[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




 
                    EXAMINING THE OPERATIONS OF THE

                    COMMITTEE ON FOREIGN INVESTMENT

                      IN THE UNITED STATES (CFIUS)

=======================================================================

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 14, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-66
                           
                           
                           
                           
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                          
 
 
 
 
                           _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
 31-297                 WASHINGTON : 2018       
 
 
 
 
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
               Subcommittee on Monetary Policy and Trade

                     ANDY BARR, Kentucky, Chairman

ROGER WILLIAMS, Texas, Vice          GWEN MOORE, Wisconsin, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan              BILL FOSTER, Illinois
ROBERT PITTENGER, North Carolina     BRAD SHERMAN, California
MIA LOVE, Utah                       AL GREEN, Texas
FRENCH HILL, Arkansas                DENNY HECK, Washington
TOM EMMER, Minnesota                 DANIEL T. KILDEE, Michigan
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                CHARLIE CRIST, Florida
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 14, 2017............................................     1
Appendix:
    December 14, 2017............................................    33

                               WITNESSES
                      Thursday, December 14, 2017

Estevez, Hon. Alan F., Deloitte Consulting LLP, and former 
  Principal Deputy Under Secretary of Defense for Acquisition, 
  Technology, and Logistics, Department of Defense...............     7
Kimmitt, Hon. Robert M., Senior International Counsel, 
  WilmerHale, and former Deputy Secretary and General Counsel, 
  U.S. Department of the Treasury................................     5
McLernon, Nancy, President and Chief Executive Officer, 
  Organization for International Investment......................    11
Segal, Adam, Ira A. Lipman Chair, Emerging Technologies and 
  National Security, Director, Digital and Cyberspace Policy 
  Program, Council on Foreign Relations..........................    10
Wolf, Hon. Kevin J., Partner, Akin Gump Strass Hauer & Feld LLP, 
  and former Assistant Secretary of Commerce for Export 
  Administration, U.S. Department of Commerce....................     8

                                APPENDIX

Prepared statements:
    Estevez, Hon. Alan F.........................................    34
    Kimmitt, Hon. Robert M.......................................    38
    McLernon, Nancy..............................................    43
    Segal, Adam..................................................    47
    Wolf, Hon. Kevin J...........................................    55

              Additional Material Submitted for the Record

Pittenger, Hon. Robert:
    Written statement for the record.............................    61
Estevez, Hon. Alan F.:
    Written responses to questions for the record submitted to 
      Representative Moore.......................................    63
    Written responses to questions for the record submitted to 
      Representative Barr........................................    65
    Written responses to questions for the record submitted to 
      Representative Pittenger...................................    68
Kimmitt, Hon. Robert M.:
    Written responses to questions for the record submitted to 
      Representative Barr........................................    74
    Written responses to questions for the record submitted to 
      Representative Pittenger...................................    75
McLernon, Nancy:
    Written responses to questions for the record submitted to 
      Representative Moore.......................................    76
    Written responses to questions for the record submitted to 
      Representative Barr........................................    77
    Written responses to questions for the record submitted to 
      Representative Pittenger...................................    78
Wolf, Hon. Kevin J.:
    Written responses to questions for the record submitted to 
      Representative Moore.......................................    81
    Written responses to questions for the record submitted to 
      Representative Barr........................................    85
    Written responses to questions for the record submitted to 
      Representative Pittenger...................................    92


                    EXAMINING THE OPERATIONS OF THE

                    COMMITTEE ON FOREIGN INVESTMENT

                      IN THE UNITED STATES (CFIUS)

                              ----------                              


                      Thursday, December 14, 2017

                     U.S. House of Representatives,
                 Subcommittee on Monetary Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9:09 a.m., in 
room 2128, Rayburn House Office Building, Hon. Andy Barr 
[chairman of the subcommittee] presiding.
    Present: Representatives Barr, Lucas, Huizenga, Pittenger, 
Love, Hill, Emmer, Mooney, Davidson, Tenney, Hollingsworth, 
Foster, Sherman, Green, Heck, and Crist.
    Chairman Barr. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time, and all members will have 
5 legislative days within which to submit extraneous materials 
to the Chair for inclusion in the record. This hearing is 
entitled ``Examining the Operations of the Committee on Foreign 
Investment in the United States.'' I now recognize myself for 5 
minutes to give an opening statement.
    The free flow of capital is a bedrock tenet of the United 
States economy, ensuring that free flow worldwide has always 
been a bipartisan goal. And, to that end, I am proud to serve 
as Co-chair of the Global Investment in America Caucus, along 
with our colleagues Mr. Holding, Mr. Himes, and Mr. Meeks. The 
caucus promotes global investment in the United States economy, 
and helps educate members about the importance of foreign 
direct investment. Today, the United States is both the largest 
foreign investor, and the recipient of the greatest amount of 
foreign direct investment.
    That capital has provided a good deal of the energy that 
has kept our economy vibrant, compensating, to some extent, for 
our notoriously low national savings rate to provide the fuel 
for growth of U.S. businesses and jobs. Today, almost 5 percent 
of U.S. workers and jobs are related to foreign investment. 
Most of these jobs pay handsomely, far better, on average, than 
other U.S. jobs. But, if foreign investment is to be a force 
for good, it must not be welcomed unthinkingly any more than 
one might leave the front door of a house open around the 
clock. Investment that might weaken us is not good or welcome 
investment, and we must guard against it. That investment might 
come for purely economic reasons. But especially in this era of 
international turmoil, conflict, and economic uncertainty, it 
can also come from individuals or nation-states that might wish 
to weaken our economy in comparison to theirs, or try to spirit 
away technology or know-how that could strengthen their 
military to gain an advantage over ours.
    To maintain a vigilant watch on investment, the multi-
agency Committee on Foreign Investment in the United States, or 
CFIUS, reviews many inbound investments to determine if they 
pose a threat to national security. This involves rigorous 
scrutiny of proposals by all appropriate departments or 
agencies, including a scrub by the intelligence community. And 
the President has the power to block transactions, or order 
divestments, if such concerns cannot be mitigated by a change 
in the original proposal.
    Today, we face new threats on a number of fronts, not just 
the threat of a hollowed-out industrial sector, but also from 
terrorism and from major nations that are economic competitors, 
but also potential military competitors. I am referring, of 
course, mainly, to China. Concerns have risen sharply in the 
past years about Chinese companies using that country's vast 
financial reserves to acquire key technology with an eye toward 
taking the lead in the industrial markets of the future. The 
Chinese Government, for example, has set aside $250 billion to 
be used in dominating the vital semiconductor market. This is 
not a new phenomenon, but just a new challenger.
    President Ford set up CFIUS in 1975 out of concern that the 
vast inflows coming from OPEC countries could weaken our 
economy. In 1988, among concerns that Japan was seeking to buy 
critical technology, Congress gave President Reagan the 
authority to actually block deals. That authority only has been 
used sparingly. Interestingly, the first use came when 
President George H.W. Bush blocked the sale of an airplane 
component maker to a Chinese company.
    More recently, President Obama, just before he left office, 
blocked a Chinese deal, and President Trump already has blocked 
the proposed purchase of lattice semiconductors by a Chinese 
company.
    CFIUS has also approved foreign direct investment 
conditionally, approving a deal only when divestment of 
divisions with sensitive technologies or activities has 
occurred. But the statute under which CFIUS operates has not 
been updated in a decade, and, clearly, we should think about 
modernizing it. Aside from China's intentions, there are 
burdens on the CFIUS process from the volume and complexity of 
proposed deals. There were about 40 percent more reviews in 
2017 than 2016, and a more than fourfold expansion in the 
number of Chinese-backed deals just since 2013.
    To that end, our colleague, Representative Pittenger and 
Senator Cornyn, have spent more than a year studying the CFIUS 
process and considering possible reforms. I commend their work.
    This hearing is the beginning of the committee's study of 
CFIUS and will be followed by further hearings soon. In 
considering any reforms, the committee will seek to ensure that 
CFIUS has the tools and resources it needs to examine foreign 
investment. As Members of Congress, it is our duty to advance 
the national security of the United States. At the same time, 
we must aspire, to the greatest extent possible, a welcoming 
investment climate so that U.S. companies have the capital 
needed to grow. As well, we need to be mindful that the 
investment climate for U.S. companies overseas is not 
unnecessarily compromised.
    To start that process, today the subcommittee has a panel 
of witnesses with unique abilities to discuss the operations of 
and challenges that CFIUS faces. This hearing and their 
testimony is intended to prepare members to make wise and 
cautious decisions on this vital topic. This should provide the 
beginning of a strong and thoughtful review.
    With that, I would now recognize a member of the Democratic 
side, the gentleman from Washington, Mr. Heck, for 5 minutes 
for an opening statement.
    Mr. Heck. Thank you very much, Mr. Chairman. And, Mr. 
Chairman, to begin with, I would ask unanimous consent to enter 
into the record a letter I sent to you and the Chairman of the 
full committee on December 8 requesting that a witness from the 
Department of Treasury be added to this hearing.
    Chairman Barr. Without objection.
    Mr. Heck. Thank you.
    While I look forward to hearing from today's witnesses, I 
believe, frankly, there is no substitute for hearing from 
people who actually are administering CFIUS. I have given 
Treasury a very hard time in this committee--some of you may 
recall it was a very hard time--about this issue in past 
hearings. I want to make clear that they have begun to engage 
in what I would characterize as a constructive manner. I 
acknowledge that and express my hope that the committee could 
benefit from their expertise during a future hearing. I would 
be happy to yield to Chairman Barr if he would like to respond.
    Chairman Barr. Yes. I appreciate the gentleman yielding. 
And just to clarify, this is the first of a series of hearings. 
We most certainly will be extending an invitation to Treasury 
officials who obviously have a large role in the CFIUS process 
to testify, and you will have that opportunity. I yield back.
    Mr. Heck. Again, thank you very much, Mr. Chairman. I am 
glad to hear that, and I thank you, again, for convening this 
hearing.
    I believe the CFIUS process generally works well for 
private, commercially motivated transactions. But in the 10 
years since Congress last passed legislation dealing with this 
issue, we have seen some countries gain the resources and 
sophistication needed to pursue a comprehensive strategy to 
acquire U.S. technology, or dominate strategically important 
industries. Existing CFIUS authorities were not designed and 
are not sufficient to deal with that kind of challenge. And 
although, as many of our witnesses will note, this is a problem 
that every part of the U.S. Government will have to work 
together to address. I believe there are some aspects of this 
problem that can only be addressed through legislative action 
to close gaps in existing CFIUS authority.
    When I asked Secretary Mnuchin about this in July, he 
agreed that this was a pressing issue, and that we could not 
afford to do nothing. I hope we can all bring that sense of 
urgency to how this committee approaches its work on CFIUS 
reform, the kind of urgency and unity which I know this 
Congress can still bring to bear on issues critical to our 
national security, because here we are dealing with just such 
an issue.
    And there are certainly things we need to keep in mind as 
we move forward. I am glad many of today's witnesses have 
raised issues, will raise issues like the need to improve 
information sharing and cooperation with our allies and 
partners, many of whom are also in the process of reevaluating 
their own CFIUS equivalents. I am glad many of today's 
witnesses will raise the need to provide more resources to 
CFIUS, which I agree are urgently needed to keep pace with the 
times, and the demand, and the need. And I am proud that the 
United States is, in fact, a place that welcomes foreign 
investment.
    But the broader legitimacy and acceptance of that principle 
of openness, which I believe in, and the ability of the United 
States to stand up for a free and open global economy, is, in 
fact, dependent on our national security. As Secretary Mnuchin 
affirmed, doing nothing is not an option. But I am confident 
that starting with this hearing, we can find a bipartisan path 
forward, and strike that balance between continuing to allow 
robust foreign investment, which I think does serve our 
Nation's needs, our economic prospects, while at the same time, 
balancing it against very legitimate security concerns, which 
are growing in number, in velocity, and in complexity.
    CFIUS needs to be reformed. It starts here with this 
committee, and it starts here with this hearing today, Mr. 
Chairman. So, finally, thank you, again, very much, for 
convening it.
    Chairman Barr. Thank you. The gentleman yields back.
    And today we welcome the testimony of the Honorable Mr. 
Kimmitt, a Senior International Counsel at WilmerHale. From 
2005 to 2009, he served as Deputy Secretary of the U.S. 
Treasury, where he had significant responsibility for the 
Department's international agenda, which included a revamp of 
CFIUS. He also served in the Reagan White House as National 
Security Council Executive Secretary and General Counsel from 
1983 to 1985. During 1997, Mr. Kimmitt was a member of the 
National Defense Panel, and from 1998 to 2005, he was a member 
of the Director of Central Intelligence National Security 
Advisory Panel.
    Mr. Kimmitt served in combat in Vietnam with the 173rd 
Airborne Brigade, retired as a major general in the Army 
Reserve, and also served as the U.S. Ambassador to Germany.
    The Honorable Mr. Estevez is a national security strategy 
and logistics executive at Deloitte Consulting, who served for 
36 years at the Department of Defense. From 2013 to January 
2017, Mr. Estevez served as the Principal Deputy Under 
Secretary of Defense Acquisition Technology and Logistics. In 
this position, he represented the Department of Defense at 
CFIUS while Chinese investment in the United States accelerated 
rapidly. Previously, he held several key positions, including 
Assistant Secretary of Defense for Logistics and Materiel 
Readiness and Assistant Deputy Under Secretary of Defense for 
supply chain integration.
    The Honorable Mr. Wolf is a partner at Akin Gump, and from 
2010 to January 2017, he was the Assistant Secretary of 
Commerce for Export Administration. In this role, he was 
primarily responsible for the policy and administration of the 
U.S. dual-use Export Control System. And as a result of the 
export control reform effort, he helped lead part of the 
defense trade system. Also during this time, Mr. Wolf was the 
primary Commerce Department representative to CFIUS.
    Mr. Segal is the Ira A. Lipman Chair in Emerging 
Technologies and National Security and Director of the Digital 
and Cyberspace Policy Program at the Council on Foreign 
Relations, an expert on security issues, technology 
development, and Chinese domestic and foreign policy. Before 
coming to CFR, Segal was an arms control analyst for the China 
Project at the Union of Concerned Scientists. He has been a 
visiting scholar at the Hoover Institution at Stanford 
University, the Massachusetts Institute of Technologies Center 
for International Studies, the Shanghai Academy of Social 
Sciences, and Tsinghua University in Beijing.
    Ms. McLernon is President and CEO of the Organization for 
International Investment, an association representing the 
unique interests of U.S. subsidiaries of global companies. With 
a strong background in economics, her efforts focus on the 
important role U.S. subsidiaries play in the American economy 
and policy issues that would make the U.S. a more competitive 
location for foreign direct investment and job creation.
    Prior to being named President and CEO, Ms. McLernon was 
OFII's Senior Vice President, where she focused on strategic 
communications and advocacy. Each of you will be recognized for 
5 minutes to give an oral presentation of your testimony. And, 
without objection, each of your written statements will be made 
part of the record.
    The Honorable Mr. Kimmitt, you are now recognized for 5 
minutes.

               STATEMENT OF HON. ROBERT M. KIMMITT

    Mr. Kimmitt. Thank you, Mr. Chairman, members of the 
subcommittee. Thank you for your invitation to offer 
perspective on the Committee on Foreign Investment in the U.S. 
This is one of those rare instances where advancing age, 
including three decades of service on CFIUS, has some benefits.
    My experience with CFIUS began in 1985 as Treasury General 
Counsel under President Reagan and Secretary Baker. As you 
noted, Mr. Chairman, CFIUS was then governed by an Executive 
Order signed in 1975 by President Ford because of concern about 
Saudi petrol dollars being recycled to buy American assets.
    By 1988, concern had shifted to Japanese purchases, which 
lead to passage of the Exon-Florio amendment. And in 1992, 
concern about state-owned companies buying sensitive U.S. 
technologies lead to passage of the Byrd amendment.
    In 2005, I returned to Treasury as Deputy Secretary. After 
deals involving the Chinese National Overseas Oil Company and 
Dubai Ports were blocked by Congressional concerns, Congress 
passed the Foreign Investment and National Security Act of 
2007.
    Today, growing concern about Chinese investment, 
particularly by state-owned enterprises, and especially in the 
technology sector, has led to legislation proposed by 
Congressman Pittenger, Senator Cornyn, and bipartisan 
cosponsors. I would like to offer some observations that may 
assist in your deliberations.
    Earlier this year, this committee helped legislate the 
Secretary of the Treasury as a statutory member of the National 
Security Council, demonstrating that U.S. economic strength is 
tightly linked to our overall security. And foreign direct 
investment (FDI), as both you and Mr. Heck have noted, Mr. 
Chairman, makes an important contribution to the U.S. economy. 
Almost 7 million Americans will receive their paychecks this 
month from companies headquartered overseas. Close to 40 
percent of those workers are in manufacturing jobs. And, as you 
noted, FDI jobs pay about 25 percent more than the economy-wide 
average.
    A more open investment policy is integral to U.S. economic 
success, and I urge President Trump to issue the traditional 
U.S. open investment policy statement at the earliest 
opportunity. But in issuing that statement, it is important to 
make clear that the U.S. Government must ensure foreign 
investment does not harm U.S. national security interests.
    Chinese investment has an appropriately high priority for 
close scrutiny, because China seeks to compete strategically 
against the United States in multiple spheres: Military, 
diplomatic, and economic, using all elements of the state, 
including state-owned enterprises in that competition. Current 
legislation provides significant authority to block troublesome 
Chinese acquisitions. As you noted, Mr. Chairman, the first 
acquisition unwound by a President was under George H.W. Bush 
in 1990. Huawei's acquisition of 3Com did not proceed under 
President George W. Bush, and President Trump recently blocked 
the acquisition of Lattice Semiconductor by a Chinese 
investment group.
    As you consider new legislation, then, I would be sure to 
address actual gaps in existing authority. There is particular 
concern the Chinese companies may be using creative legal 
structures to conclude deals short of ownership and control 
that could nonetheless impair U.S. national security. I believe 
this is a very valid area of stricter scrutiny in the United 
States. I would be careful, however, about extending CFIUS' 
reach to transactions occurring outside the United States.
    CFIUS is intended to give the President exceptional 
authority to protect the United States without, however, 
superseding important authorities in other statutes. For 
example, if a joint venture abroad raises concerns about 
technology transfer or compromise, the export administration 
regulations, or international traffic in arms regulations, 
should be the first line of defense.
    Although additional legislative authority is warranted, the 
greatest problem facing CFIUS today is a lack of resources. As 
cases filed before CFIUS climbed to 250 this year, and with the 
prospect that CFIUS agencies lead by Treasury could be involved 
next year in a major legislative and regulatory implementation 
exercise, the increase in workload may begin to delay jobs-
producing investments that do not raise national security 
concerns.
    I urge that matching requirements to resources continue to 
be a central point in your further deliberations. Today's 
hearing, and your future actions, are also being watched 
closely overseas. Of particular concern, the European 
Commission (EC) in Brussels is establishing an investment 
review mechanism even though, under European law, the 
Commission has no authority or jurisdiction on national 
security matters. So the new EC review may become a political 
screening process that could create a new barrier to U.S. 
investment into that important market of over 300 million 
consumers.
    In conclusion, I am more concerned today about growing 
investment protectionism than trade protectionism. If we want 
to grow well-paying jobs in the United States through foreign 
direct investment, we must send a clear message that the United 
States is open to investment except in those instances where a 
CFIUS process focused squarely on national security determines 
an investment must be blocked. I know you will strive to strike 
that important balance. Thank you.
    [The prepared statement of Mr. Kimmitt can be found on page 
38 of the Appendix]
    Chairman Barr. Thank you. The gentleman's time has expired.

                STATEMENT OF HON. ALAN F. ESTEVEZ

    The Honorable Mr. Estevez, you are now recognized for 5 
minutes.
    Mr. Estevez. Chairman Barr, distinguished members of the 
committee, thank you for the opportunity to appear before you 
today and discuss the Committee on Foreign Investment in the 
United States, or CFIUS. While I am now at Deloitte, I do want 
to be clear that my views today are my own views, not those of 
my firm.
    I believe it is important to review while CFIUS is critical 
to the national security from the DoD perspective. There are 
many reasons that the United States has the finest military in 
the world, most importantly, the men and women who volunteer to 
join that force. However, another reason is the technological 
superiority of our military force that we have over our 
adversaries. CFIUS is one of the tools that helps our military 
retain its technological advantage. Based on my experience, the 
CFIUS interagency process not only worked, it worked well in 
protecting national security of the United States for those 
cases that CFIUS had jurisdiction over. I never signed off, nor 
did I ever ask the Deputy Secretary of Defense to sign off, on 
a CFIUS case resolution that, in any way, would imperil 
national security. The DoD always achieved the mitigation terms 
that we asked for or received committee support to propose a 
block for those cases in which mitigation was too risky.
    When I assessed the national security risk involved in each 
CFIUS transaction, I used the construct which I called the 
three C's, plus one. The C's represent the country, company, 
and commodity, commodity including technology. The plus one was 
co-location. That is when a foreign company was buying a 
company that was located near a sensitive military 
installation.
    The framework worked like this: For country, we assessed if 
the home country of the purchasing party was a potential 
adversary of the United States, or if the country was lax in 
its protection of technology or personally identifiable 
information.
    In assessing companies, we would determine if the company 
was a state-owned enterprise, or whether the company had been 
created for that specific deal, or if the company or its 
ownership was reliable and stable.
    To assess commodities or technology, we would review the 
criticality of those technologies to DoD weapons systems, both 
current and future, how cutting edge the technology was, and 
whether the technology was already globally available.
    In co-location cases, we would assess what activities were 
taking place at a given location and whether the purchasing 
party would be able to observe or impact those activities.
    If we had concerns with two or more of those C's, my 
experience was that such cases were heading to mitigation, at a 
minimum, or potentially a block.
    I would like to now turn to areas where I believe CFIUS 
needs expanded authorities. I recognize that there are 
proposals currently being reviewed by Congress. My comments 
aren't based on that specific piece of legislation. The first 
area is joint ventures. While the vast majority of joint 
ventures do not threaten national security, some joint ventures 
may put national security at risk through technology or 
intellectual property transfer. Bankruptcy is another area 
where I believe we need to expand CFIUS authorities. 
Bankruptcies of U.S. companies, especially those involved in 
cutting-edge technologies, could end in the sale of technology 
or intellectual property assets to countries or companies of 
concern.
    The final area I believe we need to assess with regard to 
CFIUS authorities is what I call connecting the dots. During my 
time as the DoD CFIUS representative, we noticed trends in 
which specific countries and companies were engaged in multiple 
transactions involving industry segments.
    Most times, the companies and technologies being purchased 
were relatively small. They were not State-of-the-art, and they 
were not critical to national security. Nonetheless, I believe 
there comes a point where too much of a particular industry 
segment is under foreign control and this may put national 
security at risk.
    The last area I would like to address is resources. The 
reality is just to process, manage, and mitigate the cases in 
the current workload, CFIUS needs more resources. The cases 
coming before the committee are growing in their complexity. 
Resources are needed to adequately perform the due diligence on 
the cases, to radically assess unfiled transactions, and to 
radically perform mitigation and oversight.
    I thank the committee for holding this hearing. This is a 
critical topic for continuing long-term viability of our 
technical superiority. I look forward to your questions.
    [The prepared statement of Mr. Estevez can be found on page 
34 of the Appendix]
    Chairman Barr. Thank you. The gentleman yields back.
    The Honorable Mr. Wolf, you are now recognized for 5 
minutes.

                 STATEMENT OF HON. KEVIN J. WOLF

    Mr. Wolf. Thank you, Chairman, other members, for inviting 
me and holding this hearing on a very important topic. Although 
I am now a partner at Akin Gump, also my views are my own. I am 
not speaking for or against any particular legislation. Rather, 
I am here to answer your questions about how the CFIUS and the 
Export Control System worked. I am also not going to speak 
about any case that Alan or I or others worked on or that is 
before CFIUS now.
    The other panelists have already described very well how 
CFIUS works, and we will get into that. So I want to get 
straight to my main point, which is that CFIUS and the Export 
Control System complement one another. CFIUS has the authority 
to control, and regulate, and block the transfer of national--
technology of national security concerns if there is a 
transaction however defined. The Export Control System, the 
very purpose of the Export Control System, is to regulate the 
transfer of technology, regardless of whether there is an 
underlying transaction. This means that if specific concerns 
arise with respect to any particular type of technology, 
whether it is part of a CFIUS review or any other activity of 
U.S. Government, that the Export Control System, the rules 
governing the flow of goods, technology, software, and services 
out of the United States, should and could control that 
technology of concern to specific destinations, specific end 
users, and specific end uses.
    Now, I realize that identifying, describing that 
technology, particularly dual U.S. technology that has both 
benign commercial applications, as well as military and other 
applications, is complex. I also realize that the Export 
Control System itself is very complex.
    However, the system is designed, it was created, to 
constantly evolve to address new threats, new technologies, new 
issues, new end users of concern. In particular, the export 
administration regulations at the Bureau of Industry and 
Security, where I was for the previous 8 years, has the 
authority to impose these controls and alter them in 
coordination with, largely, the Departments of Defense, State, 
and Commerce. The descriptions of technology can be as broad or 
narrow as the concern arises. The scope of the controls can 
apply to specific entities, or entire countries, or they can 
apply to particular end users and end uses.
    Most of the export administration regulations implement 
multi-lateral controls that are controls that are agreed to by 
between 30 and 40 other allied countries with similar concerns. 
And this is a reflection of the fact that multi-lateral 
controls, controls that our allies all work on together, are 
the most effective because they achieve a common objective.
    It is also a reflection of the understanding that 
unilateral controls, controls that are imposed only by one 
country, generally tend to be counterproductive, because they 
result only in harming the industry of a country imposing the 
controls and don't actually block, in the end, the technology 
to the country of concern.
    So recognizing these two competing structures, and 
recognizing that the multi-lateral system can move very slowly 
because it is a need for consensus with our allies to decide 
which technologies to impose, we created, during my time, a 
unilateral process to be able to tag and identify sensitive 
technologies of control unilaterally in order to be able to 
address the threat quickly and tailor it to whatever the 
concern is on the condition that eventually, it gets presented 
to the multilateral regimes for controls there.
    There are many additional tools in the export 
administration regulations that can be tailored, such as a 
process of informing particular companies about particular 
technologies and particular end users, again, regardless of 
whether there is an underlying transaction that there is 
technology of particular concern.
    I focused in my comments here in the first 4 minutes on 
just technology transfer issues. But with respect to CFIUS, you 
also need to keep in mind that the national security issues we 
looked at are co-location issues, transactions involving those 
that create espionage or cybersecurity vulnerabilities, those 
that could reduce the benefit of U.S. Government investments, 
transactions that would reveal personally identifying 
information, those that would create security of supply issues 
for the Defense Department and other Government agencies, those 
that would implicate law enforcement issues, and those that 
would create exposure for their critical infrastructure such as 
telecommunications. Each one of these individual topics has 
their own issues and warrants their own hearing. So I am here 
because I have a 3-minute, and a 30-minute, and a 3-hour, and a 
3-day version. I will stop here with the 5-minute version and 
be available for your questions over the course of the hearing. 
Thank you for inviting us.
    [The prepared statement of Mr. Wolf can be found on page 55 
of the Appendix]
    Chairman Barr. Thank you, Mr. Wolf.
    Mr. Segal, you are now recognized for 5 minutes.

                     STATEMENT OF ADAM SEGAL

    Mr. Segal. Chairman Barr, Ranking Member, members of the 
committee, thank you for inviting me here today. My purpose is 
to provide a context for Chinese activities and what the 
motivations and challenges might be. I am going to make three 
points. The first is that China has a comprehensive strategy to 
move up the value chain and develop high technologies for 
national security and economic interests. That strategy 
involves many parts. It involves increased investments in R&D 
and in science and technology, industrial policy, and, in 
particular, policies focused on semiconductors, artificial 
intelligence, and what is called Made in China 2025, which is 
the use of the Internet of things and automation in 
manufacturing. It has its own foreign investment regime, which 
forces foreign companies to transfer technology, and fails to 
protect IPR, and is involved in cyber and industrial espionage, 
and then, finally, is involved in foreign acquisitions.
    So can it acquire those technologies in the United States, 
Europe, India, Israel, and other locations? The policy that 
China has adopted is broad and comprehensive, and any U.S. 
response will similarly have to be broad and comprehensive.
    Second, as a number of people have already noted, the 
investment decisions behind Chinese firms is often opaque. Who 
the actors are is opaque. They may say that they are private. 
They may, in fact, be private, but still receive significant 
support from state-owned enterprises. They may have tight 
connections to local or provincial governments. And so, the 
sources of the money and the motivations of that money are 
often unclear. They may be strategic. They may be economic. 
They may be hiding money from a corruption scandal.
    The problem is compounded by the fact that President Xi 
Jinping has accelerated a process that was started under 
President Hu Jintao of civil military fusion. And that goal is 
to tightly link the civilian and military economies so that any 
benefits that are brought to the civilian economy are 
eventually turned into military strength as well. And so that 
means that in this context, any advantage that is brought to 
the civilian economy could also be brought to the military 
economy.
    Third and final, while I support many of the specific 
reforms that have been mentioned about increased capacity, 
increased information sharing, and other points for CFIUS, it 
is extremely important to point out that the U.S. and Chinese 
technology platforms and systems are increasingly integrated. 
We have seen that in information technologies where it is very, 
very hard to draw a line between where China starts and where 
the United States starts. We see a massive flow of people back 
and forth. We see co-investment.
    We see a huge amount of co-research and co-writing of 
research papers. When Chinese scientists look for co-authors, 
they look to the United States. Over 40 percent are U.S. 
authors. And this pattern is going to be reproduced in these 
new areas of frontier technology.
    So we already see this in AI, in artificial intelligence, 
that the two systems, although right now are often cast as 
competitors, as running a race against each other, they are 
going to be tightly integrated. And Google's announcement 
yesterday that it was setting up an R&D center inside China is 
just the most recent example of how tightly linked those 
systems are going to be. That means that for any type of either 
export control law or CFIUS reform, there is a high degree of 
chance that we could, in fact, hurt ourselves, that we would be 
affecting science and technology that feeds back into the U.S. 
system that drives U.S. companies and drives U.S. innovation.
    Thank you very much, and I look forward to your questions.
    [The prepared statement of Mr. Segal can be found on page 
47 of the Appendix]
    Chairman Barr. The gentleman yields back.
    Ms. McLernon, you are now recognized for 5 minutes.

                   STATEMENT OF NANCY MCLERNON

    Ms. McLernon. Chairman Barr, Ranking Member Moore, and 
other distinguished members of the subcommittee, thank you for 
your invitation to testify this morning. I am Nancy McLernon, 
and I have the pleasure of being the President and CEO of the 
Organization for International Investment, OFII, the only 
business association exclusively comprised of U.S. subsidiaries 
of international companies. Our members represent a wide 
variety of industries from companies headquartered all over the 
world, including Siemens, Lego, Samsung, and BAE. I applaud 
this subcommittee's effort to take the time to examine the 
economic importance of foreign direct investment to America's 
economy, and the effectiveness of the CFIUS process.
    OFII's mission is to ensure the United States remains the 
most attractive destination for foreign direct investment due 
to the outsized impact it has on the economy and work force. 
6.8 million workers in the United States take home a paycheck 
from an international company, including 20 percent of the U.S. 
manufacturing work force offering 24 percent higher 
compensation than the economy-wide average. And somewhat 
counterintuitively, international companies manufacture in the 
U.S. not just for our consumption, but also for worldwide 
consumption. In fact, U.S. workers at international companies 
produce about 25 percent of all U.S. exports.
    International companies are also tied to their communities. 
They provide world-class training and--world-class work force 
training and help strengthen the communities in which they 
sustainably operate. For example, Toyota, whose Kentucky plant 
is the largest manufacturing facility in the world, is applying 
its manufacturing know-how to help children's hospital reduce 
infection rates with a neonatal intensive care unit, decreasing 
infection rates by 80 percent. Think about it, a Japanese 
company, in Kentucky, the largest manufacturing facility they 
have in the world.
    Historically, the vast majority of FDI flows into the 
United States through mergers and acquisitions in line with 
other advanced economies. And the vast majority of that cross-
border investment flows into industries totally unrelated to 
national security. For example, Loreal's successes have been 
achieved by their strategic acquisitions here. They have 
expanded their footprint in the United States to include 
research, manufacturing, and distribution facilities across 13 
States. In fact, I recently had the opportunity to go out to a 
facility in Little Rock, Arkansas that was the result of an 
acquisition of a Maybelline facility. Now that facility is the 
largest cosmetic manufacturing facility in the world in Little 
Rock, Arkansas, a French company manufacturing for consumers 
all around the world.
    Indeed, examples like Loreal demonstrate that when global 
companies acquire or merge with U.S. companies, they often 
raise the industry's economic performance, become reliable 
commercial and investor anchors, making large capital 
investments, and reinvesting U.S. earnings into their 
operations here. Without cross-border M&A (mergers and 
acquisitions), our economy would not receive the full benefits 
that international companies provide. A critical factor in the 
attraction of the U.S. to foreign investors is our country's 
commitment to the rule of law, and the stability of the 
regulatory environment. FINSA (Foreign Investment and National 
Security Act), as was mentioned earlier, the result of 
extensive deliberations in Congress, laid the foundation for 
success. Importantly, during 2008, Congress engaged in an 
equally thoughtful process to implement FINSA. The resulting 
regulations carefully captured the balance that Congress 
sought, providing helpful guidance on the kind of transactions 
that are within the purview of CFIUS and the wide range of 
factors relevant to national security assessments.
    Based on publicly available information and anecdotal 
experience of OFII members, it seems clear the CFIUS process is 
under stress. There appears to be more investigations and 
mitigation agreements, withdrawals of cases, and a lengthening 
period for resolution. Our members report that although CFIUS 
staff members continue to impress with their long hours and 
attention to unique circumstances, resource constraints are 
straining CFIUS' ability to handle its current workload. Such 
delays increase the risk to foreign-owned bidders in an M&A 
auction process, potentially forcing them to pay a premium.
    But let me underscore that the international business 
community supports the efforts of CFIUS to ensure America 
remains safe, and we are in full agreement national security 
should be paramount. Yet, I caution that CFIUS should not be 
viewed as a panacea to address all the concerns that have been 
raised. The Government has a wide variety of tools at its 
disposal, ensuring fairness, predictability, and efficiency in 
national security reviews must remain the tenets of the CFIUS 
process. Any changes to the process need to be done 
thoughtfully with the full awareness of the economic states.
    Once again, thank you, Mr. Chairman, I look forward to 
answering your questions.
    [The prepared statement of Ms. McLernon can be found on 
page 43 of the Appendix]
    Chairman Barr. Thank you.
    The Chair now recognizes himself for 5 minutes for 
questioning. I appreciate the witnesses' outstanding testimony, 
very illuminating and educational.
    Mr. Kimmitt, let me start with you because of your 
background in the development and evolution of CFIUS and your 
expertise. Obviously, as Ms. McLernon was pointing out, foreign 
direct investment is critical to the U.S. economy. She 
mentioned Toyota in Kentucky. But in my home State of Kentucky, 
foreign direct investment supports 117,000 jobs, a little more 
than 7 percent of the entire employment.
    At the same time, as many of the witnesses pointed out here 
today, national security of our country is of critical 
importance. And FDI, if not carefully watched, could enable our 
enemies to inflict harm not just on our economy, but create a 
whole lot of national security concerns. And I will just quote 
the U.S.-China Economic and Security Review Commission, ``China 
appears to be conducting a campaign of commercial espionage 
against U.S. companies involving a combination of cyber 
espionage and human infiltration to systematically penetrate 
the information systems of U.S. companies to steal their 
intellectual property, devalue them, and acquire them at 
dramatically reduced prices.'' The central question of this 
hearing is, how can we balance both the desire for strong 
foreign investment and strong national security? And can you 
give us a little bit of guidance on that?
    Mr. Kimmitt. Mr. Chairman, I think you put your finger on 
it just precisely: Striking that balance that not only you as a 
subcommittee and committee seek to do, but really, what the 
members of the Administration do on a daily basis. I think it 
is important to reiterate that the U.S. is open to investment 
for the reasons that you and others have mentioned. At the same 
time, no one serving in public office has a higher 
responsibility than protecting the national security. I think 
we start out from the point of view that we are looking for 
ways to attract good, high-paying FDI jobs to the United 
States. Appearing before this committee now almost 30 years 
ago, my then boss, Jim Baker, said that foreign direct 
investment was our ace-in-the-hole. As Nancy said, it is 
foreign companies deciding that our marketplace, our system, 
and our workers are worth that investment. I think that is 
where we start. But that is not where we end. We have to look 
precisely at those security considerations you mentioned.
    And I think today, unlike past concerns--the Saudis, 
perhaps the Japanese--we are talking about someone who not only 
wants to be a peer competitor, but a peer winner against the 
United States. That is China. And we have to look at Chinese 
investment particularly closely. That doesn't exclude that 
there could be Chinese investment that does not raise national 
security concerns. It doesn't exclude that there could be 
Chinese investment that needs to be regulated or looked at by 
others. But I think, again, we start with the point of view 
that we want to attract that investment, but not at the cost of 
harming U.S. national security.
    Chairman Barr. And, Ms. McLernon, what interests me about 
this issue is why there are not robust--sufficiently robust 
capital markets in the United States to provide alternative 
sources of capital for startups, or for mature companies in 
financial distress. Is there an alternative to foreign direct 
investment? And why do we not have strong enough capital 
markets in the United States to provide that capital as an 
alternative to a Chinese entity?
    Ms. McLernon. Yes. Well, I would start with the fact that 
we don't want to close--we don't want to close our borders to 
foreign direct investment, right? So even if there was a way to 
try to figure out how to fund through our capital markets here, 
we don't have all the answers. And foreign companies, when they 
come to the United States, they don't just bring capital. They 
bring innovation. They bring world-class work force training, 
as I mentioned. They bring new ways to do things. We have seen 
that in the auto sector, right?
    So I don't think that it would be a desire to wall us off 
and think that we have all the smarts, and we can have all the 
answers if we just contain it here. And the reason why we 
don't--we have had many people on the panel, and you yourself 
talked about the amazing benefits that foreign direct 
investment mean to the U.S. economy and to the workforce. So I 
wouldn't even think that would be a goal.
    Chairman Barr. In the remaining time, Mr. Estevez, 
observers have said that the CFIUS process offers the view that 
other committee members somehow rolled the Pentagon on a 
decision or that the brass at the Pentagon somehow caved to 
outside influences and ignored input from Pentagon staff. Can 
you elaborate on that?
    Mr. Estevez. I will. I don't think that is true. Inside the 
Pentagon--when I looked at a case, we brought in all the 
pertinent parties from the breadth of the Pentagon, there were 
military services, key agencies like National Security Agency, 
who have concerns on cyber cases, for example. And I always got 
the signoff at the senior leadership level. We always went into 
a case looking to say--I believe in foreign direct investment 
too. And we need to have that flow of capital, and we need the 
innovation that that brings. But I always wanted to make sure 
that we were protecting national security in doing that. And we 
brought the full gamut of the Pentagon resources when we 
examined a case. My three C's construct--China was always a 
case that we looked at regardless of the next step. And then 
when we went to the committee, I had to make the case. I could 
never say that the committee rolled me against. I was pretty 
far in my discussions--
    Chairman Barr. Thank you. Thank you.
    Mr. Estevez. --as Mr. Wolf would tell you.
    Chairman Barr. My time has expired. Well, more than 
expired. I appreciate members' indulgence.
    And now I would like to recognize the gentleman from North 
Carolina, Mr. Pittenger. And I would just note not only is Mr. 
Pittenger the author of the Foreign Investment Risk Review 
Modernization Act, he is also the author of the legislation 
that made the Treasury Secretary a member of the National 
Security Council. And, with that, I yield to my friend from 
North Carolina, and applaud his leadership on this issue.
    Mr. Pittenger. Thank you, Chairman Barr. Thank you for your 
commitment and leadership. And thank each of you for being with 
us today and your expertise and background. I would say, too, I 
am from North Carolina. We have the largest hog processing 
plant in the world in my district owned by the Chinese, 
Smithfield, 5,000 jobs.
    Right across the border from me is a big textile plant 
owned by the Chinese. So I have a real interest in Chinese 
investments, foreign investments of all kinds. I have a great 
appreciation for that. Having said that, I certainly read the 
statement by President Xi regarding his clear vision for China, 
his 5-year plan to acquire, aggressively acquire, technology 
companies. They have been pretty focused on that since 2014. I 
think they have acquired 43 semiconductor companies, 20 of 
which have been in the United States.
    To that end, it brings us enormous concern. And I think 
those concerns are shared by many other leaders who support our 
interest in reform of CFIUS. I would read you a few of them.
    Attorney General Jeff Sessions says, ``CFIUS is not able to 
be effective enough. Your legislation is first rate. We think 
it has great potential to push back against the abuses and 
dangers we face.''
    Secretary Mattis, ``CFIUS is outdated. It needs to be 
updated to deal with today's situation.''
    Director Coats, ``We should do a significant review of the 
current CFIUS situation to bring it up to speed.''
    Admiral Rogers, NSA Director, ``We need to assess the CFIUS 
process and make sure it is optimized for the world of today 
and tomorrow.
    Does anyone disagree with those perspectives?
    Thank you for that.
    With that in mind, I would like to just ask you, Mr. Wolf--
and thank you for your service. Again, you served as Assistant 
Secretary of Commerce for Export Administration. At that time, 
you were involved in providing relief in the arms embargo that 
the U.S. and EU had imposed in 1999, following the Tiananmen 
massacre. These efforts in export controls reduce--enabled 
through President Obama's Export Control Reform Initiative lead 
to a massive Chinese military modernization effort. And, of 
course, today the U.S. military faces a far more capable PLA 
because, frankly, I believe, of these efforts.
    Under the same tenure that you had, it took half a decade 
to punish the Chinese for the actions by ZTE in selling what we 
have in technology to North Korea and Iran. I worked on this. 
Ultimately, they were fined $1 billion. But it took a long time 
to get that done.
    And I would just like to know from you how credible you 
believe you can be as a witness on this CFIUS process given the 
lapse and what has occurred through the time of your tenure.
    Mr. Wolf. Thank you for the question.
    With respect to the ZTE case, that was 2 years of my life 
pursuing the matter. And I was the one that signed the denial 
order in pursuing it. So I think we were actually 
extraordinarily aggressive with respect to that matter, and the 
record speaks for itself.
    With respect to the export control reform effort, with all 
due respect, we did exactly the opposite with respect to China. 
The whole point of the reform effort was to make it easier with 
respect to trade with our close allies, NATO in particular, so 
that we would have more resources in order to focus enforcement 
attention and to strengthen the embargo with respect to China.
    Mr. Pittenger. The net effect, though, was that it provided 
the Chinese access and greater capability as a result of what 
occurred and did not occur.
    I would like to clarify for this committee what we intend 
not to do in the bill. The bill does not impose a ban, or 
automatically block all Chinese investments or that being of 
any other country. It does not require CFIUS to consider 
investment reciprocity as part of this bill. It does not cover 
all joint ventures. Joint ventures are a concern, but it does 
not cover all of them. It does not require any list of 
countries of special concern. No country is named in this bill.
    It does not require any list of technologies or duplicate 
functions performed by the Export Control System. And it does 
not designate specific technologies that are to be safeguarded.
    So I think there has been prudent consideration for what 
needs to be done and what should not be done. But I would 
convey to this committee and to each of you that without this 
type of clear focus and commitment, America's interests will be 
greatly threatened.
    I yield back my time. My time is gone.
    Chairman Barr. The gentleman's time has expired.
    The Chair now recognizes the distinguished gentleman from 
Arkansas, an outstanding member of the committee, Mr. Hill.
    Mr. Hill. I thank the Chairman. I appreciate our witnesses 
being with us today. Thanks for the effort to start this 
process, Mr. Barr, in evaluating how we adjust CFIUS' resource 
needs on behalf of the Administration, as well as balance the 
new challenges to our country. And I appreciate my friend from 
North Carolina taking a leadership role in the topic as well.
    I would like to explore the issue, maybe starting with you, 
Ambassador Kimmitt, talking about the challenges of licensing 
technology as opposed to outright acquisition of it. Could you 
reflect on that and how that gets reviewed in the process?
    Mr. Kimmitt. I would defer to my--
    Mr. Hill. We will let others, too.
    Mr. Kimmitt. --two panelists to the left. But what I would 
say is there is no definition of national security either in 
existing law or in the new bill. And I think that is very wise, 
because national security is a dynamic concept. It is quite 
different today than it was during the cold war. To me, it is 
the summation of our foreign, defense, and international 
economic policies, all resting on a strong intelligence base. 
So when those CFIUS committee members come together, they have 
the responsibilities in their statutes, in their regulations, 
to protect national security at the fore. And particularly for 
State, defense, and commerce, licensing issues that are 
proceeding on another track are very often brought into CFIUS 
for consideration on the facts of that particular case.
    I think it is really important to note that CFIUS shouldn't 
substitute for the work that is done on licensing, export 
controls, or other areas. But certainly, it needs to be part of 
that consideration. I just would make sure that CFIUS isn't 
leading in an area that I think is more properly the domain of 
State, Defense, and Commerce.
    Mr. Hill. Somebody else want to comment? Mr. Wolf?
    Mr. Wolf. Yes. Thank you. That is exactly my main point, 
which is if there is technology of concern, we should be 
controlled about the technology of concern and the transfer of 
it regardless of whether there is a transaction, regardless of 
whether there is a joint venture, regardless of whether there 
is an acquisition or a licensing arrangement. If we are going 
to spend the time, and attention, and government resources of 
identifying dual-use commercial technology of concern--and I 
grant everything that has been said today with respect to the 
underlying anxieties, and the motivations, and the concern, 
then we should do that.
    And the Export Control System is specifically created, 
again, regardless of the nature of the transaction to control 
it, and without the collateral consequences of spooking or 
having an otherwise broader impact on foreign direct 
investment. And it can be tailored to the country, end user, 
and technology of concern without affecting the entire economic 
ecosystem.
    So that is why I am an advocate for, to the extent humanly 
possible--it can't solve all problems. But if there is a 
technology concern issue, spend the time identifying that and 
working it through the system to regulate it accordingly.
    Mr. Hill. And you think the statute gives you the ample 
authority to go through that process, identify that, and 
coordinate it inside the Executive Branch?
    Mr. Wolf. The legislation is already there, absolutely, to 
already do that. It is a function of will, and resources, and 
time, and commitment. It is not a statutory issue.
    Mr. Hill. And what about just--what is a bigger challenge 
of this country, foreign direct investment of sensitive assets, 
or just outright theft of American intellectual property?
    Mr. Wolf. In my view, it is clearly the latter. That 
foreign direct investment, by and large, is not the issue, but 
the underlying tech transfer or IP theft that you are referring 
to can occur in many circumstances, not necessarily in 
connection with something captured by foreign direct 
investment.
    Mr. Estevez. I would agree with that.
    Mr. Hill. Something like 5 to 10 percent of exports are not 
exports. But export value is just sheer theft of intellectual 
property from Europe and the United States. Would you agree 
with that estimate?
    Mr. Wolf. I don't know the percentages, but that seems 
reasonable. I haven't looked at the exact data, but that seems 
reasonable, yes.
    Mr. Estevez. That was always a concern of mine, things that 
weren't in our process, the CFIUS process. But cyber theft was 
a major concern. In fact, we put in some rules through--
acquisition rules requiring companies to have at least a 
minimum standard of protection that were doing business with 
the Department of Defense to protect their IP that we were 
using.
    Mr. Hill. Do you think inside the Executive Branch that 
that is--in today's world, since intellectual property, cyber 
risk, data security, true protection--I am not talking about 
just the trademark on Mickey Mouse, but I am talking about all 
of the above. Is that really adequately coordinated in the 
Executive Branch process? And is that--what is your view, 
having worked in it recently, as opposed to Mr. Kimmitt--we 
were centuries ago. We didn't even have email then. So talk to 
me, are we adequately coordinated there?
    Mr. Wolf. No. I agree with the essence of your question, 
which is a lot more time and resources and commitment could and 
should be made to the effort of identifying those technologies 
that are commercial, that want control. Absolutely. Both--
    Mr. Hill. Thank you.
    Mr. Wolf. --and from an export control--
    Mr. Hill. Thanks, Mr. Wolf. My time has expired.
    Thank you, Chairman.
    Chairman Barr. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Ohio, Mr. 
Davidson.
    Mr. Davidson. Thank you, Chairman. Thank you to our 
witnesses. I really appreciate your expertise in this vital 
matter for our national interests. And I certainly appreciate 
the importance of foreign direct investment in the United 
States. And we want to be clear that we are talking about 
things that would be counter to our national security 
interests, not things that would be counter to our national 
interests. We want foreign direct investment. We don't want to 
give away our national secrets, even at a high price, if they 
would jeopardize the security of our country.
    I became concerned about this when I was a cadet at West 
Point. And in 1993, one of the first things the Clinton 
Administration did was transfer release authority for sensitive 
technology from Department of Defense to Department of 
Commerce. And we proceeded to sell, via Hughes, the capability 
to China to launch multiple satellites, in this case, not 
warheads, off of one launch vehicle. That seemed tantamount to 
treason to me at the time. But it was really a commercial 
decision. But it seemed really a bad thing for U.S. national 
security.
    So I am really grateful to Mr. Pittenger and to the folks 
in this committee that have tried to address a modernizing of 
legislation that is post 1993 but really past due for some 
reforms. One of my big concerns is, where are the gaps, even 
with this legislation? What is left to be done? And so Mr. Hill 
talked about licensing. But also, one of the big things that 
you see is startup companies, and venture capital, venture 
investing. And we spent a little bit of time talking about 
China. We are certainly not only concerned about the 
relationship with China. On balance, we benefit greatly from 
that trade relationship, with some real concerns about trade 
policy.
    Here we are talking about national security. So putting 
aside countries, the kinds of mechanisms which were technology 
that we may still need to address beyond this CFIUS as it 
stands today.
    Ms. McLernon, would you care to start?
    Ms. McLernon. I think that you raise a number of very 
important issues. And there are a variety of different security 
experts on the panel other than myself.
    I do think that it is important that we don't lull 
ourselves into a false sense of security. If we do focus only 
on one country and we ring-fence it, we risk being vulnerable 
to other areas of threat, and we also risk discouraging 
investment from that particular country that could actually 
benefit the U.S. economy.
    Mr. Davidson. Yes. Thank you for the clarification.
    Mr. Kimmitt?
    Mr. Kimmitt. I would say that your point about instances 
beyond normal M&A activity is really an important one, 
Congressman.
    And let's remember that the current law applies not only in 
the cases of ownership but also control. And CFIUS looks very 
closely at investments, including in startups, where a foreign 
company or investor would have enough equity ownership and 
enough governance rights--board seats, observer status, 
accumulation rights, special voting rights--that that could 
trigger the CFIUS covered transaction rule.
    I think, having spent 2 years, myself, running a software 
company in Silicon Valley, that isn't well-understood there. I 
think we need to do a better job of letting people in our 
technology hubs--not just Silicon Valley but the Research 
Triangle, down around Austin, around the country--know that 
they have to be careful as they take that foreign investment 
that it does not rise to the level of control, which would then 
trigger CFIUS.
    And so, for example, if they are going to set up an 
investment fund, let's make sure any foreign limited partners 
are truly limited, that they are passive investors. I think 
that is an area that CFIUS actually looks at fairly closely, 
but I think, on the company side, particularly in that startup 
community, there is not as clear an understanding as there 
should be of what foreign investors, particularly any with 
malign purposes, may be trying to do.
    Mr. Davidson. Thank you.
    Mr. Estevez?
    Mr. Estevez. Well, first of all, I agree with Ambassador 
Kimmitt on that point.
    We also have to watch the negative implications. So if you 
are a startup in Silicon Valley with some really cool 
technologies, I want those companies to do business with the 
Department of Defense. And I don't want them to not want to do 
business with the Department of Defense because suddenly we are 
going to put a fence around them. So--
    Mr. Davidson. Yes, correct. And I think the big thing is, 
and to your point--because my time has expired--the point is 
that a lot of these early stage folks don't even realize the 
national security implications. It is a brilliant technology. 
It has dynamic, profound potential applications for our 
economy, for the global economy, but it could be used for 
nefarious purposes.
    My time has expired. Mr. Chairman, I yield back.
    Chairman Barr. The gentleman yields.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman, for 5 minutes.
    Mr. Sherman. With Dubai Ports, we had a company that 
happened to be owned by the government, and that government 
was, at the time, supporting international terrorism.
    Should we have in any CFIUS law a provision that says you 
explicitly must take into account whether the host government 
of whatever company is making the investment supports 
terrorism--whether or not is a state sponsor of terror?
    Does anyone have a comment?
    Anybody here think that we shouldn't take into 
consideration whether the company making an investment in U.S. 
assets is based in a country that supports terrorism?
    Mr. Kimmitt. Mr. Chairman, I think at Treasury, which I 
know--
    Mr. Sherman. Right.
    Mr. Kimmitt. --a bit better, although the CFIUS process is 
run by the International Affairs Division, as you know, the 
people in TFI, Terrorist Finance, comment on every--
    Mr. Sherman. They comment, but there is not an explicit 
provision that says: It might be a wonderful company buying a 
wonderful asset; it just happens to be based in Tehran. And 
there is nothing in the law that I read or that you can point 
to that says that that would be one of the factors, correct?
    Mr. Kimmitt. There is nothing specifically in FINSA, 
although, as you know, in the wake of CNOOC and Dubai Ports, 
there was much greater scrutiny put on acquisitions by state-
owned or--controlled entities.
    Mr. Sherman. But I am not just talking about state-owned 
or--controlled entities.
    Mr. Kimmitt. No, but I would say where you will find that 
specific language is in legislation that you have passed and 
Executive Orders that have been issued by the President on 
state sponsors of terrorism, including the Iranians and others. 
So--
    Mr. Sherman. The government or private enterprises based in 
Tehran?
    Mr. Kimmitt. I would say both--
    Mr. Sherman. You would say it would be rejected just on 
that basis? Or what weight would it be given?
    Mr. Kimmitt. Certainly, if it were a company based in 
Tehran, it would be rejected, I think, outright.
    But I think the key point you are making--
    Mr. Sherman. And maybe Dubai, we would look at it more 
carefully.
    I would point out that we may be looking too narrowly when 
we look at ownership or control of a company, as if you have to 
have seats on the board to control them.
    And I will give you one example. We have allowed a terrible 
situation in our weak position with China, so they are able to 
turn to Boeing and say, ``We won't buy your planes unless you 
make the fuselages here in China.'' So they don't have anybody 
on the board, they don't own any stock, but they control 
corporate decisions.
    Now, I don't know whether it was a fuselage or the wing 
assembly, and I don't know whether that poses a risk to our 
national security or intellectual property. But I do know that, 
once we consent to a situation where a country can have a huge 
trade surplus with us, over $300 billion, and then turn to our 
companies and say, ``And you can't even sell your products here 
unless you transfer this technology, unless you build this 
plant here, unless the patents are located here, unless the 
computer system or cloud is located here,'' that we may be 
looking over at corporate ownership and not looking at 
corporate control. The fact is, if you can close your markets, 
you can control corporate decisions.
    Another thing I will point out is that I think it is 
important to note that, if bad decisions are made by CFIUS, 
they can be reversed under the International Emergency Economic 
Powers Act. Now, that would be extraordinary; it has never been 
done before. But I think that, as we plan to revisit CFIUS, we 
should be aware of that act which could be used--and I cite 50 
U.S.C. 1702--to reverse a bad decision.
    And I yield back.
    Chairman Barr. The gentleman yields back.
    The Chair recognizes the gentleman from Minnesota, Mr. 
Emmer.
    Mr. Emmer. Thank you, Mr. Chair.
    And thanks to the witnesses for being here today.
    So I want to go back to Chairman Barr's opening when he was 
talking about how does CFIUS balance national security versus 
foreign direct investment. And I want to tie it together with--
I think it was something that Ambassador Kimmitt said about 
there is no definition of national security in the law.
    So what is the priority for CFIUS when you are reviewing a 
transaction? Is it national security or is it foreign direct 
investment? Which one comes first and then has to be balanced 
against the other one? And when you are talking national 
security, I will just add, how do you define it?
    And we will start with the Ambassador.
    Mr. Kimmitt. My point only was that national security is a 
dynamic, ever-changing concept. It meant one thing during the 
cold war, another in the post-cold war period, post-9/11, and 
post-financial crisis.
    And I think the important thing is CFIUS, which exists only 
to screen investments for national security concerns, has at 
the table every department and agency that is responsible for 
safeguarding the national security interests of the United 
States. So the Defense Department might bring their concerns 
about military technology. The State Department might bring, or 
Treasury, some of the concerns, for example, that Mr. Sherman 
mentioned about terrorist activity. Commerce will bring 
concerns about export controls. DHS and DOJ bring a very 
different set of concerns.
    So, basically, each of the agencies is looking at the 
investment in an open investment policy environment. But the 
reason that they are there is to say, even though we are open 
to investment, are there any elements of this transaction, if 
concluded, that would raise concerns from our department or 
agency's perspective? If so, they need to be identified, 
addressed, mitigated. Or if they can't be mitigated, the deal 
needs to be blocked.
    Mr. Emmer. Well, it doesn't look like--when I look at this 
summary, a total of 770 transactions over the last, what is it, 
6 years, something like that, that are cited in this graph. 
There aren't many.
    And I go back, and maybe Mr.--I shouldn't call you 
``mister''--the Honorable Mr. Estevez, you were talking about 
when you review something inside the Pentagon. There is a case 
that I tried to look up, because it is back from 2011 and 2012 
involving Cirrus Airplanes in Duluth, Minnesota, that a Chinese 
company came in and put a purchase agreement together, and all 
kinds of red flags went up, because the argument was they are 
going to buy this very interesting technology, they are going 
to reverse-engineer it in China, so we lose the jobs, we lose 
the--it is great to want this foreign direct investment, but I 
think Mr. Sherman had a great point. You also have it going on 
with what Mr. Hill is talking about, with outright theft.
    What happened--do you remember the case I am talking about? 
And is it one of the ones that was--there were 20 back in 2012 
that the notices were withdrawn after commencement of the 
investigation.
    Mr. Estevez. First, being a member of the committee, we 
don't really want to talk about specific cases, because the 
confidentiality of that process helps us dig into those 
companies. But the reality is I also don't recall that case, 
specific case.
    Mr. Emmer. Well, no, and that is great, and I respect that. 
If I can just add, before I forget about it and let you finish, 
it would be very helpful if at some point down the road, when 
you think it is not hot anymore, where policymakers can 
actually see some of these cases and the deliberations that you 
go through. Maybe it would help us understand how CFIUS is 
working.
    Mr. Estevez. On any case, we would have looked at the 
technology. And, again, it is not about--economic security is 
part of national security, absolutely. And we would discuss 
that, too, when we were discussing cases. But we would look at 
the technology and say, is this technology state-of-the-art? Is 
it useful militarily, that it would advance their capability, 
whoever ``they'' are, in this case China, over ours? And if 
there was any doubt about that, I would be in there arguing 
that we either have to put control around this, depending on 
who the company was and the country was and whether we would 
trust them on those controls, or I would be arguing for a 
block.
    Again, as the Honorable Mr. Wolf sitting next to me would 
say, I was usually sitting there pounding the table saying 
this--
    Mr. Emmer. Yes, but then you could get overruled.
    Mr. Estevez. Never.
    Mr. Emmer. OK. Good.
    I see my time has expired. Thank you.
    Chairman Barr. The gentleman yields back.
    The Chair recognizes the gentleman from Illinois, Mr. 
Foster.
    Mr. Foster. Thank you, Mr. Chairman and to our witnesses.
    Let's see. Mr. Segal, in your testimony, you mentioned 
things like source code as one of the things that are hard to 
keep under control when you get an investment. And are there 
investment models that allow us to accept money but keep the 
intellectual property here, or is that pretty much a lost cause 
once you have a significant investment?
    I am happy to have everyone--is there a workable model of 
that? Or once you have someone who has a 20-percent stake, they 
are going to want to see a review of the technology on regular 
intervals and want to have basically, people injected into the 
company and see both the present and the future intelligent 
developments? Any way to keep that from happening?
    Mr. Segal. Thank you.
    I think that that specific case refers to investment inside 
of China. So when--
    Mr. Foster. OK. It was just an example of the sort of 
intellectual property that is hard to--that is hard to keep in 
one place.
    Mr. Segal. So I think it would go back to Ambassador 
Kimmitt's point that when you are investing in a startup or 
another technology company, what percentage control you get, 
what the terms are, and what access to the information, I think 
those are often individually negotiated. And then it would have 
to be brought to the attention, depending upon what the source 
code was, what the technology was, that was to be transferred.
    Mr. Foster. And is there a retrospective look at how 
successful those have been in keeping the technology from 
escaping? Or this is a one-time decision and then you don't 
look back 5 years later and see if the technology has actually 
not been adequate?
    Mr. Estevez. So we would always look at the technology and 
see, again, how cutting-edge it was and how it would impact 
potential adversaries' capability, again, from the Department 
of Defense perspective.
    And not only would we look at the technology itself, we 
would look at the industrial process. So some companies are 
better at doing things than other companies, and we wouldn't 
want the secret sauce, if you would, to migrate overseas if it 
was a very state-of-the-art company.
    We would consider all those things. If we thought we could 
mitigate, we would propose the mitigation on how to wall off 
the fact that there was foreign cash going into the company. If 
we didn't think we could do that, we would propose a block.
    Mr. Foster. And when you believe you have walled it off, do 
you then have a process in place to review how successful that 
walling off has been?
    Mr. Estevez. If we propose mitigation, we would enforce 
that mitigation agreement in perpetuity. So you were assessing 
how that was working.
    Now, with that said, I will go to my earlier testimony: 
There are not enough resources to continue doing that, 
especially as cases get more complex.
    Mr. Foster. And if you look further into the future, it is 
easier to catch up than to develop new technology that doesn't 
previously exist. And so, in the medium/long term, we are going 
to be co-equals with many countries in Europe and Asia in a lot 
of areas.
    And so then the question is, do we have a structural 
disadvantage? Or will it become as easy for us to invest and 
get their technologies moving back in areas where they are 
ahead of us? Or is that something where we should start 
negotiating now to make sure we haven't built in a structural 
disadvantage as coequals? And this is in a world where we are 
coequal technologically.
    Mr. Segal. Well, I think, in particular with the case of 
China, we do want to insist on greater reciprocity. There are a 
number of sectors in high technology that are still off limits 
for U.S. investment. The amount of openness and access to U.S. 
R&D, U.S. universities does not exist in the Chinese case. So, 
as China becomes a more capable player, I think it behooves us 
to insist on greater reciprocity and access to those resources.
    Mr. Foster. Now, in addition to absolute cutting-edge 
technological spaces, a lot of the future military applications 
are going to be things like drone swarms, like just massive 
numbers of security cameras, things like that, where it is 
actually the price that is as important--the mass production of 
very large numbers of relatively low tech, where ``low tech'' 
includes cameras with facial ID and things like that.
    And I was wondering, is there a lot of concern that, even 
though the technology might not be leading-edge, that just the 
very high-volume manufacturing is another area where we could 
fall behind and have to protect the technology?
    Mr. Estevez. Yes. Let me address that very briefly.
    We would look at the technology. If it wasn't cutting-edge, 
we believe that our innovation would pace that. And, more 
importantly, from a military perspective, our tactics, 
techniques, and the men and women that are in our forces 
constitute an advantage on how they use that technology that 
would pace whatever competitors there are in the globe.
    Mr. Foster. All right. Thank you.
    And I yield back.
    Chairman Barr. Thank you.
    The gentleman's time has expired.
    The Chair recognizes the gentleman from Indiana, Mr. 
Hollingsworth.
    Mr. Hollingsworth. Good morning. I appreciate all of the 
witnesses being here today. This is certainly an interesting 
topic and a vital topic that we discuss further.
    Mr. Foster, my colleague, had brought up some of the 
ongoing monitoring, and I know Mr. Estevez had answered some of 
those questions. But I wanted to get back to that and talk a 
little bit about these monitoring agreements and how vital it 
is that we ensure what we set in place and the guardrails 
around that are continually being looked at and updated.
    So I know you mentioned that resources are a problem. Can 
you talk a little bit about previous issues with resources, 
what resources might be required, what apparatus we have in 
place, what apparatus we need in place, and just fill in some 
of the color around the ongoing monitoring agreements?
    And others can certainly take the question as well.
    Mr. Kimmitt. I would start at the general, let my 
colleagues go to the specifics.
    I have spent a lot of time working in Government. Most of 
the energy and the resources go in on the upside--that is, 
until the policy decision is reached, the legislation is 
enacted--and we don't give the attention and resources to the 
implementing side of it, which is really important. You know 
that from your business time. You have to drive to results.
    And so what I would say is let's make sure we have 
resources on both sides of that equation. And if in the middle 
of it is a mitigation agreement, let's make sure there is as 
much energy put into implementing and overseeing that 
mitigation agreement as there was in negotiating it.
    That is where I think we run into a real resource problem. 
I think both in Treasury and in the interagency process more 
broadly we have barely enough people to address today's cases. 
And if you then have an increase in cases or implementation 
responsibilities because you pass new legislation, I think the 
place that is going to lose is on continuing to watch those 
mitigation agreements, make sure that they are faithfully 
executed, and, as Mr. Estevez said, very importantly, that we 
connect the dots across decisions that are made. That is where 
I think the resource constraint comes in.
    Mr. Estevez. One other factor--and I fully agree with 
Ambassador Kimmitt on that--is that, as time elapses from the 
time a mitigation agreement is put in place--so if we did one 
for DoD in 2013, I remember it. I am gone. Some of the staff 
has turned over. Some of the outside directors that we put in 
have turned over. So I am real concerned about institutional 
memory that comes with resources to do that enforcement.
    Mr. Hollingsworth. Yes. I think that both your comments are 
really, really thoughtful in ensuring that, ultimately, if we 
are going to make a certain decision, we need to have the 
resources to enforce those decisions.
    And as you well said, if we are going to be faced with many 
more cases and resources are barely enough to even face those 
cases, if there is a probability any greater than zero that 
some of those will be accepted and there will be monitoring 
agreements, then resources need to be allocated to those 
monitoring agreements in the long term as well.
    I wanted to specifically also ask of Mr. Wolf, was there 
ever a time in your tenure where you felt like you didn't have 
enough time to adequately review, thoroughly vet, and arrive at 
the right decision in your mind--
    Mr. Wolf. No.
    Mr. Hollingsworth. --that the process was rushed?
    Mr. Wolf. No. I agree with Alan. We never cleared off on a 
transaction for which any of the departments believed there was 
an unsolved national security threat. To the extent we needed 
more time, there were withdrawals and refiling. And with 
massive terrific support from the intelligence community, I am 
confident that, with all the cases we reviewed, we made it to 
the right outcome.
    And to refer to a comment made earlier, they were never a 
balance--we were never balancing investment with national 
security. If there was an unresolved national security threat, 
we blocked or mitigated; we didn't balance. And so the answer 
to your question is no.
    Mr. Hollingsworth. Well, that answer to the question 
certainly will help Hoosiers back home sleep better at night, 
knowing that we are thinking about those things and we are 
giving them the adequate amount of time to vet them.
    And I really appreciate the comments. And I think this is 
something, more broadly, as you well said, as a problem, an 
epidemic across all aspects of Government, that we spend too 
few of our resources focused on the enforcement of a decision 
instead of just on the decision itself.
    And, with that, I will yield back, Mr. Chairman.
    Mr. Kimmitt. Mr. Chairman, could I just add one point, just 
picking up on the point that Mr. Wolf just made?
    It is really important to understand the critical role that 
the intelligence community plays in the CFIUS process. When the 
case is filed, it is sent to the Director of National 
Intelligence for a community-wide look at the case. I would 
say, going to Mr. Foster's point, particularly some of the S&T 
considerations that need to be looked at very closely, and the 
DNI then comes back with a low, medium, or high assessment, 
that helps guide--it doesn't make the decision, but guide what 
the committee does. And then, as was mentioned, almost all of 
the major CFIUS agencies have their own intelligence elements 
inside. So there are almost two bites at that apple.
    I think for looking ahead, that 5-year look-ahead, in 
addition to make sure that we implement correctly, we are 
really relying on the intelligence community to come with us 
not just on the instant concerns on these transactions but what 
are those trends, those 5- and 10-year trends that we need to 
be concerned about.
    Chairman Barr. Thank you.
    The gentleman's time has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the witnesses for appearing today. I think this is 
an exceedingly important hearing. And I am very much concerned 
about assuring ourselves that we are on the right course.
    Mr. Segal, you have indicated that unilateral action may 
not be sufficient, that there is something more that we have to 
do so as to protect our U.S.-originated science and technology. 
Would you give some additional intelligence on this, please?
    Mr. Segal. The fundamental issue is that there are very 
few, if any, science and technology issues that the United 
States still monopolizes. And so, for any technology that the 
United States has decided that it represents a dual-use threat, 
it is very possible to go find, except for a very, very narrow 
range of technologies, similar producers.
    To give just an example, on issues on cybersecurity or AI 
or computer science or technology, the Chinese are sending 
delegations to Israel every week. And while the Israelis are 
more aware of our concerns about dual-use, they are not going 
to find in the same ways that we are in every instance.
    So I think the issue is that, unless you have a fairly 
broad set of agreements among your partners, it will be very 
easy for Chinese actors to find most technologies in other 
markets.
    Mr. Green. With reference to partners, are there certain 
institutions that can validate a partner's position such that 
we can feel more comfortable with it as opposed to someone that 
might not be associated or affiliated with the institution?
    Mr. Segal. I may defer to Mr. Wolf, but I suspect that the 
intelligence agencies cooperate and share information.
    Mr. Green. If you would, please.
    Mr. Wolf. Sure.
    To the extent that there is information about an entity 
that creates national security or foreign policy concern, my 
old bureau, Bureau of Industry and Security, had the authority 
to identify it publicly as an entity to which exports are 
blocked or other transactions are red flags.
    And then, within the CFIUS review process, the intelligence 
community will provide to us information about other entities 
that might not necessarily be known to the parties, and we 
factor that into our decisions to either block or mitigate.
    Mr. Green. What about NATO, a membership in NATO? Does that 
give you some degree of assurance?
    Mr. Wolf. With respect to the country--as a country, 
absolutely. But it doesn't mean that every company inside each 
NATO country is, per se, not a concern. So we review not only 
the country of issue but the company, the personnel, the 
funders, people that may be behind it. So just because it is 
from Germany or France doesn't, per se, mean that there are 
absolutely no concerns.
    Mr. Green. And how effective are we at spotting companies 
that have investors that may have ill intentions such that they 
are in a position to take advantage of knowledge that they 
acquire notwithstanding the fact that they look legitimate?
    Mr. Wolf. Well, that is one--real quick, that is one reason 
for my emphasis on the focus on the technology. If the 
technology is of concern, it warrants review, period, 
regardless of who the parties are. And the licensing process 
gives the U.S. Government the opportunity to do a deep dive 
into who the investors or other parties are, as opposed to the 
other way around.
    Mr. Estevez. And the intelligence community does a very 
good job of digging out all the facets of a company, including 
whether--who are the bad investors that may not be good actors.
    Mr. Green. We have some sensitive areas in the United 
States where we have certain things being developed that are to 
be kept under wraps, for want of better terminology. Do we have 
any concerns about persons locating businesses in and around 
these very sensitive areas?
    Mr. Estevez. If it was a covered transaction, we absolutely 
address that under the CFIUS regime.
    Mr. Green. Well, my time is up. Thank you, Mr. Chairman. I 
yield back.
    Chairman Barr. The gentleman's time has expired.
    And with the witnesses' indulgence, we are about ready to 
have a vote on the House floor, but we will take the liberty of 
asking one final 5-minute round of questioning, with members' 
agreement here.
    We heard from Ms. McLernon earlier that, although the U.S. 
capital markets are the deepest, most liquid and competitive in 
the world, in and of themselves, U.S. domestic capital markets 
are not sufficient to provide the level of financing that 
startups and other companies need, and foreign direct 
investment is a very critical part of financing of our 
companies in this country. And they provide, in the cases of 
foreign direct investment, many times, other assets other than 
just capital.
    We also heard today that there are legitimate national 
security threats, and we need to strike the right balance.
    So just in the remaining time, could each of you briefly--
if you could identify one policy recommendation to improve the 
current or modernize the current CFIUS review process, what 
would that one policy recommendation be?
    And we will start with Mr. Kimmitt and work our way down.
    Mr. Kimmitt. I would go back to what has been the common 
theme, and that is we need to make sure that we have adequate 
resources both for the identification of potential issues, the 
review and adjudication of those, and then implementation of 
any agreement that might be reached, a mitigation agreement, to 
bring us to a ``yes'' answer.
    And I would think it is very important, going back to Mr. 
Pittenger's point of the number of senior officials in the 
Administration who have talked about the need to reform CFIUS, 
I would just say I hope those senior officials will themselves 
get involved in the process both to identify the resources they 
need in their departments and agencies and empower their people 
involved in the CFIUS process to deal with these cases 
expeditiously on behalf of the American people.
    Chairman Barr. Thank you.
    Mr. Estevez?
    Mr. Estevez. Of course, in my testimony, I address certain 
areas. There are many of the areas in Mr. Pittenger's bill. The 
resources need to be addressed.
    But I would also say that CFIUS is one tool in the toolbox. 
We need to look at the gamut of our legal capabilities and what 
industrial policy and reciprocity that we might want to enforce 
across the board in our dealings with foreign nations and 
foreign companies. So, while CFIUS is one way to get at that, 
it is not just CFIUS.
    And the final point I will make is you need carrots as well 
as sticks in this process.
    Chairman Barr. Mr. Wolf?
    Mr. Wolf. A significant, massive, whole-of-Government 
effort that is creative and digs into all the types of emerging 
technologies and other technologies that aren't on either of 
the control lists that are in commercial applications that are 
sensitive or of concern that have been discussed behind all the 
comments today. That requires a lot of agencies, a lot of 
creativity, a lot of attention, and a lot of resources, 
frankly, to do that.
    With everything we are talking about today, it all depends, 
whether it is part of the legislation or export controls, on 
the ability of either CFIUS or the Export Control System to 
identify the technologies of concern, whether broadly or 
specifically. That is the work that is at the core of 
everything we are talking about today. And that is my policy 
recommendation.
    Chairman Barr. Mr. Segal?
    Mr. Segal. If the concern is primarily China, then I think 
we need to address all of the other forms of technology 
transfer that are occurring, so some of the issues of 
reciprocity that I mentioned before, as well as battling back 
on techno-nationalism in Chinese industrial policy.
    On the CFIUS process itself, I echo the calls for resources 
and also, perhaps, new mechanisms for tapping into the 
expertise in academic and business communities about how the 
technologies are developing, which ones are going to be the 
ones we are worried about 2 to 5 years from now, and what types 
of joint ventures and other types of agreements our people are 
thinking about in the future.
    Chairman Barr. Ms. McLernon?
    Ms. McLernon. Let me just also echo the important need for 
resources. It is very hard to determine how well CFIUS works 
now and what the gaps are if they don't have the resources to 
do the job that is in front of them now. If we expand the 
scope, we risk leaving ourselves vulnerable and may take their 
eye off the true defense-related, national security concerns.
    I don't think it was mentioned earlier the number of deals 
blocked. I don't think that that is an indicator of whether 
CFIUS is working. You have no idea how many deals don't even 
start because CFIUS exists. So I wouldn't look at those 
numbers, per se, that it wasn't functioning properly.
    But I cannot emphasize enough the need for resources there, 
not only for national security but for our ability to be 
competitive. Because foreign-based companies are concerned now 
with the length of time that has to happen in order to get a 
review. So I can't emphasize that enough, as well as looking at 
other tools, that CFIUS cannot be the one and only thing that 
we focus on to protect our national security in this space.
    Chairman Barr. Thank you.
    And I would like to yield to the gentleman from North 
Carolina for a comment.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Thank each of you for being with us today. It is very, very 
meaningful to all of us.
    I would like to enter into the record statements of support 
for CFIUS, which would include former Secretary of Commerce 
Penny Pritzker and Secretary Wilbur Ross, the Secretary of 
Commerce.
    Chairman Barr. Without objection.
    Mr. Pittenger. I would also really like to thank Senator 
Cornyn for his leadership. It has been remarkable. He and his 
team have really worked very hard on this. It is been an honor 
to work with them.
    I also would like to thank Secretary Mnuchin and Treasury. 
They have played a significant role in writing this 
legislation, along with Chairman Nunes, who is a cosponsor of 
this bill, and Chairman Burr. Everyone has participated in a 
very significant way to make sure that we have a good 
perspective on what needs to be done going forward.
    Thank you, Chairman Barr.
    Chairman Barr. Thank you.
    The gentleman yields back.
    And for a final comment, I will yield to the gentleman from 
Illinois.
    Mr. Foster. Well, I just want to thank you and, I guess, 
apologize for the attention deficit disorder of Congress on 
this sort of issue. And thank you, Chairman, for attempting to 
remedy that.
    Because this is something where I think our Government and 
our Nation suffers from the lack of the long-term vision that 
you actually, frankly, see in China, that a lot of our 
investment model, where you are bonused on the quarterly 
profits as opposed to the 10-year performance of a company, 
causes us to not invest as strategically as we should.
    And I hear you very clearly about the lack of resources. 
When we have some big mess like the Ebola crisis and so on, 
there is a big temporary spike in funding, and then it gets 
eaten away until the next time things become a crisis. This has 
been on ongoing crisis for more than a generation.
    Now, one thing that occurred in some of your testimony was 
reference to intellectual property violations. And one of the 
reasons that we have to depend on foreign capital for things 
like venture capital is that, when you have a really good 
invention, like Microsoft Word, and then find that it gets 
pirated in other countries, you don't have the follow-on 
investment capital.
    And I was just wondering if you see that as an important 
area where we have to--this would be a much smaller problem if 
there was a huge increase in the amount of venture capital 
available simply because we didn't have our inventions ripped 
off offshore.
    There was a number, like, 150 billion of Chinese investment 
into startups? Was that a number that occurred in one of your 
testimonies? And that is probably small compared to the amount 
of software that gets stolen, for example, in China every few 
years. And so I think we have to keep our eyes on that one very 
strongly.
    I just want to thank the Chairman for having this hearing. 
It is a big deal. And thank you.
    Chairman Barr. Thank you.
    I appreciate the gentleman, and he yields back.
    And I would like to thank all of our witnesses for their 
testimony today. It was very educational, illuminated a lot of 
issues for the members.
    As we indicated before, this subcommittee will continue to 
review the CFIUS process. We will have several more hearings at 
the beginning of 2018, and we invite the continued engagement 
of these witnesses and others as we continue to review and 
update this process.
    And I would echo the comments that we do hear you loud and 
clear on the resources point, which was a unanimous point that 
was made here today.
    Without objection, all members will have 5 legislative days 
within which to submit additional written questions for the 
witnesses to the Chair, which will be forwarded to the 
witnesses for their response. I ask our witnesses to please 
respond as promptly as you are able.
    This hearing is now adjourned.
    [Whereupon, at 10:43 a.m., the subcommittee was adjourned.]

                            A P P E N D I X



                           December 14, 2017
                           
                           
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