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

                               __________
                                 

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
39-542 PDF                  WASHINGTON : 2020                     
          
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            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\
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    \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\
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    \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.
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    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\
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    \2\ ``AI and Compute,'' OpenAI, (2018), https://openai.com/blog/ai-
and-compute/.
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    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.
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     \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.
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     \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.

              Additional Material Supplied for the Record


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