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TWN
Info Service on WTO and Trade Issues (Jun25/09) Geneva, 10 Jun (D. Ravi Kanth) — The United States and China on 9 June began their crucial second round of talks at the historic Lancaster House in London, at the invitation of the British government, but a credible agreement for addressing the issue of export controls and other restrictions on hi-tech items and critical rare earth minerals could pose several imponderables, according to analysts. Though the early indications of a breakthrough on the first day of the talks are yet to be made public, the two sides appear to have made several overtures in addressing the thorny issues. The US negotiating team for the meeting in London includes Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and the US Trade Representative (USTR), Ambassador Jamieson Greer. The Chinese negotiating team was led by vice premier He Lifeng, China’s commerce minister Wang Wentao, and deputy trade minister Ambassador Li Chenggang. It is a high-stakes negotiation, which will test how far the two sides are willing to move from their respective positions on a range of export restrictions, which have now become endemic in the US-China trade, said people familiar with the development. With export controls put in place by Washington on the sale of jet engines, advanced chips and some chemicals, and Beijing on critical rare earth minerals, including samarium, having occupied the centre-stage, the two sides have to make some tough decisions, said analysts. According to a report in the Wall Street Journal (WSJ) on 9 June, “ahead of US-China talks in London, President [Donald] Trump authorized Treasury Secretary Scott Bessent’s team to negotiate away recent restrictions on the sale of a wide variety of technology and other products to China.” Citing people familiar with the matter, the WSJ report said that “it’s a novel strategy, underscoring the impact of China’s rare earth controls on US industries.” Perhaps, this is the first time that export controls are being used as a leverage in bilateral trade negotiations, an issue that never got traction in the multilateral trade negotiations, said people familiar with the development. With both sides likely to demand “ironclad” guarantees in removing the export controls, which were first “weaponised” by successive US administrations, and later by China on the supply of rare earth minerals starting from 2010, it is going to be a difficult negotiation in London this time around, said people familiar with the development. Little wonder that the trade war initiated by the Trump administration has now moved into the intractable area of export controls, said people who asked not to be quoted. The trade war between Washington and Beijing has in recent weeks veered away from tariffs, focusing instead on each country’s restrictions on critical raw materials or high-tech products that the other side desperately needs. Washington’s seemingly intransigent restrictions on items that were not publicly announced such as jet engines and related parts, software required by Chinese companies to produce chips, and ethane, a key component in the manufacture of plastics, as well as a ban on the sale of AI chips by Huawei, a Chinese telecom giant, appear to have convinced Beijing to slow the supply of critical rare earth minerals, including samarium, which is crucial for the production of magnets used in advanced fighter aircraft such as the F-35 stealth fighter produced by Lockheed Martin, said an analyst who asked not to be quoted. The Director of the National Economic Council in the Trump administration, Kevin Hassett, on 9 June said that the “trade talks in London are likely to result in Beijing quickly releasing rare earths for export, and Washington easing China’s access to semiconductors,” according to a WSJ report. “I expect this to be a short meeting with a big handshake,” Hassett told CNBC on 9 June. He said the US expects that immediately afterwards, “any export controls from the US will be eased, and the rare earths will be released in volume, and then we can go back to negotiating smaller matters.” Elaborating further on semiconductor-related exports, Hassett said the US is unlikely to lift export sanctions on “very, very high-end Nvidia [chips].” While President Trump on 6 June claimed that the talks are “very advanced”, he seems to be less informed about the difficult “give-and-take” choices the two sides have to make, said people familiar with the development. According to news reports, since the first meeting between the US and China on 12 May, “trust between the two sides has eroded as each accuses the other of undermining the agreement reached there to pause sky-high tariffs.” On 7 June, China’s Ministry of Commerce said that it has approved a number of export licenses for rare earth- related products, citing rising global demand driven by such industries as robotics and electric vehicles. “Up until the phone call [on 5 June], both sides were spiraling toward uncontrolled supply-chain warfare,” said Jimmy Goodrich, a China and technology expert, and senior adviser to the Rand Corporation. “I think the administration played this card to get China to re-engage and back off the magnet restrictions,” he added. “For Beijing, the addition of Commerce Secretary Howard Lutnick to the American negotiating team is a welcome signal. The inclusion of Lutnick, the cabinet member who oversees export controls, suggests that Trump is willing to put the topic on the table for discussion with the Chinese delegation, led by Vice Premier He Lifeng,” the WSJ report suggested. According to the WSJ report, “Officials at the Treasury Department and the Office of the US Trade Representative were upset by the Huawei warning, put out by the Commerce Department’s Bureau of Industry and Security, which oversees export controls,” as the Bureau did not go through the regular interagency process before issuing the notice. Apparently, “in response to Beijing’s slow-rolling rare-earth approvals, the Bureau sent out letters and notices to companies in a variety of industries, informing them that their existing licenses to sell to China were being suspended or revoked,” the WSJ reported. During a House of Representatives hearing on 5 June, Commerce Secretary Lutnick actually called for stepped- up enforcement of export controls to prevent China from accessing critical American technology that could help advance its ambitions in such strategic sectors as AI and aviation. “They are trying to copy our technology,” Lutnick claimed. “In the race for AI supremacy, they are behind us, but they are working with the central government to get us, right, to beat us so that they will have intellectual superiority over us.” +
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