[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
REVIEWING THE BUREAU OF
INDUSTRY AND SECURITY, PART I:
U.S. EXPORT CONTROLS IN AN ERA
OF STRATEGIC COMPETITION
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HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND
ACCOUNTABILITY
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
May 11, 2023
__________
Serial No. 118-17
__________
Printed for the use of the Committee on Foreign Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available: http://www.foreignaffairs.house.gov/, http://docs.house.gov,
or http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
52-616 PDF WASHINGTON : 2024
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COMMITTEE ON FOREIGN AFFAIRS
MICHAEL T. McCAUL, Texas, Chairman
CHRISTOPHER H. SMITH, New Jersey GREGORY MEEKS, New Yok, Ranking
JOE WILSON, South Carolina Member
SCOTT PERRY, Pennsylvania BRAD SHERMAN, California
DARRELL ISSA, California GERALD E. CONNOLLY, Virginia
ANN WAGNER, Missouri WILLIAM KEATING, Massachusetts
BRIAN MAST, Florida DAVID CICILLINE, Rhode Island
KEN BUCK, Colorado AMI BERA, California
TIM BURCHETT, Tennessee JOAQUIN CASTRO, Texas
MARK E. GREEN, Tennessee DINA TITUS, Nevada
ANDY BARR, Kentucky TED LIEU, California
RONNY JACKSON, Texas SUSAN WILD, Pennsylvania
YOUNG KIM, California DEAN PHILLIPS, Minnesota
MARIA ELVIRA SALAZAR, Florida COLIN ALLRED, Texas
BILL HUIZENGA, Michigan ANDY KIM, New Jersey
AUMUA AMATA COLEMAN-RADEWAGEN, SARA JACOBS, California
American Samoa KATHY MANNING, North Carolina
FRENCH HILL, Arkansas SHEILA CHERFILUS-MCCORMICK,
WARREN DAVIDSON, Ohio Florida
JIM BAIRD, Indiana GREG STANTON, Arizona
MICHAEL WALTZ, Florida MADELEINE DEAN, Pennsylvania
THOMAS KEAN, JR., New Jersey JARED MOSKOWITZ, Florida
MICHAEL LAWLER, New York JONATHAN JACOBS, Illinois
CORY MILLS, Florida SYDNEY KAMLAGER-DOVE, California
RICH MCCORMICK, Georgia JIM COSTA, California
NATHANIEL MORAN, Texas JASON CROW, Colorado
JOHN JAMES, Michigan BRAD SCHNEIDER. Illinois
KEITH SELF, Texas
Brenden Shields, Staff Director
Sophia Lafargue, Staff Director
------
Subcommittee on Oversight and Accountability
BRIAN MAST, Florida, Chair
SCOTT PERRY, Pennsylvania JASON CROW, Colorado, Ranking
DARRELL ISSA, California Member
TIM BURCHETT, Tennessee DINA TITUS, Nevada
FRENCH HILL, Arkansas COLIN ALLRED, Texas
MICHAEL WALTZ, Florida ANDY KIM, New Jersey
CORY MILLS, Florida SHEILA CHERFILUS-McCORMICK,
NATHANIEL MORAN, Texas Florida
MADELEINE DEAN, Pennsylvania
Ari Wisch, Staff Director
C O N T E N T S
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Page
WITNESSES
Nikakhtar, Honorable Nazak, Chair, National Security Practice,
Wiley Rein, LLP, Former Assistant Secretary for Industry and
Analysis, International Trade Administration, U.S. Department
of Commerce.................................................... 8
Coonen, Steve, Former Senior Foreign Affairs Advisor, Defense
Technology Security Administration............................. 94
Wolf, Honorable Kevin, Partner, International Trade, Akin Gump
Strauss Hauer & Feld LLP, Senior Fellow, Center for Security
and Emerging Technology, Georgetown University, Former
Assistant Secretary of Commerce for Export Administration, U.S.
Department of Commerce......................................... 99
Cinelli, Giovanna M., National Security Fellow, National Security
Institute, Antonin Scalia Law School........................... 113
APPENDIX
Hearing Notice................................................... 128
Hearing Minutes.................................................. 130
Hearing Attendance............................................... 131
RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD
Responses to questions submitted for the record.................. 132
REVIEWING THE BUREAU OF INDUSTRY AND SECURITY, PART I: U.S. EXPORT
CONTROLS IN AN ERA OF STRATEGIC COMPETITION
Thursday, May 11, 2023
House of Representatives,
Subcommittee on Oversight and
Accountability,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 2:03 p.m., in
room 210, House Visitor Center, Hon. Brian Mast (chairman of
the subcommittee) presiding.
Mr. Mast. The Subcommittee on Oversight and Accountability
will come to order.
The purpose of this hearing is to examine the Biden
Administration's sanctions policy and its use, implementation,
and enforcement of sanctions on a range of malign actors.
I now recognize myself for an opening statement.
So today the Subcommittee on Oversight and Accountability
will begin examining the implementation and enforcement of U.S.
export controls as a part of the committee's 90-day review of
the Department of Commerce's Bureau of Industry and Security,
or BIS.
There is a lot of buzzwords being thrown around these days.
We spoke about a lot of them in my office in the last couple of
days. People like to talk about strategic competition.
President Biden has used the phrases ``seeking competition not
conflict,'' but I want to cut through some of the DC bull and
say it is not competition if one boxer does not step into the
ring.
And it is completely, undeniably, 100 percent unacceptable
that American soldiers, men and women like ourselves, may have
to 1 day be forced to stare down the barrel of an American-made
weapon because the Biden Administration has let the People's
Republic of China get its hands on our tech.
Members of this subcommittee on both sides of the dais have
served our country in uniform honorably. We do not see eye to
eye on every single policy issue, but I do know that we agree
on this: when our men and women are staring down at enemy
forces across the battlefield, our weapons and our will better
be better than theirs. And there is no reason on God's green
earth that we should be willing to be handing over our weapons
to our enemy, or the means to build those weapons.
I would like to begin today's hearing by comparing and
contrasting Xi Jinping and Joe Biden's approach to the
relationship between our two nations. Let's be clear that Xi
Jinping is gearing up for a fight. He is preparing for conflict
by being more competitive.
Pictured behind me is the DF-17. It is the People's
Liberation Army's first ground-launched hypersonic glide
vehicle designed for anti-ship missions. China's State media
referred to it as the aircraft carrier killer. Everybody should
be asking themselves, whose aircraft carrier do you think this
missile is designed to kill? What sailors do you think it is
designed to end the lives of?
Xi has told his military he wants the capability to attack
Taiwan by 2027. He has told his generals to dare to fight. He
is ready for a fight, and he is ready to do everything he can
to make sure that China wins. That includes getting his hands
on American tech using our supply to his advantage.
I brought a few articles that illustrate this point. Let's
read a couple of these headlines. The Washington Post on
October 17, 2022, ``American Technology Boosts China's
Hypersonic Missile Program.'' Washington Post again on April 9,
2021, ``China Builds Advanced Weapon System Using American Ship
Technology.'' The fact is that failure to stop transfer and
espionage of critical American technology to the People's
Republic of China has contributed to its rapid military
modernization and the rapid decrease in the United States'
national security.
Let's put a finer point on it. The Chinese Communist Party
is using American technology to build more precise, more lethal
weapons, to sink our carriers and to kill our troops. That is
Xi Jinping's plan. If Xi Jinping is gearing up for a fight, Joe
Biden, in my opinion, is doing the opposite of that. He is
desperate to appease the enemy, even if it means giving away
our own military's advantage.
Remember, we are not looking for a fight. That was the
statement. We are looking for competition. But as the great
General Patton said, ``Real Americans love to fight. They love
the clash and the sting of battle.'' At the heart of his
appeasement strategy, as Commerce's Bureau of Industry and
Security, the agency's authority over export controls, its
seeming refusal to use that authority, it is infuriating
because I can sit here and say that, yes, China is in fact
stealing our technology. But more concerning, the
Administration is willing to hand it over to them, even in the
midst of them being thieves.
Let's look at the facts. During a 6-month period between
November 2020 and April 2021, BIS approved 60 billion worth of
licenses for American technology to Huawei, and 40 billion
worth of licenses to SMIC. It has denied less than 1 percent of
licenses to both companies. Ninety-eight percent of controlled
technologies are transferred to China without license. Of the 1
percent of exports that do need a license, only 2 percent of
those licenses are denied.
The Commerce Control List is more than 500 pages long, but
it seems that every entity has a license exception. And even
when a license is required, it is rubber-stamped and sent back
out the door.
We have laws and regulations that fill binders upon binders
upon binders, and there is just some simple stacks of them that
my staff has put together. But they are wasted words if we do
not actually enforce them. Our ``yes'' has to be yes; our
``no'' has to be no. Our adversaries have to take our country
and our Administration seriously. It is because of, in my
opinion, Joe Biden's refusal to lead through strength that that
is not being done.
While Xi Jinping is ready for a fight, President Biden is
that guy with a quivering lip that will not look the bully in
the eye and say, ``No. I am going to stand up to you. That is
not going to be allowed. You are not going to do that.''
So let's talk about how we fix this. The answer is actually
implementing export controls in part. Congress gave the
executive branch considerable authority in the Export Control
Reform Act of 2018 to protect our national security, but the
Biden Administration is failing to implement, and including
blatant refusal to even define emerging and critical
technologies as the law requires.
It is ironic, really, that the Administration seems
determined to overstep its authority in almost every case. But
now that it has the ability to do something to keep Americans
safe, it says, ``No, thanks.'' But that refusal to act is a
slap in the face to those who sent us here to represent them.
In March 2023, Morning Consult Poll found that one in two
voters support restricting American companies from exporting to
or do business in China when it comes to advancing their
technologies. Some of our friends on K Street who lobby against
tough export controls like to overcomplicate things. They make
the system out to be more intimidating and confusing than it
really is. But when I am back home, my constituents tend to
keep things pretty simple. Don't sell American technology to an
adversary that can be used to kill Americans.
Today we are going to hear testimony from leading experts,
including former Commerce and DoD officials. One of them ran
BIS, another led DTSA's counter-China work until he resigned in
protest. They will tell us firsthand how broken our export and
control system is and where we can work to fix it together.
This hearing is just a starting point for the
subcommittee's oversight of BIS and its use of export controls.
In coming months, we plan to invite BIS officials to testify
and answer for these failures. Export controls are about
ensuring America is taken seriously on the global stage.
We cannot be the Nation of all talk and no action, of empty
threats. Our actions have to match our words. Export controls
are about national security. And as a soldier, when my brothers
and sisters in arms are in that same position, I want them to
know that their weapons can blow our enemies off the face of
the earth and not have to worry that our enemies have the same
capability to do that to them.
Export controls are about beating China. I firmly believe
that we have to run faster than our enemies, but we should not
be working at all to give them any kind of capability to catch
up. And China is ready for that fight.
The chair now recognizes the very distinguished, the very
honorable ranking member, the gentleman from Colorado, Mr.
Crow, for any opening statement. And if it goes too long, I am
certainly not going to gavel you down. That would be very
hypocritical of me. So the chair now recognizes you.
Mr. Crow. Thank you, Mr. Chairman, and thank you for the
additional runway. I do not think I will need it, but I
appreciate you calling this really important hearing today.
Before I begin, I just wanted to note a little bit of my
disappointment in two of the witnesses providing materials far
past the required deadline when those materials by rule are
normally allowed. It just makes it hard for members to prepare
for the hearing, for staff to prepare for hearing, and for us
to really get out of these hearings the full measure of our
oversight, if we do not have those materials in advance, and
would just ask that in future testimony for both of those
witnesses that they do comply with that rule. And I appreciate
that.
So with that, today we are going to examine the Biden
Administration's use of export controls and broader U.S. export
control policy in the role of the Department of Commerce Bureau
of Industry and Security, or BIS, in carrying out those
policies.
The U.S. economic might, if properly wielded through
cooperation with our thriving private sector, as well as allies
and partners, can serve as a multiplier for advancing U.S.
national security and boosting our economic competitiveness in
the face of strategic competition with the PRC.
One of the most important ways we can wield that power is
through the smart and effective imposition of export controls.
Now export controls can be used to cutoff access to American
products, intellectual property, and technologies that bad
actors would use to undermine U.S. security, violate human
rights, and circumvent international law.
This is one way in which the U.S. Government can pull the
economic levers at our disposal, and it is a tool the Biden
Administration has used repeatedly and robustly, and arguably
more than any previous Administration, and I would say to great
effect.
Now that is not to say they are perfect because the very
nature of export controls is you are evolving, you are looking
at data, you are responding to the information that you see in
real time, and you continue to evolve those and improve those.
They are by nature dynamic and changing.
But the Biden Administration's use of export controls has
been broad. It has been expansive and historic, particularly in
countering China and Russia. In response to Russia's renewed
invasion of Ukraine, the Administration swiftly built a
coalition with 38 other countries, imposing stringent export
controls on Russia and Belarus, the largest and most
coordinated effort of its kind in history outside of the
multilateral regime.
In just over 2 years, it has listed hundreds of PRC-based
entities, including through its October 2022 controls, which
took unprecedented steps to restrict the PRC from obtaining
advanced computing chips, developing and maintaining
supercomputers, and manufacturing advanced semiconductors.
Critical allies like Japan and the Netherlands have
announced their plans to impose their own controls, a
demonstration of the strength of U.S. leadership and welcome
development to multilateralize our policies on China. Our
controls are most effective when implemented alongside
partners, and I hope today's discussion can shed light on how
we can enhance international coordination on export controls.
Today the U.S. uses export controls more often and for a
greater number of policy objectives than ever before. That is
just a fact. BIS adapts and strengthens its rules on an ongoing
basis, as I mentioned earlier, responding and evolving as the
conditions require.
Similarly, it is important that Congress conduct oversight
to ensure that our controls are calibrated to achieve our
objectives and ensure they are not causing unintended
consequences to U.S. interests.
We are engaged in an economic and technological competition
with the PRC, especially when it comes to critical technologies
that will define the future. To win this competition, we need
to do two things simultaneously with our controls. First, as
the Biden Administration has done, we must not export sensitive
and advanced critical technology to China that would undermine
our national security. We all share that goal.
Second, we must ensure that our controls are focused and
narrow, so they are not unduly impeding our undermining our own
U.S. economic strength and allowing our companies to become
global leaders in these technologies. It is a delicate
balancing act, but to win the strategic competition it is
critical that we do both.
This is why Congress must conduct honest, constructive
oversight, and ensure that BIS has the tools and resources it
needs to do its job effectively. Having imposed unprecedented
controls on China and Russia in the past year Congress must
ensure that BIS has the proper staffing and resources to
effectively implement and enforce those controls as well as to
maintain a swift, transparent, and rigorous licensing
application and approval system.
BIS's staffing and budget have, frankly, not kept up with
the growing mandate that we have given it. For this reason, I
hope this committee also gets the chance to hear from the
Administration directly.
So with that said, I hope we can spend some time today on
productive oversight that highlights where BIS can improve, how
we can strengthen coordination with partners and allies and
export controls even further, and how we can give BIS the tools
and resources it needs to enforce our already existing policies
effectively.
And with that, I yield back the balance of my time.
Mr. Mast. We both went over. I will call it even.
Other members of the committee are reminded that opening
statements may be submitted for the record.
We are pleased to have a distinguished panel of witnesses
before us today on this important topic. We thank you all for
being here. The Honorable Ms. Nazak Nikakhtar is the Chair of
National Security Practice at Wiley Rein, LLP, and was the
former Assistant Secretary for Industry and Analysis at the
International Trade Administration. Mr. Steve Coonen was the
former Senior Foreign Affairs Advisor for the Defense
Technology Security Administration.
The Honorable Kevin Wolf is a partner at Akin Gump Strauss
Hauer & Feld LLP and a Senior fellow at the Center for Security
and Emerging Technology at Georgetown University. Mr. Wolf was
also the former Assistant Secretary of Commerce for Export
Administration. And Ms. Giovanni Cinelli is a National Security
Fellow at the National Security Institute at George Mason's
Antonin Scalia Law School.
Thank you for being here today. Your full statements will
be made a part of the record, and I will ask that each of you
keep your spoken remarks to 5 minutes exactly, like he and I
both did, in order to allow time for member questions.
I now recognize Ms. Nikakhtar for her opening statement.
STATEMENT OF NAZAK NIKAKHTAR, CHAIR, NATIONAL SECURITY
PRACTICE, WILEY REIN, LLP, FORMER ASSISTANT SECRETARY FOR
INDUSTRY AND ANALYSIS, INTERNATIONAL TRADE ADMINISTRATION, U.S.
DEPARTMENT OF COMMERCE
Ms. Nikakhtar. Chairman Mast, Ranking Member Crow,
committee members and staff, thank you for the invitation and
opportunity to speak today.
As a lawyer, economist, former adjunct university
professor, and former U.S. Government official, I have been on
the front lines for the U.S. economic challenge for decades. I
have served two tours in the U.S. Government, Department of
Commerce, spanning four important positions, including Acting
Undersecretary of BIS.
I am also an immigrant, a woman who escaped an
authoritarian regime nearly 45 years ago. I am acutely aware of
what such regimes are capable of. They do not think like
Americans. Capitalism is not in their interest. What they seek
is the destruction of America and Western values. That is their
end game above all else.
It is from all of these vantage points as a patriot, an
immigrant, and an expert that I offer my views today. The views
and opinions expressed today are mine only and no organization
with which I am affiliated.
In my written testimony, I take the position that we need
more forward-leaning policies to curb the exports of sensitive
items to America's adversaries. I also take the position that
Congress needs much more transparency in how exports are being
regulated to better evaluate the ways that the Commerce
Department is addressing very serious national security risks.
I make the case that America was stronger 20 years ago,
both in terms of economic resilience and in terms of military
power, before it let its technology and manufacturing capacity
move offshore to the PRC. The PRC, in turn, poured enormous
amounts of money to indigenize and grow the innovations we
willingly transferred to it. China also transferred our
technologies to other adversaries for its own benefit and to
our detriment.
Now, America let its technology offshore because we
mistakenly believed that we needed the revenue from the Chinese
market to innovate. But the money received pales--pales in
comparison to the value of the technology we transfer to China,
coupled with the subsidies that the Chinese government used to
mature these innovations and to powerhouse mammoth industries
that span across China today and are crushing competitors
globally. We lost; they won. And China is now leading the world
in many of the important technologies.
Make no mistake, in semiconductors--a very apt example--
China has developed the equipment, way for fabrication
capabilities, the design technology, and the upstream supply
chains, to dominate the global sector. Its immense control over
the critical upstream supply chains also gives its leverage to
destroy the chips sector of all other competitors.
Let me be clear: China no longer needs us. With our
technology, it can make both legacy and advanced chips and
leading edge chips. As its throughput, is the 7 nanometer level
great? No. But China can handle 30 percent yields because money
isn't an issue for the Chinese government. Plus, the yields are
going to improve over time.
In comparison, we have neither the IP, the manufacturing
capacity, to be self-sufficient across the full chip value
chain. The reason, again, is that we chose to export our know-
how in exchange for money. So where does that leave us today?
Desperate. Desperate for domestic manufacturing capacity,
desperate for IP, and desperate for the manufacturing raw
materials.
This is a direct result of our sell-for-revenue export
control policies. China has been running faster than us, and it
is running exponentially faster the stronger it gets by means
of our exports. We have a very short period of time to reverse
the current trend, which means that we have to move in big ways
to make up for last time.
Finally, I want to note that tightening controls in the way
I recommend will not force American companies to offshore. The
Indo-Pacific region is becoming dangerously unstable
geopolitically. Europe is dealing with historic energy prices
that precludes long-term investments in energy-sensitive tech
industries. And our other trading partners in Asia and South
America do not have the skilled work force or the
infrastructure to support high-tech manufacturing and R&D right
now.
To the extent that American companies offshore, they risk
the possibility that their companies will be nationalized.
China already controls a majority stake in all the American
companies that offshored there years ago. If it controls the
companies now, it is certainly going to nationalize them
tomorrow. This is obvious.
American is still the great beat to invest, which is why I
find so many incredible patriotic companies looking now to
innovate in the U.S. to outcompete our adversaries. Export
controls, more aggressive export controls, will go a long way
in giving these companies, these new startup companies, the
runway they need to reclaim America's technological leadership.
Thank you for having me, and I look forward to a discussion
that is robust, guided by what is in America's best interest.
Thank you.
[The prepared statement of Ms. Nikakhtar follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mast. Thank you, Ms. Nikakhtar. You nailed the time, so
right on.
I now recognize Mr. Coonen for his opening statement. We
will see if you can do--if you can do any better on that front.
STATEMENT OF STEVE COONEN, FORMER SENIOR FOREIGN AFFAIRS
ADVISOR, DEFENSE TECHNOLOGY SECURITY ADMINISTRATION
Mr. Coonen. Thank you, Chairman Mast. Good afternoon,
Ranking Member Crow and members of the committee. My name is
Steve Coonen. It is an honor for me to be here to testify with
you today.
Following more than 2 decades in uniform as a U.S. Army
artillery officer, and a foreign affairs officer, I spent
nearly 14 years as an analyst at the Defense Technology
Security Administration, or DTSA. That is the Pentagon's unit
for developing export controls and technology security
policies.
By the end of my tour, I was DTSA's senior foreign advisor
for China. In this position, I had the responsibility of
preventing China from obtaining sensitive American
technologies. In July 2020, the Office of the Secretary of
Defense bestowed on me an award for excellence for my work on
China. But then, in November 2021, I voluntarily resigned in
protest from my position.
I could no longer, in good conscience, continue to serve
when I believe that too many officials refused to recognize and
correct U.S. export policy failures concerning China. I felt
like I was watching a car crash in slow motion every time the
Federal Government approved a technology transfer that fed the
buildup of an adversarial Chinese military and furthered their
modernization efforts.
Too few inside the system seemed willing to recognize this
danger. I have submitted to you my written statement, which was
also released yesterday by the China tech threat. My thesis is
that willful blindness characterizes the various actors
regulating technology sales to Chinese entities. Their refusal
to stop China from legally capturing American technology
undermines American national security and dishonors our forces'
willingness to sacrifice for our country.
At the center of the export control system is the Commerce
Department's Bureau of Industry and Security, or BIS. In my
view, BIS is failing to prioritize national security in its
decisionmaking. BIS is grossly underestimating Xi Jinping's
military-civil fusion strategy, which is diverting dual-use
technologies to the People's Liberation Army.
As evidenced in BIS's report on U.S. trade with China that
was just released this week, in 2022 BIS approved 91 percent of
applications with the export of controlled militarily useful
technology to China. From my vantage point, the main problem is
that BIS takes a business-first view of applications. Though
there are scores of military uses for controlled technologies,
BIS will rubberstamp applications unless they have specific
indications or intelligence of diversion.
The problem with this approach is it is obviously extremely
difficult to obtain intelligence of PLA diversion. Even though
we know it is happening, such as the case of China's
hypersonics and using American technology to develop that
control technology.
Second, Xi Jinping himself has told us through his
military-civil fusion strategy the CCP will divert any
technology for military purposes. So we shouldn't need formal
evidence of diversion. China's assertion that they will use
this technology for civilian purposes are lies from a regime
that is characterized by dishonesty and non-transparency.
Third, unlike every other trading partner, the U.S. has no
effective mechanism to verify how controlled U.S. technology
exported to China is ultimately used.
In close, we are failing to recognize significant and
decades-long shortcomings associated with having a Federal
bureaucracy whose inherent interests are not necessarily
aligned with our national security interest. Given the length
of time that these problems have endured over several
Administrations--be it Republican or Democrat--I believe only
Congress can implement the needed change.
My paper offers eight specific directed suggestions, but in
deference to time limitations I would urge you to quickly
implement the following three recommendations to fix our broken
export control system.
First, make the presumption of denial the standard position
for national security controlled technologies and other
critical technologies bound for the PRC.
Second, give the Departments of Defense, State, and Energy,
greater authorities to determine the outcomes of a BIS-
dominated license process review. And enhance their ability to
quickly add controls for emerging and unlicensed technologies
for which they have the greatest equity.
And then, third, request a GAO audit. I note a number of
BIS process fellows in my paper. A GAO audit should be
conducted immediately to assess the risk that those violations
are causing to national security. That audit should also
contain recommendations.
I look forward to discussing these issues in greater detail
with you. And, again, thank you for having me today.
[The prepared statement of Mr. Coonen follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mast. Thank you, Mr. Coonen. It was a good 7,000-word
read, and I mean that.
So I now recognize Mr. Wolf for his opening statement.
STATEMENT OF KEVIN WOLF, PARTNER, INTERNATIONAL TRADE, AKIN
GUMP STRAUSS HAUER & FELD LLP, SENIOR FELLOW, CENTER FOR
SECURITY AND EMERGING TECHNOLOGY, GEORGETOWN UNIVERSITY, FORMER
ASSISTANT SECRETARY OF COMMERCE FOR EXPORT ADMINISTRATION, U.S.
DEPARTMENT OF COMMERCE
Mr. Wolf. Great. Chairman Mast, Ranking Member Crow,
members of the subcommittee, thank you for asking me to
testify. I am happy to help the subcommittee with its oversight
role in any way that I can. The views I express today are my
own.
To help set the stage a little bit for the hearing, I
thought it might be useful to list out some of the major and
rather significant export control actions that BIS, working
with its interagency partners, took in 2022.
On the one hand, the changes are quite novel in that they
focus on responding to, as the title of this hearing is,
strategic national security threats created by specific
countries, namely China and Russia, as opposed to the more
classical country agnostic, non-proliferation-focused, regime-
based controls that govern the system and focused on dual use
items since the end of the cold war.
And these are the types of items historically that were
controlled that had much more direct relationship to the
development, production, or use of a weapon of mass destruction
or conventional weapon, and the recent controls from 2022 are
much broader in scope. They use a combination of really novel
and quite complex end use, end user, and list-based controls,
lists of specific items, and controls that are
extraterritorial, meaning that they apply to foreign-made items
even when they are outside the U.S.
And another way of thinking about it is, even when
otherwise basic commercial items that are not normally subject
to U.S. or any non-U.S. controls are involved, the new controls
that came about in 2022 apply to activities of U.S. persons and
trade, an otherwise uncontrolled item with many more specific
entities of concern in Russia and China and elsewhere.
But on the other hand, the controls are not new in the
sense that BIS, as mentioned, has always been to administer an
interagency export control system and an enforcement system,
which I want to get into, that governs the activities involving
specific items, end uses, end users, and destinations, in order
to advance national security and protect national security and
foreign policy interests.
The difference is that the national security and foreign
policy objectives of export controls that were created at the
end of the cold war have, and properly so, expanded to deal
with the broader strategic issues that involve in particular
China and Russia. And the evolution of this policy thinking is
best set out by the Administration in two speeches that the
National Security Advisor has given and in the preambles that
BIS wrote for the two primary Russia and China-specific roles
that are set out.
And, in essence, with respect to export controls, the
national security objectives clearly include broader China and
Russia-specific strategic objectives with respect to what the
National Security Advisor calls force multiplying technologies
and enabling technologies.
And as described in far more detail in other testimony that
I have given, my view is that there are two keys to making
these and other follow-on strategic controls far more effective
and less counterproductive. And by ``more effective,'' I
primarily mean coming up with rules and systems that stop the
transfer of the technology of concern to end users and
destinations of concern from any destination.
And the first key to success in this objective is to do all
the hard work to ensure that our allies that also make similar
technologies, and that have producers of the items of concern,
have the authority in their systems to impose controls over the
same items for the same end use, the same end users, and same
destinations.
And so it is important that they have an understanding of a
common security objective that we are all discussing today in
order to enhance the effectiveness of controls.
The thing that I have been preaching about is more
authority for the allies, so that they can impose with us
plurilateral controls, and eventually my ideal is a new--an
additional multilateral regime system focus on non-classical
national security and human rights issues.
Now I am not saying that all unilateral controls are bad or
counterproductive. It is just that as ECRA clearly lays out,
eventually they become less effective and more
counterproductive.
And the second key that I will discuss today in much more
detail is the need for massively larger resources for BIS. BIS
and its other agencies are doing great work, but the demands of
the day imposed upon BIS and the other export control agencies
are far, far greater than what they were originally created
for.
BIS and the other agencies are processing 40,000-plus
licenses and other requests in addition to all of the novel
controls and issues, particularly with respect to enforcement
of the Russia and China controls.
So that is right at about my 5-minute mark, and I stand
ready to answer whatever questions now or later, however I can
help.
So thank you very much.
[The prepared statement of Mr. Wolf follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mast. I want to thank you, Mr. Wolf.
I now recognize Ms. Cinelli for her opening statement.
STATEMENT OF GIOVANNA M. CINELLI, NATIONAL SECURITY FELLOW,
NATIONAL SECURITY INSTITUTE, ANTONIN SCALIA LAW SCHOOL
Ms. Cinelli. Thank you, Chairman Mast and Ranking Member
Crow and distinguished members of the subcommittee. I very much
appreciate the opportunity to come before you today to provide
some perspectives from both a longstanding legal career where I
have had to advise in this area from a client perspective to
operationalize the requirements that the Export Administration
regulations and the underlying statutes have imposed, and at
the same time, from my military service as a U.S. Naval
Intelligence Officer, where I have seen firsthand the actual
impact of export controls out in the field and in a boots-on-
the-ground perspective.
I am here today in my capacity as a National Security
Fellow from the National Security Institute. The views that I
am expressing are my own. They do not represent any individual
or other organization.
As my co-panelists have said, export controls are all about
national security. And national security is predicated on both
a proactive and a reactive strategy. If a national security
foundation is predicated only on the ability to react to
ongoing circumstances, that will place any country, not only
the United States, in a defense posture and one in which you
are almost shadowboxing because you are not sure where a
particular issue will arise.
So as we look at the export control system today, we see
that the majority of what has been described by my co-panelists
is focused on that reactive nature. As we look at
effectiveness, and we look at the protection of U.S. national
security interests, it would be helpful to look historically of
where today's system originally arose.
And I take it back to the 1970's when we had the first
Export Administration Act that was predicated upon the
geopolitical and geostrategic situation at that time. And at
that time, it was effective. Why? Because it was premised
primarily on a deny and delay concept, which matched where
allies, partners, and the United States was at the time.
There was a capability to deny access to parties, not just
specific parties but parties more generally, and to also delay
the advancement. That premise was coupled with an effective
strategy by the Department of Defense in the maintenance of
various lists like the militarily critical technologies list
and the disruptive technologies list.
And DTSA did yeoman's work up through the 1990's to attempt
to maintain that list until a combined set of factors, not only
resources but focus and changing balances within the government
on who and under what circumstances made decisions in the
national security realm.
I think these lessons are important as you look at the work
that the committee is considering doing as you understand where
and how there may be gaps, and in some instances deficiencies,
in the operationalization of the EAR.
I think it stands on three legs of the stool. First, while
export controls require flexibility, focus, and nimbleness, if
the rules are so complicated and so convoluted that in order to
implement them you need a technical person, an economist, and a
lawyer, the question becomes, how are they best protecting
interests?
The second leg of the stool is funding. When the
regulations and the underlying premise for export controls
shifted in the 1990's from a deny and delay perspective to a
Run Faster, there was an inherent need to maintain a degree of
funding for the development of that delta to Run Faster. And at
the time, in the Clinton Administration, while there was some
aspect of a continuation of deny and delay, the transition to
shifting almost everything to the Run Faster coalition resulted
in gaps.
Why? Because the funding was not there on the government
side to keep the delta that had been in place. And on the
industry side, and the academic community side, where there
majority of the advancements were beginning to transition, the
funding priorities, the focus, and the direction varied.
This is not to say there were not circumstances when they
were aligned, but they were not completely aligned, and you had
different drivers. I fast-forward to 2018 with ECRA where
Congress wisely reallocated a substantial substantive statute,
in essence giving the Department of Commerce substantive
authority for so many years.
From 1994 through 2018, Commerce and the Export
Administration regulations were premised on emergency powers
under the International Emergency Economic Powers Act. That was
not a sufficient authority.
And with that, I see that my time is up. I am happy to
answer any questions, and I apologize, Chairman Mast, for my 6
minutes being over.
[The prepared statement of Ms. Cinelli follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mast. I do not think--you went over by maybe 10
seconds. You are good, ma'am. Thank you, Ms. Cinelli.
I now recognize myself for 5 minutes of questioning. I am
going to take a point of privilege and say we have in the
audience the members of the Palm Beach Police Department that
joined us here in our committee. I just want to say thank you
all for your service to our community and our country.
Appreciate you all very much.
So I want to get into this conversation, a place that has
interested me personally. Before I get into that, I want to ask
more of a broad question, and it is simply this and I am going
to ask Ms. Nikakhtar and Mr. Coonen, would you say that for
Department of Commerce that they are primarily driven to
enhance American commerce or to safeguard American national
security interest? Just broadly.
Ms. Nikakhtar. I am happy to answer that. I have served
multiple different roles at the Commerce Department. Look, the
Commerce Department is bifurcated, right? You have got the pro-
business group, and that is pretty much the majority of the
Commerce Department. But you do have already a unit of the
Commerce Department that handles enforcement of trade cases,
and they do that pretty well.
Within BIS, you have the enforcement group. They are very
forward-leaning. They are very enforcement-minded. And then you
have got the licensing folks, which are a little bit less so.
Fundamentally, one can have the debate about whether
Commerce is capable of doing this. What I think needs to happen
at BIS is a complete culture shift on the licensing side. They
need to see the threats for what it is, and they need to really
understand that, you know, continuing to do business with China
and the revenue stream we get from them is not going to be the
ticket out of this mess.
We have decades of evidence to show that that strategy has
failed. Fundamentally, I think Commerce can do both, but we
need a culture shift.
Mr. Mast. I think that is an important term,
``fundamentally.'' And it takes me to what I really wanted to
ask about, and that is fundamental research as it relates to
what we are allowing China and others to learn. There is an old
saying, right, you give a man a fish, you feed him for a day;
you teach him to fish, you feed him for life.
And you could almost say that we are helping to grow them
and feed them for life with what we are doing, so for any of
you, I would love to hear analysis on what needs to be changed
with the fundamental research exception, what controls need to
be updated on that. Should companies on the entity list be able
to participate in fundamental research? Where are some of the
places that you have seen this play out in generating problems
for the United States of America? Maybe some other questions in
there. How big of a risk does the CCP penetration of university
research programs pose to the United States of America?
And if you all could touch on that, I think it would be
very worthwhile information for us to hear.
Ms. Nikakhtar. I am happy again to start on it, since I
have written about it in my testimony.
Mr. Mast. Let's let Mr. Coonen start a minute. We like to
share the wealth a little bit.
Mr. Coonen. Sir, I would--just jumping back to your other
question, I think it is important to note--to answer your
question of whether Commerce is focused on commercial interests
over national security interests. I think for an export control
system to be effective, it needs to be predictable. And so for
all of our partners and allies, I would suggest that we do have
a very predictable system in that they are able to get the
capabilities they need.
I think where that line starts to shift from a business
perspective to the national security, where we need to focus
more on the national security perspective, at least within BIS,
is when we start to talk about our adversaries. And there I
think they haven't made that shift. That has evolved over time
where initially we were more open and welcoming to the People's
Republic of China, but now there is--it is an obvious threat,
and it seems as though that mentality, that fundamental shift,
has not occurred yet for--to focus from a business perspective
to a more national security--to defend our national security
interest.
Thank you.
Mr. Mast. No. I appreciate that. Does anybody care to touch
on fundamental research and our universities?
Ms. Nikakhtar. So I will add that----
Mr. Mast. Ms. Nikakhtar, please?
Ms. Nikakhtar. Yes. I will add--our universities are--we
have got China's Thousand Talent programs. We have got similar
programs in other countries. The technology that is already
controlled isn't controlled when it is kind of called
fundamental research. You do some basic research, advanced
research from that, and then if you intend to publish, it
essentially falls out of the scope of controls.
Why not take every single thing on the Commerce Control
List right now and just tell the universities for foreign
countries of concern--we do not need to do it broadly--foreign
countries of concern, no more fundamental research exception.
Even if you intend to publish, you need to get a license from
BIS before you do that, or whatever entity ends up handling
export controls on dual use items.
Mr. Mast. I would love to ask more about that, but my time
has expired. I now recognize Ranking Member Crow for 5 minutes.
Mr. Crow. Thank you, Mr. Chairman. I just wanted to pick up
on this line of questioning about this theme that, you know,
Commerce Department is somehow ill-equipped to handle issues of
national security and kind of that general thrust.
You know, I sit on the Intelligence Committee. I have sat
on the Armed Services Committee. And what I see is a rapidly
evolving landscape where more and more of our defense
procurement and acquisition, and more and more of the new
technologies that are being fielded, are COTS, or commercial
off the shelf. That is kind of the future of a lot of defense
acquisition because it is cheaper; it is more rapidly fielded;
it is more attritable.
So, Mr. Wolf, I would like to just kind of hear from you
your views. You have been in BIS. You have been in private
practice. Your career has straddled both public and private for
many decades. What is your view as to that trend, and Commerce
Department, their ability to fully understand the national
security impact and balance those equities between private
innovation and commercial off-the-shelf technology, but also
the best interests of U.S. national security?
Mr. Wolf. Yes. The mission of BIS when I was there, when
Nazak was there, now, and before, is to advance and protect our
national security interests. I do not think there is any doubt
about that. It administers an interagency system involving
subject matter experts from Defense, State, Energy, and
occasionally others, to get input into both identifying what
the threats are and making decisions on individual
transactions.
With respect to the core point of your question, and as
Giovanna, you know, basically was alluding to, the national
security landscape and the national security objectives of
controls have evolved considerably. During the cold war, they
had a much broader strategic objective.
After the cold war, they became much more narrowly focused
on items that were more specific to non-proliferation
objectives, and they were focused through a regime-based system
of four multilateral organizations that identified items that
had a much more direct relationship to the development,
production, and use of weapons. And it was easier to tell the
difference between a civil and a commercial and a military
application in the earlier days.
All of those things have been evolving and change. The
national security threat landscape with respect to China has
become far more complicated, similarly, with respect to Russia
and other countries. Identifying specific types of items that
used to be the foundation of an export control system is not
always as effective when the underlying activity of concern is
with respect to a widely available commercial item.
Particularly, for example, on human rights abuses, use widely
available commercial items, and some of the modernization of
advanced military systems fundamentally depend upon things that
are widely available commercially and were created civilly.
And so that is why, as the title of this hearing indicates,
and the objective of the rules that came out in 2022, focus
much broader on broader strategic objectives and a greater use
of controls over activities of individual persons when the
underlying item is not controlled, and controls over
transactions with specific end users of concern.
And all of this added complexity, the novel technologies,
the greater number of countries involved, the more bilateral
relationships, the weaknesses of the regime system,
particularly since Russia is a member of three of the four and
has effectively a veto over progress in those, requires I think
fundamentally a new way of thinking about the way we work with
our allies and our allies realize a common security threat in
order to address the issues that we are all discussing today.
And that requires a lot more resources. It is far more
complex to do what I just described with a lot more time, a lot
more briefing papers, a lot more meetings, a lot more
analytical skills and technical skills than was the case in the
1990's when the current system was created. And I lay out the
details in my commentary about why I think radically more
resources are needed for BIS and their sister agencies.
Mr. Crow. Thank you, Mr. Wolf. In less than a minute, I
also wanted to take the opportunity and correct the record
regarding an earlier assertion about the nature of licenses and
exceptions to Huawei. There was a comment made that the Biden
Administration has somehow been weak in Huawei. But isn't it
true that it was actually the prior Administration that granted
licenses and exceptions at Huawei, and that since the Biden
Administration has come in they have actually tightened the
rules around Huawei?
Mr. Wolf. Yes. Historically, before Huawei, it was
generally a denial for listed entities, and I am unaware of any
approvals. When I was assistant secretary, there may have been
some, but I do not know of any. And Huawei was the first
principal case where there was a policy of granting licenses to
a listed entity, and that started in I think August or
September 2019, was formalized in August 2020, and there is a
Reuters article today, a story about a potential apparent plan
to change that August 2020 policy. So, yes.
Mr. Crow. Thank you. My time is out. I yield back.
Mr. Mast. Thank you, Ranking Member Crow.
The chair now recognizes Mr. Perry for 5 minutes.
Mr. Perry. Thank you, Mr. Chairman.
Ms. Nikakhtar, just under the China policy, corporations I
think if China--if the CCP demands it--are required to share
information with the party on technology. Is that correct?
Ms. Nikakhtar. That is absolutely correct.
Mr. Perry. Yes. So I think it is safe to say that the CCP
gets their hands on any technology they want, if it has come
from America, or anywhere else for that matter, into the hands
of a Chinese corporation. If they want it, they are getting it.
Ms. Nikakhtar. If it goes to a seemingly innocuous
corporation, the CCP will get its hands on it if it wants it.
Mr. Perry. So according to BIS's most recent data, fewer
than 1 percent--fewer than 1 percent of U.S. exports require a
license, and of that less than 1 percent, 98 percent of those
applications are approved. Is that close? Is that correct?
Ms. Nikakhtar. It is astounding. When you are looking at
this narrow subset of what is on the Commerce Control List, and
then--and you narrow it down with all the exemptions. You
narrow it down with what does not require a license.
And then within that you are looking at 90-plus percent
approval rate and very little denial rate for items that are
dual use, ``dual use'' meaning, yes, it has commercial
applications, but it also has military applications. Every item
on the Commerce Control List is dual use. That is what we are
licensing to an adversary that is threatening to harm the
United States and our allies.
Mr. Perry. So we are not really stopping any--I mean,
appreciably--it is less than 1 percent, right? It is--we are
not really stopping any technology in a meaningful sort of
getting into the CCP.
Now, entities on the entity list are typically subject to a
presumption of denial licensing policy. Do you think that BIS
is faithfully implementing that when it approves 98 percent of
license applications? Do you think they are following that, or
is there some reason that it--look, it sounds astounding to me.
What are we missing here?
Ms. Nikakhtar. I mean, it is pretty horrific that when you
look at the entity list you have--out of the approximately 473
Chinese companies on the entity list, if you take into account
the affiliates, 81 percent of them have licensing policies that
have a case-by-case license review mechanism, which for all
intents and purposes-minus a little bit of details--essentially
removes them from the entity list.
I mean, what are we doing? These guys are put on the entity
list and then get treatment from somebody that is not on the
entity list. It is absurd.
Mr. Perry. So I am looking at the two things here. You said
in your testimony that we need to move in big ways, but I do
not think--I was listening to see if you were going to
elaborate on that.
And then in your testimony you talk about BIS being more
transparent with the process I guess, so that we and the
American people can see how they are approving things. Can you
speak to the--if nothing else, the ``move in big ways''? We get
the transparency thing. Can you give us like two or three--what
are the big moves?
Ms. Nikakhtar. Yes. Absolutely. So, look, it is a really
low threshold to be on the entity list, right? And so we should
be designating many, many more companies. The fact that around
473 of the entire Chinese industry, Chinese military complex,
is absurd. We need to be designating more. Don't fear
litigation. Defend the actions of the right in the interest of
national security.
Also, we are not adequately designating subsidiaries and
affiliates. I have worked trade. I have the unique ability to
know everything in the trade laws--trade laws that have been
held by the highest courts of the country and are WTO
consistent. Why are we not applying those laws, those
regulations, that legal framework, to determining affiliation?
So a business that has close business ties with Huawei,
right, like a company like Honor, that in the trade world would
be deemed to be affiliated. We need to do the same for the
entity list. And BIS is going to complain about the burden. We
do not need BIS to designate every single affiliate. BIS issues
regulations that say its affiliates are now on the entity list.
Industry, do your own due diligence. And if you cannot do your
own due diligence, then do not export because the risk is too
high.
Mr. Perry. Okay. I am going to run out of time. Mr. Coonen,
at some point if you could comment on the presumption of denial
that you talked about, but I want to--I want to get Ms. Cinelli
right now.
CFIUS. In the 20 seconds I have left, broadly speaking, I
feel like it is just not--I feel like it is not efficient,
effective at all. Am I wrong or what needs to be done there, or
am I completely in the woods on that?
Ms. Cinelli. So I think I would call your question
insightful. Any regulatory construct has deficiencies in it.
Now, CFIUS--and I am going to tie it to the export laws because
through the Foreign Investment Risk Review Modernization Act of
2018 and ECRA, the Export Control Reform Act of 2018, for the
first time there was a direct tie, sir, between export controls
and CFIUS.
So, in one sense, it was designed to bring a national
security overview that would grant CFIUS additional reach into
different transactions, but at the same time it acted like
limitation. And what happens is these limitations come in,
Congress proposes through legislation objectives to be met, but
the executive branch is left with the interpretive capability
to assess how that is implemented.
And absent consistent oversight--and Congress is incredibly
busy and these are, as all my co-panelists have said, dense
regulations and incredibly complicated, it allows the
opportunity for too many things sometimes to slip through the
cracks.
And with CFIUS, just as with export controls, the systems
are set up to be porous. And that is why considering different
approaches sometimes to managing CFIUS and managing export
controls, to keep it proactive as well as reactive, becomes an
essential issue to continuously monitor.
Mr. Perry. Thank you for your indulgence, Chairman.
Mr. Mast. The chair now recognizes Ms. Titus for 5 minutes.
Ms. Titus. Thank you, Mr. Chairman. I would ask Ms.
Cinelli, I appreciate your impressive resume, which you have
told us about several times, but I think your results are
spurious when you talk about 98 percent being accepted. We know
that the regulations are long and in-depth, but we also know
that they are constantly being updated. They are published.
They--I am sorry?
Mr. Crow. Ms. Nikakhtar is----
Ms. Titus. Oh. I am sorry. I am looking at the right person
and saying the wrong name. Excuse me. I am looking at you. They
are constantly updated. They outline what items are available,
which ones are allowed, what end uses are allowed, which ones
are prohibited. So why would businesses take a lot of time,
money, effort, and personnel to apply for something when they
know it is not going to be approved? I do not think they do,
but that is my opinion of the research.
I would ask Mr. Wolf some questions. You say that there are
two things that we need to do, and you outline them in your
report. But I would like for you to talk about them a little
more here, and they are commonsense things, things--our
regulations aren't going to work very effectively if they are
just unilateral. We need to have more of a multilateral
approach.
We have seen a little of that with Japan and the
Netherlands. What about Australia? Could we--what can we do to
encourage other nations to have that approach with us?
Second, we need to put more resources into the effort. We
need more technical, analytical resources, because the world
has become more complex. How do we do that? Do we need to
designate perhaps an international coordinator, or someone that
has a higher level position to oversee this?
And then the third thing I would just ask is, what about--
we talk about a carrot and a stick. What about things like the
CHIP Act where we encourage development or manufacturing here,
but we put restrictions on it, so that we do not get into this
export problem that concerns our--both commercial and national
security interests?
Mr. Wolf. No. Great question. Thanks for the comments. And,
yes, it is generally the case. I am a practitioner. I help
people comply with the regulations. And when I tell them the
license isn't going to be granted because of the policy and the
regulations, they generally do not bother applying. It is not
worth the time.
Sometimes they do in order to get the denial for other
reasons, but that is why the statistics are like they are. It
is the same thing at the State Department where the vast
majority are approved. Same thing at CFIUS. The vast majority
are approved. People do not make submissions for outcomes they
know are going to be negative.
If you do not like the policy and the regulation of
approval, then focus on that. But the percentages aren't really
the way to think about it that way.
My principal advocacy with respect to making the rules more
effective is that the Congress should work closely with the
Administration at--working with the allies better to articulate
a significantly expanded vision for the role and purpose and
scope of export controls far beyond the more narrow, non-
proliferation focus of the post-cold war era.
And, in particular, I think that a coherent vision of
government coming together to say that export controls should
be used not only for items of classical non-proliferation
concerns but also for the broader strategic issues that we are
all discussing today, that there needs to be the authority in
each of the allies to impose controls outside of the regimes
and not limited to the post-cold war regimes, which each--three
of the four give Russia a veto, that there should be a
multilateral organization and structure, at least agreement
among the allies, to control items for human rights abuses.
That does not exist at all.
And the allies just, frankly, need help on capacity-
building on enforcement. The U.S. is largely unique in its
enforcement resources, and particularly with respect to Russia
to make the controls more effective. We need coordination and
cooperation of allies, and there needs to be much more
intragovernmental coordination between allied country licensing
and policy, as well as their enforcement resources.
With respect to Australia, I am a big advocate for
substantial changes to the international traffic in arms
regulations with respect to implementing AUKUS. There is
legislation out there--the TORPEDO Act, which I have read which
seems terrific, and it is basically what we tried to do when I
was in government with respect to the export control reform
effort in order to allow the government to spend more time
focusing on countries of concern, reduce the burden on trade by
and among and between close allies, so long as there were
sufficient protections in place. And AUKUS is the way to do it.
With respect to your somebody to focus on this, this is
incredibly complicated work working with the allies. Diplomacy
takes time and it is hard, and the allies have very different
views, depending upon the country and the agency about thinking
about export controls differently. And it requires a
significant amount of resources and expertise in State,
Commerce, the other agencies, to work with the allies to come
to what I believe requires a fundamentally new and expanded
thinking about the role of export controls.
And then my last comment is that there should be a specific
office within the Commerce Department to evaluate the
effectiveness and the impact of all these rules. The Treasury
Department has recently created an office to do this with
respect to sanctions, and surprisingly there isn't anything
like that at the Commerce Department.
And we would really--it is a lot of decisions based upon
gut and anecdote and partial data, but no major system to
collect data and organize it and analyze it to know the impact
and what more can be done.
So I have got a long list of recommendations and ideas, but
those are ones that I think are directly responsive to your
comments. Thank you for asking.
Ms. Titus. Thank you, Mr. Chairman.
Mr. Mast. Thank you, Ms. Titus.
The chair now recognizes Mr. Mills for 5 minutes.
Mr. Mills. Thank you, Mr. Chairman. I wanted to ask a
question. With the war in Ukraine, you are seeing the use of
U.S. technology being used in Iranian drones that has surfaced
as a major problem. And Russia is now using these Iranian
drones with deadly effect in Ukraine against the civilians.
How can we address the specific problem of low level
technology that is widely available being exported to Iran
through the use of drones? And I will start with you, Ms.
Nikakhtar.
Ms. Nikakhtar. One of the issues we have in the Export
Administration Regulations is this lack of a See-Through rule,
right? And so if you have technology that is embedded in
something else, and if it does not meet this de minimis
standard, then it really does not require a license. And that
is how a lot of the things that we are getting to China is
flowing to our adversaries.
Now, if items aren't controlled, right, we need to
potentially--it is a really great question. We need to
potentially really look at what that technology might be
capable of, even if it is not controlled. Of course advocate
for controls, and then really think about whether we want to
put policies in place specifically for China, knowing that
China has this massive--you all do not need me to tell you
this, but China has a massive history of diversion, right? A
diversion, where everything you send to it essentially goes to
some malign actor. You can bet on it.
So it is a broad solution. But depending on whether it is
controlled or not, we can legally impose restrictions on what
is going there.
Thank you.
Mr. Mills. Thank you so much. And, yes, I absolutely agree.
I mean, especially as we look at the geopolitical alliances
that have been forming over time with Russia, China, Iran, and
North Korea, knowing that they are sharing and utilizing
technology in an effort to launch an economic resource warfare,
not just kinetic, but utilizing different technologies in
advancement of this, to try and help with the economic
advancement and in some cases coercion of many of those to
advance the Belt and Road Initiative.
This same question--staying on topic--I would like to ask
you as well, Mr. Coonen.
Mr. Coonen. Yes, sir. I think another important element of
the problem that we have is China is probably one of their
major suppliers, in that the end use checks agreement that we
have between the U.S. and China is largely inadequate, if not
totally inadequate. We only have one export control officer to
do the verification.
So if we want to followup on any export to China after it
has been made--and it is unique to China as we--it is not like
this with any of our other trading partners. So they only have
one export control officer on mainland China to do any post-
shipment verification checks.
When I did a research paper on this for the Secretary of
Defense, they were averaging 55 checks per year. I think it has
even gone down because they were refusing them last year until
we put them on the unverified list and then moved them over to
the entity list, which was a good thing, but it just shows how
difficult that problem is.
So there is no mechanism in place to ultimately check where
the--who is the ultimate end user. So it invites diversion to--
internally within China or to North Korea or to--in the case
that you just offered, Iran.
Ms. Nikakhtar. May I add a point? It is----
Mr. Mills. Yes, please.
Ms. Nikakhtar [continuing]. A really important point, and I
want to tease it out, and something I want this committee to
know. The end use checks in China are authorized by MOFCOM.
When I was at the International Trade Administration at the
Commerce Department, it is MOFCOM who also allows our trade
checks to ensure compliance. MOFCOM allowed me to go into a
company for 3 weeks and unearth anything I could to make sure
that there was no trade violation.
And I can tell you that I still hold the record at the
Commerce Department for failing every Chinese company I ever
audited, because I always found the smoking gun, and none of
that was ever litigated.
But going back to the main point, MOFCOM restricts BIS's
end use checks. Half the day they can barely look at anything.
A MOFCOM official has to be there, and we are saying--and then
we were just talking about how much China is responsible for
diversion.
Mr. Wolf says we need to give BIS more money. Okay. Maybe I
can see some arguments for that having merit. But you give the
end use check people more money, there are not--how many people
do you think you can put in China, even if you had one person
at every single company, there is no way they could find all
the ways that China--and they are very sneaky--misuse and
divert and exploit our expert control rules.
So let's be pragmatic and realistic about this. No matter
how many people you put there, we are not going to catch what
they are doing.
Mr. Mills. And in my last 20-plus seconds, I want to stay
with you on this, Ms. Nikakhtar. The de minimis rule threshold
for China is 25 percent, substantially higher than the other
adversaries like Iran, North Korea, Cuba, and those I had
mentioned previously. What does that mean, and what should it
be?
Ms. Nikakhtar. It basically means that you can just--you
know, you take a gaming computer with exquisite semiconductor
chips, you send that to China, no license. China sends it to
Russia. They take all of it out, right? It is absurd. It is
absurd we are doing.
China is not like other countries, right? China is a
foreign adversary. We really need our rules to reflect that. I
would take it down. Like I said, I would also add the See-
Through rule. Look, I will be frank, I do not want to export
anything sensitive to China, or anything for that matter, to a
genocidal regime that is also threatening to harm the United
States and our allies.
Personally, I would take it all the way down to zero. I do
not want anything to get into China, any way, shape, or form.
Mr. Mills. You are definitely one of my favorite panelists
so far.
With that, I yield back, Mr. Chair.
Mr. Mast. Thank you, Mr. Mills.
The chair now recognizes Ms. Dean for 5 minutes.
Ms. Dean. Thank you, Chairman Mast and Ranking Member Crow.
And thank you to our witnesses for being here today and
testifying and offering us your expertise and your passion
around these issues.
I just want to backtrack a little on something that was
just discussed in terms of Russia deploying Iranian-made
unmanned aerial vehicles in Ukraine, discovered in September
2022.
Assistant Secretary Wolf, isn't it true that the Biden
Administration established a task force to investigate that,
and then I believe promulgated a rule to target Iran's supply
to Russia? Could you just confirm or tell me----
Mr. Wolf. Yes. Absolutely. So a couple of months ago a rule
was published using something called the Foreign Direct Product
Rule, foreign-made items made with U.S. technology or equipment
going into items destined to Iran or for use in a UAV for
Russia, even though not from the U.S. and not U.S. origin
content, are now subject to U.S. export controls as a result of
a new rule to address that exact point.
There is, you know, a massive increase in resources to
track down diversion and distributors and third parties
involved in chips and other items making their way into such
items, into Russia, and so--yes, I will stop there.
Ms. Dean. Thank you very much. I wanted to followup, Mr.
Wolf, on the ending of your testimony. And I read in your
testimony that you were surprised to see the BIS Fiscal Year
2024 budget for export control policy and enforcement efforts
remaining flat.
You go on to say, ``Everyone agrees that BIS and export
controls are central to strategic and classical national
security and foreign policy objectives. BIS's budget should
reflect that position and be equally serious.''
So what are some of the specific areas where you think BIS
could urgently use some additional funding, staffing, and
expertise?
Mr. Wolf. Thank you for noticing. So, you know, compliments
to the previous Administration for substantial increases in the
BIS budget, since when I was there I--I do not know the story
behind the budget. Just in reading it, I saw it is flat.
And for everybody calling for more activity and more
controls and more research and more analysts, there should be
an equally large number of people adding to the ranks of BIS
and to the other export control agencies. Defense Technology
Security Administration, State Department's ISN and DDTC, and
the Department of Energy's NNSA require equal attention as
well.
So you need more people doing data analytics. The rules are
far more complex and the diversion potential higher. You need
dramatically more enforcement resources to followup on leads
and track down and work with the allies with every new country
and every new bilateral issue, and this idea that I have about
substantially expanded ways of thinking to control items far
beyond the classical, multilateral regimes, that requires more
interaction, more diplomacy, more negotiation with the allies.
This is in addition to just governing and administering the
regular licensing system, so that things can move through as
quickly as possible within, you know, the needs of the various
agencies.
So I would basically sort of top of bottom I think the
demands on BIS now are radically and substantially different
than they were when I was there, and certainly in the 1990's
when the current system was established.
Ms. Dean. And do you----
Ms. Cinelli. Excuse me. May I make an observation?
Ms. Dean. Well, I just want to followup on that----
Ms. Cinelli. Oh, sorry.
Ms. Dean [continuing]. If you do not mind. Mr. Wolf, do you
have either a percentage that the budget should be increased or
a dollar figure? Any kind of an estimate?
Mr. Wolf. No. I am not smart enough at the inside baseball
of the current budgets, but, you know, at least a doubling. I
mean, some very radical, substantial increase, double,
quadruple. I mean, the volume of activity being run through BIS
and the significance of all of the issues everybody has
properly laid out today warrants, you know, dramatically larger
staff. And so at least a doubling of their current budget and
the resources and the people and the expertise to go along with
it.
Ms. Dean. I have another area of interest, but do you want
10 seconds to tell us what you wanted to ask?
Ms. Cinelli. Yes, 10 seconds. There is a common thread
here. The foundation for how the EAR is applied from all this
licensing enforcement is the classification system. So in
response to your question about resources, to the extent BIS
has authorities, there should be significant resources devoted
to the proper classification and the development of the
Commerce Control List.
Ms. Dean. I thank you for that.
And then very quickly, I am very concerned--I know the
world is concerned, frankly--about fentanyl, the precursors
coming from China. If you could shed any light, Mr. Wolf, in
the just 20 seconds I have remaining, on what is going on
there.
I met yesterday with Secretary Blinken. We now know that
the precursors are coming into Mexico, and of course cartels
and others are mixing them.
Mr. Wolf. It is a serious horrible issue. I am glad you are
focusing on it, but I am not the expert in how to address the
situation.
Ms. Dean. Anybody else? Ten seconds.
Ms. Nikakhtar. Yes. I mean, we have trading agreements with
Mexico. Mexico has to step up and do the enforcement it needs.
It is ridiculous that we have maintained open borders, but they
are not willing to do their part. It is absolutely--it is a
good question.
Ms. Dean. Well, I would push back on the open borders
piece, but thank you, you are right. We have to partner with
Mexico.
Ms. Nikakhtar. Trading. Trading borders, not people, right.
Ms. Dean. Thank you. I yield back.
Mr. Mast. Thank you, Ms. Dean.
The chair now recognizes my favorite green beret--I am just
kidding. He is not my favorite.
Mr. Waltz. Thank you, Mr. Chair.
Mr. Mast. Mr. Waltz from Florida.
Mr. Waltz. Yes. I just want to share some of the concerns
that we have heard on the committee that I think with our
current construct we are sitting kind of in the worst of both
worlds. Our allies are frustrated. I see actual promotional
advertising materials saying, ``Buy our stuff.'' It literally
says it may not be as good as the Americans, but you do not
have to deal with their export controls.
Then, on the other hand, we literally see our greatest
adversary, the PRC, rolling out item after item after item,
from drones to hypersonics--we can go down the list--that look
exactly like ours, and in some cases are performing better. So
we have a construct that is frustrating our allies and
enhancing our adversaries for all kinds of reasons.
I want to take my time, though, to drill down on the
operating committee. You know, we have talked a lot about
commerce today, but the Department of Defense has a say in
this. Energy and State have a say on this. And I find it
striking--and have throughout my career--that when the agencies
disagree, it elevates to the operating committee. And because
the Department of Commerce is both chair and a member, they
basically have the overwrite.
And so there is a lot of concern--and I share the concern--
that Commerce is overweighted in its power when it comes to
application determinations. And these are the very few that
actually even go to the operating committee--separate issue--
because of Commerce's position. And from--according to our
data, from 2017 to 2019, there was a 60 percent increase of
licensing decisions made by Commerce, as the chair of the
operating committee, without the consensus of the Department of
Defense, State, and Energy.
And then, furthermore, 10 percent of that, the chair made
its decision with the support of only one of the other
agencies. So I guess my question is, if we do not go to
necessarily default no, which I would not be opposed to, but if
we do not go to default no, I think we should go to default
consensus, and particularly if the Defense Department has
serious national security concerns.
So, Mr. Coonen, do you think that harmonization of the
sanctions lists--because we also have all kinds of different
lists that do not match, where the Defense Department can say,
``We have all of these concerns on these items'' or even these
companies, and then Commerce can say, ``Thank you very much,
but we are going to do it anyway.''
Do you think the harmonization of those lists across U.S.
agencies could help with these issues, and particularly with
PRC diversion of technology?
Mr. Coonen. Sir, I absolutely think that the harmonization
of those lists would help. I also think that the rules--BIS is
not doing anything that is not permitted in the rules, and so
those rules need to change. And that is why in my paper one of
the recommendations is to rebalance some of the authorities
with the other departments.
So, for example, with the Department of Defense, they
should have potentially a veto or a greater sway, if you will,
when it comes to items that are controlled for national
security resources or for anti-terrorism. And it is the same
for the Department of State. They should have more--a bigger
vote, if you will, when it comes to issues that--or for
technologies that are controlled for regional security reasons
or for some of the non-proliferation regimes.
Mr. Waltz. Ms. Nikakhtar, do you have anything to add
there?
Ms. Nikakhtar. One of my recommendations was it is
ridiculous that Commerce has an outside vote. These other
agencies have the expertise--the expertise--including the
equities, right, to weigh in.
I think that my recommendation was rather than it go to the
Assistant Secretary, who has--for licensing, who has an
imbalanced view of BIS but the Enforcement guys, like I said,
are pretty forward-leaning_that once it has escalated, the
Under Secretary who can represent both equities, gets a vote,
but then every agency gets a vote in the appeal process. And if
you need a tiebreaker, you go to the National Security Council.
Thank you.
Mr. Waltz. Thank you.
Ms. Cinelli, do you have anything? Okay. Great.
Mr. Chairman, I have legislation that I look forward to
marking up through this subcommittee and committee that would
do just that, and harmonizing these lists and hopefully really
getting our arms around this problem. We cannot--I sit on Armed
Services as well. We cannot spend--and science and technology--
$900 billion a year advancing into the most advanced
technologies in the world to watch it literally walk right out
the back door.
I look forward to this committee's support. Thank you. I
yield my time.
Mr. Mast. I thank the witnesses for their valuable
testimony and the members for their questions. I think we did
all get a great deal out of this. I thank the staff for their
research on this as well. I think there is a broad consensus
that there are gaps. There is different solutions on how to fix
those gaps and fill those holes, but certainly a broad
consensus that there are very serious issues for us to deal
with.
I look forward to marking up the legislation of Mr. Waltz
and any other ideas that members of the committee will have in
dealing--in addressing this issue.
Members of the subcommittee may have some additional
questions for the witnesses, and we will ask that you respond
to these additional questions in writing.
And in that, I now recognize Mr. Crow for any closing
remarks that you may have.
Mr. Crow. Thank you, Mr. Chairman. Appreciate you calling
this important hearing. And thank you to all the witnesses for
taking time out of your busy work schedules to have this
discussion with us, and to have a robust back and forth.
And I agree with you, Mr. Chairman, that I think we do all
share the same goal. That is, to balance American
competitiveness and make sure that American businesses are
robust and thriving, at the leading edge of technology, and we
protect their technology. And at the same time, we address our
adversaries' threats, particularly Russia and China, but also
others that pose that threat.
And we might disagree on how to get there, and some of the
steps, and like you said so well, where those gaps are and
maybe why they exist, but look forward to continuing that
discussion to figure out where we can find some common ground
and address it in the best interest of the United States and
our shared constituents.
So with that, I thank you again and yield back.
Mr. Mast. Pursuant to committee rules, all members may have
5 days to submit statements, questions, and extraneous
materials for the record, subject to the length limitations.
Without objection, the committee stands adjourned.
[Whereupon, at 3:20 p.m., the subcommittee was adjourned.]
APPENDIX
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