    [Senate Hearing 116-122]
    [From the U.S. Government Publishing Office]

                                                          S. Hrg. 116-122

           EXPORT CONTROL REFORM IMPLEMENTATION: OUTSIDE PERSPECTIVES

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

    CONDUCTING OVERSIGHT ON IMPLEMENTATION OF THE EXPORT CONTROL REFORM ACT
                                     (ECRA)

                                   __________

                                 JULY 18, 2019

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                    Available at: https: //www.govinfo.gov /

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    39-542 PDF                  WASHINGTON : 2020

    -----------------------------------------------------------------------------

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                          MIKE CRAPO, Idaho, Chairman

    RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
    PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
    TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
    BEN SASSE, Nebraska                  JON TESTER, Montana
    TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
    MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
    DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
    THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
    JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
    MARTHA McSALLY, Arizona              DOUG JONES, Alabama
    JERRY MORAN, Kansas                  TINA SMITH, Minnesota
    KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                         Gregg Richard, Staff Director

           John V. O'Hara, Chief Counsel for National Security Policy

                   James Guiliano, Professional Staff Member

                Laura Swanson, Democratic Deputy Staff Director

                   Colin McGinnis, Democratic Policy Director

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                        Charles J. Moffat, Hearing Clerk

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                            THURSDAY, JULY 18, 2019

                                                                       Page

    Opening statement of Chairman Crapo..............................     1
        Prepared statement...........................................    21

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     3
            Prepared statement.......................................    22
        Senator Tester...............................................     4

                                   WITNESSES

    Eric L. Hirschhorn, Former Under Secretary for Industry and
      Security, Department of Commerce...............................     5
        Prepared statement...........................................    23
        Responses to written questions of:
            Chairman Crapo...........................................    35
            Senator Brown............................................    39
            Senator Warren...........................................    39
            Senator Cortez Masto.....................................    40
            Senator Sinema...........................................    43
    Nova J. Daly, Former Deputy Assistant Secretary of Treasury for
      Investment Security (2006-2009) and Senior Public Policy
      Advisor, Wiley Rein LLP........................................     7
        Prepared statement...........................................    27
        Responses to written questions of:
            Chairman Crapo...........................................    43
            Senator Brown............................................    47
            Senator Warren...........................................    49
            Senator Cortez Masto.....................................    51
            Senator Sinema...........................................    52
    Ben Buchanan, Ph.D., Assistant Teaching Professor, School of
      Foreign Service Senior Faculty Fellow, Center for Security and
      Emerging Technology, Georgetown University.....................     9
        Prepared statement...........................................    32
        Responses to written questions of:
            Chairman Crapo...........................................    53
            Senator Warren...........................................    54
            Senator Sinema...........................................    55

                  Additional Material Supplied for the Record

    Letter submitted by Dennis Ralston, Sr. Director--Government
      Affairs and Cooperative R&D, KLA...............................    56

                                     (iii)

           EXPORT CONTROL REFORM IMPLEMENTATION: OUTSIDE PERSPECTIVES

                                  ----------

                            THURSDAY, JULY 18, 2019

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10:04 a.m. in room SD-538, Dirksen
    Senate Office Building, Hon. Mike Crapo, Chairman of the
    Committee, presiding.

                OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

        Chairman Crapo. The hearing will come to order.
        No one can dispute that technological advances are of vital
    importance to United States progress and development, where
    progress in knowledge and innovations undergird the growth of
    our U.S. productivity.
        The U.S.-China Commission found that about half of the U.S.
    GDP and two-thirds of its productivity gains is attributable to
    U.S. technological improvements.
        In August of 2018, the President signed the Foreign
    Investment Review Modernization Act, called ``FIRRMA,'' and the
    Export Control Reform Act, known as ``ECRA,'' into law.
        FIRRMA is designed to strengthen the existing regulatory
    architecture in significant ways to deal with inbound foreign
    investments that would have the potential to threaten U.S.
    national security interests.
        ECRA importantly reauthorizes an otherwise moribund Export
    Administration Act, continued only by annual reissuances of
    Presidential national security declarations.
        It authorizes the Bureau of Industry and Security, or BIS,
    at Commerce to update controls on exports designed to prevent
    certain U.S. dual-use technologies, lower-level military items,
    and other things from ending up in the wrong hands.
        These two important, hugely bipartisan bills were intended,
    in no small part, to ensure that with proper controls in place
    to establish highly guarded inward and outward regimes, a
    productive relationship between the United States and China is
    not only possible, but could be of the highest value in terms
    of global prosperity and security.
        Today's hearing picks up where the Committee left off when
    it last looked at assessing investment controls on technology
    in its June 4th hearing on ``Confronting Threats from China.''
        On June 4th, we examined China's intention to secure global
    technological leadership for itself, with a particular emphasis
    on some of its inbound foreign direct investment strategies,
    particularly into the U.S. semiconductor industry.
        Today the Committee shifts gears slightly to examine
    control issues surrounding exports of things outbound from the
    United States and other re-exports or transfers that may occur
    abroad.
        Right now there is a raft of export control regulation on
    the horizon at the Commerce Department.
        So far BIS is actively engaged on two rulemaking fronts
    covering ``emerging and foundational technologies,'' which
    include technologies from such sectors as artificial
    intelligence, computing, additive manufacturing, data
    analytics, robotics, surveillance, and a long list of others.
        Importantly, the items that BIS designates as ``emerging
    technology'' will also be deemed to be ``critical technology''
    under FIRRMA and subject many potential inbound investment
    deals to CFIUS review notification requirements.
        The current rulemaking under consideration at BIS is not
    set in stone.
        It is busy poring over a myriad of industry and
    governmental comments that will inform its application of
    strict controls over emerging technologies, which industry will
    use to understand to whom it can transfer these technologies,
    who can otherwise use them, and who can even research them.
        The Committee has before it a very accomplished panel of
    witnesses assembled to help us pull apart the underlying risks
    associated with the United States continuing its robust
    international economic relationships, including that with
    China, against preserving U.S. technological leadership over
    these emerging and foundational technologies and some of the
    more sensitive items that that would produce.
        In the past, export controls sometimes have not been able
    to keep up with innovation, and this problem is exacerbated by
    today's pace of advancements, particularly in ``artificial
    intelligence,'' which owing to its nature is itself a difficult
    sector to control.
        Considering that BIS is very unlikely to designate all
    artificial intelligence technology, we are fortunate to have
    Dr. Buchanan here today to help the Committee better understand
    what ``artificial intelligence'' means, how it works, and why
    or why not certain aspects are more controllable than others.
        Our professional export control experts, Mr. Hirschhorn and
    Mr. Daly, are expected to offer their assessments on how BIS
    may establish controls that address emerging and foundational
    technologies, while preserving the innovative capacity of the
    United States.
        Before I turn to Senator Brown for his statement, let me
    indicate that I am going to have to step out for hopefully not
    too long to go to the Judiciary Committee where legislation
    dealing with AML BSA issues and other aspects that are of great
    interest and jurisdiction of this Committee are being
    considered at this moment. So I am going to have to step down
    there. I will turn it over to you, Senator Brown, and please
    take charge while I am gong.
        Senator Brown. [Presiding.] I will give my opening
    statement, then call on you, and I will start with Senator
    Toomey if Senator Crapo is not back for questions if you are
    here. If you are not, then I will start.
        Senator Tester. Mr. Chairman, before you leave, I have a
    very quick opening statement after Senator Brown, a minute.
    Would that be OK?
        Senator Brown. Sure.

               OPENING STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thanks to Chairman Crapo for setting this
    hearing up, and welcome, Mr. Hirschhorn, Mr. Daly, and Mr.
    Buchanan. Thank you for your role in all of this over the
    years.
        Congress passed ECRA last year, the Export Control Reform
    Act, to strengthen our country's ability to protect technology
    that is critical to our national security from being stolen by
    countries like China. We did that through creating a permanent
    statutory basis for U.S. export controls, which we passed
    alongside FIRRMA, and thank you, Mr. Hirschhorn, especially for
    your work on that, to get CFIUS more authority to look at a
    broader range of transactions. We passed both of these to
    strengthen our national security and give us stronger tools to
    protect ourselves from countries trying to get their hands on
    our most sensitive technologies.
        Today, a year later, this hearing will help us to assess
    ECRA is being appropriately implemented and enforced and
    whether the system has the resources to get the job done. That
    oversight of implementation is a very important function of
    this Committee.
        In ECRA, we included provisions designed to address
    emerging and foundational technologies. We know how fast
    technology changes. We know we needed tools that would evolve
    with those changes. Congress also wanted to make sure that the
    identification of these technologies remains an ongoing process
    and that new controls would be targeted to technologies that
    are considered essential to our national security.
        The law also directed Federal agencies to take into account
    foreign development and availability of those technologies and
    the effect controls would have on the development of
    technologies within the United States. We want to protect U.S.
    national security priorities through tough and appropriate
    export controls. Ultimately, important national security and
    law enforcement considerations should, of course, be paramount,
    but kept separate from trade and economic considerations.
        Unfortunately, as with its treatment of ZTE and Huawei,
    this Administration seems to be failing that crucial test.
    Although export control decisions can appear to be simple, each
    requires a complex policy and legal analysis, as you know, ones
    that evolve statutes, regulations, international commitments,
    intelligence and law enforcement, industrial base implications,
    license administration, foreign availability, and multilateral
    and bilateral foreign policy issues. The technologies we are
    looking at are often complex, and they are constantly evolving.
    Technology that were once sensitive become ubiquitous.
    Commercial technologies that are not normally sensitive can
    still be applied to new uses or by end-use users of concern in
    ways that could threaten our national security. Concerns about
    destinations and users and end uses vary widely and change
    consistently.
        This, in other words, as you all know better than others,
    is complicated stuff, and we need to get it right.
        As Commerce proceeds with its rulemaking process in
    emerging and foundational technologies, this Committee must
    ensure that Commerce hews to the standards established in ECRA.
    It is hard to have a conversation about export controls and
    emerging technologies without addressing the role that China
    plays in these areas.
        Through its Belt and Road Initiative, its Made in China
    2025 Initiative, China executes ambitious plans to develop new
    technology and manufacturing capabilities. It is investing
    heavily in artificial intelligence and 5G infrastructure. It is
    reported to be investing up to $10 billion in a national
    quantum information lab, and it is 2 years into an additive
    manufacturing plan to create a $3 billion industry by next
    year, and we see what additive manufacturing has done in places
    like Youngstown, Ohio, and elsewhere in this country.
        China is focused on dominating the technology and
    manufacturing sectors in the decades to come. That should have
    us worried, especially when we remember China's history of
    using the same technologies it develops for economic purposes
    to also help modernize its military, a key driver of our
    efforts in the last couple years to update CFIUS and export
    controls. They should remain a focus of our executive agencies
    as they set controls and issue licenses under new export
    control laws and regulations.
        China's sometimes illegal acquisition strategies require a
    forceful response from our Government and our allies. In that
    sense, the United States is not alone in the issues it faces
    from China. That is why as Commerce and other agencies identify
    and consider controls when foundational and emerging
    technologies, it is important that any new unilateral controls
    be implemented with an eye toward multilateral agreements.
    Multilateral controls like multilateral sanctions are much more
    effective if they are imposed by and with our allies and if
    control standards are harmonized as much as possible.
        I think all of us on this Committee in both parties are
    concerned with the unilateral nature of so much that our
    country is doing internationally. This is a case where it
    cannot be so.
        Senator Tester.

                    STATEMENT OF SENATOR JON TESTER

        Senator Tester. Thank you, Ranking Member Brown, and I want
    to thank you and the Chairman for having this hearing. Very,
    very quickly, I want to thank all the folks on the panel who
    are about to testify. I think it is interesting that there is
    nobody from the Administration here, and the fact is that
    export control reform implementation is critically important.
    Its impacts on national security are important. How we strike a
    balance between national security and export competitiveness is
    critically important, yet the Administration is not here for us
    to ask questions of.
        I think this panel is great, and I think you should be
    here. But the Administration needs to be here to answer
    questions. If we are going to do our job as the legislative
    branch with the checks and balances, I do not think Democrats
    or Republicans or Independents should tolerate the fact--and
    this is not the first Committee hearing this has happened to me
    that the Administration does not send somebody here at our
    request. And I will make the assumption that the Chairman and
    Ranking Member did request people from the Administration to be
    here.
        Senator Brown. Senator Tester, thank you. I will also
    emphasize that to Senator Crapo, to Chairman Crapo. You are
    right. When I mentioned in my opening statement about the
    importance of oversight, that always should include the people
    who are actually administering the laws. Not all of you--some
    of you have done that in the past, and your expertise is
    really, really important, but that is a big part of it. So
    thank you, Jon.
        Let me introduce the three panelists, and we will begin.
    Mr. Hirschhorn is former Under Secretary for Industry and
    Security at Commerce, worked on FIRRMA, worked on ECRA. Thank
    you for that.
        We will turn to Mr. Daly then as former Deputy Assistant
    Secretary for Investment Security at Treasury, and then
    conclude with Mr. Buchanan on behalf of the Center for Security
    and Emerging Technology.
        Mr. Hirschhorn, begin please.

      STATEMENT OF ERIC L. HIRSCHHORN, FORMER UNDER SECRETARY FOR
             INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE

        Mr. Hirschhorn. Thank you, Senator Brown, Senator Toomey.
    It is an honor to be here.
        The export control system's job is what I always describe
    as ``the other side of the coin'' from that of the Department
    of Defense. Defense's job is to make sure that if our soldiers
    must go onto the battlefield, they carry the most advanced,
    most reliable weapons we can give them. The job of BIS and its
    sister agencies is to ensure that our adversaries on that
    battlefield do not have the very best. That long has been the
    central aim of our export control system, and we seek this
    objective by controlling the transfer of sensitive technology
    to those who might employ it against our interests.
        ECRA governs exports and re-exports of so-called dual-use
    technology, technology having recognized civilian as well as
    military applications, and of low-level military items. The
    existing control system has worked well, and ECRA will improve
    it further.
        ECRA continues the system's traditional emphasis on
    military security and foreign policy. The statute also
    expresses a preference for multilateral over unilateral
    controls, as Senator Brown mentioned, and cautions against
    controls that will adversely affect the U.S. competitive
    position in global markets.
        Importantly, ECRA requires the executive branch to identify
    and control exports of emerging and foundational technologies
    that are essential to the national security.
        In reality, the executive branch has been controlling
    emerging technologies for decades. The perennial problem is
    that until a new technology is being applied in fairly specific
    ways, it is difficult to write regulations that are
    sufficiently precise to be meaningful. For one thing, due
    process requires the kind of specificity that one sees in
    entries on the Commerce Control List and the U.S. Munitions
    List.
        And beyond legal considerations, if we unilaterally control
    any technology too tightly, whether it is emerging or not,
    there is a good chance that we will drive research and
    development, and ultimately production as well, offshore. So
    the bottom line is that if and when potential military
    applications of a new technology begin to jell, it is those
    applications that we should control and do so multilaterally,
    if that is at all possible.
        Foundational technologies are at the other end of the
    developmental spectrum in that it may be too late, rather than
    too early, to control them effectively. By definition, their
    uses are widespread and they typically are available outside
    the United States. Often, most or all export restrictions on
    them--unilateral as well as multilateral--have been removed or
    sharply curtailed.
        A frequently cited example is that of semiconductors being
    sold to China. Yes, China is seeking cutting-edge chips for
    military purposes. Those chips are subject to tight,
    multilateral controls, however, and China cannot obtain them
    legally.
        But China also seeks large volumes of chips and other
    commodities whose technology is several generations old,
    principally for use in consumer products in furtherance of its
    Made in China 2025 effort. These items, and the technology for
    their production, are subject to reduced controls, or even de
    facto decontrol, by the multilateral groups to which the United
    States belongs.
        We can recontrol the U.S.-origin technologies unilaterally
    and thereby cutoff the sale of the resulting commodities, but
    it is far from certain that our allies would agree to do the
    same. China prefers U.S. technology. We know that. But if U.S.-
    based supplies were unavailable, China doubtless would buy
    elsewhere.
        I am not saying we should not do this, but I do not think
    we should kid ourselves about how difficult it is to do it
    effectively.
        Given where I spent 7 years until 2 years ago, I am not
    going to comment on particular China enforcement cases. As a
    general matter, though, I do not think it is sound policy to
    treat export controls, which are imposed for military and
    foreign policy reasons, as an element of our commercial trade
    policy to be bargained over along with sales of beef, chicken,
    soybeans, and the like. And it is even worse to treat the
    enforcement of export controls in that manner. It sends the
    wrong message to those who would violate our laws and put our
    country at risk. It places the lives of our uniformed men and
    women in jeopardy as well as undercutting our law enforcement
    agencies and respect for the rule of law.
        So, in conclusion, I hope this Committee will do four
    things: give ECRA time to work, and I think it will work well;
    continue your valuable oversight of the export control process;
    ensure that existing control categories are reviewed regularly
    and revised to reflect changing threats as well as evolving
    technology; and, finally, give BIS the resources it needs to do
    the job that you have given it.
        Thank you very much. I will be happy to hear your
    questions.
        Senator Brown. Thank you, Mr. Hirschhorn.
        Mr. Daly, thank you for joining us.

    STATEMENT OF NOVA J. DALY, FORMER DEPUTY ASSISTANT SECRETARY OF
    TREASURY FOR INVESTMENT SECURITY (2006-2009) AND SENIOR PUBLIC
                     POLICY ADVISOR, WILEY REIN LLP

        Mr. Daly. Excellent. Well, I want to thank Chairman Crapo
    and Ranking Member Brown for having me here today, Members of
    Committee. I am deeply honored to appear before you today and
    thank you for the opportunity to testify. The views I express
    today are my own. They do not represent my firm or any clients.
    And before I get into sort of the heart of the matters that
    this Committee is reviewing today, I wanted to applaud this
    Committee for passing ECRA and FIRRMA, excellent bills that
    will help this country better hone in and address our
    adversaries where they try to acquire U.S. critical technology
    through the means of going through a CFIUS process or
    otherwise. These pieces of legislation are seminal course
    corrections.
        In terms of implementation and enforcement of ECRA, I want
    to applaud first off this Administration, especially Secretary
    Ross and Acting Under Secretary of BIS Nazak Nikakhtar, for
    their outstanding work and dedication to the efforts to enforce
    U.S. laws, protect U.S. technology, and also grow the U.S.
    economy. So good work has been done on implementing ECRA and
    BIS. BIS has issued an Advance Notice of Proposed Rulemaking
    identifying 14 categories of emerging technologies and has
    received and is evaluating over 200 comments to that.
        BIS also recently announced that it is going to issue a
    Federal registrar on foundational technologies and will issue
    very soon a proposed rulemaking identifying the first subset of
    emerging technologies.
        Since the start of 2017, BIS itself has initiated over
    2,000 export control investigations, a 21-percent increase; has
    had 89 civil adjudications and 70 criminal prosecutions; and
    conducted more than 2,000 end-use checks on technology sales in
    more than 65 countries. So it is doing the good work.
        So how to establish controls for emerging technology and
    foundational technologies while preserving the domestic
    innovation? Obviously, this is an important and surgical
    exercise that must be done with thorough assessments of U.S.
    innovation, their level of maturity in the United States and in
    allied nations, and also with foreign adversaries. Assessing
    controls requires the engagement of U.S. companies large and
    small and the focus of Congress for oversight.
        And our U.S. allies and members of multilateral export
    control regimes should be willing partners. Ensuring the
    protection of intellectual property, broader global security,
    and the rule of law creates a platform of trust where
    innovation can flourish.
        Now, while we must seek and use all our means for
    multilateral controls, that does not mean the United States
    should not take unilateral action where appropriate. However,
    we must preserve a system in the United States where R&D
    flourishes. It is critical to our innovation and our future.
        Last, I also want to say that identifying emerging and
    foundational technologies also has effects, as the Senators
    have noted, to CFIUS and foreign investment reviews. Once these
    technologies are identified, they are going to be critical
    technologies for which for certain investments will require a
    mandatory declaration.
        So to talk a little bit about the designations of ZTE and
    Huawei, as you know, Huawei was designated in May of 2019. The
    U.S. Government did so after determining that there was
    reasonable cause to believe that it had been involved in
    activities contrary to the United States national security and
    foreign policy interests. I have known Huawei since my time
    running the Committee on Foreign Investment in the United
    States since 2007, and so knowing Huawei then and seeing the
    actions it has taken since that time, I think BIS'
    determination was wholly appropriate.
        That said, the President per his recent announcement, BIS
    will promptly be taking action to issue certain licenses to
    companies that apply, which permit transactions that pose no
    national security risk and are not contrary to the United
    States foreign policy interests.
        The effort to closely scrutinize and restrict transactions
    with Chinese entities that pose national security risks is not
    limited to this Administration. This Congress has taken
    significant action, as noted in the National Defense Authorize
    Act Section 889.
        So what about the effectiveness of ECRA in addressing China
    challenges? I believe that the ECRA-related controls will go a
    long way toward improving U.S. transparency and effectiveness
    in addressing the challenges related to China and its
    persistent diversion tactics. We have seen stronger enforcement
    have good progress. In FIRRMA itself and the passage, we have
    seen a decrease in China's investments in critical technology.
    I myself have been to California and seen first-hand Chinese
    involvement, government-controlled entities wanting to seek
    investment in our critical technology companies. It is
    important we address it because those entities are doing it for
    state purposes, not for commercial purposes.
        Also with the implementation of ECRA, the U.S. policymakers
    will be able to better assess our vulnerabilities of our supply
    chains. I can tell you firsthand I have particular clients who
    are trying to develop and manufacture in the United States, but
    the supply chains to do that technology are not here anymore.
    We are in an extremely vulnerable position, and doing this
    assessment is critical and necessary to knowing where we are
    now and how we need to go in terms of being leaders in
    innovation and technology.
        That said, possible legislative and oversight
    recommendations, in my written testimony I offer a few tools to
    address intellectual property theft and broader powers to deal
    with government-controlled transactions.
        Last, and importantly, oversight by this Committee and
    Congress is critically important, and resources. We have big
    issues in front of us, and we need to put our resources to it,
    and having the person-power to do it critically to do it.
        Thank you for the opportunity to appear before you today. I
    look forward to your questions.
        Senator Brown. Thank you, Mr. Daly.
        Mr. Buchanan, please proceed.

    STATEMENT OF BEN BUCHANAN, Ph.D., ASSISTANT TEACHING PROFESSOR,
      SCHOOL OF FOREIGN SERVICE SENIOR FACULTY FELLOW, CENTER FOR
        SECURITY AND EMERGING TECHNOLOGY, GEORGETOWN UNIVERSITY

        Mr. Buchanan. Thank you, Ranking Member Brown, for having
    me to testify. It is a pleasure to be here. I am an Assistant
    Teaching Professor at the School of Foreign Service and a
    Senior Faculty Fellow at the Center for Security and Emerging
    Technology, both at Georgetown University. My research
    specialty is examining how cybersecurity and artificial
    intelligence shape international security. As this Committee is
    well aware, export controls are legal tools that are applied to
    technology. If either the tool or the technology is not a good
    fit, export controls will fail.
        Given the expertise of my two fellow witnesses on the
    nuances of the tools themselves, I believe I will be of most
    use to the Committee by talking about some of the technologies
    in play and what makes export controls comparatively more or
    less suitable to these technologies. As a way of opening our
    discussion, I will focus on artificial intelligence because I
    think it is one of the most central technologies in play today.
        An analogy can help conceptualize AI. One can imagine two
    ways of teaching a child to perform a task. The first is to
    give very clear instructions in a language the child
    understands about what the task is and how it is to be done.
    The second is to show the child, through a series of examples,
    how the task works and have the child infer important rules and
    patterns necessary to succeed. At various points in children's
    education, they learn different tasks through each of these
    methods.
        Traditional software development, and even some older
    versions of AI, work in a way that is similar to the first
    method. They rely on software developers understanding the
    problem in great depth and then imparting this expertise to the
    system. For example, in a program designed to play chess, the
    software developers may consult with grandmasters to understand
    the optimal strategies for a wide range of situations and then
    program those ideas into the code. Modern AI systems, known as
    machine learning systems, use the second method, the one
    involving inference. In a machine learning system, rather than
    receive clear instructions about how to do the task, software
    developers create an algorithm that determines how the system
    should learn. They then provide the algorithm with lots of
    relevant data and computational power.
        There are thus three parts to a modern machine learning
    system: the algorithm, the data, and the computational power.
    Together, they form an essential triad, and it is worth
    examining each part of this triad for its suitability to export
    controls.
        It is in vogue to say that data is the new oil. From data,
    machine learning systems infer important patterns and nuances
    and determine what success and failure look like. It is thus
    vital that the data provided to the machine learning system be
    plentiful and representative of the problem to be solved in all
    of its complexity.
        A large part of the reason that companies like Google,
    Amazon, and Facebook are successful with the AI systems they
    deploy is because they aggregate gigantic amounts of data. In
    essence, the large data sets these companies assemble provide
    them with a competitive advantage over others. Large companies
    based in other nations, such as China's Baidu, Alibaba, and
    Tencent, derive similar advantages from their data sets. Export
    controls are less valuable in managing this flow of data. This
    is both because companies already have an incentive and tools
    to secure and not share their assembled data and because export
    controls are comparatively ill-equipped for the task relative
    to other tools like classification or contracts.
        Algorithms are the second part of the AI triad. These
    software instructions dictate how the machine learning system
    will learn. There are a wide variety of algorithms, each suited
    to different kinds of tasks, from classifying images to making
    predictions about housing prices, to generation new pictures of
    people who look real but do not actually exist. The algorithmic
    frontier is rich, and a great deal of progress has been made in
    the last 7 years.
        The prevailing ethos is that, once an advance is made,
    researchers post it online and share it with others. In this
    sense, AI research is remarkably open, far more so than the
    fierce competition of the technology industry would normally
    suggest.
        The experience of several decades has shown that Government
    efforts to control the export of computer code are usually
    futile. More generally, I have doubts about the suitability of
    our current list-based export controls, given the changing pace
    of technology and the movement of the algorithmic frontier.
        This brings us to the last part of the triad: computing. It
    is easy to ignore, but it remains vitally important, perhaps
    prohibitively so. In the last 7 years, we have witnessed a
    revolution in computing power applied to machine learning. One
    study by the leading research lab OpenAI indicated that between
    2012 and 2018, the computing power applied to top machine
    learning systems increased by a factor of 300,000 times; if a
    cell phone battery lasted 1 day in 2012 and increased at the
    same rate, that battery would now last 800 years.
        There is much to discuss about why this increase in
    computing power has occurred, but the most salient factor for
    our purposes today is that, unlike algorithms and data,
    computing power is a function of hardware and not software.
    That is, computers are tangible products that are easier to
    manage, including with export controls. My judgment is that, to
    the degree that export controls are relevant to the problem of
    managing AI and other technologies such as 5G, it will be
    controls on this hardware component and likely on the hardware
    that manufactures specialized computer chips for AI.
        To be clear, in order for any such controls to work, they
    must be conducted in many cases in a multilateral fashion with
    allies, given that a great deal of hardware engineering
    expertise is outside the United States.
        I thank you again for holding this hearing, and I look
    forward to your questions.
        Senator Brown. Thank you, Mr. Buchanan.
        We will start the questioning with Senator Toomey.
        Senator Toomey. Thank you, Senator Brown, and thanks to the
    witnesses for joining us.
        I think Senator Tester made the point during the course of
    his comments that part of the goal here must be to strike the
    right balance between limiting exports that would have, you
    know, adverse consequences for our country and maintaining our
    ability to sell other products around the world. And I am not
    sure we are getting that balance right in all cases, so I want
    to give you an example of a case that concerns me a bit and get
    the reaction of our witnesses.
        Lycoming Engines is based in Pennsylvania. They are a
    constituent of mine, and they manufacture piston aircraft
    engines. They are one of America's leading manufacturers of
    piston aircraft engines for general aviation aircraft. And it
    is not a great secret to reveal that the technology at the
    heart of these piston engines is very old. It is many decades
    old. These engines and variations on them have been around for
    many, many decades. And it is equally unsurprising that they
    are shipped all around the world. Every country has some volume
    of general aviation aircraft in the world, and a huge
    percentage of these aircraft operate with Lycoming engines.
        So it was interesting when folks at Lycoming sought to bid
    to provide these very engines on a specific project in China
    that involved unmanned vehicles. They determined that they had
    a legal obligation to get a license. They applied for the
    license to bid on this project, and they were rejected.
        Now, it seems to me that what really makes UAVs interesting
    and special and dangerous potentially are things like the
    software and the sensors and the controls that allow them to be
    manipulated remotely. It is also interesting that Air China
    operates a fleet of Boeing jets that have vastly more
    sophisticated technology than any piston engine for a general
    aviation plane. And not only that, there are hundreds of
    Lycoming engines that are operating in China in manned
    aircraft. These very same engines, the exact same engines, they
    are being flown around in China. For instance, they operate the
    popular Cirrus SR20 aircraft, which is owned by a Chinese
    company that is ultimately owned by the Chinese government. All
    right? So a Chinese aircraft company buys these Lycoming
    engines every day to fly their planes.
        So the idea that this very same engine cannot be sold to a
    Chinese company that is involved in developing UAVs, which are
    not--on the surface, these UAVs are described s intended to
    deliver packages. Anyway, it strikes me that maybe we do not
    have this balance right in terms of restricting technology
    rather than looking at application. When asked about an
    American company providing these engines, the folks at DOD or--
    I am not sure if it was DOD or Commerce that suggested an
    American company could not sell a screwdriver to the Chinese
    effort to build these UAVs.
        So I just want to pose this question to our panel, starting
    with Mr. Hirschhorn. Are we getting the balance right when we
    take such a common, universally operated commodity product like
    this old technology piston engine and say, ah, but you cannot
    sell it for this purpose?
        Mr. Hirschhorn. Well, I am not a bureaucrat anymore, so I
    want to try to refrain from giving you a bureaucratic answer.
    We are party to a 40-nation agreement called the ``Missile
    Technology Control Regime'' that at this point, although
    probably it should not any longer, includes unmanned aerial
    vehicles. And there are two categories. If they have a certain
    payload weight, and can travel a certain distance, they are
    very tightly controlled. We also have knowledge of what is
    called the ``civil-military joinder,'' namely, that China uses
    a lot of technology for both civil and military purposes. And
    since Tiananmen in 1989, we have a statutory prohibition,
    enacted by the Congress, on any sales of military items or
    items for the Chinese military. So when you put all of that
    together, I suspect that is Lycoming's problem.
        Nevertheless, it may be that in this particular case and in
    one-off cases, it would not endanger our national security, but
    when you see the web of policies that have to be observed here,
    you can see why it is a problem.
        Senator Toomey. My question is not really so much whether
    the decision was consistent with laws and regulation. It was
    more of sort of a theoretical question. Do we have it all right
    if this is the outcome that we get?
        Mr. Hirschhorn. I think we largely have it right. Whether
    we have it right in every case I could not say. Whether we have
    it right in this case I could not say. I think if there is a
    belief that this is going to ultimately assist the Chinese
    military, it is our policy--and maybe it should not be our
    policy; that is what you all are here for--not to do anything
    that will assist the Chinese military or modernization of the
    Chinese military. That is what it is. If it is to change, I
    think it would be up to Congress to change it. I doubt that the
    Administration, this one or any one, would change it.
        Senator Toomey. I am out of time. Thank you.
        Senator Brown. Thank you, Senator Toomey.
        Mr. Hirschhorn, ECRA, as you know, requires an interagency
    process to include giving outside stakeholders an opportunity
    to comment as they further define emerging and foundational
    technologies. The categories of technologies listed in BIS'
    ANPRM are complex technical categories. They will drive global
    economies and national security in the coming decades.
        What are the most important things BIS should consider when
    evaluating controls on these categories of technology?
        Mr. Hirschhorn. Well, I think Senator Toomey's point is the
    best, which is getting it right, because it is very easy, even
    with existing technologies, to over- or under-control them. And
    you do not want to do either for the reasons that have been
    expressed by Senators and witnesses this morning.
        In the work I did for 7 years on export control reform, I
    found the input from industry extraordinarily valuable. The
    Commerce Department and its sister agencies put forth proposed
    regulations and said to industry, How does this work? Does this
    work for you? Is it too broad? Are we catching things that are
    sold every day all over the world? Are we leaving things out
    that we ought to control? We did not get too much industry
    input on the last one, but plenty of input where we had it
    wrong.
        I always used to say when I would speak with industry
    groups that, believe it or not, the Government does not always
    get it right on its own. So having that input, which I
    considered valuable, free, and highly professional, did a great
    deal toward making export control reform the success I think it
    was. If we cannot get the input of the people who are making
    this stuff, who are developing this stuff, we cannot simply
    assume that the Government knows enough.
        Senator Brown. Does BIS have the resources it needs to
    address applications and enforcement and controls?
        Mr. Hirschhorn. No, it does not. One of the things I did in
    my time there was to beg, borrow, and steal resources wherever
    I could get them, from the Congress, from other parts of the
    Commerce Department that maybe were a little more flush. It
    is----
        Senator Brown. And that is a continuing challenge?
        Mr. Hirschhorn. BIS is one deep. It is a continuing
    challenge. If the engineer who reviews machine tool
    applications breaks his leg, you cannot go down the hall and
    say to the chemist, ``You are going to do machine tools for the
    next 3 weeks.'' It is one deep, and it needs more resources. I
    think the budget is around $114 million today. It probably
    should be at least $130 million, maybe more.
        Senator Brown. Thank you.
        Mr. Buchanan, a question for you. I will ask about the best
    ways to address China's cybersecurity threats. The
    Administration completed a 301 investigation against China in
    part because of its government's state-sponsored intellectual
    property theft and cyber espionage. As a result of the
    investigation, in an effort to bring China to the negotiating
    table, the Administration proposed--I am sorry, imposed, not
    proposed--imposed tariffs on $260 billion of Chinese imports.
    Those tariffs have been in place for a year. Trade talks with
    China seem to be at an impasse.
        Has any of this gotten the Chinese government to change its
    ways with respect to cybersecurity? Do you see signs of that?
        Mr. Buchanan. Obviously, it is hard to spot operations that
    are meant to be hidden, but I think it is fair to say China
    continues to be an aggressive actor in cyberspace and continues
    to hack targets in the United States as they perceive suits
    their national interest. And this is a pattern that has gone on
    for quite a period of time, and I do not see a lot of evidence
    that has slowed.
        Senator Brown. So answer a bit more broadly. The tariffs on
    some areas, it is clear to me tariffs have not changed Chinese
    behavior. You sort of speaking expansively make the same claim?
        Mr. Buchanan. Yes, I think that is right. I do not claim
    expertise beyond cybersecurity, but I have not seen any
    indication that in response to tariffs Chinese hacking has
    diminished.
        Senator Brown. Can you dig down? Is there a way to impose
    these tariffs narrowly, or not so narrowly, to change Chinese
    behavior in cybersecurity?
        Mr. Buchanan. I would be surprised if the Chinese hackers
    are responding to tariffs. My sense is those are different
    parts of the apparatus. A lot of the Chinese activity we have
    seen in the last couple years, at least in public, are
    particularly broad operations targeting many millions of
    Americans' data in a variety of organizations. That seems to be
    removed from the part of the calculus of the Government that
    would deal with tariffs.
        Senator Brown. OK. Thank you.
        Senator Van Hollen.
        Senator Van Hollen. Thank you, Senator Brown. I thank all
    of you for your testimony today.
        Before I ask about export matters, Mr. Buchanan, I am glad
    to have you here. You wrote an article in 2016--it was co-
    authored--about dealing with Russian interference in our
    elections. And you said, and I quote, that ``The United States
    should put forth a declaratory policy on the vital importance
    of elections, vowing to impose costs on any state that
    interferes with the integrity of the process.'' You went on to
    say that the United States should ``articulate a policy of
    deterrence through cost imposition that would be activated only
    if a foreign actor sought to tip an election to one candidate
    or introduce significant doubt as to the legitimacy of
    democracy.''
        I fully agree with that assessment. Senator Rubio and I
    have introduced a bipartisan bill that has bipartisan support
    that we are trying to get enacted before the 2020 election,
    which sets out a very simple proposition, you know: Mr. Putin,
    if you get caught interfering in our elections again, you will
    face swift, mandatory, and substantial penalties. Is that the
    kind of deterrence that you are talking about?
        Mr. Buchanan. Yes, Senator. As I think we both agree,
    elections are foundational and fundamental to democracy, and my
    colleague Michael Sulmeyer and I warned prior to the 2016
    election that it was important to make it clear to American
    adversaries that this is something we take seriously, something
    we seek to protect, and something that, should they decide to
    interfere, will be met with consequences. And I think your bill
    is a good step in that direction.
        Senator Van Hollen. Thank you. I am just going to renew my
    request to the Chairman and the Ranking Member, along with
    Senator Rubio, that we move forward on the DETER Act in
    Committee.
        Let me now get to the issue of export controls, and, Mr.
    Hirschhorn, and I think listening to all of you, I think I am
    on the same page, which is, if we make a determination that
    something is in our national security interest, for example, if
    we think it is important to put Huawei on the entities list for
    the purpose of preventing exports that could strengthen their
    5G network, if we make that conclusion as a country, then we
    should not then be making tradeoffs with respect to those
    national security interests in order to get concessions on
    tariffs or other trade-related issues. Would you all agree on
    that, starting with Mr. Hirschhorn?
        Mr. Hirschhorn. I would agree very emphatically, and I will
    add that this is not unique to this Administration. On the
    enforcement side, it is unique. But during my service in the
    Obama administration, there were always temptations to put
    export control issues, national security issues on the table as
    part of trade negotiations, and I resisted them successfully.
    It looks like the resistance has not been so successful lately.
        Senator Van Hollen. Would you all agree with that, though,
    that we should not be trading off national security interests
    for some kind of concessions on tariffs or a trade issue?
        Mr. Daly. National security is also economic security. The
    stronger our economy is, the stronger we are as a Nation, the
    more we are able to provide for our military and our national
    security defenses. So having worked in the National Security
    Council, I saw the panoply of issues that come before a
    President and come before an Administration. So, broadly
    speaking, as long as we are pursuing our goal of national
    security, addressing the economic issues is important, too.
        Senator Van Hollen. Mr. Buchanan.
        Mr. Buchanan. I would agree, Senator. I think we should not
    tradeoff between these two goals. I appreciate that there is
    overlap, but I think enforcement that seems to vary with the
    tenor of trade talks undermines the credibility of that
    enforcement.
        Senator Van Hollen. Well, let me just give everyone some
    examples. The President about a year ago--I should say
    Secretary Ross put ZTE--he put a blocking order on ZTE and
    stated that this was in the national security interest of the
    United States because ZTE had violated Iran sanctions. Within a
    short period of time, the President tweeted out, ``I am going
    to remove ZTE from the blocking list because my friend
    President Xi as me to.'' Example number one.
        Number two Huawei, two examples. One, Huawei was also found
    to be in violation of sanctions, and as a result, we have asked
    the Canadians to arrest the CFO of Huawei. And then the
    President says that he would intervene in the arrest of
    Huawei's CFO Sabrina Meng Wanzhou if it helps secure a trade
    deal with China.
        Now, in my view, this is a perfect example, Mr. Hirschhorn,
    of what you say is dangerous, because this undermines the rule
    of law. If we are going to arrest somebody because they
    violated U.S. law, in my view--and I am asking for your
    opinion--it is very worrisome, risky, and counterproductive for
    the President of the United States to suggest that he is going
    to release somebody if he gets a deal or a concession on trade.
    Would you agree with that?
        Mr. Hirschhorn. I agree with that emphatically. There are
    plenty of things that are trade related that can be put on the
    table. Law enforcement and national security do not belong
    there.
        Senator Van Hollen. Let me just say, Mr. Chairman, look, I
    agree with a lot of the efforts this Administration is taking
    with respect to addressing Chinese theft of technology and the
    national security part. I agree with their Huawei policy. But
    it is very, very scary to start trading off national security
    issues and the rule of law and arresting people with respect to
    trade. It is a recipe for getting other countries to grab
    Americans and detain and arrest them as part of an effort to
    extract trade concessions from the United States. Very
    dangerous, and I hope we will all agree that it is a bad idea.
        Thank you.
        Chairman Crapo. [Presiding.] Thank you.
        Senator Jones.
        Senator Jones. Thank you, Mr. Chairman.
        You know, Mr. Chairman, I am so tempted to follow on this
    and talk about how or whether or not all the Mercedes Benz and
    BMWs and Nissans and Toyotas are a threat to national security
    here, but I am going to resist the urge. I have got plenty of
    time to do that in other forums, I think.
        So what I do want to talk to the panel about--and thank you
    all for being here. I apologize for being late. The higher
    education system in my State of Alabama are among the
    universities that are leading the way in emerging technologies
    and specifically nanotechnology. The University of Alabama in
    Birmingham has a Center for Nanoscale Materials and
    Biointegration, and they dive into the uses of nanotechnology
    and how it can be manipulated for commercial use.
        Now, the results of this can transform medical care we
    receive but also military flights. So I do not want them to get
    in trouble. It is a very sensitive issue. So for each of you,
    if you could address a little bit how is the Commerce
    Department and the Federal Government working with these
    universities and other education systems so that they can
    seamlessly and effectively navigate the export control laws? I
    will leave that to anybody.
        Mr. Hirschhorn. I will give you 30 seconds on it. The
    Export Administration Regulations have for many years excluded
    from coverage teaching in catalogue courses by universities and
    associated labs. Moreover, fundamental research is not covered
    by the export control laws. There are a lot of people who
    disagree with that. There is some suggestion that there is a
    First Amendment need for it. But it is the work of graduate
    students on funded projects that really is where there are
    problems, and the Federal Government in my experience is quite
    willing to work with universities. I think universities are not
    always as willing to work with the Federal Government. I think
    some of them tend to view export controls as rules for for-
    profit businesses and not for universities. I think there
    should be closer coordination between universities and the
    Federal Government to make sure that, as you say, they do not
    get themselves in trouble.
        Senator Jones. Right. Anybody want to add anything, either
    of you?
        Mr. Daly. Yeah, I just think it is critically important to
    understand that there are state-led actors who would seek to
    get this point of the spear critical technology,
    nanotechnology, and bring it back to their own home country. So
    being extremely aware of who is involved in what studies and
    involved in what projects and who is funding what research is
    important. So it is important not only for the continuation of
    the great things that are happening in that university and
    their innovation capacity, but also making sure they have
    control of it for the long term.
        Senator Jones. OK. So let me move on to something else that
    I have been very involved in with Members of this Committee,
    and that is trying to update our anti-money-laundering laws
    throughout the systems. In particular, we have been working
    with Senators Warner and Cotton and Rounds involving beneficial
    ownership, which is a real problem when you are trying to trace
    back funds, whether it is in human trafficking, drugs, or
    whatever.
        So as it pertains to the export control laws, I can also
    see where there would be problems with entities who we do not
    really know who they are being controlled. How often in your
    experiences have you seen firms try to hide their true
    ownership in attempts to evade the export control restrictions?
    And are there strategies that we can employ? What are they
    doing? What can we do better? How can we tighten that up if it
    is a problem?
        Mr. Daly. Sure. Yeah, thank you, Senator, for that
    question. It is an excellent one. In the private sector, I have
    seen that occur and also in the course of reviews by the
    Committee on Foreign Investment in the United States. Certainly
    there are in many attempts to obfuscate ownership and control,
    and, thankfully, we have intelligence services here in the
    United States, DNI and 15 other intelligence agencies that can
    collectively be able to identify who is actually in control and
    what levers they are utilizing to either control U.S.
    industries or gain information.
        Senator Jones. Have you seen the bill that we have got
    pending right now and how the data would be collected and
    maintained? Have you had a chance to look at that?
        Mr. Daly. I have not been able to, but I look forward to
    doing it.
        Senator Jones. OK. If you would, just take a look at it and
    see if there is something that particularly we might need to
    tweak a little bit as it pertains to, you know, imports and
    exports to try to help better do this. I would appreciate that.
        Mr. Daly. Absolutely, Senator.
        Senator Jones. Awesome. Thank you, sir.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you, Senator Jones.
        And to the witnesses, again, I apologize for having to slip
    out earlier. I had to go defend the Banking Committee's
    jurisdiction--which we successfully did, by the way.
        Let me just conclude the hearing here with a few questions.
    My first one is for you, Mr. Hirschhorn. Traditionally, our
    export control system has--and I apologize also if this has
    already been covered by the other questions you have been
    asked. But, traditionally, our export control system has
    focused on national security and foreign policy. Should we
    expand the focus of our controls to address issues of economic
    competitiveness, for example, things like the Made In China
    2025 Initiative?
        Mr. Hirschhorn. It is tempting. Certainly in the last 75
    years since World War II, our export control system has been
    focused on three things: national security and foreign policy
    in terms of the philosophy, but also multilateralism, which is
    essential for effectiveness. And many times our allies as well
    as our adversaries have said, ``Oh, you really just want to
    impose these controls so you get an economic competitive
    advantage.'' We have truthfully denied that. Administrations of
    both parties over many decades--and I have been involved in
    this area for 40 years--have truthfully denied that. If we are
    going to expand export controls to cover economic issues and
    economic competitiveness, we are going to have a much harder
    time convincing our allies, who are essential to making any
    controls work, to go along with us.
        So it is a difficult problem. It is a real dilemma.
        Chairman Crapo. Thank you.
        Mr. Daly, do you have a thought on that?
        Mr. Daly. I think we are in a singular period in time where
    we have to address China. So if you look at the emerging
    technology categories, the 14 categories, in many ways they
    mirror China's 2025 strategy of category of industry. So I
    agree with the Honorable Mr. Hirschhorn that we do have to
    engage and seek multilateral efforts to do it. But we have to
    focus on addressing what China is seeking to do and what that
    means to our innovation and innovative capacity well in the
    future, not only for our companies but for the militaries they
    also provide.
        Chairman Crapo. All right. Thank you. And, again, Mr. Daly,
    China engages in unfair trade practices and it artificially
    subsidizes its companies in order to overdevelop and
    overproduce in key sectors such as semiconductors in order to
    dominate the world marketplace.
        In order to protect the economic viability of U.S.
    companies, some propose that we should use export control rules
    to cutoff the flow of basic commercial technology that the
    Chinese need to compete against our companies, even if the
    technology has nothing to do with these, as we have been
    talking, the foreign national security.
        Now, my question is: If we take this approach that we have
    been talking about, what is to prevent a non-U.S. company such
    as Europe or Japan from simply filling in behind? And we have
    seen this issue raised in the semiconductor world recently in
    terms of our reactions to China. Again, is the answer simply
    that we must work in coalition with our allies before we engage
    in this type of export control? Or is there some other aspect
    of this that we could utilize?
        Mr. Daly. Yes, Senator, that is an excellent question, and
    it goes to the whole heart of ECRA and the purpose of it and
    getting the balance right in terms of protecting national
    security and ensuring economic growth.
        Certainly engaging with our multilateral partners to come
    up with a combined agreement on what we should and should not
    export is critical to those efforts and should be ultimately
    fully pursued.
        You know, interestingly enough, too, one of the issues to
    really focus on here is why is the supply chain being
    juggernauted in one particular area? Why does it require us
    providing that good in one country? Why aren't there other
    opportunities and other places to be able to sell that where we
    can have a more balanced equation and less concern about
    longer-term national security issues? So I think that is
    another consumer we have to take upon is: What have we allowed
    our supply chain to be held by?
        Chairman Crapo. Thank you.
        And, Mr. Hirschhorn or Dr. Buchanan, do either of you have
    anything further on this issue you would like to say?
        Mr. Hirschhorn. No. I think Mr. Daly has stated it well. I
    think that ECRA is right in stressing multilateralism. I once
    heard someone say that unilateral controls are like damming
    half a river, and I do not think it is a place we should go
    except in special circumstances.
        Chairman Crapo. Dr. Buchanan?
        Mr. Buchanan. I think my colleagues have covered it well.
        Chairman Crapo. All right. Thank you.
        My next question then is for you, Dr. Buchanan, and I want
    to kind of move into big data. I know that this is a little off
    topic, but the Banking Committee has been dealing with the big
    data issue and on a very broad basis. We have held three
    hearings on privacy in that zone, including on how data is used
    to segment, score, or otherwise make predictions about
    individuals' creditworthiness, employability, or general
    reputation.
        AI is at the center of this discussion, and I am concerned
    with the extent to which individuals' data is collected and
    processed without their knowledge, consent, or any real
    understanding of its scope. I believe individuals should have
    rights over their data similar to those that Europe in the GDPR
    has established, including access, control, the ability to
    correct, and the ability to delete.
        How do AI systems complicate or challenge the ability of
    individuals to exercise data rights?
        Mr. Buchanan. Well, AI systems excel at processing large
    amounts of data, so they increase the incentives for
    corporations and other organizations to try to collect that
    data because then they can make better use of it with such
    systems. They can process it at a scale that otherwise would be
    quite difficult.
        I think it is fair to say that machine learning technology
    is at the core of many of the major tech companies in the world
    today as a result of this. So there is a greater incentive to
    collect the data if you can do more with it, and AI systems
    enable better slicing and dicing of data.
        Chairman Crapo. And in order to protect individuals' rights
    or essentially enhance individuals' rights to control that I
    would like to see us give them over their own personal data,
    are there things that we could do or should do legislatively--
    that we could do legislatively that would help to mitigate this
    ability of AI to overcome those rights?
        Mr. Buchanan. Sure. I think it is important that users have
    not just some kind of abstract legal consent to something, but
    they have a meaningful understanding of how their data is being
    used by companies that collect it, which companies are
    collecting it, what they do with it.
        One example of something that probably deserves--probably
    is not on the mind of many Americans is that as data is
    collected, even if the data itself is not sold or shared,
    inferences from that data can be--so there is a lot of nuance
    on the technology there, again, in part enabled by machine
    learning systems' ability to parse large amounts of data. And
    my sense is that many Americans do not have a good sense of how
    that all works. So meaningful consent to data use certainly
    would be a good thing.
        Chairman Crapo. And that would be including the management
    of the data as well as the sale of the data as well.
        Mr. Buchanan. That is exactly right, the management of the
    data, the security of the data, and also how inferences from
    that data are sold or shared for ad targeting, for example.
        Chairman Crapo. All right. Thank you. Then one last
    question, and I will give--this is also for Mr. Buchanan, but I
    will give Mr. Daly and Mr. Hirschhorn an opportunity to comment
    on this if you would like. And it is still on the data issue.
        Mr. Buchanan, in your testimony you described export
    controls as a relatively ineffective tool in stopping the
    export of algorithms given the rate of innovation and the fact
    that AI is a fairly open resource. You also identified the mass
    of personal and behavioral data as the competitive advantage
    for large technology companies as opposed to their AI system.
        It would seem to me then that the data could also be a real
    vulnerability if, for instance, a foreign adversary were to
    obtain all of Google's consumer data. These companies are
    incentivized to secure their systems, but that may not be
    enough. And my question is: What comprehensive privacy controls
    or practices could help mitigate the risk of big data being
    used in this way?
        Mr. Buchanan. I think it is important to disentangle
    security and privacy here. So for security, I think you are
    quite right to suggest that companies like Google and, indeed,
    many American companies that have large data sets are
    significant targets of foreign intelligence agencies. We have
    seen cases of Chinese hackers targeting Google going back
    almost a decade at this point. So the security of that data is
    definitely something that is vitally important as you suggest.
        Privacy is very important, as your previous question
    suggested. I think it is slightly distinct insofar as there are
    privacy concerns that do not relate to foreign actors but
    relate to the companies themselves. But if your question is
    should we be worried about foreign intelligence agencies trying
    to seek access to large data sets of Americans held by American
    companies, the record unequivocally suggests the answer is,
    yes, we should be concerned.
        Chairman Crapo. Thank you.
        Mr. Daly or Mr. Hirschhorn, do you have anything to add to
    those questions?
        [Witnesses shaking heads.]
        Chairman Crapo. All right. Well, again, I want to thank
    you, all of you, for not only coming here today and sharing
    your insights and wisdom on this with us, but for the support
    and assistance you have given us as we deal with this issue.
    These are obviously becoming more and more important and
    critical as we move forward to deal with--the obvious example
    is China, but to deal with this set of issues across the globe.
    So I appreciate you being here today and look forward to
    working with you in the future.
        And that brings me to this: For Senators wishing to submit
    questions for the record, those questions are due in 1 week, on
    Thursday, July 25th, and we ask that each of you respond to
    these questions if they come in as promptly as you can.
        Again, thank you for being here. This hearing is adjourned.
        [Whereupon, at 11:08 a.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                   PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
        The hearing will come to order.
        No one can dispute that technological advances are of vital
    importance to United States progress and development, where progress in
    knowledge and innovations undergird the growth of U.S. economic
    productivity.
        The U.S. China Commission found that about half the U.S. GDP and
    two-thirds of its productivity gains is attributable to U.S. technology
    improvements.
        In August 2018, the President signed the Foreign Investment Review
    Modernization Act, called ``FIRRMA,'' and the Export Control Reform
    Act, known as ``ECRA'' into law.
        FIRRMA is designed to strengthen the existing regulatory
    architecture in significant ways to deal with inbound foreign
    investments that would have the potential to threaten U.S. national
    security interests.
        ECRA importantly reauthorizes an otherwise moribund Export
    Administration Act, continued only by annual reissuances of
    Presidential national security declarations.
        It authorizes the Bureau of Industry and Security (BIS) at Commerce
    to update controls on exports designed to prevent certain U.S. dual-use
    technologies, lower-level military items and other things from ending
    up in the wrong hands.
        These two important, hugely bipartisan bills were intended, in no
    small part, to ensure that with proper controls in place to establish
    highly guarded inward and outbound regimes, a productive relationship
    between the United States and China is not only possible, but could be
    of the highest value in terms of global prosperity and security.
        Today's hearing picks up from where the Committee left off when it
    last looked at assessing investment controls on technology in its June
    4th hearing on ``Confronting Threats from China.''
        On June 4th, we examined China's intention to secure global
    technological leadership for itself, with a particular emphasis on some
    of its inbound foreign direct investment strategies, particularly into
    the U.S. semiconductor industry.
        Today, the Committee shifts gears slightly to examine control
    issues surrounding exports of things outbound from the United States,
    and other re-exports or transfers that may occur abroad.
        Right now, there is a raft of export control regulation on the
    horizon at the Commerce Department.
        So far, BIS is actively engaged on two rulemaking fronts covering
    ``emerging and foundational technologies,'' which include technologies
    from such sectors as artificial intelligence, computing, additive
    manufacturing, data analytics, robotics, surveillance and a long list
    of others.
        Importantly, items BIS designates as ``emerging technology'' will
    also be deemed to be ``critical technology'' under FIRRMA, and subject
    many potential inbound investment deals to CFIUS review notification
    requirements.
        The current rulemaking under consideration at BIS is not set in
    stone.
        It is busy pouring over a myriad of industry and government
    comments that will inform its application of strict controls over
    emerging technologies, which industry will use to understand to whom it
    can transfer these technologies, who can otherwise use them and who can
    even research them.
        The Committee has before it a very accomplished panel of witnesses
    assembled to help us pull apart the underlying risks associated with
    the United States continuing its robust international economic
    relationships, including that with China, against preserving U.S.
    technological leadership over these emerging and foundational
    technologies and some of the more sensitive items that that would
    produce.
        In the past, export controls sometimes have not been able to keep
    up with innovation, and this problem is exacerbated by today's pace of
    advancements, particularly in the `artificial intelligence' sector,
    which owing to its nature is itself a difficult sector to control.
        Considering that BIS is very unlikely to designate all artificial
    intelligence technology, we are fortunate to have Dr. Buchanan here
    today to help the Committee better understand what ``artificial
    intelligence'' means, how it works, and why or why not certain aspects
    are more controllable than others.
        Our professional export control experts, Mr. Hirschhorn and Mr.
    Daly are expected to offer their assessments on how BIS may establish
    controls that address emerging and foundational technologies, while
    preserving the innovative capacity of the United States.
                                     ______

                  PREPARED STATEMENT OF SENATOR SHERROD BROWN
        Thank you, Chairman Crapo, for holding this hearing, and thank you
    to our witnesses for being here today.
        Last year, Congress passed ECRA, the Export Control Reform Act,
    which provided a permanent statutory basis for U.S. export controls,
    alongside and in tandem with FIRRMA, the Foreign Investment Risk Review
    Modernization Act, to broaden the range of transactions that the CFIUS
    process would assess. Both of these measures exist to serve key U.S.
    national security and foreign policy objectives.
        Today, nearly 1 year later, this hearing will help us to assess our
    current export control regime and whether ECRA is being implemented and
    enforced in a system that is resourced to get the job done.
        In ECRA, Congress included provisions designed to address emerging
    and foundational technologies. In crafting these provisions, Congress
    recognized the dynamic nature of technological innovation and the
    importance of control and enforcement processes that would evolve with
    those changes.
        Congress also sought to ensure that identification of these
    technologies remains an ongoing and organic process, and that new
    controls be limited to technologies that are considered essential to
    U.S. national security.
        It also directed Federal agencies to take into account foreign
    development and availability of those technologies, and the effect
    controls would have on the development of the technologies within the
    United States.
        We want to protect U.S. national security priorities through tough,
    appropriate export controls. Ultimately, important national security
    and law enforcement considerations should be paramount, but kept
    separate from routine trade and economic considerations. Unfortunately,
    as with its treatment of ZTE and Huawei, this Administration seems to
    be failing that crucial test.
        Although export control decisions can appear to be simple, each one
    requires complex policy and legal analyses involving statutes,
    regulations, international commitments, intelligence and law
    enforcement equities, industrial base implications, license
    administration, foreign availability, and multilateral and bilateral
    foreign policy issues.
        The technologies are often complex and evolving. Technologies that
    were once sensitive become ubiquitous. Generally nonsensitive
    commercial technologies can be applied to new uses or by end users of
    concern in ways that can harm our interests. Concerns about
    destinations, end users, and end uses vary widely and change
    constantly. This is, in other words, complicated stuff. And we must get
    it right.
        As Commerce proceeds with its rulemaking process on emerging and
    foundational technologies, this Committee must ensure that Commerce
    hews to the standards established in ECRA.
        It's hard to have a conversation about export controls and emerging
    technologies without addressing the role China plays in these areas.
        Through its Belt and Road Initiative and Made in China 2025
    initiative, China is executing ambitious plans to develop new
    technology and manufacturing capabilities. It is investing in
    artificial intelligence and 5G infrastructure. It is reported to be
    investing $10 billion in a national quantum information lab. And it is
    2 years into an additive manufacturing plan to create a $3 billion
    industry by next year.
        China is laser-focused on dominating technology and manufacturing
    sectors in the decades to come. China's history of diversion of dual-
    use items to help modernize its military and its civil-military fusion
    policies were a key driver of our efforts to update CFIUS and export
    controls last year. They should remain a focus of our executive
    agencies as they set controls and issue licenses under new export
    control laws and regulations.
        China's sometimes illegal acquisition strategies require a forceful
    response from the U.S. Government and our international allies. In that
    sense, the United States is not alone in the issues it faces from
    China.
        That's why, as Commerce and other agencies identify and consider
    controls on emerging and foundational technologies, it's important that
    any new unilateral controls be implemented with an eye toward
    multilateral agreements.
        Multilateral controls--like multilateral sanctions--are much more
    effective if they are imposed by and with our allies, and if control
    standards are harmonized to the degree they can be.
        Thank you. I look forward to hearing from our witnesses.
                                     ______

                    PREPARED STATEMENT OF ERIC L. HIRSCHHORN
                Former Under Secretary for Industry and Security
                             Department of Commerce
                                 July 18, 2019
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    I am honored to be asked to share my thoughts on a number of critical
    current issues in U.S. export controls. My involvement in the field
    spans more than 40 years and includes service in the Administrations of
    Jimmy Carter and Barack Obama, with three decades of private law
    practice in between. Although I provide some export control assistance
    to private clients these days, my comments here reflect my personal
    opinions only.
        The Chairman's invitation requests my ``assessment of current
    implementation and enforcement of ECRA, including related regulations,
    and how the United States may establish controls that address emerging
    and foundational technologies while preserving domestic innovation,''
    as well as my thoughts about ``recent designations of ZTE, Huawei, and
    other Chinese technology companies'' and, ``[w]ith respect to China,
    including the persistent diversion challenges it poses, [my]
    perspectives on whether . . . emerging ECRA-related control structures
    in the United States will be effective in confronting these
    challenges.'' Finally, you ask for ``any other legislative or oversight
    recommendations'' I might have to offer. I will do my best to respond
    to each of these requests.
        When I had the honor of serving as head of the Bureau of Industry
    and Security, I often described BIS' job as being the other side of the
    coin from that of the Department of Defense. DOD's job is to ensure
    that if our soldiers have to go onto the battlefield, they carry the
    most advanced, most reliable weapons and other equipment that we can
    give them. The job of BIS and its sister agencies is to ensure that our
    adversaries on that battlefield do not have the very best. That long
    has been the central aim of our export control system.
        We seek this objective by controlling the transfer of sensitive
    technology to those who might employ it against our interests. The
    Export Control Reform Act--ECRA--wisely points out, though, that the
    imposition of controls should come ``only after full consideration of
    the impact on the economy''\1\ and on U.S. competitiveness in global
    markets,\2\ as well as consideration of whether the technology in
    question is ``widely available from foreign sources.''\3\
    ---------------------------------------------------------------------------
        \1\ Export Control Reform Act of 2018 (ECRA), Pub. L. No. 115-232,
    Sec. 1752(1), 132 Stat. 2210 (codified at 50 U.S.C. Sec. 4811(1)).
        \2\ ECRA Sec. 1752(3) (codified at 50 U.S.C. Sec. 4811(3)).
        \3\ ECRA Sec. 1752(6) (codified at 50 U.S.C. Sec. 4811(6)).
    ---------------------------------------------------------------------------
        Let me note parenthetically that in my 40 years of involvement with
    export controls, I have observed that although there can be vigorous
    disagreements about control policies, individual licenses, and the
    like, the disputes are decidedly not partisan. The Obama
    administration's Export Control Reform initiative offers a good
    example. Some Democrats criticized what we were doing and many
    Republicans were supportive. Indeed, the chairman of the House Foreign
    Affairs Committee, a long serving Republican Member, complained to me
    at one point that we were not moving quickly enough.
    ECRA Implementation and Enforcement
        ECRA was enacted last August. Like most statutes that address
    ongoing issues, it does not have an expiration date. This means that
    its passage ended a decades-long pattern in which the Export
    Administration Act of 1979 would expire, the President would continue
    the Commerce Department's export control authorities under the
    International Emergency Economic Powers Act, renewing the authorities
    annually, until Congress revived the Export Administration Act, the
    export act would expire again, and the pattern would repeat itself.
        ECRA relates to exports from the United States, as well as to
    subsequent reexports and transfers abroad. It establishes a control
    system for so-called dual use items--those having recognized civilian
    as well as military applications--and low-level military items. That
    system is administered by the Department of Commerce in consultation
    with the Departments of Defense, State, and Energy.
        ECRA was enacted with a companion statute called the Foreign
    Investment Risk Review Modernization Act, or FIRRMA, which amends the
    process for reviewing
    foreign investments that are inbound into the United States.\4\ The
    inbound investment review is conducted by CFIUS--the Committee on
    Foreign Investment in the United States. One goal of the CFIUS process,
    which also is a long time goal of the export control system, is to
    ensure that a foreign person who invests in the United States will not
    thereby gain access to technology that we would not allow to be
    exported directly to his or her home country.
    ---------------------------------------------------------------------------
        \4\ Foreign Investment Risk Review Modernization Act of 2018
    (FIRRMA), Pub. L. No. 115-232, Sec.  Sec. 1701-1728, 132 Stat. 2174.
    ---------------------------------------------------------------------------
        The original FIRRMA legislation would have directed CFIUS to draw
    up a sensitive technologies list that would have been similar, but not
    identical, to the lists that already are part of the existing export
    control system. I and others ultimately convinced the sponsors of the
    FIRRMA bill that rather than have a body without export control
    expertise set up a potentially duplicative list, the measure should
    strengthen the existing export control system. Given the already-felt
    need of many in Congress to enact permanent export control legislation,
    Congress sensibly came up with ECRA as the solution.
        What does ECRA do? To a considerable degree, it codifies the
    existing Commerce Department control mechanism, including the changes
    made by the Export Control Reform initiative. For that reason, ECRA
    requires few substantive regulatory changes aside from those involving
    emerging and foundational technologies, which I'll address in a moment.
        ECRA sets out a statement of policy that continues the traditional
    emphasis on military security and foreign policy, including prevention
    of the proliferation of weapons of mass destruction, strengthening our
    defense industrial base, and focusing controls ``on those core
    technologies and other items that are capable of being used to pose a
    serious national security threat to the United States.''\5\ It also
    expresses a preference for multilateral controls over unilateral
    controls, cautions against control measures that will adversely affect
    the U.S. competitive position in global markets, calls for regular
    updates of U.S. controls, encourages strong enforcement, and notes the
    complementarity of the export control and CFIUS processes in
    ``controlling the transfer of critical technologies to . . . foreign
    persons.''\6\
    ---------------------------------------------------------------------------
        \5\ ECRA Sec. 1752(1)-(2) (codified at 50 U.S.C. Sec. 4811(1)-(2)).
        \6\ ECRA Sec. 1752(3)-(10) (codified at 50 U.S.C. Sec. 4811(3)-
    (10)).
    ---------------------------------------------------------------------------
        Substantively, ECRA continues in force the broad existing powers of
    the Commerce Department to administer and enforce controls on exports
    of dual-use and lower-level military items, as well as restrictions on
    activities of U.S. persons in support of foreign military and
    intelligence activities.\7\ ECRA also clarifies and expands
    considerably the tools available to BIS' Office of Export
    Enforcement.\8\
    ---------------------------------------------------------------------------
        \7\ ECRA Sec. 1753 (codified at 50 U.S.C. Sec. 4812).
        \8\ ECRA Sec. Sec. 1754(a)(10), 1761 (codified at 50 U.S.C. Sec.
    Sec. 4813(a)(10), 4820).
    ---------------------------------------------------------------------------
        ECRA requires that licensing decisions take into account whether
    denial of a proposed export will have a significant negative effect on
    the U.S. defense industrial base, as well as whether approval would
    engender ``significant production of items relevant for the defense
    industrial base outside the United States.''\9\
    ---------------------------------------------------------------------------
        \9\ ECRA Sec. 1756(d) (codified at 50 U.S.C. Sec. 4815(d)).
    ---------------------------------------------------------------------------
    Emerging and Foundational Technologies
        ECRA requires the executive branch to identify, and the Commerce
    Department to control exports of, ``emerging and foundational
    technologies that . . . are essential to the national security of the
    United States'' and are not already controlled under one of our
    existing export control programs.\10\ The statute directs that this
    effort take into account such criteria as national security, foreign
    availability, whether a unilateral control would harm domestic research
    and innovation, the effect on our defense industrial base, and the
    willingness of our allies to impose similar restrictions. For a host of
    reasons, I am uncertain whether this exercise will yield significant
    results.
    ---------------------------------------------------------------------------
        \10\ ECRA Sec. 1758 (codified at 50 U.S.C. Sec. 4817).
    ---------------------------------------------------------------------------
        The Commerce Department has thus far taken two initial regulatory
    steps in carrying out this mission. First, an Advance Notice of
    Proposed Rulemaking (ANPRM), seeking comments on possible emerging
    technology controls, was published in November 2018.\11\ The comment
    period closed in January and a substantial number of comments were
    received. I'm told that further action on that rulemaking, as well as
    on a companion ANPRM on foundational technologies, was delayed
    substantially by the Government shutdown earlier this year but that
    progress is being made on both fronts.
    ---------------------------------------------------------------------------
        \11\ 83 Fed. Reg. 58201 (Nov. 19, 2018).
    ---------------------------------------------------------------------------
        Second, BIS promulgated a number of new and revised export controls
    on emerging technology items in May.\12\ These had been agreed to in
    the Wassenaar Arrangement, which is a group of about 40 countries that
    agree upon and then implement ``national security'' controls. Strictly
    speaking, the controls promulgated in May aren't within the new
    procedural framework established by ECRA but I suspect they are
    indicative of the kinds of controls we will see on emerging
    technologies.
    ---------------------------------------------------------------------------
        \12\ 84 Fed. Reg. 23886 (May 23, 2019).
    ---------------------------------------------------------------------------
        Emerging technologies. I agree wholeheartedly that we should impose
    appropriate controls on emerging technologies with national security
    implications and should do so as early in their development as
    practicable. Indeed, that is what the executive branch has been doing
    for decades. For controls to be truly effective, they should be adopted
    by our allies in the four multilateral export control regimes as well
    as unilaterally by the United States.\13\
    ---------------------------------------------------------------------------
        \13\ In addition to the Wassenaar Arrangement, these are the
    Nuclear Suppliers Group, the Australia Group (chemical and biological
    weapons), and the Missile Technology Control Regime.
    ---------------------------------------------------------------------------
        The principal problem with regulating an emerging technology is
    that until it is being applied in fairly specific ways, it's difficult
    to write regulations that are sufficiently precise to be meaningful to
    regulators and exporters. By way of example, the Commerce Department
    can't very well promulgate a regulation that just says, ``Don't send
    advanced materials technology to China'' unless that regulation sets
    out particular applications and technical parameters. A general or
    generic prohibition isn't specific enough to inform exporters what can
    and cannot be sent to China, or to tell enforcement agents,
    prosecutors, judges, or juries when an exporter has broken the law.
        Less than a month ago, the Supreme Court reminded us that ``[i]n
    our constitutional order, a vague law is no law at all''\14\ and that
    ``[v]ague laws contravene the first essential of due process of law
    that statutes must give people of common intelligence fair notice of
    what the law demands of them.''\15\ In short, due process requires that
    a regulation set out clearly and specifically the boundary between what
    is lawful and what is not. That in turn requires the kind of
    specificity that one sees in entries on the Commerce Control List and
    the U.S. Munitions List.
    ---------------------------------------------------------------------------
        \14\ United States v. Davis, 139 S. Ct. 2319, 2323 (2019) (Gorsuch,
    J.).
        \15\ Id. at 2325 (interior quotation marks omitted).
    ---------------------------------------------------------------------------
        And beyond due process considerations, if we unilaterally control
    any technology too tightly, whether it's emerging or well on the way to
    being in common use, there's a good chance that we will drive research
    and development, and ultimately production as well, offshore. This is
    not idle speculation, as we have seen very tight U.S. export controls
    engender the development of foreign competition in such sectors as
    machine tools, commercial space, and commercial thermal imaging.
        Further, we saw in the course of Export Control Reform how
    important it is to seek private sector input on proposed controls. The
    Government's technical experts are knowledgeable but they don't always
    have full information on what currently is available in the global
    marketplace. Input from industry helped ensure that our rules, when
    published in final form, neither over-controlled nor under-controlled
    the technologies in question.
        So when it comes to controlling emerging technologies, the sensible
    approach is for the Government to do what it already has been doing for
    decades and what ECRA is telling it to do now: Follow emerging
    technologies, with a particular eye toward applications that would give
    an adversary a military or intelligence advantage. If and when those
    potential applications begin to become concrete (and hence to be
    suitable subjects for legally enforceable regulation), control those--
    if at all possible, in the context of the multilateral export control
    groups rather than unilaterally. Securing agreement for multilateral
    control is difficult, time-consuming work but it is the most promising
    route to success.
        Foundational technologies. In a sense, foundational technologies
    are at the opposite end of the developmental spectrum from emerging
    technologies. The problem with an emerging technology is that it can be
    too soon to control it if specifics are not available. The problem with
    foundational technologies, by contrast, is that it may be too late to
    control them effectively. By definition, their uses are widespread--so
    much so that they're well known and typically available from numerous
    sources outside the United States. In many instances, most or all
    export restrictions on them--unilateral as well as multilateral--have
    been lifted or sharply curtailed.
        A frequently cited example is that of semiconductors being exported
    to China. Yes, China would love to get its hands on cutting-edge chips
    and use them for military purposes. Those high-end chips are subject to
    tight, multilateral export controls, however, and China cannot obtain
    them legally.
        But China also is very happy to buy large volumes of chips and
    other commodities whose technology is several generations old, for use
    in consumer products in furtherance of its Made in China 2025 effort.
    These items, and the technology needed for their production, no longer
    are viewed as having significant military utility and so are subject to
    reduced controls, or even de facto decontrol, by the multilateral
    groups to which the United States belongs. The United States presumably
    can recontrol the U.S.-origin technologies and cutoff the sale of the
    resulting commodities to China but it's far from certain that our
    allies would agree to do the same. China would prefer to purchase the
    products that use U.S. technology because they know that our goods are
    the most reliable, but if U.S.-based supplies were to become
    unavailable, China would shift its purchases to other sources.
        The problem with controlling foundational technologies, then, is
    their ubiquity. Simply put, the United States ordinarily isn't the only
    potential source, so preventing China from acquiring these items made
    here or based on our technology may hurt U.S. companies, U.S. workers,
    and our overall defense industrial base more than it impairs the
    Chinese effort to dominate us economically.
        Underlying the idea of restricting foundational technology exports
    is the longstanding question whether export controls should be used to
    address only concerns about military security and foreign policy or
    should be expanded to address concerns about economic security or
    economic competitiveness. Since the end of World War II, U.S. export
    controls have been focused on military and foreign policy concerns.
    ECRA continues this approach, stating in section 1752(1)\16\ that
    export controls should be focused on contributions to the military
    potential of possible adversaries and on furthering the foreign policy
    of the United States.
    ---------------------------------------------------------------------------
        \16\ Codified at 50 U.S.C. Sec. 4811(1).
    ---------------------------------------------------------------------------
        Other countries, including not only adversaries but also some of
    our closest friends, have voiced suspicions over the years that our
    controls are intended to advance U.S. commercial and economic goals.
    Successive U.S. Administrations of both parties--truthfully, in my
    view--have denied this forcefully. Although the focus of our controls
    could be expanded, doing so would represent a sharp break from past
    policy, would be inconsistent with the ECRA legislation that Congress
    passed less than a year ago, and would make it more difficult to
    convince our allies to follow our lead.
    China Enforcement Issues
        During my time in the Obama administration, I was involved in the
    development of the Commerce Department case against ZTE. I also was
    aware of the beginnings of Commerce's Huawei investigation. I think it
    best to avoid specific comments on these two matters or other
    individual cases that were pending during my tenure. I will comment,
    though, on the high degree of professionalism among BIS' enforcement
    agents and lawyers. I cannot imagine that the cases they developed
    against these or any other defendants were politically motivated or
    otherwise not strictly ``by the book.'' They may not always be right
    but their motivations are bona fide.
        As a policy matter, I don't think it's a sound idea to treat export
    controls--which are imposed for military security and foreign policy
    reasons--as an element of our commercial trade policy, to be bargained
    over along with sales of beef, chicken, soybeans, and the like. It is
    even worse to treat the enforcement of export controls in that manner.
        Public horse trading of national security and law enforcement for
    sales of agricultural commodities sends the wrong message to those who
    would violate our laws and put our country at risk. Such a course of
    action places the lives of our uniformed men and women in jeopardy as
    well as undercutting the mission of our law enforcement agents and
    public respect for the rule of law.
    Other Issues
        Like my friend and former Commerce colleague, Kevin Wolf, who
    testified here about 6 weeks ago, I think that your best course of
    action is fourfold.

        First, give ECRA time to work--and I expect that it will
            work well.

        Second, continue the Committee's valuable oversight of the
            export control process, including ECRA implementation.

        Third, ensure that existing control categories are reviewed
            regularly and, with industry input, revised to reflect changing
            threats as well as evolving technology development and
            applications.

        Finally, give BIS the resources it needs to do the job that
            Congress has assigned to it. This final point is important.
            BIS' talented and dedicated staff cannot carry out their
            responsibilities without adequate resources. The budget was too
            small when I was there and the substantial workload increase
            since then has greatly outstripped the modest resource increase
            that has accompanied it. Do not starve this valuable operation,
            which punches far above its weight.

        Thank you again for your interest in this important topic. I'd be
    glad to respond to any questions the Committee may have.
                                     ______

                       PREPARED STATEMENT OF NOVA J. DALY
          Former Deputy Assistant Secretary of Treasury for Investment
                              Security (2006-2009)
                  Senior Public Policy Advisor, Wiley Rein LLP
                                 July 18, 2019
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    I am honored to appear before you today and thank you for the
    opportunity to testify. The views I express today are my own and do not
    reflect those of my firm, Wiley Rein LLP, nor any client. My views are
    based on my over 20 years of experience in and outside of Government.
    They include service at the U.S. Treasury Department administering the
    Committee on Foreign Investment in the United States (CFIUS), at the
    National Security Council, on the Senate Finance Committee, and in
    other positions at the U.S. Department of Commerce, as well as work in
    the private sector addressing trade, export control, sanctions, foreign
    investment and multiple national security matters. Again, thank you for
    the opportunity to testify.
        My testimony today will address five matters that this Committee is
    exploring regarding the implementation of U.S. export control reforms,
    notably those under the Export Control Reform Act of 2018 (ECRA).\1\ My
    presentation:
    ---------------------------------------------------------------------------
        \1\ Subtitle B, Part 1, P.L. 115-232.

      I.   Provides an assessment of the current implementation and
    ---------------------------------------------------------------------------
            enforcement of ECRA, including related regulations;

      II.  Describes how the United States may establish controls that
            address emerging and foundational technologies while preserving
            domestic innovation;

      III.  Addresses recent designations of Zhongxing Telecommunications
            Equipment Corporation (ZTE), Huawei Technologies Co. Ltd.
            (Huawei), and other Chinese technology companies;

      IV.  Discusses whether ECRA-related control structures in the United
            States will be effective in confronting the challenges raised
            with respect to China, including the persistent diversion
            challenges China evokes; and

      V.   Proposes possible legislative or oversight recommendations
            regarding the topics covered today.

        Before addressing these matters, I want to applaud this Committee
    for its work in passing ECRA as well as the Foreign Investment Risk
    Review Modernization Act of 2018 (FIRRMA).\2\ These two pieces of
    legislation are historic and seminal ``course corrections,'' providing
    the United States with the ability to address the actions of
    adversarial powers and persons more adroitly and comprehensively in a
    world where economic and cyber security and technological leadership
    are pivotal to core and peripheral U.S. national and economic security
    considerations as well as global peace and order.
    ---------------------------------------------------------------------------
        \2\ Title XVII, P.L. 115-232.
    ---------------------------------------------------------------------------
    I. Assessment of Current Implementation and Enforcement of ECRA,
            including Related Regulations
        In order to appropriately frame this topic, it's important to take
    account of the accomplishments of this Administration and Congress that
    have been undertaken to address U.S. economic and national security
    vulnerabilities. These include the development and passage of ECRA,
    FIRRMA, provisions within the National Defense Authorization Act for
    Fiscal Year 2019 (NDAA),\3\ addressing telecommunication and video
    surveillance vulnerabilities, Section 232 investigations under the
    authority of the Trade Expansion Act of 1962, increased enforcement
    activities by BIS, and executive orders (E.O.) on supply chain security
    \4\ as well as those that seek to stimulate U.S. manufacturing and job
    growth. I applaud the leadership of Senator Crapo in this Committee in
    passing multiple national security legislative actions and oversight,
    as well as that of Senator Brown, including his proposed bill to
    safeguard matters impacting economic and national security.
    ---------------------------------------------------------------------------
        \3\ P.L No: 115-232.
        \4\ E.O. 13873, ``Securing the Information and Communications
    Technology and Services Supply Chain.''
    ---------------------------------------------------------------------------
        As Commerce Secretary Wilber Ross recently noted, ``[e]conomic
    security is essential to national security'' and safeguarding our
    technology ``is not easy, since the boundaries between civilian and
    military technologies become ever more narrow as technologies are
    increasingly omnipresent.''\5\
    ---------------------------------------------------------------------------
        \5\ Remarks by U.S. Commerce Secretary Wilbur L. Ross at the Bureau
    of Industry and Security Annual Conference on Export Controls and
    Security, July 9, 2019.
    ---------------------------------------------------------------------------
        The efforts of this Administration, and specifically Secretary Ross
    and acting Under Secretary for the Bureau of Industry and Security
    (BIS) Nazak Nikakhtar are to be greatly lauded and supported. Given the
    tasks before them \6\ and the degree of increased vulnerabilities to
    U.S. technology, infrastructure and innovation, it is critical that
    additional resources and support be provided to safeguard U.S. national
    security and ensure the rapid implementation of new programs.
    ---------------------------------------------------------------------------
        \6\ Since the start of 2017, BIS has initiated 2,284 export control
    investigations, a 21 percent increase in the number of cases opened
    from the previous two-and-a-half years.
    ---------------------------------------------------------------------------
        Focusing on the implementation of ECRA, on November 19, 2018, BIS
    issued an Advance Notice of Proposed Rulemaking (ANPRM) requesting
    public comment on identifying 14 categories of ``emerging technology.''
    The full list of emerging technologies that BIS identified is available
    at: https://www.federalregister.gov/documents/2018/11/19/2018-25221/
    review-of-controls-for-certain-emerging-technologies.\7\
    ---------------------------------------------------------------------------
        \7\ The list includes: 1. Biotechnology; 2. Artificial intelligence
    (AI); 3. Position, Navigation and Timing (PNT) technology; 4.
    Microprocessor technology; 5. Advanced computing technology; 6. Data
    analytics technology; 7. Quantum information and sensing technology; 8.
    Logistics technology; 9. Additive manufacturing (e.g., 3D printing);
    10. Robotics; 11. Brain-computer interfaces; 12. Hypersonics; 13.
    Advanced Materials; and 14. Advanced surveillance technologies.
    ---------------------------------------------------------------------------
        As BIS relayed, the categories of emerging technology were provided
    for illustrative purposes and comments to them were not restricted just
    to those categories. BIS noted further that any controls on identified
    emerging technologies would not apply broadly to the general categories
    listed in the ANPRM, but rather on a narrow and meaningful subset of
    those categories.
        The ANPRM summarized BIS' objective as follows:

            As controls on exports of technology are a key component of the
            effort to protect sensitive U.S. technology, many sensitive
            technologies are listed on the Commerce Control List (CCL),
            often consistent with the lists maintained by the multilateral
            export control regimes of which the United States is a member.
            Certain technologies, however, may not yet be listed on the CCL
            or controlled multilaterally because they are emerging
            technologies. As such, they have not yet been evaluated for
            their national security impacts. This advance notice of
            proposed rulemaking (ANPRM) seeks public comment on criteria
            for identifying emerging technologies that are essential to
            U.S. national security, for example because they have potential
            conventional weapons, intelligence collection, weapons of mass
            destruction, or terrorist applications or could provide the
            United States with a qualitative military or intelligence
            advantage. Comment on this ANPRM will help inform the
            interagency process to identify and describe such emerging
            technologies. This interagency process is anticipated to result
            in proposed rules for new Export Control Classification Numbers
            (ECCNs) on the CCL.

            Commerce does not seek to expand jurisdiction over technologies
            that are not currently subject to the Export Administration
            Regulations (EAR), such as ``fundamental research'' described
            in  734.8 of the EAR. For purposes of this ANPRM, Commerce
            does not seek to alter existing controls on technology already
            specifically described in the CCL. Such controls would
            generally continue to be addressed through multilateral regimes
            or interagency reviews.

    Following the issuance of the ANPRM, I understand that BIS received
    just over 230 comments and is currently evaluating them and working
    through an interagency process to identify controls, where warranted.
        BIS recently announced that an ANPRM for ``foundational''
    technologies will be issued very soon, and that a proposed rule
    identifying a first subset of controls on ``emerging'' technologies
    will be forthcoming as well. Further, BIS has emphasized throughout
    this regulatory process that the controls that will be implemented will
    be thoughtful, targeted, and focused on ``choke points,'' as opposed to
    broad, blanket controls on technologies initially identified in the
    ANPRM process. BIS has emphasized the critical importance of industry
    input, and that it is taking into account all of the comments that have
    been submitted on emerging technologies.
        BIS has additionally made clear that achieving multilateral
    controls on these technologies would make the most sense and that the
    process of identifying and implementing controls on emerging and
    foundational technologies will be ongoing, consistent with BIS' normal
    rulemaking approach. Toward that end, it should be noted that as a
    result of a Wassenaar Plenary in 2018, in May 2019, BIS published a
    final rule that revises the CCL to implement certain changes made to
    the Wassenaar Arrangement List of Dual-Use Goods and Technologies
    maintained and agreed to by governments participating in the Wassenaar
    Arrangement on Export Controls for Conventional Arms and Dual-Use Goods
    and Technologies (Wassenaar Arrangement).\8\
    ---------------------------------------------------------------------------
        \8\ This rule added five recently developed or developing
    technologies (i.e., emerging technologies) that are essential to the
    national security of the United States to the EAR's CCL, including
    discrete microwave transistors (a major component of wideband
    semiconductors), continuity of operation software, post-quantum
    cryptography, underwater transducers designed to operate as
    hydrophones, and air-launch platforms.
    ---------------------------------------------------------------------------
        Taking on this mandate under the ECRA is no small task. In my view,
    addressing these matters is one of the most critical actions this
    Administration will undertake, and I believe that good progress is
    being made given the critical nature of the efforts, the extent of
    industry input, and the domestic and global impact of BIS'
    determinations.
    II. Establishing Controls that Address Emerging and Foundational
            Technologies While Preserving Domestic Innovation
        The establishment of export controls that address emerging and
    foundational technologies should be a surgical exercise, and as I
    alluded to earlier, in my view probably one of the most important
    undertakings affecting U.S. technology innovation and leadership now
    and well into the future. The task of identifying emerging technologies
    is necessarily complex because these technologies are currently being
    developed (hence ``emerging'') as opposed to more mature technology
    (e.g., foundational).
        The process that BIS should and is undertaking to identify emerging
    technologies includes an assessment of U.S. innovation in various
    categories of emerging technologies, the level of maturity of these
    technologies in the United States and in allied nations, and foreign
    adversarial uses of these emerging technologies. Once BIS and its
    interagency partners develop a good understanding of these facts, they
    can better assess what types of controls, if any, make sense for
    particular emerging technologies with the goal of ultimately also
    gaining agreement on multilateral controls.
        While this task requires an understanding of which technologies are
    broadly disseminated and which are not, it does not mean that
    technology which is available outside of the United States should
    automatically be excluded from targeted unilateral actions to control
    it, where appropriate.
        U.S. allies and members of multilateral export control regimes
    should be willing partners. Ensuring the protection of intellectual
    property, broader global security and the rule of law creates a
    platform of trust where innovation can flourish. Without such a
    platform and without such unity, clearly the United States will need to
    take certain unilateral actions. It is my hope that where the United
    States sees a necessity to protect particular emerging and foundational
    technologies, our allies will step up and work with us. We should all
    encourage active participation and support by our allies.
        Currently, the United States has four multilateral regimes for
    export controls: the Wassenaar Arrangement; the Australia Group; the
    Nuclear Suppliers Group; and the Missile Technology Control Regime.
    Through each of these regimes, countries identify the items to control
    (i.e., products, software, and technology), but the controls must be
    implemented in national legislation. More specifically, while countries
    multilaterally agree on controls of specific items, all countries have
    divergent licensing policies on their exports, some with stringent
    policies restricting exports, and some with more relaxed policies. This
    issue can frustrate the purpose of a multilateral regime because
    companies facing more stringent policies in certain countries cede
    global market share of the controlled items to companies in countries
    with more relaxed policies. The resultant pressure on countries to
    protect market share often leads to an underutilization of export
    control authority. This is not to mention that the controls themselves
    are not effective when countries have different licensing policies.
        I understand that BIS is, however, actively engaging with like-
    minded partners to establish a working group, at the leadership level,
    to discuss coordinating policies on emerging technologies so that U.S.
    policies of control--licensing review--are consistent across countries,
    and that there is better information-sharing among countries as to what
    items are being exported to what countries, and what items are facing
    broader export restrictions. Export controls need to be harmonized if
    they are to be effective.
        Addressing controls on emerging and foundational technologies also
    requires engagement with U.S. companies large and small, the focus of
    Congress to provide resources and oversight, and frankly a certain
    degree of patriotism. U.S. companies must be clear eyed in knowing that
    certain potential ``business'' partners actually represent the
    interests of foreign governments who will use their technology and
    know-how to the economic and military detriment of the United States
    and our allies.
        That said, it is important that we have a system where R&D works
    here in the United States, but also that key technology does not leave
    our shores, especially where there is a national security/military
    nexus. Further, placing appropriate controls on emerging and
    foundational technologies should be undertaken to address China's
    ``Made in China 2025'' initiative. This initiative/plan emphasizes
    China's priorities for high-tech industries as relayed in the 13th Five
    Year Plan. The industries that China has identified include: 1) new
    advanced information technology; 2) automated machine tools & robotics;
    3) aerospace and aeronautical equipment; 4) maritime equipment and
    high-tech shipping; 5) modern rail transport equipment; 6) new-energy
    vehicles and equipment; 7) power equipment; 8) agricultural equipment;
    9) new materials; and 10) biopharma and advanced medical products.
        Last, the identification of emerging and foundational technologies
    will also impact the work of CFIUS and its Pilot Program mandatory
    declarations. Prior to the enactment of FIRRMA, CFIUS was essentially a
    voluntary process, and CFIUS was authorized to review only transactions
    that could result in foreign control of a U.S. business. However, under
    FIRRMA and the Pilot Program, CFIUS is now able to review certain
    noncontrolling investments in U.S. critical technology companies,
    including any acquisition of an equity interest that affords a foreign
    person with access to specified information or governance rights.
    Transactions covered under the Pilot Program include any investment in
    a U.S business engaged in critical technology that operates in 1 of 27
    specifically identified protected industries (Pilot Program
    Industries). If a transaction is covered by the Pilot Program, failure
    to file a ``declaration'' or a full CFIUS notice 45 days prior to
    completion of the transaction could result in civil penalties up to the
    value of the transaction. Once identified by BIS, emerging and
    foundational technologies will also be considered critical technologies
    for the purpose of mandatory CFIUS declarations.
        While at Treasury running the CFIUS process, I saw first-hand the
    limitations of the voluntary process where actors acquired new and
    critical technologies outside of CFIUS' purview. Now with ECRA and
    FIRRMA, we can better safeguard the loss of our critical technologies
    (including emerging and foundational technologies) to those who would
    do harm to our economic and national security. Since my service in
    Government, I have observed an increasing number of transactions
    involving Chinese parties where the technology at issue could be viewed
    to present a lower threat, but the actual threat posed by the
    transaction related to vulnerabilities in the U.S. supply chain. Such
    vulnerabilities augment the ability of rogue actors to leverage the
    U.S. supply chain thereby raising national security concerns,
    including: undercutting direct competitors; eroding the existing U.S.
    technology of acquired companies; impacting the availability of
    upstream inputs; and undermining the ability of downstream purchasers
    and producers to compete.
        Thus, CFIUS is under increased pressure to evaluate supply chain
    factors in its analysis and must also account for China's strategy of
    civil-military integration.\9\
    ---------------------------------------------------------------------------
        \9\ See, ``Washington unnerved by China's `military-civil fusion,'
    '' Kathrin Hille, Financial Times, November 8, 2019.
    ---------------------------------------------------------------------------
    III. The Recent Designations of ZTE, Huawei, and Other Chinese
            Technology Companies
        On May 16, 2019, BIS added Huawei and 68 of its non-U.S. affiliates
    to the Entity List.\10\ The U.S. Government did so after determining
    that there was reasonable cause to believe that Huawei had been
    involved in activities contrary to the national security or foreign
    policy interests of the United States. The specific activities contrary
    to the national security or foreign policy interests of the United
    States include those activities alleged in the Department of Justice's
    public superseding indictment of Huawei, including alleged violations
    of the International Emergency Economic Powers Act (IEEPA) and
    conspiracy to violate IEEPA (by providing prohibited financial services
    to Iran), and obstruction of justice in connection with the
    investigation of those alleged sanctions violations. As a result of its
    placement on the Entity List, the sale or transfer of American
    commodities, software, or technology to Huawei or its affiliates on the
    Entity List requires a license issued by BIS, and a license will be
    presumptively denied. By publicly listing such persons, the Entity List
    is an important tool to protect U.S. national security and foreign
    policy interests.
    ---------------------------------------------------------------------------
        \10\ 15 C.F.R. Pt. 744, Supp.4.
    ---------------------------------------------------------------------------
        Under the President's recent announcement, BIS will be promptly
    taking action to issue certain additional licenses, to companies that
    apply, which permit transactions that pose no national security risk,
    are not contrary to U.S. foreign policy interests, and are used to
    maintain, service and support: (A) widely available commodity chipsets
    and certain electronic integrated circuits; (B) software and tools that
    are generally available to the public; or (C) operating system software
    and applications and system services for mobile devices, as well as
    technology and software necessary to support the operating systems.
    Other license applications that pose no national security threat and
    are not contrary to U.S. foreign policy interests will also be promptly
    considered.
        Prior to Huawei's designation, BIS also targeted ZTE. In March
    2016, ZTE and several of its affiliates were added to the Entity List
    for their involvement in a scheme to reexport U.S.-controlled items to
    Iran. ZTE reached a settlement with BIS in March 2017, paying a total
    of US$1.19 billion in fines, and was subject to a suspended denial
    order. Having not complied with certain conditions of that settlement,
    BIS activated the Denial Order on ZTE in April 2018. The import ban has
    since been lifted as ZTE agreed to a settlement with BIS with
    significant conditions, including a US$1 billion fine. BIS rightfully
    took a strong stance against ZTE, imposing unprecedented compliance
    measures as part of the settlement. These actions demonstrate a robust
    commitment on the part of the Administration to combat technology-
    related national security issues. Such efforts were necessary and long
    overdue.
        The effort to closely scrutinize and restrict transactions with
    Chinese entities that pose potential national security risks is not
    limited to the Administration. Congress, through Section 889 of the
    NDAA, has effectively banned the Federal Government from purchasing
    equipment from Huawei and ZTE, citing them as national security risks.
    Specifically, Section 889 prohibits Federal agencies, Federal
    contractors, and grant or loan recipients from procuring certain
    ``covered telecommunications equipment or services,'' (equipment and
    services produced by Huawei and ZTE, and with respect to certain public
    safety or surveillance applications, Hytera Communications Corporation,
    Dahua Technology Company, and Hangzhou Hikvision Digital Technology
    Company) as a ``substantial or essential component of any system, or as
    critical technology as part of any system.'' Congress clearly believes
    that taking a strong stance against national security threats is
    warranted and necessary. We have recently seen a concerted effort from
    Congress and the Administration to protect U.S. national security
    against threat actors in the technology and telecommunications sectors.
    Continued diligence in this area is crucial to protecting U.S. national
    security moving forward.
    IV. Effectiveness of ECRA-Related Control Structures in the United
            States in Confronting the Challenges Raised with Respect to
            China, including Persistent Diversion Challenges
        I believe that the ECRA-related controls will go a long way toward
    improving U.S. transparency and effectiveness in addressing the
    challenges related to China and its persistent diversion tactics. We
    have seen that stronger enforcement and broader application of law
    under FIRRMA has had an effect. As reported by a number of sources,
    including the Rhodium group, Chinese investments into the United States
    have been significantly curtailed. This was important given the
    statistics on Chinese government backed investment happening in our
    most advanced and innovative companies. The Rhodium group had
    calculated that, on average, 21 percent of Chinese venture investment
    in the United States from 2000 through 2017 came from state-owned
    funds, which are controlled at least in part by the Chinese government.
    In 2018, that figure surged to 41 percent.\11\
    ---------------------------------------------------------------------------
        \11\ See Reuters ``Chinese tech investors flee Silicon Valley as
    Trump tightens scrutiny,'' by Heather Somerville, January 7, 2019.
    ---------------------------------------------------------------------------
        Also, with the implementation of ECRA and designation of emerging
    and foundational technologies, U.S. policymakers will be able to better
    assess the vulnerability of our supply chains and where the United
    States stands in terms of critical technology leadership, including
    where that leadership has been eroded.
        However, clearly, we need a ``whole of Government'' defensive
    strategy where it concerns these national security threats. When China
    utilizes government actors to hack into U.S. private companies to take
    proprietary technology and give such information to Chinese companies,
    the United States must address the issue broadly. Pulling from a recent
    speech by the U.S. Justice Department, I note: ``since 2011, more than
    90 percent of the Department's economic espionage prosecutions (i.e.,
    cases alleging trade secret theft by or to benefit a foreign state)
    involve China, and more than two-thirds of all Federal trade secret
    theft cases during that period have had at least a geographical nexus
    to China. Some of those cases demonstrate that China is using its
    intelligence services and their tradecraft to target our private
    sector's intellectual property.''\12\ Clearly, we must continue to
    improve our ability to protect U.S. private companies from Chinese
    nation-state threat actors.
    ---------------------------------------------------------------------------
        \12\ Remarks of Deputy Assistant Attorney General Adam S. Hickey of
    the National Security Division at the Fifth National Conference on
    CFIUS and Team Telecom, Washington, D.C., Wednesday, April 24, 2019.
    ---------------------------------------------------------------------------
    V. Possible Legislative or Oversight Recommendations
        In closing, I applaud this Committee and this Administration for
    the hard work to create new and stronger mechanisms to address national
    security vulnerabilities arising from the loss of critical
    technologies, military, emerging and foundational. While implementation
    of ECRA and FIRRMA are underway, there is even more that could be done.
        We should create additional enforcement tools to better address
    cyber and intellectual property (``IP) theft. Perhaps an IP ``Entities
    List,'' similar to USTR's Notorious Markets List. Further we should
    consider taking additional actions in response to cyber attacks using
    executive powers. With the full implementation of FIRRMA, foreign
    government-controlled transactions and transactions involving critical
    infrastructure should be subject to mandatory filing requirements. We
    also need additional tools to address overcapacity by foreign state-
    owned enterprises that are able to enter the U.S. market unimpeded or
    create global market distortions to the detriment of our producers and
    U.S. innovation and jobs.
        Last and importantly, the key to ensuring that BIS and other export
    control agencies are able to carry out their missions and the new
    responsibilities under ECRA is additional funding and resources. If we
    are serious about addressing the current and future loss of U.S.
    emerging and foundational technology, if we want to ensure that the
    United States continues to be a global leader for innovation, security
    and freedom, it is critical that such funding and resources is
    provided.
        As Secretary Ross said: ``We can no longer accept the decline of
    U.S. industries due to state-supported overcapacity, and the
    strategic--often clandestine--foreign purchases and investments in our
    most important technology enterprises.''\13\
    ---------------------------------------------------------------------------
        \13\ Remarks by U.S. Commerce Secretary Wilbur L. Ross at the
    Bureau of Industry and Security Annual Conference on Export Controls
    and Security, July 9, 2019.
    ---------------------------------------------------------------------------
        Thank you for the opportunity to appear before you today. I look
    forward to your questions.
                                     ______

                   PREPARED STATEMENT OF BEN BUCHANAN, Ph.D.
            Assistant Teaching Professor, School of Foreign Service
       Senior Faculty Fellow, Center for Security and Emerging Technology
                             Georgetown University
                                 July 18, 2019
        Thank you, Chairman Crapo and Ranking Member Brown, for holding
    this important hearing and for inviting me to testify.
        My name is Ben Buchanan. I am an Assistant Teaching Professor at
    the School of Foreign Service and a Senior Faculty Fellow at the Center
    for Security and Emerging Technology, both at Georgetown University. I
    am also a Global Fellow at the Woodrow Wilson International Center for
    Scholars, where I teach introductory classes on Artificial Intelligence
    and cybersecurity for congressional staff. My research specialty is
    examining how cybersecurity and AI shape international security. I co-
    authored a paper entitled ``Machine Learning for Policymakers.''\1\
    ---------------------------------------------------------------------------
        \1\ Buchanan, Ben and Taylor Miller. ``Machine Learning for
    Policymakers.'' Belfer Center for Science and International Affairs
    (2017), https://www.belfercenter.org/sites/default/files/files/
    publication/MachineLearningforPolicymakers.pdf.
    ---------------------------------------------------------------------------
        As this Committee is well aware, export controls are legal tools
    that are applied to technology. If either the tool or the technology is
    not a good fit, export controls will fail. Given the expertise of my
    two fellow witnesses on the legal nuances of the tools themselves, I
    believe I will be of most value to the Committee in talking about some
    of the technologies in play and what makes export controls
    comparatively more or less suitable with these technologies. As a way
    of opening our discussion, I will focus on one particular suite of
    technologies that is particularly notable, artificial intelligence, but
    I believe this discussion will also apply to other relevant
    technologies.
    Conceptualizing AI
        Nobody has a crystal ball, but there are other ways to consider our
    modern and near-future era of AI that will be useful for this
    discussion. To do so, it is important to understand how AI differs from
    so much of what came before it. An analogy will help.
        One can imagine two ways of teaching a child to perform a task. The
    first is to give very clear instructions in a language the child
    understands about what the task is and how it is to be performed. The
    second is to show the child, through a series of examples, how the task
    works, and have the child infer the important rules and patterns
    necessary to get the job done. At various points in a child's
    education, they learn different tasks through each of these methods.
        Traditional software development, and even some older versions of
    AI, work in a way that is similar to the first method. They rely on
    software developers understanding the problem to be solved in great
    depth, and then imparting this expertise to the system. For example, in
    a program designed to play chess, the software developers may consult
    with grandmasters to understand the optimal strategies for a wide range
    of situations, and then program those ideas into the code.
        Modern AI systems, known as machine learning systems, use the
    second method, the one involving inference. In a machine learning
    system, rather than receive clear instructions about how to do the
    task, software developers create an algorithm that determines how the
    system should learn. They then provide that algorithm with lots of
    relevant data and computational power (the processing hardware that
    makes machine learning algorithms function).
        There are thus three parts to this system: the algorithm, the data,
    and the computational power. Together, they form an essential triad.
    Each is more or less important in various versions of machine learning,
    but at the same time, each in its own way is critical. To understand
    why, it is worth examining the triad in a little more detail.
    Data
        It is in vogue to say that data is the new oil. This is because, to
    use the second kind of program I described above--the machine learning
    method--a lot of relevant data is often required. From this data the
    machine learning system will infer important patterns and nuances, and
    will determine what success and failure look like. It is thus vital
    that the data provided to the machine be representative of the problem
    in all its complexity and plentiful.
        A large part of the reason that companies like Google, Amazon, and
    Facebook are successful with the AI systems they deploy is because they
    aggregate gigantic amounts of data. In essence, the large datasets
    these companies assemble provide them with a competitive advantage over
    others. Large companies based in other nations, such as China's Baidu,
    Alibaba, and Tencent, derive similar advantages from their datasets. It
    seems to me that export controls are unlikely to be of much use in
    managing this competition or guarding against potential threats from
    data, both because companies already have an incentive and tools to
    secure and not share their assembled data and because export controls
    are comparatively ill-equipped to stop the transfer of sensitive data
    relative to other tools like classification (for government data), and
    licensing or contractual restrictions regardless of export.
    Algorithms
        Algorithms are the second component of the AI triad. These software
    instructions dictate how the machine learning system will learn. They
    stipulate how it will interpret the data, what sort of capabilities it
    will develop, and what inferences it will learn to draw that can be
    applied to future tasks. There are a wide variety of algorithms, each
    suited to different kinds of tasks, from classifying images to making
    predictions about housing prices based on historical trends, to
    generating new pictures of people who look real but do not actually
    exist. The algorithmic frontier is rich, and a great deal of progress
    has been made in the last 7 years.
        The prevailing ethos is that, once an algorithmic advance is made,
    researchers post it online and share it with others. In this sense, AI
    research is remarkably open, far more so than the fierce competition of
    the technology industry would normally suggest. There are exceptions to
    this practice, instances in which algorithms have not been published
    due to national security concerns--most notably a decision by OpenAI, a
    leading research lab, not to publish a powerful algorithm that could be
    used to generate realistic-fake text.
        That said, the experience of several decades has shown that
    government efforts to control the export of computer code are usually
    futile, and I think it is fair to say that export controls are unlikely
    to be useful in stopping all but the most powerful of algorithms. And
    even with those most powerful algorithms, I have doubts about the
    suitability of our current list-based export control systems, given the
    changing pace of technology and the movement of the technological
    frontier.
    Computing Power
        This brings us to the last part of the triad: computing power, or
    what AI researchers simply call ``compute.'' It is easy to ignore, but
    it remains vitally important, perhaps prohibitively so. In the last 7
    years, we have witnessed a revolution in computing power applied to
    machine learning. One study by OpenAI indicated that between 2012 and
    2018, the computing power applied to top machine learning systems
    increased by a factor of 300,000; if a cell phone battery lasted 1 day
    in 2012 and increased by the same factor, that battery would now last
    800 years.\2\
    ---------------------------------------------------------------------------
        \2\ ``AI and Compute,'' OpenAI, (2018), https://openai.com/blog/ai-
    and-compute/.
    ---------------------------------------------------------------------------
        There is much to discuss about why this increase in computing power
    has occurred, but the most salient factor for our purposes today is
    that, unlike algorithms and data, computing power is a function of
    hardware, not software. That is, computers are tangible products that
    are easier to manage, including with export controls. My judgment is
    that, to the degree that export controls are relevant to the problem of
    managing AI and other technologies such as 5G, it will controls on this
    hardware component, and likely on the hardware that manufactures
    specialized computer chips for AI. This statement is both a commentary
    on the limitations of export controls to the problem but also on the
    more narrow areas where they might be suitable for protecting national
    security.
        To be clear, in order for any such controls to work--whether on AI
    hardware or something else--they must be conducted in a multilateral
    fashion with allies, given that a great deal of hardware engineering
    expertise is outside the United States.
        I thank you again for holding this hearing and the opportunity to
    lay out the basics of this complicated, fast-changing field for your
    consideration as you review the implications of export control for AI
    and other technologies. As you know, it is vital that we both protect
    national security and not squash innovation. This is an area that the
    Center for Security and Emerging Technology has been studying, and we
    expect to publish our analysis on it in the weeks to come. In the
    meantime, I look forward to your questions.
            RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO
                        FROM ERIC L. HIRSCHHORN

    Q.1. Expansion of Scope--Traditionally our export control
    system has focused on national security and foreign policy.
        Should we expand the focus of our controls to address
    issues of economic competitiveness like Made in China 2025?

    A.1. No one can deny the serious policy implications for the
    United States of the Made in China 2025 plan. Artificial state
    subsidies of particular technology sectors are market
    distorting and put U.S. companies at a competitive
    disadvantage. ECRA correctly recognizes, though, that in
    today's interdependent world, multilateral controls are far
    likely than unilateral controls to be successful.\1\ For that
    reason, expanding U.S. controls to address issues of economic
    competitiveness, though tempting, might be self-defeating. We
    generally have been successful in recent decades in convincing
    our allies to join us in controlling exports of items that
    could put our collective national security at risk or engender
    the spread to undesirable end users of weapons of mass
    destruction. This has been so despite our allies' often-
    expressed suspicions--and our truthful denials--that the U.S.
    is seeking economic as well as national security advantage. To
    expand our export controls to expressly address economic
    competitiveness concerns could lead our allies to think twice
    about supporting our efforts.
    ---------------------------------------------------------------------------
         \1\ ECRA 1752(4)-(6) (codified at 50 U.S.C. 4811(4)-(6)).
    ---------------------------------------------------------------------------
        Some observers contend that if the U.S. were to take the
    lead in imposing controls on technology exports of technology
    to China for economic reasons, our allies would follow the
    example. I doubt it. Our allies have traditional views of
    export controls and probably would not agree to control the
    flow of technology for other than the traditional national
    security and foreign policy objectives that are set out in
    ECRA.

    Q.2. Foundational Technologies--Are there any ``foundational''
    technologies that are not, by definition, already widely
    available?

    A.2. Neither ECRA nor FIRRMA nor--so far, at least--the
    Administration has defined the term ``foundational.'' I have
    assumed that it refers to technologies that are widely
    available--i.e., technologies that are export controlled, if at
    all, only to the handful of countries that are designated as
    supporting terrorism. I have been told that the executive
    branch shares that view of what the term means. Unilaterally
    controlling technologies that are widely available from other
    countries would harm our domestic economy without preventing
    China and other countries of concern from acquiring such
    technologies. The Administration's task, then, is to ascertain
    whether there are ``foundational'' technologies that (1) are
    useful to China and (2) ``essential to the national security of
    the United States''\2\ but (3) not widely available elsewhere,
    and then--as required by ECRA\3\--seek multilateral control of
    such technologies.
    ---------------------------------------------------------------------------
         \2\ ECRA 1758(a)(1)(A) (codified at 50 U.S.C. 4817(a)(1)(A).
         \3\ ECRA 1758(c) (codified at 50 U.S.C. 4817(c)).

    Q.3. Evidence of Controls Driving Offshore Activity--Is there
    any evidence that tight export controls drive research and
    ---------------------------------------------------------------------------
    development, or manufacturing, offshore?

    A.3. In recent decades we have seen this phenomenon in the
    areas of machine tools, commercial space items, and thermal
    imaging items. All were subject to very tight U.S. export
    controls. The development and manufacturing competition that
    grew up abroad in each of those sectors was, I believe, largely
    a result of that action on our part. As long ago as the 1990s,
    I had clients tell me that they were shifting their R&D
    offshore because of the extreme tightness of U.S. export
    controls on their types of technology. Our country narrowly
    avoided this fate in two other sectors, namely encryption and
    computers, because we relaxed our controls somewhat once we
    realized that the horse already was out of the barn.
        In a world where advanced technologies can be developed and
    produced in many countries, the logic of unilateral controls
    versus multilateral controls is clear. If a company cannot
    legally export a technology from one country, it will likely
    seek to develop and that technology in a country that does not
    prohibit such exports. Moreover, investors will make their
    investments in such countries rather than in the United States.
    Unilateral controls thus can harm the U.S. industrial base and
    enhance the industrial base of foreign competitors without
    preventing the proliferation of the technology to countries of
    concern. For this very basic, logical, economics-driven reason,
    Congress wisely provided in ECRA that unilateral controls are
    disfavored.

    Q.4. Control Rulings--ECRA essentially requires an interagency
    review of decisions to add or remove items from the control
    lists and to approve or deny individual license applications.
        Is Commerce the best department to lead the dual-use export
    control system?
        What would be the harm if we transferred the export control
    system to the Defense Department for it to decide what should
    or should not be exported?

    A.4. Commerce has administered controls on dual-use items since
    the late 1940s, with lower-level military items being added in
    recent years as part of the Export Control reform initiative.
    For about 25 years, the Defense, State, and Energy departments
    have been empowered to review any Commerce license
    application--and in fact do review almost all such
    applications. Moreover, any changes to the regulations,
    including additions to and subtractions from the control lists,
    essentially require consensus of the four agencies before they
    may be implemented. Contrary to the false statements of some
    that Commerce somehow routinely ``overrules'' Defense on
    national security judgments and State on foreign policy
    judgments, the current system does an excellent job of
    accounting for the expertise and equities of different parts of
    the Government. To quote a sage Washington observer from the
    past--``If it ain't broke, don't fix it.''
        Moreover, such controls long have taken into account not
    only potential military applications, as to which the Defense
    Department has special expertise, but also such salient issues
    as foreign availability, foreign policy, and the like, where
    Commerce and State bring their expertise to the table. ECRA has
    it right: Commerce controls should take into account their
    ``impact on the economy of the United States'' and should be
    imposed ``only to the extent necessary'' to achieve U.S.
    national security and foreign policy aims.\4\ The
    considerations set out in ECRA include the strength of the U.S.
    defense industrial base--a role shared by Commerce and Defense
    under the Defense Production Act of 1950--the maintenance of
    U.S. leadership in the ``science, technology, engineering, and
    manufacturing sectors,'' and foreign availability.\5\ Defense
    already--and appropriately--has a full voice when it comes to
    potential military application of technology but the voices of
    Commerce, State, and, where nuclear issues are concerned,
    Energy also are essential to the proper functioning of the
    system. Commerce has technical and policy expertise in all
    these areas but has demonstrated particular skill in
    administering and enforcing a reliable, predictable regulatory
    regime that pursues all these objectives.
    ---------------------------------------------------------------------------
         \4\ ECRA 1752(1) (codified at 50 U.S.C. 4811(1)).
         \5\ ECRA 1752(2)(C), (3), (6) (codified at 50 U.S.C. 4811(2)(C),
    (3), (6)).

    Q.5. Huawei Delisting--The addition of the Huawei to the
    Commerce Department's Entity List is one of the most public and
    significant export control topics in today's headlines.
        Without commenting on Huawei, could you tell us what the
    Entity List is, its purpose, and whether or not it has been
    historically effective and how is it different from a civil or
    a criminal penalty, a denial order, a Treasury Department
    sanction, or other actions the U.S. Government can take against
    a foreign company?

    A.5. In a strictly legal sense, the Entity List is fairly low
    on the totem pole of actions the United States can take against
    a company. It imposes no criminal, civil, or administrative
    penalty against a named party but merely requires that all
    items ``subject to the Export Administration Regulations''
    require a license to be exported to that party. Of course, this
    means that many items that don't need a license to go to anyone
    else will have to wait while a license application is
    submitted, considered, and possibly denied. Importantly, items
    that are not ``subject to the EAR'' are not caught by a foreign
    importer's appearance on the Entity List. That means that
    unlike, say, sanctions administered by the Treasury
    Department's Office of Foreign Assets Control, the Entity List
    doesn't reach foreign-made items located outside the U.S., even
    if they're sold from such locations to Entity List companies by
    U.S. companies.
        The most common reason for placing a company on the Entity
    List is to encourage it to clean up its act in terms of
    respecting U.S. export controls. Once it has demonstrated its
    compliance, and provided relevant information to the Office of
    Export Enforcement at Commerce, the company can seek removal
    from the List. Absent the possibility of removal in exchange
    for cooperation, there is little incentive for a listed company
    to cooperate with the U.S. Government.
        As difficult as the formal effect of being on the Entity
    List may make a company's life, the secondary and unofficial
    effect can be worse. This is because financial institutions and
    large companies throughout the developed world use software to
    screen for ``bad'' customers. That software includes everyone
    who's been fined, indicted, listed as a denied party, debarred,
    or placed on the Entity List. So although the Entity List
    technically isn't a penalty, companies listed there get added
    to that software, too. That in turn means that many such
    financial institutions and companies simply will refuse to do
    business with them.
        The only less draconian action than the Entity List is the
    Unverified List. Placement there usually means that U.S.
    officials have not been permitted to make post-shipment visits
    to the entity in question to check whether the U.S.-origin
    items supposedly sent there actually are there. Often the
    reason is that the host government, rather than the consignee
    company, is the problem. Exporters may ship to parties on the
    Unverified List without obtaining additional licenses but they
    are on notice that such parties' bona fides are uncertain and
    that accordingly they should take care to satisfy themselves
    that the orders are legitimate.

    Q.6. The United States has a special treatment arrangement with
    Hong Kong with regards to export controls. While it is in the
    United States interests to have a strong economic relationship
    with Hong Kong, there is a lot of concern about growing Chinese
    encroachment on Hong Kong's autonomy and the potential
    implications for safeguarding technology.
        Is our current export control policy equipped to deal with
    risk of diversion from Hong Kong to China?
        What are some ways in which China is using or could use
    Hong Kong as a vector for acquisition of technology that we do
    not export to the Mainland?
        What are your specific recommendations for strengthening
    our export control regime in relation to these challenges?

    A.6. The concerns expressed in these questions are legitimate
    and not new, though recent efforts of the Chinese government to
    narrow Hong Kong's autonomous status of course bring them to
    the fore. In my experience, cooperation between the United
    States and Hong Kong customs and export control authorities has
    been good but Hong Kong is a very busy place with close
    political and commercial ties to China. The Obama
    administration strengthened protections against unauthorized
    diversions to China via Hong Kong by requiring ``persons
    intending to export or reexport to Hong Kong any item subject
    to the Export Administration Regulations (EAR) and controlled
    on the Commerce Control List (CCL) for national security (NS),
    missile technology (MT), nuclear nonproliferation (NP column
    1), or chemical and biological weapons (CB) reasons to obtain,
    prior to such export or reexport, a copy of a Hong Kong import
    license or a written statement from the Hong Kong government
    that such a license is not required.''
        That rule ``also requires persons intending to reexport
    from Hong Kong any item subject to the EAR and controlled for
    NS, MT, NP column 1, or CB reasons to obtain a Hong Kong export
    license or a statement from the Hong Kong government that such
    a license is not required.''\6\
    ---------------------------------------------------------------------------
         \6\ 82 FR 6216 (Jan. 19, 2017).
    ---------------------------------------------------------------------------
        I don't know enough about our experience under the 2017
    rule to have a view on whether it is working well. I would
    encourage continued vigilance over reexports of U.S.-origin
    items from Hong Kong, including compliance with that
    regulation. Such vigilance is possible, though only if BIS has
    the resources to carry it out.
    Congress should appropriate additional funds to BIS so that it
    can do this work, as well as its other work, thoroughly and
    effectively.
                                    ------

             RESPONSE TO WRITTEN QUESTION OF SENATOR BROWN
                        FROM ERIC L. HIRSCHHORN

    Q.1. The press have reported widely on China's surveillance
    state and their gross human rights violations of the Uyghur
    people. Whether the technology is organically developed or
    stolen IP from American companies, we should all be concerned
    with how technology can be perverted to violate civil liberties
    and basic human rights.
        Mr. Hirschhorn, walk me through how the interagency takes
    issues like human rights violations into consideration when
    discussing emerging technologies. What are the mechanisms to
    mitigate the unintended consequences of bad actors or countries
    misusing these technologies, and can that process be improved?

    A.1. ECRA sensibly requires that the consideration of export
    control policies, as well as individual licensing decisions,
    take human rights into account.\1\ This applies not only to
    emerging technologies but all export control policies and
    license reviews. Applications for Commerce Department export
    licenses are shared with the Department of State, whose Bureau
    of Democracy, Human Rights, and Labor (DRL) is among the
    bureaus consulted internally at that department. The State
    Department has an equal vote with Commerce, Defense, and Energy
    at all levels of the process for reviewing applications for
    Commerce export licenses. Moreover, human rights are not the
    exclusive province of State. Commerce, Defense, and Energy can
    and do raise human rights concerns about BIS license
    applications.
    ---------------------------------------------------------------------------
         \1\ ECRA 1752(2)(D) (codified at 50 U.S.C. 4811(2)(D)).
    ---------------------------------------------------------------------------
        Part of the difficulty in ensuring protection of human
    rights is that sometimes the technologies employed to violate
    human rights are controlled to only a handful of countries
    because they are fairly basic or general purpose, they're
    widely available from sources other than the United States, or
    both. Where that is the case, refusal to allow the export of
    U.S. products may make an appropriate statement from a foreign
    policy standpoint but have little or no practical effect on the
    target government.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                        FROM ERIC L. HIRSCHHORN

    Q.1. At least one U.S. company has been found to have provided
    the Chinese government with a tool enabling it to monitor
    Uyghur and Central Asian minorities, as part of what one Uyghur
    activist described in April 9, 2019, testimony to the Senate
    Foreign Relations Subcommittee on East Asia, the Pacific, and
    International Cybersecurity Policy as ``an Orwellian mass
    surveillance state'' where ``more than one million Uyghurs are
    arbitrarily detained outside the legal system in concentration
    camps.'' A bipartisan group of Senators introduced the Uyghur
    Human Rights Policy Act, of which I am a cosponsor, which
    states in part, that:

            the Secretary of Commerce should review and consider
            prohibiting the sale or provision of any United States-
            made goods or services to any state agent in Xinjiang,
            and adding the Xinjiang branch of the Chinese Communist
            Party, the Xinjiang Public Security Bureau, and the
            Xinjiang Office of the United Front Work Department, or
            any entity acting on their behalf to facilitate the
            mass internment or forced labor of Turkic Muslims, to
            the ``Entity List'' administered by the Department of
            Commerce.

    Please explain your view. Do you agree?

    A.1. The United States has imposed end-user-specific
    restrictions such as this on many occasions. Indeed, ECRA's
    provision that U.S. export controls should ``carry out the
    foreign policy of the United States, including the protection
    of human rights and the promotion of democracy''\1\ provides
    ample legislative authority for such an action.
    ---------------------------------------------------------------------------
         \1\ ECRA 1752(2)(D) (codified at 50 U.S.C. 4811(2)(D)).

    Q.2. Can you conceive of any circumstances under which it would
    be appropriate for the United States to weaken our export
    control laws and regulations, or the enforcement of those laws
    and regulations, vis-a-vis China or any other foreign
    competitor in order to extract concessions or other commitments
    from that foreign competitor on matters related to trade or
    ---------------------------------------------------------------------------
    human rights? Please explain your view.

    A.2. I'm not prepared to say that such circumstances never
    could arise but it would have to be an extraordinary case. The
    recent suggestions by the President that extensive export
    control violations by a Chinese telecommunications company
    should be traded for sales of beef, chicken, soybeans, and the
    like do not meet that criterion, and seriously undermine our
    military and our law enforcement.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR CORTEZ MASTO FROM ERIC L. HIRSCHHORN

    Q.1. You said in your testimony you believed for export
    controls to be effective, they should be adopted both by our
    allies and unilaterally imposed by us.
        What are the challenges you foresee in convincing allies to
    align with us on this issue and how can we overcome them?

    A.1. When it comes to issues of military security and
    preventing the spread of weapons of mass destruction, we have
    had great success over the past 70 years in convincing our
    allies to go along with controls that are proposed by the
    United States. In the area of foreign policy, most notably with
    regard to Cuba, we have had relatively support from our allies.
    The greatest obstacles to convincing allies to cooperate are
    closely related to one another. First is their oft-expressed
    view--one that is incorrect--that we somehow use such controls
    to further our own economic and commercial interests. Second is
    the fear that U.S. exporters don't share equally in the harm
    that necessarily flows to domestic parties from any country's
    export controls and economic embargoes.
        The best way to convince our allies to cooperate is to
    continue--as ECRA prescribes \1\--to limit our export controls
    to those driven by military, intelligence, and foreign policy
    considerations.
    ---------------------------------------------------------------------------
         \1\ ECRA 1752(1), (11) (codified at 50 U.S.C. 4811(1), (11)).

    Q.2. You said in your testimony it is hard to draw up export
    controls for certain emerging technologies because you run the
    risk of being too generic or broad, which would make the
    controls difficult to enforce.
        What is the best way to address this problem to ensure
    regulations are as specific to technology and application as
    possible?

    A.2. The best way to ensure the requisite specificity is pretty
    much to continue doing what the executive branch has been doing
    for decades, namely keeping a close eye on emerging
    technologies but not imposing controls until it's clear what
    uses the technologies are being put to and which of those uses
    have demonstrable potential for military or intelligence use by
    adversaries.
        ECRA sensibly provides that, in deciding whether to
    identify a technology that's ``essential to the national
    security''\2\ as being ``emerging'' or ``foundational,'' and
    impose unilateral controls on its export, the Administration
    take into account--
    ---------------------------------------------------------------------------
         \2\ ECRA 175(a)(1)(A) (codified at 50 U.S.C. 4817(a)(1)(A)).

        the development of the technologies in foreign
    ---------------------------------------------------------------------------
            countries;

        the effect that such export controls may have on
            the development of such technologies in the United
            States; and

        the effectiveness of export controls imposed
            pursuant to this section on limiting the proliferation
            of emerging or foundational technologies to foreign
            countries.\3\
    ---------------------------------------------------------------------------
         \3\ ECRA 1758(a)(2)(B) (codified at 50 U.S.C. 4817(a)(2)(B)).

        Moreover--and this was a valuable lesson of the Export
    Control Reform initiative--an important way to limit the
    possibility that the Government mistakenly will under or over-
    control emerging technologies (or any technologies, for that
    matter) is to seek public comment on proposed controls before
    actually implementing them. ECRA wisely requires this.\4\
    ---------------------------------------------------------------------------
         \4\ ECRA 1758(a)(2)(C) (codified at 50 U.S.C. 4817(a)(2)(C)).

    Q.3. To what extent does the Commerce Department collaborate
    with developers to understand what technological aspects should
    ---------------------------------------------------------------------------
    be controlled under ECRA?

    A.3. I have been out of the Government for nearly three years
    and don't know what contacts those administering our export
    controls currently have with the private sector. During my
    tenure, we found the input from BIS' technical advisory
    committees, as well as from general requests for public
    comment, to be of great value in ensuring that our controls
    would be appropriate. BIS would be wise to continue and expand
    this policy.

    Q.4. I am also concerned that if we too tightly regulate the
    export of some technologies, we will drive our innovation and
    production offshore, as you suggested in your testimony.
        In your experience, what is the best way to ensure that we
    are maintaining our global leadership in technology, while also
    not contributing to adversarial countries' best efforts to
    surpass us?

    A.4. In recent decades we have seen this phenomenon in the
    areas of machine tools, commercial space items, and thermal
    imaging items. All were subject to very tight U.S. export
    controls. The development and manufacturing competition that
    grew up abroad in each of those sectors was, I believe, largely
    a result of that action on our part. As long ago as the 1990s,
    I had clients tell me that they were shifting their R&D
    offshore because of the extreme tightness of U.S. export
    controls on their types of technology. Our country narrowly
    avoided this fate in two other sectors, namely encryption and
    computers, because we relaxed our controls somewhat once we
    realized that the horse already was out of the barn.
        The message here is that these are judgment calls and that
    more is not always better. Although potentially dangerous
    technologies of course should be controlled, overly tight
    controls--especially if they are unilateral--can be as damaging
    as overly loose controls. The result in the thermal imaging
    area, for example, has been that we have significant foreign
    competition and--even more important from a security
    standpoint--have no window into, or influence regarding--where
    those foreign products end up. Had we been a shade more
    reasonable in deciding how tightly we should control that
    technology, other countries might have had less of an incentive
    to create their own thermal imaging manufacturing capability.
        Sixteen years ago I presented a paper on this point,
    ``Export Issues for Military Sensors: The Fork in the Road,''
    at a Military Sensors Symposium sponsored by the U.S. Army's
    Night Vision and Electronic Sensors Directorate.\5\ The
    symposium was attended by many of our Government's leaders in
    the thermal imaging field. My conclusion, which regrettably was
    prophetic, was as follows:
    ---------------------------------------------------------------------------
         \5\ Eric L. Hirschhorn, ``Export Issues for Military Sensors: The
    Fork in the Road,'' presented at Military Sensors Symposium sponsored
    by Night Vision and Electronic Sensors Directorate, Department of the
    Army (Oct. 2003) (proceedings classified Secret; this paper
    Unclassified and approved for unlimited public release).

            The United States long has been the unchallenged leader
            in sensor technology but a move offshore of
            production--and leadership--is imminent. Commercial
            demand for American sensor products is burgeoning but
            the bottleneck caused by export restrictions has
            created a supply shortage abroad. Foreign technology
            and products are rushing to fill this foreign demand.
            They may not yet have matched United States
            technological standards but they will get there
            quickly, especially if we continue, in effect, to cede
            foreign markets to foreign suppliers. Reasons of
            national security . . . make it crucial that this not
            occur. There is no doubt that it will occur, however,
            if the current overcontrol of sensors is not adjusted
    ---------------------------------------------------------------------------
            to comport with reality.

        Subsequently, we saw the development of robust thermal
    imaging industries in France, Israel, and China, among others.
    We now have little or no visibility of, and little or no
    influence about, where the products of those countries--
    particularly those that are not members of the Wassenaar
    Arrangement--end up. This might have been different had we been
    more nuanced about how we controlled this technology.
                                    ------

             RESPONSE TO WRITTEN QUESTION OF SENATOR SINEMA
                        FROM ERIC L. HIRSCHHORN

    Q.1. There appears to be consensus that a multilateral approach
    to export controls is most effective in mitigating technologies
    that threaten U.S. industry and national security. It also
    appears there is consensus that multilateral efforts will work
    best in restricting divisive Chinese technology and
    infrastructure. Given the importance of a multilateral approach
    and the serious national security threats China poses, are you
    at all concerned that the Administration's policies and
    rhetoric on trade could undermine the necessary goodwill to
    work collaboratively with our trading partners to hold China
    accountable?

    A.1. I am of two minds about this issue. Sovereign nations
    generally are more able to look out for and pursue their own
    best interests than, say, individuals within our country. That
    means that if they see an advantage in cooperating with the
    United States on export controls and economic sanctions, they
    will do so despite the rude treatment that they may have been
    receiving from the current administration. That said, not every
    aspect of international relations is bloodless and devoid of
    personal emotion. There quite possibly will be cases where our
    poor treatment of an ally will discourage it from cooperating
    with us.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO
                           FROM NOVA J. DALY

    Q.1. Expansion of Scope--Traditionally our export control
    system has focused on national security and foreign policy.
        Should we expand the focus of our controls to address
    issues of economic competitiveness like Made in China 2025?

    A.1. Chairman Crapo, thank you again for the opportunity to
    testify before the Senate Committee on Banking, Housing, and
    Urban Affairs. It was an honor. The following responses to
    questions are based on my own views and do not reflect those of
    my firm, Wiley Rein LLP, nor any client.
        Under the Foreign Investment Risk Review Modernization Act
    of 2018 (FIRRMA), which governs the Committee on Foreign
    Investment in the United States (CFIUS), Congress included as a
    national security consideration acquisitions of critical
    technology as they affect U.S. leadership in areas related to
    national security. Such considerations were also included in
    the precursor legislation to FIRRMA, the ``Foreign Investment
    and National Security Act of 2007.'' Further, one of the
    factors included in the first CFIUS bill is ``the potential
    effects of the proposed or pending transaction on United States
    international technological leadership in areas affecting
    United States national security.'' Thus, there is clear
    precedent for treating critical technology protection and
    leadership as a core national security consideration. Adding to
    this precedent, in December 2017, the Trump administration
    published its ``National
    Security Strategy of the United States of America.'' That
    document states that ``economic security is national
    security.''
        As may you know, and as reflected in my testimony, China's
    ``Made in China 2025'' initiative emphasizes China's priorities
    for high-tech industries. The Chinese strategy lists multiple
    technologies where it seeks global dominance. These
    technologies include those that are or may be subject to U.S.
    export controls and therefore raise national security and
    foreign policy considerations. Placing appropriate controls on
    emerging and foundational technologies should be undertaken in
    a targeted way to address those Made in China 2025 initiatives
    that raise national security and foreign policy considerations.
        Such undertakings are already underway. The Department of
    Commerce's 14 proposed emerging technology categories mirror in
    some respects the industries China identified as part of its
    Made in China 2025 initiative. Congress itself could also
    consider the national and economic security effects of China's
    ``military-civil fusion,'' which has been a strategic
    initiative for some time. The goal of this initiative is the
    assimilation of China's technology industry into its defense
    industry in order to propel the advancement of dual-use
    technologies.
        I applaud the U.S.-China Economic and Security Review
    Commission for holding a hearing earlier this year on the topic
    of ``Technology, Trade, and Military-Civil Fusion,'' thus
    raising this issue with Congress. I believe that it is
    imperative that we expand the focus of our export controls to
    address Made in China 2025 issues that raise national security
    and foreign policy considerations.

    Q.2. Foundational Technologies--Are there any ``foundational''
    technologies that are not, by definition, already widely
    available?

    A.2. The Bureau of Industry and Security (BIS) announced that
    an advance notice of proposed rulemaking (ANPRM) would be
    issued seeking public comment on criteria for identifying
    ``foundational'' technologies. However, the ANPRM has not yet
    been issued. Without this list, it is difficult to answer this
    question comprehensively. That said, when the list is issued,
    it will be important to address ``point of the spear''
    technologies within each category of foundational technologies.
    For example, semiconductors are likely to be considered a
    foundational technology. Within semiconductors, the
    Administration could consider targeting technologies involving
    gallium nitride (GaN) for any additional export control
    authorities.

    Q.3. Evidence of Controls Driving Offshore Activity--Is there
    any evidence that tight export controls drive research and
    development, or manufacturing, offshore?

    A.3. I am aware of anecdotal evidence that tight export
    controls have caused lost sales that led to increased sales and
    manufacturing by foreign competitors. This is a historic
    consequence of having export controls for every country that
    has them. However, to address this issue, we must always seek
    to ensure that we apply export controls appropriately, while
    taking account of commercial considerations. The United States
    should continue to work with its multilateral partners to
    ensure a broader consensus and consistent application of export
    controls. However, unilateral export controls may be required
    where we know an adversary is or could utilize such technology
    for military or nefarious purposes.

    Q.4. Control Rulings--ECRA essentially requires an interagency
    review of decisions to add or remove items from the control
    lists and to approve or deny individual license applications.
        Is Commerce the best department to lead the dual-use export
    control system?

    A.4. The Department of Commerce is the right agency to lead the
    dual-use export control system because of its breadth of
    experience and history of authority in this area. Commerce has
    authority and expertise beyond BIS, including under the
    International Trade Administration (ITA) and various bureaus
    that focus on different sectors of the U.S. economy. BIS is
    therefore able to collaborate with other bureaus, including
    within ITA, to build expertise on global economic matters and
    commercial considerations where export control policies
    requires broader considerations.

    Q.5. What would be the harm if we transferred the export
    control system to the Defense Department for it to decide what
    should or should not be exported?

    A.5. While the U.S. Department of Defense (DOD) has significant
    resources, it currently does not have the depth of historical
    knowledge or sector-specific resources that the Department of
    Commerce has in the application of all dual-use technologies.
    While DOD has expertise and experience on certain core military
    technologies, Commerce has a breadth of economic resources and
    industry knowledge important to the assessment and application
    of export controls to dual-use technologies.

    Q.6. Unfair Trade Practices--China engages in unfair trade
    practices and artificially subsidizes its companies in order to
    over-develop and over-produce in key sectors, such as
    semiconductors, in order to dominate the world marketplace. In
    order to protect the economic viability of U.S. companies, some
    propose we use export control rules to cut off the flow of
    basic commercial technology that the Chinese need to compete
    against U.S. companies--even if the technology has nothing to
    do with national security or foreign policy objectives.
        If we take this approach, what's to prevent a non-U.S.
    company, such as in Europe or Japan, from simply filling behind
    or ``designing out'' the U.S. company and profiting off U.S.-
    only prohibitions being applicable only to U.S. companies?

    A.6. Under the Export Control Reform Act of 2018 (ECRA),
    Congress stated that it is the policy of the United States
    ``[t]o use export controls only after full consideration of the
    impact on the economy of the United States and only to the
    extent necessary'' to restrict exports (1) that would make a
    significant contribution to the military potential of any other
    country that would prove detrimental to U.S. national security
    or (2) if necessary to significantly further U.S. foreign
    policy interests or to fulfill international obligations. (Sec.
    1752).
        Engagement with our multilateral partners is key to
    preventing such outcomes. Export controls, where harmonized,
    are much more effective. Toward that end, I understand that BIS
    is actively engaging with like-minded partners to discuss
    coordinating policies on emerging technologies. The U.S. should
    fully pursue engagement with multilateral partners to come up
    with combined agreement on what should or should not be
    exported and also to improve information-sharing between
    allies.

    Q.7. Unilateral Controls--Under what circumstances should the
    United States impose a unilateral control--that is, a control
    that only the United States imposes--on the export to China of
    a U.S.-origin commodity or technology?

    A.7. Where there are clear economic security and national
    security concerns, especially where there is a choke point in
    the application of controls, or where our allies are unwilling
    to move to create multilateral controls, the United States has
    a responsibility to do so for its own national security
    interests. The U.S. should responsibly implement unilateral
    controls where clear economic security and national security
    interests arise.

    Q.8. If there is such a case, what would prevent either a U.S.-
    subsidiary or non-U.S. company from simply selling such items
    outside the United States, thus enhancing the foreign company
    and harming the U.S. company?

    A.8. Addressing export controls, especially those concerning
    emerging and foundational technologies, requires engagement
    with U.S. companies large and small, Congressional resources
    and oversight, and effective compliance regimes at the company
    level. Thus, U.S. companies, including their subsidiaries, must
    be aware that certain potential ``business'' partners or
    activity actually represent the interests of adversarial
    foreign governments who will use such technology and know-how
    to the economic security and/or military detriment of the
    United States.
        There has always been a problem arising from the
    application of export controls when foreign countries and
    companies sell items controlled by U.S. export laws and
    regulations to the detriment of U.S. companies. That is why it
    is critical to build broad coalitions with our allies on export
    controls and, where we apply them unilaterally, to do so
    appropriately and with a clear understanding of economic
    considerations.

    Q.9. The United States has a special treatment arrangement with
    Hong Kong with regards to export controls. While it is in the
    United States interests to have a strong economic relationship
    with Hong Kong, there is a lot of concern about growing Chinese
    encroachment on Hong Kong's autonomy and the potential
    implications for safeguarding technology.
        Is our current export control policy equipped to deal with
    risk of diversification from Hong Kong to China?

    A.9. No export control system is foolproof, but BIS has sought
    to address the risk of diversion from Hong Kong to mainland
    China, including with rules that went into effect in April
    2017. In particular, these rules impose new requirements and
    supporting documentation for exports of specific controlled
    items to Hong Kong and build teams that do end-use checks. BIS
    has also issued guidance on due diligence factors for exporters
    to consider in order to
    prevent unauthorized transshipment or reexport of controlled
    items through Hong Kong to China.\1\
    ---------------------------------------------------------------------------
         \1\ U.S. Department of Commerce Bureau of Industry and Security,
    ``Guidance on Due Diligence to Prevent Unauthorized Transshipment/
    Reexport of Controlled Items through Hong Kong to China,'' 2016,
    https://www.bis.doc.gov/index.php/policy-guidance/hong-kong-due-
    diligence-guidance.

    Q.10. What are some ways in which China is using or could use
    Hong Kong as a vector for acquisition of technology that we do
    ---------------------------------------------------------------------------
    not export to the Mainland?

    A.10. While I do not have direct expertise on this matter, it
    is not difficult to imagine that Chinese entities currently do
    and would use companies in Hong Kong to gain access to U.S.
    controlled technologies. They would likely do so through Hong
    Kong companies aligned with or having close commercial ties to
    mainland companies and/or customers.

    Q.11. What are your specific recommendations for strengthening
    our export control regime in relation to these challenges?

    A.11. I would suggest additional funding for BIS and additional
    oversight by Congress. For BIS, funding could be provided for
    more end-use checks to be conducted per annum based on past
    performance, and BIS could use help on targeting end-use checks
    in Hong Kong through upfront research on no license required
    shipments prior to post shipment verification requests,
    enhanced and continued intelligence sharing within BIS, and the
    utilization of intelligence information to help identify
    appropriate end-use checks.\2\ The continued attention of
    Congress to such matters is paramount to successful U.S.
    efforts to counter reexport of export-controlled goods from
    Hong Kong to China.
    ---------------------------------------------------------------------------
         \2\ Id. at 27.
    ---------------------------------------------------------------------------
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                           FROM NOVA J. DALY

    Q.1. Mr. Daly, I want to hear your views on whether we should
    be developing additional tools to combat the Chinese
    government's efforts to dominate specific sectors.
        Just as with developing emerging technologies, the Chinese
    government is strategic about the amount and targets of Chinese
    investment abroad. We've seen the results of that strategy in
    the U.S. rail car manufacturing sector, and there are recent
    reports about Chinese state-owned-enterprises investing in our
    energy sector.
        Senator Grassley and I have a bill, the Foreign Investment
    Review Act, which would authorize the Secretary of Commerce to
    review foreign investments--particularly those made by Chinese
    state-owned enterprises--to make sure they're in our long-term
    economic interests.
        Do you agree that there is value in establishing an
    investment screen in place to combat China's threats to our
    economic security?

    A.1. I greatly appreciate the purpose of the Foreign Investment
    Review Act (FIRA) and Senator Brown and Senator Grassley for
    continuing to raise the issue of addressing Chinese efforts to
    make certain detrimental targeted investments in the United
    States and through state-owned enterprises. Understanding the
    effects of certain transactions on U.S. economic and technology
    leadership, especially those emanating from China or those with
    a nexus to China, is very important, and such transactions
    should be appropriately reviewed.
        As you may know, currently, CFIUS legislation, as modified
    by FIRRMA, is undergoing a regulatory process of
    implementation. FIRRMA establishes processes that require
    mandatory filing of certain technology transactions and certain
    transactions involving foreign government ownership. The CFIUS
    ``Pilot Program'' which addresses technology acquisitions, is
    well underway, and it will be useful to see how that program
    has helped to address threats to our critical technology
    leadership, an important element of our national and economic
    security. The mandatory filing requirement for transactions
    involving government-controlled entities could have been based
    on a control standard, as found in FIRA, rather than on
    ownership levels. Doing so would have likely increased filings
    made to CFIUS. It may be useful to consider legislation that
    would more narrowly apply the control standard to certain
    investments made by state-owned or controlled entities
    emanating from certain foreign investors from certain foreign
    countries. Nonetheless, the FIRA bill is helpful legislation
    and should have further congressional consideration.

    Q.2. The press have reported widely on China's surveillance
    state and their gross human rights violations of the Uyghur
    people. Whether the technology is organically developed or
    stolen IP from American companies, we should all be concerned
    with how technology can be perverted to violate civil liberties
    and basic human rights.
        Please discuss how the interagency process takes issues
    like human rights violations into consideration when discussing
    emerging technologies. What are the mechanisms to mitigate the
    unintended consequences of bad actors or countries misusing
    these technologies, and can that process be improved?

    A.2. The protection of human rights is specifically mentioned
    in the Statement of Policy in the Export Controls Act of
    2018.\3\ Export controls are currently in effect for crime
    control categories.\4\ The Department of State submits country
    Reports on Human Rights Practices to Congress, which is used by
    State and the Department of Commerce to deny licenses for
    export of crime control items to any country whose government
    engages in a consistent pattern of violations of
    internationally recognized human rights in accordance with the
    Foreign Assistance Act. Further, State is developing guidance
    for exporters of items with intended and unintended
    surveillance capabilities. The guidance seeks to provide
    insight to exporters on considerations to weigh prior to
    exporting these items. It also offers businesses greater
    understanding of the human rights concerns the U.S. Government
    may have with the export. Lastly, recently, using the
    interagency process, BIS added the Xinjiang Uyghur Autonomous
    Region People's Government Public Security Bureau, 18 of its
    subordinate municipal and county public security bureaus, and
    another subordinate institute to the Entity List.
    ---------------------------------------------------------------------------
         \3\ National Defense Authorization Act for Fiscal Year 2018, Pub.
    L. No. 115-232 (H.R. 5515) sec. 1752, 115th Cong, (2018).
         \4\ Department of Commerce Bureau of Industry and Security, ``2018
    Report on Foreign Policy-Based Export Controls,'' https://
    www.bis.doc.gov/index.php/documents/pdfs/2186-bis-foregin-policy-
    report-2018/file.
    ---------------------------------------------------------------------------
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                           FROM NOVA J. DALY

    Q.1. At least one U.S. company has been found to have provided
    the Chinese government with a tool enabling it to monitor
    Uyghur and central Asian minorities, as part of what one Uyghur
    activist described in April 9, 2019, testimony to the Senate
    Foreign Relations Subcommittee on East Asia, the Pacific, and
    International Cybersecurity Policy as ``an Orwellian mass
    surveillance state'' where ``more than one million Uyghurs are
    arbitrarily detained outside the legal system in concentration
    camps.'' A bipartisan group of Senators introduced the Uyghur
    Human Rights Policy Act, of which I am a cosponsor, which
    states in part, that:

            the Secretary of commerce should review and consider
            prohibiting the sale or provision of any United States-
            made goods or services to any state agent in Xinjiang,
            and adding the Xinjiang branch of the Chinese Communist
            party, the Xinjiang Public Security Bureau, and the
            Xinjiang Office of the United Front Work Department, or
            any entity acting on their behalf to facilitate the
            mass internment or forced labor of Turkic Muslims, to
            the ``Entity List'' administered by the Department of
            Commerce.

    Do you agree? Please explain your view.

    A.1. The continued promotion of human rights and religious
    freedom is an important matter in the consideration of export
    control policy. I applaud the continued efforts of the Members
    of the Committee on Banking, Housing, and Urban Affairs to
    promote religious freedom and human rights in China and around
    the world and the purpose of the Uyghur Human Rights Policy
    Act.
        Toward that end, I would note that in October of this year
    BIS added eight Chinese tech companies in the video
    surveillance, facial/voice recognition, cybersecurity, and
    artificial intelligence/machine learning sectors to its Entity
    List, effectively banning these companies from receiving U.S.
    products and technology without a license. Similar to the
    restrictions imposed on Huawei and a number of its affiliates
    starting in May of this year, a license now will be required to
    export all items subject to the Export Administration
    Regulations (EAR)--including commercial U.S. hardware,
    software, and technology--to the companies identified.
        Additionally, the Xinjiang Uyghur Autonomous Region (XUAR)
    People's Government Public Security Bureau, 18 of its
    subordinate municipal and county public security bureaus, and
    another subordinate institute were added to the Entity List for
    what the BIS notice describes as ``human rights violations and
    abuses in the implementation of China's campaign of repression,
    mass arbitrary detention, and high-technology surveillance''
    against minority groups in the XUAR. The same restrictions
    described above apply to these government entities.

    Q.2. Can you conceive of any circumstances under which it would
    be appropriate for the United States to weaken our export
    control laws and regulations, or the enforcement of those laws
    and regulations, vis-a-vis China or any foreign competitor in
    order to extract concessions or other commitments from that
    foreign competitor on matters related to trade or human rights?
    Please explain your view.

    A.2. The strong enforcement of our trade and export control
    laws is an imperative. This Administration has continued to
    demonstrate vigilance in the application of these laws to a
    high degree. For trade matters, any relaxing of the application
    of such laws and regulations would be done where the United
    States reaches agreements that bring greater benefits to our
    national and economic security.

    Q.3. In your written testimony, you observed that ``the key to
    ensuring that [Commerce Department's Bureau of Industry and
    Security] and other export control agencies are able to carry
    out their missions and the new responsibilities under ECRA is
    additional funding and resources. If we are serious about
    addressing the current and future loss of U.S. emerging and
    foundational technology, if we want to ensure that the United
    States continues to be a global leader for innovation,
    security, and freedom, it is critical that such funding and
    resources is provided.'' What additional funding and resources
    would you prescribe?

    A.3. For BIS, funding could be provided for more end-use checks
    to be conducted per annum based on past performance, and BIS
    could use help on targeting of end-use checks in Hong Kong
    through upfront research on no license required shipments prior
    to post-shipment verification requests, enhanced and continued
    intelligence sharing within BIS, and the utilization of
    intelligence information to help identify appropriate end-use
    checks, among other considerations.

    Q.4. In your written testimony, you observed that ``it is
    important that we have a system where R&D works here in the
    United States, but also that key technology does not leave our
    shores, especially where there is a national security/military
    nexus.'' The discussion around export controls focuses
    significantly on China and other external challenges, but I
    want to further explore the domestic policies that we can pair
    with our export control laws in order to drive innovation here
    at home. Do you believe that significant increases in federally
    funded basic and applied research could be complementary to our
    efforts to address controls on emerging and foundational
    technologies? Please explain your view.

    A.4. On August 30, 2019, the Trump administration issued its
    ``Fiscal Year 2021 Administration Research and Development
    Budget Priorities.'' In its memo, the Administration states
    that ``While the private sector funds and performs the majority
    of U.S. R&D, the Federal Government has an important role in
    funding R&D in areas that industry does not have a strong
    incentive to invest in and in areas of critical importance to
    national and economic security.'' I fully agree with that.
    Further, the Administration has prioritized Federal R&D funding
    into ``Industries of the Future,'' such as artificial
    intelligence and quantum information science. These industries
    include emerging and foundational technology. Thus,
    prioritizing Federal R&D funding toward these sectors will help
    to build our capabilities and innovations in the sectors that
    include emerging and foundational technology. Addressing
    controls of these technologies is a separate funding need,
    meant for enforcement of our export controls.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                 SENATOR CORTEZ MASTO FROM NOVA J. DALY

    Q.1. You suggested in your testimony that the United States
    could implement an ``Intellectual Property Entities List,''
    similar to the United States Trade Representative's Notorious
    Markets List.
        Could you elaborate on that idea, and how such an entities
    list would differ from the Notorious Markets List? What kind of
    enforcement tools would you want to see created?

    A.1. I am still working through the mechanics of such a regime
    and would be happy to discuss the matter further with the
    Senator and/or staff. The broad consideration is to establish
    an interagency committee that would have the power to apply
    remedies to repeated IP offender entities to include bans or
    limitations on certain investments, procurements, U.S.
    companies doing business with such entities, as well as
    possible financial sanctions, etc.

    Q.2. This spring, the Trump administration placed Zhongxing
    Telecommunications Equipment Corporation (ZTE) and then Huawei
    on the Commerce Department's ``Entity List'' for export
    controls for involvement in activities ``determined to be
    contrary to the national security or foreign policy interests
    of the United States.'' In your testimony, you called these
    actions ``necessary and long overdue.''
        As you noted, Congress has also effectively prohibited the
    Federal Government from purchasing equipment from Huawei and
    ZTE. How best can Congress continue to support this national
    security effort?

    A.2. Congress has already done a good deal to address the
    national security concerns arising from the entities mentioned
    and the presence of their equipment in the U.S. market. As
    noted, section 889 of the 2019 NDAA prohibits agencies from
    procuring Huawei and ZTE equipment. The issue of State and
    local procurements of Huawei and ZTE equipment remain a
    concern. Congress can continue to support diligence in
    oversight of the implementation of section 889. Congress can
    further promote American economic and military competitiveness
    while addressing this issue by assisting the Administration
    with actions and funds that advance U.S. artificial
    intelligence (AI) development and innovation. The President's
    American AI Initiative could also use the backing and focus of
    Congress. Continuing to support America's decades-long
    leadership in AI research and development will increase
    national security while growing innovative industries and
    creating cutting-edge, transformative technologies.

    Q.3. Do you believe that this action will be disruptive to
    American manufacturers that supply components to these
    companies, and if so, do you think there is any way we should
    address the collateral economic impact?

    A.3. There are both positive and negative impacts on U.S.
    manufacturing and the supply of components as a result of the
    implementation of section 889 of the NDAA. For this reason, it
    is important to also ensure that the application of export
    controls continues to be targeted and surgical. Many State and
    local providers who have equipment from these entities and who
    contract with Federal agencies will need assistance. Congress
    must be ready, where appropriate, with funding to ensure that
    these State and local entities can address the economic
    consequences of the law and avail themselves and their systems
    with other technologies from trusted parties.

    Q.4. You said in your testimony you believe the only area for
    effective export control is computing hardware, which will
    require multilateral collaboration with countries that have a
    large amount of hardware engineering expertise. Which countries
    do you believe are most pivotal for the United States to work
    with in this regard?
        How should Congress and U.S. Departments and agencies
    decide which computing technologies should be subject to export
    controls, and which should be areas where free and open
    exchange of technology could contribute to the greater good?

    A.4. Thank you for this question. I believe, however, that Dr.
    Ben Buchanan in his opening statement testified on this matter.
    As such, this question would be better answered by him or
    someone with similar expertise.

    Q.5. The rapid development of artificial intelligence brings
    exciting possibilities. While it is important to safeguard our
    technology, collaboration with global partners could help bring
    mutually advantageous developments in the field.
        Do you believe there is space to collaborate with China on
    AI?

    A.5. This is an important question with difficult answers.
    Currently, U.S. companies do collaborate with Chinese entities
    on AI technologies due to global manufacturing and supply
    chains. Many U.S. companies manufacture in China. However,
    given China's theft of intellectual property and other actions,
    it is imperative that we deeply assess where and the degree to
    which we have and continue to have such collaboration. We must
    ensure that the United States and U.S. companies gain long-term
    benefit from any such collaboration.
                                    ------

             RESPONSE TO WRITTEN QUESTION OF SENATOR SINEMA
                           FROM NOVA J. DALY

    Q.1. There appears to be consensus that a multilateral approach
    to export controls is most effective in mitigating technologies
    that threaten U.S. industry and national security. It also
    appears there is a consensus that multilateral efforts will
    work best in restricting divisive Chinese technology and
    infrastructure. Given the importance of a multilateral approach
    and the serious national security threats China poses, are you
    at all concerned that the Administration's policies and
    rhetoric on trade could undermine the necessary goodwill to
    work collaboratively with our trading partners to hold China
    accountable?

    A.1. Collaboration with our international allies is always the
    best response to address bad actors where it concerns the
    protection of intellectual property. However, trade tensions
    between the United States and its allies have arisen under
    nearly all Administrations. One need only look at the yearly
    ``National Trade Estimate Reports on Foreign Trade Barriers''
    issued by the United States Trade Representative to see that we
    have had market barrier issues arising from allied countries
    going back many years. While this Administration has taken a
    stronger stance on addressing these issues, the United States
    and its allies have historically found ways to work to address
    trade tensions. So long as we hold in common the principles of
    freedom, democracy, and the rule of law, the United States and
    its allies will continue to find common ground on matters of
    free and fair trade and also address together the negative
    aspects of China's lack of IP enforcement and technology theft.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO
                           FROM BEN BUCHANAN

    Q.1. Big Data and AI--I know this is a little off topic, but
    the Banking Committee held three hearings on privacy in the
    ``big data'' era, including how data is used to segment, score
    or otherwise make predictions about an individual's
    creditworthiness, employability, or general reputation. AI is
    at the center of this discussion and I am concerned with the
    extent to which individuals' data is collected and processed
    without their knowledge, consent, or any real understanding of
    use or scope. I believe individuals should have rights over
    their data, including to access, control, correct and delete
    it.
        How do AI systems complicate or challenge the ability of
    individuals to exercise data rights?

    A.1. AI systems enable much better analysis of data. In this
    sense, they increase the incentive for corporations to collect,
    store, and examine data on wide swaths of Americans. Simply
    put, deeper analysis is possible now than ever before because
    of AI, much of it outside of the view of Americans.

    Q.2. What risks are associated with AI in this context and how
    can they be mitigated in any future legislative effort?

    A.2. One substantial risk is that consumers do not understand
    the way in which their data is being used to draw inferences,
    via machine learning technology, about them. These inferences,
    such as their buying preferences, can then be used to drive
    advertising campaigns. While this risk has long existed,
    machine learning technology and the associated rise of data
    analytic tools amplifies it tremendously. While I do not have
    specific legislation to propose, it seems to me that Congress
    might investigate whether consumers are meaningfully consenting
    to the way in which their data is being used.

    Q.3. Google Data Privacy--Your testimony describes export
    controls as relatively ineffective in stopping the export of
    algorithms given the rate of innovation and the fact that AI is
    a fairly open resource. You also identify the mass of personal
    and behavioral data as the competitive advantage for large
    technology companies, as opposed to their AI systems. It would
    seem to me then that that data could also be the real
    vulnerability, if for instance, a foreign adversary were to
    obtain all of Google's consumer data.
        These companies are incentivized to secure their systems,
    but that may not be enough. My question then is what
    comprehensive privacy controls or practices could help mitigate
    the risk of big data being used in this way?

    A.3. It is important to differentiate between privacy and
    security. In general, I think top-tier tech companies like
    Google have adequate incentive to secure their systems; other
    companies do not take security nearly seriously enough, as many
    years of breaches have obviously shown. When it comes to
    privacy, the risk is not that a foreign hacker will access the
    data--a security concern--but that the company itself will
    misuse the data in a way that the consumer does not understand
    or permit. As I indicated in my answer above, I think that is a
    very serious risk, and the capability of machine learning
    systems for ever-deeper analysis amplifies it further. It is
    vital that American consumers understand what is happening and
    consent to the terms when they interact with modern technology
    companies.

    Q.4. The United States has a special treatment arrangement with
    Hong Kong with regards to export controls. While it is in the
    United States interests to have a strong economic relationship
    with Hong Kong, there is a lot of concern about growing Chinese
    encroachment on Hong Kong's autonomy and the potential
    implications for safeguarding technology.
        Is our current export control policy equipped to deal with
    risk of diversion from Hong Kong to China?
        What are some ways in which China is using or could use
    Hong Kong as a vector for acquisition of technology that we do
    not export to the Mainland?
        What are your specific recommendations for strengthening
    our export control regime in relation to these challenges?

    A.4. Unfortunately, I do not claim any regional expertise on
    Hong Kong or its relations with China. I have never studied
    these subjects in any kind of depth, nor am I familiar with how
    export controls apply to Hong Kong. I must defer to other
    experts on these three questions as a result.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                           FROM BEN BUCHANAN

    Q.1. At least one U.S. company has been found to have provided
    the Chinese government with a tool enabling it to monitor
    Uyghur and Central Asian minorities, as part of what one Uyghur
    activist described in April 9, 2019, testimony to the Senate
    Foreign Relations Subcommittee on East Asia, the Pacific, and
    International Cybersecurity Policy as ``an Orwellian mass
    surveillance State'' where ``more than one million Uyghurs are
    arbitrarily detained outside the legal system in concentration
    camps.'' A bipartisan group of Senators introduced the Uyghur
    Human Rights Policy Act, of which I am a cosponsor, which
    states in part, that:

            the Secretary of Commerce should review and consider
            prohibiting the sale or provision of any United States-
            made goods or services to any state agent in Xinjiang,
            and adding the Xinjiang branch of the Chinese Communist
            Party, the Xinjiang Public Security Bureau, and the
            Xinjiang Office of the United Front Work Department, or
            any entity acting on their behalf to facilitate the
            mass internment or forced labor of Turkic Muslims, to
            the ``Entity List'' administered by the Department of
            Commerce.

    Do you agree? Please explain your view.

    A.1. While it is difficult to know with certainty what is
    happening in Xinjiang, and while I do not claim particular
    expertise on the subject, I have certainly read a number of
    news reports that are both credible and alarming. Like you, I
    am very worried about the role of technology in aiding
    repression around the world. I do not think it is appropriate,
    nor should it be legal, for American companies to aid
    authoritarian regimes in any effort to crack down on dissent,
    prosecute religious or ethnic minorities, or otherwise repress
    their populations.

    Q.2. Can you conceive of any circumstances under which it would
    be appropriate for the United States to weaken our export
    control laws and regulations, or the enforcement of those laws
    and regulations, vis-a-vis China or any other foreign
    competitor in order to extract concessions or other commitments
    from that foreign competitor on matters related to trade or
    human rights? Please explain your view.

    A.2. As I have indicated in other answers, my view is that
    export controls put in place for national security concerns
    should not be negotiated away for trade concessions. Doing so
    undermines the credibility of American export controls.
                                    ------

             RESPONSE TO WRITTEN QUESTION OF SENATOR SINEMA
                           FROM BEN BUCHANAN

    Q.1. There appears to be consensus that a multilateral approach
    to export controls is most effective in mitigating technologies
    that threaten U.S. industry and national security. It also
    appears there is consensus that multilateral efforts will work
    best in restricting divisive Chinese technology and
    infrastructure. Given the importance of a multilateral approach
    and the serious national security threats China poses, are you
    at all concerned that the Administration's policies and
    rhetoric on trade could undermine the necessary goodwill to
    work collaboratively with our trading partners to hold China
    accountable?

    A.1. Yes, as I indicated in the hearing, I am concerned that
    the rhetoric and policies of the trade negotiations can, for a
    variety of reasons, undermine the real and perceived importance
    of national security concerns. In my view, export controls put
    in place for national security reasons are not something to be
    negotiated away, since doing so undermines their credibility of
    the stated national security concerns. Further, I believe
    export controls are most effective when done in a multilateral
    fashion, and any effort to weaken American alliances undermines
    the potential for strong export controls.

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