[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                 THE IMPACT OF INTERNATIONAL TECHNOLOGY

                     TRANSFER ON AMERICAN RESEARCH

                            AND DEVELOPMENT
=======================================================================



                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON INVESTIGATIONS AND

                               OVERSIGHT

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                      WEDNESDAY, DECEMBER 5, 2012

                               __________

                           Serial No. 112-109

                               __________

 Printed for the use of the Committee on Science, Space, and Technology


       Available via the World Wide Web: http://science.house.gov



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              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                    HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR.,         EDDIE BERNICE JOHNSON, Texas
    Wisconsin                        JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas                LYNN C. WOOLSEY, California
DANA ROHRABACHER, California         ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland         BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma             DANIEL LIPINSKI, Illinois
JUDY BIGGERT, Illinois               DONNA F. EDWARDS, Maryland
W. TODD AKIN, Missouri               BEN R. LUJAN, New Mexico
RANDY NEUGEBAUER, Texas              PAUL D. TONKO, New York
MICHAEL T. McCAUL, Texas             JERRY McNERNEY, California
PAUL C. BROUN, Georgia               TERRI A. SEWELL, Alabama
SANDY ADAMS, Florida                 FREDERICA S. WILSON, Florida
BENJAMIN QUAYLE, Arizona             HANSEN CLARKE, Michigan
CHARLES J. ``CHUCK'' FLEISCHMANN,    SUZANNE BONAMICI, Oregon
    Tennessee                        VACANCY
E. SCOTT RIGELL, Virginia            VACANCY
STEVEN M. PALAZZO, Mississippi       VACANCY
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
                                 ------                                

              Subcommittee on Investigations and Oversight

                   HON. PAUL C. BROUN, Georgia, Chair
F. JAMES SENSENBRENNER, JR.,         PAUL D. TONKO, New York
    Wisconsin                        ZOE LOFGREN, California
SANDY ADAMS, Florida                 BRAD MILLER, North Carolina
RANDY HULTGREN, Illinois             JERRY McNERNEY, California
LARRY BUCSHON, Indiana                   
DAN BENISHEK, Michigan                   
VACANCY                                  
RALPH M. HALL, Texas                 EDDIE BERNICE JOHNSON, Texas



                            C O N T E N T S

                     Wednesday, September 12, 2012

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Paul C. Broun, Chairman, Subcommittee 
  on Investigations and Oversight, Committee on Science, Space, 
  and Technology, U.S. House of Representatives..................    11
    Written Statement............................................    12

Statement by Representative Paul D. Tonko, Ranking Minority 
  Member, Subcommittee on Investigations and Oversight, Committee 
  on Science, Space, and Technology, U.S. House of 
  Representatives................................................    13
    Written Statement............................................    15

                               Witnesses:

Dr. Robert D. Atkinson, President, Information Technology & 
  Innovation Foundation
    Oral Statement...............................................    16
    Written Statement............................................    19

The Honorable Dennis C. Shea, Chairman, U.S. China Economic and 
  Security Review Commission
    Oral Statement...............................................    33
    Written Statement............................................    35


                     THE IMPACT OF INTERNATIONAL

                    TECHNOLOGY TRANSFER ON AMERICAN

                        RESEARCH AND DEVELOPMENT

                              ----------                              


                      WEDNESDAY, DECEMBER 5, 2012

                  House of Representatives,
      Subcommittee on Investigations and Oversight,
               Committee on Science, Space, and Technology,
                                                   Washington, D.C.

    The Subcommittee met, pursuant to call, at 10:09 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Paul C. 
Broun [Chairman of the Subcommittee] presiding.


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    Chairman Broun. Good morning. The Subcommittee on 
Investigations and Oversight will come to order.
    Welcome to today's hearing titled ``The Impact of 
International Technology Transfer on American Research and 
Development.'' You will find in front of you packets containing 
our witness panel's written testimony, their biographies, and 
their truth-in-testimony disclosures. I now recognize myself 
for five minutes for an opening statement.
    Good morning, everyone. I welcome to you to today's hearing 
that again is entitled ``The Impact of International Technology 
Transfer on American Research and Development.'' I want to 
thank our witnesses for being here and for being so flexible. 
This hearing was originally scheduled back in September, but 
because of a last-minute Member briefing regarding the Benghazi 
incident, we were forced to postpone this hearing. Ironically, 
as we speak, there is enough--there is another briefing on 
Benghazi going on right now as well, but we will move ahead. I 
apologize for any inconvenience this may have caused any of 
you, particularly to our witnesses and Members, and I thank all 
of you for your understanding.
    This hearing was difficult to organize for other reasons as 
well. Many potential witnesses expressed apprehension about 
appearing before this Committee to testify on this topic out of 
fear of retribution against their business interests by foreign 
countries. While they expressed serious concerns to us in 
private about the tactics of many foreign countries when it 
comes to technology transfer, they worried that speaking out 
publically about those tactics would adversely affect them in 
those foreign markets.
    This is unfortunate, because today's hearing addresses a 
topic of great concern to this committee--innovation and U.S. 
competitiveness, particularly in international markets. While 
the U.S. invests significant taxpayer resources in public as 
well as in private sector research and development, other 
nations remain dedicated to acquiring the fruits of our labor. 
Their efforts to acquire U.S. technology have clearly had a 
significant impact on U.S. trade, our GDP, and the U.S.'s 
standing as a world leader in research, development, and 
innovation. Unfortunately, measuring that impact has proven 
very difficult.
    Last year, the U.S. taxpayers spent roughly $130 billion on 
research and development, and U.S. companies and universities 
spent another $310 billion. This doesn't even take into effect 
or account the impacts of tax incentives that total over $8 
billion. Determining who ultimately benefits from these 
investments should be something that government as well as 
private sector entities are able to track.
    Our concerns are not limited to economic espionage and 
theft, even though this is clearly a significant threat. This 
Subcommittee has been active in ensuring that federal agencies 
under our jurisdiction are prepared for cyber attacks and 
insider threats that seek to steal sensitive and proprietary 
information. We are here today to discuss something different, 
but just as troubling--the policies and practices of foreign 
countries that facilitate the transfer of U.S. technology and 
intellectual property overseas. This happens in many ways, 
sometimes through domestic manufacturing requirements, 
sometimes through standards certification, and sometimes 
through conditions of foreign investment. These policies, among 
others, allow countries to exploit our R&D investments without 
making the commensurate investments themselves.
    Oftentimes, U.S. companies allow this transfer to take 
place because they are faced with a very difficult choice. In 
today's global marketplace, companies need access to the 
largest markets in order to compete. Sometimes, companies are 
faced with the difficult decision to either file for bankruptcy 
or agree to detrimental financing terms, such as transferring 
their intellectual property, in order to receive additional 
investment.
    It was reported just last week that a company, A123, a U.S. 
company that has received $124 million of its $249 million 
grant from the Obama Administration, this to develop battery 
technology for electric cars, would file for bankruptcy. As 
part of that bankruptcy, A123 planned to sell its business to a 
U.S.-based company, Johnson Controls, for $125 million, but 
other bidders are able to make better offers at an upcoming 
auction that I understand is going to happen tomorrow. China's 
Wanxiang Group Corporation has already expressed interest in 
procuring A123 and making it entirely possible that the U.S. 
taxpayer's investment in A123 will be shipped off to China. 
This is just the most recent case. Several other companies that 
received significant support from U.S. taxpayers, like 
Evergreen Solar, were faced with making difficult decisions, 
very similar to this, in order to remain viable.
    Time and time again, we have seen U.S. R&D investments, 
particularly in sectors that received favorable treatment from 
the current Administration like wind, solar, and batteries, 
simply be sent overseas. It is a dirty secret that nobody wants 
to talk about--not the government agencies that fund the R&D, 
not the companies that receive the R&D, not the associations 
that represent the companies, and certainly not the foreign 
countries that benefit from our R&D investments--investments, I 
should add, that ultimately came from money that we borrowed 
from China in the first place.
    I want to be clear; this is not just about China. This is 
not just about green technology. It is happening across the 
board. This also isn't about the value of public or private 
sector R&D, which everyone realizes is important for economic 
competitiveness. Our goal is to better understand the magnitude 
of the international technology transfer, ensure that someone 
is monitoring these issues, and identify measures to ensure 
that U.S. investments are realized by U.S. interests.
    Now, I recognize my Ranking Member, my good friend from New 
York, Mr. Tonko, for his opening statement.
    [The prepared statement of Mr. Broun follows:]
         Prepared Statement of Subcommittee Chairman Paul Broun
    Good morning, and welcome to today's hearing titled ``The Impact of 
International Technology Transfer on American Research and 
Development.'' I want to thank our witnesses for being here and for 
being flexible. This hearing was originally scheduled in September, but 
because of a last minute member briefing by the Secretary of State on 
the Benghazi incident, we were forced to postpone. Ironically, there is 
another briefing on Benghazi right now as well, but we will move ahead. 
I apologize for any inconvenience this may have caused you, and thank 
you all for your understanding.
    This hearing was difficult to organize for other reasons as well. 
Many potential witnesses expressed apprehension with appearing before 
the Committee to testify on this topic out of fear of retribution 
against their business interests by foreign countries. While they 
expressed serious concerns to us in private about the tactics of many 
foreign countries when it comes to technology transfer, they worried 
that speaking out publically about those tactics would adversely affect 
them in foreign markets.
    This is unfortunate, because today's hearing addresses a topic of 
great concern to this Committee --innovation and U.S. competitiveness. 
While the U.S. invests significant taxpayer resources in public and 
private sector research and development, other nations remain dedicated 
to acquiring the fruits of our labor. These efforts to acquire U.S. 
technology have clearly had a significant impact on U.S. trade, GDP, 
and our standing as a world leader in research, development, and 
innovation. Unfortunately, measuring that impact has proven difficult.
    Last year, the U.S. taxpayers spent roughly $130 billion on 
research and development, and U.S. companies and universities spent 
about another $310 billion. This doesn't even take into account the 
impacts of tax incentives that total over $8 billion. Determining who 
ultimately benefits from these investments should be something that 
government or private sector entities are able to track.
    Our concerns are not limited to economic espionage and theft, even 
though that is clearly a significant threat. This Subcommittee has been 
active in ensuring that federal agencies under our jurisdiction are 
prepared for cyber attacks and insider threats that seek to steal 
sensitive or proprietary information. We are here today to discuss 
something different but just as troubling--the policies and practices 
of foreign countries that facilitate the transfer of U.S. technology 
and intellectual property overseas. This happens in many ways, 
sometimes through domestic manufacturing requirements, sometimes 
through standards certification, and sometimes through conditions of 
foreign investment. These policies, among others, allow foreign 
countries to exploit our R&D investments without making the 
commensurate investments.
    Often times, U.S. companies allow this transfer to take place 
because they are faced with a difficult choice. In today's global 
marketplace, companies need access to the largest markets in order to 
compete. Sometimes, companies are faced with the difficult decision to 
either file for bankruptcy, or agree to detrimental financing terms, 
such as transferring intellectual property, in order to receive 
additional investment. It was reported just last week that A123, a U.S. 
company that has received $124 million of its $249 million grant from 
the Obama Administration to develop battery technology for electric 
cars, would file for bankruptcy. As part of that bankruptcy, A123 
planned to sell its business to U.S.-based Johnson Controls for $125 
million, but other bidders are able to make better offers at an 
upcoming auction. China's Wanxiang Group Corporation has already 
expressed interest, making it entirely possible that the U.S. 
taxpayer's investment in A123 will simply go to China. This is just the 
most recent case. Several other companies that received significant 
support from U.S. taxpayers, like Evergreen Solar, were faced with 
making difficult decisions such as this in order to remain viable.
    Time-and-time-again, we have seen U.S. R&D investments, 
particularly in sectors that received favorable treatment from the 
current Administration like wind, solar, and batteries, simply be sent 
overseas. It's a dirty secret that nobody wants to talk about--not the 
government agencies that fund the R&D, not the companies that receive 
the R&D, not the associations that represent the companies, and 
certainly not the foreign countries that benefit from our R&D 
investments. Investments, I should add, that ultimately came from money 
we borrowed from China in the first place.
    I want to be clear, that this is not just about China. And this is 
not just about green technology. It's happening across the board. This 
also isn't about the value of public or private sector R&D--which 
everyone realizes is important for economic competitiveness. Our goal 
is to better understand the magnitude of the international technology 
transfer, ensure that someone is monitoring the issues, and identify 
measures to ensure that U.S. investments are realized by U.S. 
interests.

    Mr. Tonko. Thank you, Mr. Chair.
    American citizens have a huge stake in what American firms 
do with their innovations. The Federal Government is a key 
driver of innovation through federal research laboratories and 
its substantial support of research through grants and 
contracts. In fiscal year 2012, the Federal Government 
appropriated over $140 billion for research and development. 
American firms also received support for innovation through the 
widely used Research and Experimentation Tax Credits. For 20 
years, this tax credit has effectively subsidized research by 
private firms, and by 2011, it represented approximately $10 
billion a year in savings to companies. This credit obviously 
needs to be extended.
    Finally, a whole web of public supports ranging from state 
budget appropriations to Bayh-Dole Act protections for 
intellectual property to student loans and education tax 
credits have created an engine of innovation that drives our 
economic success in this ideas economy.
    The central engine of innovation remains the American 
university. Our universities lead the world in producing high-
quality science and engineering students, and they provide a 
home for researchers who work at the cutting edge of their 
fields to supply the basic ingredients for continued 
innovation.
    These interconnected public investments have helped make 
the United States one of the most innovative economies in the 
history of the world with American firms leading in almost 
every area. The American people provide this support out of a 
belief that innovation will ensure that our economy remains 
strong in the long run. They also believe that American firms 
that reap the lion's share of these supports will indeed share 
the fruits of these innovations with our society in the form of 
jobs for hardworking Americans.
    When firms instead license that technology abroad, whether 
as part of a strategy to build access to foreign markets or 
because they wish to move production to lower-wage markets, the 
American taxpayer finds that the bargain they made to support 
those firms is not as rosy as had been promised. It is no 
secret that it is faster and cheaper to adopt technologies than 
it is to develop them. It comes as no surprise that with the 
development of a global marketplace, the intense competition 
for market share and the movement to a more open and integrated 
world economy, governments have turned to policies that will 
enable their firms to exploit the innovations of others.
    I am indeed uncomfortable with the idea that American firms 
license away innovations subsidized by our citizens. It is bad 
enough that we have lost jobs when firms offshore production 
and move out of our communities. The idea that they would 
exchange taxpayer-supported innovations for market access, 
however reluctantly, is very disturbing to me.
    Stating opposition to the practice of foreign governments 
adopting policies that bar American firms from doing business 
in those countries, absent a local partner and absent a 
technology-sharing agreement, is, quite honestly, easy. Finding 
a solution is much more complicated. We cannot abandon our 
investments in education and research, but our citizens have 
the right to expect and require I would note a return on those 
investments.
    I do not have a policy answer ready to address these 
concerns, but I am very interested in hearing the thoughts of 
the witnesses today as you are invited to appear before us. And 
I thank you again, Mr. Chair, for convening this hearing.
    [The prepared statement of Mr. Tonko follows:]
    Prepared Statement of Subcommittee Ranking Member Paual D. Tonko
    Thank you, Mr. Chairman.

    American citizens have a huge stake in what American firms do with 
their innovations. The Federal government is a key driver of innovation 
through federal research laboratories and its substantial support of 
research through grants and contracts. In Fiscal Year 2012, the Federal 
government appropriated over $140 billion for research and development. 
American firms also receive support for innovation through the widely 
used Research & Experimentation tax credit. For 20 years, this tax 
credit has effectively subsidized research by private firms, and by 
2011 it represented approximately $10 billion a year in savings to 
companies. This credit needs to be extended.
    Finally, a whole web of public supports ranging from State budget 
appropriations to Bayh-Dole Act protections for intellectual property 
and through to student loans and education tax credits have created an 
engine of innovation that drives our economic success.
    And of course, American universities which lead the world in 
producing high quality science and engineering students, and which 
provide a home for researchers who work at the cutting edge of their 
fields supply the basic ingredients for continued innovation.
    These interconnected public investments have helped make the U.S. 
one of the most innovative economies in the history of the world with 
American firms leading in almost every area. The American people 
provide the support out of a belief that innovation will ensure that 
our economy remains strong in the long run. They also believe that 
American firms that reap the lion's share of this support will share 
the fruits of those innovations with our society in the form of jobs 
for hard-working Americans.
    When firms instead license that technology abroad--whether as part 
of a strategy to build access to foreign markets or because they wish 
to move production to lower-wage markets--the American taxpayer finds 
that the bargain they made to support those firms is not as rosy as had 
been promised. It is no secret that it is faster and cheaper to adopt 
technologies than it is to develop them.
    It comes as no surprise that with the idea that American firms 
license away innovations subsidized by our citizens. It is bad enough 
that we have lost jobs when firms offshore production and move out of 
our communities; the idea that they would exchange taxpayer supported 
innovations for market access, however reluctantly, is very disturbing 
to me.
    Stating opposition to the practice of foreign governments adopting 
policies that bar American firms from doing business in those countries 
absent a local partner and absent a technology sharing agreement is 
easy. Finding a solution is more complicated. We cannot abandon our 
investments in education and research, but our citizens have the right 
to expect a return on those investments.
    I do not have a policy answer ready to address these concerns. I am 
very interested in hearing the thoughts of the witnesses you have 
invited to appear before us today, Mr. Chairman.

    Chairman Broun. Thank you, Mr. Tonko. It is really nice 
that we are both on the same page in making sure our taxpayers 
get a proper return from their investment in these companies.
    If there are Members who wish to submit additional opening 
statements, your statements will be added to the record at this 
point.
    At this time, I would like to introduce our panel of 
witnesses: Dr. Robert D. Atkinson, President of Information 
Technology & Innovation Foundation; and the Hon. Dennis Shea, 
Chairman, U.S. China Economic and Security Review Commission. I 
thank you all for you all's patience and willingness to have 
the flexibility to be here today.
    And as our witnesses should know, spoken testimony is 
limited to five minutes each after which Members of the 
Committee will each have five minutes to ask questions. Your 
written testimony will be included in the record of the 
hearing. And it is the practice of the Subcommittee on 
Investigations and Oversight to receive testimony under oath. 
Do either of you have any objection of taking an oath?
    Dr. Atkinson. No, sir.
    Mr. Shea. No.
    Chairman Broun. Let the record reflect that both stated no, 
so that is great, instead of shaking their head from side to 
side.
    You also may be represented by counsel. Do either of you 
have any counsel with you here today?
    Mr. Shea. I have a couple of very able staffers with me, 
but I don't know if they rise to the level of counsel.
    Chairman Broun. Okay. Legal counsel is what we are 
discussing here.
    So let the record reflect that the witnesses have--that 
none of the witnesses have counsel.
    Now, if you all would please stand and raise your right 
hand.
    Do you solemnly swear and affirm to tell the whole truth 
and nothing but the truth, so help you God?
    Dr. Atkinson. I do.
    Mr. Shea. I do.
    Chairman Broun. You may be seated.
    Let the record reflect that the witnesses participating 
have taken the oath of truthfulness.
    Now, I recognize our first witness, Dr. Atkinson. If you 
would, sir, turn on your microphone. You have five minutes. We 
are not going to gavel you down at 5 if you take a few seconds 
over, but if you would, we have votes a little after 11:00, so 
we want to get to questions as quickly as we can. Thank you, 
sir.

        TESTIMONY OF DR. ROBERT D. ATKINSON, PRESIDENT,

         INFORMATION TECHNOLOGY & INNOVATION FOUNDATION

    Dr. Atkinson. Thank you, Mr. Chairman. Thank you, 
Congressman Tonko. I appreciate the invitation to appear before 
you today.
    This is a critical issue that you are facing and discussing 
today. Many nations are looking to get as much technology, 
knowledge, and innovation from other countries who are leaders 
like the United States and like Europe, and they are looking to 
get it in inappropriate ways as a way to advance their own 
economy.
    We mentioned China. China is not the only one but they are 
the most egregious. For example, in 2011, the Chinese 
Government committed to ``place the strengthening of indigenous 
innovation capability at the core of economic restructuring.'' 
Indigenous innovation refers to ``enhancing original 
innovation, integrated innovation, and re-innovation based on 
assimilation and absorption of imported technology.'' What that 
really means in English is they are going to do everything they 
can to take as much technology from people who develop it and 
get it into their economy and into their firms.
    Some of these policies that countries use are quite 
legitimate. Countries and firms in other countries buy 
technology, they license it, they have policies like R&D tax 
credits to spur their own innovation. In fact, we now have the 
27th least generous R&D tax credit in the world. But many of 
these policies are illegitimate and they violate the spirit if 
not the letter of the WTO. And let me just go through a few of 
them. We have already talked about some.
    IP theft--industrial espionage is up according to the FBI 
and according to national security experts. You see high-
profile cases recently like the Chinese stealing chemical 
secrets from DuPont, stealing wireless telecom secrets from 
Motorola, and stealing and bribing employees and stealing from 
an American company called American Superconductor, which is 
one of the largest providers of wind turbine software in the 
world.
    We also see--again, you alluded to this, Mr. Chairman--
state-owned or state-backed companies who will buy U.S. 
companies. I think this is going to be an increasing trend. 
Again, it is one thing for a private company in another country 
to come in and buy a company--our companies do the same--but it 
is very different when a company comes in to bid on a U.S. 
company where they are backed by the state. They have deep 
pockets and many of these, particular in China, are either 
state-owned or state-backed, and they have an unfair advantage 
when it comes to buying and bidding for U.S. companies. So we 
have really got to do a better job, particularly in CFIUS and 
other areas like that.
    Another area is weak IP protection. Many of these countries 
intentionally have weak IP regimes. Even if they look strong on 
paper, they are weak in enforcement. We see this, for example, 
in data exclusivity in biopharmaceutical firms. We have a 12-
year data exclusivity period in the United States because of 
Congress and this is about the minimum seeing as the time that 
companies need to be able to recoup their investments in this 
highly risky technology. Many countries are trying to weaken 
that and have very limited data exclusivity policies for 
biotechnology.
    I think the most troubling area and the widest area is 
basically limiting market access to tech transfer. It is hard 
for a small country to do that with just a few million people 
because multinationals will say we don't really care about your 
market; we will just bypass you. But big countries like Brazil, 
India, China, they have essentially a monopsony. They have so 
much market power they basically can force foreign companies to 
take these unfair extortionist practices and they do that. 
China is a good example. In China, it is virtually impossible 
for a foreign company to go in there and just open up a factory 
or an office so they can--we can do that here. Foreign 
companies come here all the time; they can open up here. In 
China, they require joint ventures.
    Another area is compulsory licensing. Countries that just 
simply say we think we want your technology. If you want to 
sell it, here, you have to do a compulsory license. We see that 
particularly in drugs.
    And finally, in procurement where the government itself 
says we are not going to buy products unless the company 
transfers the technology to our country.
    So what should we do about this? The most important thing 
we can do about it is exactly what you are doing, which is we 
need to raise the issue. I simply don't think enough 
policymakers are aware of this, enough people in the media are 
aware of the significance of the problem.
    But the second thing we need to do is be much more active 
in enforcement. And I know there is a budget crisis, but I 
think a few million dollars more at USTR would be money very, 
very well spent. We spend at least 100 times, if not more, 
defending our national security through the Defense Department 
than we do defending our economic security through USTR. USTR 
is just simply under-resourced to be able to bring the kinds of 
cases and the pressures that they need to do.
    The second area I think is critical is we have--we can't 
solve this problem on our own. We have to do it with our 
allies, particularly with Europe. And I would suggest two 
things. One is we have got to develop a strategy where European 
and American governments actively joint arm and say to 
countries like China and Brazil and India that we are just not 
going to accept this anymore.
    Another area I think to consider there--I know I am 
slightly over and I will just stop--is I think we need to think 
about joint antitrust exemption. We did this in 1984 with an 
antitrust exemption for collaborative R&D for U.S. companies. I 
think we need to give companies the tools to say together, if 
they are all in the chemical industry, for example, or the 
aerospace industry, we are all going to agree that we are not 
going to transfer technology to these countries under duress. 
If we want to do it on our own, that is one thing, but we are 
not going to do it under duress. That way, they can't get 
played off against one another.
    And finally, we need to make sure that any trade agreements 
we sign, including the Bilateral Investment Treaty that is 
being negotiated with China right now, are really gold-standard 
agreements. I think we put way too much pressure on either this 
Administration or the last or any Administration just to sign 
agreements. Get an agreement, get an agreement. A bad agreement 
is worse than no agreement. We need good agreements. We need 
gold-standard agreements. We need to do that with the Trans-
Pacific Partnership Agreement, we need to do it with the China 
BIT Agreement, and we need to basically say to the--to any 
Administration again, regardless of party, you need to 
negotiate trade agreements, but they need to be gold-standard 
agreements that protect U.S. interests.
    Thank you.
    [The prepared statement of Dr. Atkinson follows:]
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    Chairman Broun. Thank you, Dr. Atkinson.
    Mr. Shea, you are recognized for five minutes.

           TESTIMONY OF THE HONORABLE DENNIS C. SHEA,

               CHAIRMAN, U.S. CHINA ECONOMIC AND

                   SECURITY REVIEW COMMISSION

    Mr. Shea. Thank you, Chairman Broun, Ranking Member Tonko, 
Members of the Subcommittee. I appreciate the opportunity to 
speak before you today.
    I will share some of the Commission's findings, but the 
views I present today are my own.
    Technology transfer is just one part of a multi-faceted 
strategy by the Chinese Government to move China's economy to a 
higher position on the value-added, high-technology industrial 
chain and to develop a culture of innovation.
    The Commission addresses many of the broader issues in 
China's innovation strategy in our 2012 report to Congress, 
which was released in mid-November. Today, I will focus my 
testimony on Chinese Government efforts intended to transfer 
technology from the United States and other developed nations 
to China and Chinese companies.
    Let me say at the outset that China has made no secret of 
its ambition to shift its economy from one dependent on 
manufacturing products invented elsewhere to one that produces 
products whose intellectual property originates in China. One 
of China's key Central Government planning documents, the 
``2006 Medium- to Long-Term Plan for the Development of Science 
and Technology,'' describes 402 technologies in which China 
seeks to gain expertise, and it calls for China to limit its 
dependence on foreign technology to just 30 percent by the year 
2020. The 12th five-year plan, another Chinese Central 
Government plan for economic development, which was adopted 
last year, identified seven strategic emerging industries in 
which Chinese corporations are expected to become global 
champions. These industries include clean energy technology, 
biotechnology, and next-generation information technology.
    To help achieve its technology goals, China frequently 
adopts policies of tech transfer as a condition for foreign 
firms 1) to gain access to Chinese markets in certain 
industries, 2) to be considered for procurement by the Chinese 
Government, and 3) to benefit from Chinese subsidies and tax 
benefits.
    Depending on the industrial sector, the Chinese Government 
requires many foreign companies, as Dr. Atkinson mentioned, to 
enter into joint ventures with Chinese firms in order to enter 
the Chinese market, the Chinese companies often requiring their 
foreign partners to transfer technology as a precondition for 
the establishment of the joint venture. Additionally, Chinese 
law requires government approval of foreign joint venture 
agreements.
    Paragraph 7.3 of China's Protocol of Accession to the World 
Trade Organization prohibits China from conditioning the 
approval of investment by foreign companies on the transfer of 
technology, but China claims that it is not violating WTO 
prohibitions because the actions taken by foreign companies are 
purely business decisions. This argument has been seriously 
questioned by the U.S. Government and business groups. Here is 
what the USTR said earlier this year, and I quote, ``Although 
China has revised many of its laws and regulation to conform to 
its WTO commitments, some of these measures continue to raise 
WTO concerns, including those that encourage technology 
transfers to China without formally requiring them.'' U.S. 
companies remain concerned that this encouragement in practice 
can amount to a requirement, particularly in light of the high 
degree of discretion provided to Chinese Government officials 
when reviewing investment applications.
    My written testimony goes into greater detail about the 
dilemma that U.S. companies face when considering whether to 
transfer technology in China. However, I do want to note that 
of some 300 U.S. businesses surveyed by the American Chamber of 
Commerce in China last year, one in three acknowledged that 
either they or their clients had been negatively impacted by 
forced technology transfer.
    As Dr. Atkinson mentioned, forced technology transfer also 
occurs through the Chinese Government procurement policies. 
Although China agreed in 2001 to accede as soon as possible to 
the voluntary WTO Agreement on Government Procurement, that has 
not yet occurred. Without the constraints of the GPA, the 
Chinese Government has introduced restrictive procurement laws. 
In 2009, Beijing required companies to file applications to be 
considered for accreditation as indigenous innovation products 
eligible for procurement.
    President Hu Jintao came to the United States and said we 
are repealing this policy. The policy looks like it has been 
repealed at the Central Government level, but--the message 
hasn't gotten to all the provinces, which have huge procurement 
markets as well. So this is an issue that needs continuing 
monitoring by the Federal Government.
    Another issue is the issue of patents. The impetus to 
register local patents is also being reinforced by the rising 
number of utility model patents issued in China. While such 
patents are used throughout the world, they are subject to less 
rigorous and expensive review processes in China. Utility model 
patent holders in China cannot just patent troll, using patents 
as a ploy to either exclude foreign competitors or to justify 
intellectual property theft.
    As companies continue to transfer technology to China, many 
will face increased competition and pressure from Chinese 
firms. They may even find that they are excluded from a large 
part of China's market that they had hoped to gain access to, 
and that they would have access to if China had adhered to 
international trade norms. Instead of the reciprocal trade 
relationship that we should have with a WTO partner, China's 
conditioning access to their markets on the transfer of 
technology results in the loss of American jobs and harms the 
American economy.
    Two points, as I mentioned in my written testimony, I don't 
believe reciprocity is a bad word. Maybe we ought to be 
demanding some reciprocity in this relationship. And secondly, 
I agree with the point, the importance of putting pressure on 
China on a multilateral basis. Let's work with the Europeans, 
the Japanese, and other partners to deal forcefully with these 
issues.
    Thank you very much.
    [The prepared statement of Mr. Shea follows:]
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    Chairman Broun. Thank you, Mr. Shea.
    I thank you all for your testimony.
    Reminding Members that Committee rules limit questions to 
five minutes each. The Chair at this point will open the first 
round of questions. I now--the Chair recognizes himself for 
five minutes.
    Dr. Atkinson mentioned that China often requires that U.S. 
companies create R&D facilities in China as a condition of 
market access. How does creation of an R&D facility lead to the 
transfer of R&D investments in intellectual property? And I ask 
both of you all that question. Maybe we will start with Mr. 
Shea and then we will come to Dr. Atkinson since you started 
off the----
    Mr. Shea. Well, I would say 20 years ago, western companies 
would happily transfer technology because the technology wasn't 
that advanced. But as production cycles have gotten much, much 
shorter, the Chinese know that they--they are not willing to 
accept just the old stuff. They know what is out there and what 
is new. So it is hard to say with respect to a specific 
facility.
    Western companies go to China. From what they have told us, 
they put in significant protocols to protect that IP in that 
facility from theft. Whether it works or not is subject to 
question.
    Chairman Broun. Dr. Atkinson?
    Dr. Atkinson. So when I was in Nanjing about, I guess, a 
year-and-a-half ago on a delegation and we visited a Ford Motor 
Company facility there where, first of all, Ford had opened a 
factory--which, again, by Chinese rules they had to do a joint 
venture--and as a condition of the joint venture they had to 
open up an R&D laboratory. And as we were in the facility, we 
looked across the little road they were building another 
building and I asked what is that? And they said that is the 
second R&D facility to go with the second factory.
    Now, what is the problem with that? There are two problems 
with that. One is that is R&D that Ford would otherwise would 
probably be doing here. And so we are missing out on those jobs 
and the technologies that would happen. And secondly, as Mr. 
Shea alluded to, that technology just doesn't stay within the 
Ford facility. Those are mostly Chinese scientists and 
engineers working in that facility who, some of them will take 
that technology to their joint venture partners; they will take 
it to other companies in China and just turn it over if you 
will.
    Chairman Broun. And exclude U.S. interest?
    Dr. Atkinson. Absolutely. The entire goal there is to 
fundamentally exclude U.S. company interest and foreign company 
interest over the next decade.
    Chairman Broun. Are either of you aware of any federal 
effort to proactively monitor the technology transfer issue as 
an economic policy matter rather than a national security 
matter? Dr. Atkinson?
    Dr. Atkinson. I am not. We have basically haphazard and 
not-very-well-coordinated efforts. I think this is an issue 
that the National Intelligence Committee--Service group is 
looking at as well as DOD because they see it as critical to 
our defense and intel interests. But they don't have any 
systematic--a way right now of looking at how bad this problem 
is. And we certainly don't do it out of the Department of 
Commerce or USTR, so it is very haphazard. We don't really know 
what is going on as much as we should.
    Chairman Broun. Mr. Shea.
    Mr. Shea. Mr. Chairman, in our 2011 report--I know Ranking 
Member Tonko asked for some policy solutions--in our 2011 
report we have two recommendations--if I may read them--that 
may attempt to address this issue. First, we recommend that 
Congress hold hearings to assess the success of the strategic 
and economic dialogue in a Joint Committee on Commerce and 
Trade in addressing Chinese actions to implement its WTO 
commitments, including with regard to the issue of tech 
transfer. And in preparation for such hearings, Congress should 
request that the Government Accountability Office prepare an 
inventory of specific measures agreed to as part of these 
bilateral discussions. So let us see if these discussions, 
which are supposed to produce results, are actually producing 
results, specifically with respect to the issue of tech 
transfer.
    The other issue--the other recommendation from our 2011 
report is that Congress ask the Government Accountability 
Office again to undertake an evaluation of investments and 
operations of U.S. firms in the Chinese market and identify 
what federally supported R&D is being utilized in such 
facilities and the extent to which and on what terms such R&D 
has been shared with Chinese actors in the last 10 years.
    Chairman Broun. Very good. My time is just about expired, 
but if you all have any more specific solutions, I don't have 
time to ask my next question, but we will go forward. If you 
all have any other suggestions or solutions to try to monitor 
this, I would appreciate it.
    Now, I will recognize Mr. Tonko for five minutes.
    Mr. Tonko. Thank you, Mr. Chair.
    Dr. Atkinson, you state in your testimony that, and I 
quote, ``China is still largely a technologically developing 
nation forcing companies from developed nations to transfer 
their technology, and that is as a faster way to innovation 
success than engaging in the hard work to move up the 
technology learning curve as European and American companies 
have had to do.'' In your opinion, why is it that American 
firms are so quick to give away their technology inherited 
through generations of innovators and a federal investment when 
there are so many examples that the Chinese would just use this 
technology to compete not only in China, but also in other 
global markets and in America as in your example of high-speed 
rail?
    Dr. Atkinson. Thank you. I think there are two reasons. One 
is it is not just American firms, though in the high-speed rail 
case I think is a classic where Kawasaki transferred high-speed 
rail technology to the Japanese as a condition of them being 
able to sell them equipment for the largest high-speed rail 
system in the world, and then a few years later, the Chinese 
state-owned enterprise, started to outcompete them in third-
party markets. So even countries where the firms have a longer-
term horizon, they get forced to do this because they are faced 
with a Hobson's Choice. They can either do this or they are 
left out of the market completely. So that is why I think joint 
action is so important.
    But I do think the second reason is that American companies 
are under much shorter time horizon pressures to show returns 
because of the way our equity markets are structured, and so 
they oftentimes don't have the ability to--or the patience to 
say, well, you know, we are not going to do this because we 
know in ten years it is going to be a problem. It is going to 
help us right now but in ten years it is going to be a problem. 
I think the way equity markets are structured in other 
countries sometimes gives other companies more leeway.
    Mr. Tonko. Thank you. And the United States Government has 
invested heavily in promoting electric vehicles, and as you 
note in your testimony, Dr. Atkinson, the Chinese Government 
precluded the Chevy Volt from qualifying for alternative fuel 
vehicle subsidies unless GM agreed to transfer their 
engineering secrets to a joint venture in China. However, GM 
did not let this deter them from entering this market. They 
conducted a separate agreement to transfer battery and other 
electric car technology to a Chinese joint venture.
    So while I agree that China should be opposed in the 
policies they are currently pursuing to gain advantage, how can 
we encourage a new firm culture that would more aggressively 
protect American ingenuity and innovation? And do firms bear no 
social responsibility for the consequences of their conduct?
    Dr. Atkinson. Well, what I would worry about is if we 
somehow said to U.S. companies you can't transfer any 
technology under duress to China and somehow we could pass a 
rule or a law to that effect--my worry would be that it would 
just simply give foreign competitors the competitive advantage. 
We see this, for example, in the competition between Airbus and 
Boeing. China is the largest-growing aviation passenger market 
in the world--jet market in the world--and if you are not in 
that market as either Boeing or Airbus, you are in tough shape. 
Now, if we were to, for example, say to Boeing you just can't--
you can't help COMAC; they are a state-owned enterprise. You 
can't help them; you can't do anything. They are just going to 
basically say, okay, we are going to get everything and we will 
pressure Airbus.
    So I think--again, I go back to this. I think that is where 
we have to basically go--with the Japanese who are facing this 
exact same problem and the Europeans--and we have to all act 
collectively because you are right, Mr. Tonko. It is not in the 
interest of U.S. companies to do this, but it is very, very 
hard for them to resist this.
    Mr. Tonko. And finally, if either of you could make 
recommendations from the Federal Government perspective, and I 
know that Mr. Shea offered some comments, but are there any 
within the programs of agencies that we oversee such as NIST or 
DOE or NSF or NASA? Is there anything you would recommend 
with--in association with those given agencies?
    Dr. Atkinson. I haven't thought extensively about that, but 
just a couple of quick thoughts. One, you could require that 
those agencies who are funding technology projects monitor the 
use of those technologies and where they end up being 
commercialized as a first step, which we don't do. So again, it 
is not to say that--I would not put a hard ban on anything. 
There are real reasons why you might want to go and 
commercialize something in Canada, for example, but we at least 
ought to know exactly what is going on with these when we are 
transferring or helping firms with federally supported R&D at 
home.
    Mr. Tonko. Mr. Shea, any thoughts?
    Mr. Shea. Well, NASA's Jet Propulsion Laboratory was the 
subject of a major hacking attempt. I would make sure that NASA 
reported to you whether there was any dissipation of technology 
as a result of that hacking. This is not related to those 
specific agencies, sir, but this antitrust exemption is 
something that we recommended in 2010 that Congress explore 
with respect to the airplane industry. We looked at the offset 
requirements being imposed on airplane manufacturers. If you 
want to sell airplanes to China, you have got to build 
facilities in China. And we thought maybe the major companies 
should get together and collectively resist these efforts, and 
that may require an antitrust exemption. So that should be 
looked at.
    Mr. Tonko. Thank you very much.
    Chairman Broun. The gentleman's time is expired.
    I now recognize Dr. Benishek for five minutes.
    Dr. Benishek. Thank you, Mr. Chairman.
    This is really interesting to me and to see how this works 
because obviously these American companies, you know, are doing 
this voluntarily because they want the business that is 
available in China. And the thing that Mr. Tonko just talked 
about to me seems to be the crux of the issue is that if 
companies want to do this freely, I don't see, you know, why 
they shouldn't, but if the American people are paying for the 
technology, you know, shouldn't there be some sort of a limit 
as to, you know, what these private companies can do with the 
technology if it is somehow associated with a taxpayer 
investment?
    I mean that to me is the crux of the issue. I mean they 
wouldn't do business in China unless they thought it was in 
their best interest to do that, but since some of the funding 
comes from the government, is there--we touched a lot over--a 
little bit with Mr. Tonko. Was there some way of doing that 
that is not completely--you know, I mean you mentioned doing 
something in Canada and I can understand that, but is there 
some way we can do that better without completely closing off 
that, you know, the good part of the market? Do you understand 
my question? I am just trying to figure that out.
    Dr. Atkinson. I do. I--just a couple of points and then I 
will try to provide an answer. I do think that a lot of this is 
not voluntary, that--the intellectual property theft, the--so 
there are certain parts where they just take it.
    Dr. Benishek. Yeah, okay.
    Dr. Atkinson. And then there is another component where 
companies give it, but they essentially have a gun to their 
head. So it is----
    Dr. Benishek. But then they could not do business. I mean 
they could just not go there. I mean they have that option, 
right? I mean that is the truth.
    Dr. Atkinson. It is true, but as I think as I said in my 
opening, they have that option with regard to Zimbabwe, but 
they don't have it--they really don't have it with--you know, 
they could just say we are going to avoid China and Brazil and 
India, but it essentially--Mr. Tonko's point, that also 
consigns them to a long-term competitive disadvantage and 
perhaps decline because they are just not in those markets----
    Dr. Benishek. Right.
    Dr. Atkinson. --and their competitors would be in those 
markets and gain the market share. So I do think that it is 
worth exploring, perhaps some rules about where--what companies 
can do if it is clearly federal technology that has been 
supported where there is a grant involved for an R&D project. I 
think it is definitely worth exploring where those can be 
commercialized and made.
    One thing I would really strongly encourage you to do is as 
we move forward, which I hope we do as a country with a trade 
agreement with Europe, I think that is a very important next 
step that we get the Europeans to adopt the same policies with 
regard to all of their science and technology and framework 
programs. Again, if we both have the same policies about what 
our technology can be used for, it is going to be harder for 
those countries to play us off against each other.
    Dr. Benishek. So as I understand, the Chinese don't really 
prosecute this theft part of it, you know, the actual people 
stealing the technology, which you must have, you know, 
safeguards in that in other countries where employees are not 
allowed to do that, but apparently that is not enforced in 
China or that is a problem.
    Mr. Shea. Yeah, I think that is fair to say, Congressman. 
They have great laws. The laws are on the books. They have 
courts but they don't enforce the laws effectively. Going back 
to your question about R&D and taxpayer-funded R&D being used 
in China and then taken in China, the recommendation that we 
made in 2011 I think has been acted upon by Congressman 
Rohrabacher if I am not mistaken, so thank you for doing that. 
So that might be--getting a handle on the problem, getting a 
handle on the extent of what is going--what is being siphoned 
out would be a good first step.
    I just want to share this issue of competitive pressure 
and, you know, forced technology transfer; you are right; it is 
voluntary. I mean no one is forcing you to do business in China 
but companies, because there is such a large market, feel 
compelled. And I had a conversation that still sticks in my 
memory about 20 years ago. I guess it was 1990. I was part of a 
group that met with Akio Morita, who is the founder of Sony, a 
great innovative company at the time. And one thing that he 
said that the U.S. did wrong was it had too short a--companies 
had too short a time horizon. And he specifically said this--
quarterly reporting is a bad thing because it forces companies 
to look for short-term profits rather than a longer investment 
timeline. That thought has stuck with me for these many years.
    Dr. Benishek. I thank you.
    I will yield back the remainder of my time.
    Chairman Broun. Thank you, Dr. Benishek.
    Next person I will recognize is my friend from North 
Carolina, Mr. Miller, for five minutes.
    Mr. Miller. Thank you, Dr. Broun.
    Mr. Shea, my questions are along the lines of what you just 
spoke to, corporate governance issues. I do agree with your 
testimony. I agree with the premise of this hearing that we 
should resist the policies of the Chinese Government. They are 
harming our economy. They are harming American workers, our 
ability to take advantage of our own investments and 
innovation. But I wonder if we are naive to think that the 
corporations that are subject to this are truly American 
corporations. They really do want to resist--that they really 
are being bullied into doing something contrary to the 
interests of the American economy and that that--and they 
really want to do that.
    In the last presidential campaign for all the talk of small 
business, which I think we should encourage, you would think 
that we were a nation of yeoman farmers and shopkeepers and 
artisans when in fact our economy is being dominated by 
enormous corporations, increasingly enormous corporations. The 
Economist ran a piece on that just two or three weeks ago. And 
they are not really American corporations. They may be 
incorporated in Delaware but they are international, 
international in the scope of their operations, international 
in their ownership.
    There was a piece this morning or yesterday in a 
publication--internet publication called Business Insider by 
Henry Blodget that said a theme that I have heard before that a 
generation ago American corporations saw themselves as having a 
variety of stakeholders, including their own workers, including 
the communities in which they have operations, including their 
own country. They were American corporations. And that has now 
been replaced completely by a philosophy or at least a stated 
philosophy that everything that corporate management did should 
be in the interest of making more profit. Is it the case that 
corporations are going to take into account at all the interest 
of the American economy? Should they? And how do we make that 
so?
    Mr. Shea. Well, that is a very big statement. I will say, 
you know, Clyde Prestowitz has written a book on this issue----
    Mr. Miller. You have got two minutes and 25 seconds to 
answer this.
    Mr. Shea. Okay. The pressures--corporations are with--
American corporations are undoubtedly expanding. Their 
operations are moving on a global basis. I don't think we can 
expect U.S. companies to ignore 2.5 billion consumers in China 
and India. So I completely appreciate the desire of U.S. 
companies to reach out to these markets and to tap into that 
consumer base. The question is what about our own productive 
capacity? What about our own manufacturing capacity? How does 
that diminish it?
    Our Commission looks at the U.S.-China relationship. We 
don't look at U.S. domestic policies or U.S. corporate 
governance policies. That is not something that we feel is 
within our Commission's mandate. But I think you raised some 
very good points. Do the interests of large corporations 
converge with the interests of the United States Government? It 
used to be said that what is good for GM is good for America. 
Is that necessarily true today? Again, this is not something 
that we--these are not the types of issues that--I am copping 
out here, sir. These are not the issues that the Commission 
itself looks at, but I think you have raised some valid points 
that deserve exploration. And there has been some good work on 
corporate governance issues by people like Prestowitz, by 
people like Ralph Gomory and others who have some very strong 
opinions on these matters.
    Dr. Atkinson. Now, I----
    Mr. Miller. Mr. Atkinson, yeah.
    Dr. Atkinson. So when I got my Ph.D. at North Carolina back 
in the '80s, I was involved a lot with the state government----
    Mr. Miller. You are playing to your audience now.
    Dr. Atkinson. And--but I will note one of the things that 
North Carolina built its economy on after World War II and even 
through the '80s was the movement of firms from the north who 
frankly had no loyalty to the north. They were Michigan 
companies or Delaware companies or Massachusetts--I mean they 
came down to North Carolina because the business climate was 
good. We are seeing that same dynamic today all around the 
world, and I think we can like it or we cannot like it. I 
really don't think there is anything we can do about it.
    I think fundamentally it is incumbent upon us to do two 
things. One is to make the U.S. business environment the best 
in the world, which means in part protecting our multinational 
companies from these pressures and this extortion that they are 
facing overseas. The second thing, we have the highest 
corporate tax rate in the world now, we have the 27th-worst R&D 
tax credit, we haven't funded science and research the way 
other competitors have, so I think we have got to do much more 
of that.
    Just on this point about what the companies' interests are, 
there is a very good book by a finance professor at 
Northwestern that came out last year called ``Saving Capitalism 
from Short-Termism,'' and his argument is that the role of 
companies is to maximize shareholder value. And the problem is 
if U.S. companies increasing the maximized short-term 
shareholder value, not long-term net present value shareholder 
value. And that is exactly the dynamic we see in China.
    So I think dealing with corporate governance is important 
but I don't think we have to sacrifice or get rid of the notion 
that companies are there to make a profit. They are just under 
pressures to make the wrong kind of profit I would argue today.
    Chairman Broun. The gentleman's time is expired.
    I ask unanimous consent that Mr. Rohrabacher, who is not a 
Member of this Committee, be allowed to ask questions.
    Hearing no objections, Mr. Rohrabacher, you are recognized 
for five minutes.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman.
    This issue has a lot of layers to the onion, and we have 
heard the term extortion of our companies who go there and 
extortion of our business leaders. I think it is very hard to 
extort someone who is a willing accomplice.
    We have had a couple generations now of CEOs who are Ivy 
League trained and part of their training isn't being loyal to 
the United States of America or to the people of the United 
States. Their Ivy League training, which quite often includes 
hostile analysis of current history and past history, making 
the United States look not like the--what most of believe it 
should be, which is the bastion of liberty and justice and the 
shining city on the hill like Mr. Reagan used to talk about, 
but instead that we are the--at the root cause of much of the 
world's problems. So we have CEOs who were trained in terms of 
their history not to be necessarily fans of their own country. 
And then we have CEOs who seem to also--so they don't feel 
obligated to do something that is in the best interest of our 
country--they just don't. There are many CEOs who don't believe 
that.
    But what is even more disturbing, Mr. Chairman, is we have 
CEOs who don't feel they have to do something in the best 
interest of their own corporation, much less their own 
employees. And we have just heard testimony talking about the 
short-term business decision by our corporations. Well, those 
are short-term business decisions made by specific individuals 
who head those corporations who may take short-term profit, 
give themselves bonuses, and get the hell out before the long-
term consequences to their own company is being felt, much less 
the employees of the company.
    I think we are all in this together as Americans whether 
you are talking about employees or employers, and we should be. 
I mean the world depends on us having a certain dedication to 
the principles that our Founding Fathers thought was going to 
unite Americans. But we don't seem to have it. And I don't 
believe it is a product of extortion. I think it is a product 
of people joining on to what I see as an enemy camp, but at 
least it is an immoral force in this world.
    Are many of the--let me just note I think we need to 
restructure our system so that the corporate leaders do have 
long-term interests rather than the short-term quarterly 
profits that we heard about today. I personally believe, for 
example, that we should add into our system incentives to 
promote employee ownership, which would let the employees help 
pick the CEOs, give them a voting share, make sure they are 
involved with this whole process so that in the long run 
employees think of themselves as 20- or 30-year employees. CEOs 
see themselves as three- to five-year CEOs. Thus their notion 
is not as long-term as their own employees.
    But back to the basic issue here. How many of these 
companies that are benefitting from ripping off American 
technology development and the taxpayers who have paid for much 
of the development of the technology of these corporations who 
the CEOs are going over there and making these sweetheart 
deals--how much of that--how many of these companies that are 
benefitting over there are owned by the People's Liberation 
Army? I mean you keep hearing the Chinese corporations buying 
this and buying that. Are these really fronts for the Chinese 
military?
    Mr. Shea. I don't know. That is the short answer. But 
people in America need to realize that the Chinese economy is 
significantly owned by the state. We have estimated that the 
Chinese economy, 40 to 50 percent of it is state-dominated. So 
that the issue of dual-use capability is something that is very 
important.
    We, last year, examined this issue with respect to U.S. 
support for the development of the Chinese aviation industry. 
There are a couple of very large Chinese aviation companies 
that want to make competitors to the Airbus and to the 737 and 
commissioned a research report that talks about the potential 
application of the technology that gets transferred for 
military purposes. The Chinese are already undergoing a 
significant military modernization program. They have something 
called the J20, a fifth-generation stealth fighter.
    Mr. Rohrabacher. Let me interrupt at this point because my 
time is running out. Let me just note----
    Mr. Shea. Sure.
    Mr. Rohrabacher. --everything he is saying, Mr. Chairman, 
is sinful against the United States of America. If we have a 
potential enemy--I think China is our adversary today, but it 
certainly has to be put in the potential enemy category--for us 
to have paid for the research and development that helped our 
airlines and our aviation and our aerospace industry, for them 
then to work in joint projects with the Chinese that then give 
Chinese companies these capabilities. And then we find out--
which we will find out--that these Chinese aviation companies 
are all fronts for the People's Liberation Army, that is the 
people who actually own those companies, we will have 
transferred the equivalent--and by the way, I understand the 
Boeing was negotiating with the Japanese. Just six months 
before Pearl Harbor, they were negotiating with selling the 
Japanese the blueprints for the B-17, which turned out to be 
most important bomber of World War II. We need to make sure 
that our technology is not going to someone who will be killing 
Americans five years down the line or ten years down the line.
    Chairman Broun. The gentleman's time is expired.
    Mr. Rohrabacher. Thank you.
    Chairman Broun. And I agree with the gentleman from 
California. Economic as well as military espionage is a 
tremendous issue that we face, but that is not the real issue 
here in this hearing. But I would be very eager to hear maybe 
until this date even further what you are saying, Mr. Shea and 
Dr. Atkinson, any further comments on that question.
    I thank you all for your valuable testimony today. Again, 
thank you for your flexibility and willing to come back and 
short-term notice for cancellation last time and willing to 
come back for this valuable testimony that you have given to us 
here today.
    I know I have many other questions that I will present to 
you all for written response, and I will appreciate an 
expedited response because it will be included in the official 
record. I know other Members of the Committee may have other 
questions also besides the ones that I have. We need to make 
sure that we have a way of monitoring this information 
transferred to these foreign entities, particularly in cases 
such as Mr. Rohrabacher was talking about that maybe even going 
to our enemies, both economic enemies as well as military 
enemies. So I am eager to hear you all's suggestions about how 
we can monitor these things and even develop policies that will 
help prevent the transfer, particularly of those--the research 
and development that is funded by our taxpayers to these 
foreign entities and where they take advantage of our largess.
    Members of the Subcommittee, you all have two more weeks 
for additional comments from Members to present questions to 
these very good witnesses. And I want to thank the Members of 
the Subcommittee since this will be the last hearing of this 
Congress. I am not sure who is going to be on this Committee in 
the next Congress.
    Mr. Tonko, I have had a tremendous pleasure working with 
you during this Congress as my Ranking Member, and I appreciate 
your help. It has been great. When we see throughout Congress 
so much bipartisan--very little bipartisanship and very little 
mutual interests by Members on opposite sides of the aisle, it 
has been great working with you and working with your staff. 
And I thank the Democrat staff as well as all the Republican 
staff for working with me and with us on our side. And it has 
been just a tremendous blessing to me to work with you, Mr. 
Tonko. And I appreciate your being here in this situation.
    We will see what the next Congress offers as far as this 
Committee is concerned and look forward to where this Committee 
goes because we have a lot of things, as you know and the 
Committee knows on both sides, that we have looked at a lot of 
issues in this Congress that I am still interested in and want 
to continue to pursue investigation and oversight of many 
issues. And this is another one that we just absolutely I think 
is critical for our taxpayers, American citizens, and American 
businesses that we prevent the transfer of the research and 
development, particularly that that is paid for by U.S. 
taxpayers and that other foreign companies benefit from that 
investment by our taxpayers and then turn around and compete 
unfairly in a global market. So it is something that I am going 
to continue to be interested in.
    So thank you. I thank you, Mr. Tonko, and----
    Mr. Tonko. Mr. Chair?
    Chairman Broun. Mr. Tonko, you are recognized.
    Mr. Tonko. Yes, Mr. Chair, if I might. Thank you for the 
partnership and sincere desire to build cooperation. Your 
staff, too, is to be commended for working so well with our 
team. And I enjoy this Committee assignment and we thank you 
for the cooperation.
    Chairman Broun. Well, thank you, Mr. Tonko. And a closing 
remark, Mr. Miller was the Chairman in the last Congress and I 
was the Ranking Member, and I just want to tell you, as you 
leave Congress, I am going to miss you being on this Committee 
and I have enjoyed working with you, Mr. Miller, and I wish you 
well in whatever endeavors that you undertake as you go back to 
North Carolina or whatever you do. And I wish you well and 
tremendous amount of blessings. And I wish everybody in the 
Committee staff as well as Committee Members a very Merry 
Christmas and happy holidays.
    With that, the witnesses are excused. The hearing is now 
adjourned. And thank you all very much.
    [Whereupon, at 11:11 a.m., the Subcommittee was adjourned.]

                                 
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