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




 
H.R. 4311, THE FOREIGN INVESTMENT RISK REVIEW MODERNIZATION ACT OF 2017

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 12, 2018

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-85
                           
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]               




                             _________ 

                  U.S. GOVERNMENT PUBLISHING OFFICE
                   
31-419 PDF                 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

                     Shannon McGahn, 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:
    April 12, 2018...............................................     1
Appendix:
    April 12, 2018...............................................    41

                               WITNESSES
                        Thursday, April 12, 2018

Brown, Michael A., Presidential Innovation Fellow, Defense 
  Innovation Unit Experimental...................................    42
Cinelli, Giovanna M., Partner and Lead, International Trade and 
  National Security Practice, Morgan Lewis & Bockius LLP.........    48
Kallmer, Jonathan S., Senior Vice President, Global Policy, 
  Information Technology Industry Council........................    56
Lowery, Hon. Clay, Managing Director, Rock Creek Global Advisors, 
  and former Assistant Secretary for International Affairs, U.S. 
  Department of the Treasury.....................................    68
Marchick, David M., Managing Director and Global Head of External 
  Affairs, The Carlyle Group.....................................    74

                                APPENDIX

Prepared statements:
    Brown, Michael A.............................................    12
    Cinelli, Giovanna M..........................................    14
    Kallmer, Jonathan S..........................................     9
    Lowery, Hon. Clay............................................     7
    Marchick, David M............................................    10

              Additional Material Submitted for the Record

Barr, Hon. Andy:
    Written statement of the National Venture Capital Association    83
Heck, Hon. Denny:
    Latest working draft of H.R. 4311............................    89
Pittenger, Robert:
    Written statement of Ericsson, Inc...........................   122
    Written statement of Oracle..................................   123


H.R. 4311, THE FOREIGN INVESTMENT RISK REVIEW MODERNIZATION ACT OF 2017

                              ----------                              


                        Thursday, April 12, 2018

                     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 2:03 p.m., in 
room 2128, Rayburn House Office Building, Hon. Andy Barr 
[chairman of the subcommittee] presiding.
    Present: Representatives Barr, Williams, Lucas, Huizenga, 
Pittenger, Love, Hill, Emmer, Mooney, Davidson, Hollingsworth, 
Foster, Sherman, Green, Heck, Kildee, Vargas, and Crist.
    Also present: Representatives Hensarling, and Royce.
    Chairman Barr. The subcommittee will come to order. Without 
objection, the Chair is authorized to declare a recess of the 
committee at any time. All members will have 5 legislative days 
within which to submit extraneous materials to the Chair for 
inclusion in the record.
    This legislative hearing is entitled ``H.R. 4311, the 
Foreign Investment Risk Review Modernization Act of 2017.'' 
Without objection, the gentleman from California, Mr. Royce, is 
permitted to participate in today's subcommittee hearing. Mr. 
Royce is a member of the Financial Services Committee and is 
Chairman of the Committee on Foreign Affairs. We appreciate his 
interest in this topic.
    I now recognize myself for 3 minutes to give an opening 
statement.
    The world today is a much more dangerous place than it was 
at the turn of the century. In 2000, post-Soviet Russia seemed 
fitfully to be moving toward recovery from nearly a century of 
communist rule. China, while still communist-run, seemed a 
useful partner, a low-cost manufacturing platform eager for 
work. Terrorism had not yet become a global problem.
    But today, terrorism is an ever-present threat. Russia has 
undertaken a disturbing series of military and cyber 
interventions against its neighbors and the United States, and 
China has become a global economic powerhouse that will stop at 
nothing to enhance its military muscle.
    Against this backdrop, our colleague, Representative 
Pittenger, more than a year ago began a thoughtful examination 
of the process by which the Government screens inbound 
investment to ensure it presents no threat to national 
security. The interagency Committee on Foreign Investment in 
the United States, or CFIUS, last was updated in 2007.
    Since then, a number of deals have been broken up when 
CFIUS detected threats that could not be mitigated by changes 
in the proposals. Significantly, each denied proposal was 
rejected because of fears it would result in Chinese control of 
technology or a business that would have threatened national 
security.
    Not all deals from China are bad, and not all bad deals are 
from China. But the dramatic increase in the number, size, and 
complexity of deals CFIUS scanned last year, combined with the 
notable rise in the percentage of deals that have Chinese ties, 
is a clear indicator that we should examine ways to modernize 
the CFIUS process as we had into the third decade of the 21st 
century.
    So today, after three hearings on CFIUS's operations and 
challenges, we start examining legislation introduced in 
November, H.R. 4311, the Foreign Investment Risk Review 
Modernization Act, or FIRRMA as it is commonly known. The 
Administration supports the legislation, has worked since its 
introduction to develop updated language in response to 
constructive feedback and suggestions from interested parties.
    Additionally, the authors of FIRRMA have done the same, and 
the committee is currently reviewing several proposals to 
enhance the legislation further. As we proceed down this road 
of much needed CFIUS modernization, my goal is that we continue 
to work in a bipartisan and bicameral manner through the 
regular order process, because we all know that CFIUS reform is 
critical to our national security and we need to make sure we 
get it right.
    We must work quickly, but we must not hastily rush 
something of this magnitude that could lead to unintended 
consequences that jeopardize our national security and shackle 
our economy. We need reforms to effectively target and focus on 
real threats, rather than all joint ventures and investments. 
We cannot inadvertently ensnare purely benign investments which 
do not involve critical or emerging technologies and which are 
wholly disconnected from U.S. national security concerns.
    Together, we must stop troublesome investments by Chinese 
state-controlled enterprises, bent on securing technology that 
would threaten our national security, while also being careful 
not to drive away unobjectionable deals that create jobs and 
opportunities for Americans of all walks of life.
    I am confident that together we can improve our national 
security without harming our economy, but it will require hard 
work, patience, and undoubtedly some give-and-take to come up 
with the right solution.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck, for 3-1/2 minutes for an opening statement.
    Mr. Heck. Thank you very much, Mr. Chairman, and for 
convening this hearing.
    In the 10 years since Congress last authorized CFIUS, our 
strategic competitors have found gaps in the CFIUS process 
which they are exploiting. Right now, if foreign intelligence 
agencies want to buy land to help spy on our most sensitive 
national security installation, and there is no existing 
business on the site, CFIUS can't stop them.
    Right now, investments that could give our strategic 
competitors influence and insight into critical technology 
companies go unreviewed because they fall just short of control 
of the company. Right now, if a strategic competitor seizes 
control of a U.S. business through a change in the legal rights 
associated with an existing investment, CFIUS can't stop them.
    Right now, our strategic competitors can structure 
transactions to take advantage of a loophole between CFIUS's 
existing authority over joint ventures involving a whole U.S. 
business and the export control system's authority over 
individual pieces of technology and know-how. All of this needs 
to stop right now if we want to avoid a catastrophic amount of 
damage to our technological edge in our military readiness.
    That is why I was pleased to join with Congressman 
Pittenger and Senator Feinstein and Senator Cornyn. 
Fundamentally FIRRMA is about closing each of these specific 
gaps I just spoke about, while making sure that the U.S. 
remains welcoming to investments that do not harm our national 
security.
    Throughout this process, Congressman Pittenger and I and 
our Senate counterparts have been working closely with 
stakeholders and the CFIUS agencies to refine and perfect the 
bill. I ask unanimous consent, Mr. Chairman, to enter the 
latest working draft of FIRRMA into the record.
    Chairman Barr. Without objection.
    Mr. Heck. While our witnesses are testifying on the bill as 
introduced, I would urge my colleagues to see how we have 
addressed many of the issues that have been raised in our 
revised text. I think my staff and I have already met with all 
but one of our witnesses who are here today as a part of that 
process.
    Mr. Marchick, our door is open if you would also like to 
come in. Your input has played an important role in this 
process, notwithstanding the lack of physical presence thus 
far.
    I am glad we are working on this issue in a bipartisan way. 
I echo the remarks of the Chair, and I extend to him once again 
my gratitude for the manner in which we have undertaken this 
task, this very important task. I am, for my own part, happy to 
work with anyone who is willing to come to the table in good 
faith, because at the end of the day, my colleagues, this 
issue, our national security, is too important for anything 
less.
    Thank you, and I yield back.
    Chairman Barr. The gentleman yields back. The Chair now 
recognizes the author of FIRRMA, the gentleman from North 
Carolina, Congressman Pittenger, for a 2-minute opening 
statement.
    Mr. Pittenger. Thank you, Mr. Chairman. Thank you for 
hosting this very important hearing.
    Before I begin my prepared remarks, I would like to thank 
my good friend, Mr. Heck, for his leadership with me on this 
bill. He has been a remarkable partner. Also, thank you for 
submitting to the record the most current version of the bill, 
3.0, which has the collective input of many of you. I know, Mr. 
Kallmer, we have worked with you significantly on that input 
for the last several months and many other people in the 
industry.
    I would also like to say that our office has worked with 
Senator Cornyn and the Treasury Department, along with the 
various members of the industry to make sure that we provide a 
bill that is responsive, that gets the job done, but also makes 
sure that we have open markets. These updates streamline the 
bill as we have responded to the concerns raised by the 
industry. It makes it even more laser-focused on national 
security.
    While I would have hoped that we would hear a more clear 
presentation today, as I understand that perhaps these edits 
are not included in the testimony, I am happy that we can share 
this product of our work into the record. Mr. Chairman, I do 
thank you for offering unanimous consent to enter into the 
record the update of FIRRMA.
    Mr. Chairman, CFIUS reform is an urgent national security 
requirement. President Trump has endorsed this bill. Secretary 
Mattis requested the bill and endorsed it. Secretary Mnuchin 
and his team have worked closely and tirelessly on this bill 
and have also endorsed it.
    FIRRMA is specifically targeted to address national 
security issues related to defense applicable technology 
transfers to China and other countries, issues that remain 
unresolved and outside the scope of existing export control. 
Those who disagree with the premise of my bill should speak to 
the five Department of Defense secretaries who have endorsed 
this bill. Unfortunately, many who profit from modernizing the 
Chinese military seek--some do to distort the narrative and 
defeat this bill.
    Today, we have many witnesses who will make presentations 
who notwithstanding represent interests from China, Lenovo, and 
other major entities. General Dunford has said that China will 
be the greatest threat to the U.S. by 2025. Yet some companies 
insist on accelerating that timeline and defeating FIRRMA.
    Mr. Chairman, national security experts have spoken. FIRRMA 
is needed, and I look forward to working with my colleagues to 
get it passed in its current form. I yield back.
    Chairman Barr. The gentleman yields back. The Chair now 
recognizes the gentleman from California, Mr. Sherman, for a 3-
1/2 minute opening statement.
    Mr. Sherman. This is an important bill. I think it needs to 
be stronger. I am working with the authors on three ideas that 
so far are not included, but we continue to try to persuade 
them.
    The first I think will eventually be included. It is a no-
brainer. It should be explicit that only under truly 
extraordinary circumstances would we entertain an application 
from a company based in any country that is a state sponsor of 
terrorism. We may want to go further and say we don't want to 
entertain an application from any company that does business in 
or with any state sponsor of terrorism. National security 
starts with clamping down on state sponsors of terrorism.
    Second, as to critical technologies, the issue is often 
that an investment is made when a company does not have 
critical technologies or hasn't proven it or we don't 
understand how important it is. Those transactions need to be 
subject to post-transaction review when a country of special 
concern is at issue. Otherwise, we can be in a circumstance 
where our technological crown jewels find their way to Beijing 
simply because we didn't realize the importance of the 
technology at the time of the transaction or the company didn't 
have the technology at the time of the transaction. It had the 
elements of the technology and the scientists that would create 
the technology.
    Third, we should consider jobs in every decision we make in 
Washington, and that includes foreign investment. Every other 
country I am aware of does just that.
    Fourth, is an idea I have not shared with the authors yet, 
and that is the critical technologies concept needs also to be 
applied to soft power. Our media, the minds of Americans are 
just as important as the technology. I, for example, am worried 
that the Chinese control a big chunk of the movie screens in 
the United States, AMC in particular.
    What that means is that if you make a movie that Beijing 
doesn't like, not only can't you get it shown in China, you 
can't get it shown in the United States. At very minimum, 
before AMC was purchased, there should been a provision where 
the owners agree not to discriminate against a movie simply 
because its content is disagreed with by the government of 
China and a requirement that if when there is a movie made that 
the Chinese government doesn't like and other movie 
distributors and screens and theater owners are showing it, 
that it should be available at AMC theaters.
    Again, to give China control of the minds of Americans by 
controlling the media of the United States was a mistake that 
we can reverse, perhaps in this bill.
    So I look forward to working with the authors to make this 
bill stronger, and now is not the time to put profits ahead of 
national security. I yield back.
    Chairman Barr. Gentleman yields back. The Chair now 
recognizes the Chairman of the House Foreign Affairs Committee 
and a member of this committee, the gentleman from California, 
Congressman Royce, for 2 minutes for an opening statement.
    Mr. Royce. Thank you. Our long-term national security and 
economic interests, Mr. Chairman, are directly tied to how we 
protect emerging critical technologies. My view remains that 
the U.S. should pursue a whole-of-government strategy that does 
not rely exclusively on CFIUS or exclusively on export 
controls, but builds strength on strength, reforming both 
complementary approaches which together represents a 
comprehensive response to a very critical national security 
challenge that we are facing right now.
    One specific issue that I want to raise is the fact that 
export controls not only restrict the transfer of products, but 
also of know-how. We should all think long and hard on this. 
This is current law. Both defense trade controls managed by the 
State Department and dual-use export controls at Commerce, 
control the transfer of intangible ideas to foreign persons.
    But this is an area where we should strengthen the law. I 
agree with my good friend from North Carolina, Mr. Pittenger, 
that greater scrutiny is required with respect to the transfer 
of know-how, legally or otherwise, to strategic economic 
competitors, such as Beijing, and that is why the Foreign 
Affairs Committee export control reform bill, which we consider 
next week in a markup, explicitly ensures that sensitive know-
how, which may include such items as written or oral 
communication, blueprints, engineering designs and 
specifications, at any stage of their development prior to 
production, would be subject to controls.
    Likewise that is why our bill will also make clear that 
export controls apply regardless of the nature of the 
underlying transaction--we need to think on this--whether 
through a purchase order or other contract requirement, 
voluntary decision, whether such a purchase order or other 
contract or inter-company agreement or during a joint venture 
or a similar collaborative arrangement exists, all that has to 
be controlled, and we owe it to the American people to get it 
right.
    I am hopeful that we can take the best of both committees' 
work and move forward with a comprehensive, whole-of-government 
strategy that will counter China's efforts and other 
adversarial efforts to acquire sensitive U.S. technologies. I 
yield back. Thank you, Chair.
    Chairman Barr. Thank you. The gentleman yields back.
    Today we welcome the testimony of the Honorable Clay 
Lowery, Managing Director at Rock Creek Global Advisors, where 
he focuses on international financial regulation, sovereign 
debt, macroeconomic policies, exchange rates, and investment 
policy. Mr. Lowery served as the Assistant Secretary for 
International Affairs at the U.S. Treasury Department from 2005 
to 2009, where he chaired CFIUS and was instrumental in the 
2007 CFIUS reform effort.
    Jonathan Kallmer, Senior Vice President of Global Policy 
for the Information Technology Industry Council. Before joining 
ITI in February 2015, Jonathan was Counsel in the International 
Trade and International Dispute Resolution Groups of Crowell & 
Morings, where he helped companies overcome regulatory and 
market access barriers in foreign markets. From 2007 to 2012, 
Jonathan served as Deputy Assistant U.S. Trade Representative 
for Investment, where he was responsible for developing and 
implementing U.S. international investment policy and 
negotiating with foreign governments to secure greater market 
access and better treatment for U.S. companies abroad.
    David Marchick is Managing Director and Global Head of 
External Affairs at the Carlyle Group. Prior to joining 
Carlyle, Mr. Marchick was a Partner and Vice Chair of the 
International Practice Group at Covington & Burling. In the 
Clinton Administration, Mr. Marchick served at the White House, 
USTR as Deputy Assistant Secretary for Trade Policy and 
Transportation Affairs at the Department of State, and 
Principal Deputy Assistant for Trade Development at the 
Department of Commerce, where he worked extensively on CFIUS 
matters.
    Michael Brown is a Presidential Innovation Fellow for the 
Defense Innovation Unit Experimental. Through August 2016, 
Michael was the CEO of Symantec Corporation. During his tenure 
as CEO, which was from 2014 to 2016, he led a turnaround as the 
company developed a new strategy focused on its security 
business. Michael is the former Chairman and CEO of Quantum 
Corporation, which specialized in computer backup and archiving 
products. Michael also has served as the Chairman of EqualLogic 
and Line 6, and has served on the public boards of Nektar 
Therapeutics, Maxtor Corporation, and Digital Impact.
    Ms. Giovanna Cinelli is a Partner at Morgan Lewis & 
Bockius, where she is a leader on international trade, national 
security, and economic sanctions. As a practitioner for more 
than 25 years, she counsels clients in the defense and high 
technology sectors on a broad range of issues affecting 
national security, CFIUS, and export controls, including 
complex export compliance matters, audits, cross border due 
diligence, and export enforcement.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. Without objection, each of 
your written statements will be made part of the record. The 
Honorable Clay Lowery will begin, and you are now recognized 
for 5 minutes.

                STATEMENT OF THE HON. CLAY LOWERY

    Mr. Lowery. Chairman Barr, members of the committee, I want 
to thank you for the opportunity to testify on FIRRMA. In my 
written testimony and today, I will discuss my general support 
for FIRRMA while pointing out what I consider to be several key 
shortcomings in the current bill, particularly from the 
perspective of someone who had to implement major reform of 
CFIUS in the past.
    Before I discuss these issues, however, I wanted to say a 
few words about the rationale behind this bill, which is 
highlighted by a number of the statements we have just heard, 
as well as by Michael Brown's report that he did for the DIUX, 
and that is the growing threat posed by China.
    China's strategy incorporates such government efforts to 
fuse the military and civilian sectors, subsidize industries 
and individual companies, support cyber espionage, and use 
restrictions on foreign investment and licensing to coerce 
technology transfers, and probably much more. The United States 
must address this issue and growing challenge in a 
comprehensive manner that goes well beyond the scope of this 
hearing. The FIRRMA bill is one important step, and I think 
this bill gets a number of things right, which I have detailed 
in my written testimony. However, I worry that portions of this 
bill use vague language, duplicate existing export control 
authority, and will be overly burdensome for both the private 
sector and government.
    In my previous testimonies or speeches on CFIUS in the 
past, I have always begun with a litany of statistics about the 
importance of foreign direct investment (FDI) to economic 
growth. I am not doing that today, and that is because FIRRMA 
is only partially about foreign investment in the United 
States.
    Instead, there is a substantial part of the bill that 
transforms CFIUS into a technology control regime in which 
there isn't a merger, there isn't an acquisition, there isn't a 
foreign direct investment in the United States. My concerns 
stem from my experience in implementing the last CFIUS 
modernization legislation in 2007, and FIRRMA's language leaves 
too many terms to be defined and interpreted, such that there 
is a distinct possibility of unintended changes or unforeseen 
consequences.
    This committee is all too familiar with what that can mean. 
Let me give you an example. The Volcker rule, which may be a 
sound idea, but has led to an overly complex rule that is 
vague, burdensome, and essentially a regulatory nightmare for 
both the regulators and for the financial institutions they 
regulate. As members of this committee, I presume that you have 
heard from your constituents about these consequences.
    I see a similar lesson being learned about FIRRMA. Similar 
transactions create anomalous results, and we should worry 
about creating a guessing game for U.S. companies that require 
hours of legal analysis of complex transactions and structures 
when their non-U.S. competitors are not burdened with anything 
even remotely similar.
    The FIRRMA bill has left many terms to be undefined or ill-
defined. For instance, what is the sector of critical 
technologies, emerging technologies we should worry about? What 
are the subsectors? Do we need a list?
    This leads to my second concern with FIRRMA, which is it 
duplicates our export control regime. This bill seems to 
suggest that CFIUS, a group of roughly 100 people who don't 
have subject matter expertise, will be able to identify 
emerging technologies better than the roughly 500 people we 
have at Defense, Commerce, and State that are already working 
on these export control issues every day.
    Which leads to my final concern I would like to highlight, 
which is the burden. Today, CFIUS reviews approximately 200 
transactions a year. Over the preceding few months, I don't 
think there has been a single government witness, CFIUS 
practitioner, or CFIUS expert who has testified before this 
committee or the Senate Banking Committee who has not said that 
significantly more resources are needed for CFIUS.
    With FIRRMA, however, the number of transactions under 
review will go from 200 a year to several thousand. If this 
expansion is truly necessary for our national security and cost 
is the only issue, as Congressman Sherman mentioned, then by 
all means, let's find a way to pay for it. But this expansion 
is not driven by national security. Instead, it is the needless 
result of a bill that is too vague and too duplicative, 
rendering it practically impossible for CFIUS to accomplish the 
work it has been tasked to do and that is so vital to our 
economic and national security.
    To conclude, let me reiterate that I am broadly supportive 
of the CFIUS modernization effort, but I think more work is 
needed to ensure that the outcome does not have the unintended 
consequences of chilling investment in the United States and 
harming our competitiveness around the world, both of which are 
important to our economic strength, the backbone of President 
Trump's national security strategy.
    In addition, adding the implementation risk, I have tried 
to identify in my written testimony, could destabilize the 
excellent and so far targeted work that CFIUS currently 
performs. In other words, I would humbly suggest that without 
fixing this bill we could harm our national security, not 
enhance it. Thank you.
    [The prepared statement of Mr. Lowery can be found on page 
68 of the appendix.]
    Chairman Barr. Thank you. Mr. Kallmer, you are recognized 
now for 5 minutes.

                  STATEMENT OF JONATHAN KALLMER

    Mr. Kallmer. Thank you. Chairman Barr, members of the 
subcommittee, thank you for inviting me to discuss this 
critically important piece of legislation. My name is Josh 
Kallmer, and I am Senior Vice President for Global Policy at 
the Information Technology Industry Council, or ITI.
    ITI is a collection of 63 of the world's most innovative 
companies, representing every part of the technology sector. 
Our companies do business across borders on a daily basis and 
therefore have a keen interest in this legislation.
    Chairman Barr. Sir, can you pull the microphone a little 
closer to you? Thank you.
    Mr. Kallmer. Is that better? I also have a personal 
perspective on this bill. As you mentioned, several years ago, 
I served as deputy assistant U.S. trade representative for 
investment and represented USTR on CFIUS. In that role, I was 
involved in the review of hundreds of transactions, regularly 
participated in political-level meetings regarding sensitive 
deals, and helped draft regulations during the last 
modernization of CFIUS a decade ago.
    Before discussing the bill, let me first say how much we 
have appreciated the open and constructive spirit in which you 
and your colleagues, as well as your staffs, have worked during 
this process. I would particularly like to recognize 
Representatives Pittenger and Heck for your leadership, as well 
as that of Senators Cornyn and Feinstein.
    While this hearing focuses on the bill as introduced, I 
would be happy also to discuss the additional ideas that we and 
others have offered to improve the bill.
    I can reduce our position on the bill, as introduced, to 
three main points. The first is that the national security 
concerns are real, and FIRRMA is a critical part of the 
solution. The United States has benefited greatly from its 
longstanding openness to foreign investment, yet the U.S. 
Government has no more solemn and important responsibility than 
to protect the Nation's security. So we have to pursue our 
commitment to open investment consistent with that imperative.
    Our organization and every single one of our companies 
agree with the national security objectives of this bill. We 
also agree that the bill's advocates have identified a 
compelling set of emerging national security risks that the 
U.S. Government must immediately address. FIRRMA would do that 
in many important ways, including by enabling CFIUS to review 
certain real estate transactions near military facilities, 
expanding the list of national security factors that CFIUS can 
consider, improving compliance with mitigation agreements, and 
ensuring that CFIUS is fully resourced.
    My second point is that there are nevertheless important 
differences of view about how to deal with emerging critical 
technologies. I think we all share the goal of strengthening 
national security. But we have some healthy disagreements about 
how best to do so, and we offer our views in a spirit of open 
and respectful debate.
    Our main misgiving with the bill as introduced, relates to 
the proposed expansion of CFIUS jurisdiction to cover outbound 
transfers of U.S. intellectual property (IP). As we read it, 
the language would capture the constant motion of companies' 
everyday business, putting them in a position of perpetual 
uncertainty over whether they are obliged to file with CFIUS 
simply to go about their daily work. This uncertainty would not 
only impact companies; it would overwhelm CFIUS with cases, 
chill the U.S. business environment, and potentially deplete 
our industrial base.
    The core problem is that the risks we are talking about 
have to do with technology, not transactions. It is true that 
unfriendly countries could use certain technologies to harm 
U.S. national security, but that is the case regardless of 
business arrangement. If the disclosure of technologies would 
raise national security concerns, we need to address those 
concerns, full stop.
    I will say that on this point in particular, the bill's 
advocates in both Congress and the Administration have 
responded meaningfully and in good faith to our proposed 
improvements. While important distance remains, we are grateful 
for their responsiveness and we feel good about the trajectory 
of the discussion.
    My final point is that we already have the legal tools we 
need, but we have to reinforce them with additional commitment, 
creativity, and resources. We believe that U.S. export control 
laws already address virtually all, if not all of the national 
security risks associated with emerging critical technologies. 
We also recognize that it doesn't matter if export controls can 
address the risks legally if they can't do so practically.
    So our shared objective, in our view, ought to be to 
bolster our export control system, politically, 
institutionally, and financially, to ensure that it can meet 
the challenges we now face.
    We think about the challenge here as one of creating 
connective tissue between FIRRMA and the export control system, 
so that our export control laws can aggressively and 
proactively address risks coming over the horizon. I have 
discussed two possible ideas for doing this in my written 
testimony, and I would be pleased to discuss them further here. 
What matters from our perspective is that the export control 
authorities do the heavy lifting to identify, describe and list 
critical emerging technologies of concern, while ensuring that 
CFIUS has visibility into the process and the opportunity to 
weigh in, as well.
    I will conclude my remarks there, but let me thank you 
again for having me and reiterate our commitment both to the 
success of FIRRMA and to working constructively with this 
subcommittee and the Congress as a whole to achieve it. I would 
be happy to answer any of your questions.
    [The prepared statement of Mr. Kallmer can be found on page 
56 of the appendix.]
    Chairman Barr. Thank you, Mr. Kallmer. Mr. Marchick, you 
are recognized for 5 minutes.

                   STATEMENT OF DAVID MARCHICK

    Mr. Marchick. Thank you, Mr. Chairman, members of the 
committee. I also want to thank you, Congressman Pittenger, for 
your good work on this and that of your staff, Congressman 
Heck, as well. Thank you very much.
    I was here in 2006 testifying before this committee on the 
previous update. I had a little more hair and a smaller 
waistline at that point, but otherwise the issues are pretty 
much the same.
    So I am going to talk about four principles which I hope 
you will consider. I haven't read version 3.0, but I do 
understand that some of these issues were addressed, and I 
thank you for that.
    First point is that CFIUS absolutely needs the tools to 
block or mitigate investments that have a national security 
impact. To my knowledge, CFIUS has already been using that 
authority to great effect. The number of transactions that have 
been effectively blocked in the last few years has increased 
significantly. In 2016, there were 27 deals blocked which is a 
record. I would also understand then that in 2017, according to 
the Rhodium Group, that more than $8 billion of investments 
from China were blocked, also a record.
    So I am not familiar with the specifics of these cases that 
were blocked, but I would just point out that CFIUS is a very 
powerful tool and they have not been shy in using it.
    Second is that CFIUS should be tailored to scrutinize those 
transactions that raise national security risks, but allow all 
the rest of the deals that don't raise concerns to go through 
quickly. I think this is an issue that many members of the 
committee would agree with in terms of efficiency in government 
and the efficiency in approval processes.
    I have frequently analogized CFIUS to triage in the 
emergency room. In an emergency room, where you are overwhelmed 
with patients, a good emergency room will focus intensively on 
those patients that need the most help, but get the kids out 
that have a nick or a cut quickly. CFIUS should do the same, 
and your legislation should allow and direct CFIUS to do this.
    In other words, focus on those transactions that matter. In 
the M&A world, time is money. The uncertainty associated with 
lengthy regulatory reviews reduces investment. Hopefully your 
legislation will enable CFIUS to focus on those transactions 
that matter and push the others through quickly.
    Third, casting too wide a net will actually hurt national 
security rather than help, because the system will be 
overwhelmed. When I testified in 2006 before this committee, I 
noted that CFIUS at that point was then overwhelmed with cases 
and then non-controversial transactions, ones from the U.K., 
Canada, other allies, were being slowed down. In that year, 
they reviewed 113, and seven went to a second phase 
investigation, only seven. Last year, CFIUS reviewed 240 and 
more than 70 percent went to a second phase. More than half of 
the transactions were from countries that were NATO allies, the 
U.K., Canada, and others.
    So the question is, how can you design legislation that 
encourages CFIUS to focus on the cases that matter but allow 
the others to go quickly through?
    Finally, I would encourage the committee to look at the 
passive investment provisions that are crafted. Passive 
investment is just that: It is passive. So when you and I 
invest in a 401(k) or you invest in TSP, or an investor invests 
with a private equity venture capital real estate firm, they 
are entrusting money to the managers, and those managers can 
invest, manage, operate, hire, fire, sell how they want. The 
investors don't tell them what to do.
    As long as those investors are truly passive, then CFIUS 
should not subject those transactions to its jurisdiction. I 
think that the language is a little broad. I understand that in 
the next version you have addressed some of these issues, and I 
am grateful for that.
    I will stop there. Those are the four points I would like 
to offer. I am grateful for the opportunity to be here.
    [The prepared statement of Mr. Marchick can be found on 
page 74 of the appendix.]
    Chairman Barr. Thank you. Mr. Brown, you are now recognized 
for 5 minutes.

                   STATEMENT OF MICHAEL BROWN

    Mr. Brown. Thank you, Chairman Barr, and members of the 
committee. I am pleased to be with you to share findings of 
work I have led in understanding the role that Chinese 
investment has in a systematic plan to transfer technology. 
Because of this work, I am a strong supporter of FIRRMA.
    I came to this work as a former CEO of two large Silicon 
Valley companies, Quantum and Symantec, but in my career, I 
have also worked as an investor, board member, and chairman of 
several early stage companies, both in Silicon Valley and in 
the Boston area. I am here today in my personal capacity as a 
Presidential Innovation Fellow and not as a spokesperson for 
the Defense Department.
    In the fall of 2016 at the request of then-Defense 
Secretary Carter and Vice Chairman of the Joint Chiefs General 
Selva, I began researching along with Pavneet Singh whether and 
how China is transferring technology through investments in 
early stage firms. In summary, what we learned was that China's 
participation in venture deal financing was at a record level 
of 16 percent of all venture deals financed in 2015 and 
remained at 11 percent in the first 10 months of 2017. This is 
concerning for several reasons.
    First, the growth of these investments is up substantially 
from a level of 1 percent to 6 percent in the period of 2010 to 
2014. We identified more than 500 Chinese-based or affiliated 
entities investing in U.S. early stage companies.
    Second, the technologies where Chinese firms are investing 
are the same dual-use technologies where U.S. venture firms are 
investing, those that will be foundational to future 
innovations, such as AI, autonomous vehicles, augmented 
reality, block chain, and genetic engineering.
    Third, since venture capital investing depends on deal 
flow, investors see many more deals than they invest in. As a 
result, it is likely that Chinese investors in aggregate have 
seen upwards of half of recent U.S. venture financings. In 
other words, Chinese investors have a broad view of U.S. 
innovation across a range of technologies.
    Fourth, by investing in early stage companies, Chinese 
investors are learning about these technologies at the same 
time and at the same rate that we do, which precludes any time-
based advantage for the U.S. Historically, the U.S. military 
has had exclusive use of critical technology for some period, 
which could be called overmatch. However, we are not likely to 
have overmatch in the future if China learns about leading-edge 
technology from U.S. startups at the same time we do.
    Fifth, without FIRRMA, there is no monitoring, reporting, 
or control of China's investments in technologies important for 
national security. Last, the Defense Department, In-Q-Tel, or 
other parts of the U.S. Government will tend to avoid contact 
with an early stage technology company that has a significant 
level of foreign ownership, even if the company is developing 
critical technology.
    To mitigate technology transfer from the U.S., there are 
two primary tools the Government has, CFIUS and export 
controls. FIRRMA makes CFIUS more effective by expanding its 
jurisdiction to cover more transaction types that could include 
technology transfer. As I see it, the goal of FIRRMA is not to 
ensure that more venture capital investments undergo CFIUS 
review, but to ensure that foreign investments are truly 
passive.
    Some have argued in Congressional testimony that export 
controls are sufficient without FIRRMA to deter technology 
transfer. There are five reasons why I do not believe export 
controls are a substitute for CFIUS reform. First, export 
controls have typically been used for products, not critical 
emerging technologies. In fact, I am not aware of any critical 
emerging technologies such as AI, quantum computing, or 
genomics-based engineering which are on the export control 
list.
    Second, because export controls typically focus on 
products, in general they would be more backward looking.
    Third, export controls require coordination with allies to 
be effective, and this typically takes 2 to 3 years through the 
Wassenaar arrangement.
    Fourth, export controls are ineffective in deterring tech 
transfer that occurs when China forces companies to form joint 
ventures in exchange for Chinese market access.
    And, fifth, enforcement is voluntary. I am skeptical that a 
Silicon Valley early stage company is aware of the need for or 
is dedicating the resources to comply.
    Let me conclude with two important points. First, 
cooperation of allies. Any steps we take to deter tech transfer 
which include both CFIUS reform and changes to export controls 
needs to be coordinated with allies to be effective. Otherwise, 
we create an incentive for talent and companies to move 
offshore.
    Second, investment in science and technology. While 
defensive measures like CFIUS reform, better export controls 
are important, they are not the key to winning a technology 
race with China. The more concerned we are about the national 
security threat China represents, the more important it is to 
invest in science and technology, encourage Americans to pursue 
STEM education, and increase federally funded R&D.
    To enable the U.S. to win the last technology race with the 
Soviet Union, federally funded R&D was 2 percent of GDP in the 
1960's. While China increasingly invests a higher percentage of 
its GDP in R&D, and its economy grows faster than ours, U.S. 
federally funded R&D has declined today to 0.7 percent of GDP. 
We must be proactive to improve our technology base and 
innovation capability, because our future economic prosperity 
will be the principal determinant of our national security.
    Thank you.
    [The prepared statement of Mr. Brown can be found on page 
42 of the appendix.]
    Chairman Barr. Thank you. Ms. Cinelli, you are now 
recognized.

                  STATEMENT OF GIOVANNA CINELLI

    Ms. Cinelli. Thank you, Mr. Chairman, distinguished members 
of the subcommittee. I appreciate the invitation to appear 
before you today, and I am honored to join my fellow panel 
members as the subcommittee continues to evaluate the changes 
needed for CFIUS. Your leadership and that of Congressman 
Pittenger and Congressman Heck, as well as the bipartisan co-
sponsors of FIRRMA, demonstrates the foresight needed to manage 
the challenges we face today and the ones we will face in the 
future.
    I appear today in my personal capacity--this is my 
disclaimer, I apologize here--not on behalf of my firm or on 
any client. The views presented in my written testimony and 
before you are solely my own. Again, I am grateful for the 
opportunity to share some observations and to respond to any 
questions you have.
    As part of my background, I had the privilege of serving in 
the United States Navy as a special duty intelligence officer 
for a number of years. I had the opportunity to see the overlay 
between the legal issues that arise, as well as those that 
appear when you are boots on the ground in various situations. 
That particular perspective coupled with my legal career helps 
me believe that FIRRMA is essential to what this country needs.
    In that light, I would like to focus my comments beyond 
what I have put in my written testimony to two key areas: 
First, the manner in which technology transfers occur in the 
cross-border environment and, second, certain gaps in CFIUS's 
underlying authorities that affect the committee's flexibility 
to consider cross-border transactions as they shift and change. 
This is regardless of the construct that we see.
    At the outset, it is important to recognize that since 1975 
the statute has been amended reactively and generally to 
address a direct or perceived threat. In at least two of the 
three amendments, both 1988 and 2007, Congress responded to 
what it believed to be critical situations--one, related 
threats affecting U.S. semiconductor leadership and the other 
involving gaps in the types of the transactions the committee 
could review and how.
    We find ourselves in similar circumstances today. The 
United States is at an inflection point. Technology leadership, 
the cornerstone of our U.S. economy, innovation, and security, 
is under siege. Many have focused the threat posed by China's 
assertive policies that are designed to close the gap or 
overtake U.S. leadership in a number of technology fields. But 
China is not alone in pursuing these objectives, although it is 
more organized and utilizes among the broadest set of tools to 
achieve these objectives, including acquisitions or investments 
in technology assets.
    Now, several factors contribute to the crisis, which I 
believe calls for Congressional action. First, we face a 
diffusion in access to technology that continues to evolve and 
expand, and that is unlikely to change.
    Second, the concept of dual-use, or as China refers to it, 
civil military fusion, may be rapidly losing its relevance and 
viability. The application of a specific technology may be just 
as critical as the performance characteristics and therefore, 
as you examine, for example, as my co-panel members have 
discussed, the export laws may be important to look at exactly 
how those controls are utilized and how they affect CFIUS 
reviews.
    So, for example, the same technology used to manage data 
for tailoring product offerings to customers may also be used 
to identify trends that reflect terrorist activity. How that 
technology is discovered, managed, and accounted for remains a 
critical concern.
    Last, extensive cross-border investment occurs each year, 
much of it outside the purview of CFIUS and other regulatory 
environments. By some calculations, parties participate in 
20,000 to 40,000 cross-border activities a year that result in 
some form of technology transfer. CFIUS receives and analyzes 
under these statistics a statistically insignificant number, 
leaving the majority of cross-border technology transfer 
activity potentially unreviewed. This lack of visibility 
affects Government decisionmaking.
    FIRRMA elegantly balances the twin goals of encouraging an 
open investment policy and protecting national security. Yes, 
it calls for foundational changes because, yes, we have 
foundational, almost cataclysmic threats and vulnerabilities. 
The legislation expands CFIUS authorities in a measured way and 
acknowledges the importance of managing a strong industrial 
base, employment base, and scientific leadership, as the United 
States ensures that it has access to that which is essential to 
protecting its national interests.
    The proposed expansion of CFIUS's jurisdiction is a direct 
result of the threats and vulnerabilities that we face, not an 
attempt to create an overburdened regulatory environment.
    I think it is also important to identify and recognize what 
FIRRMA does not do. FIRRMA does not limit the ability of the 
parties to independently assess whether a filing would benefit 
their transaction, nor does it preclude any specific 
transaction or establish any blanket presumptions of denials. 
It does not actually itemize the technologies of concerns, but 
it does establish a framework through which such technological 
can be identified, especially in circumstances where in the 
past to do so has been inadequate.
    With that, thank you.
    [The prepared statement of Ms. Cinelli can be found on page 
48 of the appendix.]
    Chairman Barr. Thank you very much. Before we proceed to 
questions, the Chair wishes to ask unanimous consent to enter 
into the record a letter sent to the committee by the National 
Venture Capital Association, which lays out its recommendations 
to improve FIRRMA. The NVCA is concerned, among other things, 
with the impact of the bill's passive investment language, 
writing, quote, ``unfortunately, the passive investment 
exemption is narrowly drafted and will cause harmless 
investment into U.S. companies to be picked up by FIRRMA, thus 
causing delay for the company raising capital, needless cost 
and burden to the investor, and distraction for CFIUS from the 
true security concerns,'' unquote. Without objection, this 
letter will be made part of the record.
    Chairman Barr. The Chair now recognizes himself for 5 
minutes for questioning. I will start with you, Mr. Lowery. In 
your testimony, you expressed concern that FIRRMA could perhaps 
unwittingly repeat the regulatory nightmare that is the Volcker 
rule. Why do you believe that this comparison is warranted?
    Mr. Lowery. Well, my main rationale is for a couple 
reasons. One, there is a lot of language that is going to have 
to be defined in a rulemaking process. That rulemaking process 
is going to be difficult. I went through this back in 2007-2008 
when we went through CFIUS. It took us about a year-and-a-half 
to do that. It is going to take a lot longer to put these rules 
in place and to define these terms.
    It actually leads toward anomalous results. In my 
testimony, I actually pointed out an example where if an 
American company was working in a foreign country and they 
basically transferred their technology and associated support 
to that country, that would not necessarily go through CFIUS. 
However, if that same American company was doing the exact same 
deal and doing the exact same technology and associated 
support, but it was in a joint venture where the American 
company actually had some percentage of the deal, that would go 
through CFIUS.
    Now, just metastasize that, and you are going to have an 
understanding of how difficult this is going to become. I just 
heard Giovanna say there are 20,000 to 40,000 transactions that 
are going on with technology cross-border all the time. How 
many of those are going to be captured under this bill? How 
many are the ones that shouldn't be captured because the 
corporate structure happens to be a different corporate 
structure? To me, at least, that is going to lead toward 
complications that you see in the Volcker rule.
    Chairman Barr. Mr. Marchick, as currently drafted, I think 
you testified that the FIRRMA bill could cast too wide of a net 
that would overwhelm CFIUS. How would that perhaps compromise 
national security?
    Mr. Marchick. Well, thank you very much for the question. I 
think as Clay said, the issue is, how can you design a strategy 
legislation that allows CFIUS to focus on the transactions that 
matter? I will give you the commercial real estate example. The 
bill--and I think Congressman Pittenger has addressed this in 
the latest draft. In the commercial real estate sector, there 
are about 2,000 foreign investments in commercial real estate a 
year. Those transactions alone, if they were filed, would 
increase the number of reviews tenfold.
    Therefore, it would overwhelm the system. Most of those 
transactions are not going to be sensitive at all. It would 
force CFIUS to focus on non-sensitive transactions, instead of 
taking the most powerful microscope and focusing on the 
transactions that truly threaten national security.
    Chairman Barr. Let me ask anyone--and, Mr. Brown, I would 
love to invite you to chime in on this, too--there has been an 
expression of concern from some of your fellow panelists here 
that there could be some unnecessary duplication or conflict 
between the export control system and CFIUS. You addressed that 
a little bit about why you think export control alone doesn't 
do the job.
    Are you concerned about potential unnecessary duplication 
or conflict? How do we need to structure this bill to make sure 
that there is coordination between CFIUS and the export control 
system?
    Mr. Brown. Yes, thank you. I think that they are both two 
sides of the same coin and they both need to be looked at 
together. So to the point earlier, I think Clay might have said 
it, that we need a comprehensive look at this problem. I think 
that is exactly right.
    It is not only, what do we do on the defense side, which we 
talked about, CFIUS and export controls, but what are we doing 
proactively, because we are in a technology. But to your 
specific question, I don't think either one of these is a 
substitute for another, and I think some people are trying to 
say export controls can do the job alone. We already see that 
is not working.
    So I would say, yes, we need to look at both, reform both. 
Let's go with FIRRMA, because that is right in front of us. 
Then let's look at export controls. The most important thing 
that needs to be coordinated is, what are these critical 
technologies? So, beyond the Government, we need Government 
experts, as well as folks from academia and the private sector 
to help us with what those technologies are, to narrow the 
scope of what we are trying to look at.
    Chairman Barr. Mr. Lowery, in the remaining time--or, Mr. 
Kallmer, Marchick, any one of you--how can we avoid conflict or 
duplication between CFIUS and the Bureau of Industry and 
Security?
    Mr. Kallmer. Thanks, Mr. Chairman. I think the short answer 
is by building connective tissue, by building a bridge and by 
ensuring that it is not two separate regimes working in 
parallel without communication, but in essence a conjoined 
whole, where each side is doing what it does best in a way that 
together enhances national security.
    Chairman Barr. OK, my time is expired. The Chair now 
recognizes the gentleman from California, Mr. Sherman.
    Mr. Sherman. Mr. Marchick, you talk about most of these 
investments being made by companies based in allies of the 
United States. Did your analysis look behind to ultimate 
ownership? That is to say, the most controversial investment 
was American Uranium, which was purchased by a Canadian 
company. Just so happened the Canadian company was owned by 
Russian interests. Did you do the second-tier analysis in 
preparing your report?
    Mr. Marchick. It is a very good question, because CFIUS and 
any other regulatory authority should ultimately look to the 
ultimate owner.
    Mr. Sherman. Does it do that now?
    Mr. Marchick. It does. I used the data from the CFIUS 
annual report.
    Mr. Sherman. So your report did, as well?
    Mr. Marchick. I believe that they look at the ultimate 
owner. So if there is an intermediate company in the U.K. or 
Canada, but it is owned by the Russians, that should be a 
Russian transaction, not a Canadian transaction.
    Mr. Sherman. Got you. Does--and I will ask this to any 
witness--does CFIUS include expertise in protecting American 
jobs or does it confer regularly with leaders of organized 
labor? Mr. Lowery?
    Mr. Lowery. In the last bill that was passed on CFIUS 
reform in 2007, the Department of Labor--
    Mr. Sherman. The Department of Labor. Very different from 
organized labor. Go on.
    Mr. Lowery. I understand. The Department of Labor--
    Mr. Sherman. Especially in this Administration.
    Mr. Lowery. The Department of Labor obviously connects with 
organized labor every now and then, and so they have an ex 
officio membership on CFIUS. They don't bring national security 
expertise. What they bring is to think about some of the issues 
I think that you are trying to get at. But in terms of, is 
there someone there who is worried about the economic security 
or job loss type of issues, that is not part of CFIUS 
currently.
    Mr. Sherman. It would be interesting to go and campaign to 
our constituents and say, I stood firm in the Financial 
Services Committee against considering American jobs when we 
make American financial decisions.
    China walls off whole parts of their economy from our 
investment. Should we do something equally? Or does the fact 
that they wall off parts of their economy have no effect on our 
CFIUS decisions? I will ask for Mr. Marchick. Or Mr. Brown.
    Mr. Brown. I don't think we should be blanket cutting off a 
sector of our economy. I think we need to--
    Mr. Sherman. So China can do whatever they want to us and 
we don't respond?
    Mr. Brown. Well, I don't feel that way. I think what we 
need--
    Mr. Sherman. Well, then how do we respond to them walling 
off whole areas of their economy from U.S. investment?
    Mr. Brown. I think the work that we did on early stage 
investment says that we need to look at what we think are the 
critical technologies and ask ourselves whether we should allow 
China to invest in our startups. So I wouldn't take an entire 
sector away.
    Mr. Sherman. We obviously limit, for national security 
reasons, a very small portion of our economy. They limit a huge 
swath of their economy. Should we not limit a huge swath of our 
economy in response? Or does the fact that they take such 
extreme action not affect us?
    Mr. Brown. I think the answer there is to work with our 
allies to get China to change.
    Mr. Sherman. Yes, we have been working on that for 20 
years, and the effect is huge profits for those who don't want 
China to change.
    Mr. Brown. I would disagree. Getting out of the TPP is an 
example of not working with allies to effect--
    Mr. Sherman. Well, look, we have been doing this for--I am 
going to move on. Now, should we explicitly state in this law 
that any Chinese company is viewed as an investment by the 
Chinese government? Or should we engage in the fiction that 
Chinese companies are independent of their government? Mr. 
Lowery?
    Mr. Lowery. Well, my own view is that CFIUS is about 
looking at transactions in foreign direct investment in the 
American on a transaction-by-transaction basis. So I think that 
we should actually look in--
    Mr. Sherman. But should we have a basic rule that if a 
company is under the control of the Chinese government or is 
situated in China, we evaluate that transaction as if it is an 
investment by the Chinese Army and party?
    Mr. Lowery. No, I don't think we should.
    Mr. Sherman. Or should we engage with China in the fiction 
that their companies are independent?
    Mr. Lowery. No, I don't believe we should. But however, I 
will say this--
    Mr. Sherman. We shouldn't? We should allow--
    Mr. Lowery. I just said it--I just said no. So I--but let 
me explain. Right now, the way that CFIUS works is there is an 
analysis done, it is called a threat analysis. The threat 
analysis is done by our intelligence community. The 
intelligence--
    Mr. Sherman. Should the threat analysis be directed by 
statute to regard Chinese companies as arms of the Chinese 
government? I would say it should. I will ask any witness, can 
you mention a single time when a Chinese-based company has 
refused to do the work of the Chinese intelligence service of 
the Chinese government? Yes, do you have an answer?
    Ms. Cinelli. If I could just answer that, just 2 seconds.
    Mr. Sherman. Since they always do the work of the Chinese 
government, why shouldn't they be regarded as arms of the 
Chinese government?
    Ms. Cinelli. I think perhaps if the perspective--we might 
be imposing the U.S. concept of corporate law on the Chinese. 
We have distinctions between state-owned enterprises and 
corporate constructs. The Chinese do not. So perhaps if you are 
examining it from a statutory perspective, looking at whether 
it is a state-owned enterprise or part of the PLA--
    Mr. Sherman. We should regard them all as arms of the 
Chinese government. I yield back.
    Chairman Barr. The time is expired. The Chair now 
recognizes the vice chairman of the subcommittee, Mr. Williams 
from Texas.
    Mr. Williams. Thank you, Chairman Barr, and thank you for 
holding this hearing today and for your leadership on the 
important issue of CFIUS. This is the fourth hearing this 
subcommittee has held about this important tool, and I look 
forward to continuing to work with you and other members of 
this committee to discuss the legislation before us.
    To all the witnesses before us today, thank you for your 
testimony. Foreign investment in the United States greatly 
improves the outcomes of millions of Americans by creating jobs 
and developing ground-breaking technologies. However, nations 
such as China continue to grow their influence through 
investment in the U.S. and other forex tactics.
    In this discussion, my goal is to find a solution that 
protects our national security, which is paramount, while at 
the same time allows the American economy to continue to reap 
the benefits of foreign investment. So my first question is to 
you, Mr. Lowery. Everyone in this room wants to update CFIUS to 
bolster our national security without harming foreign direct 
investment that strengthens both our economy and ultimately our 
military.
    That being said, many CFIUS experts, including you, are 
concerned about the unintended consequences of FIRRMA. In 
particular, you write that duplication of other Government 
national security programs may hamper the effectiveness of this 
legislation. So can you expound upon these concerns?
    Mr. Lowery. Thank you, Congressman. Let me just state very 
clearly, I have the exact same objectives that you do, that 
Congressman Pittenger does, that Congressman Heck has, which is 
to bolster our national security, especially from any type of 
investments that could create a problem.
    The concerns I have are largely--not solely, but largely--
about the outward bound provisions within the bill because we, 
one, it will overwhelm the system that is currently in process. 
Thousands of transactions will have to be looked at as opposed 
to hundreds. These are transactions that are in lots of 
different areas.
    You are from Texas. There are energy companies that do 
joint venture operations around the world. That is considered 
critical technology. Critical technology transactions. So all 
of those transactions would now need to go through a CFIUS 
process. Their competitors, who come from companies like 
France, by the way, from China and from other countries will 
not have to go through that process. That to me strikes me as 
anti-competitive, and I don't think that it necessarily gets us 
to where we want to get to, which is to try to actually 
address, as Mr. Marchick said earlier, the focused problems 
that are real national security concerns, not the everyday 
transactions from multinational companies.
    Mr. Williams. Thank you. Mr. Brown, our troops should never 
go into a fair fight and should always be able to overmatch 
their opponents in the field of battle. You have learned about 
this during your time at the DOD and refer to it in your 
testimony. I represent Fort Hood, and one of the largest 
military bases we have in the world.
    The soldiers I represent rely in part on policymakers like 
me to make sure they are not barely winning their fights, but 
instead have the tools necessary to dominate their opponents. 
The military needs to be able to turn out innovation and 
technology faster than its enemies to maintain overmatch.
    So with that being said, to what extent is China already 
encroaching on our military superiority?
    Mr. Brown. I think to a large extent, many of the officials 
from DOD have already talked about that, Secretary Mattis, 
Chairman Dunford, et cetera.
    The answer to me is twofold, one on the defensive side. 
Let's make sure we spend the time to identify what critical 
technologies we care about, whether it is AI, quantum 
computing, so that we can narrow the scope of what the CFIUS 
transactions would be, to the critical ones, and then 
proactively we have to invest more to make sure that we are 
leading this race. We want China to be looking to us as the 
source of future technology, not us chasing them, but that 
requires us to be much more proactive in terms of what we are 
investing in.
    Mr. Williams. Next question. Is CFIUS currently equipped to 
stop important American military technology from being acquired 
by the Chinese and other bad actors? You might be as detailed 
as you can on that.
    Mr. Brown. CFIUS needs to be strengthened so that it covers 
more of these transaction types, because today, CFIUS is 
largely looking at transactions that involve majority control. 
But if the Chinese are making investments in a critical 
technology, a quantum computing startup, say, today CFIUS would 
not cover that unless there is majority control. So I think 
that is a huge strategic gap that was talked about before, that 
we have to close with FIRRMA.
    Mr. Williams. OK, thank you, and I yield my time back.
    Chairman Barr. The gentleman yields back. The Chair now 
recognizes the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I thank the Ranking 
Member, as well, witnesses for appearing. I especially thank my 
colleagues, Mr. Pittenger and Mr. Heck, for the time and energy 
and effort that they have put into this piece of legislation.
    Mr. Lowery, you indicated that this legislation would cover 
a circumstance wherein there is no merger, there is no foreign 
investment. Would you explain, please?
    Mr. Lowery. Yes, sir. This is the provision that is 
sometimes referred to as the JV provision, but it is basically 
about capturing outward-bound transactions. So there is no 
investment into the United States in any way. Instead, it is a 
United States company doing business in a foreign country. They 
are doing that business and it is going to be in a technology 
field or in an infrastructure-related field.
    Under the legislation, CFIUS would now need to review it 
and look through it and do an evaluation as to whether or not 
that should go forward. That is happening all the time. 
Thousands of transactions are happening like that from 
companies all over the map within the United States.
    My concern is that if there is technology that is of 
concern to the United States, we should define it and then 
control it. That is what the export control regime is for.
    CFIUS is about inward bound investment into the United 
States. So that is why I am supportive of those provisions, 
largely, within the FIRRMA bill put forward, but not this 
specific provision where it is about outward bound 
transactions.
    Mr. Green. Does someone else have some additional 
intelligence on the point?
    Mr. Brown. Well, I think just that the outbound 
transactions are another source of tech transfer. So if, even 
though it may not involve inbound technology, or investment, we 
want to have some say on whether critical technology is being 
transferred through a force joint venture. So I think we have 
to define, what are those technologies? We need to define, what 
are the countries we are concerned about? I will just name it. 
It is China. It is not all countries.
    So in the CFIUS process we have to give some credit for the 
folks running that process to streamline it once they are 
dealing with thousands of transactions versus hundreds. But I 
think the joint venture or outbound technology flow is a 
critical gap we need to fix.
    Mr. Green. Mr. Kallmer.
    Mr. Kallmer. Thank you, Mr. Green. The more we discuss 
this, the clearer it is to us, I think, that we are all in 
almost total agreement about the diagnosis here. It is the 
concern about emerging critical technologies going to China and 
potentially other places.
    I think about David's analogy to the ER, which also seems 
appropriate in thinking about how one might address that issue 
in legislation. A patient comes to the ER complaining of chest 
pain, you don't bring in an orthopedic surgeon. You go to the 
cardiologist.
    This is about finding the right tool. It just seems to us, 
we have that tool. It is the export control system. As 
Representative Royce said in the opening comments, export 
controls aren't just about physical products. They can cover 
technology. They can cover information. They can cover 
services. They can even potentially cover transactions through 
the sanctions law.
    They can do so by identifying the destination that people 
are concerned about, the end use that people are concerned 
about, the end user that people are concerned about. The 
infrastructure is there. It is true as a practical matter the 
infrastructure isn't working the way we need it to, to address 
this threat. But we have the tool.
    In fact, there is authority tomorrow if somebody were to 
identify an emerging critical technology of concern that was on 
the verge of being exported, say, to China to actually impose a 
unilateral control on it. That is not ideal. Ideally we would 
do that in a multilateral fashion. But as a short-term measure, 
we have the tools. That is our perspective on this.
    Mr. Green. I have 22 seconds left. Anyone else? Thank you, 
Mr. Chairman. I will yield back the balance of my time.
    Chairman Barr. The gentleman yields back. In the remaining 
time of the gentleman, I would invite Mr. Brown to respond to 
that, if you would.
    Mr. Brown. The adequacy of export controls?
    Chairman Barr. Yes.
    Mr. Brown. Yes, I agree that theoretically export controls 
could be covering a lot more, but I think practically they 
don't. Let's just think about the voluntary nature of export 
controls. That means that companies that are quite aware of 
their obligation and the defense industrial base, for example, 
devote a lot of resources to making sure they comply.
    But I am particularly concerned about emerging technologies 
and small company development of those technologies. Those 
companies are not aware and not spending the resources to 
ensure they comply. How many convictions do we have for 
violations of export controls? We don't have anywhere near the 
number of resources looking at what is happening there in 
critical technology. So I think it is a huge flow of outward 
technology that theoretically could be covered, is not.
    Chairman Barr. OK. The Chair now recognizes the author of 
the legislation, Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman. Mr. Chairman, for 
the record, with unanimous consent, I would like to enter two 
letters, one from Oracle and one from Ericsson, in support of 
FIRRMA. Oracle stating, ``Critically, FIRRMA strikes a balance 
of protecting national security while not chilling the benefits 
of foreign investments in the United States. We appreciate that 
the language is narrowly tailored to focus on specific national 
security concerns, distinguishing between investments that are 
financially motivated and investments that are strategically 
motivated, such as improving foreign military capabilities or 
other strategic objectives.''
    Ericsson states, in short, FIRRMA helps provide the 
assurance by arming CFIUS with the tools necessary to preserve 
our national security interest while not discouraging 
investment in the United States. It is an important effort in 
the regulatory effort that requires modernization, without 
which will result in the potential compromise of technology 
developed by companies like Ericsson and, in turn, our national 
security.
    Chairman Barr. Without objection, those letters are entered 
into the record.
    Mr. Pittenger. Thank you, sir. Mr. Kallmer, thank you for 
your testimony. I was correct to say that you do have various 
entities that are a part of your group. I know that these two 
are a part of your group, but Lenovo is part of your group, as 
well. Is that not correct?
    Mr. Kallmer. That is right.
    Mr. Pittenger. Does that in any way affect your testimony, 
do you believe?
    Mr. Kallmer. No.
    Mr. Pittenger. Mr. Marchick, you--Carlyle has many 
investments, probably billions of dollars, in China, maybe 50-
plus companies. Do you believe in any way that affects your 
testimony?
    Mr. Marchick. No, sir. In fact, my testimony is very 
similar to my testimony in 2006.
    Mr. Pittenger. Well, we have Asia Satellite Telecom 
Holdings. We have Caribbean Investment Holdings currently, East 
River Biochemical, GDC Technological Limited. These are major 
interests in terms of technology and services. I would just 
want that for the record.
    I think it is important and material that it be known. Mr. 
Lowery, do you have representation of foreign investments in 
China?
    Mr. Lowery. No, I do not.
    Mr. Pittenger. Thank you. Mr. Brown, I would like you to 
elaborate on outbound investments. That seems to be the real 
sticking point here. The shortcoming, in essence, of what would 
happen without the CFIUS review and outbound investments--and, 
frankly, to the reason why we have five secretaries of defense, 
ministers, secretary of defense, and the current secretary, 
both parties, stating that we had to reform CFIUS to address 
these joint ventures and these foreign countries, particularly 
China?
    Mr. Brown. Yes, happy to. I think the issue is if you have 
a critical emerging technology which is not yet covered under 
export controls and a U.S. company wants to enter the Chinese 
market, and China forces you to have a joint venture, that is a 
tremendous opportunity not only for IP to leak out, but also 
know-how, and also an opportunity for China to recruit talent.
    Mr. Pittenger. Could you give us some examples?
    Mr. Brown. Well, there would be lots of examples that would 
cover some of the military technology we have talked about. So 
imagine if it was Boeing or GE with jet engines. I can 
understand why a company might want to enter a joint venture, 
to have access to the Chinese market, but I think we need to 
have a say in whether that makes sense from a national security 
standpoint.
    The closer you get to emerging technologies, where we don't 
even understand yet where they are all going, artificial 
intelligence, quantum computing and sensors, areas like that, 
we need to be hypersensitive that technology is inadvertently 
leaking--
    Mr. Pittenger. Once it begins as a commercial venture, and 
with the dual technology objective, it can morph into a 
military interest. Does export control have the capability to 
give purview over that?
    Mr. Brown. My understanding is export controls 
theoretically do, if we were smart enough to put on the export 
control lists critical emerging technologies. But I would ask 
us whether that has happened. So I don't think practically we 
are looking forward enough with export controls. It tends to be 
more backward looking.
    Mr. Pittenger. CFIUS has a dozen agencies involved, whether 
it be Commerce, Justice, the intel community, DOD. Do these 
same eyes look over the shoulder of export control? Or do we 
have the same type of purview?
    Mr. Brown. Clay might be in a better position to answer 
that. I don't think it is as broad as CFIUS is.
    Mr. Pittenger. Well, I think that is the concern that many 
of us have, is that CFIUS by structure, not just Commerce 
leading the way, but Treasury with multiple agencies has a 
direct interest in the outcome.
    Mr. Lowery. I will just--in the export control, the Defense 
Department, the Commerce Department, and the State Department 
take the lead on export control matters.
    Mr. Pittenger. I would like to say we have addressed oil 
and gas. They are happy with our bill.
    Chairman Barr. The gentleman's time has expired. The Chair 
now recognizes the gentleman from Washington, Mr. Heck.
    Mr. Heck. Thank you, Mr. Chairman. I would like to also 
note for the record that I personally believe that some, if not 
many of the comments made here earlier with respect to outward 
bound relate more appropriately to 2.0, not the latest version 
of the bill that we have been developing. I know many of you 
are familiar with it, because many of you are involved in the 
improvement of 2.0, and I thank you again for that.
    Mr. Kallmer, I frankly want to particularly cite the 
constructive role that ITI played and thank you for that.
    We don't really have time to go into a really technical 
discussion of some of those things, but I would like to ask if 
you would be willing to respond to some questions for the 
record about the revised version of the bill that we did enter 
into the record earlier.
    Mr. Kallmer. Happy to do that. There may be some confusion 
about which version is 2.0 and 3.0.
    Mr. Heck. We are going to help you with that.
    Mr. Kallmer. OK, that would be great. Dates would help.
    Mr. Heck. Trust me, we are going to help you with that.
    Mr. Kallmer. Great.
    Mr. Heck. Mr. Brown, I have often referred to your work, 
the report that you co-authored at DIUX about Chinese 
investment in early stage companies and wider technology 
transfer. It is an honor to have you here today. Thank you so 
very much.
    Mr. Brown. Thank you.
    Mr. Heck. I actually came to Congress from the private 
sector. I have been involved in startups. I have grown 
companies. I have served on board of directors. I acted as an 
angel investor. I think I am well aware, frankly, of how it is 
that somebody who makes a less than 50 percent-plus-one 
investment in a company might gain access to emerging 
technology or other technologies that would be of interest to 
us.
    So I want to ask you, how does simply making an investment 
even potentially result in damage?
    Mr. Brown. That is a great question, because I think it 
takes the next step to see, what are the tools China uses for 
technology transfer? Some legal, some illegal. So the 
investment, per se, you could argue--as I think you are 
suggesting--there is not really a problem with that. But if you 
use the investment as a view of the landscape--and we talked 
before about China in aggregate having a view to upwards of 
half of all the venture activity, which is a lot of innovation 
happening in the U.S., that gives you a vantage point to then 
deploy other tools, for example, cyber theft, or placing a 
foreign national at companies.
    There are examples--some classified, some not classified--
which are examples of that. A perfect one is the Sinovel-
American Superconductor case. ``60 Minutes'' did a report on 
that 2 years ago. National Public Radio covered it again just 
this month. You have a wind turbine manufacturer in China, and 
you have the controls of the key software coming from a U.S. 
company, and then that was effectively stolen using industrial 
espionage. They converted one of the employees to provide the 
software control tools and put the American company out of 
business.
    John Carlin, assistant attorney general, was asked in the 
``60 Minutes'' report, how often is this happening? Thousands 
of companies experiencing this. FBI did a survey of 165 
companies a couple of years ago, half said they had suffered 
some form of theft, IP theft. And 95 percent of those cases 
attributed to China.
    So this is a rampant problem happening around us. It is 
because China has a very systematic, well-funded plan to 
transfer technology. It is critical for transformation of their 
economy. It is happening through those illegal means we just 
talked about, but also through very aggressive recruiting, such 
as the Spring Light or Thousands Talents programs. It is 
happening through professional associations, where they do 
recruiting, joint ventures, research with U.S. academic 
institutions and with U.S. companies. So they are doing it in a 
variety of different ways.
    Mr. Heck. Well, even, frankly, short of theft, fast rewind. 
Imagining that the last company I was involved in, which had a 
couple of modest software proprietary products, if we had an 
investor that did not have a seat on the board but had 40 
percent of equity--hard to imagine they wouldn't have a seat on 
the board, but conceivably--it just would be prohibitively 
impossible to deny the flow of that information to them in one 
way or another. That is just straightforward fact of the 
matter.
    Mr. Brown. That is exactly right.
    Mr. Heck. You make some recommendations on how to deal with 
technologies transfer strategy in the report that you co-
authored. But like any good report, you included no action 
alternative. What happens if we do nothing?
    Mr. Brown. We are in a technology race with China. Our 
economic security is at stake. So the longer we leave the barn 
door wide open without taking the appropriate defensive 
actions, it is as if we are saying we are wide open, please 
come steal whatever you would like. I think that has to be 
balanced, as we have already talked about, with what are we 
doing in the U.S. to proactively invest and make sure we are on 
the leading edge of technology and innovation. So I think we 
have to do both.
    Mr. Heck. Thank you. I yield back, Mr. Chairman.
    Chairman Barr. The gentleman yields back. The Chair 
recognizes the gentleman from Minnesota, Mr. Emmer.
    Mr. Emmer. Thank you, Mr. Chair. Mr. Kallmer, in testimony 
before the Financial Services Committee and the Senate Banking 
Committee, officials representing the Department of Commerce in 
the Trump, Obama, and George W. Bush Administrations have all 
testified that export controls not only restrict the transfer 
of products, but even ideas.
    According to Commerce Assistant Secretary Richard Ashooh, 
export controls can make fine distinctions between countries 
and even end users. Former Commerce Assistant Secretary Kevin 
Wolf has noted that in contrast to CFIUS reviews, a transaction 
isn't even necessary. A phone call or an e-mail can be covered 
through export controls.
    Can you explain your member companies' interaction with the 
export control regime and elaborate on why you believe export 
controls are more appropriate than CFIUS to protect national 
security when it comes to outbound transfer of technologies?
    Mr. Kallmer. Sure, we would be happy to do so, 
Representative Emmer. I say this all with humility, because I 
am not personally an export control expert, but have been 
fortunate to work with our member companies' experts, as well 
as some others.
    Our companies are on the front lines, as are companies in 
other sectors, of doing business across borders, of moving 
things and ideas and services and so forth. All of our 63 
members are global sophisticated companies. They have 
significant departments of people thinking about these things.
    I would say uniformly in the discussions that we have had 
on this issue, people have agreed this is where the solution 
set lies. In complete agreement with Mr. Brown, actually, we 
are not there yet practically. The system is not working with 
the necessary aggressiveness and creativity and resources to 
help control and discipline the things that we are all worried 
about.
    People from our companies know from personal experience 
from transactions and exports that their companies rely on that 
as the tool. That is the tool that is going to get us there.
    Mr. Emmer. Thank you. Mr. Lowery, the medical device 
industry, which is a major driver of my State, Minnesota's 
economy, has expressed concerns with the proposed expansion of 
CFIUS oversight and how it could impact technologies that may 
not have been initially thought of when this effort began. Of 
particular concern is the broad application of the term 
critical technology and the term emerging technologies.
    While it's possible that implementing regulations will help 
define the scope based on the bill's definition, we don't see 
any guarantees. Based on your experience, is it your sense that 
medical devices would or would not be covered under the 
umbrella definition of a critical or emerging technology as 
proposed in the current legislation?
    Mr. Lowery. Congressman, I don't know.
    Mr. Emmer. Should they be?
    Mr. Lowery. My view is probably almost assuredly not, 
unless there is some way you can relate that back to our 
national security, which I am not sure if you can.
    That is part of my concern is that there are a lot of 
definitional issues that have to be clarified through a 
rulemaking process, which will be difficult. We have tried to 
do lots of different definitions on critical technology in the 
past, but it is also linking that critical technology, because 
there is lots of critical technology that has very little to do 
with national security. How do you link those together? So my 
unfortunate answer for you is I don't know.
    Mr. Marchick. May I try, sir?
    Mr. Emmer. Absolutely.
    Mr. Marchick. To me, this goes back to my testimony. Clay 
is right. The answer is, I don't know. If there is a medical 
device technology that helps our troops, that is unique, that 
is something that is in our comparative advantage, that helps 
our military, the Government should focus on whether we want to 
let that technology go.
    Mr. Emmer. Well, if I can interrupt you, everything that 
you just said, if there is a medical technology and advance 
that not only helps our troops, it will help every citizen in 
the United States, it could help people around the world, why 
should that be included in critical emerging technologies and 
denied to other people that may actually survive because of it?
    Mr. Marchick. I think the point is that the Government, 
through the export control system or some other--should decide 
with whom do we want to share this technology. If it is some 
type of technology that protects troops against chemical 
weapons, for example, I would think we would want to control 
that, where it goes, who we want to share it with, and of 
course it would benefit everybody, but we need to look out for 
our own troops.
    Mr. Emmer. True. We also have to be interested in 
innovating, and in order to innovate, we may not have all the 
ideas. We need to bring others in. So I guess my concern is 
still my concern, that the definitions are not defined. They 
are too broad. We need to make sure that we are not having 
unnecessary impacts on industries such as this.
    I know that all of you feel the same way, but somehow that 
has to be addressed. Thank you, Mr. Chair.
    Chairman Barr. The Chair recognizes the gentleman from 
Ohio, Mr. Davidson.
    Mr. Davidson. Thank you, Chairman. Thank you all for your 
expertise. I thank Mr. Pittenger for trying to address this. I 
share some concerns about how broad the language is and some of 
the implications that have been already discussed.
    To pick up where Mr. Emmer left off, and I guess to 
continue with you, Mr. Marchick, if I have, as an entrepreneur, 
an idea that is innovative, perhaps it is critical, how do I 
know it is critical? Let's say it is deemed critical by you or 
some other decider on behalf of the United States of America, 
who owns the idea? Is it my idea? Or is it America's idea?
    Mr. Marchick. It is certainly your idea, sir.
    Mr. Davidson. So I own my intellectual property.
    Mr. Marchick. Correct.
    Mr. Davidson. I decide to--I don't even necessarily want to 
patent it. I just have it as a trade secret. Somehow somebody 
discerns that what I am doing might be critical or sensitive, 
it is not even sold to the military, but it is important to 
somebody, when can the Government come in and take possession 
of my intellectual property and decide that I no longer have 
control of that intellectual property?
    Mr. Marchick. They should never do that. It is your 
intellectual property.
    Mr. Davidson. So, Mr. Lowery, how does the language in this 
bill--what implications does that have? We have I think tighter 
language on the export control protocols. It is already very 
critical. We have seen problems and gaps, to be sure, with 
export controls. One of the notable ones to me is when it first 
moved to Commerce release authority, when Hughes basically gave 
away the farm on multiple launch vehicles for rockets, to put 
communication satellites out, because it also has launched 
warheads with great precision.
    So where does that line happen between the tight language 
of export control and where we are headed with CFIUS?
    Mr. Lowery. So, I think it is a great question. If it was 
CFIUS the way it currently exists, if your technology and your 
intellectual property, you decide to sell it to a foreigner, 
and that foreigner comes in and gets control of it, and that 
technology or what you have created, your intellectual 
property, is considered to be something that is of a national 
security interest, then the Government has a say in allowing 
that transaction to happen. It may allow it. It may not allow 
it. But it has a say.
    If you take it and you want to provide it overseas, and it 
is technology that has not been controlled by our Government, 
whether it is the Defense Department, which has the ability to 
do this, the Commerce Department or the State Department, then 
that is something that you are allowed to do.
    Under this bill, you would basically--that would be 
expanded to something so that you would now have to go through 
another investigation to look at that, even though all you are 
doing is selling it to somebody in Brazil. That concern is--
instead of identifying that your technology is a concern to us 
from an export control basis or national security basis--we are 
now basically just saying it because it is a critical 
technology and we have created something where the people that 
have no experience at this are now going to have to look at it, 
as opposed to the people that did have experience at this.
    Mr. Davidson. So do you have any suggestions on how we 
could tighten that language and make it clear? Because, if you 
think about it, some of the most innovative minds--a lot of 
these are like grad students. They are in a PhD program. They 
are thinking, how do I commercialize this? They don't know that 
some bureaucrat in Washington, DC, is thinking this might be 
critical technology. They are just looking at how do I 
commercialize my idea?
    They start talking to somebody. They may not even have a 
clue what the beneficial ownership of the company is. We 
criminalized some of this behavior, is the concern. So how 
could we get that language tighter, in your opinion?
    Mr. Lowery. So I think that Mr. Brown made some really 
excellent points about this. The export control language right 
now is not understood very well in the startups type of thing. 
If you think that is not understood, can you imagine what CFIUS 
is like?
    My own view is that if you are going to tighten that up, 
then we need to identify those technologies, and we will 
probably have to do some marketing about that. Right now at 
least our export control regime tries to do some of that, but 
probably not as well--and Michael Brown has pointed this out--
as they should.
    In CFIUS, we have done no marketing practically. You would 
have to do a ton of it if this bill becomes a law.
    Mr. Davidson. Thank you. My concern is, America is the land 
of innovation. We create all kinds of innovative technologies. 
I would hate to see the most brilliant minds on the planet find 
that they should create their intellectual property somewhere 
else because we have put a regime in place that discourages 
innovation and capital formation.
    Mr. Chairman, I yield.
    Chairman Barr. The gentleman yields. The Chair now 
recognizes the gentleman from Indiana, Mr. Hollingsworth.
    Mr. Hollingsworth. Happy Thursday. I appreciate everybody 
being here. I will try not to reiterate what everybody else has 
said, because much of what I wanted to talk about has already 
been said. But I do want to make a couple of points.
    First, my disclaimers. Number one, I think we should do 
something. The status quo is unacceptable. Number two, the work 
that Mr. Pittenger and Mr. Heck have put in is really, really 
great work and much of it I absolutely agree with. But like we 
have discussed earlier, there are some aspects that I really do 
disagree with and worry about the chilling effects it may have 
on U.S. investment abroad, or investment here in the U.S.
    I don't think this is--you are either pro-China or pro-
America. I am pro-America. I am pro-American business. I am 
pro-American innovation. I want us to continue to be a leader 
around the world, and I think we do that because of--as Mr. 
Davidson said--those trying to develop intellectual property 
here because they have control of that intellectual property 
here. I want to make sure that we continue to do that.
    I want to empower American business to be able to compete 
around the world and generate resources around the world that 
they can invest in R&D right here. But I do want to find a 
solution to this problem, like I said. I want to make sure that 
we get to an answer that works for CFIUS and an answer that 
works for export controls and ultimately works to keep the 
American people safe.
    I think that is a really important step that we need to 
take. I do worry--I share many of your concerns that by making 
CFIUS overly broad we have taken what was working and now we 
have spread those resources over so much more ground, we are 
going to do everything with mediocrity instead of doing the 
things we need to do extremely well, extremely well. I worry 
about that in many aspects of government. I feel like we are 
headed in that same direction.
    What I have heard from Mr. Brown and others in testimony 
is, there are some gaps between what we should be doing and 
what we are doing with export controls. That to me doesn't say, 
hey, we need a whole new structure that we have to build on top 
of everything. That says, we need to address those gaps and 
let's put the things on export controls that need to be on 
export controls. Let's take the steps we need to take with 
export controls. But let's not build a new super-structure that 
catches so many more transactions, that takes valuable 
resources and spreads them over more and more territory, more 
and more transactions.
    So I wanted to ask Mr. Kallmer specifically, in your 
testimony, one of things you talked about is my area of exact 
concern. Section 3(a)(5)(b)(v), and how we might be able to add 
Section 109 language to the existing bill in order to really 
narrow that to transactions that could pose a national security 
threat, rather than having the broad language, the broad net 
that we are using now. I would hope that you would address that 
a little bit more than the few sentences that you have in your 
testimony.
    Mr. Kallmer. Sure. Happy to do that, Representative 
Hollingsworth. I should first say, I appreciate the comments, 
Representative Heck, about working together. This portion of 
the bill is the portion that we have been most concerned about, 
but where I think in recent months we have seen the most good-
faith responsiveness to those concerns. Now whether it is 2.0 
or 3.0, we are talking about language that--from our vantage 
point, recognizing we are not in Congress, is moving very much 
in the right direction.
    Mr. Hollingsworth. Good.
    Mr. Kallmer. What we, in my testimony and we have done it 
more broadly in our proposed edits, envision is in addition to 
the possible idea of incorporating Section 109 actually putting 
into FIRRMA--and establishing under CFIUS--a subcommittee, what 
we call a subcommittee on export controls, to perform the 
function of being this connective tissue.
    One of the beauties of CFIUS as it is today is that I think 
it has all the export control agencies in it already. I 
certainly remember--and I am sure Clay does--that there are 
many transactions where you get in the room, you are looking at 
the transaction like, wow, can this be dealt with by export 
controls? You have the experts from the Bureau of Industry and 
Security sitting right there.
    The idea is to essentially turbocharge that process, ensure 
the two sides are talking to each other, and to the extent that 
the subcommittee can be a vehicle for increasing funding, 
political commitment, and institutional expansion of export 
controls, we believe that over time it can actually do the hard 
work that we think we need to do upfront of identifying, 
describing, and listing emerging critical technologies.
    Mr. Hollingsworth. Well, I want to do that work upfront. I 
want companies to be able to know the vast majority of 
technologies that exist out there, the vast majority of 
transactions that exist out there, the vast majority of 
countries we are not concerned about. We want you to go about 
your ordinary course of business and transact as you see fit 
and do things. It is a narrow band that we are concerned about, 
and focusing on that narrow band so that we do that well is 
really, really important, because I am pro-American business. I 
am pro-American employment. I am pro-American national 
security.
    I think that really means we have to be careful here that 
we don't dampen U.S. investment or alternatively inhibit our 
companies from being able to compete around the world to do 
transactions around the world so they can bring back that money 
to invest in R&D, so they can bring back technologies from the 
world right here and make our lives as Americans better off. So 
I thank you.
    I yield back, Mr. Chairman.
    Chairman Barr. The gentleman yields back. With the 
indulgence of the witnesses, there is an interest in a brief 
second round of questions. I will start that second round of 
questions.
    I think Mr. Brown makes an interesting and important point 
that I would like the other witnesses to addresses. That point 
being his view that the export control system is deficient and 
that FIRRMA and an expansion of the CFIUS jurisdiction is 
necessary to the extent that the export control system remains 
deficient.
    I also would like Mr. Brown to address the very interesting 
and I think important point that Mr. Lowery makes that the 
FIRRMA bill as currently drafted runs the risk of, quote, 
``overwhelming the system.'' So let's start with the first 
point that Mr. Brown makes. Mr. Lowery, Mr. Kallmer, Mr. 
Marchick, would you like to address Mr. Brown's point that the 
export control system is deficient to achieve the objectives we 
want?
    Mr. Lowery. So Mr. Brown makes, and I know Giovanna has 
also made some of those points. My own view is that if there 
are deficiencies, then let's work on them and let's fix them. I 
think that Congressman Royce's bill has made a very good effort 
at that, what I just--the dialog we just heard is about, how do 
we improve the FIRRMA bill and link it toward the improvement 
on export controls?
    If our concern is that export controls are not covering 
enough particularly toward specific countries such as China, 
then let's address that, instead of creating basically a bill 
in CFIUS which addresses all countries outside of a few, but 
mainly all countries, and addresses all technologies even 
though they are not necessarily ones that are of concern to us.
    So I think that there is--so I agree with Mr. Brown. If 
that is--I think it sounds like he is right, which is we need 
to work on it. But then work on, as Mr. Kallmer said earlier, 
the right tool for the right problem.
    Chairman Barr. If I could shift back to Mr. Brown, so in 
response to that, I don't know if you have had an opportunity 
to look at Chairman Royce's legislation updating the export 
control system. Would that solve the problem primarily? If it 
doesn't, why not? Then if you could also address the argue that 
the FIRRMA bill as currently drafted could potentially 
overwhelm the system and spread resources too thin, I think Mr. 
Hollingsworth's concern?
    Mr. Brown. Sure. So my perspective, as I already said, is 
we need to reform both. Neither is a substitute for the other. 
Given the scope of the problem and how critical it is for our 
future, why wouldn't you want more tools in the hands of the 
U.S. Government? So I am all for improving export controls. I 
am not an expert on Mr. Royce's bill.
    But I very much favor updating export controls and making 
sure a list of critical technologies that are forward-looking 
would be included in what we do to update export controls. But 
I don't think that is a substitute for CFIUS reform and the 
ability to look at investments that are incoming in the U.S. in 
these technologies that we might want to be concerned about.
    To your question about overwhelming the system, I think we 
handle that by two things. Number one is to the extent we can 
define a process to name these critical technologies--and I 
agree, it is overly broad right now--that process needs to 
include not just government input, but, again, academia and 
some private-sector input. Let's make sure we are getting a 
broad view. And of course, that will have to be dynamic. Once 
the list is there, it is out of date immediately, so we have to 
frequently update that list.
    Then narrow the list of countries. I think we have used 
some examples here, was it--some selling to Brazil, let's be 
very clear about the countries we care about. I don't think the 
bill is so politically incorrect to name those countries, but I 
don't mind naming them, China, Russia, Iran, North Korea, 
Syria. Most of those are irrelevant because they are not 
investing in our economy, with the exception of Russia and 
China, and China's investments are an order of magnitude bigger 
than Russia's investments. So I think getting very specific is 
a big plus.
    Then, second, we need to give credit to the very smart 
people working on CFIUS. If they have to deal with thousands of 
transactions and they get the resources from Congress, they are 
going to figure out how to sort the wheat from the chaff and 
focus on what are the transactions that we care about. I know 
they are not going to look at every transaction with equal 
time. I have met those folks working on CFIUS, and it is a very 
smart group, and they would adapt.
    Chairman Barr. I appreciate the deeper dive on those 
issues. The Chair now recognizes the gentleman from Washington, 
Mr. Heck, for a second round.
    Mr. Heck. Thank you, Mr. Chairman. Some of my colleagues on 
committee know I am a movie buff and love to quote lines from 
movies. I am thinking today about a line the Kevin Costner 
character in ``The Postman'' used, which is, ``Things are 
getting better.'' I think things are getting better in this 
bill as a consequence of this really incredibly healthy 
conversation from all points of view.
    Again, I want to thank the Chair, and I want to thank my 
partner, Congressman Pittenger, in his advocacy, but all the 
people who are bringing their heartfelt concerns to this table.
    I cannot help, however--and I am sorry that my friend and 
colleague from Ohio, Mr. Davidson, left--comment on his concern 
about placing in law a regime that would thwart innovation--and 
my words, not his--effectively dilute, demean, appropriate 
someone's intellectual property, because it is important to 
note here what it is that requires a society of innovation. It 
requires investment in research and development. As Mr. Brown 
pointed out, we are way down from where we used to be, but that 
previous Federal investment is part of what got us where we 
are.
    It includes the finest post-secondary education system on 
the face of the planet. That helps create our society of 
innovation. It includes most importantly--and germane to the 
subject--freedom of expression. Because you know what? They 
don't have that in China or North Korea or Russia or Syria or 
Iran, as a matter of fact.
    Last, it requires the rule of law. Indeed, the very concept 
of intellectual property is a product of Western law, 
originally Great Britain, but developed through law and case 
law in America. Intellectual property is the rule of law. It is 
that which enables innovation and it is, in fact, that which we 
are trying to protect with CFIUS, as a matter of fact.
    So I wanted to make that point, because I don't think it 
should be overlooked, how we got to where we are at and what is 
at stake here.
    Ms. Cinelli, you haven't been called on in a long time. I 
think you have a lot to offer. So if I may, ma'am--
    Ms. Cinelli. I am feeling left out.
    Mr. Heck. No more.
    Ms. Cinelli. Thank you.
    Mr. Heck. You noted in your testimony that one of the 
factors that makes it particularly urgent that we act now is 
the loss of visibility into the technology transfers that are 
occurring. I want you to elaborate on that. I want you to say a 
bit more about what you mean by it. How can modernizing CFIUS 
help solve that problem?
    Ms. Cinelli. Happy to do so. I thank my co-panelists here 
for providing all the background. So if you look at the export 
control regime and then you look at CFIUS, each is voluntary in 
a certain sense. If someone does not make a filing to CFIUS, 
there is no visibility by the Government into the activity. 
Yes, the committee can reach out and invite a submission, but 
even in those circumstances it is voluntary.
    So governments make decisions on what is critical to needs, 
what the next generation is, sometimes on the information that 
they obtain through these processes. Without the filings and 
without an understanding of how the constructs work, the 
Government is missing some information.
    On the export control side, I must express a little bit of 
frustration as people were talking about the system, because as 
a general matter, the export control system is structured to 
handle some of the outgoing and even incoming exchanges that 
occur. The challenge arises in that you can control something, 
but if you do not require an authorization from the Government 
in order to address the exchange, to have the exchange occur, 
then you still have no visibility. In essence, something is put 
on a list, but there is no need to go to the Government to let 
them know. You invoke what are called license exceptions or 
license exemptions.
    I know this is not an export hearing, but there is built 
into especially the Commerce regime at least 18 authorizations 
that are self-executing, that if a company looks and says I 
meet these elements, they may proceed with a range of 
technology transfers without any notice to the Government. 
There is no filing with customs. There is no filing with 
census. There is no filing of anything, reporting of any sort 
to the Government.
    So the activity occurs lawfully because the exemption or 
exception permits it, but the Government is unaware of it. It 
then proceeds to make decisions, as Mr. Brown was mentioning, 
you have published a list, and by the time you publish it, it 
is outdated. This is today's technology and we put it on the 
list, it takes 6 months to get it on there, and it has already 
been overcome by events.
    So as you look to fix the system, and examine H.R. 5040, 
one of the things to look at is, how are these exception and 
exemption processes working? CFIUS in the modernization, what 
it does is it allows even more visibility into all these 
different types of activities, and that agencies that are 
involved in CFIUS are also the ones engaged in the licensing 
part.
    There is a section in the existing bill--I have not seen 
3.0--it is I believe 5(c)(iii), which actually says that 
certain transactions are not covered if there are other laws 
and regulations that can address it. Again, I am not quite sure 
what happened in 3.0, but that provision, in and of itself, 
opens the door to put the contours and framework on preventing 
the deluge that has been discussed here.
    I think perhaps that provision should be looked at a little 
bit more closely to see how it can be used to cabin in some of 
these issues. So, thank you.
    Chairman Barr. Thank you. Thank you very much. The Chair 
recognizes the vice chairman of the subcommittee, Mr. Williams.
    Mr. Williams. Mr. Marchick, in your testimony, you advocate 
for a carefully tailored approach to determine which 
transactions actually need national security review and allow 
for speedier review for the rest. So my question would be, how 
would you effectively determine which transactions do and do 
not need national security review?
    Mr. Marchick. It is a very good question. I think that 
there are criteria in the existing statute. I think FIRRMA 
expands those criteria. Those criteria give companies guidance 
on which transactions are the type of transaction that CFIUS 
needs to review.
    Then going back to something that Mr. Brown said, you want 
to make sure that CFIUS captures those transactions where there 
is something greater than passive investment. You could have an 
investment where there is an 80 percent ownership stake and 
they are completely passive. They just say, give me the 
financial statements, do a good job. If you do a good job, we 
will give you more money. If you don't do a good job, that is 
our last investment with you.
    You can also have an investment that is 10 percent or 20 
percent, which includes licensing of technology, sharing 
secrets, being on boards, access to supply chain information. 
If that is in there, CFIUS should review it. So I think you 
look at indicia of control, the type of transaction it 
involves, whether there is sensitive technology, and that gives 
you the guideposts for which type of transactions need to be 
reviewed.
    Going back to Mr. Hollingsworth's point, which I think was 
very well taken, the system has slowed down so much because 
they are overwhelmed that, frankly, non-sensitive, non-
significant transactions are getting slowed down. I will give 
you one example. We had a transaction of a medium-sized 
company--it wasn't particularly sensitive--we loved it--it was 
a good investment that we sold to a NATO ally. It flied through 
CFIUS.
    On the 29th day, we got a call. There were no concerns at 
all. The 29th day, we got a call that said one of the agencies 
can't get the signature because this person is traveling around 
the world. So that added another 30 days to the process.
    As Mr. Hollingsworth said, that chills investment. If I am 
selling my house, and Mr. Lowery bids X and Josh bids X plus 10 
percent, and Mr. Brown bids X plus 50 percent, but he is going 
to take 6 months to close and may not close, I am selling to 
one of these two, because time is money and that uncertainty 
and the slowing down of the process is what hurts finance, what 
hurts investment, and chills the type of innovation that Mr. 
Hollingsworth has talked about.
    Mr. Williams. OK. Mr. Lowery, let me ask you and Mr. 
Marchick this. When we consider the option of dividing 
countries into more concerning and less concerning, is it 
accurate to say that risky actors may come from friendly 
countries and still warrant a review by CFIUS?
    Mr. Lowery. Yes, it is. So the way the system works now is 
that--and I think it should remain this--is that a foreign 
investment comes into the United States, it comes from a 
different country, because it is foreign, and the intelligence 
agencies try to basically figure out how much of a threat is 
it.
    So if the threat is going to be a lighter threat, if it 
comes from the United Kingdom and happens to be a purely 
private company, but it may be a much heavier threat if it 
comes from China, and it is whether it is private--to Mr. 
Sherman's point earlier--or it is a government-controlled 
company, the threat level is going to go dramatically up.
    That is how CFIUS is actually doing its calculation. They 
are looking at that threat, and then they look at the 
vulnerability of the asset that is being purchased. I was 
involved in a transaction that was coming from a NATO ally, 
where they were purchasing something in the United States, and 
we didn't allow that transaction to occur under CFIUS, and it 
was because the asset that was being purchased was so 
sensitive. The purchaser wasn't sensitive. It wasn't a problem. 
It was what they were buying was a problem, and so we didn't 
allow it to happen.
    Now, that had nothing to do with China. I promise you. It 
was a NATO country. But it just suggests sometimes it is not as 
clear cut as deciding which countries and what--but that is why 
there is a process.
    Mr. Williams. I have 16 seconds, Mr. Marchick.
    Mr. Marchick. I agree with Clay. There is a balancing 
between the country of origin, the buyer, and the sensitivity 
of the asset, and CFIUS needs to weigh those factors.
    Mr. Williams. Thank you. I yield my time.
    Chairman Barr. Mr. Pittenger is recognized.
    Mr. Pittenger. I would like to thank each of you for being 
here today. I value your input. We have the last several months 
and we will continue to modify it. I hope that all the members 
will take a hard look at version 3.0 and see the modifications 
we have already made to industry, because I am a free and fair-
market guy, and I believe in capital investments. I have the 
largest Chinese owned hog processing plant in the world in my 
district. So I welcome those investments. Those are 5,000 
people who have good jobs there. I don't want to discourage 
that whatsoever. So don't hear my interest in this in any other 
realm.
    I would say that we are not alone in our concern. Japan has 
real concerns in this regard, Germany, the U.K., European 
Union, Australia. We are all about addressing a major 
exploitation of our IP. To that end, it is important that we 
try to lead the way and to get it done right.
    I would like to say that one part of our bill that is 
included as an exemption that really makes it more marketable, 
more accessible for companies when we have other countries who 
have the same standards that we have. It is incentive for them 
to address these issues, and as such, they have a minor form 
they have to fill out, in essence, and don't have to go through 
the process.
    I would ask you, Mr. Lowery, is the CFIUS process voluntary 
or mandated?
    Mr. Lowery. It is currently a voluntary process, but there 
are ways to bring companies into it.
    Mr. Pittenger. Yes, sir. If after the fact that there is 
some opportunity to review, if a question is raised, but it is 
really a voluntary process. So we are really not talking about 
20,000 applications or concerns that would necessarily come in 
Treasury. From my discussions, it doesn't expect anything close 
to that, because it is a voluntary process. It isn't mandated.
    So I would say to each of us, let's continue to work 
together. I would, Ms. Cinelli, you wanted to make a comment 
earlier I could tell, and I just want to give you a moment to 
do that.
    Ms. Cinelli. Thank you very much, sir. It is a very 
interesting comment on the transaction that you were talking 
about. Just from a very practical perspective, when people put 
deals together and there are CFIUS closing conditions, which 
some do get inserted, there are usually also provisions for 
what we call closing over the condition.
    So from a very practical perspective, if you were to get 
the information that Mr. Marchick was talking about where it 
was a more administrative process that was impeding the 
finalization, just as a practical matter, the parties believe 
the risk would be appropriate in that sense, and they would 
close over the condition, in the sense it would not impede the 
investment, they would stay to the schedule.
    Where some challenges may arise sometimes is if there isn't 
a particular view from CFIUS, and maybe they haven't been as 
clear that it is an administrative matter, then the parties may 
hesitate. But even in those circumstances, in my experience, a 
large number of transactions move forward even if there is a 
CFIUS closing condition. It is considered part of a business 
calculation, just like tax and any other consideration. Thank 
you.
    Mr. Marchick. I would just add, I agree with that. But in 
our experience, we are a firm that doesn't like to close unless 
the Government says you can close.
    Mr. Pittenger. Mr. Brown, would you like to make a closing 
comment?
    Mr. Brown. I am glad that this committee has taken this 
issue so seriously, so my thanks to Representative Heck, 
Chairman Barr, you for taking the leadership on this issue to 
make sure that we do something. Because the fact that the bill 
has some areas that we may want to improve is certainly no 
reason not to move forward and strengthen national security. So 
I am excited about what I am--
    Mr. Pittenger. Do you have any concerns in terms of outcome 
of what may or may not happen in a bill that would allow 
further exploitation?
    Mr. Brown. As several of you have already commented, no 
single action we take is comprehensive. So I think we need to 
move forward with improving this bill, and then we need to say 
what else do we need to do to take care of the threat, export 
controls we have covered here in depth, but then as I became a 
broken record, we have also have to look at what are we doing 
to invest to make sure we are the source of innovation in this 
country.
    Mr. Pittenger. I think we all agree that export control and 
CFIUS play a vital role, and they both need to be enhanced. 
Frankly, export control is the front line defense, from my 
point of view.
    Thank you. I yield back.
    Chairman Barr. Thank you, Mr. Pittenger. And Mr. 
Hollingsworth, you are recognized for a second round.
    Mr. Hollingsworth. Well, as I said before, much has been 
said, so I will be the once more with enthusiasm here at the 
very end. I really appreciate everybody's expertise. A couple 
of things I wanted to say. I wanted to reiterate exactly what 
Mr. Heck has been a vocal advocate for and I, as well, in 
increasing R&D spending, both on the public side and whatever 
we can do to engender more on the private side. The source of 
our innovation in the long run are truly those investments.
    I wanted to comment on what Ms. Cinelli said, as well. 
Let's be fair to our friends over at Commerce. The goal is not 
to have everybody submit a letter to the Government when they 
seek to do a transaction that is across a border. The goal is 
to make sure that we limit it to those specific instances and 
not have everybody suddenly submitting forms just because they 
happen to go across a random geographic border.
    I think it is really important to say there are exemptions 
in place, but there are exemptions in place for good reason. 
Again, I think we come back to this point which all of us have 
talked about in narrowing down the focus so that we capture 
every single transaction that could be a problem, but not one 
more transaction than that. That is the goal.
    I wanted to reiterate what Mr. Marchick said. I have bought 
and sold a lot of companies. Nowhere near what Carlyle has, by 
the way. Trying to--
    Mr. Marchick. We have a few more you can look at.
    Mr. Hollingsworth. Right, and really healthy valuations, I 
am sure. Trying to convince a buyer to close over conditions is 
just one more hurdle in a transaction, and not always an easy 
proposition, especially with something as big and onerous as 
Federal Government standing at the side of that.
    So I wanted to just come back to this very central thing. 
One, I don't believe we should do nothing. I think we should 
take steps to enhance national security. Two, I do think that 
we should address the gaps in export control and utilize that, 
as Mr. Pittenger said, front-line measure and have a robust 
list, a clear list of these are the things that are really 
important to us to hold onto.
    But, three, I want to come back to this underlying point, 
and I think it was touched on a few minutes ago, which is, what 
we are really concerned about is technology transfer. CFIUS 
uses corporate transactions as a proxy to understand what might 
be happening underneath that, underneath the hood in terms of 
technology transfer. I think export controls, in a very real 
way, gets at the actual underlying transaction we are worried 
about.
    I want to make sure that we fully utilize those resources 
and don't build an extra super-structure over top of that and 
use a proxy, when we could just use the underlying problem that 
we want to deal with.
    I think the last point--and we have all talked about it--is 
making sure that we stay very, very focused here, because I did 
worry--and, Mr. Brown, I agree with so much of what you said 
and so many great points, but when you started to list the 
things that could be on an actual export control list, there is 
so much pure academic research that theoretically sometime in 
the future could have a military application. I don't want to 
start putting everything on the list because it might end up in 
the hands of a military use later on.
    I want to make sure that we are really focused on the 
things that we think are proximate or near-term or could be, 
because I don't want to end up with a list that just basically 
says everything. Then we get to the point where everybody is 
submitting a letter, where everybody feels like they have to go 
through a process, where everybody pays the $300,000 fee to 
enter CFIUS. I want to make sure that we get through and allow 
American businesses to succeed here, allow them to succeed 
around the world, so that we can reinvest in all these 
important things that we talk about in R&D.
    Private companies have to pick up the slack from a Federal 
Government that is not investing in R&D the same way they were 
20 or 30 years ago. I don't want to put them at a disadvantage 
to be able to do that because of the work that we do here. We 
already fail to fund in the full, robust way I think we should. 
I don't want to then tie up companies' hands, paying more--and 
forgive me, for those of you that are lawyers--but paying more 
legal fees instead of paying more researchers and R&D and more 
facilities and employing more Hoosiers back home.
    I think these are all really important points. As Mr. Brown 
well said, everybody is taking this very seriously. As Mr. Heck 
and Mr. Pittenger have both said, they have made tremendous 
strides, invested unbelievable diligence in making sure we get 
to the right outcomes here.
    I think we are very close. I think Section 109 language is 
really important to making sure that we narrow the Section 3.5 
issue that I have. I just look forward to continuing to work 
with everybody and appreciate the testimony today.
    Chairman Barr. Thank you. Gentleman yields back. I want to 
thank all of my colleagues for their valuable contributions and 
important, insightful questions that helped us understand this 
a little bit better. Thank our witnesses for their excellent 
testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is now adjourned.
    [Whereupon, at 4:04 p.m., the subcommittee was adjourned.]

                    A P P E N D I X



                             April 12, 2018
                             
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