to delimit what may constitute abusive spying, defined as exploiting one’s right to spy not for the purposes for which the right was intended. The paper concludes by introducing four categories of unlawful espionage: (1) spying as a means to advance personal interests; (2) spying as a means to commit internationally wrongful acts; (3) spying as a means to advance corporate interests; and (4) spying as a means to exploit post-colonial relations. Keywords: China, Russia, Iran, surveillance, intelligence, espionage, national security, international trade, and international law.
Mind the Gap: Priorities for Transatlantic China Policy The Aspen Strategy Group, Munich Security Conference and Mercator Institute for China Studies are pleased to share this special report of the Distinguished Reflection Group on Transatlantic China Policy. The report advocates a “pragmatic approach” for the U.S. and Europe towards China “identifying joint action where possible and…‘managing differences’ where necessary.”
Building Resilient Supply Chains, Revitalizing American Manufacturing and Fostering Broad-Based Growth On June 8, 2021, the White House released its 250-page “Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth” report and an accompanying fact sheet entitled: “Fact Sheet: Biden-Harris Administration Announces Supply Chain Disruptions Task Force to Address Short-Term Supply Chain Discontinuities”. The Report and Fact Sheet highlight vulnerabilities in critical U.S. supply chains and propose a “whole-of government” approach to addressing these vulnerabilities.
Wilbur Ross reported at least $53 million in side income while at Commerce According to Citizens for Responsibility and Ethics in Washington (CREW), former Trump Commerce Secretary Wilbur Ross reported making a minimum of $53 to $127 million in outside income while in office. MBFC rates CREW left-center biased based on story selection that leans slightly left and High for factual reporting due to thorough sourcing and very accurate news reporting.
Recognizing ‘geoeconomic risk’: Rethinking corporate risk management for the era of great-power competition As economic policy has become a key strategic means in great-power rivalry, states are attempting to control the economic networks that connect the world. Companies are faced with a growing threat of becoming used as pawns in the geoeconomic competition creating new business risks. The latest FIIA Briefing Paper analyses the risks that companies face in the era of great-power competition. In the paper, the authors introduce a novel concept of ‘geoeconomic risk’ stemming from three geoeconomic drivers. In the era of global supply chains, the geoeconomic disruptions in global politics and the rivalry between the United States and China are a concern for more than just the parties directly targeted. According to the authors, emerging risks call for better definition and an appropriate universal typology. “More data and a better understanding of the root causes, agents, means and implications of geoeconomic risk are required”, the authors state.
Supply Chains and the Global Data Collection Ecosystem Most of the 27 companies tracked by ASPI’s Mapping China’s Technology Giants project are heavily involved in the collection and processing of vast quantities of personal and organizational data, according ASPI’s report. Their global business operations depend on the flow of vast amounts of data, often governed by the data privacy laws of multiple jurisdictions. The Chinese party-state is ensuring that it can derive strategic value and benefit from these companies’ global operations. ASPI assesses interactions between the People’s Republic of China’s political agenda-setting, efforts to shape international technical standards, technical capabilities, and use of data as a strategic resource. ASPI argues this ‘Data Ecosystem’ will have major implications for the effectiveness of data protection laws and notions of digital supply-chain security.
Data governance and trade: The Asia-Pacific leads the way Nations in the fast-growing Asia-Pacific region have increasingly adopted rules for data governance and cross-border data flows as elements of their trade agreements. While basic foundational principles of many nations are increasingly clear, substantial gaps remain, as well as opportunities for new approaches to cross-border data in all its diverse forms. This article, published by the Hinrich Foundation, was originally published by the National Bureau of Asian Research.
2021 Kearney Global Services Location Index The largest sectors of the global economy—from agriculture to manufacturing to healthcare—are investing enormous sums in digital services of all kinds. The nations that have enjoyed the most success with a lower-cost business model may continue to attract a high share of the services from increased investments in these sectors. However, the expectations may be shifting. Kerney’s digital-resonance ranking (Figure 6 in their report) was created to capture the essence of this shift: an increasing emphasis on deep and varied digital skills within the workforce; a proven capability to nurture and support digital outputs and related business activities of all kinds, from start-up incubations to the expansion plans of Fortune 50 tech giants; a legal framework that protects intellectual property and enables entrepreneurship. Kerney expects that such considerations will become even more important in the years to come. The nations that have led their rankings in years past continue to do so now. Whether they will do what it takes to stay there will depend on whether they can broaden their appeal by embracing the expectations of an increasingly dynamic digital-services marketplace.
EU explores chipmaker alliance in search of ‘strategic autonomy’ The European Union is considering creating a semiconductor alliance including STMicroelectronics, NXP, Infineon and ASML to cut dependence on foreign chipmakers amid a global supply chain crunch, four EU officials said.
Trade of dual-use items: new EU rules adopted The EU has upgraded its legislation on the export controls applicable to sensitive dual-use goods and technologies such as cyber-surveillance tools. On the 10th of May 2021 the Council adopted a regulation modernizing the EU system for the control of exports, brokering, technical assistance, transit and transfer of dual-use items. These are goods, software and technology that can be used for both civilian and military applications. The new regulation strengthens controls on a wider range of emerging dual-use technologies, and the coordination between member states and the Commission in support of the effective enforcement of controls throughout the EU. By introducing due diligence obligations for producers, the new rules also give companies an important role in addressing the risks to international security sometimes posed by dual-use items. Finally, the dual-use regulation paves the way for better coordination between the EU and partner countries in enhancing international security through more convergent approaches to export controls at global level. Next steps: After the European Parliament and the Council sign the adopted regulation, it will be published in the EU Official Journal and enter into force 90 days later.
Value chains: Clear skies over Asia’s new foreign investment landscape Despite disruptions caused by the US-China tech war and the Covid-19 pandemic, some aspects of international trade held up strikingly well in 2020. Investment in Asia have braved the storm, and global value chains have proved resilient. One cloud on the horizon is the absence of the US from any Asia-Pacific agreements, and the risk of growing US protectionism. This article is part of the Hinrich Foundation sponsored Vol.13 No.2 April-June 2021 issue of the East Asia Forum Quarterly.
Trade fantasies: Can Asia reinvent global trade? Can Asia reinvent global trade? No, concludes the author in his essay for the East Forum Quarterly, co-edited by the Hinrich Foundation. That’s because the international trade regime is bereft of any leadership from either East or West, argues the Chair of the Middle East Institute at the National University of Singapore. A change in narrative, the veteran diplomat adds, would require better handling of domestic politics, the primary source of pressure in global trade.
The EU’s new trade strategy can lead to conflict spirals and setbacks in foreign relations The European Union’s new trade strategy will bring about significant changes in the structures as well as the objectives of the bloc’s trade policy. These changes are a way for the union to respond to growing pressure stemming from the rise of China and the intensifying power competition between the US and China. The new strategy will further strengthen the shift in which other policies are more closely tied to trade-related decision-making. In the latest FIIA Comment, the authors note that instrumentalizing trade policy to promote the values and interests of the EU is crucial as global issues become increasingly complex. Meanwhile, conflicts with China can be expected, and the strategy might cause setbacks in transatlantic relations. However, neither external nor internal challenges should lead to the stagnation of the EU’s ability to take action or to the failure of strategically important agreements.
NSCAI’s Final Report (2021) The mandate of the National Security Commission on Artificial Intelligence’s (NSCAI) is to make recommendations to the President and Congress to “advance the development of artificial intelligence, machine learning, and associated technologies to comprehensively address the national security and defense needs of the United States.” This Final Report presents the NSCAI’s strategy for winning the artificial intelligence era. The 16 chapters in the Main Report provide topline conclusions and recommendations. The accompanying Blueprints for Action outline more detailed steps that the U.S. Government should take to implement the recommendations.
European AI Policy Conference – Trends in Leadership, Strategy, and Innovation The Center for Data Innovation hosted the “European AI Policy Conference: Trends in Leadership, Strategy, and Innovation” as an online event on December 1, 2020. This report of April 9, 2021 provides an overview of some of the highlights from the conference, including summaries of each panel discussion and highlights from various keynote speeches.
Security at the frontier: UK-Japan perspectives on cyberspace, outer space, the Arctic and electronic warfare Increasing global connectivity has brought with it a new range of security threats that were unfathomable just decades ago. Global reliance on the internet and on virtual networks has revealed a range of new cyber vulnerabilities and threats, including to critical infrastructure and the Internet of Things (IoT). Cyber technology has brought with it a new security focus on outer space, which has become key to the functioning of national and international infrastructure on the ground. Furthermore, technologies using the electromagnetic spectrum, which are increasingly integral to military operations, create new challenges and adversarial threats including the prospect of electronic warfare. These challenges have expanded geographically too, as countries explore new physical frontiers, like the Arctic, as regions of strategic interest. This Chatham House* conference report, comprising four expert essays and a meeting summary, draws upon Chatham House’s December 2020 conference ‘Security at the Frontier’, to examine the latest developments in cyberspace, outer space, the Arctic and electronic warfare, and considers how best the UK and Japan might respond to these challenges. *Chatham House, the Royal Institute of International Affairs, is a world-leading policy institute based in London.
Addressing Cross Border E-commerce Challenges with Emerging Technologies The Borders, Trade, and Immigration Institute (BTI), a Department of Homeland Security (DHS) Science and Technology Directorate (S&T) Center of Excellence (COE) led by the University of Houston, recently released a report on the challenges posed by emerging technologies to cross-border e-commerce. This independent study was conducted to help Customs and Border Protection (CBP) and its stakeholders understand how to leverage these new technologies, which provide economic advantages, better risk assessment capabilities and expand CBP’s data-sharing efforts.
Advancements in technology have fostered a steadily-increasing competitive e-commerce marketplace, which has changed the way global trade is conducted. With the rise in e-commerce, there is an increased risk of trade violation, and the potential for the release of harmful or unsafe goods. According to the report lack of pre-arrival data such as seller information, product identifiers or product classification can lead to delayed processing times and can potentially compromise import safety and security. Adopting emergent technological advancements can be a crucial strategy to effectively overcome the data gaps that are present with the rise in e-commerce.
BTI developed a variety of options to mitigate the data sharing gaps, including establishing new and effective authorized economic operator (AEO) programs specifically tailored to the cross-border e-commerce marketplace and require data sharing regardless of data laws. Current AEO doctrine is not applicable to e-commerce. Additionally, the team found that providing AEO certification to compliant stakeholders and developing a new federated data platform and information and communications technology infrastructure can both increase the probability of CBP gaining accurate data as well as increase economic efficiency for customers, importers and other relevant stakeholders.
US Export Control of Emerging Technologies The conclusion of this JIIA report (the Japan Institute of International Affairs, founded in 1959, is a private, nonpartisan policy think tank focused on foreign affairs and security issues, and their research reports are compiled by participants in research groups set up at the Japan Institute of International Affairs, and are designed to disseminate, in a timely fashion, the content of presentations made at research group meetings or analyses of current affairs. The reports represent their authors’ views) is that the essence of export control is to control the flow of items across national borders from the viewpoint of foreign policy or national security. According to the BIS’s fiscal 2020 annual report, the BIS has imposed export controls on 37 emerging technologies. As noted above, as international interdependence expands and deepens, a balance is being sought to protect technologies while maintaining an open innovation ecosystem. In response, the US’s approach to export control of emerging technologies has been to place emphasis on international agreements, to target only a small number of items essential to its national security, but it does not hesitate to impose unilateral controls on technologies deemed to pose an imminent security threat. While this US approach is the result of pursuing a balance to ensure technology protection in an open world, it is not far from the US’s traditional export control approach. However, if the power politics factor becomes dominant in future international circumstances, such as intensifying competition between great powers, there is a possibility that the motivation to shape international interdependence more in line with security logic will increase. This could lead to a new phase in US emerging technology export controls.
*After completing this report, the BIS announced its fifth round of emerging technology export controls on March 29, 2021. The measures entailed domestic implementation of the remainder of the 2019 WA Plenary Meeting decisions that were not covered by the fourth round of emerging technology export controls in October 2020.
Northern expedition: China’s Arctic activities and ambitions This Brookings report explores China’s internal discourse on the Arctic as well as its activities and ambitions across the region. It finds that China sometimes speaks with two voices on the Arctic: an external one aimed at foreign audiences and a more cynical internal one emphasizing competition and Beijing’s Arctic ambitions. In examining China’s political, military, scientific, and economic activity (as well as its coercion of Arctic states) the report also demonstrates the seriousness of China’s aspirations to become a “polar great power.” China has sent high-level figures to the region 33 times in the past two decades, engaged or joined most major Arctic institutions, sought a half dozen scientific facilities in Arctic states, pursued a range of plausibly dual-use economic projects, expanded its icebreaker fleet, and even sent its naval vessels into the region.
The eight Arctic sovereign states (Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States) exercise great influence over the Arctic and its strategically valuable geography. China aspires to be among them. The report advances several primary findings.
Common Code / An Alliance Framework for Democratic Technology Policy The 21st century will be defined by competition—a contest of economic power rooted in technological advances. How countries decide to compete will shape the lives of billions of people. Technology-leading countries will determine how to harness new technologies to combat disease, feed humanity, counter climate change, gain wealth, explore the universe, gain influence over others, secure their interests, and protect their independence and freedom. The leaders in adopting emerging technologies such as AI, quantum computing, biotechnology, and next-generation telecommunications, and those who shape their use, will garner economic, military, and political strength for decades. The world’s liberal democracies stand at a crossroads. Political power and economic might is diffusing. The integrity and efficacy of postwar institutions are increasingly challenged. Fresh thinking and new approaches are needed to tackle the challenges ahead to ensure that the future of technology is a beneficial one. No one country can achieve this on its own. The requisite knowledge and capabilities are too dispersed. Broad-based, proactive, and long-term multilateral cooperation among like-minded countries is needed to maximize effectiveness across a range of areas, including research and development (R&D), supply chain diversity and security, standards-setting, multilateral export controls, and countering the illiberal use of advanced technology. To achieve the necessary level of coordination and collaboration, the world’s tech-leading democracies should spearhead the creation of a new multilateral architecture for technology policy—a technology alliance.
Technological leadership by the world’s major liberal-democratic nations will be essential to safeguarding democratic institutions, norms, and values, and will contribute to global peace and prosperity. A unified approach by like-minded nations also is needed to counteract growing investments in and deployments of emerging technologies by authoritarian, revisionist powers. Many have made the case for such a grouping, most notably the United Kingdom’s recent call for a “Democracy 10” to tackle 5G and other technology issues. Similarly, former U.S. government officials have advocated for the creation of a “Tech 10.” Despite this interest in a new coordination mechanism for multilateral technology policy, the work needed to create it has been elusive. This document lays out what that alliance framework should look like, the opening chapter of a new, multilateral techno-democratic statecraft strategy for the 21st century. It answers the key questions needed to move from concept to an actionable blueprint necessary to tackle the 21st century technology competition.
Securing the Subsea Network: A Primer for Policymakers The United States’ position as the world’s leading hub in subsea networks can no longer be taken for granted. More of the world is coming online, and China is emerging rapidly as a leading subsea cable provider and owner. This guide for policymakers describes subsea cables’ essential functions, planning processes, and common threats; explains the U.S. economic and strategic interests at stake; and offers recommendations for protecting U.S. centrality in subsea networks.
Indo-Pacific strategies, perceptions and partnerships As the Indo-Pacific’s strategic importance increases, countries around the world are developing new policies to strengthen their reach in the region. While there is a long history of international partnerships in the Indo-Pacific, many recent forays in the region are in response to China’s economic, political and military expansion there. This Chatham House paper is based on field research, roundtables and face-to-face interviews in seven countries (including China) chosen to provide a variety of perspectives and insights on the Indo-Pacific, particularly regarding policy strategies and objectives. The research uncovered shared internal divisions within the sample countries in how they perceive and engage with China. In a sense, against the backdrop of the COVID-19 pandemic, some of these divisions have since been resolved with countries generally more cautious towards China. Regardless of intentions, a broad understanding of the different actors in the region is crucial for countries seeking to form strong partnerships.
Innovation in Biotechnology: Ethical and Regulatory Challenges This ORF brief (the Observer Research Foundation is an independent think tank based in Delhi, India) analyses the regulatory, security and ethical challenges facing states and the international community regarding emerging technologies in biotechnology, focusing on the CRISPR/Cas9 gene editing system and artificial gene synthesis. It highlights the inadequacy of current mechanisms such as export control regimes to regulate these emerging technologies because of a fundamental shift in the nature of challenges posed and an altered global landscape. The brief also underlines the need for an inclusive mechanism to facilitate discussions on the ethical issues, and suggests possible solutions to the manifold dilemma.
Reimagining U.S. Strategy in the Middle East U.S. policy toward the Middle East has relied heavily on military instruments of power and has focused on regional threats—particularly the Iranian threat—with the goal of keeping partners on “our side.” These long-standing policies have largely fallen short of meeting core U.S. interests and adapting to new regional realities and strategic imperatives. RAND researchers offer an alternative framework, suggesting that the U.S. strategic priority must center on reducing regional conflict and the drivers of conflict. This revised strategic approach puts a greater focus on addressing conflict and socioeconomic challenges that are creating unsustainable pressures on the region’s states and immense suffering among its people. Researchers analyze how the tools of U.S. policy—political, security, economic, diplomatic, and informational instruments—would need to adjust to more effectively address such challenges in ways that are mindful of limited resources at home. Researchers also examine how the United States deals with both partners and adversaries in and outside the region and consider how to better leverage policies to the benefit of U.S. interests and the region. The researchers recommend specific actions organized into the following three pillars: (1) shifting resources from the current heavy reliance on military tools to a more balanced approach that prioritizes economic investments, governance, diplomacy, and programs focused on people; (2) favoring a long-term time horizon to reduce regional conflict and support growth and development, even at the cost of short-term risks; and (3) working multilaterally with global and regional partners to address key challenges.
The research report (this research was conducted within the RAND Center for Middle East Public Policy, a center within International Programs at the RAND Corporation) offers many recommendations.
Trust the Process – National Technology Strategy Development, Implementation, and Monitoring and Evaluation The United States is navigating a new paradigm of competition, one that centers not merely on traditional measures of military might, but on technology innovation and its contributions to comprehensive national power. Technology and innovation are critical enablers of American military, political, and economic power. To succeed in great-power competition, the United States should adopt a national technology strategy. This report does not offer the content of a strategy—that is outlined in another report in this series, “Taking the Helm: A National Technology Strategy to Meet the China Challenge”, but it offers a framework for the bureaucratic connective tissue necessary to bring a strategy to life. To effectively execute a national technology strategy, the U.S. government will need to create new processes to develop, implement, and monitor and evaluate the strategy. It will also need to optimize existing processes in new ways, as bureaucratic foundations in this space have so far been uncoordinated, under resourced, and undervalued. Institutions such as the National Security Council (NSC), National Economic Council (NEC), and Office of Science and Technology Policy (OSTP) are, in their current structure and partitions, not fully equipped to meet the challenge of creating and executing a coherent response to this challenge. To support a strategy, this report offers key ingredients for designing processes but does not prescribe detailed action plans; the best design is not the one that is most “right” but the one that leadership will use. It does offer sample tactics for policy interventions, using the promote-protect-partner-plan framework proposed in the CNAS report “Taking the Helm” as a foundation.
This CNAS report divides recommendations into stages of strategy development, implementation, and monitoring and evaluation. Themes that cut across these stages include ensuring executive attention, facilitating buy-in among internal and external stakeholders, exercising convening powers, inventorying and coordinating policy tools, acquiring talent and expertise, building pipelines for tailored information and analysis, and establishing a means for reviewing and revising the process and strategy. Overall, designing transparency, clarity, and accountability into the process will create one that leadership can both trust and verify.
Critical Infrastructure and Security of Supply Chains: Recap NATO, its allies, and the private sector are all facing the consequences of the increasingly complex and global nature of critical infrastructure, according to this report, part of the “NATO 2030: NATO-Private Sector Dialogues” with GLOBSEC (a think-tank based in Bratislava, Slovak Republic). The evolving parameters of this landscape and the tensions this uncertainty raises among NATO allies and companies requires developing a coordinated transatlantic approach. Adequately responding to these challenges will require more extensive and innovative collaboration between the Alliance and the private sector. The sixth of the NATO-Private Sector Dialogues with GLOBSEC brought relevant stakeholders together to exchange views and insights about how the private sector can contribute to decision making on the new challenges in critical civil infrastructure, emerging critical infrastructure, critical dimensions of NATO’s military advantage, and the emerging challenges of supply chain security.
Beyond trade war in Washington: The United States and our less global future A few of the key points of Briefing Paper 304 of the Finnish Institute of International Affairs (FIIA) are:
The grand trajectory of the United States has shifted from leader to vocal sceptic of trade integration. Joe Biden is changing the tone but not the substance. The new administration is raising some barriers to entry into the US market.
Despite the headlines, the US public attitude towards trade is increasingly positive. However, it is more difficult to translate that sentiment into deals. To make matters worse, Europeans are pushing for digital taxes that much of Washington sees as tariffs.
With the president’s Trade Promotion Authority set to expire in the summer – and Congress showing little initiative to formulate objectives for a new TPA – Washington does not appear prepared to engage in major trade agreements any time soon. Going forward, when the US sees the need for a deal, it is likely to be associated with a broader strategic project.
The rules-based trading will need new champions; others must coax the United States to come along when they can find shared reasons for doing so.
DOC Eases Encryption Export Controls The Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule on March 29, 2021, implementing certain changes in the Export Administration Regulations (EAR) agreed upon in December 2019 by governments participating in the Wassenaar Arrangement* on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar Arrangement), a multilateral export control regime. In addition to these clarifications and modifications, the rule eases BIS’s encryption controls, including eliminating certain reporting requirements for mass market products. These encryption-related changes follow the U.S. government’s trend of slowly and steadily loosening controls on encryption products and reducing the regulatory burden for encryption exporters.
The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar Arrangement or WA – http://www.wassenaar.org/) is a group of 42 like-minded states committed to promoting responsibility and transparency in the global arms trade and preventing destabilizing accumulations of arms. As a Participating State of the WA (Participating State), the United States has committed to controlling for export all items on the WA control lists. The lists were first established in 1996 and have been revised annually thereafter. Proposals for changes to the WA control lists that achieve consensus are approved by Participating States at annual plenary meetings. Participating States are charged with implementing the list changes as soon as possible after approval. The United States’ implementation of WA control list changes ensures that U.S. companies have a level playing field with their competitors in other WA Participating States.
Strange bedfellows on Xinjiang: The CCP, fringe media and US social media platforms This new report from ASPI’s International Cyber Policy Centre explores how the Chinese Communist Party (CCP), fringe media and pro-CCP online actors seek, sometimes in unison, to shape and influence international perceptions of the Chinese Government’s human rights abuses in Xinjiang, including through the amplification of disinformation. US-based social media networks, including Twitter, Facebook and YouTube, along with Chinese-owned TikTok (owned by Chinese company ByteDance), are center stage for this global effort. The Chinese Government continues to deny human rights abuses in Xinjiang despite a proliferation of credible evidence, including media reporting, independent research, testimonies and open-source data, that has revealed abuses including forced labor, mass detention, surveillance, sterilization, cultural erasure and alleged genocide in the region. To distract from such human rights abuses, covert and overt online information campaigns have been deployed to portray positive narratives about the CCP’s domestic policies in the region, while also injecting disinformation into the global public discourse regarding Xinjiang.
China’s New Silk Road: A superhighway for illegal trade? When Chinese President Xi Jinping described the Belt and Road Initiative (BRI) as the ‘project of the century’, he might have sounded overly ambitious. The reality is that it is hard to find a project that can rival the scale and reach of Beijing’s New Silk Road.
Countless articles have been written and discussions have been had on what is deemed to be a game changer in terms of connectivity among regions, volume of trade, and investments. But with its land and maritime economic corridors, roads, ports, railways, special economic zones, industrial parks, mines and pipelines, telecommunications networks and urban development projects, the BRI has also attracted the attention of criminal entrepreneurs at the national and transnational level.
Countries participating in the BRI, and especially those featuring developing and emerging economies, are faced with a common dilemma linked to development projects. The likes of Myanmar, Vietnam, Mozambique and Tanzania, to mention only but a few, need to balance welcoming BRI investments to build infrastructure and increase prosperity with finding ways to shield themselves from the activities of criminals eager to exploit and infiltrate new infrastructural projects and put their hands on the extra cash injected into local economies. Yet, criminal involvement is a little studied aspect of the BRI, both in policy and research circles. This is problematic: failing to acknowledge that development and trade create vulnerabilities in contexts where governance and regulatory capacity is weak, crime levels are high and illicit markets are well established opens up the risk of systematic criminal exploitation.
To help fill that gap, the upcoming report of the Global Initiative against Transnational Organized Crime (GI-TOC) ‘China’s New Silk Road: A superhighway for illegal trade?’, the first mapping of the convergence between BRI infrastructure and criminal flows, takes a close look at existing and potential criminal vulnerabilities in South East Asia as well as central and eastern Africa and identifies areas where BRI projects coincide with trafficking routes for narcotics, illicit environmental commodities and people.
One of the BRI’s key economic networks, the China–Indochina corridor, overlaps with both existing economic routes and established trafficking routes and transit hubs. The key paths of the BRI correspond to and elongate transnational trafficking routes, with illicit goods blending in with the larger volume of trade. In areas where the BRI routes do not overlap with established trafficking routes, new transport infrastructure will link the Chinese market with new trading partners, amplifying the opportunities for illicit trade.
Increased connectivity provided by the BRI may afford organized crime networks new opportunities at a time when illicit trade is already expanding dramatically worldwide and criminal networks are seeking ever more favorable pathways for illicit trade. When BRI corridors, routes and trade hubs are studied in parallel with illicit trafficking routes and hotspots, it is impossible to miss the overlaps and convergences. Places such as China’s Yunnan province and its capital city, Kunming; the special economic zone and port in Sihanoukville, Cambodia; and Kenya’s maritime and railway hub in Mombasa are among the recurrent locations that are both BRI nodes and magnets for trafficking of various types of illicit commodities, as well as for financial crime and other criminal activities. One of the New Silk Road’s objectives is to encourage stability through economic development – a target directly undermined by the emergence and expansion of illicit markets and economies. As BRI projects progress, the ever-evolving picture of criminal infiltration must be closely monitored.
Genomic Surveillance – Inside China’s DNA dragnet This ASPI report provides the first comprehensive analysis of the Chinese Government’s forensic DNA database and the close collaboration between Chinese and multinational companies and the Chinese police in the database’s construction. It draws on more than 700 open-source documents, including government bid tenders and procurement orders, public security bureaus’ Weibo and Weixin (WeChat) posts, domestic news coverage, social media posts, and corporate documents and promotional material. This report provides new evidence of how Xinjiang’s well-documented biosurveillance program is being rolled out across China, further deepening the Chinese Government’s control over society while violating the human and civil liberties of millions of the country’s citizens. According to this report of the Australian Strategic Policy Institute, governments and international organizations should consider tougher export controls on equipment and IP related to DNA Collection, storage and analysis being sold in Chinese markets.
Executive Order on America’s Supply Chains On February 24, 2021, President Biden signed an Executive Order (EO) instituting a formal, whole-of-government strategy to develop more resilient and secure supply chains across the United States. The EO calls for a comprehensive review of domestic production, research and development capabilities, and the formulation of strategies to strengthen critical sectors. The intended outcome is to protect U.S. industries from “[p]andemics and other biological threats, cyber-attacks, climate shocks and extreme weather events, terrorist attacks, geopolitical and economic competition, and other conditions [that] can reduce critical manufacturing capacity and the availability and integrity of critical goods, products, and services.”
Towards Outreach 2.0 / Emerging Technologies and Effective Outreach Practices Drawing upon existing best practices, risk assessments, surveys, interviews, and stakeholder feedback, STRI’s new report aims to empower governments with tools, in the form of good practices, with which to conduct outreach to emerging technology sectors that could be targeted by non-State actors for malicious purposes. The report authors have identified an advanced outreach model, Outreach 2.0, that can be used by countries to enhance compliance with United Nations Security Council resolution 1540. Outreach 2.0 consists of a more customized, targeted, creative, real-time, and collaborative communication strategy between regulators and technology holders that builds trust, support, knowledge-sharing, and inclusion.
Cargo Theft Report 2021 Throughout 2020, global supply chains faced one of the largest threats to security, continuity, and resiliency with the COVID-19 pandemic, which continues to cause disruptions, threaten supply chains, and have massive residual impacts globally. Many of the concerns BSI and TT Club monitored throughout 2020 set the tone for continued risk to supply chain security in 2021. Several emerging challenges and persistent risks are likely to play a large role in the upcoming year. This report seeks to highlight the cargo security threats that plagued supply chains in 2020 and provide organizations with mitigation techniques to combat these threats and some of the emerging risks we anticipate for 2021.
The COVID-19 pandemic created atypical challenges in 2020 adding new complicated threats to pre-existing supply chain risks; with lockdowns, diminished supplies, and transportation restrictions, cargo theft trends changed to focus on new highly-valued targets and locations. Beyond these trends in cargo theft seen globally, several other problems present a cross-over risk for cargo losses such as corruption within the supply chain, smuggling of drugs and persons, and disruptions to business continuity that created opportunities for cargo crime to thrive, which can, at a minimum, delay the progress of shipments through the supply chain and, at a maximum result, in a total loss of goods due to the breach of shipment integrity.
In 2020, BSI and TT Club analyzed and identified several critical trends among recorded cargo theft incidents. These trends included both the overwhelming targeting of cargo trucks for theft compared to all other modalities, despite an uptick in facility thefts in several regions, as well as the food and beverage industry suffering from the most theft incidents. As we look to 2021, organizations should remain vigilant of the security risks that created a landscape for cargo crime last year. As well as new threats surrounding the distribution of the COVID-19 vaccine, bottlenecks at ports and warehouses due to the continual rise in e-commerce and storage constraints, and the emerging after-effects of the COVID-19 outbreak will increase the opportunities for cargo crime to occur.
BIS Annual Report 2020 The US Bureau of Industry and Security (BIS) has issued its annual report to Congress for the Fiscal Year 2020, which outlines all the actions taken by BIS over the year. 279 entities were added to its Entity List, and as of the end of 2020, there were a total of over 1,500 active entries on the Entity List across 78 countries. 37,895 export licence applications were processed (a 10% increase from 2019), of which 86% were approved, and the average licence application processing time was 23 days. BIS also completed 937 end-use checks in 37 countries over the year.
The European economic and financial system: fostering openness, strength and resilience
The European Commission has published a Communication setting out its new strategy for “The European economic and financial system: fostering openness, strength and resilience”. It sets out wide ranging ideas which suggest far more active involvement by the Commission in EU sanctions than before.