[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
MODERNIZING EXPORT CONTROLS: PROTECTING
CUTTING-EDGE TECHNOLOGY AND
U.S. NATIONAL SECURITY
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
MARCH 14, 2018
__________
Serial No. 115-116
__________
Printed for the use of the Committee on Foreign Affairs
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas KAREN BASS, California
DARRELL E. ISSA, California WILLIAM R. KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID N. CICILLINE, Rhode Island
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California LOIS FRANKEL, Florida
SCOTT PERRY, Pennsylvania TULSI GABBARD, Hawaii
RON DeSANTIS, Florida JOAQUIN CASTRO, Texas
MARK MEADOWS, North Carolina ROBIN L. KELLY, Illinois
TED S. YOHO, Florida BRENDAN F. BOYLE, Pennsylvania
ADAM KINZINGER, Illinois DINA TITUS, Nevada
LEE M. ZELDIN, New York NORMA J. TORRES, California
DANIEL M. DONOVAN, Jr., New York BRADLEY SCOTT SCHNEIDER, Illinois
F. JAMES SENSENBRENNER, Jr., THOMAS R. SUOZZI, New York
Wisconsin ADRIANO ESPAILLAT, New York
ANN WAGNER, Missouri TED LIEU, California
BRIAN J. MAST, Florida
FRANCIS ROONEY, Florida
BRIAN K. FITZPATRICK, Pennsylvania
THOMAS A. GARRETT, Jr., Virginia
JOHN R. CURTIS, Utah
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
C O N T E N T S
----------
Page
WITNESSES
The Honorable Mario Mancuso, partner, Kirkland and Ellis, LLP
(former Undersecretary for Industry and Security, U.S.
Department of Commerce)........................................ 3
The Honorable Alan Larson, senior international policy advisor,
Covington and Burling, LLP (former Undersecretary for Economic,
Business, and Agricultural Affairs, U.S. Department of State).. 10
The Honorable Kevin Wolf, partner, Akin Gump Strauss Hauer and
Feld, LLP (former Assistant Secretary for Export
Administration, Bureau of Industry and Security, U.S.
Department of Commerce)........................................ 17
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Mario Mancuso: Prepared statement.................. 6
The Honorable Alan Larson: Prepared statement.................... 12
The Honorable Kevin Wolf: Prepared statement..................... 19
APPENDIX
Hearing notice................................................... 50
Hearing minutes.................................................. 51
The Honorable Gerald E. Connolly, a Representative in Congress
from the Commonwealth of Virginia: Prepared statement.......... 53
Written responses from the witnesses to questions submitted for
the record by:
The Honorable Adam Kinzinger, a Representative in Congress from
the State of Illinois........................................ 54
The Honorable Ann Wagner, a Representative in Congress from the
State of Missouri............................................ 55
MODERNIZING EXPORT CONTROLS:
PROTECTING CUTTING-EDGE TECHNOLOGY
AND U.S. NATIONAL SECURITY
----------
WEDNESDAY, MARCH 14, 2018
House of Representatives,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 10:00 a.m., in
room 2172 Rayburn House Office Building, Hon. Edward Royce
(chairman of the committee) presiding.
Chairman Royce. This committee will come to order. And
today the committee is going to review our export controls and
our foreign investment review process. Both are critical to
protecting our national security and, of course, protecting our
economic edge.
The United States, as we all know, is the world's largest
exporter of goods and services, and our trade relationships as
well as our leadership in science, engineering and
manufacturing support between them tens of millions of good-
paying American jobs.
Alarmingly, our competitive edge is increasingly under
attack by policies from China and Russia and from others that
seek to obtain advanced technologies and intellectual property
by hook or by crook. As some may recall, in 2011 this committee
held a hearing on China's ``indigenous innovation'' policy and
at that time I noted the Chinese Government has been turning up
the pressure on U.S. and other foreign business to share
sensitive technology with Chinese state-owned enterprises as
the cost of selling in the Chinese market. This is especially
true today.
Making matters worse, our outdated regulatory safeguards
have potential gaps. Those gaps could permit transfers to
potential adversaries of the ``know-how'' essential to
sensitive emerging technologies like artificial intelligence as
well as robotics.
In this global economy, turning inward is not the solution
to these challenges. But we also cannot allow others to cheat
U.S. employers or, worse, use our sensitive technology to
undermine our own national security.
And that's why Ranking Member Engel and I have introduced
the Export Control Reform Act of 2018, which would repeal the
expired Cold War era Export Administration Act of 1979. We
would replace it with a modern statutory authority to regulate
dual-use items. Under our approach, we would modernize U.S.
export control laws and regulations and they will continue to
have broad authority governing the transfer of less sensitive
military and dual-use in technology to foreign persons whether
that transfer takes place abroad or here in the United States.
As governments like Beijing and others pursue their hard-
edge strategies to acquire advanced technologies from the U.S.
and from our allies, our bill utilizes unilateral controls
where necessary and it also will improve coordination with
allies to strengthen export controls and inward investment
security.
Meanwhile, the Committee on Foreign Investment in the
United States--and that's CFIUS--would continue to review
certain ``covered transactions.'' Those are defined as the
acquisition or control by foreign persons over a U.S. business.
The vast majority of these investments are productive and
should be welcomed.
Modernized U.S. export controls and appropriately crafted
CFIUS reforms are complementary responses to the challenges we
face. Together, they should improve the ability of the U.S. to
remain a leader in innovation and to strengthen the industrial
base and to protect the technologies essential to national
security.
Our goal is an efficient regulatory system that promotes
both our national security and our economic prosperity and we
have with us today three practitioners in the field, each with
long experience in the CFIUS process and with U.S. export
controls, and we hope their testimony today will provide the
committee with insights into how to proceed on these important
and challenging issues.
And I will turn to the Democratic side in case we have any
members who would like to make an opening statement, if they
would. Otherwise, we will go to the witnesses.
Mr. Sires. No, I don't have any statement. Thank you very
much. Thank you for being here.
Chairman Royce. And so this morning the distinguished panel
includes Mr. Mancuso. Mario is a partner at Kirkland & Ellis
and previously he served as the Undersecretary of Commerce for
Industry and Security, and as the Deputy Assistant Secretary of
Defense for Special Operations and Combating Terrorism.
We have Ambassador Alan Larson. He serves as senior
international policy advisor at Covington & Burling.
Previously, Ambassador Larson served in a series of senior
government positions including as the Undersecretary of State
for Economic, Business, and Agricultural Affairs, and as the
Ambassador for the Organization for Economic Cooperation and
Development.
And we have Mr. Kevin Wolf, partner at Akin Gump Strauss
Hauer & Feld. Previously, he served as the Assistant Secretary
of Commerce for Export Administration within the Bureau of
Industry and Security.
So without any objection, the witnesses' full prepared
statements are going to be made part of the record and members
here are going to have 5 calendar days to submit any statements
or questions or any extraneous material for the record.
And we will begin with Mario Mancuso. And we will ask him
to summarize, sir, your remarks and we will go down the panel.
STATEMENT OF THE HONORABLE MARIO MANCUSO, PARTNER, KIRKLAND AND
ELLIS, LLP (FORMER UNDERSECRETARY FOR INDUSTRY AND SECURITY,
U.S. DEPARTMENT OF COMMERCE)
Mr. Mancuso. Thank you. Chairman Royce, Ranking Member
Engel, and other distinguished members of the committee, thank
you for the opportunity to testify this morning. I am
delighted, obviously, to be with all of you and with my fellow
panelists.
As Chairman Royce mentioned, my name is Mario Mancuso. Over
the course of my career in government I've had the great
privilege to serve in a variety of roles in the U.S. national
security and foreign policy enterprise.
I served as Undersecretary for Industry and Security, as
Deputy Assistant Secretary of Defense for Special Operations, a
member of the Global Market Board at the National Intelligence
Council, and as a forward-deployed military officer in combat.
In these roles, I learned a great deal about how U.S.
national security is conceived, debated, and articulated in the
interagency, how statecraft is actually operationalized and how
U.S. national security is advanced on the ground.
I learned a great deal about the differences between ideas
and execution, between inputs and outputs, the importance of
legal authorities, resources, and accountability and the need
for modesty, especially in presuming what we know and do not
know and cannot know and do.
Today, I am a visiting senior fellow at the Hudson
Institute for International Security where I continue to work
on questions that relate to U.S. national security strategy and
statecraft in the emerging security environment.
I am also a partner at Kirkland and Ellis where my practice
focuses on matters that relate to U.S. national security
regulation of international activities.
I want to be clear from the outset I am here today in my
personal capacity. The views I express here are mine alone and
they should not be construed as the views of Kirkland and Ellis
or its clients.
I am here to offer some observations in my capacity as a
former government official about these topics and to answer
your questions.
I will not discuss any specific case or matter that has
been or is current before the U.S. Government.
As this committee knows well, both CFIUS and export
controls are important instruments of U.S. statecraft. By
design, they aim to effectuate a selective denial strategy,
which itself is premised on an important assumption--that the
U.S. has certain things that others want and don't have.
While globalization has rendered that assumption outdated
in many areas, for certain emerging and foundational
technologies--for example, artificial intelligence, robotics,
augmented and virtual reality, et cetera--that assumption is
still generally true today.
On the other hand, while globalization has diminished our
lead in certain technology areas, it has also been central to
our economic and, by extension, our national security success.
One need only look at U.S. overmatch advantages in nuclear
and electronics-enabled capabilities at critical junctures in
our history to see how economic scale and technological
superiority worked hand in hand in service of our global
preeminence.
In this connection, as this committee considers the
contribution of CFIUS and export controls to U.S. national
security, I would invite the committee to keep in mind two
questions which may help frame the discussion.
First, at this time in our history, what's the optimal
balance for the U.S. to strike between economic openness and
restrictiveness in order for our country to secure the most
important advantages of openness while mitigating its greatest
risks; second, whether in light of that equilibrium CFIUS and
the current export control regime is by virtue of its resources
and authorities properly configured to effectively implement
and maintain this balance.
In the interests of facilitating this, I'll just offer some
observations. I won't offer all of them. All of them will be in
my written testimony, but just a few to start things off here.
First, foreign direct investment--FDI--is critical to U.S.
economic vitality. The collective economic strength and
vitality of our economy to which FDI clearly contributes helps
resource our investment in national defense and extends our
soft power reach around the world.
While the U.S. remains a preferred global destination for
FDI, our global share of FDI has declined in recent years.
Because of its many benefits, this should be concerning to U.S.
policymakers including U.S. national security policymakers.
Indeed, nations today must compete for foreign direct
investment. A failure to consistently attract benign FDI into
the U.S. would present a long-term systemic national security
risk to the United States.
But while FDI is generally good, certain transactions do in
fact present transaction-specific national security risks. The
policy question to consider, therefore, is not how to balance
economic and national security interests but how to balance
systemic and transaction specific national security risks.
In recent years, strategic competition between the U.S. and
China has increased across multiple domains--economic,
political, diplomatic, and military--and there is no reason to
believe that that competition will abate in coming years.
China is actively pursuing a well-resourced coordinated
science and technology strategy that seeks to bolster
indigenous Chinese innovation and to position China to be the
world's technology leader.
A number of pillars of this strategy, as Chairman Royce
rightly pointed out, have been described in various official
Chinese Government pronouncements such as ``Made in China,'' a
number of Five-Year Plans, and certain published technology
roadmaps.
If successful in its articulated form, this strategy would
have important Chinese economic and social benefits. It would
contribute to the U.S.-China and economic relationship but it
would also have deleterious impacts on U.S. national security.
As a matter of legal authority, export controls apply to
the transfer of specific or general types of technology to
foreign persons generally. In other words, their reach is not
limited by law to a prescribed set of commercial
circumstances--for example, corporate transactions.
The controls vary by technology type, end use and end user,
and are designed to advance one or more national security
foreign policy or other goals. The system is highly complex and
nuanced.
As a matter of legal authority, CFIUS has legal
jurisdiction over many but not all transactions. Three things
must be true for a transaction to be a covered transaction and
thus fall within CFIUS' jurisdiction.
First, the buyer or the investor has to be a foreign
person, the transaction must be a controlled transaction, and
the target business must be a U.S. business. All of these
things are terms of art, and while CFIUS' reach is broad, it is
not infinite.
Export controls and CFIUS have different, independently
important, and complementary responsibilities. As Congress
considers reforming one or both, it should focus its review
primarily on gaps in resources and authorities.
I will end by saying U.S. technology leadership is
essential, particularly with respect to certain emerging and
foundational technologies to long-term U.S. national security
interests.
To achieve this, the U.S. should pursue and not shrink from
pursuing a whole of government strategy that does not rely
exclusively on CFIUS and export controls or see these areas as
the exclusive vectors of national security risk but builds
strength on strength by countering illicit technology transfer
however that may occur, enhancing the U.S.' economic
competitiveness and technological superiority.
Thank you again for the opportunity to be with you today
and for your commitment to exploring these important issues. I
look forward to the committee's questions.
[The prepared statement of Mr. Mancuso follows:]
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----------
Chairman Royce. Thank you, Mario.
We go to Ambassador Larson.
STATEMENT OF THE HONORABLE ALAN LARSON, SENIOR INTERNATIONAL
POLICY ADVISOR, COVINGTON AND BURLING, LLP (FORMER
UNDERSECRETARY FOR ECONOMIC, BUSINESS, AND AGRICULTURAL
AFFAIRS, U.S. DEPARTMENT OF STATE)
Ambassador Larson. Mr. Chairman, Mr. Engel, and
distinguished members, I am delivering my testimony today on my
personal responsibility, not on behalf of the organization
where I work nor its clients.
Nevertheless, my views have been informed by over a dozen
years at Covington and Burling and 32 years at the State
Department. At each organization, I had responsibilities for
CFIUS, trade controls, and sanctions.
As Congress considers CFIUS reform and export control
reform including the export control----
Chairman Royce. Excuse me. Alan, here's a suggestion. Just
pull the microphone a little closer. The people in the back
indicate they couldn't hear it. There you go.
Ambassador Larson. Is that okay? Thank you.
Chairman Royce. Ambassador, thank you.
Ambassador Larson. As Congress considers reform of CFIUS
and export control reforms like the Export Control Act, we
should remember that the United States benefits greatly from
foreign investment and foreign trade.
Foreign investment promotes economic dynamism, creates
jobs, spurs innovation, and contributes to our ability to fund
strong military and national security capabilities.
In my view, CFIUS works best when it focusses narrowly on
protecting national security. Certain investments that give a
foreign person control over a U.S. business can have national
security implications.
CFIUS has been effective and adaptable in addressing such
national security concerns. Other broader and vague economic
goals such as economic security in my view should not replace
national security as the standard for CFIUS.
Similarly, reciprocity or concerns about another county's
trade policy, while very important issues, should be addressed
by other policy tools and not by CFIUS.
Congress and the executive branch should regularly review,
modernize, and reform CFIUS and export controls to address
emerging national security risks. In the case of CFIUS, they
did so in the Foreign Investment and National Security Act of
2007.
During the 10 years since FINSA was enacted, however, new
security challenges have emerged. Today, China has become both
an economic competitor and an economic partner of the United
States.
In addition, China is both a strategic competitor of the
United States and, at the same time, China works with the
United States to promote certain shared security objectives
including on containing the threat of North Korea's nuclear
weapons and fighting terrorism.
U.S. policy should reflect the complexity and importance of
our relationship with China. We should avoid actions that
unnecessarily feed perception that we believe conflict between
our countries is inevitable.
Now, China and the United States each have strong
commercial reasons to pursue leadership and critical emerging
technologies including artificial intelligence, semiconductors,
and robotics, among others.
Some of these technologies have both commercial
applications and also national security applications. As we
consider the implications of these and other technologies on
national security, we should very seriously consider reform and
modernization of CFIUS in tandem with reform and modernization
of U.S. export control regimes including the EAR and ITAR.
CFIUS and export control regimes can and should complement
each other and be consistent with one another, not overlap and
not contradict each other. Each regime, in my view, should
focus on its areas of core expertise.
Other countries often criticize CFIUS and U.S. export
controls and exaggerate their impact on legitimate commerce. My
view is that the United States should do what we need to do to
protect U.S. national security, notwithstanding such criticism
and misunderstanding.
At the same time, we should take a clear-eyed, thoughtful,
and balanced approach. We should protect national security in
ways that promote economic dynamism at home. We should protect
national security while avoiding to the maximum extent possible
actions that unnecessarily foment misunderstandings.
The United States can and must build deeper and stronger
economic and strategic cooperation with China while protecting
national security and, in my opinion, we should see reform of
CFIUS and of U.S. export control laws as complementary to such
a clear-eyed strategy.
Thank you, Mr. Chairman.
[The prepared statement of Ambassador Larson follows:]
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----------
Chairman Royce. Thank you, Alan.
Mr. Wolf.
STATEMENT OF THE HONORABLE KEVIN WOLF, PARTNER, AKIN GUMP
STRAUSS HAUER AND FELD, LLP (FORMER ASSISTANT SECRETARY FOR
EXPORT ADMINISTRATION, BUREAU OF INDUSTRY AND SECURITY, U.S.
DEPARTMENT OF COMMERCE)
Mr. Wolf. Thank you, Chairman, Ranking Member for holding
this hearing, for introducing the bill, raising the topic.
Thanks also to Senators Cornyn, Feinstein, and Congressman
Pittenger for raising the issue in their bill as well.
This is a very important topic, and from my time in the
government I agree that the underlying motives and concerns to
be addressed by each of the bills and the topics should be
addressed and they're real and legitimate, and this has been a
terrific example of a quality public debate on a very serious
difficult issue.
By the way also, the views I express today are my own and
not on behalf of my firm or any of its clients.
So I think most people agree with the underlying issue to
be addressed and the concern that you described well in your
opening statement. The issue is how best to address it in a way
that does more good than harm.
And in general, with export controls and CFIUS there are
two primary approaches that are being discussed and one
approach is a very broad open-ended scope of controls or
investment authorities that is safe that catches large numbers
of transactions and one decides later whether there is a
transaction of concern or technology to be transferred that
would be of concern.
And the other approach is a much more tailored specific set
of controls where the government does the hard work up front to
identify what the threats are and to address the controls more
directly with fewer collateral consequences, less uncertainty,
and less harm to foreign direct investment.
So my role, in my view, is that to the extent that any of
the concerns that are being discussed in either of the bills
deal with technologies of concern that are not now controlled
by the export control system but that should be. The best way
to address it is through the existing export control
authorities.
Very simply, all of export controls can really be reduced
down to one sentence. They are the set of rules that govern the
export, re-export, and transfer of technology, software,
services, and hardware to specific end uses, to specific
destinations, and to specific end users for various national
security and foreign policy purposes.
That's my entire professional life in one sentence. I feel
very small all of a sudden.
Anyway, within the Export Administration regulations there
are lots of tools to address each of these issues depending
upon what the threat is in very tailored ways to avoid
unintended consequences and strains on government resources.
The rules are capable of being adapted unilaterally and
quickly for emerging technologies that are of concern that
weren't identified as part of our list review efforts.
They are capable of addressing specific end uses, specific
end users, and specific destinations. The descriptions of the
technology and the types of information that could be captured
and controlled by these regulations is infinitely variable,
going from at its earliest stages of information and
developmental technology or know-how and leading up all the way
through production and operation and use technology.
So to go right to the answer to the question of this
hearing--how do we best address and regulate cutting-edge
technologies for national security reasons--frankly, I think
the answer is in your bill in Section 109 and it lays out a
process of requiring the government, through an interagency
process, drawing upon all of the experts that are within the
government and outside the government and industry and academia
to identify what the threats are and what the choke point
technologies and other information are to address the concerns
that you well described in your opening; to publish those as
drafts so that industry has a chance to review it and comment
on it, to avoid unintended consequences and to make sure that
it's clear and understandable; if it's an emergency situation
use the existing authorities within the Export Administration
regulations, to tag those and control those technologies
immediately but to the extent it is not an emergency, work with
our interagency friends to submit to the multilateral regimes,
these same technologies, so that our allies are controlling it
as well for the same reason; to support and fund the
administration of these regulations for education and outreach
and for very aggressive enforcement of the controls for a level
playing field; and then have a process in place to regular
review and update the controls as threats and technologies
evolve.
This bill--the statutory authority for this system--was
last addressed 40 years ago. The world is a very different
place now than it was then. And so I applaud the members in
this committee for raising this topic and moving forward.
And with that, I am happy to answer whatever thoughts or
questions you might have.
[The prepared statement of Mr. Wolf follows:]
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----------
Chairman Royce. Mr. Wolf, thank you, and for the committee
members here the reason Eliot and I have introduced this bill
is--this new export control statute is because the Export
Administration Act, which has been around for a long time, it
was designed to handle trade controls on the Soviet bloc.
So that was before most of the members were on this
committee. And it's never been comprehensively updated since
then.
It's been in lapse, actually, for most of the last quarter
century and as a result what we've done is we've had to rely on
emergency authorities to uphold our dual use and that's why we
are focused on this legislation.
As Mr. Wolf noted, it is key to control emerging critical
technologies that may become essential to national security.
The Export Control Reform Act that we've got here before us on
the committee would explicitly assign this authority to U.S.
export control agencies.
So I will ask Ambassador Larson first. Are you concerned at
all that attempting to control emerging critical technologies
primarily through an expanded CFIUS process may negatively
impact U.S. innovation and, indirectly, technology advantage?
Ambassador Larson. Well, thank you, Mr. Chairman.
I think that one of the things I learned in government was
that we were usually most effective if we had used the parts of
our Government that had the expertise and knowledge to lead.
And so in respect of controlling and export or transfer of
critical U.S. technologies, my first point of emphasis would be
on the export control regimes that we've used in the past.
I support the idea that those need to be updated to take
into account the changed geopolitical situation, the changed
technological situation. But I think that's the first way to
start.
I think CFIUS does a good job on its mandate and its
mandate has been to ensure that there are not acquisitions by a
foreign person of control of a U.S. company that would impair
the national security; and that can include instances where
that U.S. company has critical technology and I think CFIUS has
handled that responsibility well.
Chairman Royce. I think they're complementary but I think
we've got to have export controls----
Ambassador Larson. Precisely.
Chairman Royce [continuing]. In statute and that's what we
are focused on.
Ambassador Larson. Precisely.
Chairman Royce. So here's another question and I will ask
this one of Mr. Mancuso or Mr. Wolf.
If one of the most pressing concerns driving this debate is
technology transfer to China, could U.S. export controls be
tailored to address this national security concern without
excessively impact trade with other countries or without
creating undue uncertainty about whether other transactions
could come within the scope of CFIUS review?
Mr. Wolf, if you'd like, sir.
Mr. Wolf. Yes, absolutely. That's my primary point about
the beauty of the export control system in that it is
infinitely tailorable to address specific technologies at
whatever stage of their concern--at whatever stage of their
development that are of concern for transfer to specific end
users or specific destinations or for specific applications and
that way once you identify what the threat--once the national
security experts identify what the concerns are that would harm
our national security in terms of altering our edge on a
variety of different areas you can, through the export control
system, either unilaterally or multilaterally or both identify
those technologies specifically and clearly and tailor them in
such a way so that it doesn't affect the types of transactions
or countries or end users which are not a threat, particularly
with respect to the allies.
To the extent that the concern is not related to technology
transfer, then the export control system may not be your best
vehicle and other tools such as the espionage rules or the IT
theft rules or CFIUS for other topics should come into play.
But I agree with the essence of your question completely.
Chairman Royce. And Mario, do you concur?
Mr. Mancuso. So, Chairman Royce, I do concur but I would
like to add some additional detail because I certainly think
that the export control regime has the existing authority, has
built within it the capacity to be flexible and fast and all
the things that Kevin mentioned.
But I would point out that, as a practical matter, in the
execution of these responsibilities the system operates very
differently today.
So, for example, even the taxonomy of creating CIFs between
destination, end user and end use, kind of suggests the Cold
War and 9/11 era thinking around export controls and products
outside the United States.
I think the fact of the matter is that for some of these
emerging technologies that transfer is occurring within the
United States.
So while I agree the authorities are broad enough, I am not
sure the resources are there or the practice sufficiently
developed that we focus on illicit tech transfer inside the
United States because I think that's critical and that's
fundamentally different than the Cold War.
One other point, Chairman Royce, if I may. The other thing
that's difficult is during the Cold War we--our U.S.--there was
tremendous agreement with U.S. strategic allies about the Cold
War threat and at the time our strategic allies were not our
economic competitors.
Today, they are both strategic allies and we are thankful
for them but they also happen to compete with us globally. And
so we just have to keep in mind that the context is a little
different even though the authorities are robust.
Chairman Royce. Thank you, Mr. Mancuso.
Here's one more question for you. So we've had a 30 years
timeframe here. We've had a number of U.S. Presidents but
they've only blocked a total of five CFIUS transactions, two of
which happened under this administration here recently.
So given the news yesterday about the White House stopping
what would have been the largest deal in tech history, is it
fair to conclude that the CFIUS process is evolving toward a
stricter review process irrespective of potential legislation
here by Congress?
Mr. Mancuso. I will take that question first. I am not
going to comment on that specific transaction but I will just
comment on the fact that----
Chairman Royce. Yes, I remember your caveat coming into the
testimony.
Mr. Mancuso. Yes. The two transactions have been blocked in
really as many years, right.
Chairman Royce. Right.
Mr. Mancuso. Actually, now three.
Chairman Royce. Right.
Mr. Mancuso. I think, frankly, the current--the pharma bill
largely but not completely would implement current agency
practice with CFIUS, okay, and you can quibble about whether or
not CFIUS is acting beyond its current authorities but I think
it would largely implement that.
Chairman Royce. Yes.
Mr. Mancuso. But I do think the blocking of the
transactions suggest that the United States Government, the
executive branch, is taking these issues seriously--perhaps in
a blunt way, but it's taking these issues more seriously and I
think that the U.S. Government needs to take these issues more
seriously.
Chairman Royce. Thank you, and Mr. Wolf, you wanted to
comment on that.
Mr. Wolf. So just to follow up and repeat, the key with all
of this is to spend the time and the resources and to have the
creativity to identify those emerging technologies of concern
that aren't normally looked at in the traditional export
control system which we are used to in terms of weapons of mass
destruction or traditional military items.
And for this effort to succeed and the former efforts to
succeed and the policy objectives in both to be achieved, that,
I agree, what really needs to be spent is a lot of very clever
thinking, the addition of new resources to the existing system
to reach outside the box to identify what those technologies
are that are not now controlled but are emerging but should be
and to list them and regulate them to the end users and end
users of concern.
With respect to the CFIUS question you asked, it all goes
down to the deliberate non-definition of national security.
National security evolves.
It changes the legislation either the current bill and
the--now, the existing statute does not define what that means.
It's up to those in charge in order to apply their discretion
to what the threat is today.
I believe that the CFIUS system today and before is
adequately addressing those and not approving transactions that
would leave unresolved national security concerns.
So there can be a guide to what national security means but
trying to restrict it or identify or specifically tailor it I
don't think would be a good idea because threats and issues
evolve.
Chairman Royce. Thank you, Mr. Wolf. I appreciate it.
Mr. Engel, ranking member.
Mr. Engel. Thank you, Mr. Chairman.
I was happy to join with you a few weeks ago in introducing
the Export Control Reform Act in a bipartisan way and, to me,
that's been a hallmark, as we've said so many times, of the way
this committee operates in a bipartisan way. I wish that more
of the committees in this Congress were that way. But I am very
pleased that we do.
I am pleased we are following up with this hearing which
will help bring members of the committee up to date on our
system for controlling the export of dual-use goods and
technology, and it isn't something, obviously, we talk about a
lot.
But oversight of the export of dual-use items--that is,
items that have both military and commercial applications is an
important part of our committee's jurisdiction.
In my view, it's just as important as our work regulating
the export of military items. A few decades ago, the defense
sector nearly always drove the development of high tech, which
later ended up on the commercial sector, and today the opposite
is often quite true. High tech in the commercial sector is now
often a precursor of advanced weapons.
So your bill, Mr. Chairman, will help us take a fresh look
at our export control system to bring it up to date with the
modern reality of the way these technologies are developed and
sold, and it would give us an updated charter that grapples
with the global risks of sensitive technology falling into the
hands of our adversaries. So this update is long overdue.
As was mentioned, previous law was last revised in 1979 in
the depths of the Cold War and is replete with out-of-date
provisions that don't reflect national security's provisions
today.
It also expired in 2001. It means the authority granting
export licenses is no longer based in statute but relies on
temporary authority that is now nearly two decades old.
Last year, some 34,000 licenses were processed for exports
of sensitive technology, and if you ask me, this isn't
something we ought to be doing willy-nilly.
We need a sound updated and permanent statute and that's
why, Mr. Chairman, I was so happy and proud to join with you on
this.
Let me ask Mr. Wolf and Mr. Mancuso first--each of you
managed the export control system while it was under temporary
emergency authority and while it was under legal challenge.
So I would like to get you on record. Would you agree that
it would be better to have a sound statutory authority for this
system?
Mr. Mancuso. Absolutely, Mr. Engel, and I would go further
and say that I think that U.S.' whole of government strategy
should be built around export controls, not built around CFIUS.
Mr. Engel. Thank you.
Mr. Wolf.
Mr. Wolf. While the existing IEEPA authority is sufficient
legal authority for the existing regulations and enforcement
there under--I am not denying that--I agree with you that
having permanent legal authority in the form of this or a
similar bill is very important for a variety of reasons and
also to express the will of Congress with respect to a very
different world that exists now than existed in 1979. So I
agree with the point of your question.
Mr. Engel. Thank you.
And let me ask you another one, Mr. Wolf and Mr. Mancuso.
Last year, the Export Control Bureau at Commerce and its
partners at DOD and State processed 34,000 licenses, and the
trend will continue to be upward.
Are the government's resources adequate to handle that
volume and make good decisions? I will start with Mr. Mancuso.
Mr. Mancuso. So just like any enterprise, the government
can't do everything everywhere all the time. The number of
those licenses--I think BIS has historically been under strain.
I will defer to Kevin on his recent experience. I served
for President Bush in that role. But I think as a general
proposition, yes, my recollection is that the bureau needs more
resources.
But I don't think of resources only in terms of financial
resources. I actually think injecting the Bureau of Industry
and Security with additional national security acumen and
additional connectivity with the rest of the government is
important.
I am not suggesting that isn't there. I just think that as
an agency that's embedded within a Cabinet department whose
principal clients, if you will, or broader commerce I think
it's imperative for that agency to remain connected with its
national security and foreign policy colleagues to effectively
carry out its mandate.
So resources are both financial--would be important--but
also in terms of enhanced capability and connectivity with the
national security enterprise of the United States.
Mr. Engel. Thank you.
Mr. Wolf?
Mr. Wolf. It's great no longer being in government because
I could answer your question without being limited to
instructions to stick to the budget given.
And, yes, absolutely it's for enforcement both in the
United States and outside the United States are critical and
the authorities to do it in order to keep the level playing
field and to deter those who would violate the regs--for more
industry education and outreach, particularly to small and
medium-sized businesses I think would be critical, and then
going to the point of this hearing, more resources in terms of
both money and personnel but creative thinking to identify the
types of emerging technologies that aren't traditionally part
of the export control system and working with people that
aren't traditionally part of the export control world to
identify those threats that are novel and not previously
considered.
And then with respect to resources, that then leads to what
I would advocate and always wanted to do on the dual-use side,
which is, frankly, a top to bottom list review effort of
everything in the very long list of controlled items to see
what's there that no longer needs to be--in light of evolving
technologies and going back to the emerging point, what isn't
there but should be, and that just requires a substantial
multi-year effort working with industry, working with experts
and the Defense Department, largely, and other parts of the
government to figure that out as opposed to the sort of regular
process that exists today, which is adequate and good but I
think it should be a lot more robust and aggressive.
Mr. Engel. Thank you.
And Ambassador Larson, I have one quick one for you. Given
your experience at State, are the budget and staff cutbacks
that we are seeing at State having a negative effect on the
department?
Ambassador Larson. I haven't worked there for 12 years but
my judgment is that it's very hard for the State Department to
do the missions that it's been asked to do with such a tight
budget situation, certainly in the areas I was responsible for
in economics. I think that's true.
Mr. Engel. Thank you. Thank you, Mr. Chairman.
Chairman Royce. Thank you, Mr. Engel.
We go to Mr. Chris Smith of New Jersey.
Mr. Smith. Thank you very much, Mr. Chairman. I want to
thank our witnesses for their insight and recommendations.
Mr. Chairman, I am very concerned by reports that U.S.
companies are selling equipment and technology that is being
used by the Chinese Government in its ubiquitous surveillance
and detention program, including the targeting of Uighur Muslim
ethnic minority persons in western China.
Some estimates suggest that something like 500,000--some
put it much higher--Uighurs are being detained in political
education centers, which are really just detention centers.
This is a staggering figure. Included in the crackdown are
family members of Voice of America, Uighur-language
broadcasters.
Chinese police are gathering and storing DNA samples,
fingerprints, iris scans, and blood types, and other biometric
data from all Uighurs between the ages of 12 and 65.
Human Rights Watch identified a Massachusetts-based
company, Thermo Fisher Scientific, as supplying the Chinese
Government with DNA sequencers.
Other companies are providing surveillance cameras or
software for facial recognition equipment.
Would you say that United States law bars U.S. companies
from exporting technology that aids in the crackdown of the
Uighurs?
To me, that would seem clear. The 1978 amendment to Section
502(b) of the Foreign Assistance Act of 1961 states that export
licenses may not be issued under the Export Administration Act
of '69 for the export of crime control and detection
instruments and equipment to a country, the government of which
engages in a consistent pattern of gross violations of
internationally recognized human rights, unless the President
certifies in writing to the Speaker of the House and the
chairman of the Committee on Foreign Affairs and the Senate
Foreign Relations that extraordinary circumstances exist
warranting provision of such assistance and the issuing of such
a license.
We've checked with the House Foreign Affairs Committee and
Speaker's office and neither have received a certification for
this sale of detection and surveillance equipment to China.
So the question is: Are companies allowed to export that,
especially now that we know that it's being used against the
Uighurs?
Are you aware of any company selling equipment and
technology that China is using for its massive police state
surveillance efforts, and how can U.S. companies sell
technology and equipment that is being used for these purposes?
Is that a problem that the Commerce and the State
Departments are not policing this area very well? Is it a
matter of negligence, or is the problem with the law and does
that law have to be rewritten in a world where DNA sequencers,
biometric data gathering, and the use of artificial
intelligence for surveillance is now becoming commonplace?
Ambassador.
Ambassador Larson. Well, thank you, Mr. Smith. I would like
to defer to the two colleagues who actually ran export
controls.
Mr. Smith. That's great.
Mr. Wolf. Sure. So most of this discussion today is about
national security controls. But foreign policy controls, crime
controls, which includes human rights issues that you raised,
are very much a part of----
Mr. Smith. If I could interrupt.
Mr. Wolf. Yes.
Mr. Smith. I would always say that human rights violations,
particularly on such a massive scale, absolutely rise to the
level of a national security issue for the United States.
Mr. Wolf. Okay. Fair point. Fair point. I often--but in any
event, it covers both, either national security, foreign
policy, human rights, however defined.
And the key to the point of your question is with respect
to the technology, and I don't know the facts involved, is
whether the items of concern are listed on the commerce control
list and there are long lists of items that are controlled for
crime control--CC reasons--such as fingerprint equipment and
things like that that are controlled for exactly the reasons
that you just described.
With respect to the facts that you're dealing with, the
question would be whether they are on the list now and, if not,
should they be or if there are reasons where they're not.
Again, I don't know but that would be the question to ask
and to work with BIS, and even to the extent that it's not the
equipment at issue but the act of the foreign parties that are
of national security or foreign policy concern, then BIS and
the EAR have the authority to list particular entities which
could result in the prohibition on the export of any items--
coffee cups, biometric equipment, et cetera--for the sake of
exerting pressure on companies outside the U.S. or entities
from engaging in bad acts, and that's called the entity-less
process and it's a tool that BIS has to address issues such as
along the lines that you describe to the extent that listing
the equipment for control would not achieve the objectives
sought.
Mr. Smith. Thank you.
Mr. Mancuso. Congressman Smith, my experience at BIS has
been, you know, somewhat dated but I will answer your question.
The authority exists to stop those kinds of items. In the
last decade, of course, the technology, I believe, in this area
in particular has really developed.
But during my time at BIS we took this very seriously. Some
of those items we in fact interdicted but some of these items
were essentially dual use so we did not.
But I agree with the premise of your question, which is
that this is an area that the export control regime should look
at and consider against U.S. policy objectives.
So the legal authority is there and it's a policy question
about whether it's done on any given basis.
Mr. Smith. Thank you so much.
Mr. Mancuso. Thank you.
Chairman Royce. Thank you.
Mr. Brad Sherman of California.
Mr. Sherman. As others have noticed, we are operating for
the last quarter century under an expired dual-use export
statute--the Export Administration Act.
Its regulations are kept in force under IEEPA. This is not
regular order. This is not the rule of law as it is supposed to
be carried out.
It has worked, more or less. This is a critical area of
jurisdiction for this committee and we've allowed the executive
branch to run the policy.
We've got to change that, of course, so that's why I
commend Chairman Royce and Ranking Member Engel for introducing
5054--that's H.R. 5054--to update the statute in this area.
This is not the first attempt. There have been many
attempts over the years. About a decade ago, we faced a bit of
a crisis because DDTC in the State Department was taking many,
many months to process applications and tens of thousands of
applications were languishing.
Pressure by this committee and the subcommittee that the
chairman chaired and then I chaired and then he chaired again
at least pushed the administration to solve that problem.
The major effect of legislation in this area was to move
satellites from the munitions list back onto the commerce list.
There are many who believe that the maximum national security
can be achieved by putting the maximum controls on the maximum
number of items.
This may not be the case. When we don't export goods we
weaken our industrial base, setting back the money that's
available to develop the weapons and technologies of the
future.
When we don't sell something, the buyer goes somewhere else
and strengthens the industrial base of a country willing to
sell to them and perhaps willing to sell to an even worse
country.
And so I've been a proponent of having a taller fence
around a smaller field and that is to figure out what we are
going to control and control it very well.
I should point out that China blames our technology
controls for the enormous trade deficit. That is just their
attempt to lie about the real reasons for the enormous trade
deficit.
Let's see. One area that I would like to address to the
witnesses--believe it or not, I have a question in here, which
is new for me--is should we make the decisions based--
especially at the Commerce--well, does Commerce look at the
impacts the technology transfer will have not just on the
narrow security issue of whether that particular item will be
misused in a way that hurts our security but from an employment
standpoint, from an industrial base standpoint?
Do we take a look at how the transfer of that technology
will lead to the outsourcing of whole areas of production?
So, Ambassador, I will start with you. Does Commerce take a
look at the industrial base and especially the jobs issues?
Ambassador Larson. Thank you, Mr. Sherman. If I may,
because my expertise doesn't lie primarily in the Commerce
Department----
Mr. Sherman. Then I will go to Mr. Wolf.
Ambassador Larson [continuing]. I would like to answer the
question in a broader frame. Is that all right or should I just
turn----
Mr. Sherman. Why don't we go to the people who will answer
it their own way?
Ambassador Larson. That's fine.
Mr. Wolf. Sure. I am not of the view of those who subscribe
to there should be a balance between national security and jobs
or economic security. National security is paramount and all
decisions are to----
Mr. Sherman. Yes. I am asking here are there times where we
should say no, not because that one item could hurt our
national security but because the export of that particular
technology will allow a competitor to enter a whole new field
that previously had been dependent on U.S. technology. I am not
saying say yes to create jobs. I am saying are there times we
should say no to protect jobs.
Mr. Wolf. That variable is not a factor in what the
Commerce Department considers when deciding whether to approve
or deny an individual license. It's if that technology would
create a national security threat you approve--you deny it or
mitigate it----
Mr. Sherman. So if there's a crown jewel that supports tens
of thousands of jobs in America because we have that
technology, Commerce may allow it to be exported?
Mr. Mancuso.
Mr. Mancuso. So, Congressman Sherman, I would take the
approach no, we wouldn't because we don't balance national
security against jobs. We certainly balance----
Mr. Sherman. I think you're making the same mistake on the
question.
Mr. Mancuso. No, actually----
Mr. Sherman. Do we say no, you can't export that item even
it may be consistent with national security, but because the
export of that item means a whole industry is being exported.
Mr. Mancuso. I think it's important to keep in mind the two
risks you identified--the transaction risk and systemic risk--
this industrial base issue.
I think with respect to certain crown jewels where the
actual law--national security loss in any given transaction--an
export of the crown jewel, to use your example--I would take
the position we don't balance that. If it's a crown jewel, it's
a crown jewel.
On the other hand, we have to be very discerning about what
is a crown jewel because there are many technologies that might
be sensitive but are not crown jewels and with respect to those
economies of scale matter.
Semi--lower-grade semiconductors are a good example of why
we export them around the world and why it's important to
export those around the world because the U.S. has an interest
in protecting crown jewels but has no interest in creating
protected foreign markets.
Mr. Sherman. I've gone over time. I yield back.
Mr. Mancuso. Has no interest in protecting--creating
protected foreign markets if it's not advancing a U.S. national
security interest.
Chairman Royce. We go to Mr. Ted Yoho of Florida.
Mr. Yoho. Thank you, Mr. Chairman, and I appreciate you
guys being here. I could sit here all day and talk to you guys
about this stuff because I think it's so important.
Mr. Mancuso, you brought up that the U.S. Government should
build its policies around export controls, not CFIUS. Did I
hear that right?
Mr. Mancuso. Yes, and what I meant by that, Congressman, is
that export controls is a big piece. Obviously, CFIUS plays a
very important role. But we have to think of complementary----
Mr. Yoho. That's what I want to--they need--that can't be
and/or.
Mr. Mancuso. They can't be separate. It's not and/or. It's
both.
Mr. Yoho. They've got to be together. You know, we were
talking about intellectual properties and we just came back
from a trip to Thailand and they were talking about the special
311 report on IPRs and how Thailand is on the watch list. But
they're doing the things necessary to make sure that they
protect our IPRs of our entrepreneurs.
We are talking about intellectual property and it seems to
rotate more around national security interests or the Broadcom
or Qualcomm deal that the President stepped in, and as Chairman
Royce brought up, the current administration did step in twice
of the five times that were done in a period of years.
And if you have an aggressive executive office that's well
but we need to make sure that the rules are in place and I
bring up--it's not just the intellectual property on a national
security or with semiconductors, things like that.
I was in a meeting yesterday where our researchers from our
land grants were working with biogenomes with plants and he
says, ``I am an adjunct professor in China because they pay me
three times what I am paying here.''
And what they're doing is they're taking our intellectual
property in research and development in the ag science fields,
taking them over there and it's not benefiting us.
They're benefiting from our beginning research and I think
this too is something that should be looked at different than
we do now.
And we've seen this over and over again. We saw the story
up in Iowa where the Chinese operatives were stealing GMO corn,
taking it over there and, again, it's a competitive advantage
that they will get over us.
So with that, is anybody looking at the biosciences? Before
you answer that, the Chinese Government plans to force $9
billion into the National Precision Medicine Initiative before
2030.
That's a lot of money and it's similar--the U.S. has only
put in $215 million to their $9 billion and it's clear that
they're going to get the competitive advantage.
And then one has to wonder why is China building such a
large pool. Right now, they have 30 percent of the world's
genomics that they control and I can see this as a weapon in
the future, you know, when you can start manipulating genes
against a population and, again, we've had our medical
researchers say that they'll start drug trials. They run out of
money here. China picks it up and finishes it.
So this drug that we put the initial research into it gets
developed with an Asian population and it may not work the same
in a Western population.
And so are we looking at those as strong as we are on
radars and semiconductors, in your experience? And that's for
all of you.
Mr. Mancuso. So, Congressman, export controls and CFIUS are
complementary but they're only two instruments we have to
counter some of the things.
So things like industrial espionage, frankly, the
purposeful stealing of technologies export controls is likely
not going to catch.
We need other instruments for that, and other parts of the
government have been working on that. I can't tell you that my
information is up to date what the progress of those efforts
are.
But if the premise of your question that we should be
watching that is what--if that's what it is, I agree with it.
So that's when I----
Mr. Yoho. Well, let me narrow that down. Do we have the
controls in place now to protect all the sciences that we are
doing? Are we mainly just focused on the telecommunications and
the semiconductors?
Mr. Mancuso. This goes to--and then I will pass it over to
Kevin--we have the authorities to control all of that.
The government as a whole needs to and regularly does
discuss, you know, views about what technology should be
controlled but whether those specific technologies are
controlled.
Certainly, some radars are controlled. Certainly some
therapies are controlled. But I am not quite sure if all of
them, at least the ones that you're thinking about are.
Mr. Yoho. I think that's something we need to weigh in and
you brought up. Countries not individuals today are spying and
they've always done that and they're always going to do that.
But what we are seeing is a different geopolitics today
than we had 15, 20 years ago. We have a very aggressive China
going after things by hook and crook and it's not just the
individual out there doing the espionage. It's a country and
that country is taking that stuff from us.
Mr. Wolf, if you want to weigh in, in 5 seconds.
Mr. Wolf. No, export controls are not the solution to all
those issues. They're not good for industrial policy. They're
not good for economic espionage or IP theft or funding issues
or R&D advantages.
So all of those things that you mentioned are very
important. But the EAR, the Export Administration Regulations,
are probably not the best place to try to address them, given
the national security and foreign policy focus of them.
Mr. Yoho. I thank you for your time and I would like to
follow up with you later.
Mr. Wolf. Sure.
Mr. Yoho. Mr. Chairman.
Chairman Royce. Thank you. Thank you, Mr. Yoho.
We go now to Mr. Albio Sires of New Jersey.
Mr. Sires. Thank you, Mr. Chairman, and thank you for the
panel that's here today.
And I just want to follow up on my good friend from Florida
on some of the things that he said. I know the title of this
hearing today, but I really want to get it down to basics so I
can understand some things.
First thing, I remember a few years ago with solar panels--
we developed the panels--energy. China gets it and then they
dump the solar panels on us.
I represent New Jersey. I constantly hear from the
pharmaceutical industry how Canada dumps things in America,
some of the things that we develop here.
Now we have India. Now South America is getting into the
act. I know that--I keep hearing that we have the authority to
control these things--these imports.
How does that happen? How do we develop the energy--the
solar panel energy, goes away from here, comes back here. Don't
we have any kind of control on that stuff?
And how, if we develop these medicines in the
pharmaceutical industry and we have places like Canada, which
is supposed to be our best trading partner, dump the stuff
here. I meant, to me, I am missing something.
And I know Mr. Wolf, I hear you going back and forth.
Sometimes you talk too fast for me. Maybe I'm stupid this
morning.
But, you know, I would just like to get some sort of a
response.
Ambassador Larson. Well, I thought--yes. Congressman, maybe
I could begin to address some of your very good questions.
You know, I think all of us have emphasized the fact that
we need to use a multiplicity of tools. We can't just use one
tool.
CFIUS has a role to play. The Export Administration Act and
the new legislation that's been introduced has a role to play
on export controls.
A lot of the problems that you're raising are ones that
have to be addressed through traditional trade policy
measures--things that are led by the U.S. Trade
Representative's office but where the White House, State
Department, Commerce Department play important roles.
Now, you know, solar panels--there's been a decision that's
been taken under the authority of Section 201 of the Trade Act.
Some of the issues related to pharmaceutical products also
have been a key concern. We heard earlier about some of the
concerns about intellectual property theft in Thailand and
measures to get Thailand to do a better job of protecting
against those things.
There is a very focused effort--very quickly--on China and
the Section 301 investigation that is currently underway to
address those practices.
So those are other tools that will address some of the
concerns that you're talking about, sir.
Mr. Sires. I just don't know if we have the ability to get
some of these countries to stop doing these things. I mean,
what controls do we have?
I mean, Thailand, for example, they don't have much of an
economy. I mean, do we want them to stop? How do we do that?
I am sorry, Mr. Mancuso?
Mr. Mancuso. So I actually think, Congressman, it's a very
good question. The U.S. Government has different agencies that
have those responsibilities.
I think the world in which we--I mean, there are lots of
problems. We can talk Thailand. We can talk China. But I think
they're all different.
The U.S. Government has the capability and has the
authority to do those things. But with respect to certain--both
economic partners and strategic competitors like China, I think
our game has to be better. It has to be more coordinated.
And so it's a legitimate question for Congress to ask in a
specific way vis-a-vis this threat--are we configured--are we
resourced to address this threat, and those are important
questions to ask.
I wish I had better answers. We can do it. I am not sure we
are doing it well against the numbers--the various threats that
we are----
Mr. Sires. Can somebody address the pharmaceutical
industry? Because that is very important to my state.
Mr. Wolf. Yes, but not in the Export Administration
Regulations. The subject of this bill and the regulations at
issue couldn't solve your problem but many other areas like
201, 301--yeah. No, I mean, it's a legitimate issue but it's
not the subject or capable of being addressed by the Export
Administration Regulations, which are focused on more
traditional national security and foreign policy issues of the
threat as opposed to the economic considerations at issue
behind your question. These regulations don't get to that
point.
Mr. Sires. Right. I get it but do you have any regulations
that get to it? Not you. How about----
Ambassador Larson. Well, I think the key----
Mr. Sires. I am specifically talking about Canada and the
United States. Let me put it this way.
Ambassador Larson. Well, and so on Canada and the United
States I think you raised an issue that must be at the heart of
the NAFTA renegotiations that are underway right now and,
certainly, the broad question of protection of intellectual
property rights of companies like pharmaceutical companies that
invest billions of dollars in developing new products lie at
the heart of most of the trade negotiations that USTR leads on
behalf of our Government.
Mr. Sires. Well, I just want to thank you.
Thank you, Chairman.
Mr. Yoho [presiding]. Thank you for the questions.
Next, we'll go to Ann Wagner from Missouri.
Mrs. Wagner. Thank you, Mr. Chairman, for hosting this
important hearing.
This issue is important to my district, as China has been
looking to expand its footprint in the Midwest. Representatives
from the Chinese consulate in Chicago spent the past year
networking with Midwestern government offices including a stop
in my district office and they stated that, and I quote,
``Suspicion of Chinese foreign direct investment and excessive
national security reviews would be bad for the bilateral
relationship.''
However, I was quick to remind them that failing to
properly control our exports would be bad for America.
I am committed to working with the committee to re-evaluate
our export control regime to ensure that it is up to the
challenge. And I thank you.
Mr. Mancuso, I appreciate your insights on the Foreign
Investment Risk Review Modernization Act, or FIRRMA. You noted
that the bill encourages heightened engagement with our allies.
The more closely we coordinate with foreign partners, the
better our own export control regime will work. There is an
opportunity here to expand the list of countries that
participate in multilateral export control regimes, especially
in Asia.
For example, the U.S. has strong ties with Singapore and
Malaysia, which have struggled to prevent controlled goods from
making their way into North Korea and China.
What, sir, can Congress do to help these countries become
productive partners in our export control system?
Mr. Mancuso. Good morning, Congresswoman. So I will do my
best to answer that question.
First things first. I do think international trade and
investment--foreign direct investment in most cases is
overwhelmingly positive, including with respect to China.
But I think we have to be very sober about those areas
where it's not. This is true for foreign investment. This is
true for tech transfer export controls.
In terms of the things this--our Government should do with
respect to our partners and allies around the world, I would
distinguish between treaty partners and treaty allies and
partners.
They're all important. We value their relationships. They
all contribute something. But treaty allies, I think, are
special.
With respect to those, I think the United States should
engage in this kind of diplomacy to ensure that people--our
colleagues understand our perspective. They may disagree and
they're entitled to disagree. They're sovereign nations.
But they should understand our perspective of why
technology transfer is important and why the regulation of
certain foreign investment is important.
I would just point out in response that that some of our
NATO allies are now considering either implementing or
upgrading their CFIUS-like regimes.
I think, if done well, that is a good thing. I think it is
in the U.S. interests that our treaty partners have resilient
economies and they have economies that support their national
security interests as well, which tend to coincide with ours.
Mrs. Wagner. Both the United States and China are deeply
aware that economic and national security can't be separated,
as we've stated here today at the hearing.
Ambassador Larson, I am curious about how China might
respond to FIRRMA. Can you give us a status update on Beijing's
foreign investment law?
Also, what might the Chinese version of CFIUS look like and
how would it affect our bilateral relationship?
Ambassador Larson. Well, thank you for the question.
First of all, I've had a lot of conversations with the
Chinese when I was in government and the role I have now, and
the complaints about CFIUS and about export controls are sort
of a persistent theme.
And I've been a pretty strong, a very strong defender,
actually, that the way that our Government in the United States
has implemented CFIUS has been very targeted and has focused on
those transactions that could present a threat to national
security.
And I will continue to take that position and I think that
should be a position that will be embodied in the reforms that
are contemplated in FIRRMA.
China does have a national security law that affects
investment in China right now. I don't think it is implemented
in as sophisticated way as CFIUS is administered.
I think that it will be important when some of our Western
allies implement national security-based investment laws as
well because I think having a relatively common approach,
whether it's on export controls or on inward investment
controls, is a strong point for us. When we can do that with
our major allies, that's important.
I think we are just going to have a very candid set of
conversations with China that start from the point that we
understand that a two-way investment is good for both of our
economies.
We understand that we do depend on each other's economies.
But we will take the steps that we need to take to ensure that
investment is not permitted or acquisitions are not permitted
that impair our national security.
So I think it's a time where very candid conversations with
China on the nature of our economic relationship--trade and
investment--are going to be required to work out the problems
that we have in the relationship.
Mrs. Wagner. Thank you very much. My time has expired.
Mr. Chairman, I will submit the rest of my questions for
the record. Thank you.
Chairman Royce [presiding]. I thank the gentlelady.
Tom Garrett of Virginia.
Mr. Garrett. Thank you, Mr. Chairman, and I would tip my
hat, in his absence, to Senator Cornyn for working on this
important legislation and to the chairman and ranking member of
this committee.
And I would point to a quote from someone I don't quote
that often, Vladimir Lenin, who said, ``We will hang the
capitalists with the rope that they sell us,'' and I would
submit that, anecdotally, as a young Army officer I heard a
story of Q36 and Q37 Firefinder radars finding their way to
China during the Clinton administration only to have American
military Warrant Officers sent to help the Chinese put them
back together I presume to reverse engineer them and those of
us who knew what that counter battery radar allowed us to do
wondered how the hell they got to China.
Now, it's anecdotal. It's hearsay, as I would say in a
later career. But I know this stuff happens. It blows my mind
that Gen3 GPS signals were given to our enemies under President
Clinton and have literally been used at the very least to take
the lives of our allies.
And I understand that there was much made about the
transfer from the NTIA to ICANN of controls over the internet
and some of it was hyperbolic and overstated but some of it
wasn't, and I wonder what the heck we are doing.
So let me ask about FIRRMA and CFIUS as it relates to EB-5
visas. Would the FIRRMA Act extend into the realm of the
granting of EB-5 visas?
Mr. Mancuso.
Mr. Mancuso. Congressman, I don't think so. I would be
surprised if they would. I don't know.
Mr. Garrett. Does anybody at this table believe that that's
not the case? I believe that that's the case, that you're
correct.
Mr. Wolf. It does not. But in the export control system,
there are prohibitions on what are called deemed exports, which
are the released technologies to foreign persons in the United
States regardless of the visa or other reasons they're----
Mr. Garrett. All right. Mr. Wolf, with all due respect, and
I mean that----
Mr. Wolf. Yes.
Mr. Garrett [continuing]. I got a finite amount of time.
Mr. Wolf. Okay.
Mr. Garrett. But so it doesn't.
Mr. Wolf. So no, but yes.
Mr. Garrett. And so might it make sense to extend some sort
of congressional oversight and review to the EB-5 visa issuance
process, Mr. Larson?
Ambassador Larson. I think that Congress can and should
look at all things that it thinks could be important to----
Mr. Garrett. And do you think it could be important to make
sure that we are giving EB-5 visas to the right people who
might not have dual-source technology at their fingertips by
virtue of a permanent residence in the United States and a
business that essentially manufactures what might be sensitive
technology? Yes or no, please.
Ambassador Larson. I--if I were in the State Department I
would not want to give a visa to someone that was coming to the
United States for the purpose of stealing technology.
Mr. Garrett. So when the Washington Post--the Washington
Post, noted conservative-leaning paper, right--that's tongue in
cheek--says that Virginia Governor Terry McAuliffe garnered
special privilege in receiving EB-5 visas through the
Department of Homeland Security under the Obama administration,
we know that he lined his pockets.
We know that GreenTech Automotive is now defunct and that
the taxpayers of the state of Mississippi have lost millions of
dollars.
But to the extent that things like lithium ion batteries,
which is undergird by the Chinese monopolization of the global
cobalt markets, et cetera, can have dual uses, would not
selling permanent residence to the United States potentially
compromise technology that might be that proverbial rope that
Lenin says they will buy from us to use to hang us, Mr.
Mancuso?
Mr. Mancuso. The answer is that's--let me answer this
differently. I don't think we should--I think citizenship is
special. Citizenship goes to how you feel about your country
and your commitment to your country.
This is an existing program. I think it's certainly
something that this Congress could look at as part of a broader
view of how we think about the U.S.' engagement with the rest
of the world.
Mr. Garrett. Again--and again, sincerely thank you all for
being here. I intend absolutely no disrespect. I have a finite
amount of time.
EB-5 visas grant not citizenship but permanent residence
under green card status for people who invest $500,000 in under
developed areas or $1 million in developed areas of the United
States to engage in the discourse of commerce.
However, in 2014 I believe we granted just over 10,000 EB-5
visas. I am not that good at math but 85 percent of them, or
north of 8,500, were to Chinese nationals to engage in commerce
on American soil wherein, I would presume, they would have
lower barriers to entry as it related to obtaining technology
that might have dual uses.
Mr. Wolf, you're nodding.
Mr. Wolf. Yes, I agree you have a legitimate issue with
that exact point for that reason. Just because they become a
citizen through that process that their motives with respect to
acquisition of dual-use technology should be part of the
process.
Mr. Garrett. And so that's something that you gentlemen
would concur. And, again, I am out of time but I am going to
ask real quickly, Mr. Chair, that we might ought to review as
well in conjunction with CFIUS and the actual sending overseas
of technology itself.
Mr. Mancuso. Absolutely.
Mr. Garrett. Thank you. Thank you, Mr. Chairman.
Chairman Royce. Thank you very much, Tom.
Let me just conclude our hearing here by thanking all three
of our members of this panel for coming and testifying and also
for giving us your insights on the pending legislation, and if
none of you would mind, we'll, of course, have some additional
questions, as we move forward.
So thank you very much, and we stand adjourned.
[Whereupon, at 11:26 a.m., the committee was adjourned.]
A P P E N D I X
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