Allied AIs (I guess any with just open borders, or even all the Expansionist cultures really, Rome and Teutonics, who always have open borders) can occupy the same space/hex as your city and garrison districts. They can that way block you from even beginning to produce a unit.
I've mostly just found it a bit annoying when the AI does it, but now thinking about it, you can really hinder the AI as an expansionist culture, simply stand on their hexes that can produce units and you stop them from producing any military, making it really easy to build up your own compared to them.
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